-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, TG02voKwzb5ucdLoQgrzmItHy/hnLqUwa6tFIjcues07qeMkXcTEkmi4IjCiTPGC 8bIT+RVhT59qxxzzJ8+IyQ== 0000950129-98-001298.txt : 19980331 0000950129-98-001298.hdr.sgml : 19980331 ACCESSION NUMBER: 0000950129-98-001298 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 20 CONFORMED PERIOD OF REPORT: 19971231 FILED AS OF DATE: 19980330 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: SERVICE CORPORATION INTERNATIONAL CENTRAL INDEX KEY: 0000089089 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-PERSONAL SERVICES [7200] IRS NUMBER: 741488375 STATE OF INCORPORATION: TX FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: SEC FILE NUMBER: 001-06402 FILM NUMBER: 98577286 BUSINESS ADDRESS: STREET 1: 1929 ALLEN PKWY STREET 2: P O BOX 130548 CITY: HOUSTON STATE: TX ZIP: 77219 BUSINESS PHONE: 7135225141 MAIL ADDRESS: STREET 1: P O BOX 130548 CITY: HOUSTON STATE: TX ZIP: 77219-0548 10-K 1 SERVICE CORPORATION INTERNATIONAL - 12/31/97 1 ================================================================================ SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 --------------------- FORM 10-K --------------------- [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE FISCAL YEAR ENDED DECEMBER 31, 1997 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 its charter) TEXAS 74-1488375 (State or other jurisdiction of (I.R.S. employer incorporation or organization) identification no.) 1929 ALLEN PARKWAY HOUSTON, TEXAS 77019 (Address of principal executive offices) (Zip code)
Registrant's telephone number, including area code: 713/522-5141 --------------------- SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
TITLE OF EACH CLASS NAME OF EACH EXCHANGE ON WHICH REGISTERED ------------------- ----------------------------------------- Common Stock ($1 par value) New York Stock Exchange Preferred Share Purchase Rights New York Stock Exchange
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT: NONE 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 (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [ ] Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [ ] The aggregate market value of the common stock held by non-affiliates of the registrant (assuming that the registrant's only affiliates are its officers and directors) is $10,632,528,700 based upon a closing market price of $42.50 on March 26, 1998 of a share of common stock as reported on the New York Stock Exchange -- Composite Transactions Tape. The number of shares outstanding of the registrant's common stock as of March 26, 1998 was 255,840,952 (excluding treasury shares). DOCUMENTS INCORPORATED BY REFERENCE Portions of the registrant's Proxy Statement in connection with its 1998 Annual Meeting of Shareholders (Part III) ================================================================================ 2 PART I ITEM 1. BUSINESS. Service Corporation International was incorporated in Texas on July 5, 1962. The term "Company" or "SCI" includes the registrant and its subsidiaries, unless the context indicates otherwise. The Company is the largest provider of death care services in the world. At December 31, 1997, the Company operated 3,127 funeral service locations, 392 cemeteries and 166 crematoria located in 17 countries on five continents. In addition, the Company provides capital financing to independent funeral home and cemetery operators. The Company has continued to expand through the acquisition of funeral service locations, cemeteries and crematoria, both domestically and internationally. In 1997, the Company acquired 294 funeral service locations, 51 cemeteries and 19 crematoria. The Company has acquired most of its present operations through acquisitions. For information regarding acquisitions, see Note 3 to the consolidated financial statements in Item 8 of this Form 10-K. For financial information about the Company's industry segments, including the identifiable assets of the Company by industry segments, see Note 14 to the consolidated financial statements in Item 8 of this Form 10-K. FUNERAL AND CEMETERY OPERATIONS The Funeral and Cemetery Operations consist of the Company's funeral service locations, cemeteries and related businesses. The operations are organized into two North American divisions covering the United States and Canada and an international division responsible for all operations in Europe, the Pacific Rim and South America. Each division is under the direction of divisional executive management with substantial industry experience. Local funeral service location and cemetery managers, under the direction of the divisional management, receive support and resources from SCI's headquarters in Houston, Texas and have substantial autonomy with respect to the manner in which services are conducted. 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, including the sharing of service personnel, vehicles, preparation services, clerical staff and certain building facility costs. Funeral Service Locations. The funeral service locations provide all professional services relating to funerals, including the use of funeral facilities and motor vehicles. Funeral service locations sell caskets, coffins, burial vaults, cremation receptacles, flowers and burial garments, and certain funeral service locations also operate crematoria. At December 31, 1997, the Company owned 147 funeral service location/cemetery combinations and operated 54 flower shops engaged principally in the design and sale of funeral floral arrangements. These flower shops provide floral arrangements to some of the Company's funeral homes and cemeteries. In addition to selling its services and products to client families at the time of need, the Company also sells prearranged funeral services in most of its service markets, including foreign markets. Funeral prearrangement is a means through which a customer contractually agrees to the terms of a funeral to be performed in the future. The funds collected from prearranged funeral contracts are generally held in trust, are used to purchase life insurance or annuity contracts from third party insurers or, with respect to French contracts, are held in the Company's French insurance subsidiary. This French insurance subsidiary sells prearranged funeral insurance contracts primarily in connection with the Company's French funeral service operations. Funds paid on prearranged funerals may not be withdrawn until the funeral is performed or until cancellation by the customer. At December 31, 1997, the Company's unfulfilled prearranged funeral contracts, including accumulated trust fund earnings and increased benefits on insurance products, amounted to $3.163 billion, of which $274 million is estimated to be fulfilled in 1998. The unfulfilled prearranged funeral 1 3 contracts at December 31, 1996 were $2.726 billion. For additional information concerning prearranged funeral activities, see Note 4 to the consolidated financial statements in Item 8 of this Form 10-K. The Company has multiple funeral service locations and cemeteries in a number of metropolitan areas. Within individual metropolitan areas, the funeral service locations and cemeteries operate under various names because most operations were acquired as existing businesses and generally continue to be operated under the same name as before acquisition. The death rate tends to be somewhat higher in the winter months and the Company's funeral service locations generally experience a higher volume of business during those months. Since 1984, the Company has operated under the Federal Trade Commission's ("FTC") comprehensive trade regulation rule for the funeral industry. The rule contains minimum guidelines for funeral industry practices, requires extensive price and other affirmative disclosures and imposes mandatory itemization of funeral goods and services. From time to time in connection with acquisitions, the Company has entered into consent orders with the FTC that have required the Company to dispose of certain operations to proceed with acquisitions or have limited the Company's ability to make acquisitions in specified areas. The trade regulation rule and the various consent orders have not had a materially adverse effect on the Company's operations. Cemeteries. The Company's cemeteries sell cemetery interment rights (including mausoleum spaces and lawn crypts) and certain merchandise including stone and bronze memorials and burial vaults. The Company's cemeteries also perform interment services and provide management and maintenance of cemetery grounds. Certain cemeteries also operate crematoria. Cemetery sales are often made on a preneed basis pursuant to installment contracts providing for monthly payments. A portion of the proceeds from cemetery sales is generally required by law to be paid into perpetual care trust funds. Earnings of perpetual care trust funds are used to defray the maintenance cost of cemeteries. In addition, all or a portion of the proceeds from the sale of preneed cemetery merchandise may be required by law to be paid into trust until the merchandise is purchased on behalf of the customer. For additional information regarding cemetery trust funds, see Notes 2 and 5 to the consolidated financial statements in Item 8 of this Form 10-K. Death Care Industry. The funeral industry is characterized by a large number of locally owned, independent operations. The Company believes that based on the total number of funeral services performed in 1997, the Company, including companies acquired by it, performed approximately 10%, 28%, 14% and 25% of the funeral services in North America, France, the United Kingdom and Australia, respectively. To compete successfully, the Company's funeral service locations must maintain competitive prices, attractive, well-maintained and conveniently located facilities, a good reputation and high professional standards. In addition, heritage and tradition can provide an established funeral home with the opportunity for repeat business from client families. Furthermore, an established firm can generate future volume and revenues by marketing prearranged funeral services. The cemetery industry is also characterized by a large number of locally owned independent operations. The Company's cemetery properties compete with other cemeteries in the same general area. To compete successfully, the Company's cemeteries must maintain competitive prices, attractive and well-maintained properties, a good reputation, an effective sales force and high professional standards. FINANCIAL SERVICES OPERATION Since 1988, the Company's wholly owned subsidiary, Provident Services, Inc. ("Provident"), has provided secured financing to independent funeral home and cemetery operators. The majority of Provident's loans are made to clients seeking to finance funeral home or cemetery acquisitions. Additionally, Provident provides construction loans for funeral home or cemetery improvement and expansion. Loan packages take traditional forms of secured financing comparable to arrangements offered by leading commercial banks. Provident's loans are generally made at interest rates which float with the prime lending rate. 2 4 At December 31, 1997, Provident had $199 million in loans outstanding and $50 million of unfunded loan commitments. At December 31, 1996, Provident had $146 million in loans outstanding and $55 million of unfunded loan commitments. Provident obtains its funds primarily from the Company's variable interest rate bank borrowings. Provident is in competition with banks and other lending institutions, many of which have substantially greater resources than Provident. However, Provident believes that its knowledge of the death care industry provides it with the ability to make more accurate assessments of funeral home and cemetery loans, thereby providing Provident a competitive advantage in making such loans. EMPLOYEES At December 31, 1997, the Company employed 24,072 (15,403 in the United States) persons on a full time basis and 12,120 (8,421 in the United States) persons on a part time basis. Of the full time employees, 23,430 were in the Funeral and Cemetery Operations, eight were in Financial Services and 634 were in corporate services. All of the Company's eligible United States employees who so elect are covered by the Company's group health and life insurance plans, and all eligible United States employees are participants in retirement plans of the Company or various subsidiaries. Although labor disputes are experienced from time to time, in general relations with employees are considered satisfactory. REGULATION The Company's various operations are subject to regulations, supervision and licensing under various federal, state, local and Australian, Canadian, French, United Kingdom and other foreign statutes, ordinances and regulations. The Company believes that it is in substantial compliance with the significant provisions of such statutes, ordinances and regulations. See discussion of FTC funeral industry trade regulation and consent orders in "Funeral Service Locations" above. The French funeral services industry is currently undergoing significant regulatory change. Historically, the French funeral services industry has been controlled, as provided by national legislation, either (i) directly by municipalities through municipality-operated funeral establishments ("Municipal Monopoly"), or (ii) indirectly by the remaining municipalities that have contracted for funeral service activities with third party providers, such as SCI's French operations ("Exclusive Municipal Authority"). Legislation has been passed that will generally end municipal control of the French funeral service business and will allow the public to choose their funeral service provider. Under such legislation, the Exclusive Municipal Authority was abolished in January 1996, and the Municipal Monopoly was eliminated in January 1998. Cemeteries in France, however, are and will continue to be controlled by municipalities and religious organizations, with third parties, such as SCI, providing cemetery merchandise such as markers and monuments. ITEM 2. PROPERTIES. The Company's executive headquarters are located at 1929 Allen Parkway, Houston, Texas 77019, in a 12-story office building. A wholly owned subsidiary of the Company owns an undivided one-half interest in the building and its parking garage. The property consists of approximately 1.3 acres, 250,000 square feet of office space in the building and 160,000 square feet of parking space in the garage. The Company leases all of the office space in the building pursuant to a lease that expires June 30, 2005 providing for monthly rent of $43,000 through July 2000 and $59,000 thereafter. The Company pays all operating expenses. One half of the rent is paid to the wholly owned subsidiary and the other half is paid to the owners of the remaining undivided one-half interest. The Company owns and utilizes a three-story building at 1919 Allen Parkway, Houston, Texas 77019 containing 43,000 square feet of office space. At December 31, 1997, the Company owned the real estate and buildings of 2,552 of its funeral service and cemetery locations and leased facilities in connection with 1,133 of such operations. In addition, the Company leased four aircraft pursuant to cancelable leases. At December 31, 1997, the Company operated 11,498 vehicles, of which 8,641 were owned and 2,857 were leased. For additional information regarding leases, see Note 10 to the consolidated financial statements in Item 8 of this Form 10-K. 3 5 The Company's 392 cemeteries contain an aggregate of approximately 30,677 acres, of which approximately 54% are developed. The specialized nature of the Company's businesses requires that its facilities be well-maintained and kept in good condition. Management believes that these standards are met. ITEM 3. LEGAL PROCEEDINGS. Although the Company is involved in legal proceedings, the Company does not believe that any of the proceedings is material pursuant to the standards set forth in Item 103 of Regulation S-K promulgated under the Securities Exchange Act of 1934. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. None. EXECUTIVE OFFICERS OF THE COMPANY Pursuant to General Instruction G to Form 10-K, the information regarding executive officers of the Company called for by Item 401 of Regulation S-K is hereby included in Part I of this report. The following table sets forth as of March 26, 1998 the name and age of each executive officer of the Company, the office held, and the date first elected an officer.
YEAR FIRST BECAME OFFICER NAME AGE POSITION OFFICER(1) ------------ --- -------- ---------- R. L. Waltrip........................ (67) Chairman of the Board and Chief Executive 1962 Officer L. William Heilbrodt................. (56) President and Chief Operating Officer 1988 W. Blair Waltrip..................... (43) Executive Vice President Operations 1980 Jerald L. Pullins.................... (56) Executive Vice President International 1992 Operations John W. Morrow, Jr. ................. (62) Executive Vice President Special Services 1989 George R. Champagne.................. (44) Senior Vice President Chief Financial Officer 1989 Glenn G. McMillen.................... (55) Senior Vice President Operations 1993 Richard T. Sells..................... (58) Senior Vice President Preneed Sales 1987 James M. Shelger..................... (48) Senior Vice President General Counsel 1987 and Secretary Jack L. Stoner....................... (52) Senior Vice President Administration 1992 T. Craig Benson...................... (36) Vice President International Operations 1990 Gregory L. Cauthen................... (40) Vice President Treasurer 1995 J. Daniel Garrison................... (46) Vice President International Operations 1998 W. Mark Hamilton..................... (33) Vice President Prearranged Funeral Services 1996 Lowell A. Kirkpatrick, Jr. .......... (39) Vice President Operations, Finance and 1994 Development Stephen M. Mack...................... (46) Vice President Corporate Operations 1998 Todd A. Matherne..................... (43) Vice President Operations, Finance 1996 and Development Vincent L. Visosky................... (50) Vice President Operational Controller 1989 Michael R. Webb...................... (40) Vice President International Corporate 1998 Development Henry M. Nelly, III.................. (53) President -- Provident Services, 1989 Inc., a subsidiary of the Company
- --------------- (1) Indicates the year a person was first elected as an officer although there were subsequent periods when certain persons ceased being officers of the Company. 4 6 Unless otherwise indicated below, the persons listed above have been executive officers or employees for more than five years. Mr. Matherne joined the Company in April 1995 as Managing Director Investor Relations and was promoted in May 1996 to Vice President Investor Relations and in February 1998 to Vice President Operations, Finance and Development. Prior thereto, Mr. Matherne was Vice President and General Manager of Baker Hughes Treatment Services, an environmental services business. Each officer of the Company is elected by the Board of Directors and holds his office until his successor is elected and qualified or until his earlier death, resignation or removal in the manner prescribed in the Bylaws of the Company. Each officer of a subsidiary of the Company is elected by the subsidiary's board of directors and holds his office until his successor is elected and qualified or until his earlier death, resignation or removal in the manner prescribed in the bylaws of the subsidiary. W. Blair Waltrip is a son of R. L. Waltrip, T. Craig Benson is a son-in-law of R. L. Waltrip and T. Craig Benson and W. Blair Waltrip are brothers-in-law. PART II ITEM 5. MARKET FOR THE COMPANY'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS. The Company's common stock has been traded on the New York Stock Exchange since May 14, 1974. On December 31, 1997, there were 7,720 holders of record of the Company's common stock. The Company has declared 99 consecutive quarterly dividends on its common stock since it began paying dividends in 1974. The dividend rate is currently $.09 per share per quarter, or an indicated annual rate of $.36 per share. For the three years ended December 31, 1997, dividends per share were $.30, $.24 and $.22, respectively. The table below shows the Company's quarterly high and low common stock prices:
YEARS ENDED DECEMBER 31, --------------------------------------------------- 1997 1996 1995 --------------- --------------- --------------- HIGH LOW HIGH LOW HIGH LOW ------ ------ ------ ------ ------ ------ First............................. $33.88 $26.88 $24.75 $19.44 $14.56 $13.13 Second............................ 36.00 29.63 30.13 24.13 15.81 13.44 Third............................. 35.75 29.81 29.44 27.63 19.75 15.19 Fourth............................ 38.00 27.88 30.75 26.50 22.00 18.81
SRV is the New York Stock Exchange ticker symbol for the common stock of the Company. Options in the Company's common stock are traded on the Philadelphia Stock Exchange under the symbol SRV. 5 7 ITEM 6. SELECTED FINANCIAL DATA.
YEARS ENDED DECEMBER 31, --------------------------------------------------------------- 1997 1996 1995 1994 1993 ----------- ---------- ---------- ---------- ---------- (IN THOUSANDS, EXCEPT PER SHARE AND RATIO AMOUNTS) Revenues........................ $ 2,468,402 $2,294,194 $1,652,126 $1,117,175 $ 899,178 Income before extraordinary loss and cumulative effect of change in accounting principle..................... 374,552 265,298 183,588 131,045 103,092 Net income...................... 333,750 265,298 183,588 131,045 101,061 Earnings per share**: Income before extraordinary loss and cumulative effect of change in accounting principle -- Basic.................... 1.53 1.13 .92 .76 .62 Diluted.................. 1.47 1.08 .86 .71 .59 Net income -- Basic.................... 1.36 1.13 .92 .76 .61 Diluted.................. 1.31 1.08 .86 .71 .58 Dividends per share............. .30 .24 .22 .21 .20 Total assets.................... 10,306,863 8,869,770 7,672,387 5,161,888 3,683,304 Long-term debt.................. 2,634,699 2,048,737 1,712,464 1,330,177 1,062,222 Convertible preferred securities of SCI Finance LLC............ -- 172,500 172,500 172,500 -- Stockholders' equity............ 2,726,004 2,235,317 1,975,345 1,196,622 884,513 Shares outstanding.............. 252,924 236,193 234,542 189,714 169,718 Ratio of earnings to fixed charges*...................... 4.29 3.24 2.84 3.13 3.19
- --------------- * For purposes of computing the ratio of earnings to fixed charges, earnings consist of income from continuing operations before income taxes, less undistributed income of equity investees which are less than 50% owned, plus the minority interest of majority-owned subsidiaries with fixed charges and plus fixed charges (excluding capitalized interest). Fixed charges consist of interest expense, whether capitalized or expensed, amortization of debt costs, dividends on preferred securities of SCI Finance LLC and one-third of rental expense which the Company considers representative of the interest factor in the rentals. ** Earnings per share amounts have been restated to reflect the December 1997 adoption of Statement of Financial Accounting Standards No. 128. 6 8 ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. (DOLLARS IN THOUSANDS, EXCEPT AVERAGE SALES PRICES AND PER SHARE DATA) A primary objective of the Company is to maximize shareholder value. To accomplish this goal, one of the Company's strategies has been to provide consistent growth in earnings per share. This growth strategy initiates with the Company producing significant cash flow from its existing cluster operations, then continues by using that cash to expand clusters through add-on acquisitions, new construction, and improvements to existing locations. The Company also expands its network through strategic acquisitions of larger, multi-location death care companies, typically funding these transactions by accessing the debt and equity markets when appropriate. All businesses are continuously improved by further enhancing products, services and systems; leveraging operating and overhead costs; strengthening buying power; and expanding preneed sales. The majority of the Company's funeral service locations and cemeteries are managed in groups called clusters. Clusters are established in and around 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 during fluctuations in the number of funeral services and cemetery interments performed in a given period. The Company's acquisitions are primarily located within existing cluster areas or create new cluster area opportunities. The Company has approximately 400 clusters, which range in size from two operations to 67 operations. There may be more than one cluster in a given metropolitan area, depending upon the level and degree of shared costs. RESULTS OF OPERATIONS: Year ended 1997 compared to 1996 Segment information for the Company's three lines of business was as follows:
YEARS ENDED DECEMBER 31, PERCENTAGE ----------------------------------------- INCREASE INCREASE 1997 1996 (DECREASE) (DECREASE) ----------- ----------- ---------- ---------- Revenues: Funeral............. $ 1,727,003 $ 1,663,387 $ 63,616 3.8% Cemetery............ 724,862 612,421 112,441 18.4 Financial services......... 16,537 18,386 (1,849) (10.1) ----------- ----------- -------- ----- 2,468,402 2,294,194 174,208 7.6 Costs and expenses: Funeral............. (1,318,920) (1,282,546) 36,374 2.8 Cemetery............ (452,965) (397,700) 55,265 13.9 Financial services......... (8,905) (9,496) (591) (6.2) ----------- ----------- -------- ----- (1,780,790) (1,689,742) 91,048 5.4 Gross profit margin and percentage: Funeral............. 408,083 23.6% 380,841 22.9% 27,242 7.2 Cemetery............ 271,897 37.5% 214,721 35.1% 57,176 26.6 Financial services......... 7,632 46.2% 8,890 48.4% (1,258) (14.2) ----------- ----- ----------- ----- -------- ----- $ 687,612 27.9% $ 604,452 26.3% $ 83,160 13.8% =========== ===== =========== ===== ======== =====
7 9 Funeral Funeral revenues were as follows:
YEARS ENDED DECEMBER 31, PERCENTAGE ------------------------- INCREASE INCREASE 1997 1996 (DECREASE) (DECREASE) ----------- ----------- ---------- ---------- Existing clusters: United States......................... $ 892,451 $ 820,860 $ 71,591 8.7% France................................ 485,264 537,079 (51,815) (9.6) Other European........................ 186,238 162,830 23,408 14.4 Other foreign......................... 114,389 115,707 (1,318) (1.1) ---------- ---------- -------- ---- 1,678,342 1,636,476 41,866 2.6 ---------- ---------- -------- ---- New clusters:* United States......................... 21,061 4,475 16,586 Other European........................ 16,378 2,847 13,531 Other foreign......................... 2,113 -- 2,113 ---------- ---------- -------- 39,552 7,322 32,230 ---------- ---------- -------- ---- Total clusters........................ 1,717,894 1,643,798 74,096 4.5 Non-cluster and disposed operations..... 9,109 19,589 (10,480) ---------- ---------- -------- ---- Total funeral revenues........ $1,727,003 $1,663,387 $ 63,616 3.8% ========== ========== ======== ====
- --------------- * Represents new geographic cluster areas entered into since the beginning of 1996 for the period that those businesses were owned by the Company. The $41,866 increase in revenues at existing clusters was the result of a 2.4% increase in the number of funeral services performed (515,733 compared to 503,476) and a slightly higher average sales price ($3,254 compared to $3,250). Acquisitions since January 1, 1996, included in existing clusters, accounted for $97,843 of the existing cluster revenue increase. Excluding a $68,138 decrease in French revenue caused exclusively by a change in the US dollar / French franc exchange rate, businesses owned before 1996 had a revenue increase of $12,161. The death rate in the Company's primary markets has remained relatively constant for several years and is expected to remain at this rate for at least the near future; however, due to the increasing proportion of people over age 65 in the Company's primary markets, demand for funeral services could increase in the decades to come. It is anticipated that the Company's near term revenue growth will continue to be primarily generated from acquired operations (added to existing clusters and the creation of new clusters) as well as from improved merchandising of funeral services and products. The Company is the world's largest in the funeral service industry and currently performs approximately 10%, 28%, 14% and 25% of the funeral services in North America, France, the United Kingdom and Australia, respectively. The Company believes that there are approximately 8,000 potential acquisition candidates in North America that meet its current metropolitan acquisition criteria and numerous other candidates outside of North America. The Company plans to continue to aggressively seek to acquire these potential candidates. During the year ended December 31, 1997, the Company sold (net of cancellations) approximately $509,000 of prearranged funeral services compared to approximately $512,000 for the same period in 1996. The obligations are funded through both trust funded and insurance backed contracts. These prearranged funeral services are deferred and will be reflected in funeral revenues in the periods that the funeral services are performed. The current emphasis on sales of prearranged funerals is expected to continue. 8 10 Funeral costs and expenses were as follows:
YEARS ENDED DECEMBER 31, PERCENTAGE ------------------------- INCREASE INCREASE 1997 1996 (DECREASE) (DECREASE) ----------- ----------- ---------- ---------- Existing clusters: United States......................... $ 581,633 $ 528,918 $ 52,715 10.0% France................................ 415,056 466,136 (51,080) (11.0) Other European........................ 144,513 123,517 20,996 17.0 Other foreign......................... 78,944 76,816 2,128 2.8 ---------- ---------- -------- ----- 1,220,146 1,195,387 24,759 2.1 ---------- ---------- -------- ----- New clusters:* United States......................... 15,805 3,192 12,613 Other European........................ 13,770 2,438 11,332 Other foreign......................... 1,753 -- 1,753 ---------- ---------- -------- ----- 31,328 5,630 25,698 ---------- ---------- -------- ----- Total clusters........................ 1,251,474 1,201,017 50,457 4.2 Non-cluster and disposed operations..... 12,730 19,209 (6,479) Administrative overhead................. 54,716 62,320 (7,604) (12.2) ---------- ---------- -------- ----- Total funeral costs and expenses.................... $1,318,920 $1,282,546 $ 36,374 2.8% ========== ========== ======== =====
The $24,759 increase in costs and expenses from existing clusters is primarily the result of the period to period increase in the number of funeral services performed. Acquisitions since January 1, 1996, included in existing clusters, accounted for $73,762 of the existing cluster cost increase. Excluding a $60,399 decrease in French costs caused exclusively by a change in the US dollar/French franc exchange rate, businesses owned before 1996 had a cost increase of $11,396. The gross profit margin before administrative overhead for existing clusters increased to 27.3% in 1997 from 27.0% in 1996. Typically, acquisitions will temporarily exhibit slightly lower gross profit margins than those experienced by the Company's existing locations at least until such time as these locations are assimilated into the Company's cluster management strategy. The overall funeral gross profit margin improved in 1997 to 23.6%, compared to 22.9% in 1996. Contributing to this period to period improvement were the Company's French operations which had a margin improvement to 11.0% from 9.8%. This margin percentage is consistent with the Company's expectations for these operations. Administrative overhead costs expressed as a percentage of total funeral revenues, decreased to 3.2%, compared to 3.7% in 1996. Cemetery Cemetery revenues were as follows:
YEARS ENDED DECEMBER 31, ------------------- PERCENTAGE 1997 1996 INCREASE INCREASE -------- -------- ---------- ---------- Existing clusters: United States............................ $637,136 $546,462 $ 90,674 16.6% Other European........................... 21,010 15,271 5,739 37.6 Other foreign............................ 49,024 46,155 2,869 6.2 -------- -------- -------- ----- 707,170 607,888 99,282 16.3 -------- -------- -------- ----- New clusters*.............................. 10,517 -- 10,517 -------- -------- -------- ----- Total clusters................... 717,687 607,888 109,799 18.1 Non-cluster and disposed operations........ 7,175 4,533 2,642 58.3 -------- -------- -------- ----- Total cemetery revenues.......... $724,862 $612,421 $112,441 18.4% ======== ======== ======== =====
9 11 Revenues from existing clusters increased $99,282. Included in the existing cluster increase were $49,935 in increased revenues from cemeteries acquired since the beginning of 1996, while revenues from existing cluster locations owned before 1996 increased $49,347 due primarily to increased preneed sales of property and merchandise, higher average sales prices for these items and higher investment earnings on trusted amounts. The Company plans to continue to emphasize the selling of preneed cemetery property and merchandise by maintaining an active and well-trained sales force. Additionally, future growth through acquisitions is considered likely. Cemetery costs and expenses were as follows:
YEARS ENDED DECEMBER 31, ------------------- PERCENTAGE 1997 1996 INCREASE INCREASE -------- -------- ---------- ---------- Existing clusters: United States............................ $365,437 $329,530 $35,907 10.9% Other European........................... 12,378 9,571 2,807 29.3 Other foreign............................ 26,875 25,288 1,587 6.3 -------- -------- ------- ---- 404,690 364,389 40,301 11.1 -------- -------- ------- ---- New clusters*.............................. 8,191 13 8,178 -------- -------- ------- ---- Total clusters................... 412,881 364,402 48,479 13.3 Non-cluster and disposed operations........ 4,681 3,913 768 19.6 Administrative overhead.................... 35,403 29,385 6,018 20.5 -------- -------- ------- ---- Total cemetery costs and expenses....................... $452,965 $397,700 $55,265 13.9% ======== ======== ======= ====
Costs and expenses at existing clusters increased $40,301 due primarily to an increase of $31,667 from cemeteries acquired since the beginning of 1996, while costs from existing cluster cemeteries acquired before 1996 increased $8,634. The overall cemetery gross profit margin increased to 37.5% in 1997 from 35.1% last year. This increase reflects strong growth in sales of preneed cemetery property and merchandise as well as continued cost control in all major expense categories. Administrative overhead costs have increased to 4.9% of revenues this year compared to 4.8% last year. Acquisitions typically have lower gross profit margins, at least until such time that they are assimilated into the Company's cluster management strategy and preneed selling programs are fully implemented. Financial Services The Company's wholly-owned finance subsidiary, Provident Services, Inc. ("Provident") reported gross profit of $7,632 for the year ended December 31, 1997, compared to $8,890 for the same period in 1996. Provident's average outstanding loan portfolio during the current year decreased to $182,375 compared to $190,936 in 1996, and the average interest rate spread also decreased to 3.18% compared to 3.64% in 1996. Other Income and Expenses Expressed as a percentage of revenues, general and administrative expenses decreased slightly to 2.7% in 1997 compared to 2.8% in 1996. These expenses increased $3,566 or 5.6% during the year primarily from increased personnel costs. Interest expense, which excludes the amount incurred by financial service operations, decreased $1,837 or 1.3% during the current year. The decreased interest expense reflects an approximately 130 basis point decrease in average interest rates on indebtedness offset by the Company's higher debt level in 1997. The decreased average interest rate is primarily attributable to the Company's 1997 refinancing of certain long-term debt and hedging programs associated with its international investments. During the first quarter of 1997, the Company sold its interest in Equity Corporation International ("ECI") producing a before tax gain of $68,100. Dividends on preferred securities of SCI Finance LLC were 10 12 $4,382 in 1997 compared to $10,781 in 1996, a decrease of $6,399 or 59.4%. This decrease is the result of the May 1997 redemption of all outstanding shares of its convertible preferred securities of SCI Finance LLC. The provision for income taxes reflects a 35.4% effective tax rate for 1997 as compared to a 35.9% effective tax rate in 1996. The decrease in the effective tax rate is due primarily to lower taxes from international operations (1997 included a tax benefit relating to enacted tax rate changes in certain foreign tax jurisdictions), partially offset by the tax impact from the gain on sale of the Company's interest in ECI which is reflected at the Company's higher domestic tax rate. RESULTS OF OPERATIONS: Year ended 1996 compared to 1995 Segment information for the Company's three lines of business was as follows:
YEARS ENDED DECEMBER 31, PERCENTAGE ----------------------------------------- INCREASE INCREASE 1996 1995 (DECREASE) (DECREASE) ----------- ----------- ---------- ---------- Revenues: Funeral............. $ 1,663,387 $ 1,166,247 $497,140 42.6% Cemetery............ 612,421 463,754 148,667 32.1 Financial services......... 18,386 22,125 (3,739) (16.9) ----------- ----------- -------- ----- 2,294,194 1,652,126 642,068 38.9 Costs and expenses: Funeral............. (1,282,546) (871,096) 411,450 47.2 Cemetery............ (397,700) (303,312) 94,388 31.1 Financial services......... (9,496) (12,497) (3,001) (24.0) ----------- ----------- -------- ----- (1,689,742) (1,186,905) 502,837 42.4 Gross profit margin and percentage: Funeral............. 380,841 22.9% 295,151 25.3% 85,690 29.0 Cemetery............ 214,721 35.1% 160,442 34.6% 54,279 33.8 Financial services......... 8,890 48.4% 9,628 43.5% (738) (7.7) ----------- ----- ----------- ----- -------- ----- $ 604,452 26.3% $ 465,221 28.2% $139,231 29.9% =========== ===== =========== ===== ======== =====
11 13 Funeral Funeral revenues were as follows:
YEARS ENDED DECEMBER 31, ------------------------- PERCENTAGE 1996 1995 INCREASE INCREASE ----------- ----------- ---------- ---------- Existing clusters: United States......................... $ 807,829 $ 730,053 $ 77,776 10.7% Other European........................ 141,969 130,849 11,120 8.5 Other foreign......................... 99,951 87,044 12,907 14.8 ---------- ---------- -------- ---- 1,049,749 947,946 101,803 10.7 ---------- ---------- -------- ---- New clusters:* United States......................... 25,203 10,999 14,204 Other European........................ 27,691 6,980 20,711 Other foreign......................... 15,450 4,278 11,172 France................................ 537,079 190,091 346,988 ---------- ---------- -------- 605,423 212,348 393,075 ---------- ---------- -------- ---- Total clusters................ 1,655,172 1,160,294 494,878 42.7 Non-cluster and disposed operations..... 8,215 5,953 2,262 ---------- ---------- -------- ---- Total funeral revenues........ $1,663,387 $1,166,247 $497,140 42.6% ========== ========== ======== ====
- --------------- * Represents new geographic cluster areas entered into since the beginning of 1995 for the period that those businesses were owned by the Company. The $101,803 increase in revenues at existing clusters was primarily the result of a 7.7% increase in North American funeral services performed at existing cluster locations (226,822 compared to 210,611) and a 3.0% higher average sales price ($3,745 compared to $3,635). Included in this increase were $79,290 in increased revenues from locations acquired since the beginning of 1995. The remaining existing cluster revenue increase of $22,513 was contributed by operations acquired before 1995. The 1995 results for France represent approximately four months of Company ownership. The increase in Other European new cluster revenue is primarily due to non-French European operations added in August 1995. During the year ended December 31, 1996, the Company sold (net of cancellations) approximately $512,000 of prearranged funeral services compared to approximately $367,000 for the same period in 1995. The obligations are funded through both trust funded and insurance backed contracts. These prearranged funeral services are deferred and will be reflected in funeral revenues in the periods that the funeral services are performed. 12 14 Funeral costs and expenses were as follows:
YEARS ENDED DECEMBER 31, ------------------------- PERCENTAGE 1996 1995 INCREASE INCREASE ------------ ---------- -------- ---------- Existing clusters: United States.......................... $ 520,864 $482,497 $ 38,367 8.0% Other European......................... 104,176 101,327 2,849 2.8 Other foreign.......................... 65,549 57,650 7,899 13.7 ---------- -------- -------- ---- 690,589 641,474 49,115 7.7 ---------- -------- -------- ---- New clusters:* United States.......................... 18,431 8,148 10,283 Other European......................... 24,978 6,986 17,992 Other foreign.......................... 10,855 3,396 7,459 France................................. 466,136 165,778 300,358 ---------- -------- -------- 520,400 184,308 336,092 ---------- -------- -------- ---- Total clusters................. 1,210,989 825,782 385,207 46.6 Non-cluster and disposed operations...... 9,237 7,582 1,655 Administrative overhead.................. 62,320 37,732 24,588 65.2 ---------- -------- -------- ---- Total funeral costs and expenses..................... $1,282,546 $871,096 $411,450 47.2% ========== ======== ======== ====
The total gross profit for existing clusters increased to $359,160 in 1996 from $306,472 in 1995, and the related gross profit percentage for existing clusters increased to 34.2% from 32.3% in 1995. Acquisitions since the beginning of 1995, included in existing clusters, accounted for $23,980 of the existing gross profit increase. The gross profit margin for those funeral operations in existing clusters that were acquired before 1995 increased to 35.0% in 1996 from 32.7% in 1995 due to the increased revenues discussed above without a corresponding percentage increase in personnel and other operating costs. Contributing to the overall funeral gross profit margin decline (22.9% compared to 25.3% in 1995) was the Company's French operations. French operations had an increased gross profit margin of 9.8% in 1996, compared to 9.4% in 1995, however 1996 reflects a full year's results compared to the four months of ownership in 1995. The French margin is consistent with the Company's expectations for these operations which have historically produced lower gross margins than the Company's operations in North America and Australia. Administrative overhead costs expressed as a percentage of revenues increased in 1996 to 3.7%, compared to 3.2% in 1995. This administrative overhead cost increase was primarily attributable to the addition of the French operations as well as the Company's realignment of its North American operating structure. 13 15 Cemetery Cemetery revenues were as follows:
YEARS ENDED DECEMBER 31, ------------------------ PERCENTAGE 1996 1995 INCREASE INCREASE ---------- ---------- -------- ---------- Existing clusters: United States......................... $506,330 $395,821 $110,509 27.9% Other European........................ 13,978 11,307 2,671 23.6 Other foreign......................... 46,485 39,979 6,506 16.3 -------- -------- -------- ---- 566,793 447,107 119,686 26.8 -------- -------- -------- ---- New clusters:* United States......................... 41,221 12,972 28,249 Other European........................ 1,307 796 511 -------- -------- -------- 42,528 13,768 28,760 -------- -------- -------- ---- Total clusters................ 609,321 460,875 148,446 32.2 Non-cluster and disposed operations..... 3,100 2,879 221 -------- -------- -------- ---- Total cemetery revenues....... $612,421 $463,754 $148,667 32.1% ======== ======== ======== ====
Revenues for existing clusters increased due to an increased volume of sales and higher average sales prices for property and merchandise. Included in the existing cluster increase were $82,470 in increased revenues from cemeteries acquired since the beginning of 1995. This increase was primarily due to the impact of reporting a full year's results from a large United States acquisition in October 1995. A majority of these properties were additions to existing clusters. The remaining existing cluster revenue increase of $37,216 was contributed by operations acquired before 1995. Cemetery costs and expenses were as follows:
YEARS ENDED DECEMBER 31, ------------------------ PERCENTAGE 1996 1995 INCREASE INCREASE ---------- ---------- -------- ---------- Existing clusters: United States......................... $304,732 $246,790 $ 57,942 23.5% Other European........................ 8,404 5,799 2,605 44.9 Other foreign......................... 25,322 20,227 5,095 25.2 -------- -------- -------- ---- 338,458 272,816 65,642 24.1 -------- -------- -------- ---- New clusters:* United States......................... 24,547 8,581 15,966 United Kingdom........................ 1,181 570 611 -------- -------- -------- 25,728 9,151 16,577 -------- -------- -------- ---- Total clusters................ 364,186 281,967 82,219 29.2 Non-cluster and disposed operations..... 4,129 3,509 620 Administrative overhead................. 29,385 17,836 11,549 64.8 -------- -------- -------- ---- Total cemetery costs and expenses.................... $397,700 $303,312 $ 94,388 31.1% ======== ======== ======== ====
Costs at existing clusters increased $65,642 due primarily to an increase of $48,864 from cemeteries acquired since the beginning of 1995, while costs from existing cluster cemeteries acquired before 1995 increased $16,796. The overall cemetery gross profit margin increased to 35.1% in 1996 from 34.6% in 1995. This increase reflects strong growth in sales of preneed cemetery property and merchandise as well as continued cost control in all major expense categories. Administrative overhead costs have increased to 4.8% of revenues in 1996 compared to 3.8% in 1995. This administrative overhead cost increase was primarily 14 16 attributable to increased costs from additional infrastructure added in the Company's United Kingdom operations as well as the Company's realignment of its North American operating structure. Financial Services Provident increased its gross margin percentage to 48.4% from 43.5%. This was primarily attributable to early termination fees associated with the payoff of outstanding loans in August 1996, by two of Provident's largest customers. These payoffs reduced the average outstanding loan portfolio during 1996 to approximately $191,000 with an average interest rate spread of 3.6% compared to approximately $206,000 and 3.7%, respectively, in 1995. Other Income and Expenses Expressed as a percentage of revenues, general and administrative expenses were 2.8% in 1996 compared to 3.2% in 1995. These expenses increased by approximately $9,600 or 17.9% during the year primarily due to the recognition of $6,000 in costs relating to the Loewen transaction (see below) as well as increases in personnel costs. On October 3, 1996, The Company filed a registration statement with the Securities and Exchange Commission ("Commission") that offered to acquire the outstanding shares of Loewen Group Inc. ("Loewen"), a publicly traded death care company, through an exchange offer. On January 7, 1997, the Company announced that it had withdrawn its exchange offer for Loewen. Interest expense, which excludes the amount incurred by financial service operations, increased $20,409 or 17.3% during 1996 primarily from incremental borrowings incurred to fund the Company's acquisition program. The 1996 increase is the result of an increase of approximately $296,875 in the Company's average debt (excluding debt related to Provident) outstanding during the year ended December 31, 1996, compared to 1995. The increased interest associated with the higher debt level was offset by a slightly lower average interest rate for the year. The provision for income taxes reflected a 35.9% effective tax rate for 1996 as compared to a 37.6% effective tax rate in 1995. The decrease in the effective tax rate is due primarily to lower taxes from international operations. FINANCIAL CONDITION AND LIQUIDITY AT DECEMBER 31, 1997: 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 Commission. The Company believes cash from operations, additional funds available under its revolving credit agreements, proceeds from public and private offerings of securities will be sufficient to continue its current acquisition program and operating policies. At December 31, 1997, the Company had net working capital of $275,966 and a current ratio of 1.52:1, compared to working capital of $106,497 and a current ratio of 1.18:1 at December 31, 1996. Revolving Credit Agreements The Company has various revolving credit facilities and lines of credit which currently provide for aggregate borrowings of approximately $1,140,000. At December 31, 1997, approximately $530,000 was available under these facilities. These facilities have financial compliance provisions that contain certain restrictions on levels of net worth, debt, liens and guarantees. 15 17 Sources and Uses of Cash Cash Flows from Operating Activities: Net cash provided by operating activities was $299,436 for the year ended December 31, 1997, compared to $209,857 for the same period in 1996, an increase of $89,579. This increase was primarily due to improved operating results in 1997. Significant uses of operating cash include an increase in net receivables resulting from increased sales of funeral services and cemetery products and merchandise. Cash Flows from Investing Activities: Net cash used in investing activities was $633,444 for the year ended December 31, 1997, compared to $480,126 for the same period in 1996, an increase of $153,318. This increase was primarily due to a $130,411 increase in cash used in acquisitions and $37,380 of increased capital expenditures including new construction of facilities and major improvements to existing properties. Cash used for capital expenditures was $230,532 during the year ended December 31, 1997. Additionally, the Company used approximately $88,000 to increase its investment in existing equity investees, while approximately $147,000 in cash was provided by the sale of the Company's interest in ECI. Cash used relating to prearranged funeral activities decreased due to the timing of cash payments to and withdrawals from trusts, offset by increased cash outlays on prearranged marketing efforts. Cash Flows from Financing Activities: Net cash provided by financing activities was $336,754 for the year ended December 31, 1997, compared to $256,916 for the same period in 1996, an increase of $79,838. As of December 31, 1997, the Company's debt to capitalization ratio was 49.8% compared to 47.3% at December 31, 1996. The interest rate coverage ratio for the year ended December 31, 1997 was 4.43:1 (excluding the gain on the sale of the Company's investment in ECI), compared to 3.62:1 for the same period in 1996. This interest rate coverage level has been relatively consistent, despite higher levels of debt outstanding, for several years. The Company believes that the acquisition of funeral and cemetery 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. 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. At December 31, 1997, the Company had approximately $530,000 of available borrowings under various revolving credit facilities and lines of credit. At December 31, 1997, the Company had the ability to issue $550,000 in securities registered with the Commission under a shelf registration (In March 1998, the company issued $500,000 of long-term notes under the shelf to repay borrowings under the company's credit facilities). In addition, 15,369,000 shares of common stock and a total of $201,000 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 has a marketing program to sell prearranged funeral contracts and the funds collected are generally held in trust or are used to purchase a life insurance or annuity contract. The principal amount of these 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 funded contracts also increase the amount of cash to be received upon performance of the funeral and are intended to cover future increases in the cost of providing a price guaranteed funeral service as well as any selling costs. During 1997, the Company completed a review of the prearranged trust investment process which included an asset/liability study. This has resulted in a new investment program which entails the consolidation of multiple trustees, the use of institutional managers with differing investment styles and consolidated performance monitoring and tracking. This new 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 16 18 maturity of the policies. The Company is currently reallocating the portfolio to achieve a new asset allocation of approximately 65% equity and 35% fixed income. Marketing costs incurred with the sale of prearranged funeral contracts are a current use of cash which is partially offset with cash retained, pursuant to state laws, from amounts trusted and certain commissions earned by the Company for sales of insurance products issued by third party insurers. The Company sells prearranged funerals in most of its service markets including its foreign markets. Auxia, the Company's French life insurance subsidiary, primarily sells insurance products used to fund prearranged funerals to be performed by the Company's French funeral service locations. 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 annually approximates 25% and is expected to grow, thereby making the total number of funerals performed more predictable. Cremations In recent years there has been steady, gradual growth in the number of cremations that have been chosen as an alternative to traditional methods of disposal of human remains. In 1997, nearly 33% of all families served by the Company's North American funeral service locations selected the cremation alternative, substantially more than the 20% national average according to industry studies. The Company has a significant number of operating locations in Florida and the west coast of North America where the cremation alternative continues to gain acceptance. Based on industry studies, the Company believes that cremations account for approximately 60-70% of all dispositions of human remains in Australia and the United Kingdom. It is estimated that cremations account for approximately 12% of all dispositions of human remains in France. Though a cremation typically results in fewer sales dollars than a traditional funeral service, the Company believes that funeral operations which are predominantly cremation businesses typically have higher gross profit margin percentages than those exhibited at traditional funeral operations. Cremation memorialization has long been a tradition in the Australian and United Kingdom markets. The Company has expanded its product alternatives in these markets which has resulted in higher average sales. The Company has also established markets in select areas within North America and believes that memorialization of cremated remains represents a source of revenue growth. Other Matters The Company will adopt Statement of Financial Accounting Standards ("FAS") No. 132 "Employers' Disclosures about Pensions and Other Postretirement Benefits", FAS No. 131 "Disclosures about Segments of an Enterprise and Related Information", and FAS No. 130 "Reporting Comprehensive Income" for the year ended December 31, 1998. FAS No. 132 revises disclosures about pension and other postretirement benefit plans, FAS No. 131 revises standards for reporting information about operating segments, and FAS No. 130 establishes standards for reporting and display of comprehensive income. The adoption of these disclosure standards will not have a material impact on the consolidated financial statements. Year 2000 Issue The "Year 2000" issue refers to the inability of certain computer programs to correctly differentiate the century from a date in which the year is represented by only two digits. A computer system which is not year 2000 compliant might not be able to process certain data or possibly cause the entire computer system to malfunction. The Company is currently assessing any potential impact that changing to the year 2000 will have on the computer programs that operate within the Company or are used by major vendors or service providers. Cautionary Statement on Forward-looking Statements The statements contained in this Annual Report that are not historical facts are forward-looking statements within the meaning of the private Securities Litigation Reform Act of 1995. These statements may 17 19 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. 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. Quantitative and Qualitative Disclosures about Market Risk The Company uses derivatives primarily in the form of interest rate swaps and cross-currency interest rate swaps in combination with local currency borrowings in order to manage its mix of fixed and floating rate debt and to substantially hedge the Company's net investment in foreign assets. Accordingly, movements in currency rates that impact the swaps are generally offset by a corresponding movement in the value of the underlying assets being hedged and movements in interest rates that impact the fair value of the interest rate swaps are generally offset by a corresponding movement in the value of the underlying debt being hedged. Similarly, currency movements that impact foreign interest expense due under the cross-currency interest rate swaps are generally offset by a corresponding movement in the earnings of the foreign operation. Fair values included herein have been determined based on market prices provided by counterparties. The information presented below should be read in conjunction with notes four, eight and nine to the consolidated financial statements. In general, interest rates are managed such that 40% to 60% of the total debt (excluding debt which offsets the Provident loan receivable portfolio) is floating rate and thus is sensitive to interest rate fluctuations. After giving effect to the interest rate swaps, the Company's total debt has been converted into approximately $1,078,000 of fixed interest rate debt at a weighted average rate of 7.0% and approximately $1,386,000 of floating interest rate debt at a weighted average rate of 5.5%. At December 31, 1997, a one percent increase in the various floating rate indices referenced in the debt and swaps (excluding amounts borrowed to issue loans by Provident) would cause a $13,860 net increase in interest expense. However, the Company's overall sensitivity to floating interest rates is diversified in that approximately 40% of the Company's floating rate exposure is based in four markets other than the United States. In general, the Company hedges up to 100% of its net investment in foreign assets when such investment is considered significant and when it is reasonably cost efficient to do so. The death care industries in countries where the Company has foreign operations are generally stable and have had predictable cash flows. In addition, those countries have not had highly inflationary economies. Approximately one-third of the Company's net assets and one-quarter of its operating income are denominated in foreign currencies. Due to the cross-currency hedges described above, approximately 6% of the Company's net assets and approximately 8% of the Company's operating earnings are subject to translation risk. 18 20 Equity-Price Risk Management In connection with prearranged funeral operations and preneed cemetery merchandise sales, the Company owns investments in equity securities and mutual funds which are sensitive to current market prices. Cost and market values as of December 31, 1997 and 1996, are presented in notes four and five to the consolidated financial statements. Market-Rate Sensitive Instruments and Risk Management The following discussion about the Company's risk-management activities includes "forward-looking statements" that involve risk and uncertainties. Actual results could differ materially from those projected in the forward-looking statements. The following table summarizes the financial instruments and derivative instruments held by the Company at December 31, 1997, which are sensitive to changes in interest rates, foreign exchange rates, and equity prices. The Company uses interest rate swaps and cross-currency interest rate swaps to manage these primary market exposures associated with underlying assets and liabilities. The Company uses these instruments to reduce risk by essentially creating offsetting market exposures. The instruments held by the Company are not leveraged and are held for non-speculative purposes. For certain assets and debt, the table below presents principal cash flows that exist by maturity date and the related average interest rate. For swaps, the table presents the notional amounts and expected interest rates that the Company will receive and pay that exist by contractual dates. The notional amount represents the foreign currency notional amount converted to US dollars at an estimated future currency exchange rate, and is used to calculate the contractual payments to be exchanged under the contract. The variable rates are estimated based on implied forward rates in the yield curve. 19 21
FAIR VALUE 1998 1999 2000 2001 2002 THEREAFTER ASSET/(LIABILITY) -------- --------- --------- --------- --------- ----------- ----------------- ASSETS - ----- Provident receivables....... $ 15,922 $ 22,528 $ 21,264 $ 52,917 $ 58,218 $ 27,072 $ 197,921 Average rate.............. 9.34% 7.58% 9.99% 9.96% 8.48% 8.67% Auxia debt securities....... 2,809 17,014 59,739 24,300 67,522 142,901 314,285 Average rate.............. 5.97% 5.97% 6.30% 6.82% 6.16% 6.16% LIABILITIES - -------- Fixed rate debt............. (64,570) (62,192) (193,285) (196,661) (328,456) (1,050,596) (2,016,511) Average rate.............. 7.78% 7.83% 6.80% 7.12% 7.09% 7.35% Floating rate debt Floating rate notes....... (200,000) (200,000) Bank revolving credit and commercial paper........ (416,139) (200,450) (616,589) Average rate.............. 5.97% 5.19% DERIVATIVE CONTRACTS - ----------------- INTEREST RATE SWAPS US fixed to US floating..... 950,000 950,000 950,000 800,000 500,000 500,000 30,951 Average receive rate...... 6.87% 6.87% 6.87% 6.93% 7.19% 7.19% Average pay rate.......... 5.74% 5.78% 5.95% 5.99% 6.06% 6.15% US floating to US fixed..... 200,000 200,000 200,000 200,000 200,000 200,000 783 Average receive rate...... 5.73% 5.77% 5.94% 5.99% 6.06% 6.15% Average pay rate.......... 5.72% 5.72% 5.72% 5.72% 5.72% 5.72% Foreign currency floating to foreign currency fixed.... 341,475 263,721 264,514 265,116 267,067 82,858 (20,085) Average receive rate...... 4.83% 5.03% 5.35% 5.55% 5.76% 6.51% Average pay rate.......... 6.60% 6.80% 6.80% 6.80% 6.79% 6.90% Foreign currency floating to foreign currency floating.................. 81,992 83,301 84,275 85,062 85,736 85,736 (1,479) Average receive rate...... 3.84% 4.12% 4.61% 4.93% 5.23% 5.42% Average pay rate.......... 4.03% 4.33% 4.81% 5.11% 5.41% 5.66% Foreign currency fixed to foreign currency floating.................. 82,325 83,639 84,617 85,408 86,084 86,084 3,036 Average receive rate...... 6.80% 6.80% 6.80% 6.80% 6.80% 6.80% Average pay rate.......... 4.03% 4.33% 4.81% 5.11% 5.41% 5.66% CROSS-CURRENCY INTEREST RATE SWAPS US fixed to foreign currency fixed..................... 702,391 682,268 532,955 506,191 407,039 407,039 83,237 Average receive rate...... 7.49% 7.43% 7.59% 7.52% 7.92% 7.92% Average pay rate.......... 7.38% 7.29% 7.29% 7.15% 7.61% 7.61% US fixed to foreign currency floating.................. 368,448 285,933 282,575 276,260 275,168 189,097 20,956 Average receive rate...... 6.69% 6.67% 6.63% 6.57% 6.54% 7.07% Average pay rate.......... 4.81% 4.90% 5.18% 5.36% 5.58% 6.14% US floating to foreign currency fixed............ 247,037 227,430 (40,619) Average receive rate...... 5.73% 5.77% Average pay rate.......... 5.39% 5.26% US floating to foreign currency floating......... 56,429 56,658 26,866 26,750 26,488 49,937 Average receive rate...... 5.73% 5.77% 5.94% 5.99% 6.06% Average pay rate.......... 5.18% 5.50% 6.13% 6.36% 6.67%
20 22 ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA. INDEX TO FINANCIAL STATEMENTS AND RELATED SCHEDULE
PAGE ---- Report of Independent Accountants........................... 22 Consolidated Statement of Income for the three years ended December 31, 1997......................................... 23 Consolidated Balance Sheet as of December 31, 1997 and 1996...................................................... 24 Consolidated Statement of Cash Flows for the three years ended December 31, 1997................................... 25 Consolidated Statement of Stockholders' Equity for the three years ended December 31, 1997............................. 26 Notes to Consolidated Financial Statements.................. 27 Financial Statement Schedule: II -- Valuation and Qualifying Accounts..................... 50
All other schedules have been omitted because the required information is not applicable or is not present in amounts sufficient to require submission or because the information required is included in the consolidated financial statements or the related notes thereto. 21 23 REPORT OF INDEPENDENT ACCOUNTANTS To the Stockholders and Board of Directors of Service Corporation International We have audited the accompanying consolidated balance sheet of Service Corporation International as of December 31, 1997 and 1996, and the related consolidated statements of income, stockholders' equity and cash flows for each of the three years in the period ended December 31, 1997. We have also audited the financial statement schedule for the three years ended December 31, 1997, listed in the index at item 8 of this Form 10-K. These financial statements and the financial statement schedule are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Service Corporation International as of December 31, 1997 and 1996, and the consolidated results of their operations and their cash flows for each of the three years in the period ended December 31, 1997, in conformity with generally accepted accounting principles. In addition, in our opinion, the financial statement schedule referred to above, when considered in relation to the basic financial statements taken as a whole, presents fairly, in all material respects, the information required to be included therein. COOPERS & LYBRAND L.L.P. Houston, Texas March 18, 1998 22 24 SERVICE CORPORATION INTERNATIONAL CONSOLIDATED STATEMENT OF INCOME
YEARS ENDED DECEMBER 31, -------------------------------------------------- 1997 1996 1995 -------------- -------------- -------------- (DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) Revenues............................................ $ 2,468,402 $ 2,294,194 $ 1,652,126 Costs and expenses.................................. (1,780,790) (1,689,742) (1,186,905) ----------- ----------- ----------- Gross profit........................................ 687,612 604,452 465,221 General and administrative expenses................. (66,781) (63,215) (53,600) ----------- ----------- ----------- Income from operations.............................. 620,831 541,237 411,621 Interest expense.................................... (136,720) (138,557) (118,148) Dividends on preferred securities of SCI Finance LLC............................................... (4,382) (10,781) (10,781) Other income........................................ 100,244 21,982 11,519 ----------- ----------- ----------- (40,858) (127,356) (117,410) ----------- ----------- ----------- Income before income taxes and extraordinary loss... 579,973 413,881 294,211 Provision for income taxes.......................... (205,421) (148,583) (110,623) ----------- ----------- ----------- Income before extraordinary loss.................... 374,552 265,298 183,588 Extraordinary loss on early extinguishment of debt (net of income taxes of $23,383).................. (40,802) -- -- ----------- ----------- ----------- Net income.......................................... $ 333,750 $ 265,298 $ 183,588 =========== =========== =========== Earnings per share: Basic: Income before extraordinary loss.................. $ 1.53 $ 1.13 $ .92 Extraordinary loss on early extinguishment of debt........................................... (0.17) -- -- ----------- ----------- ----------- Net income........................................ $ 1.36 $ 1.13 $ .92 =========== =========== =========== Diluted: Income before extraordinary loss.................. $ 1.47 $ 1.08 $ .86 Extraordinary loss on early extinguishment of debt........................................... (0.16) -- -- ----------- ----------- ----------- Net income........................................ $ 1.31 $ 1.08 $ .86 =========== =========== =========== Basic weighted average number of shares............. 245,470 235,299 199,603 =========== =========== =========== Diluted weighted average number of shares........... 257,781 252,870 229,967 =========== =========== ===========
(See notes to consolidated financial statements) 23 25 SERVICE CORPORATION INTERNATIONAL CONSOLIDATED BALANCE SHEET
DECEMBER 31, ------------------------------ 1997 1996 ------------- ------------- (DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) ASSETS Current assets: Cash and cash equivalents................................. $ 46,877 $ 44,131 Receivables, net of allowances............................ 557,481 494,576 Inventories............................................... 172,169 139,019 Other..................................................... 34,881 36,314 ----------- ----------- Total current assets.............................. 811,408 714,040 ----------- ----------- Investments -- insurance subsidiary......................... 574,728 601,565 Prearranged funeral contracts............................... 2,610,632 2,159,348 Long-term receivables....................................... 981,121 809,287 Cemetery property, at cost.................................. 1,636,859 1,380,213 Property, plant and equipment, at cost (net)................ 1,644,137 1,457,075 Deferred charges and other assets........................... 549,862 371,608 Names and reputations (net)................................. 1,498,116 1,376,634 ----------- ----------- $10,306,863 $ 8,869,770 =========== =========== LIABILITIES & STOCKHOLDERS' EQUITY Current liabilities: Accounts payable and accrued liabilities.................. $ 425,631 $ 440,797 Current maturities of long-term debt...................... 64,570 113,876 Income taxes.............................................. 45,241 52,870 ----------- ----------- Total current liabilities......................... 535,442 607,543 ----------- ----------- Long-term debt.............................................. 2,634,699 2,048,737 Deferred income taxes....................................... 701,221 527,460 Other liabilities........................................... 546,140 552,443 Deferred prearranged funeral contract revenues.............. 3,163,357 2,725,770 Commitments and contingencies............................... -- -- Company obligated, mandatorily redeemable, convertible preferred securities of SCI Finance LLC................... -- 172,500 Stockholders' equity: Common stock, $1 per share par value, 500,000,000 shares authorized, 252,923,784 and 236,193,427, respectively, issued and outstanding................................. 252,924 236,193 Capital in excess of par value............................ 1,493,246 1,237,783 Retained earnings......................................... 983,353 728,108 Foreign currency translation adjustment................... (7,480) 22,315 Unrealized gain on securities available for sale, net of tax.................................................... 3,961 10,918 ----------- ----------- Total stockholders' equity........................ 2,726,004 2,235,317 ----------- ----------- $10,306,863 $ 8,869,770 =========== ===========
(See notes to consolidated financial statements) 24 26 SERVICE CORPORATION INTERNATIONAL CONSOLIDATED STATEMENT OF CASH FLOWS
YEARS ENDED DECEMBER 31, --------------------------------------- 1997 1996 1995 ----------- ----------- --------- (DOLLARS IN THOUSANDS) Cash flows from operating activities: Net income......................................... $ 333,750 $ 265,298 $ 183,588 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization................... 157,550 129,819 92,541 Provision for deferred income taxes............. 19,212 56,902 45,164 Extraordinary loss on early extinguishment of debt, net of income taxes..................... 40,802 -- -- Gains from dispositions (net)................... (89,252) (9,930) (1,024) Change in assets and liabilities net of effects from acquisitions: (Increase) in receivables..................... (174,429) (167,338) (115,888) (Increase) in other assets.................... (24,904) (36,781) (36,496) Increase (decrease) in other liabilities...... 36,045 (26,365) 7,473 Other......................................... 662 (1,748) (3,860) ----------- ----------- --------- Net cash provided by operating activities............ 299,436 209,857 171,498 ----------- ----------- --------- Cash flows from investing activities: Capital expenditures............................... (230,532) (193,152) (125,231) Changes in prearranged funeral balances............ (5,537) (51,485) (44,549) Purchases of securities -- insurance subsidiary.... (1,407,588) (1,212,305) (86,014) Sales of securities -- insurance subsidiary........ 1,383,934 1,177,499 49,769 Proceeds from sales of property and equipment...... 46,908 30,121 12,655 Acquisitions, net of cash acquired................. (409,731) (279,320) (693,627) Loans issued by finance subsidiary................. (98,446) (86,858) (38,184) Principal payments received on loans by finance subsidiary...................................... 45,915 156,064 24,312 Proceeds from sale of equity investment............ 147,700 -- -- Purchases of equity investments.................... (87,643) (39,752) (16,076) Other.............................................. (18,424) 19,062 (8,190) ----------- ----------- --------- Net cash used in investing activities................ (633,444) (480,126) (925,135) ----------- ----------- --------- Cash flows from financing activities: Increase (decrease) in borrowings under revolving credit agreements............................... 304,505 96,441 (453,959) Long-term debt issued.............................. 650,000 300,000 862,848 Early extinguishment of debt....................... (449,998) -- -- Payments of debt................................... (91,464) (109,458) (135,960) Common stock issued................................ -- -- 331,063 Dividends paid..................................... (69,888) (55,262) (43,676) Bank overdrafts and other.......................... (6,401) 25,195 32,464 ----------- ----------- --------- Net cash provided by financing activities............ 336,754 256,916 592,780 ----------- ----------- --------- Net increase (decrease) in cash and cash equivalents........................................ 2,746 (13,353) (160,857) Cash and cash equivalents at beginning of period..... 44,131 57,484 218,341 ----------- ----------- --------- Cash and cash equivalents at end of period........... $ 46,877 $ 44,131 $ 57,484 =========== =========== =========
(See notes to consolidated financial statements) 25 27 SERVICE CORPORATION INTERNATIONAL CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
CAPITAL IN FOREIGN UNREALIZED COMMON EXCESS OF RETAINED CURRENCY GAIN STOCK PAR VALUE EARNINGS TRANSLATION ON SECURITIES -------- ---------- -------- ----------- ------------- (DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) Balance at December 31, 1994............... $189,714 $ 624,001 $381,509 $ 1,398 $ -- Add (deduct): Net income............................... 183,588 Common stock issued: Common stock offerings................ 18,350 312,713 Stock option exercises and stock grants.............................. 696 5,792 Acquisitions.......................... 7,310 101,967 Debenture conversions................. 18,472 170,235 Dividends on common stock ($.22 per share)................................ (46,535) Foreign currency translation............. 349 Net change in unrealized gain on securities............................ 5,786 -------- ---------- -------- ------- ------- Balance at December 31, 1995............... 234,542 1,214,708 518,562 1,747 5,786 Add (deduct): Net income............................... 265,298 Common Stock issued: Stock option exercises and stock grants.............................. 723 6,940 Acquisitions.......................... 811 15,012 796 Debenture conversions................. 117 1,123 Dividends on common stock ($.24 per share)................................ (56,548) Foreign currency translation............. 20,568 Net change in unrealized gain on securities............................ 5,132 -------- ---------- -------- ------- ------- Balance at December 31, 1996............... 236,193 1,237,783 728,108 22,315 10,918 Add (deduct): Net income............................... 333,750 Common Stock issued: Stock option exercises and stock grants.............................. 820 9,296 Acquisitions.......................... 3,958 79,215 (3,832) Debenture conversions................. 492 5,925 Conversion of convertible preferred securities of SCI Finance LLC......... 11,461 161,027 Dividends on common stock ($.30 per share)................................ (74,673) Foreign currency translation............. (29,795) Net change in unrealized gain on securities............................ (6,957) -------- ---------- -------- ------- ------- Balance at December 31, 1997............... $252,924 $1,493,246 $983,353 $(7,480) $ 3,961 ======== ========== ======== ======= =======
(See notes to consolidated financial statements) 26 28 SERVICE CORPORATION INTERNATIONAL NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) NOTE ONE NATURE OF OPERATIONS The Company is the largest provider of death care services in the world. At December 31, 1997, the Company operated 3,127 funeral service locations, 392 cemeteries and 166 crematoria located in 17 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 also operate crematoria. The Company's financial services operations consist of a finance subsidiary, Provident Services, Inc. ("Provident"). Provident provides capital financing to independent funeral home and cemetery operators. NOTE TWO SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Principles of Consolidation: The consolidated financial statements include the accounts of Service Corporation International and all majority-owned subsidiaries (the "Company"). Intercompany balances and transactions have been eliminated in consolidation. Certain reclassifications have been made to prior years to conform to current period presentation with no effect on the consolidated financial position, results of operations or cash flows. Cash Equivalents: The Company considers all highly liquid investments purchased with an original maturity of three months or less to be cash equivalents. Inventories and Cemetery Property: Funeral merchandise and cemetery property and merchandise, are stated at the lower of average cost or market. Depreciation and Amortization: Depreciation of property, plant and equipment is provided using the straight line method over the estimated useful lives of the various classes of assets. Property and plant are depreciated over a period ranging from seven to 50 years, while equipment is depreciated over a period from three to 20 years. For the three years ended December 31, 1997, depreciation expense was $87,571, $74,854 and $52,828, respectively. Maintenance and repairs are charged to expense whereas renewals and major replacements are capitalized. Prepaid management, consultative and non-competition agreements, primarily with former owners and key employees of businesses acquired are amortized on a straight-line basis over the lives of the respective contracts. Funeral Operations: Funeral revenue is recognized when the funeral service is performed. The Company's trade receivables consist primarily of funeral services already performed. An allowance for doubtful accounts has been provided based on historical experience. The Company sells price guaranteed prearranged funeral contracts through various programs providing for future funeral services at prices prevailing when the agreement is signed. Revenues associated with sales of prearranged funeral contracts (which include accumulated trust earnings and increasing insurance benefits) are deferred until such time that the funeral 27 29 SERVICE CORPORATION INTERNATIONAL NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) service is performed (see note four). The Company considers price guaranteed prearranged funeral contracts to be investments made to retain and expand future market share. Cemetery Operations: All cemetery interment right sales, together with associated merchandise, are recorded as income at the time contracts are signed. Costs related to the sales of interment rights include property and other costs related to cemetery development activities which are charged to operations using the specific identification method. Allowances for customer cancellations are provided at the date of sale based upon historical experience. Costs related to merchandise are based on actual costs incurred or estimates of future costs necessary to purchase the merchandise, including provisions for inflation when required. Pursuant to state law, all or a portion of the proceeds from the sale of cemetery merchandise may also be required to be paid into trust funds until such merchandise is purchased by the Company for the customer. Merchandise funds trusted at December 31, 1997 and 1996 were $515,051 and $390,534, respectively (see note five). The Company recognizes realized trust income on these merchandise trusts in current cemetery revenues as trust earnings accrue to defray inflation costs recognized related to the unpurchased cemetery merchandise. Additionally, a portion of the proceeds from the sale of cemetery property is required by state law to be paid into perpetual care trust funds. Earnings from these trusts are recognized in current cemetery revenues and are intended to defray cemetery maintenance costs, which are expensed as incurred. Perpetual care funds trusted at December 31, 1997 and 1996 were $371,984 and $318,868, respectively, which approximates fair value. The principal of such perpetual care trust funds generally cannot be withdrawn by the Company and therefore is not included in the consolidated balance sheet. For the three years ended December 31, 1997, the earnings recognized from all cemetery trusts were $74,971, $51,601 and $33,795, respectively. Names and Reputations: The excess of purchase price over the fair value of identifiable net assets acquired in transactions accounted for as a purchase are included in "Names and reputations" and generally amortized on a straight line basis over 40 years which, in the opinion of management, is not necessarily the maximum period benefited. Fair values determined at the date of acquisition are determined by management or independent appraisals. Many of the Company's acquired funeral service locations have been providing high quality service to client families for many years. Such loyalty often forms the basic valuation of the funeral business. Additionally, the death care industry has historically exhibited stable cash flows as well as a low failure rate. The Company monitors the recoverability of names and reputations based on projections of future undiscounted cash flows of the acquired businesses. The amortization charged against income was $37,649, $33,836 and $25,226 for the three years ended December 31, 1997, respectively. Accumulated amortization of names and reputations as of December 31, 1997 and 1996 was $136,398 and $101,426, respectively. Derivatives: Amounts to be paid or received under interest rate swaps, including the interest rate provisions of the cross-currency swaps, are recorded on the accrual basis over the life of the swap agreements as an adjustment to interest expense. The related net amounts payable to, or receivable from, the counterparties are included in accrued liabilities or current receivables, respectively. Gains and losses resulting from currency movements on the cross-currency swaps that hedge the Company's net foreign investments are reflected in stockholders' equity, with the related net amounts due to, or from, the counterparties included in other liabilities, or other assets, respectively. Net deferred gains and losses on early termination of interest rate swaps are being amortized into interest expense over the remaining lives of the original agreements ($394 net unamortized loss at December 31, 1997). 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. Actual results could differ from these estimates. 28 30 SERVICE CORPORATION INTERNATIONAL NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) NOTE THREE ACQUISITIONS The Company acquired certain funeral and cemetery operations both domestically and internationally during the years ended December 31, 1997 and 1996. The operating results of these acquisitions have been included since their respective dates of acquisition. The following table is a summary of the acquisitions made during the two years ended December 31, 1997:
1997 1996 -------- -------- Number acquired: Funeral service locations................................. 294 210 Cemeteries................................................ 51 35 Crematoria................................................ 19 9 Purchase price.............................................. $643,000 $362,651
The purchase price in both years consisted primarily of combinations of cash, Company common stock, issued and assumed debt. The effect of the above acquisitions on the consolidated balance sheet at December 31, was as follows:
1997 1996 --------- -------- Current assets.............................................. $ 38,569 $ 30,542 Prearranged funeral contracts............................... 86,452 61,994 Long-term receivables....................................... 31,522 (10,559) Cemetery property........................................... 298,466 210,507 Property, plant and equipment............................... 162,992 93,482 Deferred charges and other assets........................... 13,417 (1,244) Names and reputations....................................... 215,204 164,414 Current liabilities......................................... (67,464) (62,817) Long-term debt.............................................. (63,307) (32,532) Deferred income taxes and other liabilities................. (120,340) (85,635) Deferred prearranged funeral contract revenues.............. (106,439) (72,213) Stockholders' equity........................................ (79,341) (16,619) --------- -------- Cash used for acquisitions........................ $ 409,731 $279,320 ========= ========
NOTE FOUR PREARRANGED FUNERAL ACCOUNTING The Company sells price guaranteed prearranged funeral contracts through various programs providing for future funeral services at prices prevailing when the agreement is signed. Payments under these contracts are generally placed in trust (pursuant to state law) or are used to pay premiums on life insurance policies issued by third party insurers in North America, the United Kingdom and Australia or the Company's French prearranged funeral service life insurance subsidiary ("Auxia"). Unperformed price guaranteed prearranged funeral contracts are included in the consolidated balance sheet as "prearranged funeral contracts" or, in the case of contracts funded by Auxia, "investments-insurance subsidiary." A corresponding credit is recorded to "deferred prearranged funeral contract revenues." Allowances for customer cancellations are provided at the date of sale based on historical experience. Amounts paid by the customer pursuant to the prearranged funeral contracts are recognized in funeral revenue at the time the funeral is performed. Trust earnings and increasing insurance benefits are accrued and deferred until the service is 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. Included in 29 31 SERVICE CORPORATION INTERNATIONAL NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) deferred prearranged funeral contract revenues are net obtaining costs, including sales commissions and certain other direct marketing costs, applicable to prearranged funeral contracts which are deferred and will be expensed over a period representing the average life of the prearranged contract. PREARRANGED FUNERAL CONTRACTS At December 31, 1997, $1,201,141 relate to trust funded contracts (which includes $326,310 of amounts that have not yet been collected from customers) and $1,409,491 relate to third party insurance funded contracts which will be available to the Company at the time the funeral services are performed. At December 31, 1996, $962,389 related to trust funded contracts ($235,433 due from customers) and $1,196,959 relate to third party insurance funded contracts. These amounts are shown net of estimated customer cancellations. The allowance for cancellation is based on historical experience and is equivalent to approximately 8% of the total balance. Accumulated realized earnings from trust funds and increasing insurance benefits have been included to the extent that they have accrued through December 31, 1997. The cumulative trust funded total has been reduced by allowable cash withdrawals for realized trust earnings and amounts retained by the Company pursuant to various state laws. The cost and market value associated with the assets held in the trust funds underlying the Company's prearranged funeral contracts are as follows:
DECEMBER 31, 1997 DECEMBER 31, 1996 ---------------------- -------------------- COST MARKET COST MARKET -------- ---------- -------- -------- Debt securities: Government.......................... $333,626 $ 358,607 $245,736 $259,910 Corporate........................... 114,066 116,435 121,887 122,322 Equity securities..................... 411,489 461,016 164,630 208,082 Money market/other.................... 134,211 134,428 274,949 275,581 -------- ---------- -------- -------- $993,392 $1,070,486 $807,202 $865,895 ======== ========== ======== ========
INVESTMENTS -- INSURANCE SUBSIDIARY As part of the Company's funding of prearranged funeral contracts, Auxia invests in securities which are considered as "available-for-sale" with unrealized gains and losses excluded from earnings and reported net of income taxes in stockholders' equity. The cost, market value and unrealized gains or losses related to Auxia's debt and equity securities were as follows:
DECEMBER 31, 1997 DECEMBER 31, 1996 --------------------------------------- --------------------------------------- UNREALIZED UNREALIZED ----------------- ----------------- COST MARKET GAINS LOSSES COST MARKET GAINS LOSSES -------- -------- ------- ------- -------- -------- ------- ------- Debt securities: Foreign government...................... $292,991 $296,320 $ 3,503 $ (174) $220,256 $236,443 $16,187 $ -- Corporate............................... 17,883 17,965 95 (13) 210,235 210,428 385 (192) Equity securities......................... 141,512 162,129 23,640 (3,023) 96,157 96,735 6,166 (5,588) Mutual funds: Money market/other...................... 29,027 29,235 208 -- 27,749 27,942 193 -- Debt.................................... 53,276 53,276 -- -- 61,471 61,471 -- -- -------- -------- ------- ------- -------- -------- ------- ------- $534,689 $558,925 $27,446 $(3,210) $615,868 $633,019 $22,931 $(5,780) ======== ======== ======= ======= ======== ======== ======= =======
30 32 SERVICE CORPORATION INTERNATIONAL NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) The contractual maturities of Auxia's debt securities (at market value) as of December 31, 1997, were as follows: Within one year............................................. $ 2,809 After one year through five years........................... 168,575 After five years through ten years.......................... 107,303 After ten years............................................. 35,598 -------- $314,285 ========
The following table summarizes the activity in prearranged funeral contracts and investments-insurance subsidiary:
YEARS ENDED DECEMBER 31, ------------------------ 1997 1996 ---------- ---------- Beginning balance........................................... $2,760,913 $2,368,932 Net sales................................................. 490,297 503,150 Acquisitions.............................................. 86,452 61,994 Realized earnings and increasing insurance benefits....... 164,853 111,950 Maturities................................................ (250,134) (249,705) Increase in cancellation reserve.......................... (33,481) (25,962) Distributed earnings, effect of foreign currency and other.................................................. (33,540) (9,446) ---------- ---------- Ending balance.............................................. $3,185,360 $2,760,913 ========== ==========
DEFERRED PREARRANGED FUNERAL CONTRACT REVENUES "Deferred prearranged funeral contract revenues" on the consolidated balance sheet includes the contract amount of all price guaranteed prearranged funeral service contracts as well as the accrued trust earnings and increasing insurance benefits. Also included in deferred prearranged funeral contract revenues are net obtaining costs applicable to prearranged funeral contracts. The aggregate net costs deferred as of December 31, 1997 and 1996 were $190,595 and $151,008, respectively. The Company defers additional accruals of trust earnings and insurance benefits as they are earned until the performance of the funeral service. Upon performance of the funeral service, the Company recognizes the fixed contract price as well as total accumulated trust earnings and increasing insurance benefits as funeral revenues. The following table summarizes the activity in deferred prearranged funeral contract revenues:
YEARS ENDED DECEMBER 31, ------------------------ 1997 1996 ---------- ---------- Beginning balance........................................... $2,725,770 $2,362,053 Net sales................................................. 509,447 512,497 Acquisitions.............................................. 106,439 72,213 Realized earnings and increasing insurance benefits....... 164,853 111,950 Maturities................................................ (255,147) (252,603) Increase in cancellation reserve.......................... (33,481) (25,962) Deferred obtaining costs.................................. (67,742) (61,421) Effect of foreign currency and other...................... 13,218 7,043 ---------- ---------- Ending balance.............................................. $3,163,357 $2,725,770 ========== ==========
31 33 SERVICE CORPORATION INTERNATIONAL NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) The recognition of future funeral revenues is estimated to occur in the following years: 1998........................................................ $ 274,091 1999........................................................ 241,042 2000........................................................ 224,249 2001........................................................ 210,179 2002........................................................ 196,635 2003 through 2007........................................... 781,902 2008 and thereafter......................................... 1,235,259 ---------- $3,163,357 ==========
NOTE FIVE CEMETERY MERCHANDISE TRUST FUNDS The cost and market value associated with the assets held in the cemetery merchandise trust funds (included in current and long-term receivables, at cost) were as follows:
DECEMBER 31, 1997 DECEMBER 31, 1996 ------------------- ------------------- COST MARKET COST MARKET -------- -------- -------- -------- Debt securities: Government............................... $169,823 $172,440 $ 72,394 $ 72,101 Corporate................................ 64,474 65,468 35,060 34,560 Equity securities.......................... 227,424 230,931 71,239 75,297 Money market/other......................... 53,330 53,254 211,841 211,896 -------- -------- -------- -------- $515,051 $522,093 $390,534 $393,854 ======== ======== ======== ========
NOTE SIX INCOME TAXES The provision for income taxes includes United States income taxes, determined on a consolidated return basis, foreign and state and local income taxes. Income before income taxes:
YEARS ENDED DECEMBER 31, ------------------------------ 1997 1996 1995 -------- -------- -------- United States........................................ $474,478 $309,431 $257,318 Foreign.............................................. 105,495 104,450 36,893 -------- -------- -------- $579,973 $413,881 $294,211 ======== ======== ========
32 34 SERVICE CORPORATION INTERNATIONAL NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) Income tax expense (benefit) consisted of the following: Current: United States...................................... $157,450 $ 65,709 $ 43,396 Foreign............................................ 7,022 14,158 12,949 State and local.................................... 21,737 11,814 9,114 -------- -------- -------- 186,209 91,681 65,459 -------- -------- -------- Deferred: United States...................................... 15,045 45,330 39,767 Foreign............................................ 1,432 3,238 (1,498) State and local.................................... 2,735 8,334 6,895 -------- -------- -------- 19,212 56,902 45,164 -------- -------- -------- Total provision...................................... $205,421 $148,583 $110,623 ======== ======== ========
The Company made income tax payments of approximately $155,356, $99,377 and $65,859, for the three years ended December 31, 1997, respectively. The provision for income taxes for the year ended December 31, 1997, includes a decrease to deferred taxes of $5,491 related to enacted tax law changes in the United Kingdom and France. The differences between the U.S. federal statutory tax rate and the Company's effective rate were as follows:
YEARS ENDED DECEMBER 31, -------------------------------- 1997 1996 1995 -------- -------- -------- Computed tax provision at the applicable U.S. federal statutory income tax rate................ $202,991 $144,858 $102,974 State and local taxes, net of federal income tax benefits......................................... 15,906 13,097 10,406 Dividends received deduction and tax exempt interest......................................... (1,618) (2,108) (1,939) Amortization of names and reputations.............. 5,622 4,765 4,554 Enacted foreign tax rate change.................... (5,491) -- -- Foreign jurisdiction tax rate difference........... (12,909) (11,849) (5,309) Other.............................................. 920 (180) (63) -------- -------- -------- Provision for income taxes....................... $205,421 $148,583 $110,623 -------- -------- -------- Total effective tax rate........................... 35.4% 35.9% 37.6% ======== ======== ========
33 35 SERVICE CORPORATION INTERNATIONAL NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) The tax effects of temporary differences and carry-forwards that give rise to significant portions of deferred tax assets and liabilities consisted of the following:
DECEMBER 31, -------------------- 1997 1996 -------- -------- Receivables, principally due to sales of cemetery interment rights and related products............................... $186,900 $152,069 Inventories and cemetery property, principally due to purchase accounting adjustments........................... 460,592 383,687 Property, plant and equipment, principally due to depreciation and to purchase accounting adjustments....... 129,796 110,907 Other....................................................... 40,773 -- -------- -------- Deferred tax liabilities.................................... 818,061 646,663 -------- -------- Deferred revenue on prearranged funeral contracts, principally due to earnings from trust funds.............. (50,862) (34,092) Accrued liabilities......................................... (24,768) (38,337) Carry-forwards and foreign tax credits...................... (21,053) (7,484) Other....................................................... -- (4,367) -------- -------- Deferred tax assets......................................... (96,683) (84,280) -------- -------- Valuation allowance......................................... 15,327 6,128 -------- -------- Net deferred income taxes................................... $736,705 $568,511 ======== ========
During the three years ended December 31, 1997, tax expense resulting from allocating certain tax benefits directly to capital in excess of par value totaled $3,799, $2,410 and $1,165, respectively. Current refundable income taxes and foreign current deferred tax assets are included in other current assets, with current taxes payable and current deferred taxes being reflected as "Income taxes" on the consolidated balance sheet. At December 31, 1997 and 1996, United States income taxes had not been provided on $252,369 and $153,598, respectively, of undistributed earnings of foreign subsidiaries since it is the Company's intention to reinvest such earnings indefinitely. As of December 31, 1997 the Company has United States foreign tax credit carry-forwards of $5,311 which will expire in the years 2000 through 2002. Various subsidiaries have federal and state operating loss carry-forwards of $49,337 with expiration dates through 2012. The Company believes that some uncertainty exists with respect to future realization of these tax credit and loss carry-forwards, therefore a valuation allowance has been established for the carry-forwards not expected to be realized. The increase in the valuation allowance is primarily attributable to foreign tax credits and operating losses generated in the current year. 34 36 SERVICE CORPORATION INTERNATIONAL NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) NOTE SEVEN DEBT Debt was as follows:
DECEMBER 31, ------------------------ 1997 1996 ---------- ---------- Bank revolving credit agreements and commercial paper....... $ 616,589 $ 325,875 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.......................... 141,108 165,761 8.375% notes due in 2004.................................... 51,840 200,000 7.375% notes due in 2004.................................... 250,000 -- 7.2% notes due in 2006...................................... 150,000 150,000 6.875% notes due in 2007.................................... 150,000 150,000 6.95% amortizing notes due in 2010.......................... 58,859 61,576 7.70% notes due in 2009..................................... 200,000 -- Floating rate notes due in 2011 (putable in 1999)........... 200,000 -- 7.875% debentures due in 2013............................... 55,627 150,000 7.0% notes due in 2015 (putable in 2002).................... 300,000 300,000 Medium term notes, maturities through 2019, fixed average interest rate of 9.31%.................................... 35,720 186,040 Convertible debentures, interest rates range from 4.75% -- 5.5%, due through 2007, conversion price ranges from $11.25 -- $43.72..................................... 45,673 44,140 Mortgage and other notes payable with maturities through 2015, average interest rate of 7.05%...................... 156,931 151,836 Deferred loan costs......................................... (13,078) (22,615) ---------- ---------- Total debt.................................................. 2,699,269 2,162,613 Less current maturities..................................... (64,570) (113,876) ---------- ---------- Total long-term debt........................................ $2,634,699 $2,048,737 ========== ==========
The Company's primary revolving credit agreement provides for borrowings up to $1,000,000 and consists of two committed facilities -- a 364-day facility and 5-year, multi-currency facility -- which are primarily used to support commercial paper issuance and for general corporate needs. The 364-day portion allows for borrowings up to $300,000. This facility expires June 26, 1998, 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 2 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 0.06% is paid quarterly on the total commitment amount. The 5-year facility allows for borrowings up to $700,000, including $500,000 in various foreign currencies. This facility expires June 27, 2002. Interest rates are based on various indices as determined by the Company. A facility fee is paid quarterly on this facility's 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 December 31, 1997, there was $200,250 outstanding under this agreement at a weighted average interest rate of 5.19%. As of December 31, 1997, there was $320,889 of commercial paper outstanding backed by the above two facilities at a weighted average interest rate of 6.36%. 35 37 SERVICE CORPORATION INTERNATIONAL NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) The commercial paper borrowings and revolving notes generally have maturities ranging from one to 90 days. On October 3, 1997, Service Corporation International (Canada), ("SCIC"), a wholly owned subsidiary of the Company, entered into a 364-day, $105,000 revolving credit agreement. This facility is used primarily to support acquisition and working capital requirements of the Company's Canadian subsidiaries. The facility fee is currently set at 0.08%. At December 31, 1997, there was approximately $67,400 outstanding under this facility at an average interest rate of 4.6%. SCIC partially restructured its Canadian debt in March 1998, placing approximately $147,000 into a new facility, replacing the immediately above described facility. This new facility has a one year revolving period, and allows SCIC, at its option, to convert to a five year term loan. This new facility carries no facility fee. Interest rates are based on various indices as determined by SCIC. The indebtedness has a put feature allowing the lender to require the Company to purchase any outstanding indebtedness upon request. The Company has several other bank lines of credit for approximately $116,000 at rates similar to the primary revolving credit agreements. At December 31, 1997, there was approximately $30,600 outstanding under those agreements. The credit facilities described above have financial compliance provisions that contain certain restrictions on levels of net worth, debt, liens, and guarantees. The Company's outstanding commercial paper and other borrowings under its various credit facilities at December 31, 1997 are classified as long-term debt. The Company uses these revolving credit agreements primarily to finance the Company's ongoing acquisition programs. From time to time, the Company raises debt and/or equity in the public markets to reduce its revolving credit facility balances. The timing of these public debt or equity offerings is dependent on numerous factors including market conditions, long and short term interest rates, the Company's capitalization ratios and the outstanding balances under the revolving credit facilities. Therefore, the Company has classified these borrowings as long-term debt. Additionally, the Company has excluded these borrowings from the five-year maturity of long-term debt disclosure due to the uncertainty of the eventual term of the related debt. It is the Company's intent to refinance such borrowings through the use of its credit agreements or other long-term notes issued under a shelf registration filed with the Securities and Exchange Commission (Commission). During the first quarter of 1997, the Company initiated a tender offer for three issues of its higher coupon debt and repurchased approximately $386,000 of the three series, resulting in a $40,802 extraordinary loss, using commercial paper and its revolving credit facility. In April 1997, the Company refinanced these and other working capital borrowings by issuing $250,000 7.375% notes due April 2004, and $200,000 7.7% notes due April 2009, which were sold through an underwritten public offering as well as $200,000 of floating rate notes due April 2011 (putable to the Company in April 1999) through a private placement. In May 1996, the Company issued $300,000 of notes which were sold through an underwritten public offering. These notes were issued in two tranches of $150,000 each with maturities in June 2001 and 2006 and interest rates of 6.75% and 7.2%, respectively. The proceeds of this offering were primarily used to repay existing debt outstanding under the Company's revolving credit agreements. Approximately $80,000 of the Company's facilities and cemetery properties are pledged as collateral for the mortgage notes at December 31, 1997. At December 31, 1997, the Company had $40,169 in letters of credit outstanding primarily to guarantee funding of certain insurance claims. In March 1998, the Company issued $500,000 of notes in an underwritten offering pursuant to the Company's $1,000,000 shelf registration filed with the Commission. These notes mature in 2008 as to the 36 38 SERVICE CORPORATION INTERNATIONAL NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) $200,000 and 2020 as to the $300,000 and have initial interest rates of 6.5% and 6.3%, respectively. The $300,000 notes contain certain early tender dates. The aggregate principal payments on debt for the five years subsequent to December 31, 1997, excluding amounts due to banks under revolving credit loan agreements are: 1998-$64,570; 1999-$262,192; 2000-$193,285; 2001-$196,661 and 2002-$328,458. Cash interest payments for the three years ended December 31, 1997 totaled $162,521, $150,961 and $111,609, respectively. Approximately $1,832,000 of the Company's debt consists of foreign denominated debt of which approximately $1,504,000 was converted to foreign currencies as a result of the cross-currency swaps. Similarly, the stated coupons described above have substantially been modified through the use of interest rate and cross-currency interest rate swaps used in the management of interest rates within defined targets for fixed and floating interest rate exposure. See note eight below. During the three months ended December 31, 1997, pursuant to a shelf registration filed with the Commission to be used exclusively for future acquisitions, the Company guaranteed the following promissory notes issued through subsidiaries in connection with various acquisitions of operations:
SUBSIDIARY AMOUNT ---------- ------ SCI Funeral Services of NY, Inc. .......................... (475) SCI Indiana Funeral Services, Inc. ........................ (500) SCI Illinois Services, Inc. ............................... (400) SCI Michigan Funeral Services, Inc. ....................... (740) SCI Illinois Services, Inc. ............................... (400) SCI Michigan Funeral Services, Inc. ....................... (740) SCI Illinois Services, Inc. ............................... (2,486) SCI Texas Funeral Services, Inc. .......................... (678)
NOTE EIGHT DERIVATIVES The Company enters into derivatives primarily in the form of interest rate swaps and cross-currency interest rate swaps in combination with local currency borrowings in order 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 enters into transactions only 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. In general, cross-currency swaps convert US dollar debt into the respective foreign currency of the Company's various foreign operations. Such cross-currency swaps are used in combination with local currency borrowings to substantially hedge the Company's net investment in foreign operations. The cross-currency swaps generally include interest rate provisions to enable the Company to additionally hedge a portion of the earnings of its foreign operations. Accordingly, movements in currency rates that impact the swap are generally offset by a corresponding movement in the value of the underlying assets being hedged. Similarly, currency movements that impact foreign expense due under the cross-currency interest rate swaps are 37 39 SERVICE CORPORATION INTERNATIONAL NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) generally offset by a corresponding movement in the earnings of the foreign operation. The following tables present information about the Company's derivatives:
DECEMBER 31, 1997 ------------------------------------------------------------------- WEIGHTED AVERAGE CARRYING INTEREST RATE NOTIONAL AMOUNT ASSET ---------------- FAIR AMOUNT (LIABILITY) MATURITY RECEIVE PAY VALUE ---------- ------------ --------- ------- ------ -------- Interest Rate Swaps: US dollar fixed to US dollar floating.... $ 450,000 $ -- 2001-2002 6.53% 5.89% $ 4,392 US dollar fixed to US dollar floating.... 300,000 -- 2004-2006 7.02% 5.78% 14,295 US dollar fixed to US dollar floating.... 200,000 -- 2009 7.43% 5.76% 12,264 US dollar floating to US dollar fixed.... 200,000 -- 2004 5.81% 5.72% 783 Canadian dollar floating to Canadian dollar fixed........................... 78,138 -- 1999 2.64% 3.97% (4,024) Canadian dollar floating to Canadian dollar fixed........................... 38,456 -- 2007 1.41% 1.95% (1,927) Canadian dollar floating to Canadian dollar fixed effective 11/98........... 94,777 -- 2003 -- -- (5,559) Australian dollar floating to Australian dollar fixed........................... 42,270 -- 2006 5.91% 7.81% (3,672) French franc floating to German mark floating............................... 81,820 -- 2006 3.69% 3.99% (1,479) French franc fixed to German mark floating............................... 82,152 -- 2006 6.80% 5.38% 3,036 German mark floating to French franc fixed.................................. 82,152 -- 2003 5.38% 6.20% (4,903) Cross-Currency Interest Rate Swaps: US dollar fixed to French franc fixed.... 250,000 44,736 2000-2002 6.05% 5.89% 42,540 US dollar fixed to French franc fixed.... 150,000 26,722 2007 7.00% 6.93% 20,516 US dollar fixed to French franc floating............................... 100,000 13,183 2006 7.20% 3.93% 18,408 US dollar fixed to German mark floating............................... 100,000 17,861 2003 5.37% 3.25% 19,016 US dollar fixed to British pound fixed... 385,386 (23,509) 2002-2004 8.46% 8.43% 20,181 US dollar fixed to British pound floating............................... 28,222 (1,949) 2002 8.72% 7.94% (28,581) US dollar floating to Australian dollar fixed.................................. 132,296 11,526 1999-2000 5.91% 6.51% (36,676) US dollar floating to Australian dollar floating............................... 59,196 4,571 2000-2003 5.91% 5.07% 49,937 US dollar fixed to Canadian dollar floating............................... 100,000 5,223 2010 6.95% 4.83% 7,264 US dollar fixed to Canadian dollar floating............................... 81,727 3,589 1999 6.66% 3.94% 4,849 US dollar floating to French franc fixed.................................. 117,834 (4,189) 2000 5.88% 4.23% (3,943) ---------- -------- -------- $3,154,426 $ 97,764 $126,717 ========== ======== ========
DECEMBER 31, 1996 ------------------------------------------------------------------- WEIGHTED AVERAGE CARRYING INTEREST RATE NOTIONAL AMOUNT ASSET ---------------- FAIR AMOUNT (LIABILITY) MATURITY RECEIVE PAY VALUE ---------- ------------ --------- ------- ------ -------- Interest Rate Swaps: US dollar fixed to US dollar floating.... $ 525,000 $ -- 1999-2002 6.36% 5.57% $ (3,383) US dollar fixed to US dollar floating.... 50,000 -- 2006 6.50% 5.50% (744) Canadian dollar floating to Canadian dollar fixed........................... 40,134 -- 1999 2.94% 7.57% (3,096) Canadian dollar floating to Canadian dollar fixed (effective 11/98)......... 98,911 -- 2003 -- -- (984) Australian dollar floating to Australian dollar fixed (effective 12/97)......... 51,656 -- 2006 -- -- 745 French franc floating to German mark floating............................... 94,808 -- 2006 3.50% 3.47% (2,683) French franc fixed to German mark floating............................... 95,194 -- 2006 6.80% 5.10% (1,226) German mark floating to French franc fixed.................................. 95,194 -- 1998 5.10% 6.20% (193)
38 40 SERVICE CORPORATION INTERNATIONAL NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1996 ------------------------------------------------------------------- WEIGHTED AVERAGE CARRYING INTEREST RATE NOTIONAL AMOUNT ASSET ---------------- FAIR AMOUNT (LIABILITY) MATURITY RECEIVE PAY VALUE ---------- ------------ --------- ------- ------ -------- Cross-Currency Interest Rate Swaps: US dollar fixed to French franc fixed.... 350,000 16,972 2002-2003 6.20% 5.94% 466 US dollar fixed to French franc fixed.... 150,000 7,151 2007 7.00% 6.93% (4,317) US dollar fixed to French franc floating............................... 100,000 (599) 2006 7.20% 3.74% 2,686 US dollar fixed to British pound fixed... 405,109 (40,394) 2002-2004 8.47% 7.98% 21,816 US dollar fixed to British pound floating............................... 33,152 (3,477) 2002 8.72% 6.56% (37,755) US dollar floating to British pound floating............................... 76,375 (4,113) 1997 5.50% 6.30% (4,136) US dollar floating to Australian dollar fixed.................................. 67,568 (10,881) 1999-2000 5.63% 7.02% (54,636) US dollar floating to Australian dollar floating............................... 29,436 (5,531) 2000 5.63% 5.93% 38,604 US dollar fixed to Canadian dollar fixed.................................. 75,000 133 1999 6.66% 6.64% (2,463) US dollar fixed to Canadian dollar floating............................... 100,000 1,089 2010 6.95% 3.54% (2,939) ---------- -------- -------- $2,437,537 $(39,650) $(54,238) ========== ======== ========
At December 31, 1997, after giving consideration to the interest rate and cross-currency swaps, the Company's debt (excluding $150,000 of Provident debt) consists of approximately $1,078,000 of fixed interest rate debt at a weighted average rate of 7.00% and approximately $1,386,000 of floating interest rate debt at a weighted average rate of 5.50%. Additionally, approximately $1,832,000 of the Company's debt consists of foreign denominated debt. Interest rate swap settlements are generally semiannual and match the coupons of the underlying debt or related intercompany loan payments on the foreign operations being hedged. In addition, as of December 31, 1997, $566,594 of the interest rate swaps contain provisions which require termination of the swap or convert the swap to a new index if certain interest rate conditions are met. In the cross-currency swaps, the notional amounts are exchangeable in accordance with the terms of the swaps: at maturity for nonamortizing swaps or according to defined amortization tables. Maturities of notional amounts relating to derivative financial instruments held on December 31, 1997, are as follows: 1999- $183,280; 2000-$406,152; 2001-$150,000; 2002-$541,108; and thereafter -- $1,873,886. NOTE NINE CREDIT RISK AND FAIR VALUE OF FINANCIAL INSTRUMENTS The following disclosure of the estimated fair value of financial instruments has been determined by the Company using available market information and appropriate valuation methodologies. The carrying amounts of cash and cash equivalents, trade receivables and accounts payable approximate fair values due to the short-term maturities of these instruments. The carrying value of Provident's receivables approximates fair value as the majority of the loan portfolio carries market rates of interest. It is not practicable to estimate the fair value of receivables due on cemetery contracts or prearranged funeral contracts (other than cemetery merchandise trust funds and prearranged funeral trust funds, see notes four and five) without incurring excessive costs because of the large number of individual contracts with varying terms. The investments of the Company's insurance subsidiary are reported at fair value in the consolidated balance sheet. The Company has entered into various derivative financial instruments with major financial institutions to hedge fluctuation exposures in interest and foreign exchange rates (swap agreements). Fair values were obtained from 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. The net fair value of the Company's various swap agreements at December 31, 1997 is an asset of $126,717 (see note eight). At December 31, 1996, the net fair value was a liability of $54,238. The fair value 39 41 SERVICE CORPORATION INTERNATIONAL NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) of the Company's swap agreements may vary substantially with changes in interest and currency rates. The Company's credit exposure is limited to the sum of the fair value of positions that have become favorable to the Company and any accrued interest receivable due from counterparties. Potential credit exposure is dependent upon the maximum adverse impact of interest and currency movement. Such potential credit exposure is minimized by selection of counterparties from a limited group of high quality institutions and inclusion of certain contract provisions. Management believes that any credit exposure with respect to its favorable positions at December 31, 1997 is remote (see note eight). Fair value of debt was as follows:
DECEMBER 31, ------------------------ 1997 1996 ---------- ---------- Bank revolving credit agreements and commercial paper....... $ 616,589 $ 325,875 6.375% notes due in 2000.................................... 150,285 149,220 6.75% notes due in 2001..................................... 151,755 149,876 8.72% amortizing notes due in 2002.......................... 150,266 174,861 8.375% notes due in 2004.................................... 57,055 215,404 7.375% notes due in 2004.................................... 260,725 -- 7.2% notes due in 2006...................................... 155,730 150,087 6.875% notes due in 2007.................................... 152,265 146,154 6.95% notes due in 2010..................................... 60,336 60,388 7.70% notes due in 2009..................................... 214,980 -- Floating rate notes due in 2011 (putable in 1999)........... 200,000 -- 7.875% debentures due in 2013............................... 61,001 155,048 7.0% notes due in 2015 (putable in 2002).................... 336,840 307,938 Medium term notes, maturities through 2018, fixed average interest rate of 9.31%.................................... 43,636 214,178 Convertible debentures, interest rates range from 4.75% -- 5.5%, due through 2007, conversion price ranges from $11.25 -- $43.72..................................... 83,258 39,243 Mortgage and other notes payable with maturities through 2015, average interest rate of 7.05%...................... 138,379 154,720 ---------- ---------- Total debt........................................ $2,833,100 $2,242,992 ========== ==========
The fair value of the fixed rate long-term borrowings was estimated by discounting the future cash flows, including interest payments, using rates currently available for debt of similar terms and maturity, based on the Company's credit standing and other market factors. The carrying value of convertible securities has been estimated based on the respective shares of SCI common stock into which such securities may be converted. The carrying value of the Company's revolving credit agreements approximate fair value because the rates on such agreements are variable, based on current market conditions. Provident is a party to financial instruments with potential credit risk. The financial instruments result from loans made in the normal course of business to meet the financing needs of borrowers who are principally independent funeral home and cemetery operators. These financial instruments also include loan commitments of approximately $50,000 at December 31, 1997 ($55,017 at December 31, 1996) to extend credit. Provident's total loans outstanding at December 31, 1997 were approximately $199,000. Provident evaluates each borrower's creditworthiness and the amount loaned and collateral obtained, if any, is determined by this evaluation. The Company grants credit in the normal course of business and the credit risk with respect to these trade, cemetery and prearranged funeral receivables due from customers is generally considered minimal 40 42 SERVICE CORPORATION INTERNATIONAL NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) because of the wide dispersion of the customers served. Procedures are in effect to monitor the creditworthiness of customers and bad debts have not been significant in relation to the volume of revenues. Customer payments on prearranged funeral contracts that are placed in state regulated trusts or used to pay premiums on life insurance contracts generally do not subject the Company to collection risk. Insurance funded contracts are subject to supervision by state insurance departments and are protected in the majority of states by insurance guaranty acts. NOTE TEN COMMITMENTS The annual payments for operating leases (primarily for funeral home facilities and transportation equipment) are as follows: 1998........................................................ $62,462 1999........................................................ 44,340 2000........................................................ 32,928 2001........................................................ 24,517 2002........................................................ 19,481 Thereafter.................................................. 79,160
The majority of these operating leases contain one of the following options: (a) purchase the property at the fair value at date of exercise, (b) purchase the property for a value determined at the inception of the lease or (c) renew for the fair rental value at the end of the primary term of the lease. Some of the equipment leases contain residual value exposures. For the three years ended December 31, 1997, rental expense was $71,225, $64,073 and $47,848, respectively. The Company has entered into management, consultative and noncompetition agreements (generally for five to 10 years) with certain officers of the Company and former owners and key employees of businesses acquired. During the three years ended December 31, 1997, $68,667, $55,688 and $55,419, respectively, were charged to expense. At December 31, 1997, the maximum estimated future expense under all agreements with a remaining term in excess of one year is $321,265, including $11,477 with certain officers of the Company. The Company has a minimum purchase agreement with a major casket manufacturer for its North American operations. The agreement contains provisions to increase the minimum annual purchases for normal price increases and for the maintenance of product quality. The agreement expires in December 1998 and contains a remaining purchase commitment of $54,815. During the three years ended December 31, 1997, the Company purchased caskets for $57,574, $54,431 and $48,828, respectively, under this agreement. NOTE ELEVEN CONVERTIBLE PREFERRED SECURITIES OF SCI FINANCE LLC During 1997, the Company redeemed all the outstanding shares of its convertible preferred shares into 11,178,522 shares of Company common stock and cash. NOTE TWELVE STOCKHOLDERS' EQUITY The Company is authorized to issue 1,000,000 shares of preferred stock, $1 per share par value. No shares were issued as of December 31, 1997. At December 31, 1997, 500,000,000 common shares of $1 par value were authorized, 252,923,784 shares were issued and outstanding (236,193,427 at December 31, 1996), net of 66,373 shares held, at cost, in treasury (9,813 at December 31, 1996). 41 43 SERVICE CORPORATION INTERNATIONAL NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) The Company has benefit plans whereby shares of the Company's common stock may be issued pursuant to the exercise of stock options granted to officers and key employees. The plans allow for options to be granted as either non-qualified or incentive stock options. The options are granted with an exercise price equal to the then current market price of the Company's common stock. The options are generally exercisable at a rate of 33 1/3% each year unless, at the discretion of the Company's Compensation Committee of the Board of Directors, alternative vesting methods are allowed. At December 31, 1997, 15,668,000 options had been granted to officers and key employees of the Company which contain alternative vesting methods. Under the alternative vesting methods, partial or full accelerated vesting will occur when the price of Company common stock reaches pre-determined prices. If the pre-determined stock prices are not met in the required time period, the options will fully vest in periods ranging from seven to nine years from date of grant. At December 31, 1997 and 1996, 7,628,350 and 14,802,500 shares, respectively, were reserved for future option grants under all stock option plans. The following tables set forth certain stock option information:
WEIGHTED-AVERAGE OPTIONS EXERCISE PRICE ---------- ---------------- Outstanding at December 31, 1994......................... 10,374,052 $12.01 Granted................................................ 2,854,000 16.35 Exercised.............................................. (668,552) 7.53 Cancelled.............................................. (977,668) 12.81 ---------- ------ Outstanding at December 31, 1995......................... 11,581,832 13.27 ---------- ------ Granted................................................ 2,239,200 22.63 Exercised.............................................. (724,425) 8.82 Cancelled.............................................. (47,338) 20.45 ---------- ------ Outstanding at December 31, 1996......................... 13,049,269 15.09 ---------- ------ Granted................................................ 7,144,150 30.37 Exercised.............................................. (775,716) 12.51 Cancelled.............................................. (104,252) 22.85 ---------- ------ Outstanding at December 31, 1997......................... 19,313,451 $20.81 ---------- ------ Exercisable at December 31, 1997......................... 9,488,214 $14.07 ========== ====== Exercisable at December 31, 1996......................... 1,055,435 ========== Exercisable at December 31, 1995......................... 1,206,762 ==========
OPTIONS OUTSTANDING OPTIONS EXERCISABLE ------------------------------------------- ------------------------ WEIGHTED- WEIGHTED- WEIGHTED- NUMBER AVERAGE AVERAGE NUMBER AVERAGE RANGE OF OUTSTANDING REMAINING EXERCISE EXERCISABLE EXERCISE EXERCISE PRICE AT 12/31/97 CONTRACTUAL LIFE PRICE AT 12/31/97 PRICE - -------------- ------------ ---------------- --------- ------------ --------- $ 8.33- 9.41 272,004 1.7 $ 9.01 272,004 $ 9.01 12.88-18.38 9,827,954 9.0 13.83 8,334,298 13.34 20.09-29.59 4,756,993 4.6 25.64 881,912 22.60 31.56-33.31 4,456,500 3.5 31.76 -- -- ------------ ---------- --- ------ --------- ------ $ 8.33-33.31 19,313,451 6.5 $20.81 9,488,214 $14.07 ============ ========== === ====== ========= ======
The Company's 1996 Incentive Plan reserves 12,000,000 shares of common stock for future awards of stock options, restricted stock and other stock based awards to officers and key employees of the Company. The Company's 1996 Non-qualified Incentive Plan reserves 4,000,000 shares of common stock for future 42 44 SERVICE CORPORATION INTERNATIONAL NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) awards of nonqualified stock options to employees who are not officers of the Company. Under the Company's 1995 Stock Plan for Non-Employee Directors, non-employee directors automatically receive yearly awards of restricted stock through the year 2000. Each award is for 3,000 shares of common stock and vests after one year of service. For the three years ended December 31, 1997, 73,000, 49,600 and 128,600 shares of restricted stock were awarded at average fair values of $33.35, $25.76 and $14.60, respectively. The Board of Directors has adopted a preferred share purchase rights plan and has declared a dividend of one preferred share purchase right for each share of common stock outstanding. The rights become exercisable in the event of certain attempts to acquire 20% or more of the common stock of the Company and entitle the rights holders to purchase certain securities of the Company or the acquiring company. The rights, which are redeemable by the Company for $.01 per right, expire in July 1998 unless extended. The Company has adopted the disclosure-only provisions of FAS 123, "Accounting for Stock-Based Compensation," and applies Accounting Principles Board Opinion No. 25 and related interpretations in accounting for its plans. If the Company had elected to recognize compensation cost for its option plans based on the fair value at the grant dates for awards under those plans, consistent with the method prescribed by FAS 123, net income and earnings per share would have been changed to the pro forma amounts indicated below:
YEARS ENDED DECEMBER 31, ------------------------------ 1997 1996 1995 -------- -------- -------- Net income As reported........................................ $333,750 $265,298 $183,588 Pro forma.......................................... 315,733 252,929 181,285 Basic earnings per share As reported........................................ $ 1.36 $ 1.13 $ .92 Pro forma.......................................... 1.30 1.07 .91 Diluted earnings per share As reported........................................ $ 1.31 $ 1.08 $ .86 Pro forma.......................................... 1.25 1.03 .85
The fair value of the Company's stock options used to compute pro forma net income and earnings per share disclosures is the estimated present value at grant date using the Black-Scholes option-pricing model with the following weighted average assumptions for 1997, 1996 and 1995, respectively: dividend yield of 1%, 1% and 1%; expected volatility of 26.6%, 25.3% and 25.3%; a risk free interest rate of 6.5%, 6.8% and 5.8%; and an expected holding period of 8, 9 and 7 years. NOTE THIRTEEN RETIREMENT PLANS The Company has a noncontributory defined benefit pension plan covering substantially all United States employees, a supplemental retirement plan for certain current and former key employees (SERP), a supplemental retirement plan for officers and certain key employees (Senior SERP), and a retirement plan for non-employee directors (Directors' Plan). For the pension plan, retirement benefits are generally based on years of service and compensation. The Company annually contributes to the pension plan an actuarially determined amount consistent with the funding requirements of the Employee Retirement Income Security Act of 1974. Assets of the pension plan consist primarily of bank money market funds, fixed income investments, and marketable equity securities. The marketable equity securities include shares of Company common stock with a value of $12,141 at 43 45 SERVICE CORPORATION INTERNATIONAL NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) December 31, 1997. Most foreign employees are covered by various foreign government mandated or defined contribution plans which are adequately funded and are not considered material to the financial condition or results of operations of the Company. The plans' liabilities and their related costs are computed in accordance with the laws of the individual countries and appropriate actuarial practices. Retirement benefits under the SERP are based on years of service and average monthly compensation, reduced by benefits under the pension plan and Social Security. The Senior SERP provides retirement benefits based on years of service and position. The Directors' Plan will provide an annual benefit to directors following their retirement, based on a vesting schedule. The Company purchased various life insurance policies on the participants in the SERP, Senior SERP and Directors' Plan with the intent to use the proceeds or any cash value buildup from such policies to assist in funding, at least to the extent of such assets, the plans' funding requirements. The net cost for the four defined plans described above were as follows:
YEARS ENDED DECEMBER 31, ------------------------------ 1997 1996 1995 -------- -------- -------- Service cost -- benefits earned during the period.... $ 9,806 $ 8,550 $ 6,996 Interest cost on projected benefit obligation........ 10,033 9,400 9,114 Return on plan assets................................ (22,121) (13,341) (15,752) Net amortization and deferral of gain................ 15,838 9,747 12,189 -------- -------- -------- $ 13,556 $ 14,356 $ 12,547 ======== ======== ========
The plans' funded status were as follows:
DECEMBER 31, --------------------------------------------- 1997 1996 --------------------- --------------------- FUNDED NON-FUNDED FUNDED NON-FUNDED PLAN PLANS PLAN PLANS -------- ---------- -------- ---------- Vested benefit obligation................ $ 88,220 $ 38,388 $ 76,701 $ 40,130 ======== ======== ======== ======== Accumulated benefit obligation........... $ 92,767 $ 39,754 $ 80,228 $ 40,245 ======== ======== ======== ======== Projected benefit obligation............. $101,293 $ 39,840 $ 88,080 $ 40,280 Plans' assets at fair value.............. 125,166 -- 103,603 -- -------- -------- -------- -------- Plans' assets in excess (deficit) of projected benefit obligation........... 23,873 (39,840) 15,523 (40,280) Unrecognized net (gain) loss from past experience and effects of changes in assumptions............................ (5,539) 5,823 1,634 7,484 Prior service (benefit) cost not yet recognized in net periodic pension cost................................... (1,674) 8,364 (2,035) 10,749 -------- -------- -------- -------- Prepaid (accrued) pension cost........... 16,660 (25,653) 15,122 (22,047) Adjustment for additional minimum liability.............................. -- (14,101) -- (18,198) -------- -------- -------- -------- Retirement plan asset (liability)........ $ 16,660 $(39,754) $ 15,122 $(40,245) ======== ======== ======== ========
44 46 SERVICE CORPORATION INTERNATIONAL NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) The following assumed rates were used in the determination of the plans' funded status:
1997 1996 ------------------- ------------------- FUNDED NON-FUNDED FUNDED NON-FUNDED PLAN PLANS PLAN PLANS ------ ---------- ------ ---------- Discount rate used to determine obligations........... 7.25% 7.25% 7.5% 7.5% Assumed rate of compensation increase................. 5.5 5.5 5.5 5.5 Assumed rate of return on plan assets................. 9.0 -- 8.5 --
NOTE FOURTEEN MAJOR SEGMENTS OF BUSINESS The Company conducts funeral and cemetery operations in 17 countries and offers financial services in the United States.
FINANCIAL FUNERAL CEMETERY SERVICES CORPORATE CONSOLIDATED ---------- ---------- ---------- ---------- ------------ Revenues: 1997.............................. $1,727,003 $ 724,862 $ 16,537 $ -- $ 2,468,402 1996.............................. 1,663,387 612,421 18,386 -- 2,294,194 1995.............................. 1,166,247 463,754 22,125 -- 1,652,126 Income from operations: 1997.............................. $ 408,083 $ 271,897 $ 7,632 $ (66,781) $ 620,831 1996.............................. 380,841 214,721 8,890 (63,215) 541,237 1995.............................. 295,151 160,442 9,628 (53,600) 411,621 Identifiable assets: 1997.............................. $6,553,708 $3,309,431 $ 200,562 $ 243,162 $10,306,863 1996.............................. 5,905,246 2,638,775 148,193 177,556 8,869,770 1995.............................. 5,110,145 2,157,906 218,963 185,373 7,672,387 Depreciation and amortization: 1997.............................. $ 127,359 $ 21,611 $ 5 $ 8,575 $ 157,550 1996.............................. 103,696 18,601 9 7,513 129,819 1995.............................. 72,477 11,772 33 8,259 92,541 Capital expenditures:(1) 1997.............................. $ 273,191 $ 404,100 $ 2 $ 14,698 $ 691,991 1996.............................. 234,673 268,039 -- 11,582 514,294 1995.............................. 442,227 480,372 10 6,090 928,699 Number of operating locations at year end (unaudited): 1997.............................. 3,244 441 -- -- 3,685 1996.............................. 2,987 390 -- -- 3,377 1995.............................. 2,836 360 -- -- 3,196
- --------------- (1) Includes $461,459, $321,142 and $803,468 for the three years ended December 31, 1997, respectively, for purchases of property, plant, and equipment and cemetery property of acquired businesses. 45 47 SERVICE CORPORATION INTERNATIONAL NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) Geographic segment information was as follows:
UNITED OTHER OTHER STATES FRANCE EUROPEAN FOREIGN CONSOLIDATED ---------- ---------- ---------- -------- ------------ Revenues: 1997............................... $1,588,831 $ 485,264 $ 225,087 $169,220 $ 2,468,402 1996............................... 1,409,409 537,079 184,943 162,763 2,294,194 1995............................... 1,178,407 190,091 151,225 132,403 1,652,126 Income from operations: 1997............................... $ 471,237 $ 54,541 $ 44,747 $ 50,306 $ 620,831 1996............................... 400,622 52,204 37,376 51,035 541,237 1995............................... 314,698 18,743 34,214 43,966 411,621 Identifiable assets: 1997............................... $7,340,407 $1,171,877 $1,059,238 $735,341 $10,306,863 1996............................... 6,135,950 1,252,738 923,692 557,390 8,869,770 1995............................... 5,256,876 1,169,484 777,247 468,780 7,672,387 Number of operating locations at year end (unaudited): 1997............................... 1,574 1,101 712 298 3,685 1996............................... 1,441 1,056 631 249 3,377 1995............................... 1,274 1,067 618 237 3,196 Number of funerals (unaudited): 1997............................... 231,243 148,223 102,985 50,678 533,129 1996............................... 217,471 150,269 92,491 50,039 510,270 1995............................... 198,682 49,298 81,101 44,381 373,462
46 48 SERVICE CORPORATION INTERNATIONAL NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) NOTE FIFTEEN SUPPLEMENTARY INFORMATION The detail of certain balance sheet accounts was as follows:
DECEMBER 31, ---------------------- 1997 1996 ---------- -------- Cash and cash equivalents: Cash...................................................... $ 41,264 $ 41,344 Commercial paper and temporary investments................ 5,613 2,787 ---------- -------- $ 46,877 $ 44,131 ========== ======== Receivables and allowances: Current: Trade accounts......................................... $ 312,931 $273,696 Cemetery contracts..................................... 269,503 236,578 Loans and other........................................ 80,109 69,174 ---------- -------- 662,543 579,448 ---------- -------- Less: Allowance for contract cancellations and doubtful accounts............................................. 52,597 45,155 Unearned finance charges............................... 52,465 39,717 ---------- -------- 105,062 84,872 ---------- -------- $ 557,481 $494,576 ========== ======== Long-term: Cemetery contracts..................................... $ 387,566 $311,847 Trusted cemetery merchandise sales..................... 486,139 371,400 Loans and other........................................ 207,687 206,897 ---------- -------- 1,081,392 890,144 ---------- -------- Less: Allowance for contract cancellations and doubtful accounts............................................. 35,964 29,951 Unearned finance charges............................... 64,307 50,906 ---------- -------- 100,271 80,857 ---------- -------- $ 981,121 $809,287 ========== ========
47 49 SERVICE CORPORATION INTERNATIONAL NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) Interest rates on cemetery contracts and loans and other notes receivable range from 1.5% to 19.0% at December 31, 1997. Included in loans and other notes receivable are $16,049 in notes with officers and employees of the Company, the majority of which are collateralized by real estate, and $24,095 in notes with other related parties.
DECEMBER 31, ------------------------ 1997 1996 ---------- ---------- Cemetery property: Undeveloped land.......................................... $1,234,321 $1,003,961 Developed land, lawn crypts and mausoleums................ 402,538 376,252 ---------- ---------- $1,636,859 $1,380,213 ========== ========== Property, plant and equipment: Land...................................................... $ 422,877 $ 355,017 Buildings and improvements................................ 1,152,235 1,017,334 Operating equipment....................................... 413,108 358,577 Leasehold improvements.................................... 46,853 45,606 ---------- ---------- 2,035,073 1,776,534 ---------- ---------- Less: accumulated depreciation............................ (390,936) (319,459) ---------- ---------- $1,644,137 $1,457,075 ========== ========== Accounts payable and accrued liabilities: Trade payables............................................ $ 63,868 $ 68,912 Dividends................................................. 18,975 14,189 Payroll................................................... 70,957 78,233 Interest.................................................. 31,665 28,984 Insurance................................................. 41,799 33,263 Bank overdraft............................................ 29,977 48,312 Other..................................................... 168,390 168,904 ---------- ---------- $ 425,631 $ 440,797 ========== ==========
NON-CASH TRANSACTIONS
YEARS ENDED DECEMBER 31, ------------------------------- 1997 1996 1995 -------- ------- -------- Common stock issued under restricted stock plans.... $ 2,405 $ 1,278 $ 1,868 Minimum liability under retirement plans............ (4,097) (2,235) 4,213 Debenture conversions to common stock............... 6,417 1,240 188,707 Common stock issued in acquisitions................. 83,173 15,823 109,277 Debt issued in acquisitions......................... 21,325 26,467 114,609 Conversion of preferred securities of SCI Finance LLC............................................... 167,911 -- --
48 50 SERVICE CORPORATION INTERNATIONAL NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) NOTE SIXTEEN EARNINGS PER SHARE In 1997, the Company adopted the provisions of Statement of Financial Accounting Standards No. 128, "Earnings Per Share". All prior periods presented have been restated to conform to this new standard. A reconciliation of the numerators and denominators of the basic and diluted per share computations for income before extraordinary item follows:
YEARS ENDED DECEMBER 31, -------------------------------------- 1997 1996 1995 ---------- ---------- ---------- (THOUSANDS, EXCEPT PER SHARE AMOUNTS) Income (numerator): Income before extraordinary item -- basic........ $374,552 $265,298 $183,588 After tax interest on convertible debentures..... 4,611 8,031 13,384 -------- -------- -------- Income before extraordinary item -- diluted...... $379,163 $273,329 $196,972 ======== ======== ======== Shares (denominator): Shares -- basic.................................. 245,470 235,299 199,603 Stock options and warrants.................... 4,827 3,919 3,709 Convertible debentures........................ 2,212 2,187 15,190 Convertible preferred securities of SCI Finance LLC................................. 5,272 11,465 11,465 -------- -------- -------- Shares -- diluted................................ 257,781 252,870 229,967 ======== ======== ======== Earnings per share before extraordinary item: Basic............................................ $ 1.53 $ 1.13 $ .92 Diluted.......................................... $ 1.47 $ 1.08 $ .86 ======== ======== ========
NOTE SEVENTEEN QUARTERLY FINANCIAL DATA (UNAUDITED)
FIRST* SECOND THIRD FOURTH YEAR -------- -------- -------- -------- ---------- Revenues: 1997............................. $638,449 $601,141 $584,818 $643,994 $2,468,402 1996............................. 575,453 564,749 544,500 609,492 2,294,194 Gross profit: 1997............................. 188,152 163,183 151,772 184,505 687,612 1996............................. 160,168 144,063 131,378 168,843 604,452 Net income: 1997............................. 90,345 78,801 72,724 91,880 333,750 1996............................. 71,897 62,250 57,395 73,756 265,298 Basic earnings per share: 1997............................. .38 .33 .29 .36 1.36 1996............................. .31 .26 .25 .31 1.13 Diluted earnings per share: 1997............................. .36 .31 .28 .36 1.31 1996............................. .29 .25 .24 .30 1.08
- --------------- * The quarter ended March 31, 1997 includes (1) a $68,100 gain ($42,000 after tax) on the sale of the Company's interest in ECI and (2) a $40,802 extraordinary loss (net of tax) on the early extinguishment of debt. 49 51 SERVICE CORPORATION INTERNATIONAL SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS THREE YEARS ENDED DECEMBER 31, 1997
BALANCE AT CHARGED TO CHARGED TO BALANCE BEGINNING COSTS AND OTHER AT END DESCRIPTION OF PERIOD EXPENSES ACCOUNTS(2) DEDUCTIONS(1) OF PERIOD ----------- ---------- ---------- ----------- ------------- --------- (THOUSANDS) Current -- Allowance for contract cancellations and doubtful accounts: Year ended December 31, 1997.... $45,155 $23,400 $ 5,333 $(21,291) $ 52,597 Year ended December 31, 1996.... 34,147 14,187 6,638 (9,817) 45,155 Year ended December 31, 1995.... 20,156 8,853 10,904 (5,766) 34,147 Due After One Year -- Allowance for contract cancellations and doubtful accounts: Year ended December 31, 1997.... $29,951 $ 6,202 $ 1,123 $ (1,312) $ 35,964 Year ended December 31, 1996.... 23,298 3,072 3,581 -- 29,951 Year ended December 31, 1995.... 16,086 2,999 4,689 (476) 23,298
- --------------- (1) Uncollected receivables written off, net of recoveries. (2) Primarily acquisitions and dispositions of operations. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE. None. PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY. ITEM 11. EXECUTIVE COMPENSATION. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS. Information called for by PART III (Items 10, 11, 12 and 13) has been omitted as the Company intends to file with the Commission not later than 120 days after the close of its fiscal year a definitive Proxy Statement pursuant to Regulation 14A. Such information is set forth in such Proxy Statement (i) with respect to Item 10 under the captions "Election of Directors" and "Section 16(a) Beneficial Ownership Reporting Compliance", (ii) with respect to Items 11 and 13 under the captions "Certain Information with Respect to Officers and Directors", "Compensation Committee Interlocks and Insider Participation" and "Certain Transactions" and (iii) with respect to Item 12 under the caption "Voting Securities and Principal Holders." The information as specified in the preceding sentence is incorporated herein by reference. Notwithstanding anything set forth in this Form 10-K, the information under the caption "Compensation Committee Report on Executive Compensation" and under the captions "Overview of Executive Compensation" and "Performance Graph" in such Proxy Statement are not incorporated by reference into this Form 10-K. The information regarding the Company's executive officers called for by Item 401 of Regulation S-K has been included in PART I of this report. 50 52 PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K. (a)(1)-(2) Financial Statements and Schedule: The financial statements and schedule are listed in the accompanying Index to Financial Statements and Related Schedule on page 21 of this report. (3) Exhibits: The exhibits listed on the accompanying Exhibit Index on pages 54-56 are filed as part of this report. (b) Reports on Form 8-K: The Company did not file any reports on Form 8-K during the quarter ended December 31, 1997. (c) Included in (a) above. (d) Included in (a) above. 51 53 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant, Service Corporation International, has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. SERVICE CORPORATION INTERNATIONAL Dated: March 27, 1998 By: JAMES M. SHELGER ------------------------------------- (James M. Shelger, Senior Vice President, General Counsel and Secretary) Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the date indicated.
SIGNATURE TITLE DATE --------- ----- ---- R. L. WALTRIP* Chairman of the Board and Chief March 27, 1998 - ----------------------------------------------------- Executive Officer (R. L. Waltrip) GEORGE R. CHAMPAGNE* Senior Vice President Chief Financial March 27, 1998 - ----------------------------------------------------- Officer (Principal Financial (George R. Champagne) Officer) WESLEY T. MCRAE Corporate Controller of SCI March 27, 1998 - ----------------------------------------------------- Management Corporation, a (Wesley T. McRae) subsidiary of the Registrant (Principal Accounting Officer) ANTHONY L. COELHO* Director March 27, 1998 - ----------------------------------------------------- (Anthony L. Coelho) DOUGLAS M. CONWAY* Director March 27, 1998 - ----------------------------------------------------- (Douglas M. Conway) JACK FINKELSTEIN* Director March 27, 1998 - ----------------------------------------------------- (Jack Finkelstein) A. J. FOYT, JR.* Director March 27, 1998 - ----------------------------------------------------- (A. J. Foyt, Jr.) JAMES J. GAVIN, JR.* Director March 27, 1998 - ----------------------------------------------------- (James J. Gavin, Jr.) JAMES H. GREER* Director March 27, 1998 - ----------------------------------------------------- (James H. Greer) L. WILLIAM HEILIGBRODT* Director March 27, 1998 - ----------------------------------------------------- (L. William Heiligbrodt)
52 54
SIGNATURE TITLE DATE --------- ----- ---- B. D. HUNTER* Director March 27, 1998 - ----------------------------------------------------- (B. D. Hunter) JOHN W. MECOM, JR.* Director March 27, 1998 - ----------------------------------------------------- (John W. Mecom, Jr.) CLIFTON H. MORRIS, JR.* Director March 27, 1998 - ----------------------------------------------------- (Clifton H. Morris, Jr.) E. H. THORNTON, JR.* Director March 27, 1998 - ----------------------------------------------------- (E. H. Thornton, Jr.) W. BLAIR WALTRIP* Director March 27, 1998 - ----------------------------------------------------- (W. Blair Waltrip) EDWARD E. WILLIAMS* Director March 27, 1998 - ----------------------------------------------------- (Edward E. Williams) * By JAMES M. SHELGER ------------------------------------------------- (James M. Shelger, as Attorney-In-Fact For each of the Persons indicated)
53 55 EXHIBIT INDEX PURSUANT TO ITEM 601 OF REG. S-K
EXHIBIT NO. DESCRIPTION ----------- ----------- 3.1 -- Restated Articles of Incorporation. (Incorporated by reference to Exhibit 3.1 to Registration Statement No. 333-10867 on Form S-3). 3.2 -- Articles of Amendment to Restated Articles of Incorporation. (Incorporated by reference to Exhibit 3.1 to Form 10-Q for the fiscal quarter ended September 30, 1996). 3.3 -- Statement of Resolution Establishing Series of Shares of Series C junior Participating Preferred Stock, dated August 5, 1988. (Incorporated by reference to Exhibit 3.1 to Form 10-Q for the fiscal quarter ended July 31, 1988). 3.4 -- Bylaws, as amended. (Incorporated by reference to Exhibit 3.7 to Form 10-K for the fiscal year ended December 31, 1991). 4.1 -- Rights Agreement dated as of July 18, 1988 between the Company and Texas Commerce Bank National Association. (Incorporated by reference to Exhibit 1 to Form 8-K dated July 18, 1988). 4.2 -- Amendment, dated as of May 10, 1990, to the Rights Agreement, dated as of July 18, 1988, between the Company and Texas Commerce Bank National Association. (Incorporated by reference to Exhibit 1 to Form 8-K dated May 10, 1990). 4.3 -- Agreement Appointing a Successor Rights Agent under Rights Agreement, dated as of June 1, 1990, by the Company and Ameritrust Company National Association. (Incorporated by reference to Exhibit 4.1 to Form 10-Q for the fiscal quarter ended June 30, 1990). 4.4 -- Undertaking to furnish instruments related to long-term debt. 10.1 -- Retirement Plan For Non-Employee Directors. (Incorporated by reference to Exhibit 10.1 to Form 10-K for the fiscal year ended December 31, 1991). 10.2 -- Agreement dated May 14, 1992 between the Company, R. L. Waltrip and related parties relating to life insurance. (Incorporated by reference to Exhibit 10.4 to Form 10-K for the fiscal year ended December 31, 1992). 10.3 -- Employment Agreement, dated November 11, 1991, as amended and restated as of August 12, 1992, further amended and restated as of May 12, 1993, and further amended and restated as of January 1, 1997, between SCI Executive Services, Inc. and R. L. Waltrip. (Incorporated by reference to Exhibit 10.3 to Form 10-K for the fiscal year ended December 31, 1996). 10.4 -- Non-Competition Agreement and Amendment to Employment Agreement, dated November 11, 1991, among the Company, R. L. Waltrip and Claire Waltrip. (Incorporated by reference to Exhibit 10.9 to Form 10-K for the fiscal year ended December 31, 1992). 10.5 -- Employment Agreement, dated January 1, 1998, between SCI Executive Services, Inc. and L. William Heiligbrodt. 10.6 -- Employment Agreement, dated January 1, 1998, between SCI Executive Services, Inc. and W. Blair Waltrip. 10.7 -- Employment Agreement, dated January 1, 1998, between SCI Executive Services, Inc. and John W. Morrow, Jr.
54 56
EXHIBIT NO. DESCRIPTION ----------- ----------- 10.8 -- Employment Agreement, dated November 11, 1991, as amended and restated as of August 12, 1992, further amended and restated as of May 12, 1993, and further amended and restated as of January 1, 1995, between Service Corporation International and Jerald L. Pullins. 10.9 -- Form of Employment Agreement pertaining to officers (other than the officers identified in the preceding exhibits). 10.10 -- Form of 1986 Stock Option Plan. (Incorporated by reference to Exhibit 10.21 to Form 10-K for the fiscal year ended December 31, 1991). 10.11 -- Amendment to 1986 Stock Option Plan, dated February 12, 1997. (Incorporated by reference to Exhibit 10.11 to Form 10-K for the fiscal year ended December 31, 1996). 10.12 -- Amendment to 1986 Stock Option Plan, dated November 13, 1997. 10.13 -- Amended 1987 Stock Plan. (Incorporated by reference to Appendix A to Proxy Statement dated April 1, 1991). 10.14 -- First Amendment to Amended 1987 Stock Plan. (Incorporated by reference to Exhibit 10.23 to Form 10-K for the fiscal year ended December 31, 1993). 10.15 -- 1993 Long-Term Incentive Stock Option Plan. (Incorporated by reference to Exhibit 4.12 to Registration Statement No. 333-00179 on Form S-8). 10.16 -- Amendment to 1993 Long-Term Incentive Stock Option Plan, dated February 12, 1997. (Incorporated by reference to Exhibit 10.15 to Form 10-K for the fiscal year ended December 31, 1996). 10.17 -- Amendment to 1993 Long-Term Incentive Stock Option Plan, dated November 13, 1997. 10.18 -- Service Corporation International ECI Stock Option Plan. (Incorporated by reference to Exhibit 10.1 to Form 10-Q for the fiscal quarter ended September 30, 1994). 10.19 -- 1995 Incentive Equity Plan. (Incorporated by reference to Annex B to Proxy Statement dated April 17, 1995). 10.20 -- Amendment to 1995 Incentive Equity Plan, dated February 12, 1997. (Incorporated by reference to Exhibit 10.18 to Form 10-K for the fiscal year ended December 31, 1996). 10.21 -- Amendment to 1995 Incentive Equity Plan, dated November 13, 1997. 10.22 -- 1995 Stock Plan for Non-Employee Directors. (Incorporated by reference to Annex A to Proxy Statement dated April 17, 1995). 10.23 -- 1996 Incentive Plan. (Incorporated by reference to Annex A to Proxy Statement dated April 15, 1996). 10.24 -- Amendment to 1996 Incentive Plan, dated February 12, 1997. (Incorporated by reference to Exhibit 10.22 to Form 10-K for the fiscal year ended December 31, 1996). 10.25 -- Amendment to 1996 Incentive Plan, dated November 13, 1997. 10.26 -- Split Dollar Life Insurance Plan. (Incorporated by reference to Exhibit 10.36 to Form 10-K for the fiscal year ended December 31, 1995).
55 57
EXHIBIT NO. DESCRIPTION ----------- ----------- 10.27 -- Agreement for Reorganization, dated August 15, 1989 among Morrow Partners, Inc., J.W. Morrow Investment Company, John W. Morrow Jr., Billy Dee Davis and the Company; Agreement-Not-To-Compete, dated August 15, 1989, between John W. Morrow, Jr., Morrow Partners, Inc. and the Company, and; Lease dated August 15, 1989, by John W. Morrow, Jr. and Crawford A. Crim Funeral Home, Inc. (Incorporated by reference to Exhibit 10.27 to Form 10-K for the fiscal year ended December 31, 1989). 10.28 -- Supplemental Executive Retirement Plan for Senior Officers (as Amended and Restated Effective as of December 31, 1993). (Incorporated by reference to Exhibit 10.21 to Form 10-K for the fiscal year ended December 31, 1993). 10.29 -- First Amendment to Supplemental Executive Retirement Plan for Senior Officers. (Incorporated by reference to Exhibit 10.26 to Form 10-K for the fiscal year ended December 31, 1994). 10.30 -- Second Amendment to Supplemental Executive Retirement Plan for Senior Officers. (Incorporated by reference to Exhibit 10.1 to Form 10-Q for the fiscal quarter ended June 30, 1997). 10.31 -- Deferred Compensation Plan. 10.32 -- Second Supplemental Indenture, dated January 19, 1996, between the Company and Texas Commerce Bank National Association regarding Indenture dated May 1, 1970. 12.1 -- Ratio of Earnings to Fixed Charges. 21.1 -- Subsidiaries of the Company. 23.1 -- Consent of Independent Accountants (Coopers & Lybrand L.L.P.). 24.1 -- Powers of Attorney. 27 -- Financial Data Schedules.
In the above list, the management contracts or compensatory plans or arrangements are set forth in Exhibits 10.1 through 10.26 and 10.28 through 10.31. 56 EX-4.4 2 UNDERTAKING TO FURNISH INSTRUMENTS TO L/T DEBT 1 EXHIBIT 4.4 AGREEMENT TO FURNISH INSTRUMENTS WITH RESPECT TO LONG-TERM DEBT Pursuant to Item 601(b)(4) of Regulation S-K, there is not filed with this report certain instruments with respect to Long-term debt under which the total amount of securities authorized thereunder does not exceed 10 per cent of the total assets of Registrant and its subsidiaries on a consolidated basis. Registrant agrees to furnish a copy of any such instrument to the Commission upon request. SERVICE CORPORATION INTERNATIONAL By: /s/ James M. Shelger ----------------------------------- James M. Shelger Senior Vice President Dated: March 27, 1998 EX-10.5 3 EMPLOYMENT AGREEMENT - L. WILLIAM HEILIGBRODT 1 EXHIBIT 10.5 EMPLOYMENT AGREEMENT EMPLOYMENT AGREEMENT (the "Agreement") made and entered into as of this 1st day of January, 1998, 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 L. William Heiligbrodt (the "Employee"); WHEREAS, the Company, the Parent and the Employee desire to join in the execution of this Agreement to set out more fully the rights, duties and obligations of the parties hereto; WHEREAS, Employee is employed by the Company in a management capacity, has extraordinary access to the Company's confidential business information, and has significant duties and responsibilities in connection with the conduct of the Company's business which places Employee in a special and uncommon classification of employees; and WHEREAS, attendant to Employee's employment by the Company, the Company and Employee wish for there to be a complete understanding and agreement between the Company and Employee with respect to the fiduciary duties owed by Employee to the Company; Employee's obligation to avoid conflicts of interest, disclose pertinent information to the Company, and refrain from using or disclosing the Company's information; the term of employment and conditions for or upon termination thereof; the compensation and benefits owed to Employee; and the post-employment obligations Employee owes to the Company; and WHEREAS, but for Employee's agreement to the covenants and conditions of this Agreement, particularly the conflict of interest provisions, the provisions with respect to confidentiality of information and the ownership of intellectual property, and the post-employment obligations of Employee, the Company would not have entered into this Agreement; NOW, THEREFORE, in consideration of Employee's continued employment by the Company and the mutual promises and covenants contained herein, the receipt and sufficiency of such consideration being hereby acknowledged, the Company and Employee agree as follows: 2 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 four (4) 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 four (4) year(s) after the date such notice is given (or, in case of a failure to notify, four (4) year(s) after the Renewal Deadline) and shall not thereafter be further extended. 2. Duties and Powers of Employee. (a) Position; Location. During the Employment Period, the Employee shall perform such duties and have such powers as designated by the Board of Directors of the Company (the "Board") in connection with the execution of this Agreement. 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 16(a) below). (b) Duties. During the Employment Period, and excluding any periods of vacation and sick leave to which the Employee is entitled, the Employee agrees to devote his attention and time during normal business hours to the business and affairs of the Company and to use the Employee's best efforts to perform faithfully and efficiently such responsibilities. During the Employment Period it shall not be a violation of this Agreement for the Employee to (i) serve on corporate, civic or charitable boards -2- 3 or committees, (ii) deliver lectures, fulfill speaking engagements or teach at educational institutions and (iii) manage personal investments, so long as such activities do not significantly interfere with the performance of the Employee's responsibilities as an employee of the Company in accordance with this Agreement. It is expressly understood and agreed that to the extent that any such activities have been conducted by the Employee prior to the date of this Agreement or subsequent thereto consistent with this Section 2(b), the continued conduct of such activities (or the conduct of activities similar in nature and scope thereto) shall not thereafter be deemed to interfere with the performance of the Employee's responsibilities to the Company. (c) Employee agrees and acknowledges that he owes, and will comply with, a fiduciary duty of loyalty, fidelity or allegiance to act at all times in the best interests of the Company and to take no action or fail to take action if such action or failure to act would injure the Company's business, its interests or its reputation. 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 $645,000 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 generally awarded in the ordinary course of business to other employees of comparable rank with the Company and its affiliated companies (as defined in Section 16(d) below). 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 providing for the payment of -3- 4 bonuses in cash to employees of the Company or its affiliated companies having rank comparable to that of the Employee (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 16(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 employees of comparable rank with 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 employees of comparable rank with 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, practices, programs and policies of the Company and its affiliated companies from time to time in effect, commensurate with his position and on a basis at least comparable to those received by other employees of comparable rank with the Company and its affiliated companies. (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, -4- 5 commensurate with his position and on a basis at least comparable to those received by other employees of comparable rank with the Company and its affiliated companies. (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 in effect from time to time, commensurate with his position and on a basis at least comparable to those received by other employees of comparable rank with 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 90-day 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 17(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) a material breach by the Employee of Section 9 which is willful on the Employee's part or which is committed in bad faith or without reasonable belief that such breach is in the best interests of the Company and its affiliated companies, or (ii) a -5- 6 material breach by the Employee of the Employee's obligations under Section 2 (other than a breach of the Employee's obligations under Section 2 arising from the failure of the Employee to work as a result of incapacity due to physical or mental illness) or any material breach by the Employee of Section 10, 11 or 12 of this Agreement which in either case is willful on the Employee's part, which is committed in bad faith or without reasonable belief that such breach is in the best interests of the Company and its affiliated companies and which is not remedied in a reasonable period of time after receipt of written notice from the Company specifying such breach, or (iii) 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); -6- 7 (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 16(c), provided that the successor referred to in Section 16(c) has received at least ten days prior written notice from the Company or the Employee of the requirements of Section 16(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 17(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 and (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). 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 four (4)-year period -7- 8 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(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 -8- 9 (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) Four (4) multiplied by the Employee's Annual Base Salary, plus (2) Four (4) 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 -9- 10 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) four (4) 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 -10- 11 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, -11- 12 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 Sections 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") -12- 13 would be subject to the excise tax imposed by Section 4999 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 -13- 14 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 -14- 15 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) In keeping with Employee's fiduciary duties to the -15- 16 Company, Employee agrees that he shall not knowingly become involved in circumstances constituting a conflict of interest with such duties, or upon discovery thereof, allow such a conflict to continue. Moreover, Employee agrees that he shall disclose to the Secretary of the Parent or the Company any facts which might involve a conflict of interest that have not been approved by the Company. The Board hereby acknowledges and agrees that the activities of Employee listed on Schedule A hereto do not, and the continuation of such activities will not, constitute a conflict of interest for purposes of this Section 10. (b) In this connection, it is agreed that any direct interest in, connection with, or benefit from any outside activities, particularly commercial activities, which might in any way adversely affect the Company of any of its affiliated companies, involves a possible conflict of interest. Circumstances in which a conflict of interest on the part of Employee would or might arise, and which should be reported immediately to the Company or the Parent, include, but are not limited to, the following: (i) Ownership of a material interest in any lender, supplier, contractor, customer or other entity with which the Company or any of its affiliated companies does business; (ii) Acting in any capacity, including director, officer, partner, consultant, employee, distributor, agent or the like, for lenders, suppliers, contractors, subcontractors, customers or other entities with which the Company or any of its affiliated companies does business; (iii)Acceptance, directly or indirectly, of payments, services or loans from a lender, supplier, contractor, subcontractor, customer or other entity with which the Company or any of its affiliated companies does business, including but not limited to, gifts, trips, entertainment, or other favors of more than a nominal value, but excluding loans from publicly held insurance companies and commercial or savings banks at normal rates of interest; (iv) Misuse of information or facilities to which Employee has access in a manner which will be detrimental to the Company's or any of its affiliated companies' interest, such as utilization for Employee's own benefit of -16- 17 know-how or information developed through the Company's or any of its affiliated companies' business activities; (v) Disclosure or other misuse of information of any kind obtained through Employee's connection with the Company or any of its affiliated companies; or (vi) Acquiring or trading in, directly or indirectly, other properties or interests connected with the design or marketing of products or services designed or marketed by the Company or any of its affiliated companies. (c) In the event that the Company determines, in the exercise of its reasonable judgment, that a conflict of interest exists between the Employee and the Company or any of its affiliated companies, the Company shall notify the Employee in writing in accordance with Section 17(b) hereof, providing reasonably detailed information identifying the source of the conflict of interest. Within the 60-day period following receipt of such notice, the Employee shall take action satisfactory to the Company to eliminate the conflict of interest. Failure of the Employee to take such action within such 60-day period shall constitute "Cause" under Section 4(b) hereof. 11. Disclosure of Information, Ideas, Concepts, Improvements, Discoveries and Inventions. As part of Employee's fiduciary duties to the Company, Employee agrees that during the Employment Period, and for a period of six (6) months after the Date of Termination, Employee shall promptly disclose in writing to the Company all information, ideas, concepts, improvements, discoveries and inventions, whether patentable or not, and whether or not reduced to practice, which are conceived, developed, made or acquired by Employee, either individually or jointly with others, and which relate to the business, products or services of the Company or any of its affiliated companies, irrespective of whether Employee utilized the Company's or any of its affiliated companies' time or facilities and irrespective of whether such information, idea, concept, improvement, discovery or invention was conceived, developed, discovered or acquired by Employee on the job, at home, or elsewhere. This obligation extends to all types of information, ideas and concepts, including information, ideas and concepts relating to new types of services, corporate opportunities, acquisition prospects, the identity of key representatives within acquisition prospect organizations, prospective names or service marks for the Company's or any of its affiliated companies' business activities, and the like. -17- 18 12. 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 -18- 19 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. 13. Employee's Post-Employment Non-Competition Obligations. (a) During the Employment Period and, subject to the conditions of Sections 13(b) and 13(c), for a period of four (4) 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 13(a) and the Company shall have no obligation to make the Non-Competition Payments (as defined -19- 20 in Section 13(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 13(a) shall be subject to the Company's obligation to make the Non-Competition Payments specified in Section 13(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)), 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 and bonus 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 13(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 17(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 13(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. 14. 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 four (4) year(s) following the Date of Termination, he shall not at any time, directly or indirectly for the benefit of any -20- 21 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. 15. 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. 16. 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 -21- 22 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 securities 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 -22- 23 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 -23- 24 (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. 17. 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 -24- 25 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 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: L. William Heiligbrodt 11015 Landon Lane Houston, TX 77024 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 -25- 26 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, 1998. L. WILLIAM HEILIGBRODT /s/ L. William Heiligbrodt ----------------------------- "EMPLOYEE" SCI EXECUTIVE SERVICES, INC. By: /s/ Curtis G. Briggs Name: Curtis G. Briggs Title: Vice President "COMPANY" -26- 27 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 Senior Vice President General Counsel and Secretary "PARENT" -27- EX-10.6 4 EMPLOYMENT AGREEMENT - W. BLAIR WALTRIP 1 EXHIBIT 10.6 EMPLOYMENT AGREEMENT EMPLOYMENT AGREEMENT (the "Agreement") made and entered into as of this 1st day of January, 1998, 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"); WHEREAS, the Company, the Parent and the Employee desire to join in the execution of this Agreement to set out more fully the rights, duties and obligations of the parties hereto; WHEREAS, Employee is employed by the Company in a management capacity, has extraordinary access to the Company's confidential business information, and has significant duties and responsibilities in connection with the conduct of the Company's business which places Employee in a special and uncommon classification of employees; and WHEREAS, attendant to Employee's employment by the Company, the Company and Employee wish for there to be a complete understanding and agreement between the Company and Employee with respect to the fiduciary duties owed by Employee to the Company; Employee's obligation to avoid conflicts of interest, disclose pertinent information to the Company, and refrain from using or disclosing the Company's information; the term of employment and conditions for or upon termination thereof; the compensation and benefits owed to Employee; and the post-employment obligations Employee owes to the Company; and WHEREAS, but for Employee's agreement to the covenants and conditions of this Agreement, particularly the conflict of interest provisions, the provisions with respect to confidentiality of information and the ownership of intellectual property, and the post-employment obligations of Employee, the Company would not have entered into this Agreement; NOW, THEREFORE, in consideration of Employee's continued employment by the Company and the mutual promises and covenants contained herein, the receipt and sufficiency of such consideration being hereby acknowledged, the Company and Employee agree as follows: 2 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, 2000 (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. (a) Position; Location. During the Employment Period, the Employee shall perform such duties and have such powers as designated by the Board of Directors of the Company (the "Board") in connection with the execution of this Agreement. 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 16(a) below). (b) Duties. During the Employment Period, and excluding any periods of vacation and sick leave to which the Employee is entitled, the Employee agrees to devote his attention and time during normal business hours to the business and affairs of the Company and to use the Employee's best efforts to perform faithfully and efficiently such responsibilities. During the Employment Period it shall not be a violation of this Agreement for the Employee to (i) serve on corporate, civic or charitable boards -2- 3 or committees, (ii) deliver lectures, fulfill speaking engagements or teach at educational institutions and (iii) manage personal investments, so long as such activities do not significantly interfere with the performance of the Employee's responsibilities as an employee of the Company in accordance with this Agreement. It is expressly understood and agreed that to the extent that any such activities have been conducted by the Employee prior to the date of this Agreement or subsequent thereto consistent with this Section 2(b), the continued conduct of such activities (or the conduct of activities similar in nature and scope thereto) shall not thereafter be deemed to interfere with the performance of the Employee's responsibilities to the Company. (c) Employee agrees and acknowledges that he owes, and will comply with, a fiduciary duty of loyalty, fidelity or allegiance to act at all times in the best interests of the Company and to take no action or fail to take action if such action or failure to act would injure the Company's business, its interests or its reputation. 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 $425,000 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 generally awarded in the ordinary course of business to other employees of comparable rank with the Company and its affiliated companies (as defined in Section 16(d) below). 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 providing for the payment of -3- 4 bonuses in cash to employees of the Company or its affiliated companies having rank comparable to that of the Employee (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 16(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 employees of comparable rank with 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 employees of comparable rank with 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, practices, programs and policies of the Company and its affiliated companies from time to time in effect, commensurate with his position and on a basis at least comparable to those received by other employees of comparable rank with the Company and its affiliated companies. (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, -4- 5 commensurate with his position and on a basis at least comparable to those received by other employees of comparable rank with the Company and its affiliated companies. (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 in effect from time to time, commensurate with his position and on a basis at least comparable to those received by other employees of comparable rank with 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 90-day 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 17(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) a material breach by the Employee of Section 9 which is willful on the Employee's part or which is committed in bad faith or without reasonable belief that such breach is in the best interests of the Company and its affiliated companies, or (ii) a -5- 6 material breach by the Employee of the Employee's obligations under Section 2 (other than a breach of the Employee's obligations under Section 2 arising from the failure of the Employee to work as a result of incapacity due to physical or mental illness) or any material breach by the Employee of Section 10, 11 or 12 of this Agreement which in either case is willful on the Employee's part, which is committed in bad faith or without reasonable belief that such breach is in the best interests of the Company and its affiliated companies and which is not remedied in a reasonable period of time after receipt of written notice from the Company specifying such breach, or (iii) 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); -6- 7 (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 16(c), provided that the successor referred to in Section 16(c) has received at least ten days prior written notice from the Company or the Employee of the requirements of Section 16(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 17(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 and (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). 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 -7- 8 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(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 -8- 9 (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 -9- 10 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 -10- 11 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, -11- 12 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 Sections 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") -12- 13 would be subject to the excise tax imposed by Section 4999 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 -13- 14 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 -14- 15 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) In keeping with Employee's fiduciary duties to the -15- 16 Company, Employee agrees that he shall not knowingly become involved in circumstances constituting a conflict of interest with such duties, or upon discovery thereof, allow such a conflict to continue. Moreover, Employee agrees that he shall disclose to the Secretary of the Parent or the Company any facts which might involve a conflict of interest that have not been approved by the Company. The Board hereby acknowledges and agrees that the activities of Employee listed on Schedule A hereto do not, and the continuation of such activities will not, constitute a conflict of interest for purposes of this Section 10. (b) In this connection, it is agreed that any direct interest in, connection with, or benefit from any outside activities, particularly commercial activities, which might in any way adversely affect the Company of any of its affiliated companies, involves a possible conflict of interest. Circumstances in which a conflict of interest on the part of Employee would or might arise, and which should be reported immediately to the Company or the Parent, include, but are not limited to, the following: (i) Ownership of a material interest in any lender, supplier, contractor, customer or other entity with which the Company or any of its affiliated companies does business; (ii) Acting in any capacity, including director, officer, partner, consultant, employee, distributor, agent or the like, for lenders, suppliers, contractors, subcontractors, customers or other entities with which the Company or any of its affiliated companies does business; (iii) Acceptance, directly or indirectly, of payments, services or loans from a lender, supplier, contractor, subcontractor, customer or other entity with which the Company or any of its affiliated companies does business, including but not limited to, gifts, trips, entertainment, or other favors of more than a nominal value, but excluding loans from publicly held insurance companies and commercial or savings banks at normal rates of interest; (iv) Misuse of information or facilities to which Employee has access in a manner which will be detrimental to the Company's or any of its affiliated companies' interest, such as utilization for Employee's own benefit -16- 17 of know-how or information developed through the Company's or any of its affiliated companies' business activities; (v) Disclosure or other misuse of information of any kind obtained through Employee's connection with the Company or any of its affiliated companies; or (vi) Acquiring or trading in, directly or indirectly, other properties or interests connected with the design or marketing of products or services designed or marketed by the Company or any of its affiliated companies. (c) In the event that the Company determines, in the exercise of its reasonable judgment, that a conflict of interest exists between the Employee and the Company or any of its affiliated companies, the Company shall notify the Employee in writing in accordance with Section 17(b) hereof, providing reasonably detailed information identifying the source of the conflict of interest. Within the 60-day period following receipt of such notice, the Employee shall take action satisfactory to the Company to eliminate the conflict of interest. Failure of the Employee to take such action within such 60-day period shall constitute "Cause" under Section 4(b) hereof. 11. Disclosure of Information, Ideas, Concepts, Improvements, Discoveries and Inventions. As part of Employee's fiduciary duties to the Company, Employee agrees that during the Employment Period, and for a period of six (6) months after the Date of Termination, Employee shall promptly disclose in writing to the Company all information, ideas, concepts, improvements, discoveries and inventions, whether patentable or not, and whether or not reduced to practice, which are conceived, developed, made or acquired by Employee, either individually or jointly with others, and which relate to the business, products or services of the Company or any of its affiliated companies, irrespective of whether Employee utilized the Company's or any of its affiliated companies' time or facilities and irrespective of whether such information, idea, concept, improvement, discovery or invention was conceived, developed, discovered or acquired by Employee on the job, at home, or elsewhere. This obligation extends to all types of information, ideas and concepts, including information, ideas and concepts relating to new types of services, corporate opportunities, acquisition prospects, the identity of key representatives within acquisition prospect organizations, prospective names or service marks for the Company's or any of its affiliated companies' business activities, and the like. -17- 18 12. 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 -18- 19 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. 13. Employee's Post-Employment Non-Competition Obligations. (a) During the Employment Period and, subject to the conditions of Sections 13(b) and 13(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 13(a) and the Company shall have no obligation to make the Non-Competition Payments (as defined -19- 20 in Section 13(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 13(a) shall be subject to the Company's obligation to make the Non-Competition Payments specified in Section 13(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)), 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 and bonus 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 13(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 17(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 13(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. 14. 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 -20- 21 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. 15. 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. 16. 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 -21- 22 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 securities 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 -22- 23 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 -23- 24 (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. 17. 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 -24- 25 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 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 -25- 26 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, 1998. 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" -26- 27 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 Senior Vice President General Counsel and Secretary "PARENT" -27- EX-10.7 5 EMPLOYMENT AGREEMENT - JOHN W. MORROW, JR. 1 EXHIBIT 10.7 EMPLOYMENT AGREEMENT EMPLOYMENT AGREEMENT (the "Agreement") made and entered into as of this 1st day of January, 1998, 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 John W. Morrow, Jr. (the "Employee"); WHEREAS, the Company, the Parent and the Employee desire to join in the execution of this Agreement to set out more fully the rights, duties and obligations of the parties hereto; WHEREAS, Employee is employed by the Company in a management capacity, has extraordinary access to the Company's confidential business information, and has significant duties and responsibilities in connection with the conduct of the Company's business which places Employee in a special and uncommon classification of employees; and WHEREAS, attendant to Employee's employment by the Company, the Company and Employee wish for there to be a complete understanding and agreement between the Company and Employee with respect to the fiduciary duties owed by Employee to the Company; Employee's obligation to avoid conflicts of interest, disclose pertinent information to the Company, and refrain from using or disclosing the Company's information; the term of employment and conditions for or upon termination thereof; the compensation and benefits owed to Employee; and the post-employment obligations Employee owes to the Company; and WHEREAS, but for Employee's agreement to the covenants and conditions of this Agreement, particularly the conflict of interest provisions, the provisions with respect to confidentiality of information and the ownership of intellectual property, and the post-employment obligations of Employee, the Company would not have entered into this Agreement; NOW, THEREFORE, in consideration of Employee's continued employment by the Company and the mutual promises and covenants contained herein, the receipt and sufficiency of such consideration being hereby acknowledged, the Company and Employee agree as follows: 2 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, 2000 (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. (a) Position; Location. During the Employment Period, the Employee shall perform such duties and have such powers as designated by the Board of Directors of the Company (the "Board") in connection with the execution of this Agreement. 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 16(a) below). (b) Duties. During the Employment Period, and excluding any periods of vacation and sick leave to which the Employee is entitled, the Employee agrees to devote his attention and time during normal business hours to the business and affairs of the Company and to use the Employee's best efforts to perform faithfully and efficiently such responsibilities. During the Employment Period it shall not be a violation of this Agreement for the Employee to (i) serve on corporate, civic or charitable boards -2- 3 or committees, (ii) deliver lectures, fulfill speaking engagements or teach at educational institutions and (iii) manage personal investments, so long as such activities do not significantly interfere with the performance of the Employee's responsibilities as an employee of the Company in accordance with this Agreement. It is expressly understood and agreed that to the extent that any such activities have been conducted by the Employee prior to the date of this Agreement or subsequent thereto consistent with this Section 2(b), the continued conduct of such activities (or the conduct of activities similar in nature and scope thereto) shall not thereafter be deemed to interfere with the performance of the Employee's responsibilities to the Company. (c) Employee agrees and acknowledges that he owes, and will comply with, a fiduciary duty of loyalty, fidelity or allegiance to act at all times in the best interests of the Company and to take no action or fail to take action if such action or failure to act would injure the Company's business, its interests or its reputation. 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 $350,000 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 generally awarded in the ordinary course of business to other employees of comparable rank with the Company and its affiliated companies (as defined in Section 16(d) below). 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 providing for the payment of -3- 4 bonuses in cash to employees of the Company or its affiliated companies having rank comparable to that of the Employee (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 16(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 employees of comparable rank with 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 employees of comparable rank with 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, practices, programs and policies of the Company and its affiliated companies from time to time in effect, commensurate with his position and on a basis at least comparable to those received by other employees of comparable rank with the Company and its affiliated companies. (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, -4- 5 commensurate with his position and on a basis at least comparable to those received by other employees of comparable rank with the Company and its affiliated companies. (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 in effect from time to time, commensurate with his position and on a basis at least comparable to those received by other employees of comparable rank with 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 90-day 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 17(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) a material breach by the Employee of Section 9 which is willful on the Employee's part or which is committed in bad faith or without reasonable belief that such breach is in the best interests of the Company and its affiliated companies, or (ii) a -5- 6 material breach by the Employee of the Employee's obligations under Section 2 (other than a breach of the Employee's obligations under Section 2 arising from the failure of the Employee to work as a result of incapacity due to physical or mental illness) or any material breach by the Employee of Section 10, 11 or 12 of this Agreement which in either case is willful on the Employee's part, which is committed in bad faith or without reasonable belief that such breach is in the best interests of the Company and its affiliated companies and which is not remedied in a reasonable period of time after receipt of written notice from the Company specifying such breach, or (iii) 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); -6- 7 (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 16(c), provided that the successor referred to in Section 16(c) has received at least ten days prior written notice from the Company or the Employee of the requirements of Section 16(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 17(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 and (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). 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 -7- 8 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(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 -8- 9 (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 -9- 10 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 -10- 11 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, -11- 12 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 Sections 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") -12- 13 would be subject to the excise tax imposed by Section 4999 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 -13- 14 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 -14- 15 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) In keeping with Employee's fiduciary duties to the -15- 16 Company, Employee agrees that he shall not knowingly become involved in circumstances constituting a conflict of interest with such duties, or upon discovery thereof, allow such a conflict to continue. Moreover, Employee agrees that he shall disclose to the Secretary of the Parent or the Company any facts which might involve a conflict of interest that have not been approved by the Company. The Board hereby acknowledges and agrees that the activities of Employee listed on Schedule A hereto do not, and the continuation of such activities will not, constitute a conflict of interest for purposes of this Section 10. (b) In this connection, it is agreed that any direct interest in, connection with, or benefit from any outside activities, particularly commercial activities, which might in any way adversely affect the Company of any of its affiliated companies, involves a possible conflict of interest. Circumstances in which a conflict of interest on the part of Employee would or might arise, and which should be reported immediately to the Company or the Parent, include, but are not limited to, the following: (i) Ownership of a material interest in any lender, supplier, contractor, customer or other entity with which the Company or any of its affiliated companies does business; (ii) Acting in any capacity, including director, officer, partner, consultant, employee, distributor, agent or the like, for lenders, suppliers, contractors, subcontractors, customers or other entities with which the Company or any of its affiliated companies does business; (iii) Acceptance, directly or indirectly, of payments, services or loans from a lender, supplier, contractor, subcontractor, customer or other entity with which the Company or any of its affiliated companies does business, including but not limited to, gifts, trips, entertainment, or other favors of more than a nominal value, but excluding loans from publicly held insurance companies and commercial or savings banks at normal rates of interest; (iv) Misuse of information or facilities to which Employee has access in a manner which will be detrimental to the Company's or any of its affiliated companies' interest, such as utilization for Employee's own benefit of -16- 17 know-how or information developed through the Company's or any of its affiliated companies' business activities; (v) Disclosure or other misuse of information of any kind obtained through Employee's connection with the Company or any of its affiliated companies; or (vi) Acquiring or trading in, directly or indirectly, other properties or interests connected with the design or marketing of products or services designed or marketed by the Company or any of its affiliated companies. (c) In the event that the Company determines, in the exercise of its reasonable judgment, that a conflict of interest exists between the Employee and the Company or any of its affiliated companies, the Company shall notify the Employee in writing in accordance with Section 17(b) hereof, providing reasonably detailed information identifying the source of the conflict of interest. Within the 60-day period following receipt of such notice, the Employee shall take action satisfactory to the Company to eliminate the conflict of interest. Failure of the Employee to take such action within such 60-day period shall constitute "Cause" under Section 4(b) hereof. 11. Disclosure of Information, Ideas, Concepts, Improvements, Discoveries and Inventions. As part of Employee's fiduciary duties to the Company, Employee agrees that during the Employment Period, and for a period of six (6) months after the Date of Termination, Employee shall promptly disclose in writing to the Company all information, ideas, concepts, improvements, discoveries and inventions, whether patentable or not, and whether or not reduced to practice, which are conceived, developed, made or acquired by Employee, either individually or jointly with others, and which relate to the business, products or services of the Company or any of its affiliated companies, irrespective of whether Employee utilized the Company's or any of its affiliated companies' time or facilities and irrespective of whether such information, idea, concept, improvement, discovery or invention was conceived, developed, discovered or acquired by Employee on the job, at home, or elsewhere. This obligation extends to all types of information, ideas and concepts, including information, ideas and concepts relating to new types of services, corporate opportunities, acquisition prospects, the identity of key representatives within acquisition prospect organizations, prospective names or service marks for the Company's or any of its affiliated companies' business activities, and the like. -17- 18 12. 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 -18- 19 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. 13. Employee's Post-Employment Non-Competition Obligations. (a) During the Employment Period and, subject to the conditions of Sections 13(b) and 13(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 13(a) and the Company shall have no obligation to make the Non-Competition Payments (as defined -19- 20 in Section 13(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 13(a) shall be subject to the Company's obligation to make the Non-Competition Payments specified in Section 13(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)), 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 and bonus 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 13(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 17(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 13(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. 14. 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 -20- 21 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. 15. 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. 16. 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 -21- 22 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 securities 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 -22- 23 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 -23- 24 (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. 17. 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 -24- 25 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 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: John W. Morrow, Jr. 8615 Stable Crest Blvd. Houston, TX 77024 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 -25- 26 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, 1998. JOHN W. MORROW, JR. /s/ John W. Morrow ---------------------------------- "EMPLOYEE" SCI EXECUTIVE SERVICES, INC. By:/s/ Curtis G. Briggs ---------------------------------- Name: Curtis G. Briggs ---------------------------- Title: Vice President ---------------------------- "COMPANY" -26- 27 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 Senior Vice President General Counsel and Secretary "PARENT" -27- EX-10.8 6 EMPLOYMENT AGREEMENT - JERALD L. PULLINS 1 EXHIBIT 10.8 EMPLOYMENT AGREEMENT EMPLOYMENT AGREEMENT made and entered into as of this 1st day of December, 1991, amended and restated as of August 12, 1992, further amended as of May 12, 1993 and further amended and restated as of January 1, 1995 by and between SERVICE CORPORATION INTERNATIONAL, a Texas corporation (the "Company") and JERALD L. PULLINS (the "Employee"); WHEREAS, Employee is employed by the Company in an executive capacity, has extraordinary access to the Company's confidential business information, and has significant duties and responsibilities in connection with the conduct of the Company's business which places Employee in a special and uncommon classification of employees; WHEREAS, attendant to Employee's employment by the Company, the Company and Employee wish for there to be a complete understanding and agreement between the Company and Employee with respect to the fiduciary duties owed by Employee to the Company; Employee's obligation to avoid conflicts of interest, disclose pertinent information to the Company, and refrain from using or disclosing the Company's information; the term of employment and conditions for or upon termination thereof; the compensation and benefits owed to Employee; and the post-employment obligations Employee owes to the Company; and WHEREAS, but for Employee's agreement to the covenants and conditions of this Agreement, particularly the conflict of interest provisions, the provisions with respect to confidentiality of information and the ownership of intellectual property, and the post-employment obligations of Employee, the Company would not have entered into this Agreement; NOW, THEREFORE, in consideration of Employee's continued employment by the Company, and the mutual promises and covenants contained herein, the receipt and sufficiency of such consideration being hereby acknowledged, the Company and Employee agree as follows: 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 of this Agreement and ending as of the close of business on the third (3rd) anniversary of the date hereof (such period together with all extensions thereof, including any Change of Control Period (as defined in Section 16(b) below), are referred to hereinafter as the "Employment Period"); provided, however, that commencing on the date one year after the date hereof, and on each annual anniversary of such date (such date and each annual anniversary thereof shall be hereinafter referred to as a "Renewal Date") the Employment Period shall be automatically extended so as to terminate three (3) years from such Renewal Date, unless at least 60 days prior to the 2 Renewal Date either the Company or the Employee gives the other written notice that the Employment Period shall not be so extended. 2. Duties and Powers of Employee. (a) Position; Location. During the Employment Period, the Employee shall be employed as Executive Vice President European Operations of the Company. In such employment, the Employee's duties and powers shall include, but not be limited to, all of the duties and powers of holding the offices described above pursuant to the Bylaws of the Company, as in effect on the date hereof, or as designated by the Board of Directors of the Company (the "Board") or any duly authorized committee thereof in connection with the execution of this Agreement. 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 at any time during the 90-day period immediately preceding the Change of Control Date. (b) Duties. During the Employment Period, and excluding any periods of vacation and sick leave to which the Employee is entitled, the Employee agrees to devote his attention and time during normal business hours to the business and affairs of the Company and to use the Employee's best efforts to perform faithfully and efficiently such responsibilities. During the Employment Period it shall not be a violation of this Agreement for the Employee to (i) serve on corporate, civic or charitable boards or committees, (ii) deliver lectures, fulfill speaking engagements or teach at educational institutions and (iii) manage personal investments, so long as such activities do not significantly interfere with the performance of the Employee's responsibilities as an employee of the Company in accordance with this Agreement. It is expressly understood and agreed that to the extent that any such activities have been conducted by the Employee prior to the date of this Agreement or subsequent thereto consistent with this Section 2(b), the continued conduct of such activities (or the conduct of activities similar in nature and scope thereto) shall not thereafter be deemed to interfere with the performance of the Employee's responsibilities to the Company. (c) Employee agrees and acknowledges that he owes, and will comply with, a fiduciary duty of loyalty, fidelity or allegiance to act at all times in the best interests of the Company and to take no action or fail to take action if such action or failure to act would injure the Company's business, its interests or its reputation. 3. Compensation. The Employee shall receive the following compensation for his services: -2- 3 (a) Salary. During the Employment Period, he shall be paid an annual base salary ("Annual Base Salary") at the rate of not less than $280,000 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 Board may from time to time direct such upward adjustments to Annual Base Salary as the Board 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 generally awarded in the ordinary course of business to other peer executives of the Company and its affiliated companies (as defined in Section 16(d) below). 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 of the Board (such aggregate awards for each year are hereinafter referred to as the "Annual Bonus") and at the discretion of the Board to receive awards from any plan of the Company or any of its affiliated companies providing for the payment of bonuses in cash to employees of the Company or its affiliated companies having rank comparable to that of the Employee (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 16(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 peer executives 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, -3- 4 employee life, group life, accidental death and travel accident insurance plans and programs) to the extent applicable generally to other peer executives 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, practices, programs and policies of the Company and its affiliated companies from time to time in effect, commensurate with his position and on a basis at least comparable to those received by other peer executives of the Company and its affiliated companies. (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 and on a basis at least comparable to those received by other peer executives of the Company and its affiliated companies. (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 in effect from time to time, commensurate with his position and on a basis at least comparable to those received by other peer executives of the Company and its affiliated companies. (i) 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 90-day 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 18(b) of its intention to -4- 5 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) a material breach by the Employee of Section 9 which is willful on the Employee's part or which is committed in bad faith or without reasonable belief that such breach is in the best interests of the Company and its affiliated companies, or (ii) a material breach by the Employee of the Employee's obligations under Section 2 (other than a breach of the Employee's obligations under Section 2 arising from the failure of the Employee to work as a result of incapacity due to physical or mental illness) or any material breach by the Employee of Section 10, 11 or 12 of this Agreement which in either case is willful on the Employee's part, which is committed in bad faith or without reasonable belief that such breach is in the best interests of the Company and its affiliated companies and which is not remedied in a reasonable period of time after receipt of written notice from the Company specifying such breach, or (iii) 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 as contemplated by Section 2 or any other action by the Company 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 -5- 6 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 to comply with and satisfy Section 16(c), provided that the successor referred to in Section 16(c) has received at least ten days prior written notice from the Company or the Employee of the requirements of Section 16(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 18(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 and (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). 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 -6- 7 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. 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(c) and 3(d). (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 -7- 8 (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; and (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 peer executives 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 peer executives of 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 peer executives of 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 peer executives of the Company and its affiliated companies and their families. -8- 9 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 Continuation Benefits shall mean the continuation of benefits to the Employee and/or the Employee's family for the longer of (i) three (3) years 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 peer executives 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 peer executives of 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 peer executives 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 peer executives of 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 -9- 10 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 Sections 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 -10- 11 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 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 Ernst & Young (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 -11- 12 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 -12- 13 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 effectively to 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. -13- 14 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) In keeping with Employee's fiduciary duties to the Company, Employee agrees that he shall not knowingly become involved in circumstances constituting a conflict of interest with such duties, or upon discovery thereof, allow such a conflict to continue. Moreover, Employee agrees that he shall disclose to the Secretary of the Company any facts which might involve a conflict of interest that has not been approved by the Company's Compensation Committee. The Board hereby acknowledges and agrees that the activities of Employee listed on Schedule A hereto do not, and the continuation of such activities will not, constitute a conflict of interest for purposes of this Section 10. (b) In this connection, it is agreed that any direct interest in, connection with, or benefit from any outside activities, particularly commercial activities, which might in any way adversely affect the Company or any of its affiliated companies, involves a possible conflict of interest. Circumstances in which a conflict of interest on the part of Employee would or might arise, and which should be reported immediately to the Company, include, but are not limited to, the following: (i) Ownership of a material interest in any lender, supplier, contractor, customer or other entity with which the Company or any of its affiliated companies does business; (ii) Acting in any capacity, including director, officer, partner, consultant, employee, distributor, agent or the like, for lenders, -14- 15 suppliers, contractors, subcontractors, customers or other entities with which the Company or any of its affiliated companies does business; (iii) Acceptance, directly or indirectly, of payments, services or loans from a lender, supplier, contractor, subcontractor, customer or other entity with which the Company or any of its affiliated companies does business, including but not limited to, gifts, trips, entertainment, or other favors of more than a nominal value, but excluding loans from publicly held insurance companies and commercial or savings banks at normal rates of interest; (iv) Misuse of information or facilities to which Employee has access in a manner which will be detrimental to the Company's or any of its affiliated companies' interest, such as utilization for Employee's own benefit of know-how or information developed through the Company's or any of its affiliated companies' business activities; (v) Disclosure or other misuse of information of any kind obtained through Employee's connection with the Company or any of its affiliated companies; or (vi) Acquiring or trading in, directly or indirectly, other properties or interests connected with the design or marketing of products or services designed or marketed by the Company or any of its affiliated companies. (c) In the event that the Company determines, in the exercise of its reasonable judgment, that a conflict of interest exists between the Employee and the Company or any of its affiliated companies, the Company shall notify the Employee in writing in accordance with Section 17(b) hereof, providing reasonably detailed information identifying the source of the conflict of interest. Within the 60-day period following receipt of such notice, the Employee shall take action satisfactory to the Company to eliminate the conflict of interest. Failure of the Employee to take such action within such 60-day period shall constitute "Cause" under Section 4(b) hereof. 11. Disclosure of Information, Ideas, Concepts, Improvements, Discoveries and Inventions. As part of Employee's fiduciary duties to the Company, Employee agrees that during the Employment Period, and for a period of six (6) months after the Date of Termination, Employee shall promptly disclose in writing to -15- 16 the Company all information, ideas, concepts, improvements, discoveries and inventions, whether patentable or not, and whether or not reduced to practice, which are conceived, developed, made or acquired by Employee, either individually or jointly with others, and which relate to the business, products or services of the Company or any of its affiliated companies, irrespective of whether Employee utilized the Company's or any of its affiliated companies' time or facilities and irrespective of whether such information, idea, concept, improvement, discovery or invention was conceived, developed, discovered or acquired by Employee on the job, at home, or elsewhere. This obligation extends to all types of information, ideas and concepts, including information, ideas and concepts relating to new types of services, corporate opportunities, acquisition prospects, the identity of key representatives within acquisition prospect organizations, prospective names or service marks for the Company's or any of its affiliated companies' business activities, and the like. 12. 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 -16- 17 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. 13. Employee's Post Employment Non-Competition Obligations: In Certain Situations such Obligation apply only if the Company opts to Continue Employee's Salary Payment. (a) During the Employment Period and, subject to the conditions of Sections 13(b) and 13(c), for a period of three (3) years thereafter (the "Non-Competition Period") provided, however, that the Non-Competition Period shall not exceed three (3) years from the Date of Termination, Employee shall not, acting alone or in -17- 18 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 has been terminated for Cause (Section 4(b)) or if Employee terminates his employment for any reason other than for Good Reason or other than during the Window Period (Section 4(c)), Employee shall be bound by the obligations of Section 13(a) and the Company shall have no obligation to make the Non-Competition Payments (as defined in Section 13(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 13(a) shall be subject to the Company's obligation to make the Non-Competition Payments specified in Section 13(c). (c) Notwithstanding the provisions of Section 4 of this Agreement, whenever the employment relationship is terminated due to the expiration of its term because the Company or Employee timely gave written notice of termination (Section 1), or due to Employee's Disability (Section 4(a)), or by the Company without Cause (Section 4(b)), 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 and bonus pursuant to section 5. The Company shall have the option, exercisable at any time within one (1) month after Employee's Date of Termination, to cancel Employee's post-employment non-competition obligations under Section 13(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 18(b); if the company does not send such notice within the prescribed one-month time, the Company shall remain obligated to make the Non-Competition Payments and Employee shall remain obligated to comply with the provisions of Section 13(a). The purpose of this paragraph is to make the non-competition obligations of Employee more reasonable from the Employee's point of view. The amounts to be paid by the Company are not intended to be liquidated damages or an estimate of the actual damages that -18- 19 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. 14. 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) years 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. 15. Successors. 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 or 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. 16. 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 -19- 20 Agreement to the contrary notwithstanding, if a Change of Control occurs and if the Employee's employment with the Company is terminated or the Employee ceases to have the position with the Company, as set forth in Section 2(a), which the Employee had prior to the date on which the Change of Control occurs, and if it is reasonably demonstrated by the Employee that such termination or cessation (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 Company (the "Outstanding Company Common Stock") or (B) the combined voting power of the then outstanding voting securities of the Company entitled to vote generally in the election of directors (the "Outstanding Company Voting Securities"); provided, however, that the following acquisitions shall not constitute a Change of Control: (A) any acquisition directly from the Company (excluding an acquisition by virtue of the exercise of a conversion privilege), (B) any acquisition by the Company, (C) any acquisition by any employee benefit plan (or related trust) sponsored or maintained by the Company or any corporation controlled by the Company 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 the Company (the "Incumbent Board") cease for any reason to constitute at least a majority of the Board of the Company; provided, however, that any individual becoming a director subsequent to the date hereof whose election, or nomination for election by the Company's shareholders, was approved by (A) a vote of at least a majority of the directors then comprising the Incumbent Board of the Company, or (B) a vote of at least a majority of the directors then comprising the Executive Committee of the Board at a time when such committee was comprised of at least five members and -20- 21 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 the Company; or (iii) Approval by the shareholders of the Company of a reorganization, merger or consolidation, in each case, unless, following such reorganization, merger or consolidation, (A) more than 60% of, respectively, the then outstanding shares of common stock of the corporation resulting from such reorganization, merger or consolidation and the combined voting power of the then outstanding voting securities of such corporation entitled to vote generally in the election of directors is then beneficially owned, directly or indirectly, by all or substantially all of the individuals and entities who were the beneficial owners, respectively, of the Outstanding Company Common Stock and Outstanding Company Voting Securities immediately prior to such organization, merger or consolidation in substantially the same proportions as their ownership, immediately prior to such reorganization, merger or consolidation, of the Outstanding Company Common Stock and Outstanding Company Voting Securities, as the case may be, (B) no Person (excluding the Company, any employee benefit plan or related trust of the Company or such corporation resulting from such reorganization, merger or consolidation and any Person beneficially owning, immediately prior to such reorganization, merger or consolidation, directly or indirectly, 20% or more of the Outstanding Company Common Stock or Outstanding Company Voting Securities, as the case may be) beneficially owns, directly or indirectly, 20% or more of, respectively, the then outstanding shares of common stock of the corporation resulting from such reorganization, merger or consolidation or the combined voting power of the then outstanding voting securities of such corporation entitled to vote generally in the election of directors and (C) at least a majority of the members of the board of directors of the corporation resulting from such reorganization, merger or consolidation were members of the Incumbent Board at the time of the execution of the initial agreement providing for such reorganization, merger or consolidation; or (iv) Approval by the shareholders of the Company of (A) a complete liquidation or dissolution of the Company or (B) the sale or other disposition of all or substantially all of the assets of the Company, other than to a corporation, with respect to which following such sale or other disposition, (A) -21- 22 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 i.e. then beneficially owned, directly or indirectly, by all or substantially all of the individuals and entities who were the beneficial owners, respectively, of the Outstanding Company Common Stock and outstanding Company Voting Securities immediately prior to such sale or other disposition in substantially the same proportion as their ownership, immediately prior to such sale or other disposition, of the outstanding Company Common Stock and Outstanding Company Voting Securities, as the case may be, (B) no Person (excluding the Company and any employee benefit plan or related trust of the Company or such corporation and any Person beneficially owning, immediately prior to such sale or other disposition, directly or indirectly, 20% or more of the outstanding Company Common Stock or Outstanding Company Voting Securities, as the case may be) beneficially owns, directly or indirectly, 20% or more of, respectively, the then outstanding shares of common stock of such corporation and the combined voting power of the then outstanding voting securities of such corporation entitled to vote generally in the election of directors and (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 the Company providing for such sale or other disposition of assets of the Company. (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. 17. Miscellaneous. (a) This Agreement replaces and merges 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, -22- 23 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 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: Jerald L. Pullins 99 Brookwood Lane New Canaan, Connecticut 06840 If to the Company: 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 -23- 24 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. 18. Other Provisions. The Company acknowledges that Employee was an employee of the Company or one of its affiliates from December 1, 1969 until April 4, 1979 ("Prior Employment Period"), and Employee was a participant in a company pension plan which required five (5) years of Vesting Service to fully vest. The Company acknowledges that under applicable law and under Section 7.03 of the current SCI Pension Plan that the Prior Employment Period must be credited together with all subsequent years of employment of the same employer or an affiliate thereof for computation of Benefit Service under the SCI Pension Plan and SCI Supplemental Executive Retirement Plan. By confirmation of dates of employment hereof the Company does not change, add or incur additional expenses or liabilities for the payment of benefits that may be due or become due to Employee pursuant to applicable statutes and the SCI Pension Plan. IN WITNESS WHEREOF, the Employee and, pursuant to due authorization from the Board of Directors of the Company, the Company have caused this Agreement to be executed as of the day and year first above written. JERALD L. PULLINS /s/ JERRY L. PULLINS -------------------- SERVICE CORPORATION INTERNATIONAL By: /s/ JAMES M. SHELGER ------------------------ James M. Shelger Senior Vice President and General Counsel -24- EX-10.9 7 FORM OF EMPLOYMENT AGREEMENT TO OFFICERS 1 EXHIBIT 10.9 EMPLOYMENT AGREEMENT EMPLOYMENT AGREEMENT (the "Agreement") made and entered into as of this 1st day of January, 1998, 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 _________________________________________________ (the "Employee"); WHEREAS, the Company, the Parent and the Employee desire to join in the execution of this Agreement to set out more fully the rights, duties and obligations of the parties hereto; WHEREAS, Employee is employed by the Company in a management capacity, has extraordinary access to the Company's confidential business information, and has significant duties and responsibilities in connection with the conduct of the Company's business which places Employee in a special and uncommon classification of employees; and WHEREAS, attendant to Employee's employment by the Company, the Company and Employee wish for there to be a complete understanding and agreement between the Company and Employee with respect to the fiduciary duties owed by Employee to the Company; Employee's obligation to avoid conflicts of interest, disclose pertinent information to the Company, and refrain from using or disclosing the Company's information; the term of employment and conditions for or upon termination thereof; the compensation and benefits owed to Employee; and the post-employment obligations Employee owes to the Company; and WHEREAS, but for Employee's agreement to the covenants and conditions of this Agreement, particularly the conflict of interest provisions, the provisions with respect to confidentiality of information and the ownership of intellectual property, and the post-employment obligations of Employee, the Company would not have entered into this Agreement; NOW, THEREFORE, in consideration of Employee's continued employment by the Company and the mutual promises and covenants contained herein, the receipt and sufficiency of such consideration being hereby acknowledged, the Company and Employee agree as follows: 2 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, 199___ (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 _________________ 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 __________________ year(s) after the date such notice is given (or, in case of a failure to notify, ____________ year(s) after the Renewal Deadline) and shall not thereafter be further extended. 2. Duties and Powers of Employee. (a) Position; Location. During the Employment Period, the Employee shall perform such duties and have such powers as designated by the Board of Directors of the Company (the "Board") in connection with the execution of this Agreement. 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 16(a) below). (b) Duties. During the Employment Period, and excluding any periods of vacation and sick leave to which the Employee is entitled, the Employee agrees to devote his attention and time during normal business hours to the business and affairs of the Company and to use the Employee's best efforts to perform faithfully and efficiently such responsibilities. During the Employment Period it shall not be a violation of this Agreement for -2- 3 the Employee to (i) serve on corporate, civic or charitable boards or committees, (ii) deliver lectures, fulfill speaking engagements or teach at educational institutions and (iii) manage personal investments, so long as such activities do not significantly interfere with the performance of the Employee's responsibilities as an employee of the Company in accordance with this Agreement. It is expressly understood and agreed that to the extent that any such activities have been conducted by the Employee prior to the date of this Agreement or subsequent thereto consistent with this Section 2(b), the continued conduct of such activities (or the conduct of activities similar in nature and scope thereto) shall not thereafter be deemed to interfere with the performance of the Employee's responsibilities to the Company. (c) Employee agrees and acknowledges that he owes, and will comply with, a fiduciary duty of loyalty, fidelity or allegiance to act at all times in the best interests of the Company and to take no action or fail to take action if such action or failure to act would injure the Company's business, its interests or its reputation. 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 $__________________ 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 generally awarded in the ordinary course of business to other employees of comparable rank with the Company and its affiliated companies (as defined in Section 16(d) below). 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 -3- 4 of its affiliated companies providing for the payment of bonuses in cash to employees of the Company or its affiliated companies having rank comparable to that of the Employee (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 16(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 employees of comparable rank with 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 employees of comparable rank with 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, practices, programs and policies of the Company and its affiliated companies from time to time in effect, commensurate with his position and on a basis at least comparable to those received by other employees of comparable rank with the Company and its affiliated companies. (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, -4- 5 and to exclusive personal secretarial and other assistance, commensurate with his position and on a basis at least comparable to those received by other employees of comparable rank with the Company and its affiliated companies. (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 in effect from time to time, commensurate with his position and on a basis at least comparable to those received by other employees of comparable rank with 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 90-day 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 17(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) a material breach by the Employee of Section 9 which is willful on the Employee's part or which is committed in bad faith or without reasonable belief that such breach is in the best -5- 6 interests of the Company and its affiliated companies, or (ii) a material breach by the Employee of the Employee's obligations under Section 2 (other than a breach of the Employee's obligations under Section 2 arising from the failure of the Employee to work as a result of incapacity due to physical or mental illness) or any material breach by the Employee of Section 10, 11 or 12 of this Agreement which in either case is willful on the Employee's part, which is committed in bad faith or without reasonable belief that such breach is in the best interests of the Company and its affiliated companies and which is not remedied in a reasonable period of time after receipt of written notice from the Company specifying such breach, or (iii) 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); -6- 7 (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 16(c), provided that the successor referred to in Section 16(c) has received at least ten days prior written notice from the Company or the Employee of the requirements of Section 16(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 17(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 and (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). 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 ________________-year -7- 8 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(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 -8- 9 (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) _____________ multiplied by the Employee's Annual Base Salary, plus (2) _____________ 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 -9- 10 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) _______________ 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 -10- 11 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, -11- 12 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 Sections 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") -12- 13 would be subject to the excise tax imposed by Section 4999 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 -13- 14 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 -14- 15 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) In keeping with Employee's fiduciary duties to the Company, Employee agrees that he shall not knowingly become -15- 16 involved in circumstances constituting a conflict of interest with such duties, or upon discovery thereof, allow such a conflict to continue. Moreover, Employee agrees that he shall disclose to the Secretary of the Parent or the Company any facts which might involve a conflict of interest that have not been approved by the Company. The Board hereby acknowledges and agrees that the activities of Employee listed on Schedule A hereto do not, and the continuation of such activities will not, constitute a conflict of interest for purposes of this Section 10. (b) In this connection, it is agreed that any direct interest in, connection with, or benefit from any outside activities, particularly commercial activities, which might in any way adversely affect the Company of any of its affiliated companies, involves a possible conflict of interest. Circumstances in which a conflict of interest on the part of Employee would or might arise, and which should be reported immediately to the Company or the Parent, include, but are not limited to, the following: (i) Ownership of a material interest in any lender, supplier, contractor, customer or other entity with which the Company or any of its affiliated companies does business; (ii) Acting in any capacity, including director, officer, partner, consultant, employee, distributor, agent or the like, for lenders, suppliers, contractors, subcontractors, customers or other entities with which the Company or any of its affiliated companies does business; (iii) Acceptance, directly or indirectly, of payments, services or loans from a lender, supplier, contractor, subcontractor, customer or other entity with which the Company or any of its affiliated companies does business, including but not limited to, gifts, trips, entertainment, or other favors of more than a nominal value, but excluding loans from publicly held insurance companies and commercial or savings banks at normal rates of interest; (iv) Misuse of information or facilities to which Employee has access in a manner which will be detrimental to the Company's or any of its affiliated companies' interest, such as utilization for Employee's own benefit of know-how or information developed through the -16- 17 Company's or any of its affiliated companies' business activities; (v) Disclosure or other misuse of information of any kind obtained through Employee's connection with the Company or any of its affiliated companies; or (vi) Acquiring or trading in, directly or indirectly, other properties or interests connected with the design or marketing of products or services designed or marketed by the Company or any of its affiliated companies. (c) In the event that the Company determines, in the exercise of its reasonable judgment, that a conflict of interest exists between the Employee and the Company or any of its affiliated companies, the Company shall notify the Employee in writing in accordance with Section 17(b) hereof, providing reasonably detailed information identifying the source of the conflict of interest. Within the 60-day period following receipt of such notice, the Employee shall take action satisfactory to the Company to eliminate the conflict of interest. Failure of the Employee to take such action within such 60-day period shall constitute "Cause" under Section 4(b) hereof. 11. Disclosure of Information, Ideas, Concepts, Improvements, Discoveries and Inventions. As part of Employee's fiduciary duties to the Company, Employee agrees that during the Employment Period, and for a period of six (6) months after the Date of Termination, Employee shall promptly disclose in writing to the Company all information, ideas, concepts, improvements, discoveries and inventions, whether patentable or not, and whether or not reduced to practice, which are conceived, developed, made or acquired by Employee, either individually or jointly with others, and which relate to the business, products or services of the Company or any of its affiliated companies, irrespective of whether Employee utilized the Company's or any of its affiliated companies' time or facilities and irrespective of whether such information, idea, concept, improvement, discovery or invention was conceived, developed, discovered or acquired by Employee on the job, at home, or elsewhere. This obligation extends to all types of information, ideas and concepts, including information, ideas and concepts relating to new types of services, corporate opportunities, acquisition prospects, the identity of key representatives within acquisition prospect organizations, prospective names or service marks for the Company's or any of its affiliated companies' business activities, and the like. -17- 18 12. 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 -18- 19 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. 13. Employee's Post-Employment Non-Competition Obligations. (a) During the Employment Period and, subject to the conditions of Sections 13(b) and 13(c), for a period of _________________________ 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 13(a) and the Company shall have no obligation to make the Non-Competition Payments (as defined -19- 20 in Section 13(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 13(a) shall be subject to the Company's obligation to make the Non-Competition Payments specified in Section 13(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)), 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 and bonus 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 13(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 17(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 13(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. 14. 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 _______________ year(s) following the Date of Termination, he shall not at any time, directly or indirectly for the benefit of -20- 21 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. 15. 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. 16. 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 -21- 22 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 securities 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 -22- 23 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 -23- 24 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. 17. 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 -24- 25 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 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: Name Address Address 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. -25- 26 (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, 1998. NAME ---------------------------------------- "EMPLOYEE" SCI EXECUTIVE SERVICES, INC. By: ----------------------------------- Name: --------------------------------- Title: -------------------------------- "COMPANY" 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. -26- 27 SERVICE CORPORATION INTERNATIONAL By: ----------------------------- Name: -------------------------- Title: ------------------------- "PARENT" -27- EX-10.12 8 AMENDMENT TO 1986 STOCK OPTION PLAN 1 EXHIBIT 10.12 SERVICE CORPORATION INTERNATIONAL AMENDMENT TO THE 1986 STOCK OPTION PLAN AMENDMENT, dated as of November 13, 1997, to the Service Corporation International 1986 Stock Option Plan, as Amended and Restated on November 12, 1991, and as further amended on February 12, 1997 (the "1986 Plan"). 1. The 1986 Plan is hereby amended effective as of the date hereof, as follows: Article III is hereby amended and restated in its entirety as follows: Each Option shall be evidenced by an Option Agreement and shall contain such terms and conditions, and may be exercisable for such persons (up to ten years from the date of the grant), as may be approved by the Committee. The terms and conditions of the respective Option Agreements need not be identical. Specifically, an Option Agreement may provide the right ("Right") to surrender the Option to purchase any shares subject to the Option in return for a payment in cash and/or shares of Stock equal to the excess of the fair market value of the shares with respect to which the Option is surrendered over the option price therefor, on such terms and conditions as the Committee in its sole discretion may prescribe. In addition, an Option Agreement may provide for the payment of the option price (i) by the delivery of a number of shares of Stock plus cash, if any, having a fair market value equal to such option price or (ii) by the delivery of an executed attestation form acceptable to the Company attesting to the ownership of shares of Stock, plus cash, if any, having a fair market value equal to such option price. Each Option and all rights granted thereunder shall not be transferable other than by will or the laws of descent and distribution, and shall be exercisable during the optionee's lifetime only by the optionee. The Committee may amend outstanding Non-qualified Stock Options to make such Non-qualified Stock Options transferable, without payment of consideration, to immediate family members of the grantee or to trusts or partnerships established for the exclusive benefit of one or more members of such person's immediate family (collectively, "Transferees"). A transfer of a Non-qualified Stock Option pursuant to this Section may only be effected by the Company at the written request of a grantee and shall become effective only when recorded in the Company's record of outstanding Non-qualified Stock Options. In the event a Non-qualified Stock Option is transferred as contemplated hereby, such Non-qualified Stock Option may not subsequently transferred by the transferee except by the will or the laws of 2 descent and distribution. In the event a Non-qualified Stock Option is transferred as contemplated hereby, such Non-qualified Stock Option will continue to be governed by and subject to the terms of this Plan and the relevant grant, and the transferred shall be entitled to the same rights as the grantee hereunder, as if no transfer had taken place. As used herein, "immediately family" shall mean, with respect to any person, such person's child, stepchild, grandchild, parent, stepparent, grandparent, spouse, sibling, mother-in-law, father-in-law, son-in-law, daughter-in-law, brother-in-law, or sister-in-law, and shall include adoptive relationships. EX-10.17 9 AMEND. TO 1993 LONG-TERM INCENTIVE STOCK OP. PLAN 1 EXHIBIT 10.17 SERVICE CORPORATION INTERNATIONAL AMENDMENT TO THE 1993 LONG-TERM INCENTIVE STOCK OPTION PLAN AMENDMENT, dated as of November 13, 1997, to the Service Corporation International 1993 Long-Term Incentive Stock Option Plan, as amended on February 12, 1997 (the "1993 Plan"). 1. The 1993 Plan is hereby amended effective as of the date hereof, as follows: The second paragraph of Section 5(e), is hereby amended and restated in its entirety as follows: The option price of Stock to purchased upon exercise of any Option shall be paid in full (i) in cash (by certified or bank check or such other instrument as the Company may accept), (ii) in the form of unrestricted Stock already owned by the optionee for six months or more, either physically delivered or attested to on an executed attestation form acceptable to the Company, and based on the Fair Market Value of the Stock on the date the Stock Option is exercised, or (iii) by a combination thereof. If an optionee is subject to Section 16(b) of the Exchange Act, any election to make payment pursuant to clause (ii) of the preceding sentence shall comply with the requirements of Rule 16b-3(e). EX-10.21 10 AMEND. TO 1995 INCENTIVE EQUITY PLAN 1 EXHIBIT 10.21 SERVICE CORPORATION INTERNATIONAL AMENDMENT TO THE 1995 INCENTIVE EQUITY PLAN AMENDMENT, dated as of November 13, 1997, to the Service Corporation International 1995 Incentive Equity Plan, as amended on February 12, 1997 (the "1995 Plan"). 1. The 1995 Plan is hereby amended effective as of the date hereof, as follows: The first paragraph of Article V, Section 5.6, is hereby amended and restated in its entirety as follows: Options shall be exercised by the delivery of written notice to the Company setting forth the number of shares with respect to which the Option is to be exercised, together with: (a) cash, check, certified check, bank draft, or postal or express money order payable to the order of the Company for an amount equal to the option price of the shares, (b) Stock at its Fair Market Value on the date of exercise, (c) an executed attestation form acceptable to the Company attesting to ownership of Stock at its Fair Market Value on the date of exercise, and/or (d) any other form of payment which is acceptable to the Committee, and specifying the address to which the certificates for the shares are to be mailed. As promptly as practicable after receipt of written notification and payment, the Company shall deliver to the Employee certificates for the number of shares with respect to which the Option has been exercised, issued in the Employee's name. If shares of Stock are used in payment, the Fair Market Value of the shares of Stock tendered must be less than the Option Price of the shares being purchased, and the difference must be paid by check. Delivery shall be deemed effected for all purposes when the Company or a stock transfer agent of the Company shall have deposited the certificates in the United States mail, addressed to the optionee, at the address specified by the Employee. EX-10.25 11 AMEND. TO 1996 INCENTIVE PLAN 1 EXHIBIT 10.25 SERVICE CORPORATION INTERNATIONAL AMENDMENT TO THE 1996 INCENTIVE PLAN AMENDMENT, dated as of November 13, 1997, to the Service Corporation International 1996 Incentive Plan, as amended on February 12, 1997 (the "1996 Plan"). 1. The 1996 Plan is hereby amended effective as of the date hereof, as follows: The first paragraph of Article V, Section 5.5, is hereby amended and restated in its entirety as follows: Options shall be exercised by the delivery of written notice to the Company setting forth the number of shares with respect to which the Option is to be exercised, together with: (a) cash, check, certified check, bank draft, or postal or express money order payable to the order of the Company for an amount equal to the Option Price of the shares, (b) Stock at its Fair Market Value equal to the Option Price of the shares on the date of exercise, (c) an executed attestation form acceptable to the Company attesting to ownership of Stock at its Fair Market Value equal to the Option Price of the shares on the date of exercise, and/or (d) any other form of payment which is acceptable to the Committee, and specifying the address to which the certificates for the shares are to be mailed. As promptly as practicable after receipt of written notification and payment, the Company shall deliver to the Employee certificates for the number of shares with respect to which the Option has been exercised, issued in the Employee's name. If shares of Stock are used in payment, the Fair Market Value of the shares of Stock tendered must be less than the Option Price of the shares being purchased, and the difference must be paid by check. Delivery shall be deemed effected for all purposes when the Company or a stock transfer agent of the Company shall have deposited the certificates in the United States mail, addressed to the optionee, at the address specified by the Employee. EX-10.31 12 DEFERRED COMPENSATION PLAN 1 EXHIBIT 10.31 SERVICE CORPORATION INTERNATIONAL DEFERRED COMPENSATION PLAN ARTICLE I Purpose I.1 Purpose of Plan. The purpose of the Service Corporation International Deferred Compensation Plan (the "Plan") is to advance the interests of Service Corporation International (the "Company") and its subsidiaries and affiliates (hereinafter sometimes collectively or individually referred to as the "Employer") and of its shareholders by attracting and retaining in its employ highly qualified individuals for the successful conduct of its business. The Employer hopes to accomplish these objectives by helping to provide for the retirement of a select group of management or highly compensated Eligible Employees. I.2 ERISA Status. The Plan is intended to qualify for the exemptions under Title I of the Employee Retirement Income Security Act of 1974, as amended ("ERISA") provided for plans that are unfunded and maintained primarily for the purpose of providing deferred compensation for a select group of management or highly compensated employees. I.3 Rabbi Trust. The Employer may, but is not obligated to, establish a grantor trust which shall qualify as a "rabbi trust" for the purpose of holding assets to provide benefits under the terms of the Plan. ARTICLE II Definitions II.1 "Account" means all amounts credited to the account of the Participant under this Plan. II.2 "Accruals" means the debits and credits to be posted to Participant's Accounts as set forth under this Plan. II.3 "Administrative Committee" or "Committee" means the Compensation Committee of the Board of Directors of the Company. II.4 "Beneficiary" means the person or persons designated in writing to receive benefits, if any, upon the death of the Participant. If no such designation is made, the designated Beneficiary shall be the deceased Participant's spouse, or if the Participant is not married, his or her estate. Notwithstanding the preceding sentence, if the designated Beneficiary of a married Participant is not the Participant's spouse, the spouse must consent in writing to the Participant's naming a non-spouse Beneficiary. The consent of the spouse to a non-spouse Beneficiary shall be irrevocable by the spouse. In the event an unmarried Participant marries, such Participant's designated Beneficiary shall be the Participant's spouse 2 regardless of an existing Beneficiary designation which shall be deemed revoked as of the date of marriage unless subsequently consented to in writing by the Participant's spouse. II.5 "Board" means the Board of Directors of the Company. II.6 "Change of Control" means the happening of any of the following events: (a) The acquisition by any individual, entity or group (within the meaning of Section 13(d)(3) or 14(d)(2) of the Securities Exchange Act of 1934, as amended (the "Exchange Act")) (a "Person"), of beneficial ownership (within the meaning of Rule 13d-3 promulgated under the Exchange Act) of 20% or more of either (A) the then outstanding shares of common stock of the Company (the "Outstanding Company Common Stock") or (B) the combined voting power of the then outstanding voting securities of the Company entitled to vote generally in the election of directors (the "Outstanding Company Voting Securities"); provided, however, that the following acquisitions shall not constitute a Change of Control under this subsection (a): (i) any acquisition directly from the Company (excluding an acquisition by virtue of the exercise of a conversion privilege), (ii) any acquisition by the Company, (iii) any acquisition by any employee benefit plan (or related trust) sponsored or maintained by the Company or any corporation controlled by the Company, or (iv) any acquisition by any corporation pursuant to a reorganization, merger or consolidation, if, following such reorganization, merger or consolidation, the conditions described in clauses (A), (B) and (C) of subsection (c) of this definition of "Change of Control" are satisfied; or (b) Individuals who, as of the effective date hereof, constitute the Board (the "Incumbent Board") cease for any reason to constitute at least a majority of the Board; provided, however, that any individual becoming a director subsequent to the effective date of the Plan whose election, or nomination for election by the Company's shareholders, was approved by (A) a vote of at least a majority of the directors then comprising the Incumbent Board, or (B) a vote of at least a majority of the directors then comprising the Executive Committee of the Board at a time when such committee was comprised of at least five members and all members of such committee were either members of the Incumbent Board or considered as being members of the Incumbent Board pursuant to clause (A) of this subsection (b), shall be considered as though such individual were a member of the Incumbent Board, but excluding, for this purpose, any such individual whose initial assumption of office occurs as a result of either an actual or threatened election contest (as such terms are used in Rule 14a-11 of Regulation 14A promulgated under the Exchange Act) or other actual or threatened solicitation of proxies or consents by or on behalf of a person other than the Board; or (c) Approval by the shareholders of the Company of a reorganization, merger or consolidation, in each case, unless, following such reorganization, merger or consolidation, (A) more than 60% of, respectively, the then outstanding shares of common stock of the corporation resulting from such reorganization, merger or consolidation and the combined voting power of the then outstanding voting securities of such corporation entitled 3 to vote generally in the election of directors is then beneficially owned, directly or indirectly, by all or substantially all of the individuals and entities who were the beneficial owners, respectively, of the Outstanding Company Common Stock and Outstanding Company Voting Securities immediately prior to such reorganization, merger or consolidation in substantially the same proportions as their ownership, immediately prior to such reorganization, merger or consolidation, of the Outstanding Company Common Stock and Outstanding Company Voting Securities, as the case may be, (B) no Person (excluding the Company, any employee benefit plan (or related trust) of the Company or such corporation resulting from such reorganization, merger or consolidation, and any Person beneficially owning, immediately prior to such reorganization, merger or consolidation, directly or indirectly, 20% or more of the Outstanding Company Common Stock or Outstanding Company Voting Securities, as the case may be) beneficially owns, directly or indirectly, 20% or more of, respectively, the then outstanding shares of common stock of the corporation resulting from such reorganization, merger or consolidation or the combined voting power of the then outstanding voting securities of such corporation entitled to vote generally in the election of directors and (C) at least a majority of the members of the board of directors of the corporation resulting from such reorganization, merger or consolidation were members of the Incumbent Board at the time of the execution of the initial agreement providing for such reorganization, merger or consolidation; or (d) Approval by the shareholders of the Company of (A) a complete liquidation or dissolution of the Company or (B) the sale or other disposition of all or substantially all of the assets of the Company, other than to a corporation, with respect to which following such sale or other disposition, (i) more than 60% of, respectively, the then outstanding shares of common stock of such corporation and the combined voting power of the then outstanding voting securities of such corporation entitled to vote generally in the election of directors is then beneficially owned, directly or indirectly, by all or substantially all of the individuals and entities who were the beneficial owners, respectively, of the Outstanding Company Common Stock and Outstanding Company Voting Securities immediately prior to such sale or other disposition in substantially the same proportion as their ownership, immediately prior to such sale or other disposition, of the Outstanding Company Common Stock and Outstanding Company Voting Securities, as the case may be, (ii) no Person (excluding the Company and any employee benefit plan (or related trust) of the Company or such corporation, and any Person beneficially owning, immediately prior to such sale or other disposition, directly or indirectly, 20% or more of the Outstanding Company Common Stock or Outstanding Company Voting Securities, (as the case may be) beneficially owns, directly or indirectly, 20% or more of, respectively, the then outstanding shares of common stock of such corporation and the combined voting power of the then outstanding voting securities of such corporation entitled to vote generally in the election of directors and (iii) at least a majority of the members of the board of directors of such corporation were members of the Incumbent Board at the time of the execution of the initial agreement or action of the Board providing for such sale or other disposition of assets of the Company. II.7 "Compensation" means, as to each Participant, the Participant's total wages, salaries, and other amounts received for personal services actually rendered in the course of 4 employment with the Employer, including commissions, compensation based on a percentage of profits and elective contributions to any plans or programs maintained by the Employer, but excluding bonuses. For the purposes of this Plan, elective contributions are amounts excludable from the Participant's gross income under applicable statutory provisions and contributed by the Employer, at the Participant's election, to a Section 401(k) arrangement or a cafeteria plan. II.8 "Deferral Contribution" means the amount of Compensation, bonus and/or Company stock option gains, that a Participant elects to defer receipt of and instead have such amounts credited by the Employer to his or her Account in any Plan Year pursuant to the provisions of this Plan. II.9 "Discretionary Employer Contribution" means a discretionary amount contributed by the Employer and credited to a Participant's Account in any Plan Year pursuant to the provisions of this Plan. II.10 "Effective Date" means May 7, 1997, which is the effective date of this Plan. II.11 "Eligible Employee" means a highly compensated or management employee of the Employer who meets the criteria established by the Board to determine eligibility for the Plan and who has been selected and approved to participate in the Plan by the Board, or in any other authorized manner determined by the Employer. II.12 "Participant" means an Eligible Employee who is a Participant in the Plan. II.13 "Plan Obligations" means the sum of the Account values of all Participants. With respect to each Participant, "Plan Obligations" means such Participant's Account value. II.14 "Plan" means this Service Corporation International Deferred Compensation Plan and any amendments hereto. II.15 "Plan Year" means the calendar year, except with respect to the first Plan Year, which will be the period of May 7, 1997 through December 31, 1997. II.16 "President" means the president of the Company. II.17 "Selected Index" (or "Selected Indices") means, with respect to any Account, the investment vehicle with reference to which Accruals to such Account are determined under this Plan. 5 ARTICLE III Deferral Contributions III.1 Amount of Deferral Contributions. For each Plan Year, Participants may elect to defer the present payment of all or any portion of the following: o Compensation; o Bonus; and o Company stock option gains and instead have such amounts credited to the Participant's Account under this Plan. III.2 Manner of Deferral; Annual Election. Elections to make Deferral Contributions shall be in writing, signed by the Participant and in a form prescribed by the Administrative Committee. Except as otherwise provided herein, the form shall be completed and returned to the Administrative Committee on a date which shall be specified by the Administrative Committee: o In the case of deferral of Compensation or bonus, such form must be completed and returned to the Administrative Committee prior to the beginning of the applicable Plan Year for which the election is to take effect, or at such other times as determined by the Administrative Committee; o In the case of an election to defer Company stock option gains, such form must be completed and returned to the Administrative Committee at least six months prior to the date the Participant elects to exercise his or her applicable stock option(s) relating to such deferral election, or at such other times as determined by the Administrative Committee. Once an election to make Deferral Contributions has been made, such election shall be irrevocable. The Administrative Committee shall notify each Eligible Employee of his or her eligibility to participate in the Plan prior to the date by which the election form is due to be filed. In the event that an Eligible Employee becomes eligible to participate in the Plan after the beginning of a Plan Year, the Administrative Committee shall allow such Eligible Employee to make an election in a manner similar to that provided above to make Deferral Contributions subsequent to the date of such election for the remainder of the Plan Year in which he or she becomes a Participant; provided, however, that such election shall apply only to Compensation or bonus earned after the election form is completed. III.3 Administrative Committee to Prescribe Rules Governing Deferral Contributions. Deferral Contributions shall be made and credited under the Plan in accordance with such rules and regulations as may be prescribed from time to time by the Administrative Committee. 6 ARTICLE IV Employer Contribution/Vesting IV.1 Discretionary Employer Contribution. Subject to the sole discretion of the Board, the Employer may make a Discretionary Employer Contribution under the Plan on behalf of Participants in such amounts as determined by the Board. Such Discretionary Employer Contribution, to the extent determined by the Board, for a Plan Year, shall be credited to Participants Accounts at such time as the Administrative Committee prescribes. IV.2 Vesting. Discretionary Employer Contributions shall vest in such manner and at such times as determined in the sole discretion of the Administrative Committee. ARTICLE V Accounts V.1 Participant Accounts. The Administrative Committee shall establish and maintain an individual bookkeeping account (the "Account") for each Participant. The Administrative Committee shall credit the amount of each Deferral Contribution and Discretionary Employer Contribution (if any), made on behalf of a Participant to such Participant's Account at times prescribed by the Administrative Committee. The Administrative Committee shall further debit and/or credit the Account with all Accruals in accordance with the terms of this Plan. The sole purpose of the Account is to record and reflect the Employer's obligations to each Participant under the Plan (the "Plan Obligation"). Also for this sole purpose, the Employer shall maintain a reserve account on its books to which all Plan Obligations shall be credited. No Employer shall be required hereunder to segregate any of its assets with respect to Plan Obligations, nor shall any provision of the Plan be construed as constituting such segregation. The liabilities of the Employer and the rights of the Participants under the Plan shall be those of a debtor and creditors, respectively, and no such obligations shall be deemed to be secured by any pledge or other encumbrance on any property of the Employer. V.2 Accruals to the Account. (a) The Administrative Committee shall, in its sole discretion and as it deems appropriate, designate Selected Indices, if any, for the purpose of determining amounts to be debited and/or credited to the Accounts. (b) The "Selected Indices" are solely for the purpose of determining Accruals to the Accounts, and nothing herein shall obligate the Employer to invest any part of its assets in those investment vehicles, if any, serving as the Selected Indices or in any other investments. (c) Within 30 days following the close of each Plan Year, or such shorter period as determined by the Administrative Committee ("Accounting Period"), the 7 Administrative Committee shall debit or credit each Account with any increase or decrease in value with respect to the Selected Index as of the end of the preceding Accounting Period. (d) The Administrative Committee shall permit each Participant to request that the amounts credited to the Participant's Account be invested in any one or a combination of the Selected Indices designated as available for hypothetical investment under the Plan. Each Participant's investment request shall be in a form and manner prescribed by the Administrative Committee. Notwithstanding the foregoing, the Administrative Committee may, but is not obligated, to follow the Participant's investment request. (e) Notwithstanding anything to the contrary herein, in the case of a Deferral Contribution relating to Company stock option gains, unless the Administrative Committee determines otherwise, the amount of such gain deferred hereunder shall be recorded under this Plan in the form of one or more of the following, as determined in the sole discretion of the Administrative Committee: (i) Company common stock units, (ii) Company common stock, or (iii) any other investment medium as the Committee deems appropriate. For purposes of this Plan, a Company common stock unit shall be the equivalent of a hypothetical share of Company common stock determined as of the date of exercise of the underlying Company stock option(s) relating to such deferral election, such that the value of a Company common stock unit shall be the equivalent of the value of one share of Company common stock as of such date. In the event the Company should declare a stock dividend or authorize a split of shares of Company common stock, Company common stock units shall be adjusted to reflect and take into account such stock dividend or stock split, as the case may be. In the event of any dividend payments payable on Company common stock, such amounts shall be credited as an addition to the Account of a Participant whose Account consists of Company common stock units. V.3 Nature and Source of Payments. The obligation to make distributions under this Plan with respect to each Participant shall constitute a liability of the Employer to the Participant and any Beneficiary in accordance with the terms of this Plan. All distributions payable hereunder shall be made from the general assets of the Employer, and nothing herein shall be deemed to create a trust of any kind between the Employer and any Participant or other person. Except as otherwise provided in this Plan, no special or separate fund need be established nor need any other segregation of assets be made to assure that distributions will be made under this Plan. No Participant or Beneficiary shall have any interest in any particular asset of the Employer. Distributions under this Plan shall be made in such medium (e.g., cash, mutual fund shares, etc.) as determined by the Administrative Committee. 8 ARTICLE VI Distributions VI.1 Occasions for Distributions. The Employer shall distribute the vested portion of a Participant's Account upon the events and in the manner set forth in this Article. VI.2 Distribution on Account of Termination of Employment. No later than 90 days after a Participant terminates employment with the Employer for any reason, the Employer shall distribute the value of the Participant's vested Account in a single lump sum. However, the Administrative Committee may, in its sole discretion, accelerate distributions under this provision if a Participant ceases to perform services on a full-time basis for the Employer, notwithstanding the fact that such Participant continues to receive compensation or benefits pursuant to an employment contract or other agreement or arrangement with the Employer. VI.3 Change of Control. The Employer shall distribute to each Participant in a single lump sum payment the full value of his or her Account immediately following a Change of Control. The Employer, any successor thereto, or any successor to substantially all of the assets of the Employer, shall gross-up the Participant for any golden parachute excise tax liability that may arise in the event of any distribution under the Plan. VI.4 Hardship Distribution. Notwithstanding any provision of this Plan, in the event of financial need that is beyond the control of a Participant (or Beneficiary) and upon the written request of such Participant (or Beneficiary), the Administrative Committee, in its sole discretion, may authorize and direct the Employer to make a distribution under this Plan to such Participant (or Beneficiary) in a lump sum. Such a distribution may be authorized only if disallowance of the distribution would result in financial hardship to the Participant (or Beneficiary). Such distributions may be made only to the extent that the distribution is necessary to enable the Participant (or Beneficiary) to resolve the financial need. In the event the Administrative Committee authorizes a hardship distribution, a Participant's Deferral Contribution election shall cease on a prospective basis and be suspended for the duration of the Plan Year. VI.5 Distribution on Account of Completion of Deferral Period. Unless otherwise provided hereunder, no later than 90 days after completion of the previously elected deferral period, the value of the vested portion of a Participant's Account shall be paid in a single lump sum. Distributions under this provision shall be made in accordance with the Participant's prior written election in such form as prescribed by the Administrative Committee. VI.6 Payment to Beneficiary in the Event of Participant's Death. In the event of a Participant's death prior to the commencement of payments from his or her Account, the vested balance in his or her Account prior to his or her death shall be paid to his or her Beneficiary in a single lump sum. Such distribution shall be made no later than 90 days after the Administrative Committee receives written notice of his or her death together with any 9 documents, instruments or other evidence that the Administrative Committee may require to render a distribution based on the fact of the Participant's death. VI.7 Alternative Form of Distribution. Notwithstanding the foregoing provisions of this Plan, a Participant may elect to receive his or her benefits payable under this Plan in an installment form of payment not to exceed ten years, provided such Participant files such election with the Administrative Committee at least two years prior to the date benefits are to commence. VI.8 Alternative Time of Distribution. Notwithstanding the foregoing provisions of this Plan, a Participant may elect to defer the receipt of benefits payable under this Plan beyond the otherwise applicable distribution date by filing such election with the Administrative Committee at least two years prior to the date benefits are otherwise scheduled to commence. VI.9 Continuation of Accounts After Commencement of Distributions. After distributions to a Participant have commenced from his or her Account, the remaining value of his or her Account (if any) shall continue to be credited with any income (or losses) in accordance with the provisions of the Plan until the entire remaining value of his or her Account has been paid. ARTICLE VII Administrative Committee VII.1 Rights, Powers and Authority. The Administrative Committee shall be responsible for the general supervision of the administration of the Plan according to the terms and provisions of the Plan and shall have all powers necessary to accomplish such purposes, including but not limited to, the right, power and authority: (a) To adopt rules and regulations for the administration of the Plan; (b) To construe all terms, provisions, conditions and limitations of the Plan; (c) To select the Eligible Employees to participate in the Plan; (d) To determine all matters relating to the administration of the Plan (including the promulgation of forms and procedures to Participants and Beneficiaries with respect to the payment of benefits, filing claims for benefits under this Plan and adequate written notices of any denial of such claims and an opportunity for a review of any such denial); and (e) To maintain the Plan in compliance with applicable legal requirements. VII.2 Procedures. The Administrative Committee shall establish appropriate procedures to conduct its operations and to carry out its rights and duties under the Plan. These procedures shall cover meetings, quorums and voting. 10 VII.3 Compensation and Expenses. The members of the Administrative Committee shall serve without compensation for their services, but all expenses of the Administrative Committee and all other expenses incurred in administering the Plan shall be paid by the Employer. VII.4 Statement to Participants. No later than 90 days after the end of each calendar year, the Administrative Committee shall transmit to each Participant (or Beneficiary) a written statement showing, as of the end of such calendar year, the value of the Participant's (or Beneficiary) Account. These statements shall be binding for purposes of determining the Employer's Plan Obligations to the Participant (or Beneficiary), unless contested in writing by the Participant (or Beneficiary) within 15 days after the Participant receives such written statement. VII.5 Indemnification. The Company shall indemnify the members of the Administrative Committee against the reasonable expenses, including attorneys' fees, actually and necessarily incurred by them in connection with the defense of any action, suit or proceeding, or in connection with any appeal thereto, to which they or any of them may be a party by reason of any action taken or failure to act under or in connection with the Plan and against all amounts paid by them in settlement thereof (provided such settlement is approved by independent legal counsel selected by the Company) and against all amounts paid by them in satisfaction of a judgment in any such action, suit or proceeding, except in relation to matters as to which it shall be adjudged in such action, suit or proceeding that such Administrative Committee member is liable for fraud, deliberate dishonesty or willful misconduct in the performance of his or her duties; provided that within 60 days after the institution of any such action, suit or proceeding an Administrative Committee member has offered in writing to allow the Company, at its own expense, to handle and defend any such action, suit or proceeding. ARTICLE VIII Amendment and Termination VIII.1 Power to Amend Reserved. The Board shall have the right to amend the terms of the Plan at any time, provided, however, that no such amendment shall reduce any amounts otherwise credited to the Accounts of Participants under the Plan (to the extent vested) as of the date of such amendment. VIII.2 Termination of the Plan. The Board may terminate the Plan at any time, and as soon as practicable thereafter, Participants shall receive in a single lump sum payment the value of their Accounts (to the extent vested) as of the date of such termination. 11 ARTICLE IX Miscellaneous IX.1 Plan Does Not Affect the Rights of Employee. Nothing contained in this Plan shall be deemed to give any Participant the right to be retained in the employment of the Employer,to interfere with the rights of the Employer to discharge any Participant at any time or to interfere with a Participant's right to terminate his or her employment at any time. IX.2 Nonalienation and Nonassignment. Except for debts owed the Employer by a Participant or Beneficiary, no amounts payable or to become payable under the Plan to a Participant or Beneficiary shall be subject in any manner to anticipation, alienation, sale, transfer, assignment, pledge, encumbrance or charge, and any attempt to so anticipate, alienate, sell, transfer, assign, pledge, encumber or charge the same by a Participant or Beneficiary prior to distribution as herein provided shall be null and void. IX.3 Tax Withholding. The Employer shall have the right to deduct from any payments to a Participant or Beneficiary under the Plan any taxes required by law to be withheld with respect to such payments. In addition, the Employer shall have the right to deduct from any Plan contributions any applicable employment taxes or other required withholdings with respect to a Participant. IX.4 Setoffs. To the fullest extent permitted by law, any amounts owed by a Participant or Beneficiary to the Employer may be deducted by the Employer from the value of such Participant's Account at the time and to the extent that such Account is otherwise payable hereunder. IX.5 Construction. Unless the context clearly indicates to the contrary, the masculine gender shall include the feminine and neuter, and the singular shall include the plural and vice versa. IX.6 Applicable Law. The terms and provisions of the Plan shall be construed in accordance with the laws of the State of Texas, except to the extent preempted by ERISA or other federal law. IX.7 Successors. The Plan shall be binding upon the Employer and its successors and assigns, in accordance with its terms. IX.8 ERISA Claims Procedure. A claim for benefits under this Plan by any person shall be filed with the Administrative Committee in a manner governed by procedures set forth in the Company's tax-qualified cash balance plan, as amended from time to time, or other procedures established by the Administrative Committee. 12 IN WITNESS HEREOF, this Plan has been adopted as of May 21, 1997, effective as provided herein. SERVICE CORPORATION INTERNATIONAL By: /s/ JACK L. STONER - ------------------------------------------ Name: Jack L. Stoner - ------------------------------------------ Title: Senior Vice President/Administration - ------------------------------------------ EX-10.32 13 SECOND SUPPLEMENTAL INDENTURE 1 EXHIBIT 10.32 SECOND SUPPLEMENTAL INDENTURE Dated as of January 19, 1996 between SERVICE CORPORATION INTERNATIONAL and TEXAS COMMERCE BANK NATIONAL ASSOCIATION, as Trustee to INDENTURE Dated as of May 1, 1970 between SERVICE CORPORATION INTERNATIONAL and FIRST CITY NATIONAL BANK OF HOUSTON, as Trustee Guarantees of Promissory Notes of Subsidiaries of Service Corporation International 2 SECOND SUPPLEMENTAL INDENTURE, dated as of January 19, 1996, by and between SERVICE CORPORATION INTERNATIONAL, a Texas corporation (the "Company"), and TEXAS COMMERCE BANK NATIONAL ASSOCIATION, a national banking association duly organized and existing under the laws of the United States of America, as Trustee (the "Trustee"); W I T N E S S E T H: WHEREAS, the Company has heretofore executed and delivered to First City National Bank of Houston (the "Predecessor Trustee") that certain Indenture dated as of May 1, 1970, by and between the Company and the Predecessor Trustee (said Indenture, as supplemented by the First Supplemental Indenture referenced hereinbelow, is referred to herein as the "Indenture"); WHEREAS, the Company has heretofore executed and delivered to Trustee that certain First Supplemental Indenture dated as of June 15, 1992, by and between the Company and the Trustee; and WHEREAS, the Company is desirous of amending Section 2.01 of the Indenture; NOW, THEREFORE, in order to comply with the provisions of the Indenture and for and in consideration of the premises and the covenants and agreements contained herein and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Company and the Trustee agree as follows: ARTICLE I 1.01 The first sentence of Section 2.01 of the Indenture is hereby amended to read in its entirety as follows: Upon the execution and delivery of this Indenture, Guarantees of notes of Subsidiaries covering an unlimited amount of indebtedness may be executed by the Guarantor, and may be issued from time to time as determined by the Board of Directors of the Guarantor or by officers of the Guarantor who are authorized by the Board of Directors of the Guarantor to make determinations to issue Guarantees. 1.02 Unless otherwise defined herein, all terms used in this Second Supplemental Indenture that are defined in the Indenture shall have the same meanings as used therein. ARTICLE II Miscellaneous 2.01 Except as expressly supplemented by this Second Supplemental Indenture, the Indenture is in all respects ratified and confirmed and all of the rights, remedies, terms, conditions, covenants and agreements of the Indenture and the Guarantees issued thereunder shall remain in full force and effect. 3 2.02 This Second Supplemental Indenture is executed as and shall constitute an indenture supplemental to the Indenture and shall be construed in connection with and as part of the Indenture. This Second Supplemental Indenture shall be governed by and construed in accordance with the laws of the jurisdiction which governs the Indenture and it construction. 2.03 This Second Supplemental Indenture may be executed in any number of counterparts, each of which shall be deemed to be an original for all purposes; but such counterparts shall together be deemed to constitute but one and the same instrument. IN WITNESS WHEREOF, the parties have caused this Second Supplemental Indenture to be duly executed as of the day and year first written above. SERVICE CORPORATION INTERNATIONAL By:/s/ JAMES M. SHELGER ------------------------------------ James M. Shelger Senior Vice President General Counsel and Secretary TEXAS COMMERCE BANK NATIONAL ASSOCIATION By:/s/ WAYNE MENTZ ------------------------------------ Name: Wayne Mentz ---------------------------------- Title: Assistant Vice President --------------------------------- and Trust Officer --------------------------------- -2- EX-12.1 14 RATIO OF EARNINGS TO FIXED CHARGES 1 EXHIBIT 12.1 SERVICE CORPORATION INTERNATIONAL RATIO OF EARNINGS TO FIXED CHARGES (Thousands, except ratio amounts)
YEARS ENDED DECEMBER 31, 1997 1996 1995 1994 1993 -------- -------- -------- -------- -------- Pretax income ................................................................. $579,973 $413,881 $294,211 $219,021 $173,492 Undistributed income of less than 50% owned equity investees................... (4,267) (6,173) (3,847) (1,019) (325) Minority interest in income of majority owned subsidiaries with fixed charges.. 124 933 1,878 2,234 1,938 Add fixed charges as adjusted (from below)..................................... 170,278 178,291 155,552 102,370 78,841 -------- -------- -------- -------- -------- $746,108 $586,932 $447,794 $322,608 $253,946 Fixed charges: Interest expense: Corporate................................................................... $135,560 $136,008 $118,148 $ 80,123 $ 59,631 Financial services.......................................................... 8,015 8,913 10,782 9,912 7,725 Capitalized................................................................. 3,787 3,099 1,865 584 705 Amortization of debt costs................................................... 1,160 2,549 1,093 311 288 1/3 of rental expense........................................................ 21,161 20,040 14,748 11,485 11,197 Dividends on preferred securities of SCI Finance LLC......................... 4,382 10,781 10,781 539 - -------- -------- -------- -------- -------- Fixed charges.................................................................. 174,065 181,390 157,417 102,954 75,546 Fixed charges as adjusted: Less: Capitalized interest................................................... (3,787) (3,099) (1,865) (584) (705) -------- -------- -------- -------- -------- Fixed charges as adjusted...................................................... $170,278 $178,291 $155,552 $102,370 $ 78,841 -------- -------- -------- -------- -------- Ratio (earnings divided by fixed charges)...................................... 4.29 3.24 2.84 3.13 3.19
EX-21.1 15 SUBSIDIARIES OF THE COMPANY 1 EXHIBIT 21.1 March 23, 1998
ALABAMA OWNERSHIP - ------- --------- SCI Funeral Services, Inc. (Iowa Corp) Alabama subsidiaries SCI Alabama Funeral Services, Inc.------------------------------100% Cedar Oak Memorial Park, Inc.--------------------------100% EC Land Company, Inc.----------------------------------100% Heritage Services, Inc.--------------------------------100% Memory Chapel Funeral Homes, Inc.----------------------100% Memory Hill Gardens, Inc.------------------------------100% Pineland Memorial Park---------------------------------100% Walker Memory Gardens, Inc.----------------------------100% ALASKA - ------ SCI Funeral Services, Inc. (Iowa Corp.) Alaska subsidiaries SCI Alaska Funeral Services, Inc.-------------------------------100% ARIZONA - ------- SCI Funeral Services, Inc. (Iowa Corp.) Arizona subsidiaries National Cremation Society, Inc.--------------------------------100% SCI Arizona Funeral Services, Inc.------------------------------100% Grimshaw Mortuary, Inc.--------------------------------100% Redwood Memorial Gardens, Inc.-------------------------100% Valley of the Sun Memorial Park, Inc.------------------100% ARKANSAS - -------- SCI Funeral Services, Inc. (Iowa Corp) Arkansas subsidiaries SCI Arkansas Funeral Services, Inc.-----------------------------100% The East Funeral Benefit Assurance Company----------------------100% CALIFORNIA - ---------- SCI Funeral Services, Inc. (Iowa Corp.) California subsidiaries Hong Kong Funeral Homes-----------------------------------------100% International Funeral Parlours----------------------------------100% SCI California Funeral Services, Inc.---------------------------100% CWFD, Inc.---------------------------------------------100% Ellis-Olson Mortuary-----------------------------------100% Hotchkiss Mortuary, Incorporated-----------------------100% Lakeside Memorial Lawn---------------------------------100% La Verne Cemetery Corporation--------------------------100% Mount Vernon Memorial Park-----------------------------100% Oakdale Memorial Park----------------------------------100% Oakdale Mortuary---------------------------------------100% Oak Hill Improvement Company---------------------------100% Pierce Brothers----------------------------------------100% Redding Memorial Park----------------------------------100% Sacramento Memorial Lawn-------------------------------100% SCI Southern California Region, Inc.-------------------100% The Valley Funeral Home--------------------------------100% Tinkler Mission Chapel---------------------------------100% World Funeral Home-------------------------------------100% COLORADO - -------- SCI Funeral Services, Inc. (Iowa Corp.) Colorado subsidiaries SCI Colorado Funeral Services, Inc.-----------------------------100% SCI Western Division, Inc.-----------------------------100% CONNECTICUT - ----------- SCI Funeral Services, Inc. (Iowa Corp.) Connecticut subsidiaries SCI Connecticut Funeral Services, Inc.--------------------------100% DELAWARE - -------- Christian Funeral Services, Inc.----------------------------------------100% Provident Services, Inc.------------------------------------------------100% Provident Credit Corp.------------------------------------------100% SCI Aviation, Inc.------------------------------------------------------100% SCI Executive Services, Inc.--------------------------------------------100% SCI Finance Management Inc.---------------------------------------------100% SCI Funeral Services, Inc. (Iowa Corp.) Delaware subsidiaries First Memorial Funeral Services, Inc.---------------------------100% Gibraltar Mausoleum Corporation---------------------------------100% Gibraltar Mausoleum Construction Company, Inc.---------100% Rose Hill Securities Company---------------------------100% IFC-Boyertown, Inc.---------------------------------------------100% Memorial Guardian Plans, Inc.-----------------------------------100% SCI Funeral Services, Inc.--------------------------------------100% SCI Georgia Funeral Services, Inc.------------------------------100% SCI International Services, Inc.--------------------------------100% Kenyon International Emergency Services, Inc.----------100% SCI Missouri Funeral Services, Inc. (Missouri Corp.) Delaware subsidiaries IFC-York, Inc.-----------------------------------------100% SCIT Holdings, Inc.---------------------------------------------100%
1 * State Law Not-For-Profit-Corporation 2 SCI Iowa Funeral Services, Inc. (IA Corp.) Delaware subsidiaries SCI Iowa Finance Company-------------------------------100% SCI Pennsylvania Funeral Services, Inc. (PA Corp.) Delaware subsidiaries Gabauer Funeral Home, Inc.-----------------------------100% SCI International Limited-----------------------------------------------100% SCI Capital Holdings, Inc.---------------------------------------70% SCI Financing Corporation---------------------------------------100% SCI Special, Inc.-------------------------------------------------------100% SCI Capital Corporation-----------------------------------------100% Investment Capital Corporation (Texas Corp.) Delaware subsidiaries IFC-YP, Inc.-----------------------------------100% SCI Management Corporation--------------------------------------100% International Funeral Services, Inc.-------------------100% SCI European Aviation, Inc.----------------------------100% SCI Management Finance Company-------------------------100% DISTRICT OF COLUMBIA - -------------------- SCI Funeral Services, Inc. (Iowa Corp.) DC subsidiaries Witzke Funeral Homes, Inc.--------------------------------------100% FLORIDA - ------- SCI Funeral Services, Inc. (Iowa Corp) Florida subsidiaries Gibraltar Mausoleum Corporation (DE Corp.) Florida subsidiaries Fountainhead Memorial Park, Inc.-----------------------100% Gibraltar Mausoleum of Florida, Inc.-------------------100% Hillsboro Memorial Gardens, Inc.-----------------------100% Lakeview Memorial Gardens, Inc.------------------------100% SCI Funeral Services of Florida, Inc.---------------------------100% Dorsey Funeral Home, Inc.------------------------------100% FM Cemetery, Inc.--------------------------------------100% Memorial Plans, Inc.-----------------------------------100% Woodlawn Memorial Park, Inc.---------------------------100% GEORGIA - ------- SCI Funeral Services, Inc. (Iowa corp.) Georgia subsidiaries SCI Georgia Funeral Services, Inc. (Delaware Corp.) Georgia subsidiaries Memorial Gardens of Rome, Inc.-------------------------100% SCI Georgia Land, Inc.---------------------------------100% SCI Southern Division, Inc.----------------------------100% HAWAII - ------ SCI Funeral Services, Inc. (Iowa Corp.) Hawaii subsidiaries SCI Hawaii Funeral Services, Inc.-------------------------------100% *Hawaiian Memorial Park Cemetery---------------------------- -0- Garden Life Plan, Ltd.--------------------------50% Hawaiian Memorial Life Plan, Ltd.--------------100% IDAHO - ----- NO SUBSIDIARIES ILLINOIS - -------- Remmert Acquisition Corp.-----------------------------------------------100% SCI Funeral Services, Inc. (Iowa Corp.) Illinois subsidiaries Rosehill Memorials, Inc.----------------------------------------100% SCI Illinois Services, Inc.-------------------------------------100% Charles T. Bisch & Son, Inc.---------------------------100% Chris J. Balodimas, Ltd.-------------------------------100% Elias-Smith Funeral Homes, Inc.------------------------100% Humes Funeral Home, Inc.-------------------------------100% IFS Illinois, Inc.-------------------------------------100% Kolbus Funeral Home, Inc.------------------------------100% Marsh Funeral Home, Inc.-------------------------------100% Pete Gaerdner Funeral Home, Inc.-----------------------100% Remmert Funeral Home, Ltd.-----------------------------100% Sourek Funeral Homes, Inc.-----------------------------100% Vault Company of Illinois, Inc.------------------------100% INDIANA - ------- SCI Funeral Services, Inc. (Iowa Corp.) Indiana subsidiaries Gibraltar Mausoleum Corporation (DE Corp.) Indiana subsidiaries Alpha Services Corporation-----------------------------100% Gibraltar Mausoleum of Indiana, Inc.-------------------100% Gibraltar Services, Inc.-------------------------------100% Gold Crusader Insurance Agency, Inc.-------------------100% SCI Indiana Funeral Services, Inc.------------------------------100% Greenlawn Memorial Park, Inc.--------------------------100% Indiana Cemetery Services, Inc.------------------------100% Klaehn Funeral Homes, Inc.-----------------------------100% Roselawn Memorial Association, Inc.--------------------100%
2 * State Law Not-For-Profit-Corporation 3 IOWA - ---- DMP Acquisition Corp.---------------------------------------------------100% SCI Funeral Services, Inc.----------------------------------------------100% Bunker's Eden Vale, Inc.----------------------------------------100% SCI Iowa Funeral Services, Inc.---------------------------------100% Davenport Memorial Park Inc.---------------------------100% Meyer Funeral Home, Inc.-------------------------------100% KANSAS - ------ SCI Funeral Services, Inc. (Iowa Corp.) Kansas subsidiaries SCI Kansas Funeral Services, Inc.-------------------------------100% Resthaven Gardens of Memory, Inc.----------------------100% Services of Kansas, Inc.----------------------------------------100% KENTUCKY - -------- SCI Funeral Services, Inc. (Iowa Corp) Kentucky subsidiaries Gibraltar Mausoleum Corporation (DE Corp.) Kentucky subsidiaries Kentucky Funeral Services, Inc.------------------------100% SCI Kentucky Funeral Services, Inc.--------------------------------------99% Highland Memory Gardens, Inc.-----------------------------------100% LOUISIANA - --------- SCI Funeral Services, Inc. (Iowa Corp) Louisiana subsidiaries SCI Louisiana Funeral Services, Inc.----------------------------100% Affiliated Enterprises, Inc.---------------------------100% MAINE - ----- SCI Funeral Services, Inc. (Iowa Corp) Maine subsidiaries SCI Maine Funeral Services, Inc.--------------------------------100% MARYLAND - -------- SCI Funeral Services, Inc. (Iowa Corp.) Maryland subsidiaries Gibraltar Mausoleum Corporation (DE Corp.) Maryland subsidiaries Holly Hill Memorial Gardens, Inc.----------------------100% Witzke Funeral Home of Catonsville, Inc.---------------100% Witzke, Inc.---------------------------------55.17% Hubbard Funeral Home, Inc.--------------------------------------100% AEFH, Inc.---------------------------------------------100% Bradley-Ashton-Dabrowski-Matthews Funeral Home, Inc.---100% Danzansky-Goldberg Memorial Chapels, Inc.--------------100% Edward Sagel Funeral Direction, Inc.-------------------100% Fleck Funeral Home, Inc.-------------------------------100% Gary L. Kaufman Funeral Home at Meadowridge Memorial Park, Inc.----------------100% Gary L. Kaufman Funeral Home of Elkridge, Inc.---------100% Gary L. Kaufman Funeral Home Southwest, Inc.-----------100% John C. Miller, Incorporated---------------------------100% Lemmon Funeral Home of Dulaney Valley, Inc.------------100% Loring Byers Funeral Directors, Inc.-------------------100% Moran-Ashton-Dabrowski Funeral Home, Inc.--------------100% Sterling-Ashton Funeral Home, Inc.---------------------100% The Dippel Funeral Homes, Incorporated-----------------100% SCI Maryland Funeral Services, Inc.-----------------------------100% George Washington Cemetery Company, Inc.---------------100% The Behrens Corporation--------------------------------100% MASSACHUSETTS - ------------- Provident Services, Inc. (Delaware Corp.) Massachusetts subsidiaries PSI Massachusetts, Inc.-----------------------------------------100% SCI Funeral Services, Inc. (Iowa Corp.) Massachusetts subsidiaries Affiliated Family Funeral Service, Inc.-------------------------100% AFFS Boston, Inc.---------------------------------------40% AFFS North, Inc.----------------------------------------30% AFFS Norwood, Inc.--------------------------------------40% AFFS Quincy, Inc.---------------------------------------40% AFFS South Coast East, Inc.-----------------------------40% AFFS South Coast West, Inc.-----------------------------10% AFFS West, Inc.-----------------------------------------30% PFH, Inc.----------------------------------------------100% Pillsbury Funeral Homes, Inc.---------------------------40% Sullivan Funeral Homes, Inc.----------------------------40% MFS Holding Company, Inc.---------------------------------------100% Messier Funeral Home, Inc.------------------------------40% Perlman Funeral Home, Inc.------------------------------40% Stanetsky Memorial Chapels, Inc.------------------------40% MICHIGAN - -------- SCI Funeral Services, Inc. (Iowa Corp) Michigan subsidiaries Gibraltar Mausoleum Corporation (DE Corp.) Michigan subsidiaries Memorial Land Company, Inc.----------------------------100% SCI Michigan Funeral Services, Inc.-----------------------------100% Elton Black & Son Funeral Home, Inc.-------------------100% Estes-Leadley Co.--------------------------------------100%
3 * State Law Not-For-Profit-Corporation 4 MINNESOTA - --------- SCI Funeral Services, Inc. (Iowa Corp.) Minnesota subsidiaries SCI Minnesota Funeral Services, Inc.----------------------------100% Crystal Lake Cemetery Association----------------------100% MISSISSIPPI - ----------- SCI Funeral Services, Inc. (Iowa Corp.) Mississippi subsidiaries SCI Mississippi Funeral Services, Inc.--------------------------100% Southwest Mississippi Funeral Service, Inc.------------100% MISSOURI - -------- SCI Funeral Services, Inc. (Iowa Corp) Missouri subsidiaries SCI Missouri Funeral Services, Inc.-----------------------------100% Memorial Guardian Plans, Inc.--------------------------100% MONTANA - ------- NO SUBSIDIARIES NEBRASKA - -------- SCI Funeral Services, Inc. (Iowa Corp) Nebraska subsidiaries SCI Nebraska Funeral Services, Inc.-----------------------------100% NEVADA - ------ SCI Funeral Services, Inc. (Iowa Corp) Nevada subsidiaries Ross, Burke & Knobel Mortuary-----------------------------------100% SCIT Holdings, Inc. (Delaware Corp.) Texas subsidiaries SCI Texas Funeral Services, Inc. (Texas Corp) Nevada subsidiaries SCI Texas Finance Company----------------------100% NEW HAMPSHIRE - ------------- NO SUBSIDIARIES NEW JERSEY - ---------- A & C Acquisition Corp.-------------------------------------------------100% SCI Funeral Services, Inc. (Iowa Corp) New Jersey subsidiaries SCIT Holdings, Inc. (Delaware Corp.) New Jersey subsidiaries SCI New Jersey Funeral Services, Inc.------------------100% Anderson & Campbell, Inc.----------------------100% Funeral Livery Co., Inc.-----------------------100% Garden State Crematory, Inc.-------------------100% La Monica Memorial Home------------------------100% Michael Hegarty Funeral Home, Inc.-------------100% Quinn Funeral Service--------------------------100% Wien & Wien, Inc.------------------------------100% NEW MEXICO - ---------- SCI Funeral Services, Inc. (Iowa Corp) New Mexico subsidiaries Memorial Guardian Plans, Inc. (Delaware Corp) New Mexico subsidiaries Ensure Agency of New Mexico, Inc.----------------------100% SCI New Mexico Funeral Services, Inc.---------------------------100% Alameda Funeral Services, Inc.-------------------------100% Lawn Haven Memorial Gardens, Inc.----------------------100% NEW YORK - -------- SCI Funeral Services, Inc. (Iowa Corp) New York subsidiaries SCI Funeral Services of New York, Inc.--------------------------100% Bordynski-Hollis Funeral Home, Inc.--------------------100% Chas. Peter Nagel Inc.---------------------------------100% Farone and Son, Inc.-----------------------------------100% I. J. Morris, Inc.-------------------------------------100% Marsellus Casket Company, Inc.-------------------------100% Nesconset Funeral Home, Inc.---------------------------100% New York Funeral Chapels, Inc.-------------------------100% SCI Eastern Division, Inc.-----------------------------100% 725 RTE. 347 CORP -------------------------------------100% Thomas M. Quinn & Sons, Inc.----------------------------80% Werst Realty Co. Inc.--------------------------100% SCI Services of New York, Inc.----------------------------------100% *The Acacia Park Cemetery Association, Inc.------------100% NORTH CAROLINA - -------------- SCI Funeral Services, Inc. (Iowa Corp) North Carolina subsidiaries SCI North Carolina Funeral Services, Inc.-----------------------100% Skyline Memory Gardens, Inc.---------------------------100% The P.E. Moody Funeral Home, Inc.----------------------100% NORTH DAKOTA - ------------ SCI Funeral Services, Inc. (Iowa Corp) North Dakota subsidiaries Memorial Guardian Plans, Inc.-----------------------------------100% OHIO - ---- SCI Funeral Services, Inc. (Iowa Corp.) Ohio subsidiaries Gibraltar Mausoleum Corporation (DE Corp.) Ohio subsidiaries Burton Funeral Home-Greenlawn Chapel, Inc.--------------90% Ciriello Funeral Home - Rose Hill Chapel, Inc.----------90% Pioneer of Ohio Insurance Agency, Inc.-----------------100% Selby-Cole Funeral Home, Inc.---------------------------85%
4 * State Law Not-For-Profit-Corporation 5 The Knollwood Cemetery Company-----------------------------100% Memorial Guardian Plans, Inc. (Delaware Corp.) Ohio subsidiaries Ensure Agency of Ohio, Inc.--------------------------------100% SCI Ohio Funeral Services, Inc.--------------------------------------80% BKB Funeral Home, Inc.--------------------------------------90% M-D Memorial Chapel, Inc.-----------------------------------90% JLIW Funeral Homes, Inc.------------------------------------90% K & S Funeral Home, Inc.------------------------------------90% Ohio Cemetery Services, Inc.-------------------------------100% STE Acquisition Corp.--------------------------------------100% Sunset Trust Estate--------------------------------100% Walter-Schoedinger Funeral Home, Inc.----------------------100% Walton-Schrader Funeral Home, Inc.-------------------------100% W-S Funeral Home, Inc.------------------------------90% W-K Funeral Homes, Inc.-------------------------------------90% OKLAHOMA - -------- SCI Funeral Services, Inc. (Iowa Corp.) Oklahoma subsidiaries AED, Inc.-----------------------------------------------------------100% Memorial Gardens Association-------------------------------100% RMG Trust--------------------------------------------------100% Resthaven Memory Gardens of Oklahoma City Trust----100% Rose Hill Burial Park, a Trust------------------------------90% Gibraltar Mausoleum Corporation (DE Corp.) Oklahoma subsidiaries Rose Hill Memorial Park Trust------------------------------100% IFC-YP, Inc. (Delaware Corp) Oklahoma subsidiaries IFC-Amedco, Inc. ------------------------------------------100% SCI Oklahoma Funeral Services, Inc.---------------------------------100% Hillcrest Memorial Park Trust------------------------------100% Memorial Park Cemetery of Bartlesville, Oklahoma, A Business Trust-----------------------------------100% Memory Gardens, Inc.---------------------------------------100% SSP Limited Liability Company-------------------------------50% SSP Insurance Agency, Inc.-------------------------100% Sunset Memorial Park Cemetery Trust------------------------100% Woodland Memorial Company----------------------------------100% Sentinel Security Plans, Inc.(Virginia Corp.) Oklahoma Subsidiaries SSP Limited Liability Company-------------------------------50% OREGON - ------ SCI Funeral Services, Inc. (Iowa Corp) Oregon subsidiaries SCI Oregon Funeral Services, Inc.-----------------------------------100% Hughes Ransom Mortuary, Inc.-------------------------------100% Uniservice Corporation-------------------------------------100% PENNSYLVANIA - ------------ SCI Funeral Services, Inc. (Iowa Corp) Pennsylvania subsidiaries Gibraltar Mausoleum Corporation (DE Corp.) Pennsylvania subsidiaries Forest Lawn Gardens, Inc.-----------------------------------50% Speer-Anthony Kaprive Funeral Home, Inc.------------50% Grandview Cemetery Association-----------------------------100% Harold B. Mulligan Co., Inc.-------------------------------100% Remembrance Services, Inc.---------------------------------100% Stephen R. Haky Funeral Home, Inc.-------------------------100% Memorial Guardian Plans, Inc.( Delaware Corp) Pennsylvania subsidiaries Ensure Agency of Pennsylvania, Inc.------------------------100% SCI Pennsylvania Funeral Services, Inc.-----------------------------100% Aeternum, Inc.---------------------------------------------100% Auman Funeral Home, Inc.-----------------------------------100% Cedar Hill Memorial Park, Inc.-----------------------------100% Funeral Corporation Pennsylvania---------------------------100% Luther M. Kniffen, Inc.----------------------------100% Rohland Funeral Home-------------------------------100% Parklawns, Inc.--------------------------------------------100% Sylvania Hills Memorial Park, Incorporated-----------------100% Theo. C. Auman, Inc.---------------------------------------100% Auman's, Inc.--------------------------------------100% Forest Hills Memorial Park, Inc.-------------------100% Francis F. Seidel, Inc.----------------------------100% Memorial Services Planning Corporation-------------100% RHODE ISLAND - ------------ NO SUBSIDIARIES SOUTH CAROLINA - -------------- SCI Funeral Services, Inc. (Iowa corp.) South Carolina subsidiaries SCI South Carolina Funeral Services, Inc.---------------------------100% Greenville Vault Co., Inc.---------------------------------100% SOUTH DAKOTA - ------------ NO SUBSIDIARIES
5 * State Law Not-For-Profit-Corporation 6 TENNESSEE - --------- SCI Funeral Services, Inc. (Iowa Corp) Tennessee subsidiaries SCI Tennessee Funeral Services, Inc.-----------------------------100% Collierville Funeral Home, Inc.-------------------------100% Lily of the Valley, Inc.--------------------------------100% Lynnhurst Cemetery, Inc.--------------------------------100% Memorial Guardian Plans, Inc.---------------------------100% Memphis Memory Gardens, Inc.----------------------------100% Sherwood Memorial Gardens, Inc.-------------------------100% Woodlawn East, Incorporated-----------------------------100% Woodlawn Memorial Park, Inc.----------------------------100% TEXAS - ----- SCI Funeral Services, Inc. (Iowa Corp) Texas subsidiaries Gibraltar Mausoleum Corporation (DE Corp.) Texas subsidiaries Gibraltar Mausoleum of Texas, Inc.----------------------100% SCIT Holdings, Inc. (Delaware Corp.) Texas subsidiaries SCI Texas Funeral Services, Inc.------------------------100% EFH, Inc.---------------------------------------100% Futrell, Inc.-----------------------------------100% Grammier-Oberle Funeral Home, Inc.--------------100% Grand Prairie Funeral Home, Inc.----------------100% H.R.E., Inc.------------------------------------100% Memorial Funeral Services, Inc.-----------------100% Moore & Sons Funeral Home and Cemetery, Inc.----100% SCI Central Division, Inc.----------------------100% SCI Holdings of Texas, Inc.---------------------100% Sunset Memorial Gardens, Inc.-------------------100% The New Rose Hill Memorial Park, Inc.-----------100% Stillbrooke Corporation of Tennessee-----------------------------100% SCI International Limited (Delaware Corp.) Service Corporation International PLC (UK Corp.) SCI Capital LLC-(TX limited liability company)----------100% SCI Special, Inc. (Delaware Corp.) SCI Capital Corporation (Delaware Corp.) Texas subsidiaries Great Lakes, Inc.---------------------------------------100% Investment Capital Corporation--------------------------100% UTAH - ---- SCI Funeral Services, Inc. (Iowa Corp.) Utah subsidiaries SCI Utah Funeral Services, Inc.----------------------------------100% Wasatch Land and Improvement Company--------------------100% Wasatch Lawn Cemetery Association-----------------------100% Wasatch Lawn Mortuary Corporation-----------------------100% VERMONT - ------- NO SUBSIDIARIES VIRGINIA - -------- SCI Funeral Services, Inc. (Iowa Corp.) Virginia subsidiaries Gibraltar Mausoleum Corporation (DE Corp.) Virginia subsidiaries Kellum Funeral Home, Inc.-------------------------------100% Memorial Guardian Plans, Inc. (Delaware Corp) Sentinel Security Plans, Inc.---------------------------100% SCI Virginia Funeral Services, Inc.------------------------------100% Peninsula Memorial Park Corporation---------------------100% WASHINGTON - ---------- SCI Funeral Services, Inc. (Iowa Corp.) Washington subsidiaries SCI Washington Funeral Services, Inc.----------------------------100% WEST VIRGINIA - ------------- SCI Funeral Services, Inc. (Iowa Corp.) West Virginia subsidiaries Gibraltar Mausoleum Corporation (DE Corp.) WV subsidiaries Gibraltar Mausoleum of West Virginia, Inc.--------------100% SCI West Virginia Funeral Services, Inc.-------------------------100% Woodmere, Inc.------------------------------------------100% Ridgelawn Cemetery Association------------------100% WISCONSIN - --------- SCI Funeral Services, Inc. (Iowa Corp.) Wisconsin subsidiaries Cemetery Services, Inc.------------------------------------------100% *Appleton Highland Memorial Park, Inc.-------------------------0-* SCI Wisconsin Funeral Services, Inc.-------------------------------------100% ATK Corporation-----------------------------------------100% WYOMING - ------- SCI Funeral Services, Inc. (Iowa Corp.) Wyoming subsidiaries Memorial Guardian Plans, Inc.------------------------------------100%
6 * State Law Not-For-Profit-Corporation 7 AUSTRALIA --------- SCI International Limited (Delaware Corp.) Australia subsidiaries Service Corporation International Australia Pty., Ltd.-------------------100% Australian Cremation Society Pty Limited------------------------100% John Hansen Pty Limited-----------------------------------------100% Hansen Funeral Services Pty Limited---------------------100% Lakeside Memorial Park & Crematorium----------.006% Lakeside Memorial Park & Crematorium-----------------49.997% Kitleaf Pty Limited---------------------------------------------100% Labor Funerals Contribution Fund Pty Limited--------------------100% Lakeside Memorial Park & Crematorium-------------------------49.997% LePine Holdings Pty. Limited------------------------------------100% E Taylor & Sons Pty Limited-----------------------------100% Garnar & Son Pty Limited--------------------------------100% J Ferguson & Son Pty Limited----------------------------100% LePine Funeral Services Pty Limited---------------------100% LePine Timbercraft Pty Limited--------------------------100% LPH Pty Limited-----------------------------------------100% Mulqueen Pty Limited------------------------------------100% W.G. Apps & Sons Pty Limited----------------------------100% Memorial Guardian Plan Pty Limited------------------------------100% Metro. Burial & Cremation Society Funeral Cont. Fund------------100% New South Wales Cremation Company Pty., Ltd.--------------------100% Peter Woodward Funeral Services Pty Limited---------------------100% Pine Grove Forest Lawn Funeral Benefit Co. Pty Limited----------100% Purslowe Funeral Homes------------------------------------------100% Mareena Purslowe & Associates---------------------------100% Tweed Crematorium Pty Ltd---------------------------------------100% CANADA - ------ SCI International Limited (Delaware Corp.) Canada subsidiaries Service Corporation International (Canada) Limited-----------------------100% 1252973 Ontario Inc.-(Ontario)----------------------------------100% Westside Cemeteries Limited-(Ontario)-------------------100% Westside Cemetery Holdings Limited-(Ontario)---100% Barthel Funeral Home Ltd.-(Ontario)-----------------------------100% Brennen Funeral Home Ltd.- (Alberta)----------------------------100% Can Ensure Group, Inc.-(Federal)--------------------------------100% Centre Funeraire Cote-des-Neiges Inc.-(Quebec)-------------------49% CFCDN Holdings Inc.-(Quebec)------------------------------------100% Christensen Salmon Funeral Homes Ltd.- (Alberta)----------------100% Harmony Funeral Services, Inc.-(AB)-----------------------------100% Hetherington and Deans Limited-(Ontario)------------------------100% Hong Kong Funeral Homes B.C. Ltd-(British Columbia)-------------100% Hulse & English Funeral Home Inc.-(Ontario)---------------------100% Ingram Funeral Home Ltd.----------------------------------------100% International Funeral Parlours B.C. Ltd-(B.C.)------------------100% Jewell Funeral Home Limited-(ON)--------------------------------100% Kaye Funeral Home Limited-(Ontario)-----------------------------100% Laurent Theriault Inc.-(PQ)-------------------------------------100% Les Salons Funeraires J.F. Fortin & Fils Ltee--(PQ)-------------100% Lion Holdings, Limited-(NS)-------------------------------------100% Fillmore & Whitman Funeral Home Limited-(NS)------------100% Iverness Funeral Home Limited-(NS)----------------------100% Patten Funeral Home (1987) Limited-(NS)-----------------100% T. W. Curry Limited--(NS)-------------------------------100% McEvoy-Shields Funeral Homes Ltd.-(Ontario)---------------------100% Needham Funeral Service Inc.-(Ontario)--------------------------100% Placements Darche, Inc.-(Quebec)--------------------------------100% Residence Funeraire Mongeau Ltee--------------------------------100% Rosar-Morrison Funeral Home Limited-(Ontario)-------------------100% Rose Garden Chapels Ltd.-(Alberta)------------------------------100% Barrhead Community Chapel-(Alberta)---------------------100% Salmon Funeral Home Ltd.- (Alberta)-----------------------------100% S.C.I.C. (Quebec) Holdings Limited-(Quebec)---------------------100% SCI Holdings Canada, Inc.---------------------------------------100% SCI Northwest Region, Inc. - (B.C.)-----------------------------100% Services Funeraires Cowansville Inc.-(PQ)-----------------------100% Swackhamer, Truscott, Brown and Dwyer Funeral Homes of Hamilton Limited-(Ontario)------------------------------100% Dwyer Funeral Home Limited -(Ontario)-------------------100% Sydney Crematorium Limited-(NS)---------------------------------100% Sylvio Marceau Inc.-(Quebec)------------------------------------100% The Markey Family Funeral Homes Limited-(Ontario)---------------100% The Thorpe Brothers Funeral Home Co. Limited-(Ontario)----------100% William-Lee-Ingram Funeral Home, Inc.---------------------------100% World Funeral Home B.C. Ltd.-(British Columbia)-----------------100% 611102 Saskatchewan Ltd.-------------------------------------------------100%
7 * State Law Not-For-Profit-Corporation 8 CAYMAN ISLANDS - -------------- SCI International Limited (Delaware Corp.) Cayman Islands subsidiaries SCI Cayman II Ltd-------------------------------------------------------------------------100% SCI Latin America Ltd---------------------------------------------------------------------100% FRANCE - ------ SCI International Limited (Delaware Corp.) French subsidiaries Service Corporation International France (France)-----------------------------------------100% Omnium De Gestion Et De Financement (France)-------------------------------------100% Groupe Auxia (France)-----------------------------------------------------99% Funeral International Services (Netherlands)--------------------4.9% FUBUS Handels-und Verwaltungsgesellschaft mbH (Germany)--------------------------------------------------------------100% FUNERAL SA (Belgium)-----------------------------------------------------100% Pompes Funebres Generales (France)----------------------------------------97% Compania General de Servicios Funerarios (Spain)--------------------------------------------------------26% Funeral International Services (Netherlands)-------------------90.2% Bahau Funeral Services SDN BHD (Malaysia)------------------------------------------33.33% Bahau Memorial Park SDN BHD (Malaysia)-----------------16.7% Compagnia Internazionale Partecipazioni (Italy)-----------------------------------------------100% Organizzazione Funeraria Italiana (Italy)------------------------------------98.76% Onoranze Funebri Toscane Srl (Italy)----------------------------72.47% Agenzia Funebre Lucchese Franceschini srl (Italy)-------------------91.72% Organizzazione Funeraria Italiana (Italy)-----------1.24% Societa Imprese Funebri Empolesi srl (Italy)------72.75% Pompes Funebres Michel SA (Belgium)-----------------------5% OSEFI Holding SA (Switzerland)----------------------------------100% PAX (Czech Republic)------------------------------------------57.97% PFG Lausanne SA (Switzerland)-----------------------------------100% Funeral International Services (Netherlands)-----------------------------------------4.9% Pompes Funebres Reunies (Belgium)-------------------------------100% Malibran SA (Belgium)-----------------------------------100% Societe D'Etude Et De Service Pour La Cremation (Belgium)---------------------------35% Societe De Cremation De Charleroi (Belgium)-----------------------------90% Pompes Funebres Michel SA (Belgium)-----------------------5% Singapore Casket Company PLC (Singapore)-------------------------------67.57% Bahau Funeral Services SDN BHD (Malaysia)---------------------33.33% Bahau Memorial Park SDN BHD (Malaysia)-------------------------16.7% Bahau Funeral Services SDN BHD (Malaysia)------------------------------------------33.33% Casket Palace Company PLC (Singapore)---------------------------100% UNITED KINGDOM - -------------- SCI International Limited (Delaware Corp.) United Kingdom subsidiaries Service Corporation International PLC-----------------------------------------------------100% Carrwood (Funeral Supplies) Limited----------------------------------------------100% Chosen Heritage Ltd---------------------------------------------------------------50% Cooksley & Son Limited-----------------------------------------------------------100% Demetriou and English Ltd--------------------------------------------------------100% Dignity Limited-------------------------------------------------------------------95% Down's Crematorium---------------------------------------------------------------100% Great Southern Group PLC---------------------------------------------------------100% The Crematorium Company Limited------------------------------------------100% TJ Davies & Sons Limited-------------------------------------------------100% White Lady Funerals Limited----------------------------------------------100% Family Funeral Directors Limited-------------------------------------------------100% Funeral Services London--------------------------------------------------100% Grimmett & Timms Limited-------------------------------------------------100% Kenyon Air Transport-----------------------------------------------------100% JD Fields & Sons-----------------------------------------------------------------100% Monumental Masons Ltd------------------------------------------------------------100% Plantsbrook Group PLC------------------------------------------------------------100% Hodgson Holdings PLC-----------------------------------------------------100% Kenyon Securities PLC----------------------------------------------------100% Pitcher and LeQuesne Limited------------------------------------100% SCI Capital LLC-(TX limited liability company)-----------------------------------100%
8 * State Law Not-For-Profit-Corporation EX-23.1 16 CONSENT OF INDEPENDENT ACCOUNTANTS 1 EXHIBIT 23.1 CONSENT OF INDEPENDENT ACCOUNTANTS We consent to the incorporation by reference in the registration statements of Service Corporation International on Form S-3 (File No. 333-10867), Form S-4 (File Nos. 333-01857 and 33-54996) and Form S-8 (File Nos. 333-33101, 333-00177, 333-00179, 33-9790, 33-17982, 333-02665, 333-19863 and 33-50987) of our report dated March 18, 1998, on our audits of the consolidated financial statements and financial statement schedule of Service Corporation International as of December 31, 1997 and 1996, and for each of the three years in the period ended December 31, 1997, which report is included in this Annual Report on Form 10-K. /s/ COOPERS & LYBRAND L.L.P. Houston, Texas March 27, 1998 EX-24.1 17 POWERS OF ATTORNEY 1 EXHIBIT 24.1 POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS, that the undersigned, an officer or director or both, of Service Corporation International, a Texas corporation (the "Company"), does hereby constitute and appoint George R. Champagne and James M. Shelger his true and lawful attorneys and agents (each with authority to act alone), with power and authority to sign for and on behalf of the undersigned the name of the undersigned as officer or director, or both, of the Company to the Company's Annual Report to the Securities and Exchange Commission on Form 10-K for the fiscal year of the Company ending December 31, 1997 and to any amendments thereto filed with the Securities and Exchange Commission, and to any instrument or document filed as a part of, as an exhibit to or in connection with said Report or amendments; and the undersigned does hereby ratify and confirm as his own act and deed all that said attorney and agent shall do or cause to be done by virtue hereof. IN WITNESS WHEREOF, the undersigned has subscribed these presents this 12th day of February, 1998. /s/ R. L. Waltrip --------------------------- R. L. WALTRIP 2 POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS, that the undersigned, an officer or director or both, of Service Corporation International, a Texas corporation (the "Company"), does hereby constitute and appoint George R. Champagne and James M. Shelger his true and lawful attorneys and agents (each with authority to act alone), with power and authority to sign for and on behalf of the undersigned the name of the undersigned as officer or director, or both, of the Company to the Company's Annual Report to the Securities and Exchange Commission on Form 10-K for the fiscal year of the Company ending December 31, 1997 and to any amendments thereto filed with the Securities and Exchange Commission, and to any instrument or document filed as a part of, as an exhibit to or in connection with said Report or amendments; and the undersigned does hereby ratify and confirm as his own act and deed all that said attorney and agent shall do or cause to be done by virtue hereof. IN WITNESS WHEREOF, the undersigned has subscribed these presents this 23rd day of March, 1998. /s/ George R. Champagne --------------------------- GEORGE R. CHAMPAGNE 3 POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS, that the undersigned, an officer or director or both, of Service Corporation International, a Texas corporation (the "Company"), does hereby constitute and appoint George R. Champagne and James M. Shelger his true and lawful attorneys and agents (each with authority to act alone), with power and authority to sign for and on behalf of the undersigned the name of the undersigned as officer or director, or both, of the Company to the Company's Annual Report to the Securities and Exchange Commission on Form 10-K for the fiscal year of the Company ending December 31, 1997 and to any amendments thereto filed with the Securities and Exchange Commission, and to any instrument or document filed as a part of, as an exhibit to or in connection with said Report or amendments; and the undersigned does hereby ratify and confirm as his own act and deed all that said attorney and agent shall do or cause to be done by virtue hereof. IN WITNESS WHEREOF, the undersigned has subscribed these presents this 12th day of February, 1998. /s/ Anthony L. Coelho --------------------------- ANTHONY L. COELHO 4 POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS, that the undersigned, an officer or director or both, of Service Corporation International, a Texas corporation (the "Company"), does hereby constitute and appoint George R. Champagne and James M. Shelger his true and lawful attorneys and agents (each with authority to act alone), with power and authority to sign for and on behalf of the undersigned the name of the undersigned as officer or director, or both, of the Company to the Company's Annual Report to the Securities and Exchange Commission on Form 10-K for the fiscal year of the Company ending December 31, 1997 and to any amendments thereto filed with the Securities and Exchange Commission, and to any instrument or document filed as a part of, as an exhibit to or in connection with said Report or amendments; and the undersigned does hereby ratify and confirm as his own act and deed all that said attorney and agent shall do or cause to be done by virtue hereof. IN WITNESS WHEREOF, the undersigned has subscribed these presents this 12th day of February, 1998. /s/ Douglas M. Conway --------------------------- DOUGLAS M. CONWAY 5 POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS, that the undersigned, an officer or director or both, of Service Corporation International, a Texas corporation (the "Company"), does hereby constitute and appoint George R. Champagne and James M. Shelger his true and lawful attorneys and agents (each with authority to act alone), with power and authority to sign for and on behalf of the undersigned the name of the undersigned as officer or director, or both, of the Company to the Company's Annual Report to the Securities and Exchange Commission on Form 10-K for the fiscal year of the Company ending December 31, 1997 and to any amendments thereto filed with the Securities and Exchange Commission, and to any instrument or document filed as a part of, as an exhibit to or in connection with said Report or amendments; and the undersigned does hereby ratify and confirm as his own act and deed all that said attorney and agent shall do or cause to be done by virtue hereof. IN WITNESS WHEREOF, the undersigned has subscribed these presents this 12th day of February, 1998. /s/ Jack Finkelstein --------------------------- JACK FINKELSTEIN 6 POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS, that the undersigned, an officer or director or both, of Service Corporation International, a Texas corporation (the "Company"), does hereby constitute and appoint George R. Champagne and James M. Shelger his true and lawful attorneys and agents (each with authority to act alone), with power and authority to sign for and on behalf of the undersigned the name of the undersigned as officer or director, or both, of the Company to the Company's Annual Report to the Securities and Exchange Commission on Form 10-K for the fiscal year of the Company ending December 31, 1997 and to any amendments thereto filed with the Securities and Exchange Commission, and to any instrument or document filed as a part of, as an exhibit to or in connection with said Report or amendments; and the undersigned does hereby ratify and confirm as his own act and deed all that said attorney and agent shall do or cause to be done by virtue hereof. IN WITNESS WHEREOF, the undersigned has subscribed these presents this 12th day of February, 1998. /s/ A. J. Foyt, Jr. --------------------------- A. J. FOYT, JR. 7 POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS, that the undersigned, an officer or director or both, of Service Corporation International, a Texas corporation (the "Company"), does hereby constitute and appoint George R. Champagne and James M. Shelger his true and lawful attorneys and agents (each with authority to act alone), with power and authority to sign for and on behalf of the undersigned the name of the undersigned as officer or director, or both, of the Company to the Company's Annual Report to the Securities and Exchange Commission on Form 10-K for the fiscal year of the Company ending December 31, 1997 and to any amendments thereto filed with the Securities and Exchange Commission, and to any instrument or document filed as a part of, as an exhibit to or in connection with said Report or amendments; and the undersigned does hereby ratify and confirm as his own act and deed all that said attorney and agent shall do or cause to be done by virtue hereof. IN WITNESS WHEREOF, the undersigned has subscribed these presents this 12th day of February, 1998. /s/ James J. Gavin, Jr. --------------------------- JAMES J. GAVIN, JR. 8 POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS, that the undersigned, an officer or director or both, of Service Corporation International, a Texas corporation (the "Company"), does hereby constitute and appoint George R. Champagne and James M. Shelger his true and lawful attorneys and agents (each with authority to act alone), with power and authority to sign for and on behalf of the undersigned the name of the undersigned as officer or director, or both, of the Company to the Company's Annual Report to the Securities and Exchange Commission on Form 10-K for the fiscal year of the Company ending December 31, 1997 and to any amendments thereto filed with the Securities and Exchange Commission, and to any instrument or document filed as a part of, as an exhibit to or in connection with said Report or amendments; and the undersigned does hereby ratify and confirm as his own act and deed all that said attorney and agent shall do or cause to be done by virtue hereof. IN WITNESS WHEREOF, the undersigned has subscribed these presents this 12th day of February, 1998. /s/ James H. Greer --------------------------- JAMES H. GREER 9 POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS, that the undersigned, an officer or director or both, of Service Corporation International, a Texas corporation (the "Company"), does hereby constitute and appoint George R. Champagne and James M. Shelger his true and lawful attorneys and agents (each with authority to act alone), with power and authority to sign for and on behalf of the undersigned the name of the undersigned as officer or director, or both, of the Company to the Company's Annual Report to the Securities and Exchange Commission on Form 10-K for the fiscal year of the Company ending December 31, 1997 and to any amendments thereto filed with the Securities and Exchange Commission, and to any instrument or document filed as a part of, as an exhibit to or in connection with said Report or amendments; and the undersigned does hereby ratify and confirm as his own act and deed all that said attorney and agent shall do or cause to be done by virtue hereof. IN WITNESS WHEREOF, the undersigned has subscribed these presents this 12th day of February, 1998. /s/ L. William Heiligbrodt --------------------------- L. WILLIAM HEILIGBRODT 10 POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS, that the undersigned, an officer or director or both, of Service Corporation International, a Texas corporation (the "Company"), does hereby constitute and appoint George R. Champagne and James M. Shelger his true and lawful attorneys and agents (each with authority to act alone), with power and authority to sign for and on behalf of the undersigned the name of the undersigned as officer or director, or both, of the Company to the Company's Annual Report to the Securities and Exchange Commission on Form 10-K for the fiscal year of the Company ending December 31, 1997 and to any amendments thereto filed with the Securities and Exchange Commission, and to any instrument or document filed as a part of, as an exhibit to or in connection with said Report or amendments; and the undersigned does hereby ratify and confirm as his own act and deed all that said attorney and agent shall do or cause to be done by virtue hereof. IN WITNESS WHEREOF, the undersigned has subscribed these presents this 12th day of February, 1998. /s/ B. D. Hunter --------------------------- B. D. HUNTER 11 POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS, that the undersigned, an officer or director or both, of Service Corporation International, a Texas corporation (the "Company"), does hereby constitute and appoint George R. Champagne and James M. Shelger his true and lawful attorneys and agents (each with authority to act alone), with power and authority to sign for and on behalf of the undersigned the name of the undersigned as officer or director, or both, of the Company to the Company's Annual Report to the Securities and Exchange Commission on Form 10-K for the fiscal year of the Company ending December 31, 1997 and to any amendments thereto filed with the Securities and Exchange Commission, and to any instrument or document filed as a part of, as an exhibit to or in connection with said Report or amendments; and the undersigned does hereby ratify and confirm as his own act and deed all that said attorney and agent shall do or cause to be done by virtue hereof. IN WITNESS WHEREOF, the undersigned has subscribed these presents this 12th day of February, 1998. /s/ John W. Mecom, Jr. --------------------------- JOHN W. MECOM, JR. 12 POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS, that the undersigned, an officer or director or both, of Service Corporation International, a Texas corporation (the "Company"), does hereby constitute and appoint George R. Champagne and James M. Shelger his true and lawful attorneys and agents (each with authority to act alone), with power and authority to sign for and on behalf of the undersigned the name of the undersigned as officer or director, or both, of the Company to the Company's Annual Report to the Securities and Exchange Commission on Form 10-K for the fiscal year of the Company ending December 31, 1997 and to any amendments thereto filed with the Securities and Exchange Commission, and to any instrument or document filed as a part of, as an exhibit to or in connection with said Report or amendments; and the undersigned does hereby ratify and confirm as his own act and deed all that said attorney and agent shall do or cause to be done by virtue hereof. IN WITNESS WHEREOF, the undersigned has subscribed these presents this 12th day of February, 1998. /s/ Clifton H. Morris, Jr. --------------------------- CLIFTON H. MORRIS, JR. 13 POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS, that the undersigned, an officer or director or both, of Service Corporation International, a Texas corporation (the "Company"), does hereby constitute and appoint George R. Champagne and James M. Shelger his true and lawful attorneys and agents (each with authority to act alone), with power and authority to sign for and on behalf of the undersigned the name of the undersigned as officer or director, or both, of the Company to the Company's Annual Report to the Securities and Exchange Commission on Form 10-K for the fiscal year of the Company ending December 31, 1997 and to any amendments thereto filed with the Securities and Exchange Commission, and to any instrument or document filed as a part of, as an exhibit to or in connection with said Report or amendments; and the undersigned does hereby ratify and confirm as his own act and deed all that said attorney and agent shall do or cause to be done by virtue hereof. IN WITNESS WHEREOF, the undersigned has subscribed these presents this 12th day of February, 1998. /s/ E. H. Thornton, Jr. --------------------------- E. H. THORNTON, JR. 14 POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS, that the undersigned, an officer or director or both, of Service Corporation International, a Texas corporation (the "Company"), does hereby constitute and appoint George R. Champagne and James M. Shelger his true and lawful attorneys and agents (each with authority to act alone), with power and authority to sign for and on behalf of the undersigned the name of the undersigned as officer or director, or both, of the Company to the Company's Annual Report to the Securities and Exchange Commission on Form 10-K for the fiscal year of the Company ending December 31, 1997 and to any amendments thereto filed with the Securities and Exchange Commission, and to any instrument or document filed as a part of, as an exhibit to or in connection with said Report or amendments; and the undersigned does hereby ratify and confirm as his own act and deed all that said attorney and agent shall do or cause to be done by virtue hereof. IN WITNESS WHEREOF, the undersigned has subscribed these presents this 12th day of February, 1998. /s/ W. Blair Waltrip --------------------------- W. BLAIR WALTRIP 15 POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS, that the undersigned, an officer or director or both, of Service Corporation International, a Texas corporation (the "Company"), does hereby constitute and appoint George R. Champagne and James M. Shelger his true and lawful attorneys and agents (each with authority to act alone), with power and authority to sign for and on behalf of the undersigned the name of the undersigned as officer or director, or both, of the Company to the Company's Annual Report to the Securities and Exchange Commission on Form 10-K for the fiscal year of the Company ending December 31, 1997 and to any amendments thereto filed with the Securities and Exchange Commission, and to any instrument or document filed as a part of, as an exhibit to or in connection with said Report or amendments; and the undersigned does hereby ratify and confirm as his own act and deed all that said attorney and agent shall do or cause to be done by virtue hereof. IN WITNESS WHEREOF, the undersigned has subscribed these presents this 12th day of February, 1998. /s/ Edward E. Williams --------------------------- EDWARD E. WILLIAMS EX-27 18 FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE CONSOLIDATED BALANCE SHEET OF SERVICE CORPORATION INTERNATIONAL AS OF THE APPLICABLE PERIOD END DATE AND THE RELATED STATEMENT OF INCOME FOR THE PERIOD THEN ENDED AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 12-MOS 9-MOS 6-MOS 3-MOS DEC-31-1997 DEC-31-1997 DEC-31-1997 DEC-31-1997 DEC-31-1997 SEP-30-1997 JUN-30-1997 MAR-31-1997 46,877 62,114 31,557 47,411 558,925 537,379 528,256 533,695 1,131,195 1,067,705 1,060,733 1,052,246 88,561 95,677 90,509 81,216 172,169 151,418 150,803 141,421 811,408 755,471 719,268 731,110 2,035,073 1,936,922 1,876,020 1,808,930 390,936 372,213 354,764 341,182 10,306,863 9,737,921 9,408,557 9,081,072 535,422 606,688 539,692 574,351 2,634,699 2,317,259 2,268,369 2,128,708 0 0 0 0 0 0 0 0 252,924 251,837 251,469 239,005 2,473,080 2,365,706 2,316,405 2,065,970 10,306,863 9,737,921 9,408,557 9,081,072 2,330,303 1,725,269 1,180,906 602,763 2,468,402 1,824,408 1,239,590 638,449 1,769,510 1,314,846 884,041 450,297 1,780,790 1,321,301 888,255 450,297 67,671 49,813 32,935 16,848 22,603 10,790 7,364 3,631 144,735 106,222 71,350 36,250 579,973 438,407 326,814 205,524 205,421 155,735 116,866 74,377 374,552 282,672 209,948 131,147 0 0 0 0 40,802 40,802 40,802 40,802 0 0 0 0 333,750 241,870 169,146 90,345 1.36 1.00 0.71 0.38 1.31 0.95 0.67 0.36
EX-27.1 19 FINANCIAL DATA SCHEDULE - RESTATED
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE CONSOLIDATED BALANCE SHEET OF SERVICE CORPORATION INTERNATIONAL AS OF THE APPLICABLE PERIOD END DATE AND THE RELATED STATEMENT OF INCOME FOR THE PERIOD THEN ENDED AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 12-MOS 9-MOS 6-MOS 3-MOS DEC-31-1996 DEC-31-1996 DEC-31-1996 DEC-31-1996 DEC-31-1996 SEP-30-1996 JUN-30-1996 MAR-31-1996 44,131 16,436 98,823 38,708 633,019 543,480 519,794 547,410 997,736 910,043 999,600 978,947 75,102 74,129 67,102 61,205 139,019 140,627 133,247 120,642 714,040 651,757 731,931 649,970 1,776,534 1,678,282 1,629,635 1,570,386 319,459 303,144 287,025 266,712 8,869,770 8,339,178 8,308,133 7,935,428 607,543 496,967 456,024 480,921 2,048,737 1,953,333 2,122,614 1,871,869 0 0 0 0 0 0 0 0 236,193 235,642 235,318 234,980 1,999,124 1,907,571 1,858,647 1,805,609 8,869,770 8,339,178 8,308,133 7,935,428 2,171,496 1,599,126 1,083,337 548,829 2,294,194 1,684,702 1,140,202 575,453 1,680,246 1,241,274 830,172 412,354 1,689,742 1,249,093 835,971 415,285 63,798 41,045 28,890 13,995 12,147 7,839 5,249 2,652 147,470 110,270 73,375 35,869 413,881 299,565 210,791 113,223 148,583 108,023 76,644 41,326 265,298 191,542 134,147 71,897 0 0 0 0 0 0 0 0 0 0 0 0 265,298 191,542 134,147 71,897 1.13 0.82 0.57 0.31 1.08 0.78 0.54 0.29
EX-27.2 20 FINANCIAL DATA SCHEDULE - RESTATED
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE CONSOLIDATED BALANCE SHEET OF SERVICE CORPORATION INTERNATIONAL AS OF DECEMBER 31, 1995 AND THE RELATED STATEMENT OF INCOME FOR THE TWELVE MONTHS THEN ENDED AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 12-MOS DEC-31-1995 DEC-31-1995 57,484 517,630 834,708 57,445 120,805 659,601 1,520,767 247,045 7,672,387 611,751 1,712,464 0 0 234,542 1,740,803 7,672,387 1,566,292 1,652,126 1,174,408 1,186,905 55,315 11,852 131,888 294,211 110,623 183,588 0 0 0 183,588 0.92 0.86
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