-----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, Ifg+uTNclJ0P0ffyR/147qnuwJ8BMoSrmCdVi7niVaSke8SbcDscTBGu3XxI+o/H 7ujHxQzmZ6vzw2jjpPhkhw== 0000950129-00-001534.txt : 20000331 0000950129-00-001534.hdr.sgml : 20000331 ACCESSION NUMBER: 0000950129-00-001534 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 22 CONFORMED PERIOD OF REPORT: 19991231 FILED AS OF DATE: 20000330 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: 586649 BUSINESS ADDRESS: STREET 1: 1929 ALLEN PKWY STREET 2: P O BOX 130548 CITY: HOUSTON STATE: TX ZIP: 77019 BUSINESS PHONE: 7135225141 MAIL ADDRESS: STREET 1: P O BOX 130548 CITY: HOUSTON STATE: TX ZIP: 77219-0548 10-K 1 SERVICE CORPORATION INTERNATIONAL - DATED 12/31/99 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, 1999 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM TO COMMISSION FILE NUMBER 1-6402-1 --------------------- SERVICE CORPORATION INTERNATIONAL (Exact name of registrant as specified in its charter) TEXAS 74-1488375 (State or other jurisdiction of (I.R.S. Employer identification no.) incorporation or organization)
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:
NAME OF EACH EXCHANGE TITLE OF EACH CLASS 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 $838,791,831 based upon a closing market price of $3.1250 on March 24, 2000 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 24, 2000 was 272,064,618 (excluding treasury shares). DOCUMENTS INCORPORATED BY REFERENCE Portions of the registrant's Proxy Statement in connection with its 2000 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 funeral and cemetery services in the world. As of December 31, 1999, the Company operated 3,823 funeral service locations, 525 cemeteries, 198 crematoria and two insurance operations located in 20 countries on five continents. The Company conducts funeral service operations in all of the 20 countries mentioned above, cemetery operations in North America, South America, Australia and certain countries within Europe, and financial services operations in North America and France. As of December 31, 1999, the Company's largest markets were North America and France, which when combined represent approximately 86% of the Company's consolidated revenues, 73% of the Company's consolidated income from operations and 78% of the Company's total operating locations. For financial information about the Company's reportable segments, see note fifteen to the consolidated financial statements in Item 8 of this Form 10-K. Historically, the Company's growth has been largely attributable to acquiring funeral service locations and cemeteries. This resulted in the Company creating the world's largest network of funeral service locations and cemeteries. The Company believes this network forms the foundation of its business plan going forward. During the mid-1990's, the market to acquire funeral service locations and cemeteries became more competitive than ever before and resulted in increasing prices which lowered returns on invested capital. As a result, the Company suspended its acquisition program in 1999 and is in transition from an acquisition company to an operating company. 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 a North American division 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 the Company'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 geographical groups of funeral service locations and cemeteries that lower their individual overhead costs by sharing common resources such as operating personnel, preparation services, clerical and accounting staff, limousines, hearses and preneed sales personnel. Personnel costs, the largest operating expense for the Company, are the cost components most beneficially affected by clustering. The sharing of employees, as well as the other costs mentioned, allows the Company to more efficiently utilize its operating facilities due to the traditional fluctuation in the number of funeral services and cemetery interments performed in a given period. 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. 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, 1999, the Company owned 200 funeral service location/cemetery combinations and operated 48 flower shops engaged principally in the design and sale of funeral floral 3 arrangements. These flower shops provide floral arrangements to most 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 several 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 placed in trust accounts (pursuant to applicable law) or are used to pay premiums on life insurance policies from third party insurers or the Company's wholly owned insurance operations. At December 31, 1999, the total value of the Company's unperformed prearranged funeral contracts was $4.287 billion, of which approximately $392 million is estimated to be fulfilled in 2000. For additional information concerning prearranged funeral activities, see "Prearranged Funeral Services" in Management's Discussion and Analysis of Financial Condition and Results of Operations in Item 7 of this Form 10-K and note four to the consolidated financial statements in Item 8 of this Form 10-K. 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, lots and lawn crypts) and certain merchandise, including stone and bronze memorials, caskets 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 and services may be required by law to be paid into trust until the merchandise is purchased or the service is provided on behalf of the customer. For additional information regarding cemetery trust funds, see notes two and six 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 1999, the Company, including acquired operations, performed approximately 13%, 28%, 13% and 24% 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, municipal or church affiliated 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. 2 4 FINANCIAL SERVICES OPERATIONS The financial services operations represent a combination of the Company's insurance operations primarily related to the funding of prearranged funeral contracts and a lending subsidiary, which previously provided capital financing for independent funeral home and cemetery operations. The Company's insurance operations include ownership of a French life insurance company (Auxia) and a U.S. life insurance company (American Memorial Life Insurance Company or AML). These insurance operations assist in funding contracts written by Company owned or operated funeral service locations. For additional information concerning the Company's financial services operations, see "Financial Services" in Management's Discussion and Analysis of Financial Condition and Results of Operations in Item 7 of this Form 10-K and notes two, four and five to the consolidated financial statements in Item 8 of this Form 10-K. Since 1988, the Company's lending subsidiary provided secured financing to independent funeral home and cemetery operators. The majority of these loans were made to clients seeking to finance funeral home or cemetery acquisitions. Additionally, the lending subsidiary provided construction loans for funeral home or cemetery improvement and expansion. Loan packages took traditional forms of secured financing comparable to arrangements offered by leading commercial banks. The loans were generally made at interest rates which float with the prime lending rate. At December 31, 1999, the lending subsidiary had approximately $247 million in loans outstanding ($191 million net of the provision for loan losses and impairment charges) and approximately $47 million of unfunded loan commitments. At December 31, 1998, the lending subsidiary had approximately $270 million in loans outstanding and approximately $31 million of unfunded loan commitments. The lending subsidiary obtained its funds primarily from the Company's variable interest rate credit facilities. As part of its cost rationalization programs initiated in 1999, the Company decided to indefinitely suspend the operations of the lending subsidiary by selling a portion of the loan portfolio and acquiring by deed in lieu of foreclosure the collateral underlying certain other loans in its portfolio. For further discussion, see "Financial Services" in Management's Discussion and Analysis of Financial Condition and Results of Operations in Item 7 of this Form 10-K and note eighteen to the consolidated financial statements in Item 8 of this Form 10-K. EMPLOYEES At December 31, 1999, the Company employed 30,693 (18,341 in the United States) persons on a full time basis and 11,326 (8,624 in the United States) persons on a part time basis. Of the full time employees, 29,663 were in funeral and cemetery operations, 311 were in financial services operations and 719 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. Eligible United States employees are participants in retirement plans of the Company or various subsidiaries, while foreign employees are covered by other Company defined or government mandated benefit plans. Although labor disputes are experienced from time to time, relations with employees are generally considered satisfactory. REGULATION The Company's various operations are subject to regulations, supervision and licensing under various U.S. federal, state and 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 the discussion of FTC funeral industry trade regulation and consent orders in "Funeral Service Locations" above. The French funeral services industry has undergone significant regulatory change in recent years. Historically, the French funeral services industry had 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 the Company's French funeral operations (Exclusive Municipal Authority). Legislation was passed that ended municipal control of the French funeral service business and allows 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. 3 5 Cemeteries in France, however, are controlled by municipalities and religious organizations, with third parties, including the Company, providing cemetery merchandise such as markers and monuments to consumers. 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 other undivided one-half interest is owned by an unrelated third party. The Company holds an option to acquire such interest for $2,000,000 in July 2005 and, at the option of the unrelated third party, is obligated to make such acquisition. 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 two additional office buildings located in Houston, Texas containing a total of approximately 167,000 square feet of office space. At December 31, 1999, the Company owned approximately 76% of the real estate and buildings of its 4,546 funeral service locations, cemeteries and crematoria and two insurance locations and leased facilities in connection with approximately 24% of such operations. In addition, the Company leased two aircraft pursuant to cancelable leases. At December 31, 1999, the Company operated 14,830 vehicles, of which 5,369 were owned and 9,461 were leased. For additional information regarding leases, see note eleven to the consolidated financial statements in Item 8 of this Form 10-K. At December 31, 1999, the Company's 525 cemeteries contain a total of approximately 35,901 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. The following discussion describes certain litigation as of March 28, 2000, which was previously reported: Civil Action H-99-280; In Re Service Corporation International; In the United States District Court for the Southern District of Texas, Houston Division (the Consolidated Lawsuit). The Consolidated Lawsuit is pending before Judge Lynn N. Hughes and includes all 21 class action lawsuits that were filed in the Southern District of Texas and two class action lawsuits that were originally brought in the United States District Court for the Eastern District of Texas, Lufkin Division. The Consolidated Lawsuit names as defendants the Company and three of the Company's current or former executive officers or directors: Robert L. Waltrip, L. William Heiligbrodt and George R. Champagne (the Individual Defendants). The plaintiffs have filed a Consolidated Class Action Complaint in the Consolidated Lawsuit alleging that defendants violated federal securities laws by making materially false and misleading statements and failing to disclose material information concerning the Company's prearranged funeral business. The Consolidated Lawsuit seeks to recover an unspecified amount of monetary damages. Since the litigation is in its preliminary stages, no discovery has occurred, and the Company cannot quantify its ultimate liability, if any, for the payment of damages. However, the Company believes that the allegations in the Consolidated Lawsuit do not provide a basis for the recovery of damages because the Company has made all required disclosures on a timely basis. The Company and the Individual Defendants have filed an Answer to the Consolidated Class Action Complaint, and the Company intends to aggressively defend this lawsuit. The Consolidated Lawsuit has been brought on behalf of all persons and entities who (i) acquired shares of Company common stock in the merger of a wholly owned subsidiary of the Company into Equity Corporation International (ECI); (ii) purchased shares of Company common stock during the period from July 17, 1998 through January 26, 1999 (the Class Period); (iii) purchased Company call options in the open market during the Class Period; (iv) sold Company put options in the open market during the Class Period; (v) held employee stock options in ECI; and (vi) held Company employee stock options granted during the 4 6 Class Period. Excluded from the foregoing categories are the Individual Defendants, the members of their immediate families and all other persons who were directors or executive officers of the Company or its affiliated entities at any time during the Class Period. Judge Hughes has certified the Consolidated Lawsuit as a class action. The Company and the Individual Defendants have filed a Motion to Dismiss the Consolidated Lawsuit; the plaintiffs have filed their Opposition to Defendants' Motion to Dismiss the Consolidated Lawsuit; and the Company and the Individual Defendants have filed a Reply to Plaintiffs' Opposition to Defendants' Motion to Dismiss the Consolidated Lawsuit. The foregoing pleadings will be considered by Judge Hughes in due course. Copies of the complaint in the Consolidated Lawsuit and the pleadings that have been filed in response thereto and that are referred to herein are filed as exhibits to this Form 10-K. 9-99-CV58; Charles Fredrick v. Service Corporation International; In the United States District Court for the Eastern District of Texas, Lufkin Division. This additional securities fraud case has been brought against the Company by a former shareholder of ECI alleging causes of action exclusively under Texas statutory and common law. The Company has requested that the case be transferred to the Southern District of Texas to be consolidated with the Consolidated Lawsuit. The Plaintiff has requested that the case be remanded to state court for further proceedings, and oral argument on the issue has been scheduled for March 29, 2000. Cause No. 32548-99-11, James P. Hunter, III et al v. Service Corporation International et al. On November 10, 1999, James P. Hunter, III and a related family trust filed a lawsuit against the Company, the Individual Defendants, two other officers, an employee of the Company and PricewaterhouseCoopers LLP, the Company's independent accountants, in state District Court in Angelina County, Texas (State Litigation). The plaintiffs allege, among other things, violations of Texas securities law and statutory and common law fraud, and seek unspecified compensatory and exemplary damages. Mr. Hunter was Chairman, President and Chief Executive Officer of ECI at the time of its merger with a wholly owned subsidiary of the Company. The Company and the other defendants filed an answer in the State Litigation denying the plaintiffs' allegations. Since the litigation is in its very preliminary stages, the Company cannot quantify its ultimate liability, if any, for the payment of damages. However, the Company believes that the allegations in the State Litigation, like those in the Consolidated Lawsuit, do not provide a basis for the recovery of damages because all required disclosures were made on a timely basis. The Company intends to aggressively defend this litigation. A copy of the Plaintiff's Original Petition in the State Litigation and the Defendants' Original Answer in that proceeding are filed as exhibits to this Form 10-K. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. None. 5 7 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 24, 2000 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........................ (69) Chairman of the Board and Chief 1962 Executive Officer B. D. Hunter......................... (70) Vice Chairman of the Board 2000 Jerald L. Pullins.................... (58) President and Chief Operating Officer 1992 Jeffrey E. Curtiss................... (51) Senior Vice President and Chief 2000 Financial Officer James M. Shelger..................... (50) Senior Vice President General Counsel 1987 and Secretary T. Craig Benson...................... (38) Vice President Corporate Alliances 1990 and Marketing J. Daniel Garrison................... (48) Vice President International 1998 Operations W. Cardon Gerner..................... (45) Vice President Corporate Controller 1999 W. Mark Hamilton..................... (35) Vice President Prearranged Sales 1996 Frank T. Hundley..................... (40) Vice President Treasurer 2000 Lowell A. Kirkpatrick, Jr. .......... (41) Vice President Operational Management 1994 Systems Stephen M. Mack...................... (48) Vice President Domestic Operations 1998 Thomas L. Ryan....................... (34) Vice President Operational Accounting 1999 and Analysis Eric D. Tanzberger................... (31) Vice President Investor Relations and 2000 Assistant Corporate Controller Stephen J. Uthoff.................... (48) Vice President Chief Information 2000 Officer Vincent L. Visosky................... (52) Vice President Trust Administration 1989 Michael R. Webb...................... (42) Vice President Corporate Development 1998
- --------------- (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. Unless otherwise indicated below, the persons listed above have been executive officers or employees for more than five years. Mr. Curtiss joined the Company as Senior Vice President and Chief Financial Officer in January 2000. From January 1992 until July 1999, Mr. Curtiss served as Senior Vice President and Chief Financial Officer of Browning-Ferris Industries, Inc., a waste services company. Mr. Gerner joined the Company in January 1999 in connection with the acquisition of ECI and in March 1999 was promoted to Vice President Corporate Controller. Before the acquisition, Mr. Gerner had been Senior Vice President and Chief Financial Officer of ECI since March 1995. Prior thereto, Mr. Gerner was a partner with Ernst & Young LLP. Mr. Hundley joined the Company as Vice President Treasurer in March 2000. Prior thereto, Mr. Hundley served for more than five years in various capacities at Banc of America Securities, LLC, its predecessors and affiliates, including as Managing Director. Mr. Hunter was appointed Vice Chairman of the Board in January 2000. Mr. Hunter is the Chairman and Chief Executive Officer of Huntco, Inc., an intermediate steel processor. Mr. Hunter has been a director 6 8 of the Company since 1986 and also served as Vice Chairman of the Board of the Company from September 1986 to May 1989. Mr. Ryan joined the Company in June 1996 as Director of Financial Reporting. Since then, Mr. Ryan has served as Director of Investor Relations and Managing Director and Chief Financial Officer of International Operations. Mr. Ryan was promoted to Vice President International Finance in February 1999 and appointed Vice President Operational Accounting and Analysis in February 2000. Prior to joining the Company, Mr. Ryan was a certified public accountant with Coopers & Lybrand L.L.P. for more than five years. Mr. Tanzberger joined the Company in August 1996 as Manager of Budgets & Financial Analysis. Since then, Mr. Tanzberger has served as Vice President of Operations/Western Division, Director of Investor Relations and Assistant Corporate Controller. Mr. Tanzberger was promoted to Vice President Investor Relations and Assistant Corporate Controller in January 2000. Prior to joining the Company, Mr. Tanzberger was Assistant Corporate Controller at Kirby Marine Transportation Corporation, an inland waterway barge and tanker company, from January through August 1996. Prior thereto, he was a certified public accountant with Coopers & Lybrand L.L.P. for more than five years. Mr. Uthoff joined the Company as Vice President Chief Information Officer in January 2000. From June 1994 through July 1999, Mr. Uthoff served as Vice President-Planning & Analysis of Browning-Ferris Industries, Inc., a waste services company. 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. 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, 1999, there were 7,957 holders of record of the Company's common stock. Through October 1999, the Company had declared 106 consecutive quarterly dividends on its common stock since it began paying dividends in 1974. For the three years ended December 31, 1999, 1998 and 1997, dividends per share were $.27, $.36 and $.30, respectively. In October 1999, the Company suspended payment of regular quarterly cash dividends on its quarterly outstanding stock in order to focus on improving cash flow and reducing existing debt. The table below shows the Company's quarterly high and low common stock prices for the three years ended December 31, 1999:
1999 1998 1997 --------------- --------------- --------------- HIGH LOW HIGH LOW HIGH LOW ------ ------ ------ ------ ------ ------ First............................. $38.50 $14.25 $43.69 $35.69 $33.88 $26.88 Second............................ 21.19 13.31 44.63 38.94 36.00 29.63 Third............................. 18.88 10.56 45.88 31.88 35.75 29.81 Fourth............................ 10.31 6.44 39.25 29.81 38.00 27.88
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. 7 9 ITEM 6. SELECTED FINANCIAL DATA. The table below shows the selected financial data of the Company for the five years ended December 31, 1999:
1999 1998 1997 1996 1995 ----------- ----------- ----------- ---------- ---------- (IN THOUSANDS, EXCEPT PER SHARE AND RATIO AMOUNTS) Revenues................... $ 3,321,813 $ 2,875,090 $ 2,535,865 $2,355,342 $1,652,126 Income (loss) before extraordinary gain (loss)................... (34,297) 342,142 374,552 265,298 183,588 Net income (loss).......... (32,412) 342,142 333,750 265,298 183,588 Earnings per share: Income (loss) before extraordinary gain (loss) Basic................. (.13) 1.34 1.53 1.13 .92 Diluted............... (.13) 1.31 1.47 1.08 .86 Net income (loss) Basic................. (.12) 1.34 1.36 1.13 .92 Diluted............... (.12) 1.31 1.31 1.08 .86 Dividends per share........ .27 .36 .30 .24 .22 Total assets............... 14,601,601 13,266,158 10,514,930 9,020,778 7,768,982 Long-term debt............. 3,636,067 3,764,590 2,634,699 2,048,737 1,712,464 Convertible preferred securities of SCI Finance LLC...................... -- -- -- 172,500 172,500 Stockholders' equity....... 3,495,273 3,154,102 2,726,004 2,235,317 1,975,345 Shares outstanding......... 272,064 259,201 252,924 236,193 234,542 Ratio of earnings to fixed charges*................. 0.85 3.42 4.29 3.24 2.84
* For purposes of computing the ratio of earnings to fixed charges, earnings consist of income before income taxes and extraordinary gain (loss) on early extinguishment of debt, less undistributed income of equity investees which are less than 50% owned, plus the minority interest of majority owned subsidiaries with fixed charges and 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. The decrease in the Company's ratio of earnings to fixed charges in 1999 compared to earlier levels is primarily attributable to the $362,428 pretax restructuring and nonrecurring charges recorded during the first and fourth quarters of 1999 (see note eighteen to the consolidated financial statements in Item 8 of this Form 10-K) and increased interest expense related to additional indebtedness primarily attributable to the merger with ECI. Without the above mentioned restructuring and nonrecurring charges, the ratio of earnings to fixed charges would have been 2.16 for the year ended 1999. ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. (DOLLARS IN THOUSANDS, EXCEPT AVERAGE SALES PRICES, PER SHARE DATA AND RATIO AMOUNTS) The Company is the largest provider of funeral and cemetery services in the world. As of December 31, 1999, the Company operated 3,823 funeral service locations, 525 cemeteries, 198 crematoria and two insurance operations located in 20 countries on five continents. The Company conducts funeral service operations in all of the 20 countries mentioned above, cemetery operations in North America, South America, Australia and certain countries within Europe, and financial services operations in North America and France. As of December 31, 1999, the Company's largest markets were North America and France, which when combined represent approximately 86% of the Company's consolidated revenues, 73% of the Company's consolidated income from operations and 78% of the Company's total operating locations. 8 10 The majority of the Company's funeral service locations and cemeteries are managed in groups called clusters. Clusters are geographical groups of funeral service locations and cemeteries that lower their individual overhead costs by sharing common resources such as operating personnel, preparation services, clerical and accounting staff, limousines, hearses and preneed sales personnel. Personnel costs, the largest operating expense for the Company, are the cost components most beneficially affected by clustering. The sharing of employees, as well as the other costs mentioned, allows the Company to more efficiently utilize its operating facilities due to the traditional fluctuation in the number of funeral services and cemetery interments performed in a given period. Historically, the Company's growth has been largely attributable to acquiring funeral service locations and cemeteries. This resulted in the Company creating the world's largest network of funeral service locations and cemeteries. The Company believes this network forms the foundation of its business plan going forward. During the mid-1990's, the market to acquire funeral service locations and cemeteries became more competitive than ever before and resulted in increasing prices which lowered returns on invested capital. As a result, the Company suspended its acquisition program in 1999 and is in transition from an acquisition company to an operating company. This transition focuses on reducing overhead, streamlining operational functions and processes, increasing cash flow, providing better returns on the Company's invested capital and reducing the Company's debt. The transition to an operating company will continue in 2000. The Company's primary goals in 2000 are as follows: - Continue to reduce overhead and streamline management structures. - Improve business processes and information systems. - Increase cash flow by continuing certain initiatives such as the reduction of capital expenditures compared to historical levels, the elimination of the Company's quarterly dividend, the suspension of the acquisition program, the realignment of preneed cemetery and prearranged funeral sales structures and other working capital initiatives. - Continue the development of third party consumer financing programs. - Continue the sale of certain assets and non-core businesses that are (i) not meeting the Company's return on invested capital criteria and (ii) can provide a better return to the Company from sales proceeds rather than from future projected operating cash flows. - Continue the reduction of the Company's debt levels to create a sound capital structure for the Company and to reduce cash paid for interest costs. - Continue the implementation of the Company's long-term strategic revenue and marketing initiatives intended to provide internal revenue growth without the outlay of significant additional capital. Such initiatives include implementation of Dignity(TM) Memorial Plan funeral packages and the associated branding of many of the Company's or affiliated locations, continued development of global affinity relationships and continued growth in the sale of prearranged funeral contracts in all jurisdictions. - Continue to improve customer satisfaction throughout the Company's global network while monitoring such customer satisfaction through new client family surveys tied to certain employees' compensation. The Company believes the execution of the above initiatives will allow the Company to maintain its position as the industry leader, as well as to provide long-term value to our shareholders. RESULTS OF OPERATIONS The following is a discussion of the Company's results of operations for the years ended December 31, 1999, 1998 and 1997. For purposes of discussions between the years 1999 and 1998, funeral homes, cemeteries and crematoria owned and operated before January 1, 1998, are referred to as 1999 comparable operations, and for discussions between the years 1998 and 1997, funeral homes, cemeteries and crematoria owned and 9 11 operated before January 1, 1997 are referred to as 1998 comparable operations. Correspondingly, for discussions between the years 1999 and 1998, operations acquired or opened after January 1, 1998, are referred to as 1999 acquired operations and for discussions with respect to the years 1998 and 1997, operations acquired or opened after January 1, 1997, are referred to as 1998 acquired operations. The following table represents revenues and gross profit for the three years ended December 31, 1999:
1999 1998 1997 ----------- ----------- ----------- Revenues: Funeral..................... $ 2,039,348 $ 1,829,136 $ 1,720,291 Cemetery.................... 947,852 846,601 724,862 Financial services.......... 334,613 199,353 90,712 ----------- ----------- ----------- $ 3,321,813 $ 2,875,090 $ 2,535,865 =========== =========== =========== Gross profit and margin percentage: Funeral..................... $ 366,494 18.0% $ 384,607 21.0% $ 401,371 23.3% Cemetery.................... 247,719 26.1 306,161 36.2 271,897 37.5 Financial services.......... (454) (0.1) 28,002 14.0 14,344 15.8 ----------- ---- ----------- ---- ----------- ---- $ 613,759 18.5% $ 718,770 25.0% $ 687,612 27.1% =========== ==== =========== ==== =========== ====
The Company's results of operations for 1999 from a gross profit margin and percentage standpoint were below 1998 and 1997 levels. The primary reason for this was the difficult transition in 1999 to an operating company focused on cash flow and returns on invested capital from a company previously focused in 1998 and 1997 on growth through acquisitions. More specifically, the results of operations in 1999 were negatively affected by: (i) the reduction of net cemetery trust earnings, (ii) a reduction in gains on sales of businesses, (iii) a reduction of operating earnings related to the sale of excess undeveloped cemetery property, (iv) the downward pressure on operating margins related to the January 1999 acquisition of ECI which historically had lower volume operations, (v) a delay in the realization of expected cost savings from cost rationalization programs primarily related to finalization of labor negotiations in the Company's funeral operations in France, (vi) inefficiencies in the standardization of the Company's cemetery sales cost structure, (vii) the focus on preneed sales of heritage cemetery property which generate higher commission and have higher property costs and (viii) loan loss provisions related to certain loans held by the Company's lending subsidiary. In 1999, the Company realigned its management of geographic segments to focus on total European operations. Although total amounts reported have not changed, the Company has made certain reclassifications in all years in order to reflect the results of these geographic segments. Funeral Funeral revenues for the three years ended December 31, 1999, were as follows:
PERCENTAGE PERCENTAGE INCREASE 1999 INCREASE 1998 (DECREASE) 1997 ---------- ---------- ---------- ---------- ---------- North America.................... $1,183,829 17.5% $1,007,462 3.6% $ 972,670 European......................... 780,206 1.9 765,532 11.9 683,951 Other foreign.................... 75,313 34.1 56,142 (11.8) 63,670 ---------- ---- ---------- ----- ---------- Total funeral revenues............. $2,039,348 11.5% $1,829,136 6.3% $1,720,291 ========== ==== ========== ===== ==========
The $176,367 increase in 1999 funeral revenues from North American operations was primarily the result of the ECI acquisition with revenues from comparable operations remaining relatively flat compared to 1998. The $34,792 increase in 1998 revenue over 1997 was primarily the result of a $60,044 increase in revenues from 1998 acquired locations offset by a $27,069 decrease from 1998 comparable locations. The 10 12 number of funeral services performed in 1999 comparable locations in North America increased 0.7% over 1998 while the number of funeral services performed in 1998 comparable locations in North America decreased 2.0% from 1997. The increase in volume for 1999 comparable locations in North America were slightly offset in 1999 by a 0.5% decrease in average sales prices while the 1998 comparable locations in North America also experienced a decrease in average sales price of 0.8% compared to 1997. The comparable average sales prices in North America for the years ended 1999, 1998 and 1997, respectively, were $3,807, $3,827 and $3,859. The average sales price decreases have occurred because of continuing changes in the Company's sales mix resulting from a higher proportion of funerals from prearranged contracts being serviced and an increase in the number of cremations performed, which typically carry lower sales price averages than traditional atneed funeral services. The sales average related to prearranged funeral contracts turning atneed has historically been lower than the current atneed sales average primarily due to the servicing of prearranged contracts inherited by the Company through acquisitions. North America 1999 acquired locations performed 50,731 funeral services in 1999 and 6,650 in 1998, while 1998 acquired locations in North America performed 28,864 funeral services in 1998 and 11,663 in 1997. Government data indicates the number of deaths in the United States has increased over the last three years. The Center for Disease Control and Prevention (CDC) tracks deaths in 122 cities (120 in 1997) across the United States and in those cities total deaths have increased 0.81% in 1999 from 1998 and 0.39% in 1998 from 1997. The Company has comparable locations in 83 (73 in 1997) of those 122 cities and CDC statistics from these 83 cities indicate the Company increased market share in those 83 cities during 1999 compared to 1998. Revenues from the Company's European operations increased $14,674 in 1999 compared to 1998 and $81,581 in 1998 compared to 1997, primarily as a result of acquisitions. These acquisitions were primarily in Spain, Norway and the Netherlands in 1999 and France, Spain, Portugal, Norway and the Netherlands in 1998. Revenues from comparable locations decreased 2.7% in 1999 compared to 1998 due to decreases in the average sales price of approximately 2.0% while volumes were relatively consistent with the prior year. Revenues from comparable locations in 1998 increased 1.1% over 1997. Revenues from Other foreign operations increased $19,171 in 1999 as a result of acquisitions in Chile and Argentina and growth in comparable locations in the Pacific Rim of 5.0% over 1998. While volume declined in the Pacific Rim by 3.9%, the average sales price increased 9.2% partially as a result of favorable exchange rate variances between the Australian dollar and the U.S. dollar. Revenues from other foreign operations decreased $7,528 in 1998 from 1997 primarily due to a 15.4% decline in the Australian dollar versus the U.S. dollar, partially offset by increased revenues from Argentinian acquisitions. During the year ended December 31, 1999, the Company sold $578,263 of prearranged funeral contracts compared to approximately $490,289 in 1998 and $526,919 in 1997. The obligations are funded through both trust and insurance backed contracts. Of those prearranged sales, approximately $364,737 in 1999 and $197,317 in 1998 will be funded by Company insurance operations. The revenues associated with these prearranged funeral services are deferred and will be reflected in funeral revenues in the periods that the funeral services are performed. The Company expects to continue the emphasis on selling prearranged funerals as a means of protecting current market share and sales mix, as well as to expand market share in certain markets. 11 13 Funeral gross profit and margin percentage for the three years ended December 31, 1999, were as follows:
PERCENTAGE PERCENTAGE PERCENTAGE 1999 OF REVENUE 1998 OF REVENUE 1997 OF REVENUE -------- ---------- -------- ---------- -------- ---------- North America.............. $274,199 23.2% $287,012 28.5% $297,586 30.6% European................... 79,270 10.2 88,541 11.6 86,717 12.7 Other foreign.............. 13,025 17.3 9,054 16.1 17,068 26.8 -------- ---- -------- ---- -------- ---- Total funeral gross profit... $366,494 18.0% $384,607 21.0% $401,371 23.3% ======== ==== ======== ==== ======== ====
The decreases in gross margin percentage in North America in 1999 and 1998 were due to increased costs and expenses of 26.3% and 6.7%, respectively, while revenues increased 17.5% and 3.6%, respectively, as discussed above. The increased costs and expenses were primarily due to higher costs at acquired locations, specifically related to the Company's merger with ECI in January 1999. Typically, acquisitions will temporarily exhibit lower gross profit margins than those experienced by the Company's comparable locations until these locations have been fully assimilated into the Company's clusters. Further, the gross margin percentage at ECI locations had been historically lower than the Company's gross margin percentages and this has negatively affected the total gross margin percentage in North America. Comparable locations experienced a 3.6% increase in operating expenses in 1999 compared to 1998 primarily related to increases in promotional and advertising expenses as part of the transition to an operating company from one previously focused on growth through acquisitions. In 1998 such comparable costs were relatively flat as compared to 1997. The decrease in European gross profit and margin percentage in 1999 was primarily the result of less funeral services performed causing reduced profit due to the Company's fixed cost structure, coupled with delays in labor negotiations in France related to cost rationalization programs. The decrease in European gross profit and margin percentage in 1998 was primarily the result of a disproportionate increase in total costs and expenses of 13.7% primarily related to acquisitions. The decrease in Other foreign gross margin percentage in 1999 was primarily due to increased costs and expenses in Australia coupled with the addition of lower operating margin funeral businesses from the Chilean acquisitions, partially offset by improved margins in Argentina. The decrease in Other foreign gross profit and margin percentage in 1998 was primarily due to increased costs and expenses in Australia and lower operating margins in Argentinean acquisitions. In 1998, Australian costs and expenses increased approximately 6.0% more than the change in revenue. Cemetery Cemetery revenues for the three years ended December 31, 1999, were as follows:
PERCENTAGE PERCENTAGE 1999 INCREASE 1998 INCREASE 1997 -------- ---------- -------- ---------- -------- North America........................ $816,695 6.3% $768,229 14.5% $671,112 European............................. 34,363 34.4 25,564 18.3 21,609 Other foreign........................ 96,794 83.3 52,808 64.3 32,141 -------- ---- -------- ---- -------- Total cemetery revenues.... $947,852 12.0% $846,601 16.8% $724,862 ======== ==== ======== ==== ========
The increase of $48,466 in 1999 North American cemetery revenues was primarily the result of the $82,345 increase in acquisitions as a result of the January 1999 merger with ECI, partially offset by the decrease of net cemetery trust earnings of 32.3% and a reduction of operating earnings related to the sale of excess undeveloped cemetery property. Comparable atneed and preneed revenue in 1999 remained stable compared to the prior year. The 1998 increase in revenue from North American cemetery operations of $97,117 was primarily due to an increase in revenue from acquisitions, increased trust earnings of 29.8% and 12 14 increased revenue from sales of excess undeveloped cemetery property compared to 1997. Comparable preneed and atneed sales in 1998 were relatively flat as compared to 1997. The increases in revenue from European operations were the result of acquisitions in the United Kingdom and Belgium in 1999 and in the United Kingdom and the Netherlands in 1998. The $43,986 increase in 1999 revenues from Other foreign operations was the result of acquisitions in Chile, Argentina and Uruguay and a 13.7% increase in revenue in Australian operations. The $20,667 increase in 1998 revenues was the result of the inclusion of new Argentina operations for the full year offset by a decline in Australia cemetery revenue. Cemetery gross profit and margin percentage for the three years ended December 31, 1999, were as follows:
PERCENTAGE PERCENTAGE PERCENTAGE 1999 OF REVENUE 1998 OF REVENUE 1997 OF REVENUE -------- ---------- -------- ---------- -------- ---------- North America............... $205,040 25.1% $282,754 36.8% $251,993 37.5% European.................... 10,823 31.5 7,936 31.0 8,275 38.3 Other foreign............... 31,856 32.9 15,471 29.3 11,629 36.2 -------- ---- -------- ---- -------- ---- Total cemetery gross profit.... $247,719 26.1% $306,161 36.2% $271,897 37.5% ======== ==== ======== ==== ======== ====
North America 1999 cemetery gross profit declined $77,714 primarily due to increased costs of 12.9% at 1999 comparable locations. These increased costs were primarily the result of increases in property costs and commission expenses related to the sale of heritage cemetery property sales initiatives. The decrease in the North America cemetery gross profit margin percentage in 1999 was primarily the result of these increased costs coupled with the reductions in net cemetery trust earnings and operating earnings related to the sale of excess undeveloped cemetery property. The 1998 North America cemetery gross profit increased $30,761 primarily due to the corresponding growth in revenue discussed above. Costs of services at comparable locations remained flat in 1998 from 1997 and, while costs from acquired locations increased $43,509, these increases were offset by increases in net cemetery trust earnings and operating earnings related to sales of excess undeveloped cemetery property. The increase of $2,887 in 1999 European gross profit was the result of increases due to acquisitions in Belgium and the United Kingdom. The decrease in the 1998 gross margin percentage was the result of increased costs in anticipation of growth associated with comparable locations in the United Kingdom. The 1999 increase of $16,385 in Other foreign gross profit and the corresponding increase in the margin percentage was the result of increases in the gross profit and margin percentage from the Company's acquired South American operations. The margin percentage in Argentina has improved to 24.0% in 1999 from 19.4% in 1998. The decline in Other foreign margin percentage in 1998 was due to the inclusion of a full year of cemetery operations in Argentina during 1998 which reduced gross margin percentage when combined with the higher margin Australian operations. Argentina has significantly lower gross margin percentages than Chile or Australia; however, these margin percentages are in line with the Company's expectations. Financial Services Financial services represents a combination of the Company's insurance operations and a lending subsidiary. 13 15 Financial services revenues for the three years ended December 31, 1999, were as follows:
PERCENTAGE INCREASE PERCENTAGE 1999 (DECREASE) 1998 INCREASE 1997 -------- ---------- -------- ---------- ------- Insurance: North America.................. $244,506 198.8% $ 81,832 --% $ -- France......................... 69,349 (28.5) 96,941 30.7 74,175 -------- ----- -------- ----- ------- Total insurance............. 313,855 75.6 178,773 141.0 74,175 Lending subsidiary............... 20,758 0.8 20,580 24.4 16,537 -------- ----- -------- ----- ------- Total financial services revenues.... $334,613 67.8% $199,353 119.8% $90,712 ======== ===== ======== ===== =======
The increase in insurance revenues in 1999 and 1998 was due to the North American acquisition of AML effective July 1998. Further, a portion of the increase in revenue in 1999 is related to the Company's initiatives to fund a higher percentage of prearranged funeral contracts through AML as opposed to third party insurance or trust funded contracts. Insurance revenues from the Company's French operations decreased due to decreased investment income related to a repositioning of the investment portfolio. Although the average outstanding loan portfolio associated with the lending subsidiary increased in 1999 from 1998, revenues remained relatively flat between the two years due to the non-performing status of certain loans subsequent to September 30, 1999. Growth from the lending subsidiary in 1998 is attributable to the increasing loan portfolio. The average outstanding loan portfolio was $248,807 in 1999, $228,279 in 1998 and $182,375 in 1997. Financial services gross profit and margin percentage for the three years ended December 31, 1999, were as follows:
PERCENTAGE PERCENTAGE PERCENTAGE 1999 OF REVENUE 1998 OF REVENUE 1997 OF REVENUE -------- ---------- ------- ---------- ------- ---------- Insurance: North America.......... $ 16,084 6.6% $ 7,872 9.6% $ -- --% France................. 12,929 18.6 10,689 11.0 6,712 9.0 -------- ------ ------- ---- ------- ---- Total insurance..... 29,013 9.2 18,561 10.4 6,712 9.0 Lending subsidiary....... (29,467) (141.9) 9,441 45.9 7,632 46.2 -------- ------ ------- ---- ------- ---- Total financial services gross profit (loss)....... $ (454) (0.1)% $28,002 14.0% $14,344 15.8% ======== ====== ======= ==== ======= ====
The 1999 decrease in the North American insurance gross margin percentage was the result of increased production. While revenue and gross profit have both increased during this period of growth, benefits and expenses have also increased, thereby reducing the gross margin percentage. Although French insurance revenues in 1999 were negatively affected by decreased investment income related to the repositioning of their investment portfolio, gross profit was negatively impacted only slightly due to a corresponding reduction in expense and the margin percentages were positively affected due to the lower revenue used to calculate the margin percentage. The Company's lending subsidiary reported a gross loss of $29,467 for the year ended December 31, 1999, compared to gross profit of $9,441 and $7,632 for the same periods in 1998 and 1997, respectively. As part of its cost rationalization programs initiated in 1999, the Company decided to indefinitely suspend the operations of the lending subsidiary by selling a portion of the loan portfolio and acquiring by deed in lieu of foreclosure the collateral underlying other certain loans in its portfolio. The Company recorded a provision for loan losses of $38,608 in the fourth quarter of 1999 associated with the lending subsidiary's loans that are not 14 16 being held for sale. See note eighteen to the consolidated financial statements in Item 8 of this Form 10-K for further discussion of these nonrecurring charges related to the Company's lending subsidiary. The lending subsidiary's gross profit was affected in 1999 by a decrease in the average interest rate spread for the year, primarily as a result of the non-performing status of certain loans discussed above. For the three years ended December 31, 1999, the average interest rate spread was 2.48%, 3.14% and 3.18%, respectively. Other Income and Expenses The Company's general and administrative expenses increased in 1999 to $82,585 compared to $66,839 in 1998 and $66,781 in 1997. Expressed as a percentage of revenues, these expenses were 2.5%, 2.3% and 2.6% in 1999, 1998 and 1997, respectively. The increase in general and administrative expenses in 1999 compared to 1998 and 1997 levels is primarily related to non-recurring cost items such as information technology costs related to the Company's year 2000 preparation and professional costs associated with process improvement initiatives and implementation of EVA(R) based incentive compensation models. Interest expense increased $61,142 or 34.5% in 1999 compared to 1998 and increased $40,333 or 29.5% in 1998 compared to 1997. This increased interest expense was primarily reflective of increased indebtedness assumed due to acquisitions, specifically as it relates to the ECI merger in January 1999. The average borrowings during 1999 were $4,131,833 compared to $3,340,708 in 1998 and $2,434,808 in 1997. The average interest rates for each of these years were 5.99%, 6.15% and 6.03% for 1999, 1998 and 1997, respectively. The Company expects interest expense to increase to approximately $265,000 to $270,000 for the year ended December 31, 2000, primarily as a result of the Company's lower credit rating. Other income primarily consists of gains and losses from the sales of businesses that are disposed of for strategic or government mandated purposes. In 1999, other income was $31,759 compared to $43,649 in 1998 and $100,244 in 1997. The fluctuation between $100,244 of other income in 1997 and $43,649 of other income in 1998 reflects the gain on the sale in 1997 of the Company's equity interest in ECI of $68,077. The provision (benefit) for income taxes reflects a (9.0%) effective tax rate for 1999, compared to a 34.0% effective tax rate in 1998 and a 35.4% effective tax rate in 1997. The decrease in the effective tax rate was primarily due to the nondeductible losses recorded in the fourth quarter of 1999 as a result of the Company's 1999 restructuring charges. The 1998 reduction in the effective tax rate is primarily due to a larger relative profit contribution from international operations which are taxed at lower rates. Included in the provisions for all years were tax benefits relating to enacted tax rate changes in certain foreign tax jurisdictions. FINANCIAL CONDITION AND LIQUIDITY 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 historically has been generated through public and private offerings of debt and the issuance of equity securities supplemented by the Company's revolving credit agreements. During 1999, the Company's liquidity needs and capital funding requirements changed as the Company transitioned away from an acquisition company to an operating company focused on increasing cash flow, reducing overhead costs and paying down debt. The Company developed a series of cash flow initiatives in 1999 related to ongoing operations of the Company, the sale of certain assets and non-core businesses and sources of cash flow from providing third party financing to consumers. These cash flow initiatives were developed in late 1999 and will not effect the Company's cash flow until 2000 and beyond. Cash flow initiatives related to the ongoing operations of the Company include: (i) the suspension of the acquisition program, (ii) the reduction of capital expenditures compared to historical levels, (iii) the suspension of the quarterly cash dividend, (iv) the obtaining of funds available from certain of the Company's trusts more efficiently, and (v) the realignment of preneed cemetery and prearranged funeral sales structures 15 17 to become more cash flow positive. The Company believes the above cash flow initiatives, coupled with other working capital initiatives, will produce operating free cash flow on an after tax basis in the range of $100,000 to $200,000 in 2000. The Company defines operating free cash flow as cash flow from operating activities determined by generally accepted accounting principles, less capital expenditures, dividends paid, the net effect of prearranged funeral production and maturities. The operating free cash flow projections above do not include approximately $75,000 of projected net cash outflow in 2000 associated with the Company's 1999 first and fourth quarter restructuring and nonrecurring charges. The Company developed cash flow initiatives in 1999 to sell certain assets and non-core businesses that are either not meeting the Company's criteria for returns on invested capital or are more valuable to parties outside the Company. The Company expects after tax proceeds of $200,000 to $300,000 from these sales of non-core financial or operational assets in 2000. In 2000, the above cash flow initiatives developed in 1999 are expected to produce approximately $300,000 to $500,000 of funds available for reducing debt on an after tax basis. This projection again does not include approximately $75,000 of net cash outflows in 2000 associated with the Company's 1999 restructuring charges. These funds available for debt reduction also do not include any possible effect on cash flows associated with the development of a consumer financing program in North America for the Company's atneed funeral and cemetery and preneed cemetery client families, which could improve or generate cash flow for the Company and enhance the Company's ability to further pay down debt. The Company had total debt of $4,060,016 at December 31, 1999 versus $3,860,657 at December 31, 1998. The largest component of this debt relates to the Company's primary revolving credit agreements. The Company's primary revolving credit agreements provide for borrowings up to $1,600,000 and consists of two 364-day facilities and a five-year, multi-currency facility due in 2002. One of the 364-day facilities permits borrowings up to $300,000 and the outstanding balance at maturity (June 25, 2000) may be converted into a two-year term loan at the Company's option. The second 364-day facility permits borrowings up to $600,000 and expires November 1, 2000. As of December 31, 1999, approximately $412,000 was available under these three facilities. These facilities have financial compliance provisions that contain certain restrictions, including a maximum debt-to-capitalization ratio of 60%, a minimum interest coverage of 2.75, a minimum net worth requirement defined in the facility agreements, and limitations on cash disbursements, subsidiary borrowings, liens and guarantees. See note eight to the consolidated financial statements in Item 8 of this Form 10-K for further information on the Company's primary revolving credit facilities. Historically, the Company has classified borrowings under these facilities as long-term debt since it has been the Company's intent to refinance such borrowings with long-term debt or equity. In 1999, however, the Company's downgraded credit ratings, both short-term and long-term, have limited its access to the capital markets. As such, borrowings (primarily commercial paper) of approximately $179,704 backed by the $600,000 facility have been classified as current maturities of long-term debt. As of December 31, 1999, the Company had a total of $423,949 of current maturities of long-term debt. As mentioned above, the Company believes it will generate funds available for reducing debt on an after tax basis of $300,000 to $500,000 not including the projected net cash outflow of $75,000 related to the Company's 1999 restructuring charges. Based on these funds available, coupled with banking relationships that the Company would characterize as positive, the Company believes it will meet all of its financial obligations and requirements in 2000. Sources and Uses of Cash Cash Flows from Operating Activities: Net cash provided by operating activities was $432,850 for the year ended December 31, 1999, compared to $328,620 for the same period in 1998, an improvement of $104,230. Significant components of cash flow provided by operating activities for the year ended December 31, 1999 include: (1) net loss of $32,412 adjusted for normal non-cash items such as $252,145 of depreciation and amortization, (2) restructuring and nonrecurring charge provisions of $362,428, reduced by cash paid of $37,553 related to the charges, (3) an increase in receivables of $223,405 primarily related to the sales of preneed cemetery products and services which are usually financed on an installment basis in excess of twelve months and (4) an increase in other liabilities of $138,448 primarily related to the non-cash add-back 16 18 associated with the actuarially determined liability recorded by the Company's insurance operations. Cash Flows from Investing Activities: Net cash used in investing activities was $423,982 for the year ended December 31, 1999, compared to $1,059,875 for the same period in 1998, an improvement of $635,893. Significant components of cash used in investing activities for the year ended December 31, 1999, include: (1) capital expenditures of $216,208, (2) $120,573 of proceeds from the sales of property and equipment, (3) $102,647 of cash used in acquisitions and (4) $199,879 of purchases in excess of sales of securities associated with the Company's insurance operations. One of the insurance operations had an approximate $80,000 cash position at December 31, 1998, of which a significant portion of the cash was used to purchase securities during 1999. The remaining amount of cash used to purchase securities in excess of the sales of securities represents the investment of net cash generated by insurance premiums received from customers after payment of cash expenses which is included within net cash provided by operating activities. Cash Flows from Financing Activities: Net cash used in financing activities was $266,756 for the year ended December 31, 1999, compared to net cash provided by financing activities of $1,041,561 for the same period in 1998. The Company issued approximately $1,100,000 of long-term debt in 1998, which is included in the $1,041,561 amount above. Significant components of cash used in financing activities for the year ended December 31, 1999, include: (1) increases in borrowings of $504,279 from the Company's revolving credit facilities offset by $365,936 for the early extinguishment of certain floating rate debt and ECI convertible debentures, (2) payments of debt of $259,004 and (3) payments of cash dividends of $96,779. At December 31, 1999, the Company had a working capital deficit of $61,714 compared to working capital surplus of $578,755 as of December 31, 1998. The working capital deficit of $61,714 is primarily a result of the current liability of $89,812 at December 31, 1999 related to the Company's 1999 restructuring charges as well as related to $423,949 of current maturities of long-term debt, of which $179,704 relates to the Company's revolving credit facilities. As discussed earlier, certain balances outstanding on the Company's revolving credit facilities cannot be classified as long-term at December 31, 1999, due to the Company's current lack of access to the capital markets. As part of the Company's ongoing cash flow initiatives, the Company terminated or assigned certain interest rate swaps and all cross-currency interest rate swaps subsequent to year end and received approximately $110,658 in net pretax proceeds. These proceeds were primarily used to purchase certain of the Company's bonds, of which approximately $59,000 of these bonds were due in 2000. The Company had a current ratio 0.94:1 at December 31, 1999, compared to a current ratio of 1.92:1 at December 31, 1998. The Company had a cash balance of $88,221 at December 31, 1999 compared to a cash balance of $358,210 at December 31, 1998. Approximately $160,000 of the December 31, 1998 cash balance was contemplated to be used to repay ECI's revolving credit facility and AML had an approximate $80,000 cash balance at December 31, 1998 which was used to purchase securities in 1999. As of December 31, 1999, the Company's debt to capitalization ratio was 53.7% compared to 55.0% at December 31, 1998. Excluding the $362,428 of 1999 restructuring and nonrecurring charges, the interest coverage ratio for the year ended December 31, 1999 was 2.30:1, compared to 3.72:1 for the same period of 1998. At December 31, 1999, the Company had the ability to issue $900,000 in securities registered with the Securities and Exchange Commission (the Commission) under a shelf registration. In addition, 12,865 shares of common stock and a total of $187,000 of guaranteed promissory notes and convertible debentures are registered under a separate shelf registration to be used exclusively for acquisitions. The Company has suspended its acquisition program and does not anticipate these acquisition shelf registrations to be drawn upon in the near future. PREARRANGED FUNERAL SERVICES The Company sells prearranged funeral contracts in most of its service markets, including its major foreign markets. The Company has a marketing program to sell price guaranteed prearranged funeral contracts and the funds collected are generally held in trust or are used to purchase life insurance or annuity contracts. The amounts paid into trust funds or premiums paid on insurance contracts will be received in cash by a Company funeral service location at the time the funeral is performed. Earnings on trust funds and 17 19 increasing benefits under insurance and annuity funded contracts also increase the amount of cash to be received upon performance of the funeral service. Direct 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 general agency commissions earned by the Company for sales of insurance products. The Company has an investment program which entails the ongoing consolidation of multiple trustees, the use of institutional managers with differing investment styles and consolidated performance monitoring and tracking. This 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 investments that match the anticipated maturity of the contracts. The Company targets an asset allocation for prearranged funeral trusts of approximately 60% equity, 30% fixed income and 10% alternative investments. The Company's North American prearranged funeral trust portfolio earned a return of 17.6%, 18.0% and 12.5% in 1999, 1998 and 1997, respectively (including realized and unrealized gains and net of investment expenses). AML, which was acquired by the Company in 1998, has been a provider of insurance products used to fund Company prearranged funerals in North America for several years. During 1999, the Company began a strategic initiative to fund a higher percentage of its North American prearranged funeral sales through AML as opposed to third party insurance or trust funded contracts. Auxia primarily sells insurance and annuity products used to fund prearranged funerals to be performed by the Company's French funeral service locations. Prearranged funeral sales afford the Company the opportunity to protect both 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 funerals performed at comparable North America funeral service locations approximates 28.9% in 1999 and 26.7% in 1998. This percentage is expected to grow, thereby making the number of funerals performed and related revenues, which will be recognized in future periods, more predictable. The total value of unperformed prearranged funeral contracts includes both trust funded and insurance funded contracts and represents the original contract value plus any accumulated trust earnings or increasing insurance benefits. The total value of unperformed prearranged funeral contracts consists of two components: (i) contracts funded by trust or third party insurance companies and (ii) contracts funded by the Company's insurance operations. The value of unperformed prearranged funeral contracts to be funded by trust or third party insurance companies are included in Deferred prearranged funeral contract revenues in the consolidated balance sheet. A portion of the value of unperformed prearranged funeral contracts to be funded by the Company's insurance operations is included as a component of Reserves and annuity benefits -- insurance operations in the consolidated balance sheet and reflects only the actuarially determined amounts to be funded in accordance with generally accepted accounting principles for life insurance companies. The remaining component of Reserves and annuity benefits -- insurance operations represents the actuarially determined amounts to be funded for non-SCI unperformed prearranged funeral contracts. As of December 31, 1999 and 1998, the total value of unperformed prearranged funeral contracts was as follows (assuming the Company's contracts only, at face value, plus accrued earnings or increasing death benefits):
1999 1998 ---------- ---------- Deferred prearranged funeral contract revenues.............. $3,186,081 $2,819,794 Contracts funded by the Company's insurance operations...... 1,101,371 932,056 ---------- ---------- $4,287,452 $3,751,850 ========== ==========
18 20 The following table summarizes the changes in the total value of unperformed prearranged funeral contracts for the years ended December 31:
1999 1998 ---------- ---------- Beginning balance........................................... $3,751,850 $3,371,424 Net sales................................................. 578,263 490,289 Acquisitions/dispositions................................. 288,099 138,976 Realized earnings and increasing insurance benefits....... 128,251 129,484 Maturities................................................ (331,031) (274,107) Change in cancellation reserve............................ (80,020) (16,608) Effect of foreign currency and other...................... (47,960) (87,608) ---------- ---------- Ending balance.............................................. $4,287,452 $3,751,850 ========== ==========
The increase in net sales was due to the Company's revenue initiative to increase prearranged funeral sales. Acquisitions and dispositions has increased primarily due to the merger with ECI in January 1999. The increase in the cancellation reserve is due to adjustments made to better reflect the Company's historical experience. The recognition of the total value of unperformed prearranged funeral revenues is estimated to occur in the subsequent years as follows: 2000.................................................... $ 392,110 2001.................................................... 361,880 2002.................................................... 294,126 2003.................................................... 299,799 2004.................................................... 270,186 2005 through 2008....................................... 1,027,623 2010 and thereafter..................................... 1,641,728 ---------- $4,287,452 ==========
CREMATIONS In recent years there has been a steady growth trend in the number of cremations in North America that have been chosen as an alternative to traditional funeral service dispositions. Outside of North America, the cremation rate is much more stable. In 1999, 35.4% (34.6% in 1998) of all families served by the Company's comparable North America funeral service locations selected cremation, substantially more than the 25% 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 cremation rates have been historically higher than the national average. Though a cremation typically results in fewer sales dollars than a traditional funeral service, the Company believes funeral service locations which are predominantly cremation businesses typically have higher gross profit margin percentages than those exhibited at traditional funeral service locations. The Company has expanded its product alternatives in high cremation markets in North America which has resulted in higher average sales. The Company continues to believe there are markets in select areas within North America where products and services related to the memorialization of cremated remains represent a source of revenue and margin growth. Cremation memorialization has long been a tradition in Australia and the United Kingdom. Based on industry studies, approximately 60-70% of all dispositions in Australia and the United Kingdom were cremations. It is estimated that approximately 17% of all dispositions in France are cremations. The Company also operates the only nationally branded cremation society with the largest membership in North America called National Cremation Society (NCS). NCS currently operates in four high cremation states and has plans to expand into nine additional high cremation states and Canadian provinces in 2000. NCS locations are predominately store-front locations with little capital investment and have a prearranged 19 21 backlog of approximately 43,000 contracts as of December 31, 1999. While the average sale of NCS contracts is approximately $1,000 to $1,200, gross profit margins are in the 40% to 45% range. OTHER MATTERS In June 1998, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 133, "Accounting for Derivative Instruments and Hedging Activities," which is required to be implemented in the Company's first quarter of 2001. This statement establishes accounting and reporting standards for derivative instruments and requires recognition of all derivatives as assets or liabilities in the statement of financial position and measurement of those instruments at fair value. Changes in the fair value of derivatives will be recorded either in earnings or in other comprehensive income, based on the type of risk for which the instrument is determined to be an effective hedge. Any change in fair value of an instrument that is not designated as a hedge, or any portion of a change in fair value of a hedging instrument that is deemed ineffective, will be immediately recognized in earnings. The Company is currently assessing the impact that adoption will have on its consolidated financial statements. In December 1999, the Commission issued Staff Accounting Bulletin No. 101, "Revenue Recognition in Financial Statements" (SAB No. 101). SAB No. 101, as amended, is required to be applied beginning with the Company's second quarter of 2000. The Company, together with other members of the death care industry, are currently discussing directly with the Commission the application of SAB No. 101. Final resolution of the discussions will not have an impact on the Company's consolidated cash flows, but may have a material impact on the Company's consolidated financial condition and on the manner in which the Company records preneed sales activities. YEAR 2000 ISSUE The Year 2000 issue, also known as "Y2K," refers to the inability of some computer programs and computer-based microprocessors to correctly interpret the century from a date in which the year is represented by only two digits (e.g., 98). As previously reported, the Company developed and implemented a plan to address the anticipated effects of Y2K issues related to the Company's production systems, networks, desktops, user-developed applications, vendor-supplied software, facilities and telecommunications and the supply chain. The Company established Y2K Program Offices at its corporate offices in Houston, Texas and Birmingham, England. These program offices were responsible for advising and monitoring the numerous facets of the Company's Y2K preparations and for promoting Y2K awareness. In addition, the program offices monitored the development of contingency plans that specified what would be done if the Company or key third parties experienced disruptions to critical business activities as a result of Y2K problems. The Company's Y2K plan was completed in all material respects prior to the anticipated Y2K failure dates. As of March 28, 2000, the Company has not experienced any significant business disruptions or system failures as a result of Y2K issues, nor is it aware of any Y2K issues that have affected its key suppliers or other significant third parties to an extent significant to the Company. However, Y2K compliance has many facets and potential consequences, some of which may not be foreseeable or may not be realized until future periods. Consequently, there can be no assurance that unforeseen circumstances may not arise, or that the Company will not in the future identify equipment or systems that are not Y2K-compliant. Because of this uncertainty, the Company's contingency plans outline a course of action should a date-related problem occur in the future. The aggregate costs for the Company to achieve Y2K readiness were approximately $33,715 of which $3,725 represents operating lease payments related to desktops and servers that will be incurred from 2000-2002. All costs associated with Y2K readiness are expected to be funded from cash flows from operations. The Company's actual costs incurred associated with Y2K readiness through December 31, 1999, were approximately $29,990, of which approximately $10,433 has been expensed and approximately $19,557 has been capitalized. The capitalized expenditures represent new hardware and new enterprise software that introduced new functionality to the Company. All of the estimated remaining $3,725 expenditures will be expensed over the course of the related lease term. 20 22 In an effort to report material costs related to the Company's Y2K effort, the Company has adopted a policy of capturing all costs of one thousand dollars or more, all contractor expenses, and internal costs for dedicated resources (those working exclusively on Y2K issues). As such, the Company acknowledges that many internal resources worked part-time on Y2K-related issues for which no payroll or overhead costs are being reported. CAUTIONARY STATEMENT ON FORWARD-LOOKING STATEMENTS The statements contained in this Form 10-K that are not historical facts are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These statements may be accompanied by words such as "believe," "estimate," "project," "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) that could negatively affect the Company, particularly but not limited to, the Company's cemetery trust revenues, levels of interest expense; and changes in the Company's specific credit relationships impacting the availability of credit. 2) Changes in domestic and international political and/or regulatory environments in which the Company operates, including tax and accounting policies. 3) Changes in consumer demand and/or pricing for the Company's products and 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 sell preneed heritage cemetery property which is usually associated with new customers of the Company's cemeteries. 5) The Company's ability to successfully integrate prior acquisitions into the Company's business and to realize expected cost savings in connection with such acquisitions. 6) The Company's ability to successfully implement ongoing cost reduction initiatives, as well as changes in domestic and international economic, political and/or regulatory environments, which could negatively effect the implementation of the Company's cost reduction initiatives. 7) The Company's ability to successfully realize the estimated savings associated with the Company's cost reduction initiatives announced in 1999. 8) The Company's ability to successfully implement certain strategic revenue and marketing initiatives resulting in increased volume through its existing facilities. 9) The Company's ability to successfully implement certain strategic cash flow initiatives, including but not limited to the sale of non-core assets, the previously announced funeral and cemetery consumer financing program, which could improve or generate cash flow for the Company and enhance the Company's ability to reduce debt. 10) The Company's ability to successfully exploit its substantial purchasing power with certain of the Company's vendors. 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. 21 23 ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK. The information presented below should be read in conjunction with notes nine and ten to the consolidated financial statements in Item 8 of this Form 10-K. 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 hedge the Company's net investment in foreign assets. The derivative instruments held by the Company are for hedging purposes and are neither leveraged nor speculative in nature. Movements in interest rates that impact the fair value of the interest rate swaps generally offset corresponding movements in the value of the underlying debt being hedged. Likewise, movements in currency rates that impact swaps generally offset corresponding movements in the value of the underlying foreign assets being hedged. In addition, currency movements that impact foreign interest expense due under the cross-currency interest rate swaps generally offset corresponding movements in the earnings of the foreign operation. At December 31, 1999, after giving consideration to the interest rate swaps, the Company's total debt consisted of approximately 61% of fixed interest rate debt at a weighted average rate of 6.36% and approximately 39% of floating interest rate debt at a weighted average rate of 6.49%. At December 31, 1998, the Company's total debt consisted of approximately 74% of fixed interest rate debt at a weighted average rate of 6.17% and approximately 26% of floating interest rate debt at a weighted average rate of 6.15%. The Company's overall sensitivity to floating interest rates is diversified in that approximately 28% of the Company's floating rate exposure, as of December 31, 1999, is based in eight markets other than the United States (47% at December 31, 1998). In general, the Company has hedged 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. In addition, the Company does not have a significant investment in foreign operations that are in highly inflationary economies. Approximately 32% of the Company's net investment and 32% of its income from operations are denominated in foreign currencies at December 31, 1999. Due to the cross-currency hedges described above, approximately 13% of the Company's net assets and approximately 16% of the Company's income from operations are subject to translation risk at December 31, 1999. In January 2000, the Company materially modified its participation in derivative transactions by terminating or assigning away certain interest rate swaps and all cross-currency interest rate swaps as mentioned in note nine to the consolidated financial statements in Item 8 of this Form 10-K, thereby removing the Company's hedges of foreign exchange rate exposure and the diversification of floating rate exposure mentioned above. Marketable Equity and Debt Securities -- Price Risk In connection with the Company's insurance operations, prearranged funeral operations and preneed cemetery merchandise and services 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, 1999 and 1998, are presented in notes four, five and six to the consolidated financial statements in Item 8 of this Form 10-K. Market-Rate Sensitive Instruments -- Interest Rate and Currency Risk The Company's financial instruments that were subject to interest rate and currency exchange rate risk at December 31, 1999, include debt instruments, U.S. dollar interest rate swaps, and cross-currency interest rate swaps. The Company performs sensitivity analyses to assess the impact of these risks on earnings. This analysis reflects the impact of a hypothetical 10% adverse change in market rates. In actuality, market rate volatility is dependent on many factors that are impossible to forecast. Therefore, the adverse changes described below could differ substantially from the hypothetical 10% impact. The analysis conducted below excludes the assets of both the lending subsidiary and the Company's insurance operations. Instead, these are referenced separately in tabular format below. 22 24 A sensitivity analysis of those instruments with variable interest rate components was modeled to assess the impact that changing interest rates could have on pretax earnings. The sensitivity analysis assumed an instantaneous 10% adverse change to the then prevailing interest rates with all other variables held constant. Given this model, the Company's pretax earnings, on an annual basis, would have been negatively impacted by approximately $9,402 on December 31, 1999, and $5,657 on December 31, 1998. Had the Company terminated certain interest rate swaps in December 1999, as discussed in note nine to the consolidated financial statements in Item 8 of this Form 10-K, this same sensitivity analysis indicates that the Company's pretax annual earnings would have been negatively impacted by approximately $11,664 on December 31, 1999. A similar model was used to assess the impact of changes in foreign exchange rates on interest expense. At December 31, 1999, the Company's debt and derivative exposure was primarily associated with the Euro, British pound, Canadian dollar, Australian dollar, Chilean peso, Swiss franc, and Norwegian krone. A 10% adverse change in the strength of the U.S. dollar would have negatively impacted the Company's interest expense on an annual basis by approximately $11,451 on December 31, 1999, and $12,229 on December 31, 1998. Had the Company terminated the cross-currency interest rate swaps in December 1999, as discussed in note nine to the consolidated financial statements in Item 8 of this Form 10-K, this same sensitivity analysis indicates that the Company's annual interest expense would have been negatively impacted by approximately $2,176 on December 31, 1999. 23 25 For certain assets associated with the Company's lending subsidiary and insurance operations, the tables below present principal cash flows that exist by maturity date and the related average interest rates: AS OF DECEMBER 31, 1999:
2000 2001 2002 2003 2004 THEREAFTER FAIR VALUE ------- ------- ------- ------- ------- ---------- ---------- Lending subsidiary receivables......... $16,545 $32,601 $40,239 $55,553 $33,854 $32,234 $211,026 Average rate........................... 5.96% 7.68% 6.20% 9.15% 9.63% 8.59% Insurance subsidiaries investments in debt securities...................... 26,075 5,073 7,098 15,166 44,417 861,894 959,723 Average rate........................... 3.96% 5.92% 5.77% 5.81% 5.14% 6.51%
AS OF DECEMBER 31, 1998:
1999 2000 2001 2002 2003 THEREAFTER FAIR VALUE ------- ------- ------- -------- ------- ---------- ---------- Lending subsidiary receivables........ $33,007 $14,369 $44,501 $107,117 $27,238 $43,297 $269,529 Average rate.......................... 7.70% 9.24% 8.54% 8.12% 8.97% 8.38% Insurance subsidiaries investments in debt securities..................... 85,316 70,369 76,233 108,416 74,231 503,804 918,369 Average rate.......................... 5.85% 5.38% 5.84% 5.42% 5.90% 4.93%
To reduce exposure to interest rate changes, portfolio investments are selected so the weighted average duration of the investments approximates the duration of associated policyholder liabilities. The insurance companies are subject to reinvestment risk upon either sale or maturity of the debt securities. Management believes that absence of any material amounts of "high-yield" or "non-investment grade" investments in the portfolios of the Company's insurance operations enhances the ability of the insurance companies to provide security to their policyholders. 24 26 ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA. INDEX TO FINANCIAL STATEMENTS AND RELATED SCHEDULE
PAGE ---- Report of Independent Accountants........................... 26 Consolidated Statement of Operations for the three years ended December 31, 1999................................... 27 Consolidated Balance Sheet as of December 31, 1999 and 1998...................................................... 28 Consolidated Statement of Cash Flows for the three years ended December 31, 1999................................... 29 Consolidated Statement of Stockholders' Equity for the three years ended December 31, 1999............................. 30 Notes to Consolidated Financial Statements.................. 31 Financial Statement Schedule: II -- Valuation and Qualifying Accounts..................... 64
All other schedules have been omitted because the required information is not applicable or because the information required is included in the consolidated financial statements or the related notes thereto. 25 27 REPORT OF INDEPENDENT ACCOUNTANTS To the Stockholders and Board of Directors of Service Corporation International In our opinion, the consolidated financial statements listed in the accompanying index present fairly, in all material respects, the financial position of Service Corporation International at December 31, 1999 and 1998, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 1999 in conformity with accounting principles generally accepted in the United States. In addition, in our opinion, the financial statement schedule listed in the accompanying index presents fairly, in all material respects, the information set forth therein when read in conjunction with the related consolidated financial statements. These financial statements and financial statement schedule are the responsibility of the Company's management; our responsibility is to express an opinion on these financial statements and financial statement schedule based on our audits. We conducted our audits of these statements in accordance with auditing standards generally accepted in the United States, which require that we plan and perform the audit 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, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for the opinion expressed above. PricewaterhouseCoopers LLP Houston, Texas March 29, 2000 26 28 SERVICE CORPORATION INTERNATIONAL CONSOLIDATED STATEMENT OF OPERATIONS
YEARS ENDED DECEMBER 31, ------------------------------------ 1999 1998 1997 ---------- ---------- ---------- (AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) Revenues................................................. $3,321,813 $2,875,090 $2,535,865 Costs and expenses....................................... (2,708,054) (2,156,320) (1,848,253) ---------- ---------- ---------- Gross profit............................................. 613,759 718,770 687,612 General and administrative expenses...................... (82,585) (66,839) (66,781) Restructuring and nonrecurring charges................... (362,428) -- -- ---------- ---------- ---------- Income from operations................................... 168,746 651,931 620,831 Interest expense......................................... (238,195) (177,053) (136,720) Dividends on preferred securities of SCI Finance LLC..... -- -- (4,382) Other income............................................. 31,759 43,649 100,244 ---------- ---------- ---------- Income (loss) before income taxes and extraordinary gain (loss)................................................. (37,690) 518,527 579,973 (Provision) benefit for income taxes..................... 3,393 (176,385) (205,421) ---------- ---------- ---------- Income (loss) before extraordinary gain (loss)........... (34,297) 342,142 374,552 Extraordinary gain (loss) on early extinguishment of debt (net of income taxes of $1,071 and $23,383)............ 1,885 -- (40,802) ---------- ---------- ---------- Net income (loss).............................. $ (32,412) $ 342,142 $ 333,750 ========== ========== ========== Earnings per share: Basic: Income (loss) before extraordinary gain (loss)......... $ (.13) $ 1.34 $ 1.53 Extraordinary gain (loss) on early extinguishment of debt................................................ .01 -- (0.17) ---------- ---------- ---------- Net income (loss).............................. $ (.12) $ 1.34 $ 1.36 ========== ========== ========== Diluted: Income (loss) before extraordinary gain (loss)......... $ (.13) $ 1.31 $ 1.47 Extraordinary gain (loss) on early extinguishment of debt................................................ .01 -- (0.16) ---------- ---------- ---------- Net income (loss).............................. $ (.12) $ 1.31 $ 1.31 ========== ========== ========== Basic weighted average number of shares.................. 272,281 256,271 245,470 ========== ========== ========== Diluted weighted average number of shares................ 273,792 262,520 257,781 ========== ========== ==========
(See notes to consolidated financial statements) 27 29 SERVICE CORPORATION INTERNATIONAL CONSOLIDATED BALANCE SHEET
DECEMBER 31, ----------------------------- 1999 1998 ------------- ------------- (DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS) ASSETS Current assets: Cash and cash equivalents................................. $ 88,221 $ 358,210 Receivables, net of allowances............................ 605,127 565,552 Inventories............................................... 190,343 189,070 Other..................................................... 112,460 96,248 ----------- ----------- Total current assets.............................. 996,151 1,209,080 ----------- ----------- Investments -- insurance operations......................... 1,318,635 1,234,678 Prearranged funeral contracts............................... 2,898,139 2,588,806 Long-term receivables....................................... 1,562,418 1,408,076 Cemetery property, at cost.................................. 2,182,410 2,035,897 Property, plant and equipment, at cost (net)................ 1,881,525 1,824,979 Deferred charges and other assets........................... 1,286,967 1,151,430 Names and reputations (net)................................. 2,475,356 1,813,212 ----------- ----------- $14,601,601 $13,266,158 =========== =========== LIABILITIES & STOCKHOLDERS' EQUITY Current liabilities: Accounts payable and accrued liabilities.................. $ 589,847 $ 452,354 Current maturities of long-term debt...................... 423,949 96,067 Income taxes.............................................. 44,069 81,904 ----------- ----------- Total current liabilities......................... 1,057,865 630,325 ----------- ----------- Long-term debt.............................................. 3,636,067 3,764,590 Reserves and annuity benefits -- insurance operations....... 1,313,328 1,207,169 Deferred prearranged funeral contract revenues.............. 3,186,081 2,819,794 Deferred income taxes....................................... 873,023 797,086 Other liabilities........................................... 1,039,964 893,092 Stockholders' equity: Common stock, $1 per share par value, 500,000,000 shares authorized, 272,064,618 and 259,201,104 issued and outstanding net of 2,792,503 and 68,373 treasury shares at par................................................. 272,064 259,201 Capital in excess of par value............................ 2,156,301 1,646,765 Retained earnings......................................... 1,126,898 1,232,758 Accumulated other comprehensive income (loss)............. (59,990) 15,378 ----------- ----------- Total stockholders' equity........................ 3,495,273 3,154,102 ----------- ----------- $14,601,601 $13,266,158 =========== ===========
(See notes to consolidated financial statements) 28 30 SERVICE CORPORATION INTERNATIONAL CONSOLIDATED STATEMENT OF CASH FLOWS
YEARS ENDED DECEMBER 31, --------------------------------------- 1999 1998 1997 ----------- ----------- ----------- (DOLLARS IN THOUSANDS) Cash flows from operating activities: Net income (loss).................................... $ (32,412) $ 342,142 $ 333,750 Adjustments to reconcile net income (loss) to net cash provided by operating activities: Depreciation and amortization..................... 252,145 202,277 157,550 Provision (benefit) for deferred income taxes..... (46,071) 56,308 19,212 Restructuring and nonrecurring charges............ 362,428 -- -- Cash paid related to restructuring and nonrecurring charges............................ (37,553) -- -- Extraordinary (gain) loss on early extinguishment of debt, net of income taxes.................... (1,885) -- 40,802 Gains from dispositions (net)..................... (19,752) (30,627) (89,252) Provision for loan losses......................... 38,608 -- -- Realized gains on sale of investments............. (33,675) (65,313) -- Realized losses on sale of investments............ 32,465 42,026 -- Change in assets and liabilities net of effects from acquisitions: Increase in receivables......................... (223,405) (228,325) (174,429) Increase in other assets........................ (3,416) (71,824) (24,904) Increase in other liabilities................... 138,448 86,501 36,045 Other........................................... 6,925 (4,545) 3,160 ----------- ----------- ----------- Net cash provided by operating activities.............. 432,850 328,620 301,934 ----------- ----------- ----------- Cash flows from investing activities: Capital expenditures................................. (211,481) (253,224) (230,532) Net effect of prearranged funeral production and maturities........................................ (39,239) (35,521) (5,537) Purchases of securities -- insurance operations...... (1,916,015) (1,225,955) (1,407,588) Sales of securities -- insurance operations.......... 1,716,136 1,200,334 1,383,934 Proceeds from sales of property and equipment........ 115,846 43,793 46,908 Acquisitions, net of cash acquired................... (102,647) (719,768) (409,731) Loans issued by lending subsidiary................... (76,110) (142,017) (98,446) Principal payments received on loans by lending subsidiary........................................ 97,569 70,178 45,915 Proceeds from sale of equity investment.............. -- -- 147,700 Purchases of equity investments...................... (1,400) (6,968) (87,643) Other................................................ (6,641) 9,273 (18,424) ----------- ----------- ----------- Net cash used in investing activities.................. (423,982) (1,059,875) (633,444) ----------- ----------- ----------- Cash flows from financing activities: Increase in borrowings under revolving credit agreements........................................ 504,279 100,294 304,505 Long-term debt issued................................ -- 1,100,000 650,000 Early extinguishment of debt......................... (365,935) -- (449,998) Payments of debt..................................... (259,004) (76,329) (91,464) Repurchase of common stock........................... (45,750) -- -- Dividends paid....................................... (96,779) (88,360) (69,888) Bank overdrafts and other............................ (3,567) 5,956 (6,401) ----------- ----------- ----------- Net cash (used in) provided by financing activities.... (266,756) 1,041,561 336,754 ----------- ----------- ----------- Effect of foreign currency............................. (12,101) 1,027 (2,498) ----------- ----------- ----------- Net (decrease) increase in cash and cash equivalents... (269,989) 311,333 2,746 Cash and cash equivalents at beginning of year......... 358,210 46,877 44,131 ----------- ----------- ----------- Cash and cash equivalents at end of year............... $ 88,221 $ 358,210 $ 46,877 =========== =========== ===========
(See notes to consolidated financial statements) 29 31 SERVICE CORPORATION INTERNATIONAL CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
ACCUMULATED CAPITAL IN OTHER COMMON EXCESS OF RETAINED COMPREHENSIVE STOCK PAR VALUE EARNINGS INCOME (LOSS) TOTAL -------- ---------- ---------- ------------- ---------- (DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) Balance at December 31, 1996.......................... $236,193 $1,237,783 $ 728,108 $ 33,233 $2,235,317 Comprehensive income: Net income.......................................... 333,750 333,750 Other comprehensive loss: Foreign currency translation........................ (29,795) (29,795) Unrealized loss on securities, net.................. (6,957) (6,957) ---------- Total other comprehensive loss................ (36,752) ---------- Comprehensive income.................................. 296,998 Common Stock issued: Stock option exercises and stock grants............. 820 9,296 10,116 Acquisitions........................................ 3,958 79,215 (3,832) 79,341 Debenture conversions............................... 492 5,925 6,417 Conversion of convertible preferred securities of SCI Finance LLC................................... 11,461 161,027 172,488 Dividends on common stock ($.30 per share)............ (74,673) (74,673) -------- ---------- ---------- -------- ---------- Balance at December 31, 1997.......................... 252,924 1,493,246 983,353 (3,519) 2,726,004 Comprehensive income: Net income.......................................... 342,142 342,142 Other comprehensive income: Foreign currency translation........................ 8,748 8,748 Unrealized gain on securities, net.................. 10,149 10,149 ---------- Total other comprehensive income.............. 18,897 ---------- Comprehensive income.................................. 361,039 Common Stock issued: Stock option exercises and stock grants............. 3,593 56,485 60,078 Acquisitions........................................ 2,499 94,625 97,124 Debenture conversions............................... 185 2,409 2,594 Dividends on common stock ($.36 per share)............ (92,737) (92,737) -------- ---------- ---------- -------- ---------- Balance at December 31, 1998.......................... 259,201 1,646,765 1,232,758 15,378 3,154,102 Comprehensive loss: Net loss............................................ (32,412) (32,412) Other comprehensive loss: Foreign currency translation........................ (39,036) (39,036) Unrealized loss on securities, net.................. (36,332) (36,332) ---------- Total other comprehensive loss................ (75,368) ---------- Comprehensive loss.................................... (107,780) Common Stock issued: Stock option exercises and stock grants............. 170 1,382 1,552 Acquisitions........................................ 15,506 550,325 565,831 Debenture conversions............................... 48 718 766 Repurchase of common stock............................ (2,861) (42,889) (45,750) Dividends on common stock ($.27 per share)............ (73,448) (73,448) -------- ---------- ---------- -------- ---------- Balance at December 31, 1999.......................... $272,064 $2,156,301 $1,126,898 $(59,990) $3,495,273 ======== ========== ========== ======== ==========
(See notes to consolidated financial statements) 30 32 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 through its funeral service, cemetery and financial services operations. At December 31, 1999, the Company operated 3,823 funeral service locations, 525 cemeteries, 198 crematoria and two insurance operations located in 20 countries on five continents. The funeral service locations and cemetery operations consist of the Company's funeral homes, cemeteries, crematoria and related businesses. Company personnel at the funeral service locations provide all professional services relating to funerals, including the use of funeral facilities and motor vehicles. Funeral related merchandise is sold at funeral service locations and certain funeral service locations contain crematoria. The Company sells prearranged funeral services whereby a customer contractually agrees to the terms of a funeral to be performed in the future. The Company's cemeteries provide cemetery interment rights (including mausoleum spaces, lots and lawn crypts) and sell cemetery related merchandise. Cemetery items are sold on an atneed or preneed basis. Company personnel at cemeteries perform interment services and provide management and maintenance of cemetery grounds. Certain cemeteries also operate crematoria. There are 200 combination locations that contain a funeral service location within a Company owned cemetery. The financial services operations represent a combination of the Company's insurance operations primarily related to the funding of prearranged funeral contracts and a lending subsidiary which previously provided capital financing for independent funeral home and cemetery operations. 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. 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. 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 fifty years, equipment is depreciated over a period from five to twenty years and leasehold improvements are depreciated over a range of five to fifty years. For the three years ended December 31, 1999, depreciation expense was $127,974, $115,195, and $87,571, respectively. Maintenance and repairs are charged to expense whereas renewals and major replacements are capitalized. 31 33 SERVICE CORPORATION INTERNATIONAL NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) 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 (generally from five to ten years) of the respective contracts. Amortization expense associated with these agreements for the three years ended December 31, 1999, 1998 and 1997 was $26,659, $25,403 and $19,233, respectively. Net obtaining costs incurred pursuant to the sales of trust funded and third party insurance funded prearranged funeral contracts are deferred and amortized over 20 years, a period representing the estimated life of the prearranged funeral contracts. Amortization associated with these net obtaining costs for the three years ended December 31, 1999, 1998 and 1997 were $21,904, $12,930 and $11,198, respectively. Other miscellaneous amortization for the three years ended December 31, 1999, 1998 and 1997 was $8,233, $3,399 and $1,899, respectively. Names and Reputations: The excess of purchase price over the fair value of identifiable net assets acquired in transactions accounted for as purchases 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. The Company monitors the recoverability of names and reputations based on projections of future undiscounted cash flows of the acquired businesses. For the three years ended December 31, 1999, 1998 and 1997, amortization expense was $67,375, $45,350, and $37,649, respectively. Accumulated amortization of names and reputations as of December 31, 1999 and 1998 was $247,933 and $179,803, respectively. Foreign Currency Translation: All assets and liabilities of the Company's foreign subsidiaries are translated into U.S. dollars at exchange rates in effect as of the end of the reporting period. Revenue and expense items are translated at the average exchange rates for the reporting period. The resulting translation adjustments are included as a component of accumulated other comprehensive income (loss) in the consolidated statement of stockholders' equity. 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 agreements are 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 services are performed (see note four to the consolidated financial statements). Cemetery Operations: All cemetery interment right sales, together with associated merchandise and services, 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 and are charged to operations using the specific identification method. Costs related to merchandise and services are based on actual costs incurred or estimates of future costs necessary, including provisions for inflation when required. Allowances for customer cancellations are provided at the date of sale based upon historical experience. Pursuant to state law, all or a portion of the proceeds from cemetery merchandise or services sold on a preneed basis may be required to be paid into trust funds. Merchandise and services funds trusted at December 31, 1999 and 1998 were $822,829 and $662,564, respectively (see note six to the consolidated financial statements). The Company recognizes realized trust income on these merchandise and services trusts in current cemetery revenues as trust earnings accrue to defray inflation costs recognized related to merchandise and services that have not yet been provided. 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 32 34 SERVICE CORPORATION INTERNATIONAL NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) care funds trusted at December 31, 1999 and 1998 were $519,538 and $418,109, respectively, (see note six to the consolidated financial statements). 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. Insurance Operations: The Company accounts for its two life insurance operations under generally accepted accounting principles for life insurance companies. For traditional and participating life products, premiums are recognized as revenue when due from policyholders. Benefits and acquisition expenses are recognized as a constant percentage of earned premiums. Computations of life insurance reserves are based on anticipated investment yields (primarily 3.0% for the French insurance company and 5.8% for the U.S. insurance companies), mortality, surrenders, and provisions for unfavorable deviations. For annuity products, premiums are recorded in a policyholder account which is recorded to Reserves and annuity benefits -- insurance operations. Amounts assessed against the policyholder account for contract expenses and mortality coverage are recorded as revenue in proportion to estimated gross profits of the annuity contracts. To the extent recoverable, certain costs incurred related to the acquisition of new business are deferred. Such costs consist primarily of commissions, underwriting, policy issuance and direct marketing. Such expenses are referred to as deferred policy acquisition costs (DPAC). DPAC related to different products is amortized at a constant percentage over the life of the book of contracts as follows: over the expected premium paying period for traditional life insurance; based on the present value of the estimated gross margin amounts, with interest at the percentage used to calculate the assumed investment yield, for participating life insurance; and based on the present value of estimated gross profit amounts, with interest at the rate of interest that accrues to the policyholder balances, for annuities. DPAC is included as part of Deferred charges and other assets in the consolidated balance sheet. Also included as part of Deferred charges and other assets is the present value of future profits (PVP) on business in force of acquired insurance companies. Such amount represents the portion of costs to acquire such companies that is allocated to the value of the right to receive future cash flows from insurance contracts existing at the date of acquisition. PVP is amortized as follows: over the expected premium paying period for traditional life insurance; and over the estimated remaining life for annuities and participating life insurance. Investment income, net of investment expenses, and realized gains and losses related to Investments -- insurance operations are included within Revenues (see note five to the consolidated financial statements). Debt securities and marketable equity securities are classified as available-for-sale and are carried at quoted market value, if readily marketable, or at management's estimated fair value, if not readily marketable. The change in the unrealized gain or loss, net of deferred income tax, is recorded as a component of other comprehensive income (loss) in the consolidated statement of stockholders' equity. Realized gains and losses on investment transactions are determined on the specific identification basis. When a decline in the value of a specific investment is considered to be other than temporary, a provision for impairment is charged to earnings and the carrying value of the investment is reduced. Premiums and discounts on fixed debt securities are amortized over their expected average lives using the interest method. Mortgage loans and real estate are generally carried at amortized cost. Policy loans are stated at the aggregate unpaid balance. 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 as a part of foreign currency translation in other comprehensive income (loss) in the consolidated statement of stockholders' equity, with the related net amounts due to, or from, the counterparties included in 33 35 SERVICE CORPORATION INTERNATIONAL NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) Other liabilities, or Deferred charges and other assets, respectively. Net deferred gains and losses on early termination of interest rate swaps are amortized into interest expense over the remaining lives of the original agreements. Recent Accounting Pronouncements: In June 1998, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 133, "Accounting for Derivative Instruments and Hedging Activities," which is required to be implemented in the Company's first quarter of 2001. This statement establishes accounting and reporting standards for derivative instruments and requires recognition of all derivatives as assets or liabilities in the statement of financial position and measurement of those instruments at fair value. Changes in the fair value of derivatives will be recorded either in earnings or in other comprehensive income, based on the type of risk for which the instrument is determined to be an effective hedge. Any change in fair value of an instrument that is not designated as a hedge, or any portion of a change in fair value of a hedging instrument that is deemed ineffective, will be immediately recognized in earnings. The Company is currently assessing the impact that adoption will have on its consolidated financial statements. In December 1999, the Securities and Exchange Commission (the Commission) issued Staff Accounting Bulletin No. 101, "Revenue Recognition in Financial Statements" (SAB No. 101). SAB No. 101, as amended, is required to be applied beginning with the Company's second quarter of 2000. The Company, together with other members of the death care industry, are currently discussing directly with the Commission the application of SAB No. 101. Final resolution of the discussions will not have an impact on the Company's consolidated cash flows, but may have a material impact on the Company's consolidated financial condition and on the manner in which the Company records preneed sales activities. NOTE THREE ACQUISITIONS In January 1999, a wholly owned subsidiary of the Company merged with ECI in a stock-for-stock transaction in which ECI shareholders received approximately 15,501 shares of Company common stock valued at approximately $557,000 and approximately 1,200 options to purchase Company common stock valued at approximately $8,628. At the time of the merger, ECI owned 359 funeral service locations and 80 cemeteries in North America. The Company also acquired certain other funeral, cemetery, crematoria and insurance operations both domestically and internationally during the years ended December 31, 1999 and 1998. The following table is a summary of all the acquisitions made during the two years ended December 31:
1999 1998 -------- -------- Number acquired (unaudited): Funeral service locations................................. 434 308 Cemeteries................................................ 95 47 Crematoria................................................ 9 18 Insurance operations...................................... -- 2 Purchase price.............................................. $658,500 $784,000
The consideration for these acquisitions consisted of combinations of cash, Company common stock and issued debt. All acquisitions have been accounted for under the purchase method of accounting; therefore, operating results of these acquisitions have been included since their respective dates of acquisitions. 34 36 SERVICE CORPORATION INTERNATIONAL NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) The effect of the above acquisitions on the consolidated balance sheet at December 31 was as follows:
1999 1998 --------- --------- Current assets.............................................. $ 112,803 $ 52,339 Investments -- insurance operations......................... -- 622,379 Prearranged funeral contracts............................... 316,150 51,990 Long-term receivables....................................... 38,203 91,299 Cemetery property........................................... 202,164 266,591 Property, plant and equipment............................... 175,114 108,152 Deferred charges and other assets........................... 1,869 422,299 Names and reputations....................................... 782,651 354,772 Current liabilities......................................... (127,887) (84,562) Long-term debt.............................................. (338,308) (53,609) Deferred income taxes and other liabilities................. (171,330) (365,692) Reserves and annuity benefits -- insurance operations....... -- (594,848) Deferred prearranged funeral contract revenues.............. (322,951) (54,218) Stockholders' equity........................................ (565,831) (97,124) --------- --------- Cash used for acquisitions........................ $ 102,647 $ 719,768 ========= =========
NOTE FOUR PREARRANGED FUNERAL ACTIVITIES The Company sells price guaranteed prearranged funeral contracts through various programs providing for future funeral services at prices prevailing when the agreements are signed. Payments under these contracts are placed in trust accounts (pursuant to applicable law) or are used to pay premiums on life insurance or annuity contracts. Unperformed price guaranteed prearranged funeral contracts that are not funded through Company insurance operations are included in the consolidated balance sheet as Prearranged funeral contracts. This balance represents amounts due from trust funds, customer receivables, or third party insurance companies. A corresponding credit is recorded to Deferred prearranged funeral contract revenues. Funeral revenue is recognized on prearranged funeral contracts at the time the funeral service is performed. Trust earnings and increasing insurance benefits are accrued and deferred until the services are performed, at which time these funds are also recognized in funeral revenues. Such amounts are intended to cover future increases in the cost of providing a price guaranteed funeral service. Net obtaining costs incurred pursuant to the sales of trust funded and third party insurance funded prearrangements are included in Deferred charges and other assets. These obtaining costs include sales commissions and certain other direct costs which are deferred and amortized over 20 years, a period representing the estimated life of the prearranged contracts. The aggregate net costs deferred as of December 31, 1999 and 1998 were $345,383 and $263,429, respectively. Prearranged funeral contracts may also be funded by insurance policies written by the Company's insurance operations. Policy acquisition costs incurred by the Company's insurance operations are deferred as part of Deferred charges and other assets and amortized as prescribed by generally accepted accounting principles for life insurance companies (see note two to the consolidated financial statements). The aggregate net costs deferred as of December 31, 1999 and 1998 were $44,091 and $13,832, respectively. 35 37 SERVICE CORPORATION INTERNATIONAL NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) Prearranged Funeral Contracts The components of prearranged funeral contracts in the consolidated balance sheet at December 31 are as follows:
1999 1998 ---------- ---------- Trusts: Receivables from trusts................................... $1,405,273 $1,173,905 Receivables from customers................................ 290,997 280,005 Allowance for cancellation................................ (148,523) (115,206) ---------- ---------- Net trust related assets.......................... 1,547,747 1,338,704 Third Party Insurance: Receivables from third party insurance companies.......... 1,463,029 1,349,674 Allowance for cancellation................................ (112,637) (99,572) ---------- ---------- Net third party insurance related assets.......... 1,350,392 1,250,102 ---------- ---------- Prearranged funeral contracts............................... $2,898,139 $2,588,806 ========== ==========
The allowance for cancellation is based on historical experience and is equivalent to approximately 9.0% of the total balance at December 31, 1999 and 8.3% at December 31, 1998. Accumulated earnings from trust funds and increasing insurance benefits of third party insurance companies have been included to the extent that they have accrued through December 31, 1999 and 1998, respectively. The cumulative trust funded total has been reduced by allowable cash withdrawals for trust earnings and amounts retained by the Company pursuant to various state laws. The activity in prearranged funeral contracts for the years ended December 31 is as follows:
1999 1998 ---------- ---------- Beginning balance........................................... $2,588,806 $2,628,104 Net sales................................................. 216,754 285,931 Acquisitions/dispositions................................. 267,754 142,808 Realized earnings and increasing insurance benefits for third party insurance companies........................ 113,902 105,866 Maturities................................................ (199,693) (196,960) Change in cancellation reserve............................ (46,382) (6,848) 1998 reclassification of Company insurance operations..... -- (232,209) Distributed earnings, effect of foreign currency and other.................................................. (43,002) (137,886) ---------- ---------- Ending balance.............................................. $2,898,139 $2,588,806 ========== ==========
The cost and market value associated with the assets held in the trust funds underlying the Company's prearranged funeral contracts at December 31 are as follows:
1999 1998 ----------------------- ----------------------- COST MARKET COST MARKET ---------- ---------- ---------- ---------- Debt securities: Government......................... $ 420,219 $ 407,450 $ 323,831 $ 356,853 Corporate.......................... 123,406 118,783 103,835 106,190 Equity securities.................... 656,161 775,691 503,821 554,256 Money market/other................... 205,487 208,155 242,418 228,085 ---------- ---------- ---------- ---------- $1,405,273 $1,510,079 $1,173,905 $1,245,384 ========== ========== ========== ==========
36 38 SERVICE CORPORATION INTERNATIONAL NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) Deferred Prearranged Funeral Contract Revenues Deferred prearranged funeral contract revenues represents the original contract price, trust earnings and increasing insurance benefits on unperformed funeral contracts funded by trust or third party insurance companies. The total value of unperformed prearranged funeral contracts consists of two components: (i) contracts funded by trust or third party insurance companies and (ii) contracts funded by the Company's insurance operations. The value of unperformed prearranged funeral contracts to be funded by trust or third party insurance companies are included in Deferred prearranged funeral contract revenues in the consolidated balance sheet. A portion of the value of unperformed prearranged funeral contracts to be funded by the Company's insurance operations is included as a component of Reserves and annuity benefits -- insurance operations in the consolidated balance sheet and reflects only the actuarially determined amounts to be funded in accordance with generally accepted accounting principles for life insurance subsidiaries. The remaining component of Reserves and annuity benefits -- insurance operations represents the actuarially determined amounts to be funded for non-SCI unperformed prearranged funeral contracts. The following table summarizes for the years ended December 31 the activity in deferred prearranged funeral contract revenues as well as reflects the Company's unperformed prearranged funeral contracts to be funded through the Company's life insurance operations as if they were valued at original contract values plus increasing insurance benefits:
1999 1998 ---------- ---------- Beginning balance -- Deferred prearranged funeral contract revenues.................................................. $2,819,794 $2,805,429 Net sales................................................. 213,526 292,972 Acquisitions/dispositions................................. 272,295 138,422 Realized earnings and increasing insurance benefits from third party insurance companies........................ 113,705 106,353 Maturities................................................ (227,871) (192,817) Change in cancellation reserve............................ (46,381) (6,848) 1998 reclassification of Company insurance operations..... -- (232,209) Effect of foreign currency and other...................... 41,013 (91,508) ---------- ---------- Ending balance -- Deferred prearranged funeral contract revenues.................................................. 3,186,081 2,819,794 ---------- ---------- Unperformed contracts funded by Company insurance operations................................................ 1,101,371 932,056 ---------- ---------- Total value of unperformed prearranged funeral contracts.... $4,287,452 $3,751,850 ========== ==========
NOTE FIVE INSURANCE OPERATIONS The Company acquired AML effective July, 1998. In addition, the Company has owned a French life insurance company (Auxia) since 1995. The primary purpose of these life insurance operations is to assist in funding the Company's prearranged funeral program. 37 39 SERVICE CORPORATION INTERNATIONAL NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) Investments As part of the Company's funding of prearranged funeral contracts, the Company's life insurance operations invest in securities which are classified as "available-for-sale." The cost, market value and unrealized gains and losses related to investments at December 31 were as follows:
1999 --------------------------------------------------- AMORTIZED UNREALIZED UNREALIZED COST MARKET VALUE GAINS LOSSES ---------- ------------ ---------- ---------- Debt securities: U.S. treasury......................... $ 29,054 $ 27,528 $ -- $ (1,526) U.S. state and political subdivisions....................... 76,726 70,930 30 (5,826) French government..................... 87,893 85,938 261 (2,216) Other foreign government (primarily European).......................... 63,503 62,394 155 (1,264) Corporate............................. 571,560 534,110 676 (38,126) Mortgage-backed....................... 126,825 121,714 313 (5,424) Asset-backed.......................... 55,583 53,455 132 (2,260) Redeemable preferred stock............ 4,028 3,654 22 (396) Equity securities: Nonredeemable preferred stock......... 1,040 870 -- (170) Common stock.......................... 65,587 113,004 47,689 (272) Mutual funds: Equity................................ 96,621 136,243 39,622 -- Debt.................................. 54,515 57,166 2,651 -- Mortgage loans.......................... 914 914 -- -- Real estate, net of accumulated depreciation and amortization......... 32,547 32,547 -- -- Policy loans............................ 18,168 18,168 -- -- ---------- ---------- ------- -------- $1,284,564 $1,318,635 $91,551 $(57,480) ========== ========== ======= ========
38 40 SERVICE CORPORATION INTERNATIONAL NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
1998 --------------------------------------------------- AMORTIZED UNREALIZED UNREALIZED COST MARKET VALUE GAINS LOSSES ---------- ------------ ---------- ---------- Debt securities: U.S. treasury......................... $ 8,841 $ 9,137 $ 296 $ -- French government..................... 241,033 251,187 10,545 (391) Other foreign government (primarily European).......................... 131,151 132,876 1,725 -- Corporate............................. 338,181 341,191 5,895 (2,885) Mortgage-backed....................... 145,790 147,254 1,757 (293) Asset-backed.......................... 32,340 32,925 704 (119) Redeemable preferred stock............ 3,879 3,799 4 (84) Equity securities: Nonredeemable preferred stock......... 1,246 1,335 89 -- Common stock.......................... 85,439 117,493 33,483 (1,429) Mutual funds: Equity................................ 74,707 81,998 7,291 -- Debt.................................. 59,058 60,783 1,725 -- Mortgage loans.......................... 1,301 1,301 -- -- Real estate, net of accumulated depreciation and amortization......... 34,636 34,636 -- -- Policy loans............................ 18,763 18,763 -- -- ---------- ---------- ------- ------- $1,176,365 $1,234,678 $63,514 $(5,201) ========== ========== ======= =======
The contractual maturities of debt securities as of December 31, 1999 were as follows:
AMORTIZED MARKET COST VALUE ---------- -------- Within one year............................................. $ 26,312 $ 26,075 After one year through five years........................... 73,187 71,752 After five years through ten years.......................... 357,929 343,986 After ten years............................................. 375,336 342,740 ---------- -------- Subtotal.......................................... 832,764 784,553 Mortgage and asset-backed securities........................ 182,408 175,170 ---------- -------- $1,015,172 $959,723 ========== ========
Net investment income for the years ended December 31 was as follows:
1999 1998 1997 ------- ------- ------- Debt securities......................................... $57,322 $35,941 $14,247 Equity securities....................................... 1,749 4,717 3,539 Other................................................... 5,510 2,066 -- ------- ------- ------- Total investment income....................... 64,581 42,724 17,786 Investment expenses..................................... (5,344) (4,131) (3,053) ------- ------- ------- Net investment income......................... $59,237 $38,593 $14,733 ======= ======= =======
39 41 SERVICE CORPORATION INTERNATIONAL NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) The gross realized gains and gross realized losses from sales of securities for the years ended December 31 were as follows:
1999 1998 1997 ----------------------------- ---------------------------- --------------------------- GAIN LOSS NET GAIN LOSS NET GAIN LOSS NET ------- -------- -------- ------- -------- ------- ------- ------- ------- Debt securities...... $11,651 $(31,746) $(20,095) $42,493 $(27,391) $15,102 $20,192 $(3,617) $16,575 Equity securities.... 22,024 (719) 21,305 22,820 (14,635) 8,185 17,516 (3,755) 13,761 ------- -------- -------- ------- -------- ------- ------- ------- ------- Realized gain (loss)............. $33,675 $(32,465) $ 1,210 $65,313 $(42,026) $23,287 $37,708 $(7,372) $30,336 ======= ======== ======== ======= ======== ======= ======= ======= =======
The amount of net investment income and realized gain (loss) which are allocable to policyholders but included above is $12,412, $21,800 and $19,015 for the three years ended December 31, 1999, 1998 and 1997, respectively, and are included in Costs and expenses in the consolidated statement of operations. Changes in unrealized gain/loss on investments for the years ended December 31 were as follows:
1999 1998 1997 -------- ------- ------- Fixed income securities................................ $(72,646) $13,930 $ 3,744 Equity securities...................................... 48,404 20,147 21,172 -------- ------- ------- Change in unrealized gain (loss) on investments........ $(24,242) $34,077 $24,916 ======== ======= =======
Present Value of Future Profits An analysis of PVP for the years ended December 31 is provided as follows:
1999 1998 ------- ------- Balance at beginning of year................................ $45,182 $12,222 Additions due to acquisitions............................... 945 36,630 Amortization, net of interest accrued....................... (5,785) (4,476) Effect of foreign currency.................................. (1,630) 806 ------- ------- Balance at end of year...................................... $38,712 $45,182 ======= =======
It is anticipated that PVP will be reduced by the following amounts in future years: 2000...................................................... $ 5,122 2001...................................................... 4,596 2002...................................................... 3,582 2003...................................................... 3,117 2004...................................................... 2,302 Thereafter................................................ 19,993 ------- $38,712 =======
Statutory Financial Information The Company's insurance operations are required to file financial statements with state (for U.S. companies) or national (for the French company) insurance regulatory authorities prepared on an 40 42 SERVICE CORPORATION INTERNATIONAL NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) accounting basis prescribed or permitted by such authorities (statutory basis). Certain statutory amounts were as follows as of and for the year ended December 31, 1999:
UNITED STATES FRANCE ------------- ------- Capital and surplus......................................... $61,539 $63,606 Net income.................................................. 8,107 7,226
Under statutory regulations, AML must maintain certain minimum amounts of statutory capital and statutory surplus. AML is also regulated by state regulatory authorities as to amounts of dividends which can be paid without prior approval of regulatory authorities. In 2000, AML can distribute dividends to the Company of up to $5,904 without prior approval. Participating Life Insurance Participating policies represented approximately 29% and 33% of total life insurance in force at December 31, 1999 and 1998, respectively. Participating policies represented approximately 22% and 51% of premium income for 1999 and 1998, respectively. Dividends on participating policies amounted to $7,790 in 1999 and $25,548 in 1998. The amount of dividends is determined through contract provision (within French legal requirements) for all life insurance policies issued by Auxia and by the contract provisions of any participating policies issued by AML. NOTE SIX CEMETERY TRUST FUNDS Merchandise and Services Amounts paid into cemetery merchandise and services trusts are included in long-term receivables, at cost. The cost and market values associated with the assets held in the cemetery merchandise and services trust funds underlying the Company's long-term receivables at December 31 were as follows:
1999 1998 ------------------- ------------------- COST MARKET COST MARKET -------- -------- -------- -------- Debt securities: Government............................... $267,357 $255,494 $204,277 $201,399 Corporate................................ 87,422 82,357 83,845 84,503 Equity securities.......................... 357,451 362,747 295,210 291,222 Money market/other......................... 110,599 111,463 79,232 79,284 -------- -------- -------- -------- $822,829 $812,061 $662,564 $656,408 ======== ======== ======== ========
The realized investment earnings related to these cemetery merchandise and services trust funds were $39,930, $69,466 and $49,305 for the three years ended December 31, 1999, 1998 and 1997, respectively. Perpetual Care The cost and market values associated with the assets held in perpetual care trust funds at December 31 were as follows: 41 43 SERVICE CORPORATION INTERNATIONAL NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
1999 1998 ------------------- ------------------- COST MARKET COST MARKET -------- -------- -------- -------- Debt securities: Government............................... $ 75,040 $ 67,011 $ 33,530 $ 33,473 Corporate................................ 266,325 254,926 230,798 233,599 Equity securities.......................... 98,820 105,856 134,555 126,853 Money market/other......................... 79,353 79,865 19,226 19,206 -------- -------- -------- -------- $519,538 $507,658 $418,109 $413,131 ======== ======== ======== ========
The realized investment earnings related to these perpetual care trust funds were $25,950, $27,814 and $25,666 for the three years ended December 31, 1999, 1998 and 1997, respectively. NOTE SEVEN INCOME TAXES The provision or benefit for income taxes includes United States income taxes, determined on a consolidated return basis, foreign, state and local income taxes. Income (loss) before income taxes and extraordinary gain (loss) related to the early extinguishment of debt for the years ended December 31 is as follows:
1999 1998 1997 -------- -------- -------- United States........................................ $(61,230) $419,450 $474,478 Foreign.............................................. 23,540 99,077 105,495 -------- -------- -------- $(37,690) $518,527 $579,973 ======== ======== ========
Income tax provision (benefit) for the years ended December 31 consisted of the following:
1999 1998 1997 -------- -------- -------- Current: United States...................................... $ 24,194 $100,110 $157,450 Foreign............................................ 13,141 10,881 7,022 State and local.................................... 5,343 9,086 21,737 -------- -------- -------- 42,678 120,077 186,209 -------- -------- -------- Deferred: United States...................................... (17,670) 48,861 15,045 Foreign............................................ (24,670) (697) 1,432 State and local.................................... (3,731) 8,144 2,735 -------- -------- -------- (46,071) 56,308 19,212 -------- -------- -------- Total provision (benefit).................. $ (3,393) $176,385 $205,421 ======== ======== ========
The Company made income tax payments of approximately $30,300, $126,000, and $155,400, for the three years ended December 31, 1999, 1998 and 1997, respectively. 42 44 SERVICE CORPORATION INTERNATIONAL NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) The differences between the U.S. federal statutory tax rate and the Company's effective rate for the years ended December 31 were as follows:
1999 1998 1997 -------- -------- -------- Computed tax provision (benefit) at the applicable federal statutory income tax rate................. $(13,191) $181,485 $202,991 State and local taxes, net of federal income tax benefits.......................................... 1,048 11,199 15,906 Dividends received deduction and tax exempt interest.......................................... (210) (1,178) (1,618) Amortization of names and reputations............... 11,844 6,423 5,622 Enacted tax rate change............................. -- (2,218) (5,491) Foreign jurisdiction tax rate difference............ (15,166) (18,576) (12,909) Write down of names and reputations................. 11,528 (260) 1,319 Nondeductible expenses.............................. 2,315 1,718 1,301 Other............................................... (1,561) (2,208) (1,700) -------- -------- -------- Provision (benefit) for income taxes...... $ (3,393) $176,385 $205,421 ======== ======== ======== Total effective tax rate.................. (9.0)% 34.0% 35.4% ======== ======== ========
Deferred taxes are determined based on differences between the financial reporting and tax bases of assets and liabilities and are measured using the enacted marginal tax rates. The tax effects of temporary differences and carry-forwards that give rise to significant portions of deferred tax assets and liabilities as of December 31 consisted of the following:
1999 1998 ---------- -------- Receivables, principally due to sales of cemetery interment rights and related products............................... $ 279,153 $224,614 Inventories and cemetery property, principally due to purchase accounting adjustments........................... 541,063 501,974 Property, plant and equipment, principally due to depreciation and to purchase accounting adjustments....... 78,496 91,831 Other....................................................... 141,203 99,744 ---------- -------- Deferred tax liabilities.................................. 1,039,915 918,163 ---------- -------- Deferred revenue on prearranged funeral contracts, principally due to earnings from trust funds.............. (46,051) (27,270) Accrued liabilities......................................... (93,443) (2,927) Carry-forwards and foreign tax credits...................... (73,851) (36,789) ---------- -------- Deferred tax assets....................................... (213,345) (66,986) ---------- -------- Valuation allowance......................................... 27,278 13,058 ---------- -------- Net deferred income taxes................................. $ 853,848 $864,235 ========== ========
During the three years ended December 31, 1999, 1998 and 1997, tax expense resulting from allocating certain tax benefits directly to capital in excess of par value totaled $113, $42,794, and $3,799, respectively. Current refundable income taxes and foreign current deferred tax assets are included in Other current assets, long-term deferred tax assets associated with AML are included in Deferred charges and other assets, with current taxes payable and current deferred tax liabilities being reflected as Income taxes in the consolidated balance sheet. 43 45 SERVICE CORPORATION INTERNATIONAL NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) At December 31, 1999 and 1998, United States income taxes had not been provided on $397,443 and $333,890, respectively, of undistributed earnings of foreign subsidiaries since it is the Company's intention to permanently reinvest such earnings. Although it is not practicable to determine the deferred tax liability on the unremitted earnings, credits for income taxes paid by the Company's foreign subsidiaries will be available to significantly reduce any U.S. tax if these foreign earnings are remitted. As of December 31, 1999 the Company had United States foreign tax credit carry-forwards of $2,800 which will expire in the years 2000 through 2001. Various subsidiaries have international, federal, and state operating loss carry-forwards of $431,696 with expiration dates through 2014. 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 net operating losses. NOTE EIGHT DEBT Debt as of December 31 was as follows:
1999 1998 ---------- ---------- Bank revolving credit agreements and commercial paper....... $1,179,704 $ 650,596 6.375% notes due in 2000.................................... 150,000 150,000 6.75% notes due in 2001..................................... 150,000 150,000 8.72% amortizing notes due in 2002.......................... 71,174 114,259 8.375% notes due in 2004.................................... 51,840 51,840 7.375% notes due in 2004.................................... 250,000 250,000 6.0% notes due in 2005...................................... 600,000 600,000 7.2% notes due in 2006...................................... 150,000 150,000 6.875% notes due in 2007.................................... 150,000 150,000 6.5% notes due in 2008...................................... 200,000 200,000 7.7% notes due in 2009...................................... 200,000 200,000 6.95% amortizing notes due in 2010.......................... 52,557 55,691 Floating rate notes due in 2011 (putable in 1999)........... -- 200,000 7.875% debentures due in 2013............................... 55,627 55,627 7.0% notes due in 2015 (putable in 2002).................... 300,000 300,000 6.3% notes due in 2020 (putable in 2003).................... 300,000 300,000 Medium term notes, maturities through 2019, fixed average interest rate of 9.32%.................................... 35,720 35,720 Convertible debentures, interest rates range from 4.75%-5.5%, due through 2008, conversion price ranges from $11.25-$50.00............................................. 49,213 49,979 Mortgage and other notes payable with maturities through 2050...................................................... 136,368 216,833 Deferred loan costs......................................... (22,187) (19,888) ---------- ---------- Total debt.................................................. 4,060,016 3,860,657 Less current maturities..................................... (423,949) (96,067) ---------- ---------- Total long-term debt.............................. $3,636,067 $3,764,590 ========== ==========
The Company's primary revolving credit agreements provide for borrowings up to $1,600,000 and consists of three committed facilities -- two 364-day facilities and a 5-year, multi-currency facility. These facilities are primarily used to support the previous issuance of commercial paper and for general corporate purposes. 44 46 SERVICE CORPORATION INTERNATIONAL NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) One 364-day facility, which expires June 25, 2000, allows for borrowings up to $300,000 and contains provisions that permit the Company to convert the outstanding balance into a two-year term loan upon maturity. The second 364-day facility allows for borrowings up to $600,000 and expires November 1, 2000. The 5-year, multi-currency facility permits borrowings up to $700,000, including $500,000 in various foreign currencies, and expires June 27, 2002. Interest rates for these facilities are based on various indices as determined by the Company. For each facility, a quarterly fee is paid on the total commitment amount ranging from 0.25% to 0.50% depending on the Company's senior debt ratings. This fee for each facility was 0.25% at December 31, 1999, however, the fees were increased to 0.50% in January 2000 as a result of the Company's senior debt rating downgrade. Additionally, these credit facilities have financial compliance provisions, including a maximum debt-to- capitalization ratio of 60%, a minimum interest coverage ratio of 2.75, a minimum net worth requirement defined in the facility agreements, and limitations on cash distributions, subsidiary borrowings, liens and guarantees. Approximately $870,545 was outstanding under the above facilities at December 31, 1999, with a weighted average rate of 6.97% ($217,345 at December 31, 1998, with a weighted average interest rate of 5.65%). Approximately $295,545 of these borrowings was denominated in various foreign currencies under the 5-year facility at December 31, 1999 ($217,345 at December 31, 1998). The Company's commercial paper program is backed by the above facilities. At December 31, 1999, $309,159 of commercial paper was outstanding with a weighted average interest rate of 6.58% ($433,251 with a weighted average interest rate of 6.68% at December 31, 1998). The commercial paper borrowings and revolving notes generally have maturities ranging from 1 to 180 days. Historically, the Company has classified borrowings under these facilities as long-term debt since it has been the Company's intent to refinance such borrowings with long-term debt or equity. In 1999, however, the Company's downgraded credit ratings, both short-term and long-term, have limited its access to the capital markets. As a result, borrowings of $179,704 which are either funded or backed by the credit facilities which are in excess of $1,000,000 have been classified as current at December 31, 1999. In March 1999, the Company repurchased two issues of debt. On March 26, 1999, the Company repurchased the $200,000 floating-rate notes, which were originally due April 2011. These notes were to be remarketed in April 1999 as fixed-rate notes. The Company chose to refinance with commercial paper to maintain floating-rate exposure. The purchase price was $200,000 plus accrued interest and a premium of approximately $22,185 resulting in an extraordinary loss of $14,148, net of tax. On March 31, 1999, the Company repurchased $143,750 ECI convertible debentures, which were originally due December 2004. This repurchase was effected by a change-of-control clause allowing the holders to put the bonds back to the Company after the acquisition of ECI. The purchase price was $143,750 plus accrued interest and resulted in an extraordinary gain of $16,033 net of tax relating to the unamortized premium reflecting the market valuation of the debentures at the date ECI merged with the Company. These debentures were refinanced with commercial paper. At December 31, 1999, approximately $29,869 of the Company's assets were pledged as collateral for the mortgage and other notes payable. The stated coupons described in the above table have been substantially 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. Approximately $1,521,743 of the Company's debt was converted from U.S. dollars using cross-currency interest rate swaps, resulting in approximately $1,931,119 of debt being denominated in foreign currencies at December 31, 1999 (see note nine to the consolidated financial statements). 45 47 SERVICE CORPORATION INTERNATIONAL NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) Cash interest payments for the three years ended December 31, 1999, totaled $237,682, $165,788 and $141,572, respectively. The aggregate maturities on debt for the five years subsequent to December 31, 1999, are as follows: 2000 -- $423,949; 2001 -- $196,543; 2002 -- $1,316,573; 2003 -- $323,865; 2004 -- $322,405. Subsequent to year end, the Company repurchased certain bonds in the open market with a face value aggregating $94,400 as follows: $58,950 of the 6.375% notes due 2000, $27,000 of the 6.75% notes due 2001 and $8,450 of the 6.00% notes due 2005. Funds used to repurchase the debt were obtained from terminating certain swap agreements (see note nine to the consolidated financial statements). The repurchase resulted in an extraordinary gain on early extinguishment of debt totaling $10,200 on a pretax basis. NOTE NINE DERIVATIVES The Company enters into derivative transactions primarily in the form of interest rate swaps and cross-currency interest rate swaps in combination with local currency borrowings to manage its mix of fixed and floating rate debt and to hedge the Company's net investments in foreign assets. The Company has procedures in place to monitor and control the use of derivatives and only enters into transactions with a limited group of creditworthy financial institutions. The Company does not engage in derivative transactions for speculative or trading purposes, nor is it a party to leveraged derivatives. In general, cross-currency swaps convert U.S. 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 have generally included 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 generally offset 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 generally offset a corresponding movement in the earnings of the foreign operation. 46 48 SERVICE CORPORATION INTERNATIONAL NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) The following tables present information at December 31 about the Company's derivatives:
1999 ------------------------------------------------------------------- WEIGHTED AVERAGE CARRYING INTEREST RATE NOTIONAL AMOUNT ASSET -------------- AMOUNT (LIABILITY) MATURITY RECEIVE PAY FAIR VALUE ---------- ------------ --------- ------- ---- ---------- Interest Rate Swaps: US dollar fixed to US dollar floating...................... $ 300,000 $ -- 2001-2002 6.40% 6.13% $ (2,361) US dollar fixed to US dollar floating...................... 550,000 -- 2003-2004 6.49% 6.15% (6,776) US dollar fixed to US dollar floating...................... 350,000 -- 2006-2009 6.60% 6.03% (17,237) US dollar floating to US dollar fixed...................... 240,000 -- 2000 6.21% 5.83% 378 Canadian dollar floating to Canadian dollar fixed.......... 209,043 -- 2007-2008 5.05% 6.27% (6,333) Australian dollar floating to Australian dollar fixed...... 42,686 -- 2006 5.93% 7.81% (1,019) British pound floating to British pound fixed.............. 282,521 -- 2008 6.21% 6.83% (3,609) French franc floating to German mark floating.............. 151,252 -- 2006 3.27% 3.50% (2,058) German mark floating to French franc fixed................. 75,780 -- 2003 3.32% 5.66% (2,726) Cross-Currency Interest Rate Swaps: US dollar fixed to Canadian dollar floating................ 100,000 6,267 2010 6.95% 5.65% 947 US dollar floating to Canadian dollar fixed................ 193,901 (1,860) 2003 6.12% 5.53% 4,128 US dollar floating to Australian dollar fixed.............. 184,841 5,749 2000-2003 6.18% 6.09% 9,792 US dollar floating to Australian dollar floating........... 59,196 4,033 2000-2003 6.18% 5.92% 4,180 US dollar fixed to British pound fixed..................... 63,763 (3,585) 2002 8.72% 9.64% (4,117) US dollar fixed to British pound floating.................. 293,754 (11,216) 2002-2004 8.38% 6.57% (1,204) US dollar fixed to French franc fixed...................... 300,000 72,815 2000-2007 6.29% 6.21% 66,124 US dollar fixed to French franc floating................... 150,000 34,091 2000-2007 6.90% 3.56% 35,323 US dollar floating to French franc fixed................... 117,833 5,276 2000 6.11% 4.23% 5,293 US dollar fixed to German mark floating.................... 150,000 34,188 2003-2006 5.98% 2.94% 41,780 US dollar floating to Spanish peseta fixed................. 98,214 8,416 2003 6.11% 4.84% 8,200 US dollar floating to Norwegian krone fixed................ 22,815 1,267 2003 6.11% 5.80% 1,678 Australian dollar fixed to US dollar floating.............. 64,728 (7,595) 2000 5.97% 6.18% (7,802) ---------- -------- -------- $4,000,327 $147,846 $122,581 ========== ======== ========
1998 ------------------------------------------------------------------- WEIGHTED AVERAGE CARRYING INTEREST RATE NOTIONAL AMOUNT ASSET -------------- AMOUNT (LIABILITY) MATURITY RECEIVE PAY FAIR VALUE ---------- ------------ --------- ------- ---- ---------- Interest Rate Swaps: US dollar fixed to US dollar floating...................... $ 250,000 $ -- 1999-2001 7.35% 5.32% $ 7,931 US dollar fixed to US dollar floating...................... 600,000 -- 2002-2003 6.24% 5.24% 15,093 US dollar fixed to US dollar floating...................... 300,000 -- 2004-2006 7.02% 5.33% 25,082 US dollar fixed to US dollar floating...................... 300,000 -- 2008-2009 6.61% 5.39% 24,552 US dollar floating to US dollar fixed...................... 420,000 -- 2000-2001 5.22% 5.84% (5,751) US dollar floating to US dollar fixed...................... 380,000 -- 2003-2004 5.03% 5.54% (10,425) Canadian dollar floating to Canadian dollar fixed.......... 196,528 -- 2007-2008 5.23% 5.92% (18,873) Australian dollar floating to Australian dollar fixed...... 39,670 -- 2006 4.75% 7.81% (5,981) British pound floating to British pound fixed.............. 289,819 -- 2008 6.04% 6.83% (32,083) French franc floating to German mark floating.............. 175,311 -- 2006 3.56% 3.84% (2,815) German mark floating to French franc fixed................. 87,833 -- 2003 3.79% 5.66% (7,566) Cross-Currency Interest Rate Swaps: US dollar fixed to Canadian dollar floating................ 181,728 20,955 1999-2010 6.82% 5.58% 29,476 US dollar floating to Canadian dollar fixed................ 193,901 9,861 2003 5.22% 5.53% 8,163 US dollar floating to Australian dollar fixed.............. 208,255 21,851 1999-2003 5.25% 6.14% 18,057 US dollar floating to Australian dollar floating........... 59,196 7,931 2000-2003 5.22% 4.80% 7,217 US dollar fixed to British pound fixed..................... 91,407 (7,238) 2002 8.72% 9.64% (7,636) US dollar fixed to British pound floating.................. 295,352 (19,129) 2002-2004 8.38% 6.59% 15,587 US dollar fixed to French franc fixed...................... 300,000 36,678 2000-2007 6.29% 6.21% 22,465 US dollar fixed to French franc floating................... 150,000 15,654 2000-2007 6.90% 3.90% 26,956 US dollar floating to French franc fixed................... 117,833 (12,628) 2000 5.26% 4.23% (15,005) US dollar fixed to German mark floating.................... 150,000 15,766 2003-2006 5.98% 3.48% 28,414 US dollar floating to Spanish peseta fixed................. 98,214 (5,899) 2003 5.26% 4.84% (11,106) US dollar floating to Norwegian krone fixed................ 22,815 (64) 2003 5.26% 5.80% 72 Australian dollar fixed to US dollar floating.............. 88,141 (15,079) 1999-2000 6.14% 5.30% (13,880) ---------- -------- -------- $4,996,003 $ 68,659 $ 97,944 ========== ======== ========
47 49 SERVICE CORPORATION INTERNATIONAL NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) The Company's consolidated debt totaled $4,060,016 at a weighted average rate of 6.83% at December 31, 1999, ($3,860,657 at a weighted average rate of 6.77% at December 31, 1998) excluding $188,123 of the lending subsidiary's debt. After giving consideration to the interest rate and cross-currency interest rate swaps, the weighted average rate of debt was 6.41% at December 31, 1999, and 6.16% at December 31, 1998, excluding the lending subsidiary's debt. At December 31, 1999, the Company's debt and derivative instruments, excluding the lending subsidiary's debt, consisted of approximately 61% of fixed interest rate debt at a weighted average rate of 6.36% and approximately 39% of floating interest rate debt at a weighted average rate of 6.49%. At December 31, 1998, the Company's total debt consisted of approximately 74% of fixed interest rate debt at a weighted average rate of 6.17% and approximately 26% of floating interest rate debt at a weighted average rate of 6.15%. Approximately $1,931,119 and $2,112,526 of the Company's indebtedness was denominated in foreign currencies after consideration of the derivative instruments at December 31, 1999 and 1998, respectively. Interest rate swap settlements are generally semi-annual and match the payment dates of the underlying debt or related intercompany loans for the foreign operations being hedged. The notional amounts of the cross-currency swaps are exchangeable in accordance with the terms of the swap agreements: either at maturity for non-amortizing swaps or according to defined amortization tables. As of December 31, 1999 and 1998, $115,311 and $558,407, respectively, of the interest rate swaps contained provisions that either terminate the swap or convert the rate paid to a new index if certain interest rate conditions are met. Maturities of notional amounts relating to derivative financial instruments held on December 31, 1999, are as follows: 2000 -- $710,879; 2001 -- $150,000; 2002 -- $355,775; 2003 -- $875,671; 2004 -- $522,500; and thereafter -- $1,385,502. Subsequent to year end, the Company materially modified its participation in derivative transactions by terminating or assigning away certain interest rate swaps and all cross-currency rate swaps noted in the tables, thereby removing the Company's hedges of foreign exchange rate exposure. A total notional value of $2,860,327 was eliminated in this process. The net proceeds from these terminations and assignments totaled approximately $110,658, which was primarily used to extinguish debt. These proceeds are classified according to the following components: approximately $21,849 was due to the Company as accrued interest receivable, approximately $143,498 resulted from foreign exchange rate gains and approximately $54,689 resulted from interest rate losses. The amount associated with the foreign exchange rate gains reduced the corresponding amount due from counter parties recorded in Deferred charges and other assets. The amount associated with the interest rate losses will be amortized into interest expense over the remaining term of the swap agreements and will have a net effect of approximately $12,368 during the year ended December 31, 2000. NOTE TEN CREDIT RISK AND FAIR VALUE OF FINANCIAL INSTRUMENTS The following disclosure of the estimated fair value of financial instruments has been determined 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. 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 six to the consolidated financial statements) without incurring excessive costs because of the large number of individual contracts with varying terms. The investments of the Company's insurance subsidiaries are reported at fair value in the consolidated balance sheet. Due to the decision by the Company to indefinitely suspend the operations of the lending subsidiary, impairment charges have been recorded to reduce the carrying value of certain loans to their fair value. Additionally, a provision for loan 48 50 SERVICE CORPORATION INTERNATIONAL NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) losses has been recorded against certain other loans (see note eighteen to the consolidated financial statements). The Company has entered into various derivative financial instruments (primarily swap agreements) with major financial institutions to hedge potential exposures to interest rate and foreign exchange rate fluctuations. Fair values were obtained from counterparties to the agreements, representing their estimates of the amount the Company would pay or receive to terminate each swap agreement based upon existing terms and current market conditions. The net fair value of the Company's various swap agreements was an asset of $122,581 and $97,944 at December 31, 1999 and 1998, respectively (see note nine to the consolidated financial statements). The fair value of the Company's swap agreements may vary substantially with changes in interest and currency exchange 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, 1999 is minimal (see note nine to the consolidated financial statements). The fair market value of the Company's debt at December 31 was as follows:
1999 1998 ---------- ---------- Bank revolving credit agreements and commercial paper....... $1,179,704 $ 650,596 6.375% notes due in 2000.................................... 140,550 151,598 6.75% notes due in 2001..................................... 133,050 153,196 8.72% amortizing notes due in 2002.......................... 70,944 123,344 8.375% notes due in 2004.................................... 42,872 58,093 7.375% notes due in 2004.................................... 203,500 266,397 6.0% notes due in 2005...................................... 441,600 596,618 7.2% notes due in 2006...................................... 114,300 159,900 6.875% notes due in 2007.................................... 107,400 157,774 6.5% notes due in 2008...................................... 137,200 204,842 7.7% notes due in 2009...................................... 143,400 222,220 6.95% amortizing notes due in 2010.......................... 38,104 60,392 Floating rate notes due in 2011 (putable in 1999)........... -- 200,000 7.875% debentures due in 2013............................... 32,152 62,885 7.0% notes due in 2015 (putable in 2002).................... 254,100 333,037 6.3% notes due in 2020 (putable in 2003).................... 244,800 302,826 Medium term notes, maturities through 2019, fixed average interest rate of 9.32%.................................... 24,152 42,711 Convertible debentures...................................... 59,672 65,828 Mortgage notes and other debt............................... 136,368 218,863 ---------- ---------- Total debt........................................ $3,503,868 $4,031,120 ========== ==========
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 Company 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. 49 51 SERVICE CORPORATION INTERNATIONAL NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) The Company grants credit in the normal course of business, and the credit risk with respect to these funeral, cemetery and prearranged funeral receivables due from customers is generally considered minimal 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 into 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. The Company's lending subsidiary 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 $46,885 at December 31, 1999 ($31,449 at December 31, 1998) to extend credit. The face value of the lending subsidiary's total loans receivable at December 31, 1999 was approximately $246,818 ($191,373 net of the provision for loan losses and impairment charges) and $269,529 at December 31, 1998. The lending subsidiary evaluates each borrower's creditworthiness, and the amount loaned and collateral obtained, if any, is determined by this evaluation (see note eighteen to the consolidated financial statements). NOTE ELEVEN COMMITMENTS The annual payments for operating leases (primarily for funeral home facilities and transportation equipment) are as follows: 2000...................................................... $ 57,112 2001...................................................... 50,459 2002...................................................... 43,225 2003...................................................... 29,479 2004...................................................... 22,532 Thereafter................................................ 96,615 -------- Subtotal........................................ 299,422 Less: Subleases............................................... (2,306) -------- Total........................................... $297,116 ========
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. Rental expense was $88,437, $69,196, and $71,225 for the three years ended December 31, 1999, 1998 and 1997, respectively. The Company has entered into management, consultative and noncompetition agreements (generally for five to ten years) with certain officers and employees of the Company and former owners of businesses acquired. During the three years ended December 31, 1999, 1998 and 1997, respectively, $104,650, $74,578, and $68,667 were charged to expense. At December 31, 1999, the maximum estimated future commitment under all agreements with a remaining term in excess of one year is $182,122, including $7,518 with certain officers of the Company. In December 1999, the Company modified several of the above agreements as part of a restructuring plan (see note eighteen to the consolidated financial statements). 50 52 SERVICE CORPORATION INTERNATIONAL NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) The Company has a minimum purchase agreement with a major casket manufacturer for its North American operations with an original commitment of $750,000 over six years. The agreement contains provisions to increase the minimum annual purchases for normal price increases and for the maintenance of product quality. In addition, the contract provides for a one-year extension period in which the Company is required to purchase any remaining commitment that exists at the end of the original term. The remaining commitment over the next five years is $660,000 (2000 -- $105,000; 2001 -- $115,000; 2002 -- $130,000; 2003 -- $145,000; 2004 -- $165,000). The Company had $30,042 in unsecured letters of credit outstanding at December 31, 1999. These letters of credit are primarily to guarantee funding of certain insurance claims and a Company-sponsored retirement plan. Subsequent to year end, the Company was required to place cash on deposit in restricted accounts at financial institutions as security for various credit instruments. The first restricted account is related to two embedded options associated with the Company's 6.30% senior notes (see note eight to the consolidated financial statements). The second restricted account is related to a letter of credit. The combined value of these restricted investments was $18,707 at March 15, 2000. NOTE TWELVE 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 THIRTEEN 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, 1999. At December 31, 1999, 500,000,000 common shares of $1 par value were authorized, 272,064,618 shares were issued and outstanding (259,201,104 at December 31, 1998), net of 2,792,503 shares held, at cost, in treasury (68,373 at December 31, 1998). 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 Company's Amended 1996 Incentive Plan reserves 24,000,000 shares of common stock for outstanding and future awards of stock options, restricted stock and other stock based awards to officers and key employees of the Company. The Company's 1996 Nonqualified Incentive Plan reserves 6,700,000 shares of common stock for outstanding and future 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. 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, 1999 and 1998, 15,713,000 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 51 53 SERVICE CORPORATION INTERNATIONAL NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) from eight to ten years from date of grant. At December 31, 1999 and 1998, 16,903,290 and 4,783,558 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, 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 ---------- ------ Granted.................................................. 2,953,553 36.66 Exercised................................................ (4,785,496) 13.50 Cancelled................................................ (102,992) 26.62 ---------- ------ Outstanding at December 31, 1998........................... 17,378,516 25.48 ---------- ------ Granted.................................................. 5,080,339 17.06 Assumed.................................................. 1,199,273 23.65 Exercised................................................ (73,181) 14.74 Cancelled................................................ (3,691,837) 24.94 ---------- ------ Outstanding at December 31, 1999........................... 19,893,110 $23.36 ========== ====== Exercisable at December 31, 1999........................... 8,575,226 $20.42 ========== ====== Exercisable at December 31, 1998........................... 6,435,679 $17.23 ========== ====== Exercisable at December 31, 1997........................... 9,488,214 $14.07 ========== ======
OPTIONS OUTSTANDING OPTIONS EXERCISABLE ------------------------------------------ ----------------------- WEIGHTED- WEIGHTED- WEIGHTED- NUMBER AVERAGE AVERAGE NUMBER AVERAGE RANGE OF OUTSTANDING REMAINING EXERCISE EXERCISABLE EXERCISE EXERCISE PRICE AT 12/31/99 CONTRACTUAL LIFE PRICE AT 12/31/99 PRICE - -------------- ----------- ---------------- --------- ----------- --------- $ 9.41 91,684 0.1 $ 9.41 91,684 $ 9.41 9.41 -- 20.00 9,651,896 6.7 15.83 4,676,675 14.49 20.00 -- 30.00 3,866,367 4.1 25.77 2,618,480 24.76 30.00 -- 40.00 6,220,663 5.5 33.57 1,180,226 34.98 40.00 -- 50.00 62,500 4.6 41.53 8,161 41.96 ---------- --- ------ --------- ------ $ 9.41 -- 50.00 19,893,110 5.8 $23.36 8,575,226 $20.42 ========== === ====== ========= ======
For the three years ended December 31, 1999, 30,000, 30,000, and 73,000 shares of restricted stock were awarded at average fair values of $19.06, $40.88 and $33.35, 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 2008 unless extended. 52 54 SERVICE CORPORATION INTERNATIONAL NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) 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, net income and earnings per share would have been changed for the years ended December 31 to the pro forma amounts indicated below:
1999 1998 1997 -------- -------- -------- Net income (loss): As reported...................................... $(32,412) $342,142 $333,750 Pro forma........................................ (64,015) 318,057 315,733 Basic earnings per share: As reported...................................... $ (.12) $ 1.34 $ 1.36 Pro forma........................................ (.23) 1.24 1.30 Diluted earnings per share: As reported...................................... $ (.12) $ 1.31 $ 1.31 Pro forma........................................ (.23) 1.22 1.25
The fair value of the Company's stock options used to compute pro forma net income (loss) 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 1999, 1998 and 1997, respectively: dividend yield of 0%, 1%, and 1%; expected volatility of 41.6%, 28.3% and 26.6%; a risk free interest rate of 5.5%, 5.5% and 6.5%; and an expected holding period of 7, 7, and 8 years. NOTE FOURTEEN RETIREMENT PLANS The Company has a 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 United States noncontributory 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 $2,292 and $12,575 at December 31, 1999 and 1998, respectively. 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 funding status of the SERP, Senior SERP, and Directors' Plan requires the Company to recognize an additional liability in accordance with SFAS No. 87, "Employers' Accounting for Pensions." At December 31, 1999 and 1998, the additional minimum liability was $9,999 and $14,513, respectively. The Company's United Kingdom operation has a defined benefit pension plan. The Company and employees contribute to the plan consistent with United Kingdom funding requirements. Most other 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 53 55 SERVICE CORPORATION INTERNATIONAL NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) Company. The plans' liabilities and their related costs are computed in accordance with the laws of the individual countries and appropriate actuarial practices. The components of net periodic benefit cost for the years ended December 31 were as follows:
1999 1998 1997 ------- ------- ------- Service cost -- benefits earned during the period....... $16,378 $14,595 $10,837 Interest cost on projected benefit obligation........... 12,962 13,039 12,144 Return on plan assets................................... (13,576) (14,035) (12,359) Settlement charge....................................... 1,073 -- -- Amortization of unrecognized transition asset........... (469) (481) (475) Amortization of prior service cost...................... 1,115 1,106 1,096 Recognized net loss..................................... 390 215 2,333 ------- ------- ------- $17,873 $14,439 $13,576 ======= ======= =======
The Plans' funded status at December 31 were as follows (funded plan based on valuations as of September 30):
1999 1998 --------------------- --------------------- FUNDED NON-FUNDED FUNDED NON-FUNDED PLAN PLANS PLAN PLANS -------- ---------- -------- ---------- CHANGE IN BENEFIT OBLIGATION: Benefit obligation at beginning of year................................... $150,320 $ 43,508 $129,974 $ 39,840 Service cost............................. 15,613 765 13,690 905 Contributions paid by participants....... 1,373 -- 1,182 -- Interest cost............................ 10,441 2,521 10,196 2,843 Plan amendments.......................... 157 -- 177 -- Actuarial (gain) loss.................... (5,578) (1,795) 9,051 2,055 Benefits paid............................ (14,464) (8,493) (14,123) (2,135) Effect of foreign currency............... (953) -- 173 -- -------- -------- -------- -------- Benefit obligation at end of year........ $156,909 $ 36,506 $150,320 $ 43,508 ======== ======== ======== ======== CHANGE IN PLAN ASSETS: Fair value of plan assets at beginning of year................................... $151,381 $ -- $160,115 $ -- Actual return on plan assets............. 9,766 -- 1,451 -- Employer contributions................... 11,816 8,493 2,555 2,135 Contributions paid by participants....... 1,373 -- 1,182 -- Benefits paid............................ (14,464) (8,493) (14,123) (2,135) Effect of foreign currency............... (980) -- 201 -- -------- -------- -------- -------- Fair value of plan assets at end of year................................... $158,892 $ -- $151,381 $ -- ======== ======== ======== ======== Funded status of plan.................... $ 1,983 $(36,506) $ 1,061 $(43,508) Fourth quarter contributions............. 474 -- 9,538 -- Unrecognized actuarial loss.............. 11,107 4,621 13,162 7,695 Unrecognized prior service cost.......... (495) 5,451 (984) 6,907 Unrecognized net transition asset........ (2,346) -- (2,884) -- Effect of foreign currency............... (3) -- 2 -- -------- -------- -------- -------- Prepaid (accrued) benefit cost........... $ 10,720 $(26,434) $ 19,895 $(28,906) ======== ======== ======== ========
54 56 SERVICE CORPORATION INTERNATIONAL NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) The plans' weighted-average assumptions were as follows:
1999 1998 ------------------- ------------------- FUNDED NON-FUNDED FUNDED NON-FUNDED PLAN PLANS PLAN PLANS ------ ---------- ------ ---------- Discount rate used to determine obligations... 7.43% 7.75% 6.56% 6.75% Assumed rate of compensation increase......... 4.91 5.50 5.06 5.50 Assumed rate of return on plan assets......... 8.94 -- 8.94 --
NOTE FIFTEEN SEGMENT REPORTING Operating segments are defined as components of an enterprise about which separate financial information is available that is evaluated regularly by the Company's chief decision making group. This group is comprised of senior management who are responsible for the allocation of resources and assessment of operating performance. Because the Company's operations are product based and geographically based, the Company's primary reportable operating segments presented below are based on products or services and include funeral, cemetery, and insurance operations. The Company's geographic segments include North America, Europe and other foreign. The Company conducts funeral and cemetery operations in all geographical regions and insurance operations in North America and Europe (see note two to the consolidated financial statements). 55 57 SERVICE CORPORATION INTERNATIONAL NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) The Company's reportable segment information is as follows:
REPORTABLE FUNERAL CEMETERY INSURANCE SEGMENTS ---------- ---------- ---------- ----------- Revenues from external customers: 1999.............................. $2,039,348 $ 947,852 $ 313,855 $ 3,301,055 1998.............................. 1,829,136 846,601 178,773 2,854,510 1997.............................. 1,720,291 724,862 74,175 2,519,328 Depreciation and amortization: 1999.............................. $ 174,150 $ 56,725 $ 6,055 $ 236,930 1998.............................. 152,396 28,584 4,947 185,927 1997.............................. 123,652 21,611 3,707 148,970 Income from operations: 1999.............................. $ 366,494 $ 247,719 $ 29,013 $ 643,226 1998.............................. 384,607 306,161 18,561 709,329 1997.............................. 401,371 271,897 6,712 679,980 Total assets: 1999.............................. $7,546,186 $4,661,780 $1,834,957 $14,042,923 1998.............................. 6,944,480 4,012,685 1,750,840 12,708,005 1997.............................. 6,124,463 3,309,431 637,312 10,071,206 Capital expenditures (1): 1999.............................. $ 905,790 $ 432,083 $ 4,350 $ 1,342,223 1998.............................. 590,065 369,212 2,029 961,306 1997.............................. 487,802 404,100 592 892,494 Operating locations at year end (unaudited): 1999.............................. 3,961 585 -- 4,546 1998.............................. 3,578 488 -- 4,066 1997.............................. 3,244 441 -- 3,685
- --------------- (1) Capital expenditures include $1,159,929, $729,515 and $676,662 for the three years ended December 31, 1999, 1998 and 1997, respectively, for purchases of property, plant and equipment, cemetery property, and names and reputations of acquired businesses. 56 58 SERVICE CORPORATION INTERNATIONAL NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) The following table reconciles certain reportable segment amounts to the Company's corresponding consolidated amounts:
REPORTABLE LENDING SEGMENTS SUBSIDIARY CORPORATE CONSOLIDATED ----------- ---------- --------- ------------ Revenues from external customers: 1999................................ $ 3,301,055 $ 20,758 $ -- $ 3,321,813 1998................................ 2,854,510 20,580 -- 2,875,090 1997................................ 2,519,328 16,537 -- 2,535,865 Depreciation and amortization: 1999................................ $ 236,930 $ -- $ 15,215 $ 252,145 1998................................ 185,927 7 16,343 202,277 1997................................ 148,970 5 8,575 157,550 Total assets: 1999................................ $14,042,923 $193,784 $364,894 $14,601,601 1998................................ 12,708,005 271,448 286,705 13,266,158 1997................................ 10,071,206 200,562 243,162 10,514,930 Capital expenditures (1): 1999................................ $ 1,342,223 -- $ 29,187 $ 1,371,410 1998................................ 961,306 180 21,253 982,739 1997................................ 892,494 2 14,698 907,194
- --------------- (1) Capital expenditures include $1,159,929, $729,515 and $676,662 for the three years ended December 31, 1999, 1998 and 1997, respectively, for purchases of property, plant and equipment, cemetery property, and names and reputations of acquired businesses. The following table reconciles reportable segment income (loss) from operations shown above to the Company's consolidated income (loss) before income taxes and extraordinary items:
1999 1998 1997 --------- --------- --------- Income from operations: Reportable segments............................. $ 643,226 $ 709,329 $ 679,980 Lending subsidiary income (loss) from operations................................... (29,467) 9,441 7,632 General and administrative expenses............. (82,585) (66,839) (66,781) Restructuring charges........................... (362,428) --------- --------- --------- Consolidated income from operations............... 168,746 651,931 620,831 Interest expense................................ (238,195) (177,053) (136,720) Dividends on preferred securities of SCI Finance LLC.......................................... -- -- (4,382) Other income.................................... 31,759 43,649 100,244 --------- --------- --------- Income (loss) before income taxes and extraordinary items............................. $ (37,690) $ 518,527 $ 579,973 ========= ========= =========
In 1999, the Company realigned its management of geographic segments to focus on total European operations. Although total amounts reported have not changed, the Company has made certain reclassifications in all years in order to reflect the results of these geographic segments. 57 59 SERVICE CORPORATION INTERNATIONAL NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) The Company geographic segment information was as follows:
NORTH OTHER AMERICA EUROPE FOREIGN TOTAL ---------- ---------- -------- ---------- Revenues from external customers: 1999.................................. $2,265,788 $ 883,918 $172,107 $3,321,813 1998.................................. 1,878,103 888,037 108,950 2,875,090 1997.................................. 1,660,319 779,735 95,811 2,535,865 Income from operations: 1999.................................. $ 112,605 $ 27,124 $ 29,017 $ 168,746 1998.................................. 529,158 107,165 15,608 651,931 1997.................................. 492,945 101,703 26,183 620,831 Long-lived assets: 1999.................................. $5,816,477 $1,453,547 $556,234 $7,826,258 1998.................................. 4,846,151 1,557,882 421,485 6,825,518 1997.................................. 3,979,614 1,343,298 196,656 5,519,568 Operating locations at year end (unaudited): 1999.................................. 2,291 2,071 184 4,546 1998.................................. 1,843 2,054 169 4,066 1997.................................. 1,720 1,813 152 3,685
Income from operations includes $362,428 in restructuring and nonrecurring charges in 1999 of which $279,078 relates to North America, $75,898 relates to Europe and $7,452 relates to other foreign. Included in the North American figures above are the following United States amounts:
1999 1998 1997 ---------- ---------- ---------- Revenues from external customers................. $2,185,146 $1,800,605 $1,588,831 Income from operations........................... 98,018 512,463 471,337 Long-lived assets................................ 5,450,461 4,513,827 3,664,194 Operating locations at year end (unaudited)...... 2,137 1,686 1,574
Included in the European figures above are the following French amounts:
1999 1998 1997 -------- ---------- -------- Revenues from external customers.................... $574,979 $ 621,359 $554,648 Income from operations.............................. 11,069 71,499 55,332 Long-lived assets................................... 480,966 497,477 440,744 Operating locations at year end (unaudited)......... 1,236 1,214 1,101
58 60 SERVICE CORPORATION INTERNATIONAL NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) NOTE SIXTEEN SUPPLEMENTARY INFORMATION The detail of certain balance sheet accounts was as follows:
DECEMBER 31, ----------------------- 1999 1998 ---------- ---------- Cash and cash equivalents: Cash...................................................... $ 43,422 $ 80,782 Commercial paper and temporary investments................ 44,799 277,428 ---------- ---------- $ 88,221 $ 358,210 ========== ========== Receivables and allowances: Current: Trade accounts......................................... $ 329,104 $ 336,213 Cemetery contracts..................................... 294,893 225,449 Loans and other........................................ 93,368 101,444 ---------- ---------- 717,365 663,106 ---------- ---------- Less: Allowance for contract cancellations and doubtful accounts............................................. 77,080 53,292 Unearned finance charges............................... 35,158 44,262 ---------- ---------- 112,238 97,554 ---------- ---------- $ 605,127 $ 565,552 ========== ========== Long-term: Cemetery contracts..................................... $ 591,489 $ 534,801 Trusted cemetery merchandise sales..................... 800,306 613,917 Loans and other........................................ 355,517 360,776 ---------- ---------- 1,747,312 1,509,494 ---------- ---------- Less: Allowance for contract cancellations and doubtful accounts............................................. 97,285 38,707 Unearned finance charges............................... 87,609 62,711 ---------- ---------- 184,894 101,418 ---------- ---------- $1,562,418 $1,408,076 ========== ==========
59 61 SERVICE CORPORATION INTERNATIONAL NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) Interest rates on cemetery contracts and loans and other notes receivable range from 7.0% to 14.5% at December 31, 1999 (3.2% to 15.7% at December 31, 1998). Included in long-term loans and other notes receivable at December 31, 1999, are $10,392 in notes with officers, employees and former employees of the Company ($15,054 at December 31, 1998), the majority of which are collateralized by real estate, and $19,796 in notes with other related parties ($28,323 at December 31, 1998).
DECEMBER 31, ----------------------- 1999 1998 ---------- ---------- Cemetery property: Undeveloped land.......................................... $1,913,904 $1,512,198 Developed land, lawn crypts and mausoleums................ 268,506 523,699 ---------- ---------- $2,182,410 $2,035,897 ========== ========== Property, plant and equipment: Land...................................................... $ 446,668 $ 441,897 Buildings and improvements................................ 1,408,424 1,304,426 Operating equipment....................................... 552,162 514,865 Leasehold improvements.................................... 61,237 52,613 ---------- ---------- 2,468,491 2,313,801 Less: accumulated depreciation............................ (586,966) (488,822) ---------- ---------- $1,881,525 $1,824,979 ========== ========== Accounts payable and accrued liabilities: Trade payables............................................ $ 103,242 $ 111,518 Dividends................................................. -- 24,333 Payroll................................................... 95,633 75,085 Interest.................................................. 61,881 44,414 Insurance................................................. 46,940 70,432 Bank overdraft............................................ 24,566 19,759 Restructuring reserve..................................... 89,812 -- Other..................................................... 167,773 106,813 ---------- ---------- $ 589,847 $ 452,354 ========== ==========
NON-CASH TRANSACTIONS
YEARS ENDED DECEMBER 31, ---------------------------- 1999 1998 1997 -------- ------ -------- Common stock issued under restricted stock plans............ $ 410 $1,196 $ 2,405 Minimum liability under retirement plans.................... -- (535) (4,097) Debenture conversions to common stock....................... 766 2,594 6,417 Common stock issued in acquisitions......................... 565,831 97,124 83,173 Debt issued in acquisitions................................. -- 28,560 21,325 Conversion of preferred securities of SCI Finance LLC....... -- -- 167,911
60 62 SERVICE CORPORATION INTERNATIONAL NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) NOTE SEVENTEEN EARNINGS PER SHARE The basic and diluted per share computations for income (loss) before extraordinary item were for the years ended December 31 as follows:
1999 1998 1997 ----------- ----------- ----------- (THOUSANDS, EXCEPT PER SHARE AMOUNTS) Income (numerator): Income (loss) before extraordinary items -- basic.................................. $(34,297) $342,142 $374,552 After tax interest on convertible debentures....... 408 1,368 4,611 -------- -------- -------- Income (loss) before extraordinary item -- diluted................................. $(33,889) $343,510 $379,163 ======== ======== ======== Shares (denominator): Shares -- basic.................................... 272,281 256,271 245,470 Stock options and warrants...................... 673 4,290 4,827 Convertible debentures.......................... 838 1,959 2,212 Convertible preferred securities of SCI Finance LLC........................................... -- -- 5,272 -------- -------- -------- Shares -- diluted.................................. 273,792 262,520 257,781 ======== ======== ======== Earnings per share before extraordinary items: Basic.............................................. $ (.13) $ 1.34 $ 1.53 Diluted............................................ $ (.13) $ 1.31 $ 1.47
NOTE EIGHTEEN NONRECURRING CHARGES The Company recorded restructuring and nonrecurring charges in the first quarter (First Quarter Charge) and the fourth quarter (Fourth Quarter Charge) of 1999, as well as established a provision for loan losses (Loan Provision) in the fourth quarter of 1999 related to certain loans previously made by the Company's lending subsidiary. The First Quarter Charge totaled $89,884 relating to a cost rationalization program initiated in 1999 and consisted of the following: (1) severance costs of $56,757; (2) a charge of $19,123 for terminated projects representing costs associated with certain construction projects that have been cancelled ($2,153) and costs associated with acquisition due diligence which will no longer be pursued ($16,970); (3) a $7,245 charge for business and facility closures, primarily in the Company's European operations; and (4) a remaining charge of $6,759 consisting of various other cost initiatives. The $56,757 for severance costs is related to the termination of five executive contractual relationships and the involuntary termination of approximately 100 employees in North America (of which approximately 20 were located in the corporate office), 600 employees in France, 85 employees in other European operations and 10 employees in other foreign operations. The positions terminated were both operational and administrative in nature and the remaining severance costs are expected to be paid out in 2000. The severance costs related to the executive contractual relationships will be paid out according to the terms of the respective agreements and will extend through 2005. At December 31, 1999, approximately $25,245 remained in the reserve associated with the First Quarter Charge, of which $22,782 related to severance costs and $2,463 related to cancellation fees and remaining non-cancellable payments on operating leases. The Fourth Quarter Charge totaled $272,544 relating to additional cost rationalization programs, as well as initiatives required to enhance cash flow and reduce debt. The Fourth Quarter Charge consisted of the 61 63 SERVICE CORPORATION INTERNATIONAL NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) following: (1) severance costs of $150,675; (2) asset impairment of $73,728 associated with assets held for sale which were written down to estimated fair value; (3) asset impairment of $18,245 associated with loans made by the Company's lending subsidiary held for sale which were written down to estimated fair value; (4) $12,719 of informational technology costs associated with projects that will no longer be pursued by the Company; (5) $6,554 of costs to terminate certain lease obligations related to facility closures; and (6) $10,623 of various other items. The $150,675 of severance costs is related to the involuntary termination of 1,141 employees of the Company. Included in this total are 715 employees in the Company's international operations, 385 employees in North America, 33 employees in the Company's corporate home office and 8 executive officers of the Company. Of the 715 employees in the Company's international operations, 290 are additional involuntary terminations in France pursuant to the Company's First Quarter Charge. In the North America total, 316 individuals were former owners of independent funeral homes and cemeteries that were purchased by the Company and represent approximately $92,180 of the $150,675 of severance costs. These individuals were under employment, consultant and/or covenant-not-to-compete contractual agreements and have been relieved from their obligations or restrictions under their agreements. Such individuals will continue to be paid by the Company pursuant to such contractual terms, the majority of which will be paid by 2007. The other positions terminated were both operational and administrative in nature and the severance costs are expected to be paid out over the next 24 months. The severance costs associated with the executive officers will be paid in accordance with the terms of the respective agreements and will extend through 2005. The $73,728 of charges related to assets held for sale consist of approximately $59,655 in the Company's North American operations, approximately $11,645 in the Company's international operations and approximately $2,428 of corporate assets. The $59,655 of charges in North America include approximately 50 funeral homes or cemeteries and approximately 45 individual parcels of undeveloped cemetery property or excess land that are held for sale and being reduced to their estimated fair values. The Company believes it is a prudent strategy to hold these underperforming assets for sale and redeploy the proceeds from such sales to reduce debt. The asset impairment associated with the lending subsidiary's loans represents the estimated amount necessary to sell 205 loans with a face value of $176,272. The Company has decided to indefinitely suspend the operations of the lending subsidiary. At December 31, 1999, approximately $135,944 remained in the reserve associated with the Fourth Quarter Charge, of which $126,816 related to severance costs and $9,128 related to other restructuring costs. Of the $161,189 of reserves remaining at December 31, 1999 relating to the First Quarter and Fourth Quarter Charges, $89,812 is included in Accounts Payable and Accrued Liabilities and $71,377 is included in Other Liabilities in the Consolidated Balance Sheet based on the expected timing of payment. The Loan Provision totaled $38,608 and relates to certain loans and accrued interest receivable of $1,408 not being held for sale by the Company's lending subsidiary. The face value of the 47 loans subject to the reserve was $61,315 at December 31, 1999. Since the loans associated with the Loan Provision are collateral dependent and acquiring the collateral by deed in lieu of foreclosure is probable, the provision was determined by comparing the Company's bases in the loans to the fair value of the underlying collateral. Interest income recognized from these loans during the year ended December 31, 1999 totaled $3,618 of which payment of $2,210 was received during the year and $1,408 was included in the reserve. No interest income has been recorded subsequent to September 30, 1999 related to these loans. 62 64 SERVICE CORPORATION INTERNATIONAL NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) NOTE NINETEEN QUARTERLY FINANCIAL DATA (UNAUDITED)
FIRST SECOND THIRD FOURTH YEAR -------- -------- -------- -------- ---------- Revenues: 1999......................... $904,056 $830,236 $776,845 $810,676 $3,321,813 1998......................... 698,844 690,230 712,520 773,496 2,875,090 Gross profit: 1999......................... 218,871 179,585 128,645 86,658 613,759 1998......................... 216,128 187,690 173,706 141,246 718,770 Net income (loss) before extraordinary gain: 1999......................... 41,883 76,013 32,055 (184,248) (34,297) 1998......................... 108,786 90,948 83,213 59,195 342,142 Net income (loss): 1999......................... 43,768 76,013 32,055 (184,248) (32,412) 1998......................... 108,786 90,948 83,213 59,195 342,142 Basic earnings per share before extraordinary gain: 1999......................... .15 .28 .12 (.68) (.13) 1998......................... .43 .36 .32 .23 (1.34) Diluted earnings per share before extraordinary gain: 1999......................... .15 .28 .12 (.68) (.13) 1998......................... .42 .35 .32 .23 1.31
Gross profit includes a provision for loan losses of $38,608 in the fourth quarter of 1999 related to loans held by the Company's lending subsidiary. Net income (loss) before extraordinary gain includes restructuring and nonrecurring charges of $89,884 in the first quarter of 1999 and $272,544 in the fourth quarter of 1999. 63 65 SERVICE CORPORATION INTERNATIONAL SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS THREE YEARS ENDED DECEMBER 31, 1999
BALANCE AT CHARGED TO CHARGED TO BALANCE BEGINNING COSTS AND OTHER AT END OF DESCRIPTION OF PERIOD EXPENSES ACCOUNTS(2) DEDUCTIONS(1) PERIOD - ----------- ---------- ---------- ----------- ------------- --------- (IN THOUSANDS) Current -- Allowance for contract cancellations and doubtful accounts: Year Ended December 31, 1999..... $53,292 $22,585 $11,498 $(10,295) $77,080 Year Ended December 31, 1998..... 52,597 27,190 2,327 (28,822) 53,292 Year Ended December 31, 1997..... 45,155 23,400 5,333 (21,291) 52,597 Due After One Year -- Allowance for contract cancellations and doubtful accounts: Year Ended December 31, 1999..... $38,707 $47,418 $11,169 $ (9) $97,285 Year Ended December 31, 1998..... 35,964 3,650 (499) (408) 38,707 Year Ended December 31, 1997..... 29,951 6,202 1,123 (1,312) 35,964 Deferred Tax Valuation Allowance: Year Ended December 31, 1999..... $13,058 $14,220 $ -- $ -- $27,278 Year Ended December 31, 1998..... 15,327 (2,269) -- -- 13,058 Year Ended December 31, 1997..... 6,128 9,199 -- -- 15,327
- --------------- (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. 64 66 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 captions "Compensation Committee Report on 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. 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 25 of this report. (3) Exhibits: The exhibits listed on the accompanying Exhibit Index on pages 68-71 are filed as part of this report. (b) Reports on Form 8-K During the quarter ended December 31, 1999, the Company filed a Form 8-K dated November 23, 1999 reporting under "Item 5. Other Events" (i) that George R. Champagne, Executive Vice President and Chief Financial Officer, was leaving the Company, (ii) that the Company formed a special committee of the Board of Directors to expedite cost reduction, cash flow enhancement and debt reduction initiatives, and (iii) certain factors which may adversely impact results for 2000. The Form 8-K also reported under "Item 7. Exhibits" the press releases relating to the matters described in the preceding sentence. (c) Included in (a) above. (d) Included in (a) above. 65 67 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 By: /s/ JAMES M. SHELGER ----------------------------------- (James M. Shelger, Senior Vice President, General Counsel and Secretary) Dated: March 30, 2000 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 March 30, 2000 - ----------------------------------------------------- Chief Executive Officer (R. L. Waltrip) JEFFREY E. CURTISS* Senior Vice President, Chief March 30, 2000 - ----------------------------------------------------- Financial Officer (Principal (Jeffrey E. Curtiss) Financial Officer) /s/ W. CARDON GERNER Vice President Corporate March 30, 2000 - ----------------------------------------------------- Controller (Principal (W. Cardon Gerner) Accounting Officer) ANTHONY L. COELHO* Director March 30, 2000 - ----------------------------------------------------- (Anthony L. Coelho) JACK FINKELSTEIN* Director March 30, 2000 - ----------------------------------------------------- (Jack Finkelstein) A. J. FOYT, JR.* Director March 30, 2000 - ----------------------------------------------------- (A. J. Foyt, Jr.) JAMES H. GREER* Director March 30, 2000 - ----------------------------------------------------- (James H. Greer) B. D. HUNTER* Director March 30, 2000 - ----------------------------------------------------- (B. D. Hunter)
66 68
SIGNATURE TITLE DATE --------- ----- ---- VICTOR L. LUND* Director March 30, 2000 - ----------------------------------------------------- (Victor L. Lund) JOHN W. MECOM, JR.* Director March 30, 2000 - ----------------------------------------------------- (John W. Mecom, Jr.) CLIFTON H. MORRIS, JR.* Director March 30, 2000 - ----------------------------------------------------- (Clifton H. Morris, Jr.) E. H. THORNTON, JR.* Director March 30, 2000 - ----------------------------------------------------- (E. H. Thornton, Jr.) W. BLAIR WALTRIP* Director March 30, 2000 - ----------------------------------------------------- (W. Blair Waltrip) EDWARD E. WILLIAMS* Director March 30, 2000 - ----------------------------------------------------- (Edward E. Williams) *By: /s/ JAMES M. SHELGER ----------------------------------------------- (James M. Shelger, as Attorney-In-Fact For each of the Persons indicated)
67 69 EXHIBIT INDEX PURSUANT TO ITEM 601 OF REG. S-K
EXHIBIT NUMBER 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 D Junior Participating Preferred Stock, dated July 27, 1998. (Incorporated by reference to Exhibit 3.2 to Form 10-Q for the fiscal quarter ended June 30, 1998). 3.4 -- Bylaws, as amended. (Incorporated by reference to Exhibit 3.1 to Form 10-Q for the fiscal quarter ended September 30, 1999). 4.1 -- Rights Agreement dated as of May 14, 1998 between the Company and Harris Trust and Savings Bank. (Incorporated by reference to Exhibit 99.1 to Form 8-K dated May 14, 1998). 4.2 -- Agreement Appointing a Successor Rights Agent Under Rights Agreement, dated June 1, 1999, by the Company, Harris Trust and Savings Bank and The Bank of New York. (Incorporated by reference to Exhibit 4.1 to Form 10-Q for the fiscal quarter ended June 30, 1999). 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 January 1, 1998, 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, 1998). 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, 1999, between SCI Executive Services, Inc. and W. Blair Waltrip. (Incorporated by reference to Exhibit 10.2 to Form 10-Q for the fiscal quarter ended March 31, 1999). 10.6 -- Separation and Release Agreement, dated January 18, 2000, among the Company, SCI Executive Services, Inc. and W. Blair Waltrip. 10.7 -- Employment Agreement, dated January 1, 1998, between SCI Executive Services, Inc. and Jerald L. Pullins. (Incorporated by reference to Exhibit 10.1 to Form 10-Q for the fiscal quarter ended June 30, 1998). 10.8 -- Employment Agreement, dated March 10, 1999, between SCI Executive Services, Inc. and George R. Champagne. (Incorporated by reference to Exhibit 10.1 to Form 10-Q for the fiscal quarter ended March 31, 1999). 10.9 -- Separation and Release Agreement, dated November 18, 1999, among the Company, Executive Services, Inc. and George R. Champagne.
68 70
EXHIBIT NUMBER DESCRIPTION ------- ----------- 10.10 -- Independent Contractor/Consultative Agreement, dated November 18, 1999, between SCI Management Corporation and George R. Champagne. 10.11 -- Employment Agreement, dated February 11, 1999, between SCI Executive Services, Inc. and John W. Morrow, Jr. 10.12 -- Separation and Release Agreement, dated January 21, 2000, among the Company, SCI Executive Services, Inc. and John W. Morrow, Jr. 10.13 -- Employment Agreement, dated January 1, 1999, between SCI Executive Services, Inc. and James M. Shelger. 10.14 -- Form of Employment Agreement pertaining to officers (other than the officers identified in the preceding exhibits). (Incorporated by reference to Exhibit 10.9 to Form 10-K for the fiscal year ended December 31, 1997). 10.15 -- 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). 10.16 -- 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). 10.17 -- Amendment to 1986 Stock Option Plan, dated November 13, 1997. (Incorporated by reference to Exhibit 10.12 to Form 10-K for the fiscal year ended December 31, 1997). 10.18 -- Amended 1987 Stock Plan. (Incorporated by reference to Appendix A to Proxy Statement dated April 1, 1991). 10.19 -- 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). 10.20 -- 1993 Long-Term Incentive Stock Option Plan. (Incorporated by reference to Exhibit 4.12 to Registration Statement No. 333-00179 on Form S-8). 10.21 -- 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). 10.22 -- Amendment to 1993 Long-Term Incentive Stock Option Plan, dated November 13, 1997. (Incorporated by reference to Exhibit 10.17 to Form 10-K for the fiscal year ended December 31, 1997). 10.23 -- 1995 Incentive Equity Plan. (Incorporated by reference to Annex B to Proxy Statement dated April 17, 1995). 10.24 -- 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). 10.25 -- Amendment to 1995 Incentive Equity Plan, dated November 13, 1997. (Incorporated by reference to Exhibit 10.21 to Form 10-K for the fiscal year ended December 31, 1997). 10.26 -- 1995 Stock Plan for Non-Employee Directors. (Incorporated by reference to Annex A to Proxy Statement dated April 17, 1995). 10.27 -- Amended 1996 Incentive Plan. (Incorporated by reference to Annex A to Proxy Statement dated April 13, 1999). 10.28 -- Split Dollar Life Insurance Plan. (Incorporated by reference to Exhibit 10.36 to Form 10-K for the fiscal year ended December 31, 1995).
69 71
EXHIBIT NUMBER DESCRIPTION ------- ----------- 10.29 -- Supplemental Executive Retirement Plan for Senior Officers (as Amended and Restated Effective as of January 1, 1998). (Incorporated by reference to Exhibit 10.28 to Form 10-K for the fiscal year ended December 31, 1998). 10.30 -- Deferred Compensation Plan. (Incorporated by reference to Exhibit 10.31 to Form 10-K for the fiscal year ended December 31, 1997). 10.31 -- Amendment No. 5 to Service Corporation International Employee Stock Purchase Plan. 10.32 -- Employment Agreement, dated January 1, 1998, between SCI Executive Services, Inc. and L. William Heiligbrodt. (Incorporated by reference to Exhibit 10.5 to Form 10-K for the fiscal year ended December 31, 1997). 10.33 -- Separation and Release Agreement, dated March 15, 1999, among the Company, SCI Executive Services, Inc. and L. William Heiligbrodt. (Incorporated by reference to Exhibit 10.6 to Form 10-K for the fiscal year ended December 31, 1998). 10.34 -- Independent Contractor/Consultative Agreement, dated March 15, 1999, between SCI Management Corporation and L. William Heiligbrodt. (Incorporated by reference to Exhibit 10.7 to Form 10-K for the fiscal year ended December 31, 1998). 12.1 -- Ratio of Earnings to Fixed Charges. 21.1 -- Subsidiaries of the Company. 23.1 -- Consent of Independent Accountants (PricewaterhouseCoopers LLP). 24.1 -- Powers of Attorney. 27.1 -- Financial Data Schedule. 99.1 -- Competitive Advance and Revolving Credit Facility Agreement (Facility A), dated June 27, 1997, among the Company, The Chase Manhattan Bank ("Chase") as administrative agent and the banks and other financial institutions named therein. 99.2 -- Agreement and First Amendment to Competitive Advance and Revolving Credit Facility Agreement (Facility A), dated June 26, 1998, among the Company, Chase as administrative agent and the banks and other financial institutions named therein. 99.3 -- Agreement and Second Amendment to Competitive Advance and Revolving Credit Facility Agreement (Facility A), dated June 25, 1999, among the Company, Chase as administrative agent and the banks and other financial institutions named therein. 99.4 -- Agreement and Third Amendment to Competitive Advance and Revolving Credit Facility Agreement ((Facility A), dated November 2, 1999, among the Company, Chase as administrative agent and the banks and other financial institutions named therein. 99.5 -- Competitive Advance and Revolving Credit Facility Agreement (Facility B), dated June 27, 1997, among the Company, subsidiaries of the Company named therein, Chase as administrative agent and the banks and other financial institutions named therein. 99.6 -- Agreement and First Amendment to Competitive Advance and Revolving Credit Facility Agreement (Facility B), dated November 2, 1999, among the Company, subsidiaries of the Company named therein, Chase as administrative agent and the banks and other financial institutions named therein. 99.7 -- Credit Agreement, dated November 2, 1999, among the Company, Chase as administrative agent and the banks and other financial institutions named therein.
70 72
EXHIBIT NUMBER DESCRIPTION ------- ----------- 99.8 -- Consolidated Class Action Complaint filed September 3, 1999 in Civil Action No. H-99-280, In re Service Corporation International. (Incorporated by reference to Exhibit 99.1 to Form 10-Q for the fiscal quarter ended September 30, 1999). 99.9 -- Defendants' Answer to the Consolidated Class Action Complaint filed September 17, 1999 in Civil Action No. H-99-280, In re Service Corporation International. (Incorporated by reference to Exhibit 99.2 to Form 10-Q for the fiscal quarter ended September 30, 1999). 99.10 -- Defendants' Motion to Dismiss the Consolidated Class Action Complaint filed October 8, 1999 in Civil Action No. H-99-280, In re Service Corporation International. (Incorporated by reference to Exhibit 99.3 to Form 10-Q for the fiscal quarter ended September 30, 1999). 99.11 -- Plaintiffs' Opposition to Defendants' Motion to Dismiss the Consolidated Class Action Complaint filed November 5, 1999 in Civil Action No. H-99-280, In Re Service Corporation International. (Incorporated by reference to Exhibit 99.4 to Form 10-Q for the fiscal quarter ended September 30, 1999). 99.12 -- Defendants' Reply to Plaintiffs' Opposition to Defendants' Motion to Dismiss the Consolidated Class Action Complaint filed November 24, 1999 in Civil Action No. H-99-280, In re Service Corporation International. 99.13 -- Plaintiffs' Original Petition filed November 10, 1999 in Cause No. 32548-99-11, James P. Hunter, III and James P. Hunter, III Family Trust v. Service Corporation International, Robert L. Waltrip, L. William Heiligbrodt, George R. Champagne, W. Blair Waltrip, James M. Shelger, Wesley T. McRae and PriceWaterhouse Coopers, L.L.P.; in the Judicial District Court of Angelina County, Texas. (Incorporated by reference to Exhibit 99.5 to Form 10-Q for the fiscal quarter ended September 30, 1999). 99.14 -- Defendants' Original Answer in response to the Original Petition referred to in Exhibit 99.13.
In the above list, the management contracts or compensatory plans or arrangements are set forth in Exhibits 10.1 through 10.34. Pursuant to Item 601(b)(4) of Regulation S-K, there are not filed as exhibits to this report certain instruments with respect to long-term debt under which the total amount of securities authorized thereunder does not exceed 10 percent 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. 71 73 CORPORATE INFORMATION CORPORATE OFFICES Service Corporation International maintains corporate offices located at 1929 Allen Parkway, Houston, Texas 77019. The telephone number is 713/522-5141. Additional information can be found at our web site: www.sci-corp.com. Requests Written requests for financial information, including the Annual Report on Form 10-K as filed with the Securities and Exchange Commission, should be directed to Investor Relations, P.O. Box 130548, Houston, Texas 77219-0548. TRANSFER AGENT AND REGISTRAR THE BANK OF NEW YORK 1-800-524-4458
ADDRESS SHAREHOLDER INQUIRIES TO: SEND CERTIFICATES FOR TRANSFER AND ADDRESS CHANGES TO: Shareholder Relations Department -- 11E Receive and Deliver Department -- 11W P.O. Box 11258 P. O. Box 11002 Church Street Station Church Street Station New York, NY 10286 New York, NY 10286 E-Mail Address: The Bank of New York's Stock Transfer Website: Shareowner-svcs@bankofny.com http://stock.bankofny.com
[SCI LOGO](R) The SCI logo is a registered trademark. EX-10.6 2 SEPARATION & RELEASE AGREEMENT - W. BLAIR WALTRIP 1 EXHIBIT 10.6 SEPARATION AND RELEASE AGREEMENT This Separation and Release Agreement ("Agreement") is entered into as of the 18th day of January, 2000, among Service Corporation International, a Texas corporation ("SCI"), SCI Executive Services, Inc., a Delaware corporation ("Executive Services"), and W. Blair Waltrip ("Employee"). SCI, Executive Services and Employee agree as follows: 1. Effective as of the date hereof, Executive Services hereby terminates Employee's employment other than for cause and Employee hereby resigns as Executive Vice President of SCI, as a member of the Directors Stock Committee of the Board of Directors of SCI and as a member of the 1996 Nonqualified Incentive Plan Stock Option Committee of the Board of Directors of SCI, as well as all other positions he holds with SCI, its subsidiaries and affiliates (collectively, the "SCI Group"), including without limitation all positions as officer, director or committee member; provided however, notwithstanding the foregoing, Employee does not resign as a director of SCI or as a member of the following committees of the SCI Board of Directors: the Strategic Alliance Committee, the Executive Committee or the Investment Committee. 2. The Employment Agreement dated January 1, 1999 between SCI, Executive Services and Employee shall remain in effect except as modified herein. Although Employee's employment is hereby terminated, the Employment Period as defined in the Employment Agreement shall continue until December 31, 2002 subject to the provisions of the Employment Agreement. During the Employment Period, Employee will continue to receive salary of $475,000 per year pursuant to Section 3(a) of the Employment Agreement. In lieu of bonuses under Section 3(b) of the Employment Agreement, Executive Services shall pay to Employee within 10 days of the date hereof the sum of $2,102,471. Payments made pursuant to this numbered paragraph 2 shall be made net of applicable withholding taxes. Except as set forth in this Agreement, Employee shall not be entitled to any compensation or benefits set forth in Section 3 of the Employment Agreement. 3. Employee shall be eligible to participate in the employee benefit plans of the Group and the other benefits that are listed on Schedule A to this Agreement during the Employment Period. Employee shall not be eligible to participate in any of the other employee benefit plans of the Group or receive any of the other benefits to which he was entitled while employed as an executive of the Group pursuant to the Employment Agreement, including without limitation those listed on Schedule B to this Agreement. 4. Employee will be eligible to receive his Supplemental Executive Retirement Plan for Senior Officers ("SERP") benefit payments commencing upon his attaining the age of 55. Through the remainder of the Employment Period, Executive Services will pay Employee in cash (i) the equivalent of the cash contributions to the Cash Balance Plan which Employee would have received if he had remained as an employee during such period and (ii) the present value of the benefit Employee would have accrued under the SERP if he had remained as an employee during such period. -1- 2 5. Provided Employee continues to provide reasonably satisfactory collateral to SCI, Executive Services shall continue to reimburse Employee for the interest payments on his Promissory Note dated August 19, 1993 payable to SCI in the original principal amount of Six Hundred Thousand and No/100 Dollars ($600,000.00), bearing interest at 6-1/2% per annum and maturing on August 10, 2003. Such reimbursements shall be made in accordance with prior practice, shall include a gross-up for federal income taxes payable in respect thereof and are expected to approximate a total of $70,000 per year. 6. All SCI stock options held by Employee will be governed by the terms thereof based upon termination of employment without cause. 7. Executive Services hereby notifies Employee that Executive Services exercises its option to extend Employee's post-employment non-competition obligations under Section 12(a) of the Employment Agreement and Executive Service's corresponding obligation to make the Non-Competition Payments (as defined in the Employment Agreement). Accordingly, Employee's post-employment non-competition obligations and Executive Service's obligation to make such Non-Competition Payments will commence January 1, 2003 and terminate December 31, 2005. Such Non-Competition Payments will total $475,000 per year and will be payable on a monthly or bi-weekly basis. 8. In consideration of the payments to Employee referred to in numbered paragraph 2 above, the receipt and sufficiency of which Employee hereby acknowledges, Employee discharges and releases SCI, Executive Services, all other members of SCI Group, their successors, assigns, divisions, representatives, agents, officers, directors, stockholders, and employees, from any claims, demands, and/or causes of action whatsoever, presently known or unknown, that are based upon facts occurring on or prior to the date of execution of this Agreement, including but not limited to, the following: (a) any statutory claims under the Age Discrimination in Employment Act of 1967, the Americans with Disabilities Act of 1990, the Family and Medical Leave Act of 1993, the Civil Rights Acts of 1964 and 1991, the Employee Retirement Income Security Act, Chapter 451 of the Texas Labor Code and/or the Texas Commission on Human Rights Act, (b) any tort or contract claims, and/or (c) any claims, matters or actions related to Employee's employment and/or affiliation with, or separation from SCI Group; provided, however, that the release set forth in this numbered paragraph 8 shall not affect any claims, demands and/or causes of action that Employee may have for indemnity, contribution or otherwise against any member of the SCI Group arising from or relating to the pending shareholder litigation and any additional lawsuits that are filed after the date hereof arising from or relating to essentially the same factual matters ("Excepted Litigation"). 9. Pursuant to Section 7 of Article IV of SCI's Bylaws, the right of indemnification provided for therein shall "continue as to a person who has ceased to be a director, officer, or representative and shall inure to the benefit of the heirs, executors and administrators of such a person." SCI confirms that, Employee's rights to indemnification under Article IV of SCI's Bylaws in respect of the Excepted Litigation and any other event occurring prior to the time of his resignation as an officer or director of SCI and its subsidiaries and affiliated companies will not be affected. -2- 3 10. Additionally, SCI and Executive Services discharge and release Employee and his heirs, executors and administrators from any claims, demands, and/or causes of action whatsoever, presently known or unknown, that are based upon facts occurring on or prior to the date of execution of this Agreement, including, but not limited to, any claim, matter or action related to Employee's employment and/or affiliation with, or separation from SCI Group; provided, however, that the release set forth in this numbered paragraph 10 shall not affect any claims, demands and/or causes of action that any member of the SCI Group may have against Employee arising from or relating to the Excepted Litigation or his position or actions as a director of SCI. 11. Employee agrees that he shall engage in no act which is intended, or may be reasonably expected, to harm the reputation, business, prospects, or operations of any members of SCI Group, their officers, directors, stockholders or employees. Employee will not reveal to any third party any difference of opinion that may exist at any time between Employee and any member of management of SCI, Executive Services, or any other members of SCI Group. 12. The parties agree that they shall not disclose, or cause to be disclosed, the terms of this Agreement, or the fact that this Agreement exists, except to their respective attorneys, accountants and/or advisors, or to the extent otherwise required by law. The parties further agree that this numbered paragraph 12 is not applicable to discussions of this Agreement in the ordinary course of business among representatives, agents, officers, directors, stockholders and employees of any members of SCI Group. 13. The execution, validity, interpretation and performance of this Agreement shall be determined and governed exclusively by the laws of the State of Texas, without reference to the principles of conflict of laws. 14. This Agreement and the Employment Agreement as modified hereby represent the complete agreement among Employee, SCI and Executive Services concerning the subject matter hereof and supersede all prior agreements or understandings, written or oral, between Employee and any member of the SCI Group. No attempted modification or waiver of any of the provisions of this Agreement shall be binding on any party hereto unless in writing and signed by Employee, SCI and Executive Services. 15. Each of the numbered paragraphs contained in this Agreement shall be enforceable independently of every other numbered paragraph in this Agreement, and the invalidity or nonenforceability of any numbered paragraph shall not invalidate or render nonenforceable any other numbered paragraph contained in this Agreement. 16. It is further understood that for a period of seven (7) days following the execution of this Agreement in duplicate originals, Employee may revoke this Agreement, and this Agreement shall not become effective or enforceable until the revocation period has expired. 17. This Agreement has been entered into voluntarily and not as a result of coercion, duress, or undue influence. Employee acknowledges that he has read and fully understands the terms -3- 4 of this Agreement and has consulted with an attorney before executing this Agreement. Additionally, Employee acknowledges that he has been afforded the opportunity to take twenty-one (21) days to consider this Agreement. 18. Except for the matters specifically excluded below, any and all disputes between the parties to this Agreement arising out of or in connection with the negotiation, execution, interpretation, performance or non-performance of this Agreement and the covenants and obligations contemplated herein, including but not limited to any claims against Executive Services, SCI, its affiliates or their respective officers, directors, employees or agents, shall be solely and finally settled by arbitration conducted pursuant to the Rules of the American Arbitration Association, as now in effect or hereafter amended. Judgment on the award of the arbitrator may be entered in any court having jurisdiction over the party against whom enforcement of the award is being sought, and the parties hereby irrevocably consent to the jurisdiction of any such court for the purpose of enforcing any such award. The parties agree and acknowledge that any arbitration proceedings between them, and the outcome of such proceedings, shall be kept strictly confidential. It is expressly agreed and understood that this paragraph shall not govern claims for workers' compensation or unemployment benefits or claims for injunctive relief relating to alleged violations of Sections 9, 11, 12 or 13 of the Employment Agreement. 19. It is agreed that Executive Services shall pay reasonable legal fees of Employee incurred in the negotiation and execution of this Agreement. The parties to this Agreement have executed this Agreement as of the day and year first written above. /s/ W. BLAIR WALTRIP - -------------------- Service Corporation International Employee By: /s/ JAMES M. SHELGER ---------------------------------------- Authorized Officer SCI Executive Services, Inc. By: /s/ CURTIS G. BRIGGS ---------------------------------------- Authorized Officer -4- EX-10.9 3 SEPARATION & RELEASE AGREEMENT - GEORGE CHAMPAGNE 1 EXHIBIT 10.9 SEPARATION AND RELEASE AGREEMENT This Separation and Release Agreement ("Agreement") is entered into as of the 18th day of November, 1999, among Service Corporation International, a Texas corporation ("SCI"), SCI Executive Services, Inc., a Delaware corporation ("Executive Services"), and George R. Champagne ("Champagne"). SCI, Executive Services and Champagne agree as follows: 1. Effective as of the date hereof, the Company hereby terminates Champagne's employment other than for cause and Champagne hereby resigns as Executive Vice President and Chief Financial Officer of SCI as well as all other positions he holds with SCI, its subsidiaries and affiliates (collectively, the "SCI Group"), including without limitation all positions as officer, director or committee member. 2. The Employment Agreement dated March 10, 1999 between SCI, Executive Services and Champagne shall remain in effect except as modified herein. Although Champagne's employment is hereby terminated, the Employment Period as defined in the Employment Agreement shall continue until December 31, 2001 subject to the provisions of the Employment Agreement. During the Employment Period, Champagne will continue to receive salary and benefits pursuant to Sections 3(a) and 3(d) of the Employment Agreement except that the Annual Base Salary shall be $450,000 per year. In lieu of bonuses under Section 3(b) of the Employment Agreement, Executive Services shall pay to Champagne within 10 days of the date hereof the sum of $1,590,000, net of applicable withholding taxes. Except as set forth above in this numbered paragraph 2, Champagne shall not be entitled to any compensation or benefits set forth in Section 3 of the Employment Agreement. 3. Champagne's participation in the Supplemental Executive Retirement Plan for Senior Officers ("SERP") shall continue through the Employment Period. Champagne will be eligible to receive his SERP benefit payments commencing upon his attaining the age of 55. 4. Through the Employment Period, Executive Services will pay Champagne in cash the equivalent of the cash contributions to the Cash Balance Plan which Champagne would otherwise have received as an employee during such period. 5. All SCI stock options held by Champagne will be governed by the terms thereof. 6. The Provident Services, Inc. loan on Champagne's residence will remain in place until maturity in accordance with the terms of the loan. -1- 2 7. Executive Services hereby notifies Champagne that, upon expiration of the Employment Period, Executive Services exercises its option to cancel Champagne's post-employment non-competition obligations under Section 12(a) of the Employment Agreement and Executive Service's corresponding obligation to make the Non-Competition Payments (as defined in the Employment Agreement). Champagne and Executive Services agree that the notice provided in the preceding sentence is satisfactory for all purposes under the Employment Agreement. 8. In consideration of the payments to Champagne referred to in numbered paragraph 2 above, the receipt and sufficiency of which Champagne hereby acknowledges, Champagne discharges and releases SCI, Executive Services, all other members of SCI Group, their successors, assigns, divisions, representatives, agents, officers, directors, stockholders, and employees, from any claims, demands, and/or causes of action whatsoever, presently known or unknown, that are based upon facts occurring on or prior to the date of execution of this Agreement, including but not limited to, the following: (a) any statutory claims under the Age Discrimination in Employment Act of 1967, the Americans with Disabilities Act of 1990, the Family and Medical Leave Act of 1993, the Civil Rights Acts of 1964 and 1991, the Employee Retirement Income Security Act, Chapter 451 of the Texas Labor Code and/or the Texas Commission on Human Rights Act, (b) any tort or contract claims, and/or (c) any claims, matters or actions related to Champagne's employment and/or affiliation with, or separation from SCI Group; provided, however, that the release set forth in this numbered paragraph 8 shall not affect any claims, demands and/or causes of action that Champagne may have for indemnity, contribution or otherwise against any member of the SCI Group arising from or relating to the pending shareholder litigation and any additional lawsuits that are filed after the date hereof arising from or relating to essentially the same factual matters ("Excepted Litigation"). 9. Pursuant to Section 7 of Article IV of SCI's Bylaws, the right of indemnification provided for therein shall "continue as to a person who has ceased to be a director, officer, or representative and shall inure to the benefit of the heirs, executors and administrators of such a person." SCI confirms that, Champagne's rights to indemnification under Article IV of SCI's Bylaws in respect of the Excepted Litigation and any other event occurring prior to the time of his resignation as an officer and director of SCI and its subsidiaries and affiliated companies will not be affected. 10. Additionally, SCI and Executive Services discharge and release Champagne and his heirs, executors and administrators from any claims, demands, and/or causes of action whatsoever, presently known or unknown, that are based upon facts occurring on or prior to the date of execution of this Agreement, including, but not limited to, any claim, matter or action related to Champagne's employment and/or affiliation with, or separation from SCI Group; provided, however, that the release set forth in this numbered paragraph 10 shall not affect any claims, demands and/or causes of action that any member of the SCI Group may have against Champagne arising from or relating to the Excepted Litigation. 11. Champagne agrees that he shall engage in no act which is intended, or may be reasonably expected, to harm the reputation, business, prospects, or operations of any members of SCI Group, their officers, directors, stockholders or employees. Champagne will not reveal to any -2- 3 third party any difference of opinion that may exist at any time between Champagne and any member of management of SCI, Executive Services, or any other members of SCI Group. 12. The parties agree that they shall not disclose, or cause to be disclosed, the terms of this Agreement, or the fact that this Agreement exists, except to their respective attorneys, accountants and/or tax advisors, or to the extent otherwise required by law. The parties further agree that this numbered paragraph 12 is not applicable to discussions of this Agreement in the ordinary course of business among representatives, agents, officers, directors, stockholders and employees of any members of SCI Group. 13. The execution, validity, interpretation and performance of this Agreement shall be determined and governed exclusively by the laws of the State of Texas, without reference to the principles of conflict of laws. 14. With the exception of the consulting agreement executed by SCI Management Corporation and Champagne as of the date hereof (the "Consulting Agreement"), this Agreement represents the complete agreement among Champagne, SCI and Executive Services concerning the subject matter in this Agreement and supersedes all prior agreements or understandings, written or oral, between Champagne and any member of the SCI Group. No attempted modification or waiver of any of the provisions of this Agreement shall be binding on any party hereto unless in writing and signed by Champagne, SCI and Executive Services. 15. Each of the numbered paragraphs contained in this Agreement shall be enforceable independently of every other numbered paragraph in this Agreement, and the invalidity or nonenforceability of any numbered paragraph shall not invalidate or render nonenforceable any other numbered paragraph contained in this Agreement. 16. It is further understood that for a period of seven (7) days following the execution of this Agreement in duplicate originals, Champagne may revoke this Agreement, and this Agreement shall not become effective or enforceable until the revocation period has expired. 17. This Agreement has been entered into voluntarily and not as a result of coercion, duress, or undue influence. Champagne acknowledges that he has read and fully understands the terms of this Agreement and has consulted with an attorney before executing this Agreement. Additionally, Champagne acknowledges that he has been afforded the opportunity to take twenty-one (21) days to consider this Agreement. 18. The dispute resolution provisions set forth in Section 21 of the Consulting Agreement are applicable to any dispute arising under this Agreement. -3- 4 The parties to this Agreement have executed this Agreement as of the day and year first written above. - ------------------------------ Service Corporation International George R. Champagne By: --------------------------------- Authorized Officer SCI Executive Services, Inc. By: --------------------------------- Authorized Officer -4- EX-10.10 4 INDEPENDENT CONTRACTOR/CONSULTATIVE AGREEMENT 1 EXHIBIT 10.10 INDEPENDENT CONTRACTOR/CONSULTATIVE AGREEMENT THIS AGREEMENT is made and entered into as of the 18th day of November, 1999 by and between SCI Management Corporation, a Delaware corporation (hereinafter called the "Company"), and George R. Champagne (hereinafter called "Consultant"): In consideration of the performance and discharge of the respective agreements herein contained, Company and Consultant agree as follows: Section 1. Term of Agreement. Subject to the provisions for termination hereinafter set forth and subject to all of the provisions of this Agreement, the term of this Agreement ("Term") shall be for a period commencing on January 1, 2000 and terminating December 31, 2001. Section 2. Consultant Services. By the use of Consultant's knowledge, skills, expertise and goodwill, and acting at all times as an independent contractor, independent of any supervision, reporting of hours, or control in the performance of consulting duties by the Company, Consultant agrees to provide consultative services for the Company upon the request of any member of the Board of Directors of Service Corporation International ("SCI") or any executive officer of SCI, and to perform such consultative services as follows: A. During the Term hereof, Consultant shall furnish to the Company his best advice, information, judgment, and knowledge with respect to the affairs, business, business methods and practices, history, patrons, customers, employees and suppliers of the Company, and generally seek to preserve and increase the business and goodwill of the Company. B. Consultant shall not be required to maintain specific working hours, but shall be available at all times during the Term hereof, upon reasonable notice, when the Company requests such consultative services. C. During the time consultative services are to be provided hereunder, same shall be discharged and performed under the direction and subject to the control of the Board of Directors and senior officers of the Company. D. Consultant shall not be required to consult more then an average of 20 hours per week during the first year of the Term and 10 hours per week during the second year. Section 3. Consideration. As compensation for the consultative services to be performed and rendered by Consultant hereunder, Company agrees to pay Consultant, so long as this Agreement shall be in full force and effect, at the rate of (i) Two Hundred Forty Thousand Dollars ($240,000.00) per year for the first twelve months of the Term, payable $20,000 per month, and (ii) One Hundred Twenty Thousand Dollars ($120,000.00) per year for the second twelve months of the Term, payable $10,000 per month. Such payment shall not be subject to withholding for income taxes or FICA; provided, however, that such monthly consultative payments shall terminate on the date of the death of Consultant or in the event this Agreement should be otherwise terminated as provided Page 1 2 herein. In the event of the death of Consultant or in the event this Agreement should be terminated as provided herein, the Company shall have no further obligation to Consultant or his estate under this Agreement except to pay all compensation earned prior to his date of death or termination. The first installment will be due and payable on January 1, 2000 and subsequent payments shall be made on the same day of each succeeding month during the Term hereof. Section 4. Inability to Perform. If for any reason during the Term of this Agreement Consultant should be prevented from performing his duties, by reason of illness or incapacity or for any other cause, for an aggregate of thirty (30) days in any one calendar year during the period hereof, then the Company shall have the right to terminate this Agreement by giving at least fifteen (15) days' prior written notice thereof to Consultant. Section 5. Reimbursement for Expenses. Consultant is authorized to incur reasonable expenses for promoting the business of the Company, including expenses for entertainment and travel. Consultant will be reimbursed by the Company for all such reasonable business expenses upon presentation by him of an itemized account of such expenditures and such receipts or other documents as may be required by the Company. Section 6. Miscellaneous Covenants. Consultant agrees that at all times during the Term of this Agreement: A. Consultant will not knowingly or intentionally do or say any act or thing which will or may impair, damage, or destroy the goodwill and esteem for the Company with its suppliers, employees, patrons, customers, and others who may at any time have or have had business relations with the Company; B. Consultant will not reveal to any third person any differences of opinion, if there be such at any time, between him and the management of the Company as to the Company's personnel, policies or practices; and, C. Consultant will not knowingly or intentionally do any act or thing detrimental to the Company or its business. Section 7. Confidentiality. Consultant understands that in the course of discharging and performance of the consultative duties as herein provided, Consultant will receive certain trade secrets, lists of customers, and other confidential information concerning the business of the Company and its affiliates which the Company desires to protect. Consultant understands that, among other things, the management methods, operating techniques, procedures and methods, customer lists, prospective acquisitions, employee lists, training manuals and procedures, personnel evaluation procedures, collection procedures, and financial reports of the Company and/or its affiliates are confidential and are not at any time during or after the Term of this Agreement to be revealed to anyone outside the Company without specific written authorization by an officer of the Company. Consultant further agrees that he will not divulge to anyone outside the Company any such confidential information or trade secrets. Section 8. Noncompetition. Consultant agrees that during the Term of this Agreement he will not, directly or indirectly, be engaged in, interested in or concerned with any business which conducts operations directly or indirectly in competition with the business of the Company or any affiliate of the Company. Section 9. Enforceability. The foregoing agreements not to use trade secrets or confidential information or to compete or to do any other acts prohibited by Sections 7 and 8 of this Agreement shall not be held invalid or Page 2 3 unenforceable because of the scope of the territory or actions subject thereto or restricted thereby, or the period of time within which such agreements respectively are operative, but the maximum territory and action subject to such agreements respectively, and the period of time in which such agreements respectively are enforceable, are subject to determination by a final judgment of any court which has jurisdiction over the parties and subject matter. Section 10. Termination. In the event that Consultant fails to observe and comply fully with all of the terms and provisions of this Agreement, or if he fails to perform fully all of his duties, obligations, and agreements herein contained or as imposed by law, including his fiduciary duties, to the satisfaction of the Board of Directors of the Company, the Company shall have the right, to terminate this Agreement by giving Consultant not less than thirty (30) days' prior written notice of such termination, and this Agreement (with the exception of Sections 7 and 8 hereof) shall thereupon terminate and be of no further force and effect. Section 11. Merger, Etc. Consultant recognizes and acknowledges that at a future date the Company may be merged with another corporation or the location of its present business moved to another location, but it is expressly agreed that any such change will not render the covenants and agreements herein contained (or in any other instrument entered into by and between the parties hereto) any less binding or unenforceable in any manner whatsoever. Section 12. Severability. In case any term, phrase, clause, paragraph, restriction, covenant, or agreement herein contained shall be held to be invalid or unenforceable, same shall be deemed, and it is hereby agreed that same are meant to be, severable, and same shall not defeat or impair the remaining provisions hereof. Section 13. Waiver. A waiver by the Company of any breach by Consultant of this Agreement or of any duties imposed upon Consultant by law, or of any other cause for discharge of Consultant, shall not be construed as a waiver by the Company of its right to terminate this Agreement for any subsequent or continuing breach of this Agreement by Consultant. Section 14. Binding Effect. This Agreement shall bind and inure to the benefit of the Company, its successors and assigns, and Consultant, his heirs and personal representatives. Section 15. Notices. Any notice required or permitted to be given under this Agreement shall be sufficient if in writing and sent registered mail with return receipt requested, or hand delivered to the respective addresses as set forth below, or to such address as may from time to time be designated by notice in accordance herewith. Section 16. Governing Law. It is agreed that this Agreement will be interpreted and construed in accordance with the laws of the State of Texas. Section 17. Headings. The section and paragraph headings contained in this Agreement are for reference purposes only and shall not affect in any way the meaning or interpretation of this Agreement. Section 18. Counterparts. This Agreement may be executed in two or more counterparts, each of which shall be deemed to be an original but all of which together shall constitute one and the same instrument. Page 3 4 Section 19. Modification. This Agreement may be modified only by a written instrument signed by each of the parties hereto. Section 20. Entire Agreement. This agreement contains the entire understanding of the parties relating to the subject matter hereof and supersedes all previous written and verbal agreements between the parties hereto relating to such subject matter. There are no agreements, representations or warranties not set forth herein. Section 21. Dispute Resolution. Except for the matters specifically excluded below, any and all disputes between the parties to this Agreement arising out of or in connection with the negotiation, execution, interpretation, performance or non-performance of this Agreement and the covenants and obligations contemplated herein, including but not limited to any claims against the Company, its affiliates or their respective officers, directors, employees or agents, shall be solely and finally settled by arbitration conducted pursuant to the Rules of the American Arbitration Association, as now in effect or hereafter amended. Judgment on the award of the arbitrator may be entered in any court having jurisdiction over the party against whom enforcement of the award is being sought, and the parties hereby irrevocably consent to the jurisdiction of any such court for the purpose of enforcing any such award. The parties agree and acknowledge that any arbitration proceedings between them, and the outcome of such proceedings, shall be kept strictly confidential. It is expressly agreed and understood that this paragraph shall not govern claims for workers' compensation or unemployment benefits or claims for injunctive relief relating to alleged violations of Section 7 or 8 hereof. IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the day and year first above written. Address for Notices: CONSULTANT: George R. Champagne ---------------------------------- #10 Twin Greens Court George R. Champagne Kingswood,TX 77339 COMPANY: SCI Management Corporation Attn: President P.O. Box 130548 By: Houston, Texas 77219 ---------------------------------- Curtis G. Briggs Vice President Page 4 EX-10.11 5 EMPLOYMENT AGREEMENT - JOHN W. MORROW, JR. 1 EXHIBIT 10.11 EMPLOYMENT AGREEMENT EMPLOYMENT AGREEMENT (the "Agreement") made and entered into as of this 11th day of February, 1999, by and between SCI EXECUTIVE SERVICES, INC., a Delaware corporation (the "Company") wholly owned by SERVICE CORPORATION INTERNATIONAL, a Texas corporation (the "Parent") and successor by assignment to all of the rights, duties and obligations under this Agreement, and John W. Morrow, Jr. (the "Employee"). 1. Employment and Term. The Company agrees to employ the Employee and the Employee agrees to remain in the employ of the Company, in accordance with the terms and provisions of this Agreement, for the period beginning on the date hereof and ending as of the close of business on December 31, 2001 (such period together with all extensions thereof, is referred to hereinafter as the "Employment Period"); provided, however, that commencing on the date one year after the date hereof, and on each January 1 thereafter (each such date shall be hereinafter referred to as a "Renewal Date") the Employment Period shall be automatically extended so as to terminate three (3) year(s) from such Renewal Date if (i) the Compensation Committee of the Board of Directors of the Parent (hereinafter referred to as the "Compensation Committee") authorizes such extension during the 60-day period preceding such Renewal Date and (ii) the Employee has not previously given the Company written notice that the Employment Period shall not be so extended. In the event that the Company gives the Employee written notice at any time that the Compensation Committee has determined not to authorize such extension, or if the Company fails to notify the Employee of the Compensation Committee's determination prior to the Renewal Date (the "Renewal Deadline"), the Employment Period shall be extended so as to terminate three (3) year(s) after the date such notice is given (or, in case of a failure to notify, three (3) year(s) after the Renewal Deadline) and shall not thereafter be further extended. 2. Duties and Powers of Employee. During the Employment Period, the Employee shall serve as the Executive Vice President of the Parent and the Company and shall have the duties, powers and authority heretofore possessed by the holder of such offices and such other powers consistent therewith as are delegated to him in writing from time to time by the Board of Directors of the Parent (the "Board"). The Employee's services shall be performed at the location where the Employee is currently employed or any office which is the headquarters of the Company and is less than 50 miles from such location. During the Change of Control Period, the Employee's position (including status, -1- 2 offices, titles and reporting requirements), authority, duties and responsibilities shall be at least commensurate in all material respects with the most significant of those held, exercised and assigned with or by the Company or the Parent at any time during the 90-day period immediately preceding the Change of Control Date (as defined in Section 15(a) below). 3. Compensation. The Employee shall receive the following compensation for his services: (a) Salary. During the Employment Period, he shall be paid an annual base salary ("Annual Base Salary") at the rate of not less than $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 awarded to Employee prior to the Change of Control Period. Annual Base Salary shall not be reduced after any increase thereof pursuant to this Section 3(a). Any increase in Annual Base Salary shall not serve to limit or reduce any other obligation of the Company under this Agreement. (b) Incentive Cash Compensation. During the Employment Period, he shall be eligible annually for a cash bonus at the discretion of the Compensation Committee (such aggregate awards for each year are hereinafter referred to as the "Annual Bonus") and at the discretion of the Compensation Committee to receive awards from any plan of the Company or any of its affiliated companies (as defined in Section 15(d) below) providing for the payment of bonuses in cash to senior management employees of the Company or its affiliated companies (such plans being referred to herein collectively as the "Cash Bonus Plans") in accordance with the terms thereof; provided, however, that, during the Change of Control Period, the Employee shall be awarded, for each fiscal year ending during the Change of Control Period, an Annual Bonus at least equal to the Highest Recent Bonus (as defined in Section 15(e) below). Each Annual Bonus shall be paid no later than the end of the third month of the fiscal year next following the fiscal year for which the Annual Bonus is awarded, unless the Employee shall elect to defer the receipt of such Annual Bonus. (c) Incentive and Savings and Retirement Plans. During the Employment Period, the Employee shall be entitled -2- 3 to participate in all incentive and savings (in addition to the Cash Bonus Plans) and retirement plans, practices, policies and programs applicable generally to other senior management employees of the Company and its affiliated companies. (d) Welfare Benefit Plans. During the Employment Period, the Employee and/or the Employee's family, as the case may be, shall be eligible for participation in all welfare benefit plans, practices, policies and programs provided by the Company and its affiliated companies (including, without limitation, medical, prescription, dental, disability, salary continuance, employee life, group life, accidental death and travel accident insurance plans and programs) to the extent applicable generally to other senior management employees of the Company and its affiliated companies. (e) Expenses. During the Employment Period and for so long as the Employee is employed by the Company, he shall be entitled to receive prompt reimbursement for all reasonable expenses incurred by the Employee in accordance with the policies, practices and procedures of the Company and its affiliated companies from time to time in effect. (f) Fringe Benefits. During the Employment Period, the Employee shall be entitled to fringe benefits in accordance with the plans, past practices, programs and policies of the Company and its affiliated companies from time to time in effect. (g) Office and Support Staff. During the Employment Period, the Employee shall be entitled to an office or offices of a size and with furnishings and other appointments, and to exclusive personal secretarial and other assistance, commensurate with his position. (h) Vacation and Other Absences. During the Employment Period, the Employee shall be entitled to paid vacation and such other paid absences whether for holidays, illness, personal time or any similar purposes, in accordance with the plans, policies, programs and practices of the Company and its affiliated companies. (i) Change of Control. During the Change of Control Period, the Employee's benefits listed under Sections 3(c), 3(d), 3(e), 3(f), 3(g) and 3(h) above shall be at least commensurate in all material respects with the most valuable and favorable of those received by the Employee at any time during the one-year period immediately preceding the Change of Control Date. -3- 4 4. Termination of Employment. (a) Death or Disability. The Employment Period shall terminate automatically upon the Employee's death during the Employment Period. If the Company determines in good faith that the Disability of the Employee has occurred during the Employment Period (pursuant to the definition of Disability set forth below), it may give to the Employee written notice in accordance with Section 16(b) of its intention to terminate the Employment Period. In such event, the Employment Period shall terminate effective on the 30th day after receipt of such notice by the Employee (the "Disability Effective Date"), provided that, within the 30 days after such receipt, the Employee shall not have returned to full-time performance of the Employee's duties. For purposes of this Agreement, "Disability" shall mean the inability of the Employee to perform the Employee's duties with the Company on a full-time basis as a result of incapacity due to mental or physical illness which continues for more than one year after the commencement of such incapacity, such incapacity to be determined by a physician selected by the Company or its insurers and acceptable to the Employee or the Employee's legal representative (such agreement as to acceptability not to be withheld unreasonably). (b) Cause. The Company may terminate the Employment Period for Cause. For purposes of this Agreement, "Cause" shall mean (i) the Employee's deliberate and intentional continuing refusal to substantially perform his duties and obligations under this Agreement (other than a breach of the Employee's obligations under this Agreement arising from the failure of the Employee to work as a result of incapacity due to physical or mental illness) if he shall have either failed to remedy such alleged breach within 60 days from his receipt of written notice from the Secretary of the Company demanding that he remedy such alleged breach, or shall have failed to take reasonable steps in good faith to that end during such 60 day period and thereafter, or (ii) the conviction of the Employee of a felony involving malice which conviction has been affirmed on appeal or as to which the period in which an appeal can be taken has lapsed. (c) Good Reason; Window Period. The Employee's employment may be terminated (i) by the Employee for Good Reason (as defined below) or (ii) during the Window Period (as defined below) by the Employee without any reason. For purposes of this Agreement, the "Window Period" shall mean the 30-day period immediately following the first anniversary of the Change of Control Date. For purposes of this Agreement, "Good Reason" shall mean (i) the assignment to the Employee of any duties inconsistent in any respect with the Employee's position (including status, offices, titles and reporting requirements), authority, duties or responsibilities prior to the date of such assignment or any other action by the Company -4- 5 or the Parent which results in a diminution in such position, authority, duties or responsibilities, excluding for this purpose an isolated and insubstantial action not taken in bad faith and which is remedied by the Company promptly after receipt of notice thereof given by the Employee; (ii) any failure by the Company to comply with any of the provisions of Section 3, other than an isolated and insubstantial failure not occurring in bad faith and which is remedied by the Company promptly after receipt of notice thereof given by the Employee; (iii) the Company's requiring the Employee to be based at any office or location other than that described in Section 2(a); (iv) any purported termination by the Company of the Employee's employment otherwise than as expressly permitted by this Agreement; or (v) any failure by the Company or the Parent to comply with and satisfy Section 14(c), provided that the successor referred to in Section 14(c) has received at least ten days prior written notice from the Company or the Employee of the requirements of Section 14(c). For purposes of this Section 4(c), during the Change of Control Period, any good faith determination of "Good Reason" made by the Employee shall be conclusive. (d) Notice of Termination. Any termination by the Company for Cause or by the Employee without any reason during the Window Period or for Good Reason shall be communicated by Notice of Termination to the other party hereto given in accordance with Section 16(b). For purposes of this Agreement, a "Notice of Termination" means a written notice which (i) indicates the specific termination provision in this Agreement relied upon, (ii) to the extent applicable, sets forth in reasonable detail the facts and circumstances claimed to provide a basis for termination of the Employment Period under the provision so indicated, (iii) if the Date of Termination (as defined below) is other than the date of receipt of such notice, specifies the termination date (which date shall be not more than 15 days after the giving of such notice) and (iv) if the termination is by the Company for Cause, indicates that the Board has determined that a basis for termination for Cause exists, that the Employee has failed to take reasonable steps in good faith to remedy the alleged basis for such termination, and contains a certified copy of a resolution of the Board adopted by the affirmative vote of not less than two-thirds of the entire membership of the Board in a meeting called and held for that purpose in which the Employee was given an opportunity to be heard, finding that a basis for -5- 6 termination for Cause exists and that the Employee has failed to take reasonable steps in good faith to remedy such alleged basis for termination. The failure by the Employee or the Company to set forth in the Notice of Termination any fact or circumstance which contributes to a showing of Good Reason or Cause shall not waive any right of the Employee or the Company hereunder or preclude the Employee or the Company from asserting such fact or circumstance in enforcing the Employee's or the Company's rights hereunder. (e) Date of Termination. "Date of Termination" means (i) if the Employee's employment is terminated by the Company for Cause, or by the Employee during the Window Period or for Good Reason, the date of receipt of the Notice of Termination or any later date specified therein, as the case may be, (ii) if the Employee's employment is terminated by the Company other than for Cause or Disability, or by the Employee other than for Good Reason or during the Window Period, the Date of Termination shall be the date on which the Company or the Employee, as the case may be, notifies the other of such termination and (iii) if the Employee's employment is terminated by reason of death or Disability, the Date of Termination shall be the date of death of the Employee or the Disability Effective Date, as the case may be. Notwithstanding the foregoing, if the Company gives the Employee written notice pursuant to the second sentence of Section 1 hereof, then "Date of Termination" shall mean the last day of the three (3) year period for which the Employment Period is extended pursuant to such sentence. 5. Obligations of the Company Upon Termination. (a) Certain Terminations Prior to Change of Control Date. If, during the Employment Period prior to any Change of Control Date, the employment of the Employee with the Company shall be terminated (i) by the Company other than for Cause, death or Disability or (ii) by the Employee for Good Reason, then, in lieu of the obligations of the Company under Section 3, (i) the Company shall pay to the Employee in a lump sum in cash within 30 days after the Date of Termination all Unpaid Agreement Amounts (as defined in Section 5(b)(i)(A) below) and (ii) notwithstanding any other provision hereunder, for the longer of (A) the remainder of the Employment Period or (B) to the extent compensation and/or benefits are provided under any plan, program, practice or policy, such longer period, if any, as such plan, program, practice or policy may provide, the Company shall continue to provide to the Employee the compensation and benefits provided in Sections 3(a), 3(b)(based on the Highest Recent Bonus), 3(c) and 3(d) (it being understood that if the Company gives the Employee written notice that the Compensation Committee has determined not to authorize an extension, or fails to notify the Employee of the Compensation Committee's determination prior to the Renewal Deadline, in either case as contemplated by the second sentence of Section 1 hereof, the giving of such notice or the failure to so notify the Employee -6- 7 shall not be deemed a termination of the employment of the Employee with the Company during the Employment Period for purposes of this Section 5(a)). (b) Certain Terminations After Change of Control Date. If, during the Change of Control Period, the employment of the Employee with the Company shall be terminated (i) by the Company other than for Cause, death or Disability or (ii) by the Employee either for Good Reason or without any reason during the Window Period, then, in lieu of the obligations of the Company under Section 3 and notwithstanding any other provision hereunder: (i) the Company shall pay to the Employee in a lump sum in cash within 30 days after the Date of Termination the aggregate of the following amounts: (A) the sum of (1) all unpaid amounts due to the Employee under Section 3 through the Date of Termination, including without limitation, the Employee's Annual Base Salary and any accrued vacation pay, (2) the product of (x) the Highest Recent Bonus and (y) a fraction, the numerator of which is the number of days in the current fiscal year through the Date of Termination, and the denominator of which is 365 and (3) any compensation previously deferred by the Employee (together with any accrued interest or earnings thereon) to the extent not theretofore paid (the sum of the amounts described in clauses (1), (2) and (3) shall be hereinafter referred to as the "Accrued Obligations" and the sum of the amounts described in clauses (1) and (3) shall be hereinafter referred to as the "Unpaid Agreement Amounts"); and (B) the amount (such amount shall be hereinafter referred to as the "Severance Amount") equal to the sum of (1) Three (3) multiplied by the Employee's Annual Base Salary, plus (2) Three (3) multiplied by the Employee's Highest Recent Bonus; (ii) for the longer of (A) the remainder of the Employment Period or (B) to the extent benefits are provided under any plan, program, practice or policy, such longer period as such plan, program, practice or policy may provide, the Company shall continue benefits to the Employee and/or the Employee's family at least equal to those which would have been provided to them in accordance with the plans, programs, practices and policies described in Section 3(d) if the Employee's employment had not been terminated, in -7- 8 accordance with the most favorable plans, practices, programs or policies of the Company and its affiliated companies as in effect and applicable generally to other employees of comparable rank and their families during the 90-day period immediately preceding the Change of Control Date or, if more favorable to the Employee, as in effect generally at any time thereafter with respect to other employees of comparable rank with the Company and its affiliated companies and their families; provided, however, that if the Employee becomes reemployed with another employer and is eligible to receive medical or other welfare benefits under another employer provided plan, the medical and other welfare benefits described herein shall be required only to the extent not provided under such other plan during such applicable period of eligibility. For purposes of determining eligibility of the Employee for retiree benefits pursuant to such plans, practices, programs and policies, the Employee shall be considered to have remained employed until the end of the Employment Period and to have retired on the last day of such period; and (iii) to the extent not theretofore paid or provided, the Company shall timely pay or provide to the Employee and/or the Employee's family for the remainder of the Employment Period any other amounts or benefits required to be paid or provided or which the Employee and/or the Employee's family is eligible to receive pursuant to this Agreement and under any plan, program, policy or practice or contract or agreement of the Company and its affiliated companies as in effect and applicable generally to other employees of comparable rank with the Company and its affiliated companies and their families during the 90-day period immediately preceding the Change of Control Date or, if more favorable to the Employee, as in effect generally thereafter with respect to other employees of comparable rank with the Company and its affiliated companies and their families. Such amounts received under this Section 5(b) shall be in lieu of any other amount of severance relating to salary or bonus continuation to be received by the Employee upon termination of employment of the Employee under any severance plan, policy or arrangement of the Company. (c) Termination as a Result of Death. If the Employee's employment is terminated by reason of the Employee's death during the Employment Period, in lieu of the obligations of the Company under Section 3, the Company shall pay or provide to the Employee's estate (i) all Accrued Obligations (which shall be paid in a lump sum in cash within 30 days after the Date of Termination) and the timely payment or provision of the Welfare Benefit Continuation (as defined below) and the Other Benefits (as defined below) and (ii) any cash amount to be received by the -8- 9 Employee or the Employee's family as a death benefit pursuant to the terms of any plan, policy or arrangement of the Company and its affiliated companies. "Welfare Benefit Continuation" shall mean the continuation of benefits to the Employee and/or the Employee's family for the longer of (i) three (3) year(s) from the Date of Termination or (ii) the period provided by the plans, programs, policies or practices described in Section 3(d) in which the Employee participates as of the Date of Termination, such benefits to be at least equal to those which would have been provided to them in accordance with the plans, programs, practices and policies described in Section 3(d) if the Employee's employment had not been terminated, in accordance with the most favorable plans, practices, programs or policies of the Company and its affiliated companies as in effect and applicable generally to other employees of comparable rank and their families on the Date of Termination or, if the Date of Termination occurs after the Change of Control Date, during the 90-day period immediately preceding the Change of Control Date or, if more favorable to the Employee, as in effect generally at any time thereafter with respect to other employees of comparable rank with the Company and its affiliated companies and their families. "Other Benefits" shall mean the timely payment or provision to the Employee and/or the Employee's family of any other amounts or benefits required to be paid or provided or which the Employee and/or the Employee's family is eligible to receive pursuant to this Agreement and under any plan, program, policy or practice or contract or agreement of the Company and its affiliated companies as in effect and applicable generally to other employees of comparable rank and their families on the Date of Termination or, if the Date of Termination occurs after the Change of Control Date, during the 90-day period immediately preceding the Change of Control Date or, if more favorable to the Employee, as in effect generally thereafter with respect to other employees of comparable rank with the Company and its affiliated companies and their families. (d) Termination as a Result of Disability. If the Employee's employment is terminated by reason of the Employee's Disability during the Employment Period, in lieu of the obligations of the Company under Section 3, the Company shall pay or provide to the Employee (i) all Accrued Obligations which shall be paid in a lump sum in cash within 30 days after the Date of Termination and the timely payment or provision of the Welfare Benefit Continuation and the Other Benefits, provided, however, that if the Employee becomes reemployed with another employer and is eligible to receive medical or other welfare benefits under another employer provided plan, the Welfare Benefit Continuation shall be required only to the extent not provided under such other plan during such applicable period of eligibility, and (ii) any cash amount to be received by the Employee as a disability benefit pursuant to the terms of any plan, policy or arrangement of the Company and its affiliated companies. -9- 10 (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 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 -10- 11 until there is a final, nonappealable judgment by a court of competent jurisdiction declaring that such termination was for Cause or that the determination by the Employee of the existence of Good Reason was not made in good faith, the Company shall pay all amounts, and provide all benefits, to the Employee and/or the Employee's family or other beneficiaries, as the case may be, that the Company would be required to pay or provide pursuant to Section 5(a) or 5(b) as though such termination were by the Company without Cause or by the Employee with Good Reason. The Employee hereby undertakes to repay to the Company all such amounts to which the Employee is ultimately adjudged by such court not to be entitled. 8. Certain Additional Payments by the Company. (a) Anything in this Agreement to the contrary notwithstanding, in the event it shall be determined that any payment or distribution by the Company to or for the benefit of the Employee (whether paid or payable or distributed or distributable pursuant to the terms of this Agreement or otherwise, but determined without regard to any additional payments required under this Section 8) (a "Payment") would be subject to the excise tax imposed by Section 4999 (or a successor provision of like import) of the Code or any interest or penalties are incurred by the Employee with respect to such excise tax (such excise tax, together with any such interest and penalties, are hereinafter collectively referred to as the "Excise Tax"), then the Employee shall be entitled to receive an additional payment (a "Gross-Up Payment") in an amount such that after payment by the Employee of all taxes (including any interest or penalties imposed with respect to such taxes), including, without limitation, any income taxes (and any interest and penalties imposed with respect thereto) and Excise Tax imposed upon the Gross-Up Payment, the Employee retains an amount of the Gross-Up Payment equal to the Excise Tax imposed upon the Payments. (b) Subject to the provisions of Section 8(c), all determinations required to be made under this Section 8, including whether and when a Gross-Up Payment is required and the amount of such Gross-Up Payment and the assumptions to be utilized in arriving at such determination, shall be made by an accounting firm of national reputation selected by the Company (the "Accounting Firm"), which shall provide detailed supporting calculations both to the Company and the Employee within 15 business days of the receipt of notice from the Employee that there has been a Payment, or such earlier time as is requested by the Company. In the event that the Accounting Firm is serving (or has served within the three years preceding the Change of Control Date) as accountant or auditor for the individual, entity or group effecting the Change of Control, or is unwilling or unable to perform its obligations pursuant to this Section 8, the Employee shall appoint another nationally recognized accounting firm to make the determinations required hereunder (which accounting firm -11- 12 shall then be referred to as the Accounting Firm hereunder). All fees and expenses of the Accounting Firm shall be borne solely by the Company. Any Gross-Up Payment, as determined pursuant to this Section 8, shall be paid by the Company to the Employee within five days of the receipt of the Accounting Firm's determination. If the Accounting Firm determines that no Excise Tax is payable by the Employee, it shall furnish the Employee with a written opinion that failure to report the Excise Tax on the Employee's applicable federal income tax return would not result in the imposition of a negligence or similar penalty. Any determination by the Accounting Firm shall be binding upon the Company and the Employee. As a result of the uncertainty in the application of Section 4999 of the Code at the time of the initial determination by the Accounting Firm hereunder, it is possible that Gross-Up Payments which will not have been made by the Company should have been made ("Underpayment"), consistent with the calculations required to be made hereunder. In the event that the Company exhausts its remedies pursuant to Section 8(c) and the Employee thereafter is required to make a payment of any Excise Tax, the Accounting Firm shall determine the amount of the Underpayment that has occurred and any such Underpayment shall be promptly paid by the Company to or for the benefit of the Employee. (c) The Employee shall notify the Company in writing of any claim by the Internal Revenue Service that, if successful, would require the payment by the Company of the Gross-Up Payment. Such notification shall be given as soon as practicable but no later than ten business days after the Employee is informed in writing of such claim and shall apprise the Company of the nature of such claim and the date on which such claim is requested to be paid. The Employee shall not pay such claim prior to the expiration of the 30-day period following the date on which the Employee gives such notice to the Company (or such shorter period ending on the date that any payment of taxes with respect to such claim is due). If the Company notifies the Employee in writing prior to the expiration of such period that it desires to contest such claim, the Company, subject to the provisions of this Section 8(c), shall control all proceedings taken in connection with such contest and, at its sole option, may pursue or forgo any and all administrative appeals, proceedings, hearings and conferences with the taxing authority in respect of such claim and may, at its sole option, either direct the Employee to pay the tax claimed and sue for a refund or contest the claim in any permissible manner. In this connection, the Employee agrees, subject to the provisions of this Section 8(c), to (i) prosecute such contest to a determination before any administrative tribunal, in a court of initial jurisdiction and in one or more appellate courts, as the Company shall determine, (ii) give the Company any information reasonably requested by the Company relating to such claim, (iii) take such action in connection with contesting such claim as the Company shall reasonably request in writing from time to time, including, without limitation, -12- 13 accepting legal representation with respect to such claim by an attorney reasonably selected by the Company, (iv) cooperate with the Company in good faith in order to effectively contest such claim and (v) permit the Company to participate in any proceedings relating to such claim. The foregoing is subject, however, to the following: (A) the Company shall bear and pay directly all costs and expenses (including additional interest and penalties) incurred in connection with such contest and shall indemnify and hold the Employee harmless, on an after-tax basis, for any Excise Tax or income tax (including interest and penalties with respect thereto) imposed in connection therewith and the payment of costs and expenses in such connection, (B) if the Company directs the Employee to pay such claim and sue for a refund, the Company shall advance the amount of such payment to the Employee, on an interest-free basis, and shall indemnify and hold the Employee harmless, on an after-tax basis, from any Excise Tax or income tax (including interest or penalties with respect thereto) imposed with respect to such advance or with respect to any imputed income with respect to such advance, (C) any extension of the statute of limitations relating to payment of taxes for the taxable year of the Employee with respect to which such contested amount is claimed to be due shall be limited solely to such contested amount and (D) the Company's control of the contest shall be limited to issues with respect to which a Gross-Up Payment would be payable hereunder and the Employee shall be entitled to settle or contest, as the case may be, any other issue raised by the Internal Revenue Service or any other taxing authority. (d) If, after the receipt by the Employee of an amount advanced by the Company pursuant to Section 8(c), the Employee becomes entitled to receive any refund with respect to such claim, the Employee shall (subject to the Company's complying with the requirements of Section 8(c)) promptly pay to the Company the amount of such refund (together with any interest paid or credited thereon after taxes applicable thereto). If, after the receipt by the Employee of an amount advanced by the Company pursuant to Section 8(c), a determination is made that the Employee shall not be entitled to any refund with respect to such claim and the Company does not notify the Employee in writing of its intent to contest such denial of refund prior to the expiration of 30 days after such determination, then such advance shall be forgiven and shall not be required to be repaid and the amount of such advance shall offset, to the extent thereof, the amount of Gross-Up Payment required to be paid. 9. Confidential Information. The Employee shall hold in a fiduciary capacity for the benefit of the Company all secret or confidential information, knowledge or data relating to the Company or any of its affiliated companies, and their respective businesses, which shall have been obtained by the Employee during the Employee's employment by the Company or any of its affiliated companies and which shall not be or become public knowledge (other -13- 14 than by acts by the Employee or representatives of the Employee in violation of this Agreement). After termination of the Employee's employment with the Company or any of its affiliated companies, the Employee shall not, without the prior written consent of the Company or as may otherwise be required by law or legal process, communicate or divulge any such information, knowledge or data to anyone other than the Company and those designated by it. In no event shall an asserted violation of the provisions of this Section 9 constitute a basis for deferring or withholding any amounts otherwise payable to the Employee under this Agreement. Subject to the previous sentence, nothing herein shall be construed as prohibiting the Company from pursuing any other remedies available to it for such breach or threatened breach, including the recovery of damages from the Employee. 10. Employee's Obligation to Avoid Conflicts of Interest. (a) The Employee shall comply with the conflict of interest policy of the Parent as in effect from time to time. 11. Ownership of Information, Ideas, Concepts, Improvements, Discoveries and Inventions and all Original Works of Authorship. (a) All information, ideas, concepts, improvements, discoveries and inventions, whether patentable or not, which are conceived, made, developed or acquired by Employee or which are disclosed or made known to Employee, individually or in conjunction with others, during Employee's employment by the Company or any of its affiliated companies and which relate to the Company's or any of its affiliated companies' business, products or services (including all such information relating to corporate opportunities, research, financial and sales data, pricing and trading terms, evaluations, opinions, interpretations, acquisition prospects, the identity of customers or their requirements, the identity of key contacts within the customer's organizations or within the organization of acquisition prospects, or marketing and merchandising techniques, prospective names and marks) are and shall be the sole and exclusive property of the Company. Moreover, all drawings, memoranda, notes, records, files, correspondence, manuals, models, specifications, computer programs, maps and all other writings or materials of any type embodying any of such information, ideas, concepts, improvements, discoveries and inventions are and shall be the sole and exclusive property of the Company. (b) In particular, Employee hereby specifically sells, assigns and transfers to the Company all of his worldwide right, title and interest in and to all such information, ideas, concepts, improvements, discoveries or inventions, and any United States or foreign applications for patents, inventor's certificates or other industrial rights that may be filed thereon, including divisions, continuations, continuations-in-part, reissues and/or extensions thereof, and applications for registration of such names and marks. Both during the period of -14- 15 Employee's employment by the Company or any of its affiliated companies and thereafter, Employee shall assist the Company and its nominee at all times in the protection of such information, ideas, concepts, improvements, discoveries or inventions, both in the United States and all foreign countries, including but not limited to, the execution of all lawful oaths and all assignment documents requested by the Company or its nominee in connection with the preparation, prosecution, issuance or enforcement of any applications for United States or foreign letters patent, including divisions, continuations, continuations-in-part, reissues, and/or extensions thereof, and any application for the registration of such names and marks. (c) Moreover, if during Employee's employment by the Company or any of its affiliated companies, Employee creates any original work of authorship fixed in any tangible medium of expression which is the subject matter of copyright (such as videotapes, written presentations on acquisitions, computer programs, drawings, maps, architectural renditions, models, manuals, brochures or the like) relating to the Company's or any of its affiliated companies' business, products, or services, whether such work is created solely by Employee or jointly with others, the Company shall be deemed the author of such work if the work is prepared by Employee in the scope of his or her employment; or, if the work is not prepared by Employee within the scope of his or her employment but is specially ordered by the Company as a contribution to a collective work, as a part of a motion picture or other audiovisual work, as a translation, as a supplementary work, as a compilation or as an instrumental text, then the work shall be considered to be work made for hire and the Company shall be the author of the work. In the event such work is neither prepared by the Employee within the scope of his or her employment or is not a work specially ordered and deemed to be a work made for hire, then Employee hereby agrees to assign, and by these presents does assign, to the Company all of Employee's worldwide right, title and interest in and to such work and all rights of copyright therein. Both during the period of Employee's employment by the Company or any of its affiliated companies and thereafter, Employee agrees to assist the Company and its nominee, at any time, in the protection of the Company's worldwide right, title and interest in and to the work and all rights of copyright therein, including but not limited to, the execution of all formal assignment documents requested by the Company or its nominee and the execution of all lawful oaths and applications for registration of copyright in the United States and foreign countries. 12. Employee's Post-Employment Non-Competition Obligations. (a) During the Employment Period and, subject to the conditions of Sections 12(b) and 12(c), for a period of three (3) year(s) thereafter (the "Non-Competition Period"), Employee shall not, acting alone or in conjunction with others, directly or -15- 16 indirectly, in any of the business territories in which the Company or any of its affiliated companies is presently or at the time of termination of employment conducting business, engage in any business in competition with the business conducted by the Company or any of its affiliated companies at the time of the termination of the employment relationship, whether for his own account or by soliciting, canvassing or accepting any business or transaction for or from any other company or business in competition with such business of the Company or any of its affiliated companies. (b) If Employee's employment is discontinued: (i) by Company for Cause pursuant to Section 4(b); or (ii) by Employee because of any reason other than for Good Reason or other than during the Window Period pursuant to Section 4(c), Employee shall be bound by the obligations of Section 12(a) and the Company shall have no obligation to make the Non-Competition Payments (as defined in Section 12(c) below). However, if the employment relationship is terminated by any other circumstance or for any other reason, Employee's post-employment non-competition obligations required by Section 12(a) shall be subject to the Company's obligation to make the Non-Competition Payments specified in Section 12(c). (c) Notwithstanding the provisions of Section 4 of this Agreement, whenever Employee's employment is terminated due to the expiration of the Employment Period in accordance with the provisions of Section 1, or due to Employee's Disability (Section 4(a)), or by the Company without Cause (Section 4(b)), or by Employee for Good Reason or during the Window Period pursuant to Section 4(c) unless the Company exercises its option as hereinafter provided, Employee shall be entitled to continue to receive payments (the "Non-Competition Payments") equal to his then current Annual Base Salary (as of the Date of Termination) during the Non-Competition Period. During the Non-Competition Period, the Employee shall not, however, be deemed to be an employee of the Company or be entitled to continue to receive any other employee benefits other than as set forth in Section 5 or Section 8. Moreover, the Non-Competition Payments shall be reduced to the extent Employee has already received lump-sum payments in lieu of salary pursuant to Section 5. The Company shall have the option, exercisable at any time on or within one (1) month after: (i) the date the Company gives the Employee notice that the Employment Period will not be extended (or in the case of failure to notify, on or within one month after the Renewal Deadline), in accordance with Section 1; or (ii) in the case of termination due to Employee's disability or by the Company without Cause, the Date of Termination, to cancel Employee's post-employment non-competition obligations under Section 12(a) and the Company's corresponding obligation to make the Non-Competition Payments. Such option shall be exercised by the Company mailing a written notice thereof to Employee in accordance -16- 17 with Section 16(b); if the Company does not send such notice within the prescribed one-month period, the Company shall remain obligated to make the Non-Competition Payments and Employee shall remain obligated to comply with the provisions of Section 12(a). The amounts to be paid by the Company are not intended to be liquidated damages or an estimate of the actual damages that would be sustained by the Company if Employee breaches his post-employment non-competition obligations. If Employee breaches his post-employment non-competition obligations, the Company shall be entitled to cease making the Non-Competition Payments and shall be entitled to all of its remedies at law or in equity for damages and injunctive relief. 13. Obligations to Refrain From Competing Unfairly. In addition to the other obligations agreed to by Employee in this Agreement, Employee agrees that during the Employment Period and for three (3) year(s) following the Date of Termination, he shall not at any time, directly or indirectly for the benefit of any other party than the Company or any of its affiliated companies, (a) induce, entice, or solicit any employee of the Company or any of its affiliated companies to leave his employment, or (b) contact, communicate or solicit any customer of the Company or any of its affiliated companies derived from any customer list, customer lead, mail, printed matter or other information secured from the Company or any of its affiliated companies or their present or past employees, or (c) in any other manner use any customer lists or customer leads, mail, telephone numbers, printed material or material of the Company or any of its affiliated companies relating thereto. 14. Successors. (a) This Agreement is personal to the Employee and without the prior written consent of the Company shall not be assignable by the Employee otherwise than by will or the laws of descent and distribution. This Agreement shall inure to the benefit of and be enforceable by the Employee's legal representatives. (b) This Agreement shall inure to the benefit of and be binding upon the Company and its successors and assigns. (c) The Company will require any successor (whether direct or indirect, by purchase, merger, consolidation or otherwise) to all or substantially all of the business and/or assets of the Company to assume expressly and agree to perform this Agreement in the same manner and to the same extent that the Company would be required to perform it if no such succession had taken place. As used in this Agreement, "Company" shall mean the Company as hereinbefore defined and any successor to its business and/or assets as aforesaid which assumes and agrees to perform this Agreement by operation of law, or otherwise. The Parent will require any successor (whether direct or indirect, by purchase, merger, consolidation or otherwise) to all or substantially all of -17- 18 the business and/or assets of the Parent or the Parent to assume expressly and agree to perform the Parent's obligations hereunder in the same manner and to the same extent that the Parent would be required to perform them if no such succession had taken place. As used in this Agreement, "Parent" shall mean the Parent as hereinbefore defined and any successor to its business and/or assets as aforesaid which assumes and agrees to perform the Parent's obligations hereunder by operation of law, or otherwise. 15. Certain Definitions. The following defined terms used in this Agreement shall have the meanings indicated: (a) The "Change of Control Date" shall mean the first date on which a Change of Control occurs. Anything in this Agreement to the contrary notwithstanding, if a Change of Control occurs and if the Employee's employment with the Company is terminated or there is a change in the circumstances of the Employee's employment which constitutes Good Reason, and if it is reasonably demonstrated by the Employee that such termination or change in circumstances: (i) was at the request of a third party who has taken steps reasonably calculated to effect the Change of Control; or (ii) otherwise arose in connection with or anticipation of the Change of Control, then, for all purposes of this Agreement, the "Change of Control Date" shall mean the date immediately prior to the date of such termination or cessation. (b) The "Change of Control Period" shall mean the period commencing on the Change of Control Date and ending on the last day of the Employment Period. (c) "Change of Control" shall mean: (i) The acquisition by any individual, entity or group (within the meaning of Section 13(d)(3) or 14(d)(2) of the Securities Exchange Act of 1934, as amended the "Exchange Act") (a "Person") of beneficial ownership (within the meaning of Rule 13d-3 promulgated under the Exchange Act) of 20% or more of either (A) the then outstanding shares of Common Stock of the Parent (the "Outstanding Parent Common Stock") or (B) the combined voting power of the then outstanding voting 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 -18- 19 consolidation, if, following such reorganization, merger or consolidation, the conditions described in clauses (A), (B) and (C) of subsection (iii) of this definition of "Change of Control" are satisfied; or (ii) Individuals who, as of the effective date hereof, constitute the Board of Directors of the Parent (the "Incumbent Board") cease for any reason to constitute at least a majority of the Board of Directors of the Parent; provided, however, that any individual becoming a director subsequent to the date hereof whose election, or nomination for election by the Parent's shareholders, was approved by (A) a vote of at least a majority of the directors then constituting the Incumbent Board of the Parent, or (B) a vote of at least a majority of the directors then comprising the Executive Committee of the Board of Directors of the Parent at a time when such committee consisted of at least five members and all members of such committee were either members of the Incumbent Board or considered as being members of the Incumbent Board pursuant to clause (A) of this subsection (ii), shall be considered as though such individual were a member of the Incumbent Board, but excluding, for this purpose, any such individual whose initial assumption of office occurs as a result of either an actual or threatened election contest (as such terms are used in Rule 14a-11 of Regulation 14A promulgated under the Exchange Act) or other actual or threatened solicitation of proxies or consents by or on behalf of a Person other than the Board of Directors of the Parent; or (iii) Approval by the shareholders of the Parent of a reorganization, merger or consolidation, in each case, unless, following such reorganization, merger or consolidation, (A) more than 60% of, respectively, the then outstanding shares of common stock of the corporation resulting from such reorganization, merger or consolidation and the combined voting power of the then outstanding voting securities of such corporation entitled to vote generally in the election of directors is then beneficially owned, directly or indirectly, by all or substantially all of the individuals and entities who were the beneficial owners, respectively, of the Outstanding Parent Common Stock and Outstanding Parent Voting Securities immediately prior to such organization, merger or consolidation in substantially the same proportions as their ownership, immediately prior to such reorganization, merger or consolidation, of the Outstanding Parent Common Stock and Outstanding Parent Voting Securities, as the case may be, (B) no Person (excluding the Parent, any employee benefit plan or related trust of the Parent or such corporation resulting from such reorganization, merger or consolidation and any Person beneficially owning, immediately prior to such reorganization, merger or consolidation, -19- 20 directly or indirectly, 20% or more of the Outstanding Parent Common Stock or Outstanding Parent Voting Securities, as the case may be) beneficially owns, directly or indirectly, 20% or more of, respectively, the then outstanding shares of common stock of the corporation resulting from such reorganization, merger or consolidation or the combined voting power of the then outstanding voting securities of such corporation entitled to vote generally in the election of directors and (C) at least a majority of the members of the board of directors of the corporation resulting from such reorganization, merger or consolidation were members of the Incumbent Board at the time of the execution of the initial agreement providing for such reorganization, merger or consolidation; or (iv) Approval by the shareholders of the Parent of (A) a complete liquidation or dissolution of the Parent or (B) the sale or other disposition of all or substantially all of the assets of the Parent, other than to a corporation, with respect to which following such sale or other disposition, (A) more than 60% of, respectively, the then outstanding shares of common stock of such corporation and the combined voting power of the then outstanding voting securities of such corporation entitled to vote generally in the election of directors is then beneficially owned, directly or indirectly, by all or substantially all of the individuals and entities who were the beneficial owners, respectively, of the Outstanding Parent Common Stock and Outstanding Parent Voting Securities immediately prior to such sale or other disposition in substantially the same proportion as their ownership, immediately prior to such sale or other disposition, of the Outstanding Parent Common Stock and Outstanding Parent Voting Securities, as the case may be, (B) no Person (excluding the Parent and any employee benefit plan or related trust of the Parent or such corporation and any Person beneficially owning, immediately prior to such sale or other disposition, directly or indirectly, 20% or more of the Outstanding Parent Common Stock or Outstanding Parent Voting Securities, as the case may be) beneficially owns, directly or indirectly, 20% or more of, respectively, the then outstanding shares of common stock of such corporation and the combined voting power of the then outstanding voting securities of such corporation entitled to vote generally in the election of directors and (C) at least a majority of the members of the Board of Directors of such corporation were members of the Incumbent Board at the time of the execution of the initial agreement or action of the Board of Directors of the Parent providing for such sale or other disposition of assets of the Parent. -20- 21 (d) The term "affiliated company" shall mean any company controlled by, controlling or under common control with the Company. (e) The term "Highest Recent Bonus" shall mean the highest Annual Bonus (annualized for any fiscal year consisting of less than twelve full months) paid or payable, including by reason of any deferral, to the Employee by the Company and its affiliated companies in respect of the three most recent full fiscal years ending on or prior to, (i) if prior to a Change of Control, the Date of Termination, or (ii) if after a Change of Control, the Change of Control Date. 16. Miscellaneous. (a) This Agreement supersedes all previous agreements and discussions relating to the same or similar subject matters between Employee and the Company and shall be governed by and construed in accordance with the laws of the State of Texas, without reference to principles of conflict of laws. The captions of this Agreement are not part of the provisions hereof and shall have no force or effect. This Agreement may not be amended, modified, repealed, waived, extended or discharged except by an agreement in writing signed by the party against whom enforcement of such amendment, modification, repeal, waiver, extension or discharge is sought. No person, other than pursuant to a resolution of the Board or a duly authorized committee thereof, shall have authority on behalf of the Company or the Parent to agree to amend, modify, repeal, waive, extend or discharge any provision of this Agreement or anything in reference thereto. (b) All notices and other communications hereunder shall be in writing and shall be given by hand delivery to the other party or by registered or certified mail, return receipt requested, postage prepaid, addressed as follows: If to the Employee: John W. Morrow, Jr. 8615 Stable Crest 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 -21- 22 or to such other address as either party shall have furnished to the other in writing in accordance herewith. Notice and communications shall be effective when actually received by the addressee. (c) The invalidity or unenforceability of any provision of this Agreement shall not affect the validity or enforceability of any other provision of this Agreement. (d) The Company may withhold from any amounts payable under this Agreement such federal, state or local taxes as shall be required to be withheld pursuant to any applicable law or regulation. (e) The Employee's or the Company's failure to insist upon strict compliance with any provision hereof or any other provision of this Agreement or the failure to assert any right the Employee or the Company may have hereunder, including, without limitation, the right of the Employee to terminate employment for Good Reason pursuant to Section 4(c) of this Agreement, shall not be deemed to be a waiver of such provision or right or any other provision or right of this Agreement. (f) No breach, whether actual or alleged, of this Agreement by the Employee shall constitute grounds for the Company to withhold or offset any payment or benefit due to the Employee under any other agreement, contract, plan, program, policy or practice of the Company. IN WITNESS WHEREOF, the Employee and, pursuant to due authorization from the Board, the Company have caused this Agreement to be executed this 11th day of February, 1999. JOHN W. MORROW, JR. /s/John W. Morrow, Jr. -------------------------------- "EMPLOYEE" SCI EXECUTIVE SERVICES, INC. By: /s/Curtis G. Briggs ----------------------------- Name: Curtis G. Briggs Title: Vice President "COMPANY" -22- 23 Pursuant to due authorization from its Board of Directors, the Parent, by its execution hereof, absolutely and unconditionally guarantees to Employee the full and timely payment and performance of each obligation of the Company to Employee under this Agreement, waives any and all rights that it may otherwise have to require Employee to proceed against the Company for nonpayment or nonperformance, waives any and all defenses that would otherwise be a defense to this guarantee, and agrees to remain liable to Employee for all payment and performance obligations of the Company under this Agreement, whether arising before, on or after the date of this Agreement, until this Agreement shall terminate pursuant to its terms. SERVICE CORPORATION INTERNATIONAL By: /s/James M. Shelger ---------------------------------- Name: James M. Shelger Title: Senior Vice President General Counsel and Secretary "PARENT" -23- EX-10.12 6 SEPARATION & RELEASE AGREEMENT - JOHN W. MORROW JR 1 EXHIBIT 10.12 SEPARATION AND RELEASE AGREEMENT This Separation and Release Agreement ("Agreement") is entered into as of the 21st day of January, 2000, among Service Corporation International, a Texas corporation ("SCI"), SCI Executive Services, Inc., a Delaware corporation ("Executive Services"), and John W. Morrow, Jr. ("Employee"). SCI, Executive Services and Employee agree as follows: 1. Effective as of the date hereof, Executive Services hereby terminates Employee's employment other than for cause and Employee hereby resigns as Executive Vice President of SCI as well as all other positions he holds with SCI, its subsidiaries and affiliates (collectively, the "SCI Group"), including without limitation all positions as officer, director or committee member. 2. The Employment Agreement dated February 11, 1999 between SCI, Executive Services and Employee shall remain in effect except as modified herein. Although Employee's employment is hereby terminated, the Employment Period as defined in the Employment Agreement shall continue until December 31, 2001 subject to the provisions of the Employment Agreement. During the Employment Period, Employee will continue to receive salary of $400,000 per year pursuant to Section 3(a) of the Employment Agreement. Except as set forth in this Agreement, Employee shall not be entitled to any compensation or benefits set forth in Section 3 of the Employment Agreement. 3. Employee shall be eligible to participate in the employee benefit plans of the Group and the other benefits that are listed on Schedule A to this Agreement during the Employment Period. Employee shall not be eligible to participate in any of the other employee benefit plans of the Group or receive any of the other benefits to which he was entitled while employed as an executive of the Group pursuant to the Employment Agreement, including without limitation those listed on Schedule B to this Agreement. 4. Employee will be eligible to receive his Supplemental Executive Retirement Plan for Senior Officers ("SERP") benefit payments commencing the first of the month following the date hereof. Through the remainder of the Employment Period, Executive Services will pay Employee in cash (i) the equivalent of the cash contributions to the Cash Balance Plan which Employee would have received if he had remained as an employee during such period and (ii) the present value of the benefit Employee would have accrued under the SERP if he had remained as an employee during such period, it being agreed that the calculation of such present value shall be made based upon the discount rate provided for in the SCI Cash Balance Plan and applied to a stream of 180 payments which would have been added to the regular SERP payments if the Employee had remained an employee. 5. Provided Employee continues to provide reasonably satisfactory collateral to SCI, Executive Services shall continue to reimburse Employee for the interest payments on his Promissory Note dated August 19, 1993 payable to SCI in the original principal amount of Five -1- 2 Hundred Twenty Five Thousand and No/100 Dollars ($525,000.00), bearing interest at 6-1/2% per annum and maturing on August 10, 2003. Such reimbursements shall be made in accordance with prior practice, shall include a gross-up for federal income taxes payable in respect thereof and are expected to approximate a total of $60,000 per year. 6. All SCI stock options held by Employee will be governed by the terms thereof based upon termination of employment without cause. 7. Executive Services hereby notifies Employee that Executive Services exercises its option to cancel Employee's post-employment non-competition obligations under Section 12(a) of the Employment Agreement and Executive Service's corresponding obligation to make the Non-Competition Payments (as defined in the Employment Agreement). Employee and Executive Services agree that the notice provided in the preceding sentence is satisfactory for all purposes under the Employment Agreement. Accordingly, Employee's post-employment non-competition obligations and Executive Services' corresponding obligation to make Non-Competition Payments are hereby cancelled 8. In consideration of the payments to Employee referred to in numbered paragraph 2 above, the receipt and sufficiency of which Employee hereby acknowledges, Employee discharges and releases SCI, Executive Services, all other members of SCI Group, their successors, assigns, divisions, representatives, agents, officers, directors, stockholders, and employees, from any claims, demands, and/or causes of action whatsoever, presently known or unknown, that are based upon facts occurring on or prior to the date of execution of this Agreement, including but not limited to, the following: (a) any statutory claims under the Age Discrimination in Employment Act of 1967, the Americans with Disabilities Act of 1990, the Family and Medical Leave Act of 1993, the Civil Rights Acts of 1964 and 1991, the Employee Retirement Income Security Act, Chapter 451 of the Texas Labor Code and/or the Texas Commission on Human Rights Act, (b) any tort or contract claims, and/or (c) any claims, matters or actions related to Employee's employment and/or affiliation with, or separation from SCI Group; provided, however, that the release set forth in this numbered paragraph 8 shall not affect (i) the obligations of SCI and Executive Services, and the rights of Employee, expressly set forth in this Agreement, and (ii) any claims, demands and/or causes of action that Employee may have for indemnity, contribution or otherwise against any member of the SCI Group arising from or relating to the Pending Shareholder Litigation and any additional lawsuits that are filed after the date hereof arising from or relating to essentially the same factual matters ("Excepted Litigation"). "Pending Shareholder Litigation" shall mean the litigation referenced in Part II. Other Information, Item 1. Legal Proceedings, of SCI's Form 10-Q for the quarter ended September 30, 1999. 9. Pursuant to Section 7 of Article IV of SCI's Bylaws, the right of indemnification provided for therein shall "continue as to a person who has ceased to be a director, officer, or representative and shall inure to the benefit of the heirs, executors and administrators of such a person." SCI confirms that, Employee's rights to indemnification under Article IV of SCI's Bylaws in respect of the Excepted Litigation and any other event occurring prior to the time of his resignation as an officer and director of SCI and its subsidiaries and affiliated companies will not be affected hereby. -2- 3 10. Additionally, SCI and Executive Services, for themselves and all of the SCI Group, discharge and release Employee and his heirs, executors and administrators from any claims, demands, and/or causes of action whatsoever, presently known or unknown, that are based upon facts occurring on or prior to the date of execution of this Agreement, including, but not limited to, any claim, matter or action related to Employee's employment and/or affiliation with, or separation from SCI Group. 11. Employee agrees that he shall engage in no act which is intended, or may be reasonably expected, to harm the reputation, business, prospects, or operations of any members of SCI Group, their officers, directors, stockholders or employees. Employee will not reveal to any third party any difference of opinion that may exist at any time between Employee and any member of management of SCI, Executive Services, or any other members of SCI Group. 12. The parties agree that they shall not disclose, or cause to be disclosed, the terms of this Agreement, or the fact that this Agreement exists, except to their respective attorneys, accountants and/or tax advisors, or as necessary to enforce the terms hereof, or to the extent otherwise required by law. The parties further agree that this numbered paragraph 12 is not applicable to discussions of this Agreement in the ordinary course of business among representatives, agents, officers, directors, stockholders and employees of any members of SCI Group. 13. The execution, validity, interpretation and performance of this Agreement shall be determined and governed exclusively by the laws of the State of Texas, without reference to the principles of conflict of laws. 14. This Agreement and the Employment Agreement as modified hereby represent the complete agreement among Employee, SCI and Executive Services concerning the subject matter hereof and supersede all prior agreements or understandings, written or oral, between Employee and any member of the SCI Group. No attempted modification or waiver of any of the provisions of this Agreement shall be binding on any party hereto unless in writing and signed by Employee, SCI and Executive Services. 15. Each of the numbered paragraphs contained in this Agreement shall be enforceable independently of every other numbered paragraph in this Agreement, and the invalidity or nonenforceability of any numbered paragraph shall not invalidate or render nonenforceable any other numbered paragraph contained in this Agreement. 16. It is further understood that for a period of seven (7) days following the execution of this Agreement in duplicate originals, Employee may revoke this Agreement, and this Agreement shall not become effective or enforceable until the revocation period has expired. 17. This Agreement has been entered into voluntarily and not as a result of coercion, duress, or undue influence. Employee acknowledges that he has read and fully understands the terms of this Agreement and has consulted with an attorney before executing this Agreement. -3- 4 Additionally, Employee acknowledges that he has been afforded the opportunity to take twenty-one (21) days to consider this Agreement. 18. Except for the matters specifically excluded below, any and all disputes between the parties to this Agreement arising out of or in connection with the negotiation, execution, interpretation, performance or non-performance of this Agreement and the covenants and obligations contemplated herein, including but not limited to any claims against Executive Services, SCI, its affiliates or their respective officers, directors, employees or agents, shall be solely and finally settled by arbitration conducted pursuant to the Rules of the American Arbitration Association, as now in effect or hereafter amended. Judgment on the award of the arbitrator may be entered in any court having jurisdiction over the party against whom enforcement of the award is being sought, and the parties hereby irrevocably consent to the jurisdiction of any such court for the purpose of enforcing any such award. The parties agree and acknowledge that any arbitration proceedings between them, and the outcome of such proceedings, shall be kept strictly confidential. It is expressly agreed and understood that this paragraph shall not govern claims for workers' compensation or unemployment benefits or claims for injunctive relief relating to alleged violations of Sections 9, 11, 12 or 13 of the Employment Agreement. 19. Section 10 of the Employment Agreement is hereby terminated. Section 11 of the Employment Agreement shall apply only to matters arising or occurring prior to the date hereof. Employee's obligations under Section 12 of the Employment Agreement shall terminate as of December 31, 2000. Payments made pursuant to this Agreement may be made net of applicable withholding taxes. The parties to this Agreement have executed this Agreement as of the day and year first written above. /s/ JOHN W. MORROW, JR. Service Corporation International - ----------------------------------- Employee By: /s/ JAMES M. SHELGER -------------------------------- Authorized Officer SCI Executive Services, Inc. By: /s/ CURTIS G. BRIGGS -------------------------------- Authorized Officer -4- EX-10.13 7 EMPLOYMENT AGREEMENT - JAMES M. SHELGER 1 EXHIBIT 10.13 EMPLOYMENT AGREEMENT EMPLOYMENT AGREEMENT (the "Agreement") made and entered into as of this 1st day of January, 1999, by and between SCI EXECUTIVE SERVICES, INC., a Delaware corporation (the "Company") wholly owned by SERVICE CORPORATION INTERNATIONAL, a Texas corporation (the "Parent") and successor by assignment to all of the rights, duties and obligations under this Agreement, and James M. Shelger (the "Employee"). 1. Employment and Term. The Company agrees to employ the Employee and the Employee agrees to remain in the employ of the Company, in accordance with the terms and provisions of this Agreement, for the period beginning on the date hereof and ending as of the close of business on December 31, 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 two (2) 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 two (2) year(s) after the date such notice is given (or, in case of a failure to notify, two (2) year(s) after the Renewal Deadline) and shall not thereafter be further extended. 2. Duties and Powers of Employee. During the Employment Period, the Employee shall serve as the Senior Vice President General Counsel and Secretary of the Parent and the Company and shall have the duties, powers and authority heretofore possessed by the holder of such offices and such other powers consistent therewith as are delegated to him in writing from time to time by -1- 2 the Board of Directors of the Parent (the "Board"). The Employee's services shall be performed at the location where the Employee is currently employed or any office which is the headquarters of the Company and is less than 50 miles from such location. During the Change of Control Period, the Employee's position (including status, offices, titles and reporting requirements), authority, duties and responsibilities shall be at least commensurate in all material respects with the most significant of those held, exercised and assigned with or by the Company or the Parent at any time during the 90-day period immediately preceding the Change of Control Date (as defined in Section 15(a) below). 3. Compensation. The Employee shall receive the following compensation for his services: (a) Salary. During the Employment Period, he shall be paid an annual base salary ("Annual Base Salary") at the rate of not less than $330,000 per year, in substantially equal bi-weekly installments, and subject to any and all required withholdings and deductions for Social Security, income taxes and the like. The Compensation Committee may from time to time direct such upward adjustments to Annual Base Salary as the Compensation Committee deems to be appropriate or desirable; provided, however, that during the Change of Control Period, the Annual Base Salary shall be reviewed at least annually and shall be increased at any time and from time to time as shall be substantially consistent with increases in base salary awarded to Employee prior to the Change of Control Period. Annual Base Salary shall not be reduced after any increase thereof pursuant to this Section 3(a). Any increase in Annual Base Salary shall not serve to limit or reduce any other obligation of the Company under this Agreement. (b) Incentive Cash Compensation. During the Employment Period, he shall be eligible annually for a cash bonus at the discretion of the Compensation Committee (such aggregate awards for each year are hereinafter referred to as the "Annual Bonus") and at the discretion of the Compensation Committee to receive awards from any plan of the Company or any of its affiliated companies (as defined in Section 15(d) below) providing for the payment of bonuses in cash to senior management employees of the Company or its affiliated companies (such plans being referred to herein collectively as -2- 3 the "Cash Bonus Plans") in accordance with the terms thereof; provided, however, that, during the Change of Control Period, the Employee shall be awarded, for each fiscal year ending during the Change of Control Period, an Annual Bonus at least equal to the Highest Recent Bonus (as defined in Section 15(e) below). Each Annual Bonus shall be paid no later than the end of the third month of the fiscal year next following the fiscal year for which the Annual Bonus is awarded, unless the Employee shall elect to defer the receipt of such Annual Bonus. (c) Incentive and Savings and Retirement Plans. During the Employment Period, the Employee shall be entitled to participate in all incentive and savings (in addition to the Cash Bonus Plans) and retirement plans, practices, policies and programs applicable generally to other senior management employees of the Company and its affiliated companies. (d) Welfare Benefit Plans. During the Employment Period, the Employee and/or the Employee's family, as the case may be, shall be eligible for participation in all welfare benefit plans, practices, policies and programs provided by the Company and its affiliated companies (including, without limitation, medical, prescription, dental, disability, salary continuance, employee life, group life, accidental death and travel accident insurance plans and programs) to the extent applicable generally to other senior management employees of the Company and its affiliated companies. (e) Expenses. During the Employment Period and for so long as the Employee is employed by the Company, he shall be entitled to receive prompt reimbursement for all reasonable expenses incurred by the Employee in accordance with the policies, practices and procedures of the Company and its affiliated companies from time to time in effect. (f) Fringe Benefits. During the Employment Period, the Employee shall be entitled to fringe benefits in accordance with the plans, past practices, programs and policies of the Company and its affiliated companies from time to time in effect. (g) Office and Support Staff. During the Employment Period, the Employee shall be entitled to an office or offices of a size and with furnishings and other appointments, -3- 4 and to exclusive personal secretarial and other assistance, commensurate with his position. (h) Vacation and Other Absences. During the Employment Period, the Employee shall be entitled to paid vacation and such other paid absences whether for holidays, illness, personal time or any similar purposes, in accordance with the plans, policies, programs and practices of the Company and its affiliated companies. (i) Change of Control. During the Change of Control Period, the Employee's benefits listed under Sections 3(c), 3(d), 3(e), 3(f), 3(g) and 3(h) above shall be at least commensurate in all material respects with the most valuable and favorable of those received by the Employee at any time during the one-year period immediately preceding the Change of Control Date. 4. Termination of Employment. (a) Death or Disability. The Employment Period shall terminate automatically upon the Employee's death during the Employment Period. If the Company determines in good faith that the Disability of the Employee has occurred during the Employment Period (pursuant to the definition of Disability set forth below), it may give to the Employee written notice in accordance with Section 16(b) of its intention to terminate the Employment Period. In such event, the Employment Period shall terminate effective on the 30th day after receipt of such notice by the Employee (the "Disability Effective Date"), provided that, within the 30 days after such receipt, the Employee shall not have returned to full-time performance of the Employee's duties. For purposes of this Agreement, "Disability" shall mean the inability of the Employee to perform the Employee's duties with the Company on a full-time basis as a result of incapacity due to mental or physical illness which continues for more than one year after the commencement of such incapacity, such incapacity to be determined by a physician selected by the Company or its insurers and acceptable to the Employee or the Employee's legal representative (such agreement as to acceptability not to be withheld unreasonably). (b) Cause. The Company may terminate the Employment Period for Cause. For purposes of this Agreement, "Cause" shall mean (i) the Employee's deliberate and intentional continuing refusal to substantially perform his duties and obligations under this Agreement (other than a breach of the Employee's obligations under this Agreement arising from the -4- 5 failure of the Employee to work as a result of incapacity due to physical or mental illness) if he shall have either failed to remedy such alleged breach within 60 days from his receipt of written notice from the Secretary of the Company demanding that he remedy such alleged breach, or shall have failed to take reasonable steps in good faith to that end during such 60 day period and thereafter, or (ii) the conviction of the Employee of a felony involving malice which conviction has been affirmed on appeal or as to which the period in which an appeal can be taken has lapsed. (c) Good Reason; Window Period. The Employee's employment may be terminated (i) by the Employee for Good Reason (as defined below) or (ii) during the Window Period (as defined below) by the Employee without any reason. For purposes of this Agreement, the "Window Period" shall mean the 30-day period immediately following the first anniversary of the Change of Control Date. For purposes of this Agreement, "Good Reason" shall mean (i) the assignment to the Employee of any duties inconsistent in any respect with the Employee's position (including status, offices, titles and reporting requirements), authority, duties or responsibilities prior to the date of such assignment or any other action by the Company or the Parent which results in a diminution in such position, authority, duties or responsibilities, excluding for this purpose an isolated and insubstantial action not taken in bad faith and which is remedied by the Company promptly after receipt of notice thereof given by the Employee; (ii) any failure by the Company to comply with any of the provisions of Section 3, other than an isolated and insubstantial failure not occurring in bad faith and which is remedied by the Company promptly after receipt of notice thereof given by the Employee; (iii) the Company's requiring the Employee to be based at any office or location other than that described in Section 2(a); (iv) any purported termination by the Company of the Employee's employment otherwise than as expressly permitted by this Agreement; or (v) any failure by the Company or the Parent to comply with and satisfy Section 14(c), provided that -5- 6 the successor referred to in Section 14(c) has received at least ten days prior written notice from the Company or the Employee of the requirements of Section 14(c). For purposes of this Section 4(c), during the Change of Control Period, any good faith determination of "Good Reason" made by the Employee shall be conclusive. (d) Notice of Termination. Any termination by the Company for Cause or by the Employee without any reason during the Window Period or for Good Reason shall be communicated by Notice of Termination to the other party hereto given in accordance with Section 16(b). For purposes of this Agreement, a "Notice of Termination" means a written notice which (i) indicates the specific termination provision in this Agreement relied upon, (ii) to the extent applicable, sets forth in reasonable detail the facts and circumstances claimed to provide a basis for termination of the Employment Period under the provision so indicated ,(iii) if the Date of Termination (as defined below) is other than the date of receipt of such notice, specifies the termination date (which date shall be not more than 15 days after the giving of such notice) and (iv) if the termination is by the Company for Cause, indicates that the Board has determined that a basis for termination for Cause exists, that the Employee has failed to take reasonable steps in good faith to remedy the alleged basis for such termination, and contains a certified copy of a resolution of the Board adopted by the affirmative vote of not less than two-thirds of the entire membership of the Board in a meeting called and held for that purpose in which the Employee was given an opportunity to be heard, finding that a basis for termination for Cause exists and that the Employee has failed to take reasonable steps in good faith to remedy such alleged basis for termination. The failure by the Employee or the Company to set forth in the Notice of Termination any fact or circumstance which contributes to a showing of Good Reason or Cause shall not waive any right of the Employee or the Company hereunder or preclude the Employee or the Company from asserting such fact or circumstance in enforcing the Employee's or the Company's rights hereunder. (e) Date of Termination. "Date of Termination" means (i) if the Employee's employment is terminated by the Company for Cause, or by the Employee during the Window Period or for Good Reason, the date of receipt of the Notice of Termination or any later date specified therein, as the case may be, (ii) if the Employee's employment is terminated by the Company other than -6- 7 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 two (2) year period for which the Employment Period is extended pursuant to such sentence. 5. Obligations of the Company Upon Termination. (a) Certain Terminations Prior to Change of Control Date. If, during the Employment Period prior to any Change of Control Date, the employment of the Employee with the Company shall be terminated (i) by the Company other than for Cause, death or Disability or (ii) by the Employee for Good Reason, then, in lieu of the obligations of the Company under Section 3, (i) the Company shall pay to the Employee in a lump sum in cash within 30 days after the Date of Termination all Unpaid Agreement Amounts (as defined in Section 5(b)(i)(A) below) and (ii) notwithstanding any other provision hereunder, for the longer of (A) the remainder of the Employment Period or (B) to the extent compensation and/or benefits are provided under any plan, program, practice or policy, such longer period, if any, as such plan, program, practice or policy may provide, the Company shall continue to provide to the Employee the compensation and benefits provided in Sections 3(a), 3(b)(based on the Highest Recent Bonus), 3(c) and 3(d) (it being understood that if the Company gives the Employee written notice that the Compensation Committee has determined not to authorize an extension, or fails to notify the Employee of the Compensation Committee's determination prior to the Renewal Deadline, in either case as contemplated by the second sentence of Section 1 hereof, the giving of such notice or the failure to so notify the Employee shall not be deemed a termination of the employment of the Employee with the Company during the Employment Period for purposes of this Section 5(a)). (b) Certain Terminations After Change of Control Date. If, during the Change of Control Period, the employment of the Employee with the Company shall be terminated (i) by the Company other than for Cause, death or Disability or (ii) by the Employee either for Good Reason or without any reason during the -7- 8 Window Period, then, in lieu of the obligations of the Company under Section 3 and notwithstanding any other provision hereunder: (i) the Company shall pay to the Employee in a lump sum in cash within 30 days after the Date of Termination the aggregate of the following amounts: (A) the sum of (1) all unpaid amounts due to the Employee under Section 3 through the Date of Termination, including without limitation, the Employee's Annual Base Salary and any accrued vacation pay, (2) the product of (x) the Highest Recent Bonus and (y) a fraction, the numerator of which is the number of days in the current fiscal year through the Date of Termination, and the denominator of which is 365 and (3) any compensation previously deferred by the Employee (together with any accrued interest or earnings thereon) to the extent not theretofore paid (the sum of the amounts described in clauses (1), (2) and (3) shall be hereinafter referred to as the "Accrued Obligations" and the sum of the amounts described in clauses (1) and (3) shall be hereinafter referred to as the "Unpaid Agreement Amounts"); and (B) the amount (such amount shall be hereinafter referred to as the "Severance Amount") equal to the sum of (1) Two (2) multiplied by the Employee's Annual Base Salary, plus (2) Two (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 -8- 9 comparable rank and their families during the 90-day period immediately preceding the Change of Control Date or, if more favorable to the Employee, as in effect generally at any time thereafter with respect to other employees of comparable rank with the Company and its affiliated companies and their families; provided, however, that if the Employee becomes reemployed with another employer and is eligible to receive medical or other welfare benefits under another employer provided plan, the medical and other welfare benefits described herein shall be required only to the extent not provided under such other plan during such applicable period of eligibility. For purposes of determining eligibility of the Employee for retiree benefits pursuant to such plans, practices, programs and policies, the Employee shall be considered to have remained employed until the end of the Employment Period and to have retired on the last day of such period; and (iii) to the extent not theretofore paid or provided, the Company shall timely pay or provide to the Employee and/or the Employee's family for the remainder of the Employment Period any other amounts or benefits required to be paid or provided or which the Employee and/or the Employee's family is eligible to receive pursuant to this Agreement and under any plan, program, policy or practice or contract or agreement of the Company and its affiliated companies as in effect and applicable generally to other employees of comparable rank with the Company and its affiliated companies and their families during the 90-day period immediately preceding the Change of Control Date or, if more favorable to the Employee, as in effect generally thereafter with respect to other employees of comparable rank with the Company and its affiliated companies and their families. Such amounts received under this Section 5(b) shall be in lieu of any other amount of severance relating to salary or bonus continuation to be received by the Employee upon termination of employment of the Employee under any severance plan, policy or arrangement of the Company. (c) Termination as a Result of Death. If the Employee's employment is terminated by reason of the Employee's death during the Employment Period, in lieu of the obligations of the Company under Section 3, the Company shall pay or provide to the Employee's estate (i) all Accrued Obligations (which shall be paid in a lump sum in cash within 30 days after the Date of -9- 10 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) two (2) year(s) from the Date of Termination or (ii) the period provided by the plans, programs, policies or practices described in Section 3(d) in which the Employee participates as of the Date of Termination, such benefits to be at least equal to those which would have been provided to them in accordance with the plans, programs, practices and policies described in Section 3(d) if the Employee's employment had not been terminated, in accordance with the most favorable plans, practices, programs or policies of the Company and its affiliated companies as in effect and applicable generally to other employees of comparable rank and their families on the Date of Termination or, if the Date of Termination occurs after the Change of Control Date, during the 90-day period immediately preceding the Change of Control Date or, if more favorable to the Employee, as in effect generally at any time thereafter with respect to other employees of comparable rank with the Company and its affiliated companies and their families. "Other Benefits" shall mean the timely payment or provision to the Employee and/or the Employee's family of any other amounts or benefits required to be paid or provided or which the Employee and/or the Employee's family is eligible to receive pursuant to this Agreement and under any plan, program, policy or practice or contract or agreement of the Company and its affiliated companies as in effect and applicable generally to other employees of comparable rank and their families on the Date of Termination or, if the Date of Termination occurs after the Change of Control Date, during the 90-day period immediately preceding the Change of Control Date or, if more favorable to the Employee, as in effect generally thereafter with respect to other employees of comparable rank with the Company and its affiliated companies and their families. (d) Termination as a Result of Disability. If the Employee's employment is terminated by reason of the Employee's Disability during the Employment Period, in lieu of the obligations of the Company under Section 3, the Company shall pay or provide to the Employee (i) all Accrued Obligations which shall be paid in a lump sum in cash within 30 days after the Date of Termination and the timely payment or provision of the Welfare Benefit Continuation and the Other Benefits, provided, however, -10- 11 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 -11- 12 incur as a result of any contest (regardless of the outcome thereof) by the Company, the Employee or others of the validity or enforceability of, or liability under, any provision of this Agreement or any guarantee of performance thereof (including as a result of any contest by the Employee about the amount of any payment pursuant to this Agreement), plus in each case interest on any payment required to be made under this Agreement but not timely paid at the rate provided for in Section 280G(d)(4) of the Internal Revenue Code of 1986, as amended (the "Code"). (b) If there shall be any dispute between the Company and the Employee (i) in the event of any termination of the Employee's employment by the Company, whether such termination was for Cause, or (ii) in the event of any termination of employment by the Employee, whether Good Reason existed, then, unless and until there is a final, nonappealable judgment by a court of competent jurisdiction declaring that such termination was for Cause or that the determination by the Employee of the existence of Good Reason was not made in good faith, the Company shall pay all amounts, and provide all benefits, to the Employee and/or the Employee's family or other beneficiaries, as the case may be, that the Company would be required to pay or provide pursuant to Section 5(a) or 5(b) as though such termination were by the Company without Cause or by the Employee with Good Reason. The Employee hereby undertakes to repay to the Company all such amounts to which the Employee is ultimately adjudged by such court not to be entitled. 8. Certain Additional Payments by the Company. (a) Anything in this Agreement to the contrary notwithstanding, in the event it shall be determined that any payment or distribution by the Company to or for the benefit of the Employee (whether paid or payable or distributed or distributable pursuant to the terms of this Agreement or otherwise, but determined without regard to any additional payments required under this Section 8) (a "Payment") would be subject to the excise tax imposed by Section 4999 (or a successor provision of like import) of the Code or any interest or penalties are incurred by the Employee with respect to such excise tax (such excise tax, together with any such interest and penalties, are hereinafter collectively referred to as the "Excise Tax"), then the Employee shall be entitled to receive an additional payment (a "Gross-Up Payment") in an amount such that after payment by the Employee of all taxes (including any interest or penalties imposed with respect to such taxes), including, without limitation, any income taxes (and any interest and penalties imposed with respect thereto) and Excise Tax imposed -13- 13 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 two (2) 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. -13- 14 (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 -14- 15 with respect to such advance or with respect to any imputed income with respect to such advance, (C) any extension of the statute of limitations relating to payment of taxes for the taxable year of the Employee with respect to which such contested amount is claimed to be due shall be limited solely to such contested amount and (D) the Company's control of the contest shall be limited to issues with respect to which a Gross-Up Payment would be payable hereunder and the Employee shall be entitled to settle or contest, as the case may be, any other issue raised by the Internal Revenue Service or any other taxing authority. (d) If, after the receipt by the Employee of an amount advanced by the Company pursuant to Section 8(c), the Employee becomes entitled to receive any refund with respect to such claim, the Employee shall (subject to the Company's complying with the requirements of Section 8(c)) promptly pay to the Company the amount of such refund (together with any interest paid or credited thereon after taxes applicable thereto). If, after the receipt by the Employee of an amount advanced by the Company pursuant to Section 8(c), a determination is made that the Employee shall not be entitled to any refund with respect to such claim and the Company does not notify the Employee in writing of its intent to contest such denial of refund prior to the expiration of 30 days after such determination, then such advance shall be forgiven and shall not be required to be repaid and the amount of such advance shall offset, to the extent thereof, the amount of Gross-Up Payment required to be paid. 9. Confidential Information. The Employee shall hold in a fiduciary capacity for the benefit of the Company all secret or confidential information, knowledge or data relating to the Company or any of its affiliated companies, and their respective businesses, which shall have been obtained by the Employee during the Employee's employment by the Company or any of its affiliated companies and which shall not be or become public knowledge (other than by acts by the Employee or representatives of the Employee in violation of this Agreement). After termination of the Employee's employment with the Company or any of its affiliated companies, the Employee shall not, without the prior written consent of the Company or as may otherwise be required by law or legal process, communicate or divulge any such information, knowledge or data to anyone other than the Company and those designated by it. In no event shall an asserted violation of the provisions of this Section 9 constitute a basis for deferring or withholding any amounts otherwise payable to the Employee under this Agreement. Subject to the previous sentence, nothing herein shall be -15- 16 construed as prohibiting the Company from pursuing any other remedies available to it for such breach or threatened breach, including the recovery of damages from the Employee. 10. Employee's Obligation to Avoid Conflicts of Interest. (a) The Employee shall comply with he conflict of interest policy of the Parent as in effect from time to time. 11. Ownership of Information, Ideas, Concepts, Improvements, Discoveries and Inventions and all Original Works of Authorship. (a) All information, ideas, concepts, improvements, discoveries and inventions, whether patentable or not, which are conceived, made, developed or acquired by Employee or which are disclosed or made known to Employee, individually or in conjunction with others, during Employee's employment by the Company or any of its affiliated companies and which relate to the Company's or any of its affiliated companies' business, products or services (including all such information relating to corporate opportunities, research, financial and sales data, pricing and trading terms, evaluations, opinions, interpretations, acquisition prospects, the identity of customers or their requirements, the identity of key contacts within the customer's organizations or within the organization of acquisition prospects, or marketing and merchandising techniques, prospective names and marks) are and shall be the sole and exclusive property of the Company. Moreover, all drawings, memoranda, notes, records, files, correspondence, manuals, models, specifications, computer programs, maps and all other writings or materials of any type embodying any of such information, ideas, concepts, improvements, discoveries and inventions are and shall be the sole and exclusive property of the Company. (b) In particular, Employee hereby specifically sells, assigns and transfers to the Company all of his worldwide right, title and interest in and to all such information, ideas, concepts, improvements, discoveries or inventions, and any United States or foreign applications for patents, inventor's certificates or other industrial rights that may be filed thereon, including divisions, continuations, continuations-in-part, reissues and/or extensions thereof, and applications for registration of such names and marks. Both during the period of Employee's employment by the Company or any of its affiliated companies and thereafter, Employee shall assist the Company and its nominee at all times in the protection of such information, ideas, concepts, improvements, discoveries or inventions, both in the United States and all foreign countries, including but not -16- 17 limited to, the execution of all lawful oaths and all assignment documents requested by the Company or its nominee in connection with the preparation, prosecution, issuance or enforcement of any applications for United States or foreign letters patent, including divisions, continuations, continuations-in-part, reissues, and/or extensions thereof, and any application for the registration of such names and marks. (c) Moreover, if during Employee's employment by the Company or any of its affiliated companies, Employee creates any original work of authorship fixed in any tangible medium of expression which is the subject matter of copyright (such as videotapes, written presentations on acquisitions, computer programs, drawings, maps, architectural renditions, models, manuals, brochures or the like) relating to the Company's or any of its affiliated companies' business, products, or services, whether such work is created solely by Employee or jointly with others, the Company shall be deemed the author of such work if the work is prepared by Employee in the scope of his or her employment; or, if the work is not prepared by Employee within the scope of his or her employment but is specially ordered by the Company as a contribution to a collective work, as a part of a motion picture or other audiovisual work, as a translation, as a supplementary work, as a compilation or as an instrumental text, then the work shall be considered to be work made for hire and the Company shall be the author of the work. In the event such work is neither prepared by the Employee within the scope of his or her employment or is not a work specially ordered and deemed to be a work made for hire, then Employee hereby agrees to assign, and by these presents does assign, to the Company all of Employee's worldwide right, title and interest in and to such work and all rights of copyright therein. Both during the period of Employee's employment by the Company or any of its affiliated companies and thereafter, Employee agrees to assist the Company and its nominee, at any time, in the protection of the Company's worldwide right, title and interest in and to the work and all rights of copyright therein, including but not limited to, the execution of all formal assignment documents requested by the Company or its nominee and the execution of all lawful oaths and applications for registration of copyright in the United States and foreign countries. 12. Employee's Post-Employment Non-Competition Obligations. (a) During the Employment Period and, subject to the conditions of Sections 12(b) and 12(c), for a period of two (2) year(s) thereafter (the "Non-Competition Period"), Employee -17- 18 shall not, acting alone or in conjunction with others, directly or indirectly, in any of the business territories in which the Company or any of its affiliated companies is presently or at the time of termination of employment conducting business, engage in any business in competition with the business conducted by the Company or any of its affiliated companies at the time of the termination of the employment relationship, whether for his own account or by soliciting, canvassing or accepting any business or transaction for or from any other company or business in competition with such business of the Company or any of its affiliated companies. (b) If Employee's employment is discontinued: (i) by Company for Cause pursuant to Section 4(b); or (ii) by Employee because of any reason other than for Good Reason or other than during the Window Period pursuant to Section 4(c), Employee shall be bound by the obligations of Section 12(a) and the Company shall have no obligation to make the Non-Competition Payments (as defined in Section 12(c) below). However, if the employment relationship is terminated by any other circumstance or for any other reason, Employee's post-employment non-competition obligations required by Section 12(a) shall be subject to the Company's obligation to make the Non-Competition Payments specified in Section 12(c). (c) Notwithstanding the provisions of Section 4 of this Agreement, whenever Employee's employment is terminated due to the expiration of the Employment Period in accordance with the provisions of Section 1, or due to Employee's Disability (Section 4(a)), or by the Company without Cause (Section 4(b)), or by Employee for Good Reason or during the Window Period pursuant to Section 4(c) unless the Company exercises its option as hereinafter provided, Employee shall be entitled to continue to receive payments (the "Non-Competition Payments") equal to his then current Annual Base Salary (as of the Date of Termination) during the Non-Competition Period. During the Non-Competition Period, the Employee shall not, however, be deemed to be an employee of the Company or be entitled to continue to receive any other employee benefits other than as set forth in Section 5 or Section 8. Moreover, the Non-Competition Payments shall be reduced to the extent Employee has already received lump-sum payments in lieu of salary pursuant to Section 5. The Company shall have the option, exercisable at any time on or within one (1) month after: (i) the date the Company gives the Employee notice that the Employment Period will not be extended (or in the case of failure to notify, on or within one month after the -18- 19 Renewal Deadline), in accordance with Section 1; or (ii) in the case of termination due to Employee's disability or by the Company without Cause, the Date of Termination, to cancel Employee's post-employment non-competition obligations under Section 12(a) and the Company's corresponding obligation to make the Non-Competition Payments. Such option shall be exercised by the Company mailing a written notice thereof to Employee in accordance with Section 16(b); if the Company does not send such notice within the prescribed one-month period, the Company shall remain obligated to make the Non-Competition Payments and Employee shall remain obligated to comply with the provisions of Section 12(a). The amounts to be paid by the Company are not intended to be liquidated damages or an estimate of the actual damages that would be sustained by the Company if Employee breaches his post-employment non-competition obligations. If Employee breaches his post-employment non-competition obligations, the Company shall be entitled to cease making the Non-Competition Payments and shall be entitled to all of its remedies at law or in equity for damages and injunctive relief. 13. Obligations to Refrain From Competing Unfairly. In addition to the other obligations agreed to by Employee in this Agreement, Employee agrees that during the Employment Period and for two (2) year(s) following the Date of Termination, he shall not at any time, directly or indirectly for the benefit of any other party than the Company or any of its affiliated companies, (a) induce, entice, or solicit any employee of the Company or any of its affiliated companies to leave his employment, or (b) contact, communicate or solicit any customer of the Company or any of its affiliated companies derived from any customer list, customer lead, mail, printed matter or other information secured from the Company or any of its affiliated companies or their present or past employees, or (c) in any other manner use any customer lists or customer leads, mail, telephone numbers, printed material or material of the Company or any of its affiliated companies relating thereto. 14. Successors. (a) This Agreement is personal to the Employee and without the prior written consent of the Company shall not be assignable by the Employee otherwise than by will or the laws of descent and distribution. This Agreement shall inure to the benefit of and be enforceable by the Employee's legal representatives. (b) This Agreement shall inure to the benefit of and be binding upon the Company and its successors and assigns. -19- 20 (c) The Company will require any successor (whether direct or indirect, by purchase, merger, consolidation or otherwise) to all or substantially all of the business and/or assets of the Company to assume expressly and agree to perform this Agreement in the same manner and to the same extent that the Company would be required to perform it if no such succession had taken place. As used in this Agreement, "Company" shall mean the Company as hereinbefore defined and any successor to its business and/or assets as aforesaid which assumes and agrees to perform this Agreement by operation of law, or otherwise. The Parent will require any successor (whether direct or indirect, by purchase, merger, consolidation or otherwise) to all or substantially all of the business and/or assets of the Parent or the Parent to assume expressly and agree to perform the Parent's obligations hereunder in the same manner and to the same extent that the Parent would be required to perform them if no such succession had taken place. As used in this Agreement, "Parent" shall mean the Parent as hereinbefore defined and any successor to its business and/or assets as aforesaid which assumes and agrees to perform the Parent's obligations hereunder by operation of law, or otherwise. 15. Certain Definitions. The following defined terms used in this Agreement shall have the meanings indicated: (a) The "Change of Control Date" shall mean the first date on which a Change of Control occurs. Anything in this Agreement to the contrary notwithstanding, if a Change of Control occurs and if the Employee's employment with the Company is terminated or there is a change in the circumstances of the Employee's employment which constitutes Good Reason, and if it is reasonably demonstrated by the Employee that such termination or change in circumstances: (i) was at the request of a third party who has taken steps reasonably calculated to effect the Change of Control; or (ii) otherwise arose in connection with or anticipation of the Change of Control, then, for all purposes of this Agreement, the "Change of Control Date" shall mean the date immediately prior to the date of such termination or cessation. (b) The "Change of Control Period" shall mean the period commencing on the Change of Control Date and ending on the last day of the Employment Period. (c) "Change of Control" shall mean: -20- 21 (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 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 -21- 22 (iii) Approval by the shareholders of the Parent of a reorganization, merger or consolidation, in each case, unless, following such reorganization, merger or consolidation, (A) more than 60% of, respectively, the then outstanding shares of common stock of the corporation resulting from such reorganization, merger or consolidation and the combined voting power of the then outstanding voting securities of such corporation entitled to vote generally in the election of directors is then beneficially owned, directly or indirectly, by all or substantially all of the individuals and entities who were the beneficial owners, respectively, of the Outstanding Parent Common Stock and Outstanding Parent Voting Securities immediately prior to such organization, merger or consolidation in substantially the same proportions as their ownership, immediately prior to such reorganization, merger or consolidation, of the Outstanding Parent Common Stock and Outstanding Parent Voting Securities, as the case may be, (B) no Person (excluding the Parent, any employee benefit plan or related trust of the Parent or such corporation resulting from such reorganization, merger or consolidation and any Person beneficially owning, immediately prior to such reorganization, merger or consolidation, directly or indirectly, 20% or more of the Outstanding Parent Common Stock or Outstanding Parent Voting Securities, as the case may be) beneficially owns, directly or indirectly, 20% or more of, respectively, the then outstanding shares of common stock of the corporation resulting from such reorganization, merger or consolidation or the combined voting power of the then outstanding voting securities of such corporation entitled to vote generally in the election of directors and (C) at least a majority of the members of the board of directors of the corporation resulting from such reorganization, merger or consolidation were members of the Incumbent Board at the time of the execution of the initial agreement providing for such reorganization, merger or consolidation; or (iv) Approval by the shareholders of the Parent of (A) a complete liquidation or dissolution of the Parent or (B) the sale or other disposition of all or substantially all of the assets of the Parent, other than to a corporation, with respect to which following such sale or other disposition, (A) more than 60% of, respectively, the -22- 23 then outstanding shares of common stock of such corporation and the combined voting power of the then outstanding voting securities of such corporation entitled to vote generally in the election of directors is then beneficially owned, directly or indirectly, by all or substantially all of the individuals and entities who were the beneficial owners, respectively, of the Outstanding Parent Common Stock and Outstanding Parent Voting Securities immediately prior to such sale or other disposition in substantially the same proportion as their ownership, immediately prior to such sale or other disposition, of the Outstanding Parent Common Stock and Outstanding Parent Voting Securities, as the case may be, (B) no Person (excluding the Parent and any employee benefit plan or related trust of the Parent or such corporation and any Person beneficially owning, immediately prior to such sale or other disposition, directly or indirectly, 20% or more of the Outstanding Parent Common Stock or Outstanding Parent Voting Securities, as the case may be) beneficially owns, directly or indirectly, 20% or more of, respectively, the then outstanding shares of common stock of such corporation and the combined voting power of the then outstanding voting securities of such corporation entitled to vote generally in the election of directors and (C) at least a majority of the members of the Board of Directors of such corporation were members of the Incumbent Board at the time of the execution of the initial agreement or action of the Board of Directors of the Parent providing for such sale or other disposition of assets of the Parent. (d) The term "affiliated company" shall mean any company controlled by, controlling or under common control with the Company. (e) The term "Highest Recent Bonus" shall mean the highest Annual Bonus (annualized for any fiscal year consisting of less than twelve full months) paid or payable, including by reason of any deferral, to the Employee by the Company and its affiliated companies in respect of the three most recent full fiscal years ending on or prior to, (i) if prior to a Change of Control, the Date of Termination, or (ii) if after a Change of Control, the Change of Control Date. 16. Miscellaneous. (a) This Agreement supersedes all previous agreements and discussions relating to the same or similar subject matters between Employee and the Company and shall be governed by and construed in accordance with the laws of the -23- 24 State of Texas, without reference to principles of conflict of laws. The captions of this Agreement are not part of the provisions hereof and shall have no force or effect. This Agreement may not be amended, modified, repealed, waived, extended or discharged except by an agreement in writing signed by the party against whom enforcement of such amendment, modification, repeal, waiver, extension or discharge is sought. No person, other than pursuant to a resolution of the Board or a duly authorized committee thereof, shall have authority on behalf of the Company or the Parent to agree to amend, modify, repeal, waive, extend or discharge any provision of this Agreement or anything in reference thereto. (b) All notices and other communications hereunder shall be in writing and shall be given by hand delivery to the other party or by registered or certified mail, return receipt requested, postage prepaid, addressed as follows: If to the Employee: James M. Shelger 15 The Oval Sugar Land, TX 77479 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. -24- 25 (c) The invalidity or unenforceability of any provision of this Agreement shall not affect the validity or enforceability of any other provision of this Agreement. (d) The Company may withhold from any amounts payable under this Agreement such federal, state or local taxes as shall be required to be withheld pursuant to any applicable law or regulation. (e) The Employee's or the Company's failure to insist upon strict compliance with any provision hereof or any other provision of this Agreement or the failure to assert any right the Employee or the Company may have hereunder, including, without limitation, the right of the Employee to terminate employment for Good Reason pursuant to Section 4(c) of this Agreement, shall not be deemed to be a waiver of such provision or right or any other provision or right of this Agreement. (f) No breach, whether actual or alleged, of this Agreement by the Employee shall constitute grounds for the Company to withhold or offset any payment or benefit due to the Employee under any other agreement, contract, plan, program, policy or practice of the Company. IN WITNESS WHEREOF, the Employee and, pursuant to due authorization from the Board, the Company have caused this Agreement to be executed this 1st day of January, 1999. JAMES M. SHELGER /s/ James M. Shelger ------------------------------- "EMPLOYEE" SCI EXECUTIVE SERVICES, INC. By: /s/ Curtis G. Briggs ----------------------------- Name: Curtis G. Briggs Title: Vice President "COMPANY" -25- 26 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/ Jack L. Stoner --------------------------------- Name: Jack L. Stoner Title: Senior Vice President Administration "PARENT" -26- EX-10.31 8 AMENDMENT NO. 5 TO EMPLOYEE STOCK PURCHASE PLAN 1 EXHIBIT 10.31 AMENDMENT NO. 5 SERVICE CORPORATION INTERNATIONAL EMPLOYEE STOCK PURCHASE PLAN This Amendment is executed by Service Corporation International ("Company") effective as of January 1, 2000. W I T N E S S E T H WHEREAS, the Company executed the Service Corporation International Stock Purchase Plan on August 22, 1979, Amendment No. 1 thereto on June 5, 1981, Amendment No. 2 thereto on October 19, 1988, Amendment No. 3 thereto on June 19, 1990 and Amendment No. 4 thereto on December 21, 1993 (as amended, the "Plan"), which continues in force and effect, and is made a part hereof by reference; and WHEREAS, the Company is desirous of eliminating the Company match under the Plan commencing January 1, 2000; NOW, THEREFORE, in consideration of the premises, the Company hereby amends the Plan in the following respect: 1. The following paragraph shall be added as the last paragraph of Subsection 3.02 effective as of January 1, 2000: "Notwithstanding the above, effective as of January 1, 2000 the Company shall terminate its Regular Contribution under the Plan for each Participant who is an Employee of a U.S. Employing Company; provided, however, that the Regular Contribution for the 1999 Plan Year shall be made." IN WITNESS WHEREOF, the Company has executed this Amendment to the Plan effective as of January 1, 2000. SERVICE CORPORATION INTERNATIONAL By: /s/ James M. Shelger ------------------------------------- Title: Senior Vice President ---------------------------------- EX-12.1 9 RATIO OF EARNINGS TO FIXED CHARGES 1 EXHIBIT 12.1 SERVICE CORPORATION INTERNATIONAL RATIO OF EARNINGS TO FIXED CHARGES
Twelve Months Ended December 31, 1999 1998 ----------- ----------- (Thousands, except ratio amounts) Pretax income from continuing operations ................................... $ (37,690) $ 518,527 Undistributed income of less than 50% owned equity investees ............... 267 (7,652) Minority interest in income of majority owned subsidiaries with fixed charges .................................................................... (1,490) 818 Add fixed charges as adjusted (from below) ................................. 276,419 207,475 ----------- ----------- $ 237,506 $ 719,168 ----------- ----------- Fixed charges: Interest expense: Corporate ............................................................. $ 236,241 $ 177,436 Financial services .................................................... 11,805 13,695 Capitalized ........................................................... 1,430 3,028 Amortization of debt cost .................................................. 1,954 (383) 1/3 of rental expense ...................................................... 26,419 16,727 Dividends on convertible preferred stock of subsidiary ..................... -- -- ----------- ----------- Fixed charges .............................................................. 277,849 210,503 Less: Capitalized interest ................................................ (1,430) (3,028) ----------- ----------- Fixed charges as adjusted .................................................. $ 276,419 $ 207,475 =========== =========== Ratio (earnings divided by fixed charges) .................................. 0.85 3.42 =========== ===========
EX-21.1 10 SUBSIDIARIES OF THE COMPANY 1 EXHIBIT 21.1 SUBSIDIARIES OF THE COMPANY
March 15, 2000 OWNERSHIP -------------- ALABAMA Equity Corporation International (DE Corp.) Alabama subsidiaries ECI Cemetery Services, Inc. (DE Corp.) Alabama subsidiaries ECI Alabama Cemetery Services, Inc....................100% ECI Services, Inc. (DE Corp.) Alabama subsidiaries ECI Agency, Inc.......................................100% ECI Alabama Services, Inc.............................100% SCI Funeral Services, Inc. (Iowa Corp) Alabama subsidiaries SCI Alabama Funeral Services, Inc..............................100% EC Land Company, Inc..................................100% Memory Chapel Funeral Homes, Inc......................100% ALASKA SCI Funeral Services, Inc. (Iowa Corp.) Alaska subsidiaries SCI Alaska Funeral Services, Inc...............................100% ARIZONA Equity Corporation International (DE Corp.) Arizona subsidiaries ECI Services, Inc. (DE Corp.) Arizona subsidiaries ECI Services of Arizona, Inc. (DE Corp.) Arizona subsidiaries Memory Chapel, Inc...........................100% Parker Funeral Home, Inc.....................100% SCI Funeral Services, Inc. (Iowa Corp.) Arizona subsidiaries National Cremation Society, Inc................................100% SCI Arizona Funeral Services, Inc..............................100% Arizona Aftercare, Inc................................100% Brown's Colonial Mortuary, Inc........................100% ARKANSAS Equity Corporation International (DE Corp.) Arkansas subsidiaries ECI Services, Inc. (DE Corp.) Arkansas subsidiaries ECI Services of Arkansas, Inc. (DE Corp.) Arkansas subsidiaries Huson Funeral Home, Inc......................100% Nelson Acquisition Company...................100% Steele Funeral Home, Inc.....................100% SCI Funeral Services, Inc. (Iowa Corp) Arkansas subsidiaries SCI Arkansas Funeral Services, Inc.............................100% CALIFORNIA SCI Financial Services, Inc. (DE Corp.) California subsidiary Provident Services, Inc. (DE Corp.) California subsidiary Provident Credit of California, Inc...................100% 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% Eric H. Ramsey Enterprises, Inc.......................100% Lakeside Memorial Lawn................................100% Mount Vernon Memorial Park............................100% Oak Hill Improvement Company..........................100% Pierce Brothers.......................................100% World Funeral Home....................................100% COLORADO SCI Funeral Services, Inc. (Iowa Corp.) Colorado subsidiaries SCI Colorado Funeral Services, Inc.............................100%
2 CONNECTICUT SCI Funeral Services, Inc. (Iowa Corp.) Connecticut subsidiaries SCI Connecticut Funeral Services, Inc..........................100% DELAWARE BestHalf.com, Inc.......................................................100% Christian Funeral Services, Inc.........................................100% Equity Corporation International........................................100% ECI Capital Corporation........................................100% ECI Cemetery Services, Inc.....................................100% ECI Cemetery Management Services, Inc.................100% ECI Cemetery Services of Arkansas, Inc................100% ECI Cemetery Services of California, Inc..............100% ECI Cemetery Services of Illinois, Inc................100% ECI Cemetery Services of Iowa, Inc....................100% ECI Cemetery Services of Maryland, Inc................100% ECI Cemetery Services of Missouri, Inc................100% ECI Cemetery Services of New Mexico, Inc..............100% ECI Cemetery Services of Ohio, Inc....................100% ECI Cemetery Services of Oklahoma, Inc................100% ECI-Sunny Lane, Inc..........................100% ECI Cemetery Services of Oregon, Inc..................100% Lake View Management Company, Inc.....................100% ECI Services, Inc..............................................100% ECI Alabama Services, Inc. (AL Corp.) Delaware subsidiaries ECI-Chapel Hill, Inc.........................100% ECI Management Services, Inc..........................100% ECI-San Jose, Inc.....................................100% ECI Services of Arizona, Inc..........................100% ECI Services of Arkansas, Inc.........................100% ECI Services of California, Inc.......................100% ECI Services of Connecticut, Inc......................100% ECI Services of Florida, Inc..........................100% ECI Services of Georgia, Inc..........................100% ECI Services of Illinois, Inc.........................100% ECI Services of Indiana, Inc..........................100% ECI Services of Iowa, Inc.............................100% ECI Services of Louisiana, Inc........................100% ECI Services of Maine, Inc............................100% ECI Services of Massachusetts, Inc....................100% ECI-Carr Funeral Home, Inc....................49% ECI-Fay McCabe Funeral Home, Inc..............49% ECI-Henderson Funeral Home, Inc...............49% ECI-Rapino Memorial Home, Inc.................49% ECI Services of Minnesota, Inc........................100% ECI Services of Mississippi, Inc......................100% ECI Services of Missouri, Inc.........................100% ECI Services of New Hampshire, Inc....................100% ECI Services of New Jersey, Inc.......................100% ECI Services of New Mexico, Inc.......................100% ECI Services of New York, Inc.........................100% ECI-Conway, Inc..............................100% ECI Services of North Carolina, Inc...................100% ECI Services of North Dakota, Inc.....................100% ECI Services of Ohio, Inc.............................100% ECI Services of Oklahoma, Inc.........................100% ECI Services of Pennsylvania, Inc.....................100% ECI Services of South Carolina, Inc...................100% ECI Services of South Dakota, Inc.....................100%
2 3 ECI Services of Texas, Inc............................100% ECI Services of Vermont, Inc..........................100% ECI Services of Virginia, Inc.........................100% ECI Services of West Virginia, Inc....................100% ECI Services of Wisconsin, Inc........................100% Salvatore Air Transportation Corp.......................................100% SCI Aviation, Inc.......................................................100% SCI Executive Services, Inc.............................................100% SCI Finance Management Inc..............................................100% SCI Financial Services, Inc.............................................100% Making Everlasting Memories, L.L.C..............................80% Provident Services, Inc........................................100% Provident Credit Corp.................................100% Purple Cross Insurance Agency..................................100% SCI Investment Services, Inc...................................100% SCI Funeral Services, Inc. (Iowa Corp.) Delaware subsidiaries First Memorial Funeral Services, Inc...........................100% Gibraltar Mausoleum Construction Company, Inc..................100% IFC-Boyertown, Inc.............................................100% Memorial Guardian Plans, Inc...................................100% SCI Funeral Services, Inc......................................100% SCI Georgia Funeral Services, Inc..............................100% SCI Missouri Funeral Services, Inc. (MO Corp.) Delaware subsidiaries IFC-York, Inc.........................................100% SCI Ohio Funeral Services, Inc. (OH Corp.) Delaware subsidiaries Rose Hill Securities Company..........................100% SCIT Holdings, Inc.............................................100% SCI Texas Funeral Services, Inc.......................100% PSI Funding, Inc.............................100% 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% Kenyon International Emergency Services, Inc...................100% SCI Capital Holdings, Inc.......................................70% SCI Financing Corporation......................................100% SCI GP1, LLC-(DE limited liability company)....................100% SCI GP2, LLC-(DE limited liability company)....................100% TRA Acquisition Corporation....................................100% SCI Special, Inc........................................................100% Remembrance Memorial Traditions, LLC...........................100% SCI Management L.P.....................................99% SCI Administrative Services, LLC...............................100% SCI Management L.P......................................1% International Funeral Services, Inc..........100% SCI European Aviation, Inc...................100% SCI Management Finance Company...............100% SCI Capital Corporation........................................100% Investment Capital Corporation (Texas Corp.) Delaware subsidiaries IFC-YP, Inc..................................100% DISTRICT OF COLUMBIA SCI Funeral Services, Inc. (Iowa Corp.) DC subsidiaries Witzke Funeral Homes, Inc......................................100% FLORIDA Equity Corporation International (DE Corp.) Florida subsidiaries ECI Cemetery Services, Inc. (DE Corp.) Florida subsidiaries ECI Cemetery Services of Florida, Inc. (GA Corp.) FL subsidiaries Beverly Hills Memorial Gardens, Inc..........100%
3 4 ECI Services, Inc. (DE Corp.) Florida subsidiaries ECI Services of Florida, Inc. (DE Corp.) Florida subsidiaries San Jose Funeral Homes, Inc..................100% SCI Funeral Services, Inc. (Iowa Corp) Florida subsidiaries SCI Funeral Services of Florida, Inc...........................100% Dorsey Funeral Home, Inc..............................100% FM Cemetery, Inc......................................100% Fountainhead Memorial Park, Inc.......................100% Gibraltar Mausoleum of Florida, Inc...................100% Hillsboro Memorial Gardens, Inc.......................100% Lakeview Memorial Gardens, Inc........................100% Memorial Plans, Inc...................................100% SCI Georgia Funeral Services, Inc. (DE Corp.) Florida subsidiaries Preferred Funeral Services, Inc. (GA Corp.) Florida subsidiaries Marianna Chapel Funeral Home, Inc............100% GEORGIA Equity Corporation International (DE Corp.) Georgia subsidiaries ECI Cemetery Services, Inc. (DE Corp.) Georgia subsidiaries ECI Cemetery Services of Florida, Inc.................100% ECI Cemetery Services of Georgia, Inc.................100% ECI Cemetery Services of North Carolina, Inc..........100% ECI Cemetery Services of South Carolina, Inc..........100% ECI Services, Inc. (DE Corp.) Georgia subsidiaries ECI Agency, Inc.......................................100% ECI Services of Georgia, Inc. (DE Corp.) Georgia subsidiaries Ryan Funeral Home, Inc.......................100% SCI Funeral Services, Inc. (Iowa corp.) Georgia subsidiaries SCI Georgia Funeral Services, Inc. (Delaware Corp.) Georgia subsidiaries Clark Funeral Home, Inc...............................100% Paulding Memorial Gardens, Inc........................100% Preferred Funeral Services, Inc.......................100% SCI Georgia Land, 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 Equity Corporation International (DE Corp.) Illinois subsidiaries ECI Cemetery Services, Inc. (DE Corp.) Illinois subsidiaries ECI Cemetery Services of Illinois, Inc. (DE Corp.) IL subsidiaries Lake View Memorial Gardens, Inc..............100% Lake View Funeral Home, Inc.........100% ECI Services, Inc. (DE Corp.) Illinois subsidiaries ECI Agency, Inc.......................................100% ECI Services of Illinois, Inc. (DE Corp.) Illinois subsidiaries Marengo-Union Funeral Home, Ltd..............100% Querhammer Funeral Home, Ltd.................100% SCI Funeral Services, Inc. (Iowa Corp.) Illinois subsidiaries SCI Illinois Services, Inc.....................................100% IFS Illinois, Inc.....................................100% Kolbus Funeral Home, Inc..............................100% Vault Company of Illinois, Inc........................100% Willwood Corporation..................................100%
4 5 INDIANA Equity Corporation International (DE Corp.) Indiana subsidiaries ECI Services, Inc. (DE Corp.) Indiana subsidiaries ECI Services of Indiana, Inc. (DE Corp.) Indiana subsidiaries J & J Enterprises, Inc.......................100% Little & Sons, Inc...........................100% Myers Funeral Service, Inc...................100% SCI Funeral Services, Inc. (Iowa Corp.) Indiana subsidiaries SCI Indiana Funeral Services, Inc..............................100% Gold Crusader Insurance Agency, Inc...................100% Indiana Cemetery Services, Inc........................100% Roselawn Memorial Association, Inc....................100% IOWA Equity Corporation International (DE Corp.) Iowa subsidiaries ECI Services, Inc. (DE Corp.) Iowa subsidiaries ECI Services of Iowa, Inc. (DE Corp.) Iowa subsidiaries Willim Funeral Homes, Ltd....................100% SCI Funeral Services, Inc...............................................100% Bunker's Eden Vale, Inc........................................100% SCI Iowa Funeral Services, Inc.................................100% Davenport Memorial Park Inc...........................100% KANSAS SCI Funeral Services, Inc. (Iowa Corp.) Kansas subsidiaries SCI Kansas Funeral Services, Inc...............................100% Services of Kansas, Inc........................................100% KENTUCKY SCI Funeral Services, Inc. (Iowa Corp) Kentucky subsidiaries SCI Kentucky Funeral Services, Inc..............................99% Kentucky Cemetery Services, Inc.......................100% LOUISIANA Equity Corporation International (DE Corp.) Louisiana subsidiaries ECI Services, Inc. (DE Corp.) Louisiana subsidiaries ECI Services of Louisiana, Inc. (DE Corp.) Louisiana subsidiaries Sibille Funeral Home, Inc....................100% SCI Funeral Services, Inc. (Iowa Corp) Louisiana subsidiaries SCI Louisiana Funeral Services, Inc............................100% MAINE Equity Corporation International (DE Corp.) Maine subsidiaries ECI Services, Inc. (DE Corp.) Maine subsidiaries ECI Services of Maine, Inc. (DE Corp.) Maine subsidiaries Birmingham Funeral Home......................100% J. W. Raymond & Son Funeral Home.............100% SCI Funeral Services, Inc. (Iowa Corp) Maine subsidiaries SCI Maine Funeral Services, Inc................................100% MARYLAND SCI Funeral Services, Inc. (Iowa Corp.) Maryland subsidiaries HFH, Inc.......................................................100% Burgee-Henss-Seitz Funeral Home, Inc..................100% Bradley-Ashton-Matthews Funeral Home, Inc.............100% Charles S. Zeiler & Son, 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 Southwest, Inc...........100% John C. Miller, Incorporated..........................100% Lemmon Funeral Home of Dulaney Valley, Inc............100%
5 6 Loring Byers Funeral Directors, Inc...................100% Moran-Ashton-Dabrowski Funeral Home, Inc..............100% Sterling-Ashton-Schwab Funeral Home, Inc..............100% The Dippel Funeral Homes, Incorporated................100% Witzke Funeral Home of Catonsville, Inc...............100% Witzke, Inc................................55.17% SCI Maryland Funeral Services, Inc.............................100% Cedar Lawn Memorial Park, Inc.........................100% George Washington Cemetery Company, Inc...............100% MASSACHUSETTS Equity Corporation International (DE Corp.) Massachusetts subsidiaries ECI Services, Inc. (DE Corp.) Massachusetts subsidiaries ECI Life Insurance Agency, Inc........................100% SCI Financial Services, Inc.(Delaware Corp.) Massachusetts subsidiaries 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% Arthur J. Brunelle Funeral Homes, Inc.................100% Brunelle Funeral Home, Inc.............................40% Langone Funeral Home, Inc..............................40% Messier Funeral Home, Inc..............................40% Perlman Funeral Home, Inc..............................40% Pillsbury Funeral Homes, Inc...........................40% Stanetsky Memorial Chapels, Inc........................40% Sullivan Funeral Homes, Inc............................40% MICHIGAN SCI Funeral Services, Inc. (Iowa Corp) Michigan subsidiaries SCI Michigan Funeral Services, Inc.............................100% A.J. Desmond & Sons Funeral Directors, Inc.............42% Cemetery/Funeral Warehouse Services, Inc..............100% Christian Memorial Funeral Center, Inc................100% MINNESOTA Equity Corporation International (DE Corp.) Minnesota subsidiaries ECI Services, Inc. (DE Corp.) Minnesota subsidiaries ECI Services of Minnesota, Inc. (DE Corp.) Minnesota subsidiaries Bonnerup & Son Funeral Chapel, Inc...........100% SCI Funeral Services, Inc. (Iowa Corp.) Minnesota subsidiaries SCI Minnesota Funeral Services, Inc............................100% Crystal Lake Cemetery Association.....................100% MISSISSIPPI Equity Corporation International (DE Corp.) Mississippi subsidiaries ECI Services, Inc. (DE Corp.) Mississippi subsidiaries ECI Services of Mississippi, Inc. (DE Corp.) Mississippi subsidiaries Nowell Funeral Homes, Inc....................100% Nowell Funeral Services, Inc. of Kosciusko, Mississippi..................................100% Nowell-Robinson Funeral Home, Inc............100% Waters Funeral Home, Inc.....................100% SCI Funeral Services, Inc. (Iowa Corp.) Mississippi subsidiaries SCI Mississippi Funeral Services, Inc..........................100%
6 7 MISSOURI Equity Corporation International (DE Corp.) Missouri subsidiaries ECI Cemetery Services, Inc. (DE Corp.) Missouri subsidiaries ECI Cemetery Services of Missouri, Inc. (DE Corp.) MO subsidiaries The Oak Hill Realty Company..................100% SCI Funeral Services, Inc. (Iowa Corp) Missouri subsidiaries SCI Missouri Funeral Services, Inc.............................100% Memorial Guardian Plans, Inc..........................100% MONTANA NO SUBSIDIARIES NEBRASKA Equity Corporation International (DE Corp.) Nebraska subsidiaries ECI Services, Inc. (DE Corp.) Nebraska subsidiaries ECI Services of Nebraska, Inc.........................100% A.R.C. Corporation...........................100% Wherry Bros., Inc............................100% 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 Equity Corporation International (DE Corp.) New Hampshire subsidiaries ECI Services, Inc. (DE Corp.) New Hampshire subsidiaries ECI Services of New Hampshire, Inc. (DE Corp.) NH subsidiaries Fleury & Patry Funeral Homes, Inc............100% NEW JERSEY Equity Corporation International (DE Corp.) New Jersey subsidiaries ECI Services, Inc. (DE Corp.) New Jersey subsidiaries ECI Services of New Jersey, Inc. (DE Corp.) NJ subsidiaries H.T. Layton & Son Home for Funerals..........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% Blake-Doyle Funeral Home, Inc................100% Garden State Crematory, Inc..................100% Wien & Wien, Inc.............................100% NEW MEXICO Equity Corporation International (DE Corp.) New Mexico subsidiaries ECI Services, Inc. (DE Corp.) New Mexico subsidiaries ECI Agency, Inc.......................................100% SCI Funeral Services, Inc. (Iowa Corp) New Mexico subsidiaries Memorial Guardian Plans, Inc. (DE Corp) New Mexico subsidiaries Ensure Agency of New Mexico, Inc......................100% SCI New Mexico Funeral Services, Inc...........................100% Alameda Funeral Services, Inc.........................100% NEW YORK Equity Corporation International (DE Corp.) New York subsidiaries ECI Services, Inc. (DE Corp.) New York subsidiaries ECI Services of New York, Inc. (DE Corp.) NY subsidiaries Daniel J. Schaefer, Inc......................100% Eldan Holding Corp...........................100% James D. Barrett Funeral Home, Inc...........100% Light's Funeral Home, Inc....................100% North Shore Livery Service, Inc..............100%
7 8 The Kenneth Howe Funeral Home, Inc...........100% SCI Funeral Services, Inc. (Iowa Corp) New York subsidiaries SCI Funeral Services of New York, Inc..........................100% Beth David Memorial Chapel Ltd........................100% Chas. Peter Nagel Inc.................................100% I. J. Morris, Inc.....................................100% Marsellus Casket Company, Inc.........................100% New York Funeral Chapels, Inc.........................100% Thomas M. Quinn & Sons, Inc...........................100% Werst Realty Co. Inc.........................100% SCI Services of New York, Inc..................................100% NORTH CAROLINA SCI Funeral Services, Inc. (Iowa Corp) North Carolina subsidiaries SCI North Carolina Funeral Services, Inc.......................100% NORTH DAKOTA SCI Funeral Services, Inc. (Iowa Corp) North Dakota subsidiaries Memorial Guardian Plans, Inc...................................100% OHIO Equity Corporation International (DE Corp.) Ohio subsidiaries ECI Cemetery Services, Inc. (DE Corp.) Ohio subsidiaries ECI Cemetery Services of Ohio, Inc. (DE Corp.) Ohio subsidiaries Green Hills Management, Inc..................100% ECI Services, Inc. (DE Corp.) Ohio subsidiaries ECI Agency, Inc. (IL Corp.) Ohio subsidiaries ECI Agency, Inc...............................99% ECI Services of Ohio, Inc. (DE Corp.) Ohio subsidiaries Allmon-Dugger and Hively Funeral Home, Inc...100% Gattozzi and Sons Funeral Homes, Inc.........100% Hahn Funeral Home, Inc.......................100% Halteman-Fett & Dyer Funeral Home, Inc.......100% SCI Funeral Services, Inc. (Iowa Corp.) Ohio subsidiaries Memorial Guardian Plans, Inc. (Delaware Corp.) Ohio subsidiaries Ensure Agency of Ohio, Inc............................100% SCI Ohio Funeral Services, Inc..................................90% Ohio Cemetery Services, Inc...........................100% Pioneer of Ohio Insurance Agency, Inc.................100% Selby-Cole Funeral Home, Inc..........................100% STE Acquisition Corp..................................100% Sunset Trust Estate..........................100% The Knollwood Cemetery Company........................100% OKLAHOMA Equity Corporation International (DE Corp.) Oklahoma subsidiaries ECI Services, Inc. (DE Corp.) Oklahoma subsidiaries ECI Services of Oklahoma, Inc. (DE Corp.) Oklahoma subsidiaries Altebaumer Funeral Homes, Inc................100% Anadarko Enterprises, Inc....................100% Gragg & Gragg, Inc...........................100% Ray Smith Funeral Home, Inc..................100% 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% IFC-YP, Inc. (Delaware Corp) Oklahoma subsidiaries IFC-Amedco, Inc. .....................................100% SCI Oklahoma Funeral Services, Inc.............................100% Hillcrest Memorial Park Trust.........................100%
8 9 Memorial Park Cemetery of Bartlesville, Oklahoma, A Business Trust.............................100% Memory Gardens, Inc...................................100% Rose Hill Memorial Park Trust.........................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.(VA Corp.) Oklahoma Subsidiaries SSP Limited Liability Company..........................50% OREGON SCI Financial Services, Inc. (DE Corp.) Oregon subsidiary Provident Services, Inc. (DE Corp.) Oregon subsidiary PSI Oregon, Inc.......................................100% SCI Funeral Services, Inc. (Iowa Corp) Oregon subsidiaries SCI Oregon Funeral Services, Inc...............................100% Uniservice Corporation................................100% PENNSYLVANIA Equity Corporation International (DE Corp.) Pennsylvania subsidiaries ECI Services, Inc. (DE Corp.) Pennsylvania subsidiaries ECI Services of Pennsylvania, Inc. (DE Corp.) PA subsidiaries Mohney-Yargar Funeral Chapel, Inc.-(Old Corp.).............................100% SCI Funeral Services, Inc. (Iowa Corp) Pennsylvania subsidiaries Memorial Guardian Plans, Inc.( Delaware Corp) Pennsylvania subsidiaries Ensure Agency of Pennsylvania, Inc....................100% SCI Pennsylvania Funeral Services, Inc.........................100% Auman Funeral Home, Inc...............................100% Ed Melenyzer Co.......................................100% Forest Lawn Gardens, Inc...............................50% Speer-Anthony Kaprive Funeral Home, Inc.......50% Funeral Corporation Pennsylvania......................100% Laughlin Funeral Home, Ltd...................100% Luther M. Kniffen, Inc.......................100% Rohland Funeral Home.........................100% Grandview Cemetery Association........................100% Harold B. Mulligan Co., Inc...........................100% Remembrance Services, Inc.............................100% Stephen R. Haky Funeral Home, Inc.....................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 SCI Funeral Services, Inc. (Iowa corp.) Rhode Island subsidiaries SCI Rhode Island Funeral Services, Inc.........................100% Max Sugarman Funeral Home, Inc........................100% 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 SCI Financial Services, Inc. (Delaware Corp) South Dakota subsidiaries American Memorial Life Insurance Company.......................100% Rushmore National Life Insurance Company..............100%
9 10 TENNESSEE Equity Corporation International (DE Corp.) Tennessee subsidiaries ECI Cemetery Services, Inc. (DE Corp.) Tennessee subsidiaries ECI Cemetery Services of Tennessee, Inc...............100% Erwin Cemetery Company.......................100% SCI Funeral Services, Inc. (Iowa Corp) Tennessee subsidiaries SCI Tennessee Funeral Services, Inc............................100% Collierville Funeral Home, Inc........................100% Horner 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 Memorial Park, Inc...........................100% TEXAS Equity Corporation International (DE Corp.) Texas subsidiaries ECI Cemetery Services, Inc. (DE Corp.) Texas subsidiaries ECI Cemetery Services of Texas, Inc...................100% Gardens of Memories Memorial Park of Lufkin, Inc..................................100% ECI Services, Inc. (DE Corp.) Texas subsidiaries ECI Services of Texas, Inc. (DE Corp.) Texas subsidiaries Gipson Funeral Home, Inc.....................100% Equity Corporation International of Texas.............100% Huntsville Funeral Home, Inc..........................100% JPH Properties, Inc...................................100% Professional Funeral Associates, Inc..................100% Vandiver Funeral Home, Inc.....................................100% SCI Funeral Services, Inc. (Iowa Corp) Texas subsidiaries SCIT Holdings, Inc. (Delaware Corp.) Texas subsidiaries SCI Texas Funeral Services, Inc. (DE Corp.) Texas subsidiaries EFH, Inc.....................................100% Guadalupe Valley Memorial Park...............100% SCI Holdings of Texas, Inc...................100% West Oaks Funeral Home, Inc..................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% VERMONT Equity Corporation International (DE Corp.) Vermont subsidiaries ECI Services, Inc. (DE Corp.) Vermont subsidiaries ECI Life Insurance Agency, Inc........................100% VIRGINIA Equity Corporation International (DE Corp.) Virginia subsidiaries ECI Cemetery Services, Inc. (DE Corp.) Virginia subsidiaries ECI Cemetery Services of Virginia, Inc................100% Sunset Cemetery, Inc.........................100% SCI Funeral Services, Inc. (Iowa Corp.) Virginia subsidiaries
10 11 Memorial Guardian Plans, Inc. (Delaware Corp) Sentinel Security Plans, Inc..........................100% SCI Virginia Funeral Services, Inc.............................100% The Stonewall Memory Gardens Incorporated.............100% WASHINGTON SCI Funeral Services, Inc. (Iowa Corp.) Washington subsidiaries SCI Washington Funeral Services, Inc...........................100% Ball & Dodd Funeral Home, Inc.........................100% WEST VIRGINIA SCI Funeral Services, Inc. (Iowa Corp.) West Virginia subsidiaries SCI West Virginia Funeral Services, Inc........................100% Rosedale Cemetery Company.............................100% Rosedale Funeral Chapel, Inc..........................100% Sunset Services, Inc..................................100% WISCONSIN Equity Corporation International (DE Corp.) Wisconsin subsidiaries ECI Services, Inc. (DE Corp.) Wisconsin subsidiaries ECI Services of Wisconsin, Inc. (DE Corp.) Wisconsin subsidiaries Fuller-Speckien Funeral Home, Inc............100% Schramka Funeral Homes, Inc..................100% Steinhaus Funeral Home, Inc..................100% SCI Funeral Services, Inc. (Iowa Corp.) Wisconsin subsidiaries SCI Wisconsin Funeral Services, Inc............................100% ATK Corporation.......................................100% WYOMING SCI Funeral Services, Inc. (Iowa Corp.) Wyoming subsidiaries Memorial Guardian Plans, Inc...................................100% CANADA Equity Corporation International (DE Corp.) Ohio subsidiaries ECI Capital Corporation (DE Corp.) Canadian subsidiaries ECI Capital Corporation Limited-(Alberta).............100% ECI Services of Canada Limited-(Saskatchewan).........100% 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-(ON).......................100% Can Ensure Group, Inc.-(Federal)......................100% Centre Funeraire Cote-des-Neiges Inc.-(Quebec).........49% CFCDN Holdings Inc.-(Quebec)..........................100% Hong Kong Funeral Homes B.C. Ltd.(British Columbia)...100% International Funeral Parlours B.C. Ltd.-(B.C.).......100% Jerrett Funeral Chapels Corporation-(ON)..............100% Maison Funeraire Daniel Brunet Inc.-(Quebec)..........100% S.C.I.C. (Quebec) Holdings, Ltd.-(Quebec).............100% SCI Holdings Canada, Inc.-(Federal)...................100% SCI Northwest Region, Inc.-(B.C.).....................100% World Funeral Home B.C. Ltd.-(British Columbia).......100% Service Corporation International Capital Funding Ltd.-(AL)....100% 611102 Saskatchewan Ltd........................................100% ARGENTINA SCI International Limited (Delaware Corp.) Argentina subsidiaries SCI Latin America Ltd. (Cayman Island Corp.) Argentina subsidiaries Jardine de Pilar SA...................................100% Betti SACI...................................100% Casa Cordoba 1800 SA.........................100% Casa Lazro Costa SA..........................100% Lazaro Costa SA..............................100%
11 12 MI-TO-DO SA..................................100% O'Higgins SA.................................100% Principal SA.................................100% SCI Argentina SA.............................100% TRA Acquisition Corp.(Delaware Corp.) Argentina subsidiaries Jardin de Paz SA......................................100% Interparques SA............................33.33% Parque del Campanario SA..............................100% Interparques SA............................33.33% Parque Lujan S.A...........................33.33% Parque Lujan S.A....................................33.33% Solaz S.A.............................................100% Interparques SA............................33.33% Parque Lujan S.A...........................33.33% AUSTRALIA SCI International Limited (Delaware Corp.) Australia subsidiaries Service Corporation International Australia Pty., Ltd..........100% Australian Cremation Society Pty Limited..............100% Beresfield Funerals Pty Limited.......................100% Cremations (Newcastle) Holdings Pty. Ltd..............100% Kitleaf Pty Limited...................................100% Labor Funerals Contribution Fund Pty Limited..........100% Mead & Purslowe Pty. Ltd..............................100% Mead & Purslowe Trading Trust.........................100% Memorial Guardian Plan Pty Limited....................100% Metro. Burial & Cremation Society Funeral Cont. Fund..100% New South Wales Cremation Company Pty., Ltd...........100% Pine Grove Forest Lawn Funeral Benefit Co. Pty Limited...............................................100% Purslowe Custodians Pty. Ltd..........................100% BELGIUM SCI International Limited (Delaware Corp.) Belgium subsidiaries SCI Continental Europe SA (French Corp.) Belgium subsidiaries RLC (French Corp.) Belgium subsidiaries OGF SA (French Corp.)Belgium subsidiaries SCI Belgium ..........................99% B. & C. Nyutten B.V..............100% Camilla Belgium N.V..............100% Diana Belgium N.V................100% Enterprises Dethier..............100% Sophia Belgium N.V...............100% Timmerman........................100% Uitvaartverzorging Joosen BVBA...100% Van Dooren.......................100% CAYMAN ISLANDS SCI International Limited (Delaware Corp.) Cayman Island subsidiaries SCI Latin America Ltd.........................................100% SCI Cayman II Ltd....................................100% CHILE SCI International Limited (Delaware Corp.) Chile subsidiaries SCI Latin America Ltd. (Cayman Island Corp.) Chile subsidiaries Service Corporation International Chile Limitada.....100% Administradora Los Parques SA................57% Inversiones Austral SA......................100% Administradora Los Parques SA........43% Los Parques SA..............................100% Cinerario Ltda.......................49% Previsora SA................................100%
12 13 CZECH REPUBLIC SCI International Limited (Delaware Corp.) Czech Republic subsidiaries SCI Continental Europe SA (French Corp.) Czech Republic subsidiaries RLC (French Corp.) Czech Republic subsidiaries OGF SA (French Corp.) Czech Republic subsidiaries PAX......................................54% FRANCE SCI International Limited (Delaware Corp.) French subsidiaries SCI Continental Europe SA.........................................100% RLC....................................................99.99% OGF SA..........................................100% AGIER...................................100% ALLIO...................................100% AS COLOMBE..............................100% AUGIVAL...............................95.30% AUXIA Groupe..........................99.96% AUXIA Assistance.............99.95% AUXIA Immobilier...............100% CAF.....................................100% CEDRONI.................................100% CGPF..................................99.78% CGSM..................................99.88% CRELOR..................................100% EDIL....................................100% GARGAS................................97.60% Cie Pradel...................99.58% SARL Pompes Funebres...........100% Montpellieraines A. Gines......100% SARL SPFBN.....................100% SA SPFCR.......................100% GFPL..................................62.19% GIE DIGNITE.............................100% GIE GNEPF...............................100% GIE THANATO.............................100% GIMOSETH................................100% GRAUGNARD...............................100% MARTIN-CHAZEL...........................100% Mie RENNAISE............................100% Mries Lescarcelle.......................100% PF Garonne............................99.99% SEMAFEC.................................100% S.E. Mbries Surget....................99.99% Seuropras.............................99.20% SOMOTHA...............................98.63% SPPF Walter...........................57.61% VIEUX MOULIN............................100% GERMANY SCI International Limited (Delaware Corp.) Germany subsidiaries SCI D GmbH........................................................100% Bremen...................................................100% Jean Haas................................................100% Suddeutsche Bestattungsgesellschaft......................100% Thomas Amm GmbH..........................................100% Westdeutsche Bestattungsgesellschaft.....................100% IRELAND SCI International Limited (Delaware Corp.) Ireland subsidiaries SCI Holdings Ireland Ltd..........................................100% Jennings & Company (Ireland) Limited..............................100%
13 14 Jennings & Company Limited......................................100% Lemford Limited........................................100% T Stafford & Son Limited..................................................25% ITALY SCI International Limited (Delaware Corp.) Italy subsidiaries SCI Continental Europe SA (French Corp.) Italy subsidiaries RLC (French Corp.) Italy subsidiaries OGF SA (French Corp.) Italy subsidiaries F.I.S. (Netherlands Corp.) Italy subsidiaries OFISA.........................................100% Franceschini.............................100% OFT.......................................98% MALAYSIA SCI International Limited (Delaware Corp.) Malaysia subsidiaries SCI Continental Europe SA (French Corp.) Malaysia subsidiaries RLC (French Corp.) Malaysia subsidiaries OGF SA (French Corp.) Malaysia subsidiaries F.I.S. (Netherlands Corp.) Malaysia subsidiaries Bahau Funeral Services SDN BHD..............33.33% Bahau Memorial Park SDN BHD.................16.67% Singapore Casket Company PLC(Singapore) Malaysia subsidiaries Bahau Funeral Services SDN BHD..............33.33% Bahau Memorial Park SDN BHD.................16.67% Bahau Funeral Services SDN BHD.........33.33% Enlightened Transition Sdn Bhd...........................................100% NETHERLANDS SCI International Limited (Delaware Corp.) Netherlands subsidiaries SCI Continental Europe SA (French Corp.) Netherlands subsidiaries RLC (French Corp.) Netherlands subsidiaries OGF SA (French Corp.) Netherlands subsidiaries F.I.S..............................................95% Libitina Groep B.V................................100% SCI Nederland B.V.................................100% Ad Sanctos B.V................................100% Eenvoud B.V...................................100% Exploitatiemaatschappij Nijenheim B.V.........100% Centrale Uitvaartmij Nederland...........100% BV Heerlen..........................100% Goes BV.............................100% Van Kerkvoorde BV...................100% Crematorium Temeuzen BV.........100% Uitvaartcentrum Heemskerk Konig BV........................100% Vink B.V............................100% Noordveld BV.............................100% Van Gestek B.V...........................100% Via Nova BV..............................100% Voomeveld BV.............................100% H. Ogler B.V..................................100% Oud Eik en Duinen B.V.........................100% Rouw-en Condoleancecentrum B.V................100% Soek & Zn B.V.................................100% Tebbenhoff B.V................................100% T. Statenhuys B.V.............................100% Uitvaartverzorging W.P. VanDer Togt B.V.......100%
14 15 SCI Finance C.V...............................100% Soek Uitvaartverzorging B.V...................100% NORWAY SCI International Limited (Delaware Corp.) Norway subsidiaries SCI Norway...............................................................100% Sorensen & Kristiansand Begravelsesbyra.........................100% PANAMA SCI International Limited (Delaware Corp.) Panama subsidiaries SCI Latin America Ltd. (Cayman Island Corp.) Panama subsidiaries Service Corporation International Chile Limitada (Chile Corp.) Panama subsidiaries Los Parques International SA...........................100% PORTUGAL SCI International Limited (Delaware Corp.) Portugal subsidiaries J Salgado Figueira (Successores), SA.....................................100% Afuneportugal-Acrividades Funerarias............................100% A Funeraria Da Amoreira, Lda....................................100% Agencia Funeraria da Penha de Franca, Lda.......................100% Agencia Funeraria De Lourel Sintra..............................100% Agencia Funeraria Melo, Lda.....................................100% Agencia Funeraria Migueis, Lda..................................100% Agencia Louis Duarte & Assis E. Sobreirol.......................100% Agencia Nobel...................................................100% Alfredo Magno & Jaime Gomes, Lda................................100% SINGAPORE SCI International Limited (Delaware Corp.) Singapore subsidiaries SCI Continental Europe SA (French Corp.) Singapore subsidiaries RLC (French Corp.) Singapore subsidiaries OGF SA (French Corp.) Singapore subsidiaries Singapore Casket Company PLC.................67.57% Casket Palace Company PLC.............100% SPAIN SCI International Limited (Delaware Corp.) Spain subsidiaries CIA Gral Servicios Funerarios, S.A.(Barna)...............................100% Pompas Funebres Girona, S.L.....................................100% Funeraria Poch, S.A....................................100% Servei Comarcal de Pompes Funebres, S.A................100% Pompas Funebres Sevilla, S.L....................................100% Pompas Funebres La Nueva, S.L..........................100% SCI Servicios Funerarios, S.A...................................100% Virgen del Rosarios, S.L...............................100% Funeraria Gaditanas Asociadas SA................49% Servicios Funerarios Turia, S.A.................................100% Funlis, S.L............................................100% Servipublic, S.L................................90% Funeraria La Fe Guadalajara, S.L.........................................100% Ambulancias Herranz SA..........................................100% Servicios Funerarios de Guadalajara, NSA, S.A..........100% Funeraria Oromana........................................................100% Funeraria Ruiz SL........................................................100% Fupalsa..................................................................100% SCI Continental Europe SA (French Corp.) Spain subsidiaries RLC (French Corp.) Spain subsidiaries OGF SA (French Corp.) Spain subsidiaries Pompas Funebres Mediterraneas, S.L.............100% Servicios Funerarios Barcelona, S.A...100% SCIV Torrente............................................................100% Servicios Funerarios Boix SL....................................100%
15 16 Servicios Funerarios de Fucasa..........................................100% Servicios Funerarios de Zaragoza S.A....................................100% Pompes Funebres de Zaragoza, S.A................................90% Servicios Funerarios de Torrero SA.....................45% Servicios Generales de Sevilla SL.......................................100% SWITZERLAND SCI International Limited (Delaware Corp.) Switzerland subsidiaries SCI Continental Europe SA (French Corp.) Switzerland subsidiaries RLC (French Corp.) Switzerland subsidiaries OGF SA (French Corp.) Switzerland subsidiaries Omnium de Services et de Financement SA........99% PFG Lausanne SA........................95% Alea Prevoyance Funeraire SA......100% Allegemeine Bestattungs AG........100% Bestattungsdienst Hedy Linder-Walther AG.................100% Bestattungsdienst Josef Mulhauser AG................................100% Bestattungsinstitut Willy Gerber AG-Olten..........................100% Cerba SA..........................100% Pompes Funebres Amoos SA..........100% Pompes Funebres de St. Laurent SA................................100% Pompes Funebres Gaillard Et Pittet SA......................100% Pompes Funebres Gavillet SA.......100% Pompes Funebres Lemania SA........100% Pompes Funebres Monney SA.........100% Pompes Funebres Perusset SA.......100% Pompes Funebres Voeffray SA.......100% Pompes Funebres Wasserfallen SA...100% Utiger & Ryf Bestattungs AG.......100% UNITED KINGDOM SCI International Limited (Delaware Corp.) United Kingdom subsidiaries Service Corporation International PLC...................................100% Birkbeck Securities Limited....................................100% Management Europe Gen Limited.........................100% SCI Funerals Limited..................................100% SCI Pre-arrangements Limited..........................100% Advanced Planning Limited......................75% Dignity Limited.................................................95% Lanecliff Limited..............................................100% Pitcher and LeQuesne Limited...................................100% Swift & Mildred Limited.........................................95% URUGUAY SCI International Limited (Delaware Corp.) Uruguay subsidiaries SCI Latin America Ltd. (Cayman Island Corp.) Uruguay subsidiaries Service Corporation International Chile Limitada (Chile Corp.) Uruguay subsidiaries Los Parques International SA (Panama Corp.) Uruguay subsidiaries Berkley SA..................................88.89% Coral TreBol................................88.70% Pidanol SA..................................91.17% Rensolar SA.................................91.17% Vigar SA....................................88.89%
16 EX-23.1 11 CONSENT OF PRICEWATERHOUSECOOPERS LLP 1 EXHIBIT 23.1 SERVICE CORPORATION INTERNATIONAL 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. 333-65711), Form S-4 (File No. 333-01857) and Form S-8 (File Nos. 333-33101, 333-00177, 333-00179, 33-9790, 33-17982, 333-68683, 333-82475, 333-70983, and 33-50987) of our report dated March 29, 2000, on our audits of the consolidated financial statements and financial statement schedule of Service Corporation International as of December 31, 1999 and 1998, and for each of the three years in the period ended December 31, 1999, which report is included in this Annual Report on Form 10-K. /s/ PricewaterhouseCoopers LLP Houston, Texas March 29, 2000 EX-24.1 12 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 Jeffrey E. Curtiss 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, 1999 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 10th day of February, 2000. /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 James M. Shelger his true and lawful attorney and agent 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, 1999 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 10th day of February, 2000. /s/ Jeffrey E. Curtiss -------------------------------- JEFFREY E. CURTISS 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 Jeffrey E. Curtiss and James M. Shelger his true and lawful attorney and agent 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, 1999 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 10th day of February, 2000. /s/ W. Cardon Gerner -------------------------------- W. CARDON GERNER 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 Jeffrey E. Curtiss 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, 1999 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 10th day of February, 2000. /s/ Anthony L. Coelho -------------------------------- ANTHONY L. COELHO 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 Jeffrey E. Curtiss 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, 1999 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 10th day of February, 2000. /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 Jeffrey E. Curtiss 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, 1999 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 10th day of February, 2000. /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 Jeffrey E. Curtiss 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, 1999 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 10th day of February, 2000. /s/ James H. Greer -------------------------------- JAMES H. GREER 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 Jeffrey E. Curtiss 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, 1999 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 10th day of February, 2000. /s/ B. D. Hunter -------------------------------- B. D. HUNTER 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 Jeffrey E. Curtiss 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, 1999 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 10th day of February, 2000. /s/ Victor L. Lund -------------------------------- VICTOR L. LUND 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 Jeffrey E. Curtiss 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, 1999 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 10th day of February, 2000. /s/ John W. Mecom, Jr. -------------------------------- JOHN W. MECOM, JR. 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 Jeffrey E. Curtiss 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, 1999 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 10th day of February, 2000. /s/ Clifton H. Morris, Jr. -------------------------------- CLIFTON H. MORRIS, 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 Jeffrey E. Curtiss 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, 1999 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 10th day of February, 2000. /s/ E. H. Thornton, Jr. -------------------------------- E. H. THORNTON, 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 Jeffrey E. Curtiss 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, 1999 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 10th day of February, 2000. /s/ W. Blair Waltrip -------------------------------- W. BLAIR WALTRIP 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 Jeffrey E. Curtiss 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, 1999 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 10th day of February, 2000. /s/ Edward E. Williams -------------------------------- EDWARD E. WILLIAMS EX-27.1 13 FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE CONSOLIDATED BALANCE SHEET OF SERVICE CORPORATION INTERNATIONAL AS OF DECEMBER 31, 1999 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-31-1999 JAN-01-1999 DEC-31-1999 88,221 1,267,008 2,341,910 174,365 190,343 996,151 2,468,491 586,966 14,601,601 1,057,865 3,636,067 0 0 272,064 3,223,209 14,601,601 3,103,542 3,321,813 2,497,058 2,708,054 644,204 70,003 250,000 (37,690) (3,393) (34,297) 0 1,885 0 (32,412) (.12) (.12)
EX-99.1 14 COMPETITIVE ADVANCE & REVOLVING CREDIT FACILITY 1 EXHIBIT 99.1 COMPETITIVE ADVANCE AND REVOLVING CREDIT FACILITY AGREEMENT (FACILITY A) THIS COMPETITIVE ADVANCE AND REVOLVING CREDIT FACILITY AGREEMENT (FACILITY A) dated as of June 27, 1997, among: (a) SERVICE CORPORATION INTERNATIONAL, a Texas corporation (the "Company"); (b) the Borrowing Subsidiaries, as herein defined, that become party hereto; (c) the banks and other financial institutions named under the caption "Banks" on the signature pages hereof (such banks together with each other Person who becomes a Bank pursuant to Section 9.11, collectively, the "Banks"); (d) THE CHASE MANHATTAN BANK, a New York banking corporation, as administrative agent for the Banks (in such capacity together with any other Person who becomes the Administrative Agent pursuant to Section 7.06, the "Administrative Agent"); and (e) BANK OF AMERICA ILLINOIS, CITIBANK, N.A., NATIONSBANK, N.A., ROYAL BANK OF CANADA, SOCIETE GENERALE, and UNION BANK OF SWITZERLAND (collectively the "Co-Agents"). P R E L I M I N A R Y S T A T E M E N T The Company has requested that the Banks extend a credit facility to the Company and the Borrowing Subsidiaries in order to enable the Company and the Borrowing Subsidiaries to borrow on a revolving credit basis on and after the date hereof, on the terms and conditions set forth herein, a principal amount not in excess of $300,000,000 at any time outstanding. The Company has also requested that the Banks provide a procedure pursuant to which each Bank may, on an uncommitted basis, bid up to the full amount of the Total Commitment (as herein defined), regardless of such Bank's individual Commitment, on borrowings by the Company and the Borrowing Subsidiaries thereunder. The proceeds of all such borrowings are to be used for general corporate purposes of the Borrowers including credit support for the Company's commercial paper program. The Banks are willing to extend such credit to the Company and the Borrowing Subsidiaries on the terms and subject to the conditions herein set forth. Accordingly, the Company, the Borrowing Subsidiaries, the Banks and the Administrative Agent agree as follows: FACILITY A 2 ARTICLE I DEFINITIONS, ACCOUNTING TERMS AND CONSTRUCTION SECTION 1.01. Certain Defined Terms. As used in this Agreement, the following terms shall have the following meanings: "ABR Borrowing" means a Borrowing comprised of ABR Loans. "ABR Loan" means any Committed Loan bearing interest at a rate determined by reference to the Alternate Base Rate in accordance with the provisions of Article II. "Acquisition" means the acquisition by the Company or any of its Subsidiaries of a business, including any assets, leases and liabilities (contingent or otherwise) related thereto, either by the cash purchase of stock or assets or by an exchange or issuance of securities (including merger) or assumption of liabilities or by a combination thereof. "Administrative Agent" has the meaning specified in the introduction to this Agreement. "Administrative Questionnaire" means an Administrative Questionnaire in the form of Exhibit 1.01A, which each Bank shall complete and provide to the Administrative Agent and the Company. "Affiliate" means, when used with respect to any Person, any other Person which controls or is controlled by or is under common control with such Person. As used in this definition, "control" means the possession, directly or indirectly, of power to direct or cause the direction of management or policies (whether through ownership of securities or partnership or ownership interests, by contract or otherwise). "Agent's Fee Letter" means the fee letter agreement dated April 29, 1997 between the Company and the Administrative Agent. "Agreement" means this Competitive Advance and Revolving Credit Facility Agreement (Facility A). "Alternate Base Rate" means, for any date, a rate per annum (rounded upwards, if necessary, to the next 1/16 of 1%) equal to the greater of (a) the Prime Rate in effect on such day and (b) the Federal Funds Effective Rate in effect on such day plus 1/2 of 1%. "Prime Rate" means, as of a particular date, the prime rate most recently determined by the Administrative Agent at the Principal Office, automatically fluctuating upward and downward with and at the time specified in FACILITY A -2- 3 each such announcement without notice to any Borrower or any other Person, which prime rate may not necessarily represent the lowest or best rate actually charged to a customer. "Federal Funds Effective Rate" means, for any day, the weighted average of the rates on overnight federal funds transactions with members of the Federal Reserve System arranged by federal funds brokers, as published for such day (or, if such day is not a Business Day, for the next preceding Business Day) by the Federal Reserve Bank of New York, or, if such rate is not so published for any day which is a Business Day, the average of the quotations for such day on such transactions received by the Administrative Agent from three federal funds brokers of recognized standing selected by it. If for any reason the Administrative Agent shall have determined (which determination, made in good faith, shall create a rebuttable presumption that the same is accurate) that it is unable to ascertain the Federal Funds Effective Rate for any reason, including the inability or failure of the Administrative Agent to obtain sufficient quotations in accordance with the terms hereof, the Alternate Base Rate shall be determined without regard to clause (b) of the first sentence of this definition until the circumstances giving rise to such inability no longer exist. Any change in the Alternate Base Rate due to a change in the Prime Rate or the Federal Funds Effective Rate shall be effective on the effective date of such change in the Prime Rate or the Federal Funds Effective Rate, respectively. "Applicable Creditor" has the meaning specified in Section 9.17. "Applicable Lending Office" means, with respect to each Bank, such Bank's Domestic Lending Office in the case of an ABR Loan or a Fixed Rate Loan and such Bank's Eurodollar Lending Office in the case of a Eurodollar Loan. "Assignment and Acceptance" has the meaning specified in Section 9.11(c). "Assurance" means, as to any Person, any guaranty or other contingent liability of such Person (other than any endorsement for collection or deposit in the ordinary course of business) including, without limitation, contingent liabilities as an account party in respect of letters of credit, direct or indirect, with respect to any obligation of another Person, through an agreement or otherwise, including (a) any endorsement or discount with recourse or other undertaking substantially equivalent to or having economic effect similar to a guarantee in respect of any such obligation and (b) any agreement (i) to purchase, or to advance or supply funds for the payment or purchase of, any such obligation, (ii) to purchase, sell or lease property, products, materials or supplies, or transportation or services, in order to enable such other Person to pay any such obligation or to assure the owner thereof against loss regardless of the delivery or non-delivery of the property, products, materials or supplies or transportation or services or (iii) to make any loan, advance or capital contribution to or other investment in, or to otherwise provide funds to or for, such other Person in order to enable such Person to satisfy any obligation (including any liability for a dividend, stock liquidation payment or expense) or to assure a minimum equity, working capital or other balance sheet condition for the benefit of the holder of any such obligation. Notwithstanding the foregoing, the term "Assurance" shall not include any guaranty or other FACILITY A -3- 4 contingent liability, direct or indirect, with respect to (u) bonds, indemnity agreements and similar arrangements which are provided to assure that the Company and its Subsidiaries fully perform their obligations regarding prearranged funeral services and goods and/or construction of burial facilities, (v) obligations of a Person acquired, or of a business which has been acquired, in an Acquisition, provided that such obligations arose prior to such Acquisition and were not created, incurred or assumed in contemplation thereof, (w) obligations of a Subsidiary arising from an Acquisition, (x) any duly authorized registered guaranty of the Company of a promissory note of its Subsidiary issued or to be issued with respect to an Acquisition in accordance with an Indenture dated as of May 1, 1970, executed and delivered between the Company and TCB, as Trustee, (y) Letters of Credit, or (z) obligations of the Company under the Enhancement Agreements. In no event shall any unfunded commitment extended by Provident in the ordinary course of its business of extending financing to the death care industry be considered an Assurance and the loans and advances made by Provident pursuant to any such commitment shall constitute investments and not Assurances. The amount of any Assurance shall be equal to the outstanding amount of the obligation directly or indirectly guaranteed (to the full extent of the obligation in respect of which such Assurance is given or the maximum liability in respect of such Assurance of the Person giving the same, whichever shall be less). "Assured Obligation" means, as to any Person, any amount guaranteed or otherwise supported by such Person pursuant to an Assurance. "Bank of America" means Bank of America National Trust and Savings Association. "Banks" has the meaning specified in the introduction to this Agreement. "Board" means the Board of Governors of the Federal Reserve System of the United States. "Borrowers" means the Company and the Borrowing Subsidiaries. "Borrowing" means a Loan or group of Loans of a single Type made by the Banks (or, in the case of a Competitive Borrowing, by the Bank or Banks whose Competitive Bids have been accepted pursuant to Section 2.03) on a single date and as to which a single Interest Period is in effect. "Borrowing Date" means, with respect to each Borrowing made pursuant to Section 2.03 or Section 2.04, the Business Day upon which the proceeds of such Borrowing are to be made available to a Borrower. FACILITY A -4- 5 "Borrowing Subsidiary" means any Wholly-owned Subsidiary of the Company (other than an Inactive Subsidiary) designated as a Borrowing Subsidiary by the Company pursuant to Section 2.22. "Borrowing Subsidiary Counterpart" has the meaning specified in Section 2.22. "Business Day" means any day other than a Saturday, Sunday or legal holiday in the State of New York or Texas or other day on which banks in New York City or in Houston, Texas are required or authorized by law to close; provided, however, that, when used in connection with a Eurodollar Loan, the term "Business Day" shall also exclude any day on which banks are not open for dealings in dollar deposits in the London interbank market. "Capital Lease" means, as to any Person, any lease in respect of which the obligations of such Person constitute Capitalized Lease Obligations. "Capitalized Lease Obligations" means, as to any Person, all lease obligations which shall have been or should be, in accordance with GAAP, capitalized on the books of such Person. "Chase" means The Chase Manhattan Bank, a New York banking corporation and the successor to Chemical Bank, a New York banking corporation. "Co-Agents" has the meaning specified in the introduction to this Agreement. "Code" means the Internal Revenue Code of 1986 and the regulations promulgated thereunder. "Commitment" means, with respect to each Bank, the amount set forth beneath the name of such Bank on the signature pages hereof (or, as to any Person that becomes a Bank after the Execution Date, on the signature page of the Assignment and Acceptance executed by such Person), as such amount may be permanently terminated or reduced from time to time pursuant to Section 2.12, Section 2.14, Section 2.15 or Section 9.11, and as such amount may be increased from time to time by assignment or assumption pursuant to Section 2.14, Section 2.15 or Section 9.11. The Commitment of each Bank shall automatically and permanently terminate on the Maturity Date. "Committed Borrowing" means a borrowing consisting of concurrent Committed Loans from each of the Banks pursuant to Section 2.04 distributed ratably among the Banks in accordance with their respective Commitments or resulting from a conversion or continuation of an existing Committed Borrowing pursuant to Section 2.06. "Committed Borrowing Request" has the meaning specified in Section 2.04. FACILITY A -5- 6 "Committed Loans" means the revolving loans made by the Banks to the Company pursuant to Section 2.04. Each Committed Loan shall be a Eurodollar Committed Loan or an ABR Loan. "Communications" has the meaning specified in Section 9.02. "Company" has the meaning specified in the introduction to this Agreement. "Company Financials" has the meaning specified in Section 4.07. "Competitive Bid" means an offer by a Bank to make a Competitive Loan pursuant to Section 2.03. "Competitive Bid Rate" means, as to any Competitive Bid made by a Bank pursuant to Section 2.03(b), (i) in the case of a Eurodollar Competitive Loan, the Margin (which will be added to or subtracted from the IBO Rate), and (ii) in the case of a Fixed Rate Loan, the fixed rate of interest, in each case, offered by the Bank making such Competitive Bid. "Competitive Bid Request" means a request for Competitive Bids made pursuant to Section 2.03 in the form of Exhibit 2.03A. "Competitive Borrowing" means a borrowing consisting of a Competitive Loan or concurrent Competitive Loans from each Bank whose Competitive Bid as all or as a part of such borrowing, as the case may be, has been accepted by a Borrower under the bidding procedure described in Section 2.03. "Competitive Loan" means a Loan from a Bank to a Borrower pursuant to the bidding procedure described in Section 2.03, and shall be either a Eurodollar Competitive Loan or a Fixed Rate Loan. "Consolidated Assets" means, as to any Person, total consolidated assets (including assets subject to Capital Leases) of such Person and of its Consolidated Subsidiaries, as determined in accordance with GAAP. "Consolidated Debt" means the Debt of the Company and its Consolidated Subsidiaries. "Consolidated Net Income" means consolidated net income (after taxes) of the Company and its Consolidated Subsidiaries determined in accordance with GAAP. FACILITY A -6- 7 "Consolidated Subsidiary" means, with respect to any Person, each Subsidiary of such Person the accounts of which are or should be consolidated with the accounts of such Person in reporting the consolidated financial statements of such Person in accordance with GAAP. "Debt" means, when used with respect to any Person, without duplication, (a) all indebtedness of such Person for borrowed money (whether by loan or the issuance and sale of debt securities) or for the deferred purchase price of property or services (excluding, however, Letter of Credit Obligations of such Person), (b) all indebtedness created or arising under any conditional sale or other title retention agreement with respect to property acquired by such Person (even though the rights and remedies of the seller or lender under such agreement in the event of default are limited to repossession or sale of such property), (c) all Capitalized Lease Obligations of such Person, (d) all obligations of such Person in respect of interest rate protection agreements, foreign currency exchange agreements or other similar agreements and arrangements (the amount of any such obligation to be the amount that would be payable upon the acceleration, termination or liquidation thereof), (e) liabilities in respect of unfunded vested benefits under Plans, and (f) all Debt of such Person referred to in clause (a), (b) (c) or (d) above secured by (or for which the holder of such Debt has an existing right, contingent or otherwise to be secured by) any Lien upon or interest in property (including accounts and general intangibles, as such terms are defined in the Uniform Commercial Code in effect in the State of New York) owned by such Person, even though such Person has not assumed or become liable for the payment of such Debt. For purposes of this Agreement, the term "Debt" shall exclude (i) Operating Lease Obligations and (ii) obligations in respect of agreements and arrangements described in clause (d) above to the extent (and only to the extent) such agreements and arrangements are entered into to protect such Person and its Subsidiaries against interest rate and exchange rate risks related to their respective businesses, and not for speculative purposes. "Default" means the occurrence of any event which with the giving of notice or the passage of time or both could become an Event of Default. "Document" has the meaning specified in Section 8.02. "Dollars","dollars" and the symbol "$", without more, mean the lawful currency of the United States of America. "Domestic Lending Office" means, with respect to any Bank, the office of such Bank specified as its "Domestic Lending Office" on such Bank's signature page to this Agreement or, as to any Person who becomes a Bank after the Execution Date, on the signature page of the Assignment and Acceptance executed by such Person or such other office of such Bank as such Bank may hereafter designate from time to time as its "Domestic Lending Office" by notice to the Company and the Administrative Agent. FACILITY A -7- 8 "Effective Date" means the date on which the conditions to borrowing set forth in Article III are first met. "Eligible Assignee" means (a) any Bank or any Affiliate of a Bank; (b) a commercial bank organized or licensed under the laws of the United States, or any state thereof, and having total assets in excess of $1,000,000,000; (c) a commercial bank organized under the laws of any other country which is a member of the OECD, or a political subdivision of any such country, and having total assets in excess of $1,000,000,000; provided that such bank is acting through a branch or agency located in the country in which it is organized or another country which is also a member of the OECD; (d) the central bank of any country which is a member of the OECD; and (e) any other lender approved by the Administrative Agent and the Company (which approval shall not be unreasonably withheld). "Enforcement Subsidiary" means, as to Provident, any Wholly-owned Subsidiary formed by Provident for the purpose of foreclosing or otherwise realizing upon the assets securing obligations due to Provident pursuant to investments made by Provident. "Enhancement Agreements" means the Support Agreements, the Inducement Agreement and all other similar agreements. "ERISA" means the Employee Retirement Income Security Act of 1974, as amended from time to time, and the regulations promulgated thereunder. "ERISA Group" means all corporations, trades or businesses (whether or not incorporated) and other Persons which, together with the Company, are treated as a single employer under Section 414(b), (c), (m) or (o) of the Code. "Eurocurrency Liabilities" has the meaning assigned to that term in Regulation D. "Eurodollar Borrowing" means a Borrowing comprised of Eurodollar Loans. "Eurodollar Committed Borrowing" means any Committed Borrowing comprised of Eurodollar Loans. "Eurodollar Committed Loan" means any Committed Loan bearing interest at a rate determined by reference to the IBO Rate in accordance with the provisions of Article II. "Eurodollar Competitive Loan" means any Competitive Loan bearing interest at a rate determined by reference to the IBO Rate in accordance with the provisions of Article II. FACILITY A -8- 9 "Eurodollar Lending Office" means, with respect to each Bank, the branch or Affiliate of such Bank which such Bank has designated as its "Eurodollar Lending Office" on such Bank's signature page to this Agreement or, as to any Person who becomes a Bank after the Execution Date, on the signature page of the Assignment and Acceptance executed by such Person or such other office of such Bank as such Bank may hereafter designate from time to time as its "Eurodollar Lending Office" by notice to the Company and the Administrative Agent. "Eurodollar Loan" means any Eurodollar Competitive Loan or any Eurodollar Committed Loan. "Event of Default" means any of the events described in Article VI. "Execution Date" means the earliest date upon which all of the following shall have occurred: counterparts of this Agreement shall have been executed by the Company, each Bank and the Administrative Agent, and the Administrative Agent shall have received counterparts hereof which taken together, bear the signatures of the Company and each Bank. "Existing Agreements" means (a) the Competitive Advance and Revolving Credit Facility Agreement (Facility A) dated as of June 30, 1995 among the Company, the banks and other financial institutions party thereto, Bank of America and NationsBank, as co-agents, Chase, as auction administration agent, and TCB, as administrative agent, as amended from time to time to the date hereof, and (b) the Existing Facility B Credit Agreement. "Existing Facility B Credit Agreement" means the Competitive Advance and Revolving Credit Facility Agreement (Facility B) dated as of June 30, 1995 among the Company, the other Borrowers (as defined therein), the banks and other financial institutions party thereto, Bank of America and NationsBank, as co-agents, Chase, as auction administration agent, and TCB, as administrative agent, together with (a) the Sterling Addendum dated as of July 13, 1995 among the Company, Family Funeral Directors Limited, the local lenders party thereto and Chemical Investment Bank Limited, as local currency agent for such local lenders, (b) the Australian Addendum dated as of July 13, 1995 among the Company, Service Corporation International Australia Pty Limited, the local lenders party thereto and Westpac Banking Corporation, as local currency agent for such local lenders and (c) the Canadian Addendum dated as of August 30, 1995 among the Company, 611102 Saskatchewan Ltd., the local lenders party thereto and Royal Bank of Canada, as local currency agent for such local lenders. "Existing Termination Date" has the meaning specified in Section 2.21. "Extended Termination Date" means, as at any date, the date to which the Termination Date has then most recently been extended pursuant to Section 2.21. FACILITY A -9- 10 "Facility B Credit Agreement" means the Competitive Advance and Revolving Credit Facility Agreement (Facility B) dated as of the date hereof among the Company, the Initial Borrowing Subsidiaries (as defined therein), other Borrowing Subsidiaries that may become parties thereto, the banks and other financial institutions party thereto, Chase, as administrative agent, and the Co-Agents (as defined therein). "Facility Fees" has the meaning specified in Section 2.07(a). "FDIC" means the Federal Deposit Insurance Corporation (or any successor thereto). "Federal Funds Effective Rate" has the meaning specified in the definition of the term Alternate Base Rate. "Financial Provisions" has the meaning specified in Section 1.02(e). "Fixed Rate Borrowing" means a Borrowing comprised of Fixed Rate Loans. "Fixed Rate Loan" means any Competitive Loan bearing interest at a fixed percentage rate per annum specified by the Bank making such Loan in its Competitive Bid. "FST" means SCI Texas Funeral Services, Inc., a Texas corporation. "Funded Debt" means any Debt of any Person (including any Capitalized Lease Obligation of such Person, but not including any deferred taxes) payable more than one year from the date of the creation thereof; provided, however, the term Funded Debt shall include the principal amount of all Loans outstanding under this Agreement and the principal amount of all loans outstanding under the Facility B Credit Agreement. The interests of minority shareholders in such Person's Consolidated Subsidiaries which are shown on the liability side of a balance sheet as "minority interests" but which are not "obligations" are not within the definition of "Funded Debt." "GAAP" means generally accepted accounting principles as set forth in the opinions, statements and pronouncements of the Accounting Principles Board of the American Institute of Certified Public Accountants, the Financial Accounting Standards Board and such other Persons as shall be approved by a significant segment of the accounting profession and concurred in by the independent certified public accountants certifying any audited financial statements of the Company, as such principles shall be in effect at the time of any computation or determination or as of the date of the relevant financial statements, as the case may be (the "Relevant Date"), subject to Section 1.02. "Guaranteed Obligations" has the meaning specified in Section 8.01. FACILITY A -10- 11 "Guaranty" means the guaranty of the Company contained in Article VIII. "Highest Lawful Rate" means, as to any Bank, at the particular time in question, the maximum nonusurious rate of interest which, under applicable law, such Bank is then permitted to charge the Borrowers on the Loans. If the maximum rate of interest which, under applicable law, the Banks are permitted to charge the Borrowers on the Loans shall change after the date hereof, to the extent permitted by applicable law, the Highest Lawful Rate shall be automatically increased or decreased, as the case may be, as of the effective time of such change without notice to any Borrower or any other Person. "IBO Rate" means, with respect to each date during each Interest Period pertaining to a Eurodollar Borrowing (other than an Interest Period of 14 days), the rate appearing on page 3750 of the Dow Jones Markets (or on any successor or substitute page, or any page of any successor to or substitute for Dow Jones Markets, providing rate quotations comparable to those currently provided on such page, as determined by the Administrative Agent from time to time for purposes of providing quotations of interest rates applicable to deposits in Dollars in the London interbank market) at approximately 11:00 a.m., London time, two Business Days prior to the commencement of such Interest Period, as the rate for deposits in Dollars approximately equal in principal amount to such Eurodollar Borrowing and with a maturity equal to such Interest Period. In the event that such rate is not available at such time for any reason, and in the case of an Interest Period of 14 days, then the "IBO Rate" with respect to such Eurodollar Borrowing for such Interest Period shall be the rate (rounded to the nearest 1/16 of 1% or, if there is no nearest 1/16 of 1%, the next higher 1/16 of 1%) at which deposits in Dollars approximately equal in principal amount to such Eurodollar Borrowing and with a maturity equal to such Interest Period are offered in immediately available funds to the Administrative Agent by leading banks in the London interbank market at approximately 11:00 a.m., London time (or as soon thereafter as possible), two Business Days prior to the commencement of such Interest Period. "Inactive Subsidiaries" means Subsidiaries of the Company which are not actively engaged in the conduct of business and whose assets and/or Liabilities are not material to the financial condition of the Company and its Subsidiaries taken as a whole. "Index Debt" means the Company's senior, unsecured, non-credit enhanced Funded Debt. "Inducement Agreement" means, collectively, the letter agreement dated August 23, 1993 among the Company, PSI Funding, Inc. and FST and the letter agreement dated April 5, 1993 among the Company, TCB and Provident. FACILITY A -11- 12 "Intangibles" has the meaning normally ascribed thereto in accordance with GAAP and shall include (a) excess cost over fair market value of tangible assets acquired, (b) patents and patent rights, (c) trademarks, service marks and trade names, (d) copyrights and (e) goodwill. "Interest Payment Date" means (a) with respect to any Eurodollar Loan or ABR Loan, the last day of the Interest Period applicable thereto and, in addition, the date on which such Loan is repaid or prepaid and, in the case of a Eurodollar Loan with an Interest Period of 6 months, the day that would have been the Interest Payment Date for such Loan had an Interest Period of 3 months been applicable to such Loan and (b) in the case of a Fixed Rate Loan, the last day of the Interest Period applicable thereto. "Interest Period" means: (a) with respect to any Committed Borrowing: (i) If such Committed Borrowing is a Eurodollar Committed Borrowing, (A) the period commencing on the Borrowing Date of such Borrowing or on the last day of the immediately preceding Interest Period applicable to such Borrowing, as the case may be, and ending (A) 14 days thereafter (subject to market availability) or (B) on the numerically corresponding day (or if there is no corresponding day, the last day) in the calendar month that is one, two, three or six months thereafter, as a Borrower may elect; and (ii) If such Committed Borrowing is an ABR Borrowing, the period commencing on the Borrowing Date of such Borrowing and ending on the earliest of (A) the next succeeding March 31, June 30, September 30 or December 31, and (B) the Maturity Date. (b) with respect to any Competitive Borrowing: (i) If such Competitive Borrowing is a Fixed Rate Borrowing, the period commencing on the Borrowing Date of such Borrowing and ending on the date specified in the Competitive Bid in which the offer to make such Fixed Rate Borrowing was extended; provided, however, that each such period shall have a duration of not less than seven calendar days nor more than 180 days; and (ii) If such Competitive Borrowing is a Eurodollar Borrowing, the period commencing on the Borrowing Date of such Borrowing and ending on the numerically corresponding date (or if there is no corresponding date, the last day ) in the calendar month that is one, two, three or six months thereafter, as a Borrower may elect. FACILITY A -12- 13 Notwithstanding the foregoing, (i) if any Interest Period would end on a day which shall not be a Business Day, such Interest Period shall be extended to the next succeeding Business Day unless, with respect to Eurodollar Loans only, such next succeeding Business Day would fall in the next calendar month, in which case such Interest Period shall end on the next preceding Business Day, (ii) no Interest Period may be selected for any Competitive Borrowing that ends later than the Existing Termination Date and (iii) no Interest Period may be selected for any Committed Borrowing that ends later than the Maturity Date. Interest shall accrue from and including the first day of an Interest Period to but excluding the last day of such Interest Period. "Judgment Currency" has the meaning specified in Section 9.17. "Letter of Credit Obligations" means, when used with respect to any Person, the contingent obligations of such Person in respect of Letters of Credit. "Letters of Credit" means, as to any Person, letters of credit issued for the account of such Person other than letters of credit issued to pay the purchase price of goods or services acquired in the ordinary course of business by such Person or any other Person. "Liabilities" of any Person has the meaning normally ascribed thereto in accordance with GAAP and shall include (a) Capitalized Lease Obligations of such Person or any of its Subsidiaries, (b) the interests of minority shareholders in Consolidated Subsidiaries of such Person, (c) indebtedness secured by Liens against any property of such Person or any of its Subsidiaries whether or not such Person or such Subsidiary is liable for the payment thereof, (d) subordinated debt and (e) deferred liabilities. "Lien" means, when used with respect to any Person, any mortgage, lien, charge, pledge, security interest or encumbrance of any kind (whether voluntary or involuntary and whether imposed or created by operation of law or otherwise) upon, or pledge of, any of its property or assets, whether now owned or hereafter acquired, or any lease intended as security, any conditional sale agreement, or any other title retention agreement. "Loan" means a Competitive Loan, a Committed Loan, a Eurodollar Loan, a Fixed Rate Loan or an ABR Loan. "Majority Banks" means, at any time, Banks holding at least 66 2/3% of the Total Commitment or (if either the Total Commitment has been terminated or "Majority Banks" is being determined for purposes of Article VI) Banks holding at least 66 2/3% of the then aggregate unpaid principal amount of the outstanding Loans. "Margin" means, as to any Eurodollar Competitive Loan, the margin (expressed as a percentage rate per annum in the form of a decimal to no more than four decimal places) to be FACILITY A -13- 14 added to or subtracted from the IBO Rate in order to determine the interest rate applicable to such Loan, as specified in the Competitive Bid relating to such Loan. "Margin Stock" has the meaning specified in Section 4.13. "Material Subsidiary" means, with respect to any Person, each Subsidiary of such Person that would be a "significant subsidiary" as such term is defined in Regulation S-X promulgated pursuant to the Securities Exchange Act of 1934 as amended to the Effective Date; provided, however, for purposes of determining whether any Subsidiary is a "Material Subsidiary," the reference to "10 percent" in clauses (1), (2) and (3) of the definition of "significant subsidiary" contained in said Regulation S-X shall be a reference to 5 percent; and further provided, however, notwithstanding the foregoing, when used with respect to the Company, each Borrowing Subsidiary shall be a Material Subsidiary of the Company. "Maturity Date" means the Existing Termination Date or, as to any Committed Borrowing which shall be outstanding on such date, the second anniversary of the Existing Termination Date. "Maximum Permissible Rate" has the meaning specified in Section 9.08. "Moody's" means Moody's Investors Service. "NationsBank" means NationsBank, N.A., a national banking association. "Net Worth" means, in relation to the Company and its Subsidiaries, Consolidated Assets of the Company less total consolidated liabilities of the Company and its Consolidated Subsidiaries, as determined in accordance with GAAP. "Notice of Extension" has the meaning specified in Section 2.21. "Notice of Revocation" has the meaning specified in Section 2.21. "OECD" means the Organization for Economic Cooperation and Development (or any successor). "Officer's Certificate" means, as to any Borrower, a certificate signed in the name of such Borrower by its President, one of its Vice Presidents, its Treasurer, its Secretary or one of its Assistant Treasurers or Assistant Secretaries. "Operating Lease Obligations" means obligations of a Person in respect of any lease or agreement to lease other than Capitalized Lease Obligations of such Person. FACILITY A -14- 15 "Original Termination Date" means June 26, 1998. "Other Activities" has the meaning specified in Section 7.03. "Other Financings" has the meaning specified in Section 7.03. "Other Taxes" has the meaning specified in Section 2.20. "PBGC" means the Pension Benefit Guaranty Corporation or any entity succeeding to all or any of its functions under ERISA. "Person" means an individual, partnership, corporation (including a business trust), limited liability company, joint stock company, trust, unincorporated association, joint venture or other entity, or a foreign state or political subdivision thereof or any agency of such state or subdivision. "Plan" means any employee pension benefit plan maintained or contributed to by the Company or any of its Subsidiaries or by any trade or business (whether or not incorporated) under common control (as defined in Section 4001(a)(14) or 4001(b) of ERISA) with the Company and insured by the PBGC under Title IV of ERISA. "Prime Rate" has the meaning specified in the definition of the term Alternate Base Rate. "Principal Office" means the office of the Administrative Agent located at 270 Park Avenue, New York, New York 10017, or such other office as the Administrative Agent may hereafter designate in writing as such to the other parties hereto. "Provident" means Provident Services, Inc., a Delaware corporation. "Register" has the meaning specified in Section 9.11(e). "Regulation A" means Regulation A of the Board (respecting loans to depository institutions), as the same is from time to time in effect, and all official rulings and interpretations thereunder or thereof. "Regulation G" means Regulation G of the Board (respecting margin credit extended by Persons other than banks or registered broker dealers), as the same is from time to time in effect, and all official rulings and interpretations thereunder or thereof. FACILITY A -15- 16 "Regulation D" means Regulation D of the Board (respecting reserve requirements), as the same is from time to time in effect, and all official rulings and interpretations thereunder or thereof. "Regulation U" means Regulation U of the Board (respecting margin credit extended by banks), as the same is from time to time in effect, and all official rulings and interpretations thereunder or thereof. "Regulation X" means Regulation X of the Board (respecting borrowers who obtain margin credit), as the same is from time to time in effect, and all official rulings and interpretations thereunder or thereof. "Relevant Date" has the meaning specified in the definition of the term GAAP. "S&P" means Standard & Poor's Ratings Group, a division of McGraw-Hill, Inc. "Subsidiary" means, with respect to any Person, any corporation in which more than 50% of the stock of each class having ordinary voting power shall, at the time as of which any determination is being made, be owned of record and beneficially by such Person directly and/or through one or more other Subsidiaries. "Substantially-owned Subsidiary" means a Subsidiary of the Company at least 80% of the outstanding capital stock of which, at the time any determination is being made, is owned of record and beneficially by the Company directly and/or through one or more other Subsidiaries. "Support Agreements" means (a) the Support Agreement dated as of September 14, 1988 between the Company and Provident, (b) the Australian Support Agreement dated as of November 1, 1993 between the Company and Service Corporation International Australia Pty Limited and (c) the three Support Agreements dated respectively as of January 28, 1994, September 30, 1994 and November 14, 1994, each between the Company and FST. "Tangible Consolidated Assets" means, as to any Person, Consolidated Assets less all Intangibles of such Person and its Consolidated Subsidiaries. "Taxes" has the meaning specified in Section 2.20. "TCB" means Texas Commerce Bank National Association, a national banking association. "Termination Date" means, except as expressly provided in Section 2.21(d) and Section 2.21(e), at any time, the Original Termination Date or an Extended Termination Date, as the FACILITY A -16- 17 case may be or, in either case, the earlier date of termination in whole of the Total Commitment pursuant to Section 2.12 or Section 6.01. "Total Capitalization" means, as of the date any determination is made, the sum of Net Worth plus Consolidated Debt. "Total Commitment" means, at any time, the aggregate amount of the Banks' Commitments, as in effect at such time. "Type" means, when used in respect of any Loan or Borrowing, each of the following types of Loans or Borrowings as applicable: Eurodollar Loan or Eurodollar Borrowing, ABR Loan or ABR Borrowing and Fixed Rate Loan or Fixed Rate Borrowing. "United States" and "U.S." each means United States of America. "Wholly-owned Subsidiary" means, as to any Person, a Subsidiary, 100% of the stock of every class of which (except for directors' qualifying shares) at the time as of which any determination is being made, is owned of record and beneficially by such Person directly and/or through one or more other Subsidiaries. SECTION 1.02. Accounting Terms and Determinations. (a) Except as otherwise provided in this Agreement, all computations and determinations as to accounting or financial matters and all financial statements to be delivered pursuant to this Agreement shall be made and prepared in accordance with GAAP (including principles of consolidation where appropriate), and all accounting or financial terms shall have the meanings ascribed to such terms by GAAP. (b) If any change in GAAP after the date of this Agreement shall be required to be applied to transactions then or thereafter in existence, and a violation of or default under one or more provisions of this Agreement shall have occurred or in the opinion of the Company would likely occur which would not have occurred or be likely to occur if no change in accounting principles had taken place: (i) the parties agree that such violation or default shall not constitute an Event of Default or a Default for a period of 60 days from the date the Company notifies the Administrative Agent of the application of this Section 1.02(b) identifying such change and the provisions of this Agreement affected thereby; FACILITY A -17- 18 (ii) the parties agree in such event to negotiate in good faith an amendment of this Agreement which shall approximate to the extent possible the economic effect of the original financial covenants after taking into account such change in GAAP; and (iii) if the parties are unable to agree on such an amendment within such 60-day period, the Company shall have the option of (A) prepaying the Loans (pursuant to Section 2.13 and the other applicable provisions hereof) within 120 days from the date the Company notifies the Administrative Agent of the application of this Section 1.02(b) or (B) making all future calculations by application of GAAP applied on a basis consistent with those in effect immediately prior to such change in GAAP. If the Company does not exercise either such option within said period by written notice to the Administrative Agent, then as used in this Agreement, "GAAP" shall mean generally accepted accounting principles in effect at the Relevant Date. (c) If any change in GAAP after the date of this Agreement shall be required to be applied to transactions or conditions then or thereafter in existence, and the Administrative Agent shall assert that the effect of such change is or shall likely be to distort materially the effect of any of the definitions of financial terms in Article I or any of the financial covenants of the Company in Article V (the "Financial Provisions"), so that the intended economic effect of any of the Financial Provisions will not in fact be accomplished: (i) the Administrative Agent shall notify the Company of such assertion, specifying the change in GAAP which is objected to, and until otherwise determined as provided below, the specified change in GAAP shall not be made by the Company in its financial statements for the purpose of applying the Financial Provisions; and (ii) the parties shall follow the procedures set forth in paragraph (ii) and the first sentence of paragraph (iii) of subsection (b) of this Section 1.02. If the parties are unable to agree on an amendment as provided in said paragraph (ii) and if the Company does not exercise the option set forth in the first sentence of said paragraph (iii) within the specified period, then as used in this Agreement "GAAP" shall mean generally accepted accounting principles in effect at the Relevant Date, except that the specified change in GAAP which is objected to by the Administrative Agent shall not be made in applying the Financial Provisions. SECTION 1.03. Interpretation. (a) In this Agreement, unless a clear contrary intention appears: (i) the singular number includes the plural number and vice versa; (ii) reference to any gender includes each other gender; FACILITY A -18- 19 (iii) the words "herein," "hereof" and "hereunder" and other words of similar import refer to this Agreement as a whole and not to any particular Article, Section or other subdivision; (iv) reference to any Person includes such Person's successors and assigns but, if applicable, only if such successors and assigns are permitted by this Agreement, and reference to a Person in a particular capacity excludes such Person in any other capacity or individually, provided that nothing in this clause (iv) is intended to authorize any assignment not otherwise permitted by this Agreement; (v) reference to any agreement, document or instrument, including this Agreement, means such agreement, document or instrument as amended, supplemented or modified and in effect from time to time in accordance with the terms thereof and, if applicable, the terms hereof; (vi) unless the context indicates otherwise, reference to any Article, Section, Schedule or Exhibit means such Article or Section hereof or such Schedule or Exhibit hereto; (vii) the word "including" (and with correlative meaning "include") means including, without limiting the generality of any description preceding such term; (viii) with respect to the determination of any period of time, the word "from" means "from and including" and the word "to" means "to but excluding"; and (ix) reference to any law means such as amended, modified, codified or reenacted, in whole or in part, and in effect from time to time. (b) The Article and Section headings herein and the Table of Contents are for convenience only and shall not affect the construction hereof. (c) No provision of this Agreement shall be interpreted or construed against any Person solely because that Person or its legal representative drafted such provision. ARTICLE II THE CREDITS SECTION 2.01. Commitments. (a) Subject to the terms and conditions and relying upon the representations and warranties herein set forth, each Bank agrees, severally and not jointly, to make Committed Loans to the Borrowers, at any time and from time to time on and after the Effective Date and until the Termination Date in an aggregate principal amount at any time FACILITY A -19- 20 outstanding not to exceed such Bank's Commitment minus the amount by which the Competitive Loans outstanding at such time shall be deemed to have used such Commitment pursuant to Section 2.17, subject, however, to the conditions that (i) at no time shall (A) the sum of (x) the outstanding aggregate principal amount of all Committed Loans plus (y) the outstanding aggregate principal amount of all Competitive Loans exceed (B) the Total Commitment and (ii) at all times the outstanding aggregate principal amount of all Committed Loans made by each Bank shall equal the product of (A) the percentage which its Commitment represents of the Total Commitment times (B) the outstanding aggregate principal amount of all Committed Loans made pursuant to Section 2.04. Each Bank's Commitment, as in effect on the Execution Date, is set forth opposite its name on the signature page hereto for such Bank. Such Commitments may be terminated or reduced from time to time pursuant to Section 2.12. (b) Within the foregoing limits and subject to the terms, conditions and limitations set forth herein, the Borrowers may borrow, pay or prepay and reborrow hereunder, on and after the Effective Date and prior to the Termination Date. SECTION 2.02. Loans. (a) Each Committed Loan shall be made as part of a Borrowing consisting of Loans made by the Banks ratably in accordance with their Commitments; provided, however, that the failure of any Bank to make any Committed Loan shall not in itself relieve any other Bank of its obligation to lend hereunder (it being understood, however, that no Bank shall be responsible for the failure of any other Bank to make any Loan required to be made by such other Bank). Each Competitive Loan shall be made in accordance with the procedures set forth in Section 2.03. The Committed Loans or Competitive Loans comprising any Borrowing shall be (i) in the case of Competitive Loans, in an aggregate principal amount which is an integral multiple of $1,000,000 and not less than $5,000,000, subject to the proviso at the end of Section 2.03(d), and (ii) in the case of Committed Loans, in an aggregate principal amount which is an integral multiple of $1,000,000 and not less than $5,000,000 (or an aggregate principal amount equal to the remaining balance of the available Commitments). (b) Each Competitive Borrowing shall be comprised entirely of Eurodollar Competitive Loans or Fixed Rate Loans, and each Committed Borrowing shall be comprised entirely of Eurodollar Committed Loans or ABR Loans, as a Borrower may request pursuant to Section 2.03 or 2.04, as applicable. Each Bank may at its option make any Eurodollar Loan by causing its Eurodollar Lending Office to make such Loan; provided that any exercise of such option shall not affect the obligation of any Borrower to repay such Loan in accordance with the terms of this Agreement. Borrowings of more than one Type may be outstanding at the same time; provided, however, that no Borrower shall be entitled to request any Borrowing which, if made, would result in an aggregate of more than ten separate Committed Loans of any Bank to the Borrowers being outstanding hereunder at any one time. For purposes of the foregoing, Loans having different Interest Periods, regardless of whether they commence on the same date, shall be considered separate Loans. FACILITY A -20- 21 (c) Subject to Section 2.05, each Bank shall make each Loan to be made by it hereunder on the proposed date thereof by wire transfer of immediately available funds to the Administrative Agent in New York City, not later than 12:30 p.m., New York City time, and the Administrative Agent shall by 3:00 p.m., New York City time, credit the amounts so received to the general deposit account of the Company with the Administrative Agent or, if a Borrowing shall not occur on such date because any condition precedent herein specified shall not have been met, return the amounts so received to the respective Banks. Competitive Loans shall be made by the Bank or Banks whose Competitive Bids therefor are accepted pursuant to Section 2.03 in the amounts so accepted and Committed Loans shall be made by the Banks pro rata in accordance with Section 2.17. Unless the Administrative Agent shall have received notice from a Bank prior to the date of any Borrowing that such Bank will not make available to the Administrative Agent such Bank's portion of such Borrowing, the Administrative Agent may assume that such Bank has made such portion available to the Administrative Agent on the date of such Borrowing in accordance with this Section 2.02(c) and the Administrative Agent may, in reliance upon such assumption, make available to the requesting Borrower on such date a corresponding amount. If and to the extent that such Bank shall not have made such portion available to the Administrative Agent, such Bank and the requesting Borrower severally agree to repay to the Administrative Agent forthwith on demand such corresponding amount together with interest thereon, for each day from the date such amount is made available to such Borrower until the date such amount is repaid to the Administrative Agent at (i) in the case of such Borrower, the interest rate applicable at the time to the Loans comprising such Borrowing and (ii) in the case of such Bank, the Federal Funds Effective Rate. If such Bank shall repay to the Administrative Agent such corresponding amount, such amount shall constitute such Bank's Loan as part of such Borrowing for purposes of this Agreement. (d) Notwithstanding any other provision of this Agreement, no Borrower shall be entitled to request any Borrowing pursuant to Section 2.03 or Section 2.04 if the Interest Period requested with respect thereto would end after the Termination Date (in the case of Competitive Loans) or the Maturity Date (in the case of Committed Loans). SECTION 2.03. Competitive Bid Procedure. (a) In order to request Competitive Bids, a Borrower shall hand deliver or send by facsimile transmission to the Administrative Agent a duly completed Competitive Bid Request, to be received by the Administrative Agent (i) in the case of a Eurodollar Competitive Borrowing, not later than 10:00 a.m., New York City time, five Business Days before the Borrowing Date specified for a proposed Competitive Borrowing, and (ii) in the case of a Fixed Rate Borrowing, not later than 10:00 a.m., New York City time, one Business Day before the Borrowing Date specified for a proposed Competitive Borrowing. No Committed Loan shall be requested in or made pursuant to a Competitive Bid Request. A Competitive Bid Request that does not conform substantially to the format of Exhibit 2.03(A) may be rejected at the Administrative Agent's sole discretion (to the extent permitted by law), and the Administrative Agent shall promptly notify the Borrower requesting such Competitive Bid of such rejection by facsimile transmission. Each Competitive Bid Request shall in each case refer to this FACILITY A -21- 22 Agreement and specify (x) whether the Competitive Borrowing then being requested is to be a Eurodollar Competitive Borrowing or a Fixed Rate Borrowing, (y) the Borrowing Date of such Competitive Borrowing (which shall be a Business Day) and the aggregate principal amount thereof (which shall be in a minimum principal amount of $5,000,000 and in an integral multiple of $1,000,000), and (z) the Interest Period with respect thereto. Promptly after its receipt of a Competitive Bid Request that is not rejected as aforesaid, the Administrative Agent shall invite by facsimile transmission (in substantially the form set forth in Exhibit 2.03(B)) the Banks to bid, on the terms and conditions of this Agreement, to make Competitive Loans pursuant to such Competitive Bid Request. Notwithstanding the foregoing, the Administrative Agent shall have no obligation to invite any Bank to make a Competitive Bid pursuant to this Section 2.02(a) until such Bank has delivered a properly completed Administrative Questionnaire to the Administrative Agent. (b) On and after the Effective Date, each Bank may, in its sole discretion, make one or more Competitive Bids responsive to each Competitive Bid Request of a Borrower. Each Competitive Bid by a Bank must be received by the Administrative Agent via facsimile transmission, in the form of Exhibit 2.03(C), (i) in the case of a Eurodollar Competitive Borrowing, not later than 2:00 p.m., New York City time, four Business Days before the Borrowing Date specified for a proposed Competitive Borrowing and (ii) in the case of a Fixed Rate Borrowing, not later than 10:00 a.m., New York City time, on the Borrowing Date specified for a proposed Competitive Borrowing. Competitive Bids that do not conform substantially to the format of Exhibit 2.03(C) may be rejected by the Administrative Agent after conferring with, and upon the instruction of, the Borrower requesting such Competitive Bid, and the Administrative Agent shall notify the applicable Bank of such rejection as soon as practicable. Each Competitive Bid shall refer to this Agreement and (x) specify the principal amount (which shall be in a minimum principal amount of $5,000,000 and in an integral multiple of $1,000,000 and which may equal the entire aggregate principal amount of the Competitive Borrowing requested by the Borrower requesting such Competitive Bid, irrespective of such Bank's Commitment) of the Competitive Loan that the applicable Bank is willing to make to such Borrower, (y) specify the Competitive Bid Rate or Rates at which such Bank is prepared to make the Competitive Loan or Loans and (z) confirm the Interest Period with respect thereto specified by such Borrower in its Competitive Bid Request. If any Bank shall elect not to make a Competitive Bid, such Bank shall so notify the Administrative Agent by facsimile transmission (A) in the case of Eurodollar Competitive Loans, not later than 2:00 p.m., New York City time, four Business Days before the Borrowing Date specified for a proposed Competitive Borrowing, and (B) in the case of Fixed Rate Loans, not later than 10:00 a.m., New York City time, on the Borrowing Date specified for a proposed Competitive Borrowing; provided, however, that failure by any Bank to give such notice shall not cause such Bank to be obligated to make any Competitive Loan as part of such Competitive Borrowing or subject such Bank to any other liability hereunder. A Competitive Bid submitted by a Bank pursuant to this paragraph (b) shall be irrevocable. FACILITY A -22- 23 (c) The Administrative Agent shall promptly notify the Borrower requesting such Competitive Bid by facsimile transmission of all the Competitive Bids made, the Competitive Bid Rate and the maximum principal amount of each Competitive Loan in respect of which a Competitive Bid was made and the identity of the Bank that made each such Competitive Bid. The Administrative Agent shall send a copy of all Competitive Bids to such Borrower for its records as soon as practicable after completion of the bidding process set forth in this Section 2.03. (d) A Borrower may in its sole and absolute discretion, subject only to the provisions of this Section 2.03(d), accept or reject any Competitive Bid referred to in Section 2.03(c). Such Borrower shall notify the Administrative Agent by telephone, confirmed by facsimile transmission, whether and to what extent it has decided to accept or reject any or all of the Competitive Bids referred to in Section 2.03(c), (i) in the case of a Eurodollar Competitive Borrowing, not later than 10:00 a.m., New York City time, three Business Days before the Borrowing Date specified for a proposed Competitive Borrowing and (ii) in the case of a Fixed Rate Borrowing, not later than noon, New York City time, on the Borrowing Date specified for a proposed Competitive Borrowing, provided, however, (A) the failure by a Borrower to accept or reject any Competitive Bid referred to in Section 2.03(c) shall be deemed to be a rejection of such Competitive Bid, (B) no Borrower shall accept a Competitive Bid made at a particular Competitive Bid Rate if such Borrower has decided to reject a Competitive Bid made at a lower Competitive Bid Rate, (C) the aggregate amount of the Competitive Bids accepted by a Borrower shall not exceed the principal amount specified in the related Competitive Bid Request, (D) if a Borrower shall accept a Competitive Bid or Bids made at a particular Competitive Bid Rate but the amount of such Competitive Bid or Bids shall cause the total amount of Competitive Bids to be accepted by such Borrower to exceed the amount specified in the Competitive Bid Request, then such Borrower shall accept a portion of such Competitive Bid or Bids in an amount equal to the amount specified in the Competitive Bid Request less the amount of all other Competitive Bids accepted with respect to such Competitive Bid Request, which acceptance, in the case of multiple Competitive Bids at such Competitive Bid Rate, shall be made pro rata in accordance with the amount of each such Competitive Bid at such Competitive Bid Rate, and (E) except pursuant to clause (D) above, no Competitive Bid shall be accepted for a Competitive Loan unless such Competitive Loan is in a minimum principal amount of $5,000,000 and an integral multiple of $1,000,000; provided further, however, that if a Competitive Loan must be in an amount less than $5,000,000 because of the provisions of clause (D) above, such Competitive Loan may be for a minimum of $1,000,000 or any integral multiple thereof, and in calculating the pro rata allocation of acceptances or portions of multiple Competitive Bids at a particular Competitive Bid Rate pursuant to clause (D) the amounts shall be rounded to integral multiples of $1,000,000 in a manner which shall be in the discretion of such Borrower. A notice given by a Borrower pursuant to this Section 2.03(d) shall be irrevocable. (e) The Administrative Agent shall promptly notify each Bank making a Competitive Bid whether or not its Competitive Bid or corresponding Competitive Bids have been accepted (and if so, in what amount and at what Competitive Bid Rate) by facsimile transmission FACILITY A -23- 24 sent by the Administrative Agent, and each successful bidder will thereupon become bound, subject to the other applicable conditions hereof, to make the Competitive Loan in respect of which its Competitive Bid has been accepted. After completing the notifications referred to in the immediately preceding sentence, the Administrative Agent shall notify each Bank of the aggregate principal amount of all Competitive Bids accepted. (f) The Administrative Agent shall notify each Bank of (i) the IBO Rate applicable to any Eurodollar Competitive Loan to be made by such Bank pursuant to a Competitive Bid that has been accepted by a Borrower pursuant to Section 2.03(d), and (ii) the sum of the applicable IBO Rate plus the Margin bid by such Bank. (g) A Competitive Bid Request shall not be made within five Business Days of the date after the date of any previous Competitive Bid Request, unless the Company and the Administrative Agent shall mutually agree otherwise and notice of such agreement shall have been given to the Banks. (h) If the Administrative Agent or any Affiliate of the Administrative Agent shall at any time be a Bank with a Commitment hereunder and shall elect to submit a Competitive Bid in its capacity as a Bank, it shall submit such Competitive Bid directly to the Borrower requesting such Competitive Bid one quarter of an hour earlier than the latest time at which the other Banks are required to submit their Competitive Bids to the Administrative Agent pursuant to paragraph (b) above. (i) All notices required by this Section 2.03 shall be given in accordance with Section 9.02. SECTION 2.04. Committed Borrowing Procedure. In order to effect a Committed Borrowing, a Borrower shall give written notice (or telephone notice promptly confirmed in writing) to the Administrative Agent, substantially in the form of Exhibit 2.04 (a "Committed Borrowing Request"), (a) in the case of a Eurodollar Committed Borrowing, not later than noon, New York City time, three Business Days before the Borrowing Date specified for such proposed Committed Borrowing, and (b) in the case of an ABR Borrowing, not later than 11:00 a.m., New York City time, on the Borrowing Date specified for such proposed Committed Borrowing. No Fixed Rate Loan or Eurodollar Competitive Loan shall be requested or made pursuant to a Committed Borrowing Request. Such Committed Borrowing Request shall be irrevocable and shall in each case refer to this Agreement and specify (x) whether the Borrowing then being requested is to be a Eurodollar Committed Borrowing or an ABR Borrowing, (y) the Borrowing Date of such Borrowing (which shall be a Business Day) and the aggregate amount thereof (which shall not be less than $5,000,000 and shall be an integral multiple of $1,000,000) and (z) the Interest Period with respect thereto. If no election as to the Type of Committed Borrowing is specified in any such notice, then the requested Committed Borrowing shall be an ABR Borrowing. If no Interest Period with respect to FACILITY A -24- 25 any Eurodollar Committed Borrowing is specified in any such Committed Borrowing Request, then the Borrower making such request shall be deemed to have selected an Interest Period of one month's duration. If a Borrower shall not have given notice in accordance with this Section 2.04 of its election to refinance a Committed Borrowing prior to the end of the Interest Period in effect for such Borrowing, then such Borrower shall (unless such Borrowing is repaid at the end of such Interest Period) be deemed to have given notice of an election to refinance such Borrowing with an ABR Borrowing. The Administrative Agent shall promptly advise the Banks of any Committed Borrowing Request given pursuant to this Section 2.04 and of each Bank's portion of the requested Committed Borrowing by facsimile transmission. SECTION 2.05. Refinancings. Each Borrower may refinance all or any part of any of its Borrowings with a Borrowing of the same or a different Type made pursuant to Section 2.03 or Section 2.04, subject to the conditions and limitations set forth herein and elsewhere in this Agreement, including refinancings of Competitive Borrowings with Committed Borrowings and of Committed Borrowings with Competitive Borrowings. Any Borrowing or part thereof so refinanced shall be deemed to be repaid in accordance with Section 2.08 with the proceeds of a new Borrowing hereunder and the proceeds of the new Borrowing, to the extent they do not exceed the principal amount of the Borrowing being refinanced, shall not be paid by the Banks to the Administrative Agent or by the Administrative Agent to the Borrower to which such Borrowing has been made pursuant to Section 2.02(c); provided, however, that (a) if the principal amount extended by a Bank in a refinancing is greater than the principal amount, if any, extended by such Bank in the Borrowing being refinanced, then such Bank shall pay such difference to the Administrative Agent for distribution to the Banks described in clause (b) below, (b) if the principal amount extended by a Bank in the Borrowing being refinanced is greater than the principal amount, if any, being extended by such Bank in the refinancing, the Administrative Agent shall return the difference to such Bank out of amounts received pursuant to clause (a) above, (c) to the extent any Bank fails to pay the Administrative Agent amounts due from it pursuant to clause (a) above, any Borrowing or portion thereof being refinanced shall not be deemed repaid in accordance with Section 2.08 to the extent of such failure and such Borrower shall pay such amount to the Administrative Agent pursuant to Section 2.08 and (d) to the extent such Borrower fails to pay to the Administrative Agent any amounts due in accordance with Section 2.08 as a result of the failure of a Bank to pay the Administrative Agent any amounts due as described in clause (c) above, the portion of any refinanced Borrowing deemed not repaid shall be deemed to be outstanding solely to the Bank which has failed to pay the Administrative Agent amounts due from it pursuant to clause (a) above to the full extent of such Bank's portion of such refinanced Loan. SECTION 2.06. Conversion and Continuation of Committed Borrowings. Each Borrower shall have the right at any time upon prior irrevocable notice to the Administrative Agent (a) not later than 8:30 a.m., New York City time, one Business Day prior to conversion, to convert any Eurodollar Committed Borrowing into an ABR Borrowing, (b) not later than noon, New York City time, three Business Days prior to conversion or continuation, to convert any ABR Borrowing FACILITY A -25- 26 into a Eurodollar Committed Borrowing or to continue any Eurodollar Committed Borrowing as a Eurodollar Committed Borrowing for an additional Interest Period and (c) not later than 11:00 a.m., New York City time, three Business Days prior to conversion, to convert the Interest Period with respect to any Eurodollar Committed Borrowing to another permissible Interest Period, subject in each case to the following: (i) each conversion or continuation shall be made pro rata among the Banks in accordance with the respective principal amounts of the Loans comprising the converted or continued Committed Borrowing; (ii) if less than all the outstanding principal amount of any Committed Borrowing shall be converted or continued, the aggregate principal amount of such Committed Borrowing converted or continued shall be an integral multiple of $1,000,000 and not less than $5,000,000; (iii) if any Eurodollar Committed Borrowing is converted at a time other than the end of the Interest Period applicable thereto, such Borrower shall pay, upon demand, any amounts due to the Banks pursuant to Section 2.16; (iv) any portion of a Committed Borrowing maturing or required to be repaid in less than one month (or 14 days, if such an Interest Period is available) may not be converted into or continued as a Eurodollar Committed Borrowing; (v) any portion of a Committed Borrowing which cannot be continued as or converted into a Eurodollar Committed Borrowing by reason of clause (iv) above shall be automatically converted into or continued as an ABR Borrowing at the end of the Interest Period in effect for such Borrowing; and (vi) no Interest Period may be selected for any Eurodollar Committed Borrowing that would end later than the Maturity Date. Each notice pursuant to this Section 2.06 shall be irrevocable and shall refer to this Agreement and specify (w) the identity and amount of the Committed Borrowing that a Borrower requests be converted or continued, (x) whether such Committed Borrowing is to be converted to or continued as a Eurodollar Committed Borrowing or an ABR Borrowing, (y) if such notice requests a conversion, the date of such conversion (which shall be a Business Day) and (z) if such Committed Borrowing is to be converted to or continued as a Eurodollar Committed Borrowing, the Interest Period with respect thereto. If no Interest Period is specified in any such notice with respect to any conversion to or continuation as a Eurodollar Committed Borrowing, a Borrower shall be deemed to have selected an Interest Period of one month's duration. The Administrative Agent shall promptly advise the other Banks of any notice given pursuant to this Section 2.06 and of each Bank's FACILITY A -26- 27 portion of any converted or continued Committed Borrowing. If a Borrower shall not have given notice in accordance with this Section 2.06 to continue any Committed Borrowing into a subsequent Interest Period (and shall not otherwise have given notice in accordance with this Section 2.06 to convert such Committed Borrowing), such Committed Borrowing shall, at the end of the Interest Period applicable thereto (unless repaid pursuant to the terms hereof), automatically be converted into or continued as an ABR Borrowing. SECTION 2.07. Fees. (a) The Company agrees to pay to each Bank, through the Administrative Agent, (i) on each March 31, June 30, September 30 and December 31 from the Execution Date to the date on which the Commitment of such Bank has been terminated and (ii) on the Maturity Date and on any other date on which the Commitment of such Bank has been terminated, facility fees (such facility fees being the "Facility Fees"), in immediately available funds, equal to .06 of 1% of the amount of the Commitment of such Bank from time to time outstanding, whether used, deemed used or unused, during the preceding quarter (or shorter period commencing with the Execution Date and/or ending with the Maturity Date). (b) All Facility Fees shall be computed by the Administrative Agent on the basis of the actual number of days elapsed in a year of 360 days, and such computations, made in good faith, shall create rebuttable presumption that they are accurate. The Facility Fees due to each Bank shall commence to accrue on the Execution Date and shall cease to accrue on the earlier of the Maturity Date and the termination of the Commitment of such Bank as provided herein. (c) The Facility Fees due under this Section 2.07 shall be paid on the date due, in immediately available funds, to the Administrative Agent for distribution among the Banks. (d) The Company agrees to pay to the Administrative Agent the fees as provided in the Agent's Fee Letter. (e) Notwithstanding the foregoing, in no event shall any Bank be permitted to receive any compensation hereunder constituting interest in excess of the Highest Lawful Rate. SECTION 2.08. Repayment of Loans. (a) Each Borrower agrees to pay the outstanding principal balance of each Loan (i) in the case of a Competitive Loan, on the last day of the Interest Period applicable to such Loan and on the Termination Date, and (ii) in the case of a Committed Loan, on the Maturity Date. Each Loan shall bear interest from the date of the Borrowing of which such Loan is a part on the outstanding principal balance thereof as set forth in Section 2.09. (b) Each Bank shall, and is hereby authorized by each Borrower to make in its internal records relating to each Loan an appropriate notation evidencing the date, amount and the Type of each Loan of such Bank to such Borrower, the rate of interest applicable to such Loan and FACILITY A -27- 28 each payment or prepayment of principal of and interest on such Loan. The aggregate unpaid principal amount so recorded shall be presumptive evidence of the principal amount owing by such Borrower to such Bank in respect of such Loan. The failure of any Bank to make such a notation or any error therein shall not in any manner affect the obligation of such Borrower to repay the Loans made by such Bank in accordance with the terms hereof. SECTION 2.09. Interest on Loans. (a) Subject to the provisions of Section 2.09(d) and Section 2.10, the Loans comprising each Eurodollar Borrowing shall bear interest (computed on the basis of the actual number of days elapsed over a year of 360 days) at a rate per annum equal to (i) in the case of each Eurodollar Committed Loan, the lesser of (A) the IBO Rate for the Interest Period in effect for such Borrowing plus .16 of 1% and (B) the Highest Lawful Rate, and (ii) in the case of each Eurodollar Competitive Loan, the lesser of (A) the IBO Rate for the Interest Period in effect for such Borrowing plus the Margin offered by the Bank making such Loan and accepted by a Borrower pursuant to Section 2.03 and (B) the Highest Lawful Rate. (b) Subject to the provisions of Section 2.09(d) and Section 2.10, the Loans comprising each ABR Borrowing shall bear interest (computed on the basis of the actual number of days elapsed over a year of 365 or 366 days, as the case may be, if the Alternate Base Rate shall be based on the Prime Rate, and a year of 360 days otherwise) at a rate per annum equal to the Alternate Base Rate, but not in excess of the Highest Lawful Rate. (c) Subject to the provisions of Section 2.10, each Fixed Rate Loan shall bear interest at a rate per annum (computed on the basis of the actual number of days elapsed over a year of 360 days) equal to the fixed rate of interest offered by the Bank making such Loan and accepted by a Borrower pursuant to Section 2.03, but not in excess of the Highest Lawful Rate. (d) Interest on each Loan shall be payable in arrears on each Interest Payment Date applicable to such Loan except as otherwise provided in this Agreement. The applicable IBO Rate or Alternate Base Rate for each Interest Period or day within an Interest Period, as the case may be, shall be determined by the Administrative Agent (which determination, made in good faith, shall create a rebuttable presumption that the same is accurate). The Administrative Agent shall promptly advise the Company and each Bank, as appropriate, of such determination. SECTION 2.10. Interest on Overdue Amounts. If any Borrower shall default in the payment of the principal of or interest on any Loan or any other amount becoming due hereunder, whether at scheduled maturity, by notice of prepayment, acceleration or otherwise such Borrower shall on demand from time to time pay interest, to the extent permitted by law, on such defaulted amount up to (but not including) the date of actual payment (after as well as before judgment) at a rate per annum equal to the lesser of (a) the Alternate Base Rate plus 2% per annum (if the Alternate Base Rate is based on the Prime Rate, computed on the basis of the actual number of days elapsed over a year of 365 or 366 days, as the case may be; if the Alternate Base Rate is based on the Federal FACILITY A -28- 29 Funds Effective Rate, computed on the basis of the actual number of days elapsed over a year of 360 days) and (b) the Highest Lawful Rate. SECTION 2.11. Alternate Rate of Interest. In the event, and on each occasion, that on the day two Business Days prior to the commencement of any Interest Period for a Eurodollar Borrowing, (a) the Administrative Agent shall have determined that dollar deposits in the principal amounts of the Loans comprising such Borrowing are not generally available in the London interbank market, or (b) the Majority Banks shall have determined (and notified the Administrative Agent) that the rate at which such dollar deposits are being offered will not adequately and fairly reflect the cost to any Bank of making or maintaining its Eurodollar Loan during such Interest Period, the Administrative Agent shall, as soon as practicable thereafter, give written notice of such determination to the Borrowers and the Banks. In the event of any such determination, any request by a Borrower for a Eurodollar Loan shall, until the circumstances giving rise to such notice no longer exist, be deemed to be a request for an ABR Loan. Each such determination by the Administrative Agent or the Majority Banks hereunder, made in good faith, shall create a rebuttable presumption that the same is accurate. SECTION 2.12. Termination and Reduction of Commitments. (a) On any Existing Termination Date on which Loans are outstanding, the Total Commitment shall automatically reduce to the aggregate amount of such outstanding Loans and the Total Commitment shall be automatically terminated on the Maturity Date. (b) Subject to Section 2.13(b), upon at least ten Business Days' prior irrevocable written or facsimile notice to the Administrative Agent, the Company may at any time in whole permanently terminate, or from time to time in part permanently reduce, the Total Commitment; provided, however, that (i) each partial reduction of the Total Commitment shall be in an integral multiple of $1,000,000 and in a minimum principal amount of $25,000,000 and (ii) no such termination or reduction shall be permitted if, after giving effect thereto and to any repayments of the Loans made on the effective date thereof, the Total Commitment would be less than the aggregate outstanding principal amount of the then outstanding Competitive Loans. Such notice shall specify the date and the amount of the termination or reduction of the Total Commitment. The Administrative Agent shall promptly notify the Banks of the amount of any such termination or reduction of the Total Commitment. (c) Except in the circumstances described in Section 2.14 or Section 2.15, each reduction in the Total Commitment hereunder shall be made ratably among the Banks in accordance with their respective Commitments. The Company shall pay to the Administrative Agent for the account of the Banks, on the date of each termination or reduction, the Facility Fees on the amount of the Commitments so terminated or reduced, accrued through the date of such termination or reduction. FACILITY A -29- 30 SECTION 2.13. Prepayment. (a) Each Borrower shall have the right at any time and from time to time to prepay any Committed Borrowing, in whole or in part, upon written or facsimile notice (or telephone notice promptly confirmed by written or facsimile notice) to the Administrative Agent: (i) before 10:00 a.m., New York City time, five Business Days prior to prepayment, in the case of Eurodollar Committed Loans and (ii) before 10:00 a.m., New York City time, one Business Day prior to prepayment, in the case of ABR Loans; provided, however, that each partial prepayment shall be in an amount which is an integral multiple of $1,000,000 and not less than $10,000,000. No Borrower shall have the right to prepay any Competitive Borrowing. (b) On the date of any termination or reduction of the Commitments pursuant to Section 2.12(b), the Borrowers shall pay or prepay so much of the Committed Borrowings as shall be necessary in order that the aggregate principal amount of the Competitive Loans and Committed Loans outstanding will not exceed the Total Commitment, after giving effect to such termination or reduction. (c) Each notice of prepayment given by a Borrower shall specify the prepayment date and the principal amount of each Borrowing (or portion thereof) to be prepaid, shall be irrevocable and shall commit such Borrower to prepay such Borrowing (or portion thereof) by the amount stated therein on the date stated therein. All prepayments under this Section 2.13 shall be subject to Section 2.16 and Section 2.17 but otherwise without premium or penalty. All prepayments under this Section 2.13 shall be accompanied by accrued interest on the principal amount being prepaid to the date of prepayment. SECTION 2.14. Reserve Requirements; Change in Circumstances. (a) It is understood that the cost to each Bank of making or maintaining any of the Loans may fluctuate as a result of the applicability of, or changes in, reserve requirements imposed by the Board, including reserve requirements under Regulation D in connection with Eurocurrency Liabilities. Subject to Section 9.08, each Borrower agrees to pay to each Bank, as provided in Section 2.14(d), at any time when such Bank shall be required to maintain reserves with respect to liabilities or assets consisting of or including Eurocurrency Liabilities, additional interest on the unpaid principal amount of each Eurodollar Loan of such Bank from the date of such Loan until such principal amount is paid in full, payable on each Interest Payment Date for such Eurodollar Loan, at an interest rate per annum equal at all times during each Interest Period to the excess of (i) the rate obtained by dividing the IBO Rate for such Interest Period by a percentage equal to 100% minus the reserve percentage applicable during such Interest Period under regulations issued from time to time by the Board (or if more than one such percentage is so applicable, minus the daily average of such percentages for those days in such Interest Period during which any such percentage shall be so applicable) for determining the maximum requirement (including any emergency, supplemental or other marginal reserve requirement) for such Bank with respect to liabilities or assets consisting of or including Eurocurrency Liabilities over (ii) the IBO Rate for such Interest Period. It is understood by the parties hereto that the rates of interest applicable to Eurodollar Loans have been determined on the FACILITY A -30- 31 assumption that no such reserve requirements exist or will exist and that such rates do not reflect costs imposed on the Banks in connection with such reserve requirements. It is agreed that for purposes of this Section 2.14(a) the Eurodollar Loans made hereunder shall be deemed to constitute Eurocurrency Liabilities and to be subject to the reserve requirements of Regulation D without benefit of or credit for proration, exemptions or offsets which might otherwise be available to the Banks from time to time under Regulation D. (b) Notwithstanding any other provision herein, if after the Execution Date the introduction of any applicable law or regulation or any change in applicable law or regulation or in the interpretation or administration thereof by any governmental authority charged with the interpretation or administration thereof, or compliance by any Bank with any applicable guideline or request from any central bank or governmental authority (whether or not having the force of law) (i) shall change the basis of taxation of payments to any Bank of the principal of or interest on any Eurodollar Loan or Fixed Rate Loan made by such Bank or any other fees or amounts payable hereunder (other than (x) taxes imposed on the overall net income of such Bank or its Applicable Lending Office by the jurisdiction in which such Bank or its Applicable Lending Office has its principal office or by any political subdivision or taxing authority therein (or any tax which is enacted or adopted by such jurisdiction, political subdivision or taxing authority as a direct substitute for any such taxes) or (y) any tax, assessment or other governmental charge that would not have been imposed but for the failure of any Bank to comply with any certification, information, documentation or other reporting requirement), (ii) shall impose, modify or deem applicable any reserve, special deposit or similar requirement against assets of, deposits with or for the account of, or credit extended by, such Bank, or (iii) shall impose on such Bank or the London interbank market any other condition affecting this Agreement or any Eurodollar Loan or Fixed Rate Loan made by such Bank, and the result of any of the foregoing shall be to increase the cost to such Bank of maintaining its Commitment or of making or maintaining any Eurodollar Loan or Fixed Rate Loan or to reduce the amount of any sum received or receivable by such Bank hereunder (whether of principal, interest or otherwise) in respect thereof by an amount deemed in good faith by such Bank to be material, then each Borrower shall pay to the Administrative Agent for the account of such Bank such additional amount or amounts with respect to the Eurodollar Loans and Fixed Rate Loans of such Borrower as will compensate such Bank for such increase or reduction to such Bank upon demand by such Bank (through the Administrative Agent). (c) If any Bank shall have determined in good faith that the applicability of any law, rule, regulation or guideline adopted pursuant to or arising out of the July 1988 report of the Basle Committee on Banking Regulations and Supervisory Practices entitled "International Convergence of Capital Measurement and Capital Standards" or the adoption after the Execution Date of any other law, rule, regulation or guideline regarding capital adequacy, or any change in any of the foregoing or any change in the interpretation or administration thereof by any governmental authority, central bank or comparable agency charged with the interpretation or administration thereof, or compliance by any Bank (or any lending office of such Bank) with any request or FACILITY A -31- 32 directive regarding capital adequacy (whether or not having the force of law) of any such authority, central bank or comparable agency, has or would have the effect of reducing the rate of return on such Bank's capital as a consequence of this Agreement or the Loans made by such Bank pursuant hereto to a level below that which such Bank could have achieved but for such applicability, adoption, change or compliance (taking into consideration such Bank's policies with respect to capital adequacy) by an amount deemed by such Bank to be material, then from time to time, as provided in Section 2.14(d), each Borrower shall pay to such Bank such additional amount or amounts as will compensate such Bank for any such increased capital requirement. (d) Each Bank will notify the Borrowers through the Administrative Agent of any event occurring after the date of this Agreement which will entitle such Bank to compensation pursuant to this Section 2.14, as promptly as practicable, and in any event within 90 days after it becomes aware thereof and determines to request compensation. A certificate of a Bank setting forth in reasonable detail (i) such amount or amounts as shall be necessary to compensate such Bank (or participating banks or other entities pursuant to Section 9.11) as specified in paragraph (a), (b) or (c) above, as the case may be, and (ii) the calculation of such amount or amounts under clause (a)(i), shall be delivered to the Borrowers (with a copy to the Administrative Agent) and shall, to the extent permitted by law, be conclusive absent manifest error. The Borrowers shall pay to the Administrative Agent for the account of such Bank the amount shown as due on any such certificate within 10 days after its receipt of the same. (e) Except as expressly provided in Section 2.14(d), failure on the part of any Bank to demand compensation for any increased costs or reduction in amounts received or receivable or reduction in return on capital with respect to any Interest Period or any other period shall not constitute a waiver of such Bank's rights to demand compensation for any increased costs or reduction in amounts received or receivable or reduction in return on capital with respect to such Interest Period or any other period; provided that no Borrower shall be required to compensate a Bank pursuant to this Section 2.14 for any increased costs or reductions incurred more than 270 days prior to the date that such Bank notifies such Borrower of the change in law giving rise to such increased costs or reductions and of such Bank's intention to claim compensation therefor; provided further that, if the change in law giving rise to such increased costs or reductions is retroactive, then the 270-day period referred to above shall be extended to include the period of retroactive effect thereof. The protection of this Section 2.14 shall be available to each Bank regardless of any possible contention of invalidity or inapplicability of law, regulation or condition which shall have been imposed. (f) In the event any Bank shall seek compensation pursuant to this Section 2.14, the Company may give notice to such Bank (with copies to the Administrative Agent) that it wishes to seek one or more Eligible Assignees (which may be one or more of the Banks) to assume the Commitment of such Bank and to purchase its outstanding Loans. Each Bank requesting compensation pursuant to this Section 2.14 agrees to sell its Commitment, Loans and interest in this FACILITY A -32- 33 Agreement pursuant to Section 9.11(c) to any such Eligible Assignee for an amount equal to the sum of the outstanding unpaid principal of and accrued interest on such Loans plus all other fees and amounts (including any compensation claimed by such Bank under this Section 2.14 or Section 2.16) due such Bank hereunder calculated, in each case, to the date such Commitment, Loans and interest are purchased, whereupon such Bank shall have no further Commitment or other obligation to any Borrower hereunder. (g) Without prejudice to the survival of any other obligations of the Borrowers hereunder, the obligations of the Borrower under this Section 2.14 shall survive the termination of this Agreement and the payment or assignment of the Loans. (h) Notwithstanding anything in this Section 2.14 to the contrary, in no event shall any Bank be permitted to take or receive any compensation hereunder constituting interest in excess of the Highest Lawful Rate. SECTION 2.15. Change in Circumstances. (a) Notwithstanding any other provision herein, if any change in any law or regulation or in the interpretation thereof by any governmental authority charged with the administration or interpretation thereof shall make it unlawful for any Bank or its Eurodollar Lending Office to make or maintain any Eurodollar Loan or to give effect to its obligations as contemplated hereby, then, by written notice to the Borrower and to the Administrative Agent, such Bank may: (i) declare that Eurodollar Loans will not thereafter be made by such Bank hereunder, whereupon such Bank shall not submit a Competitive Bid in response to a request for Eurodollar Competitive Loans and any request by a Borrower for a Eurodollar Committed Borrowing shall, as to such Bank only (unless such Borrower (x) shall have withdrawn such request, in which case such request shall be of no force and effect, or (y) shall have made a new request for a Borrowing of a different Type in accordance with the terms hereof, which shall be deemed to supersede such request for a Eurodollar Committed Borrowing), be deemed a request for an ABR Loan; and (ii) require that all outstanding Eurodollar Loans made by it be converted to ABR Loans, in which event all such Eurodollar Loans shall be automatically converted to ABR Loans as of the effective date of such notice as provided in Section 2.15(b). In the event any Bank shall exercise its rights under clause (i) or (ii) above with respect to Eurodollar Loans, all payments and prepayments of principal which would otherwise have been applied to repay the Eurodollar Loans that would have been made by such Bank or the converted Eurodollar Loans of such Bank shall instead be applied to repay the ABR Loans made by such Bank or the Banks, as the case may be, in lieu of, or resulting from the conversion of, such Eurodollar Loans. FACILITY A -33- 34 (b) For purposes of this Section 2.15, a notice to any Borrower (with a copy to the Administrative Agent) by any Bank pursuant to Section 2.15(a) shall be effective as to each Eurodollar Loan, if lawful, on the last day of the Interest Period currently applicable to such Eurodollar Loan; in all other cases such notice shall be effective on the date of receipt by the Borrower. (c) In the event any Bank shall give a notice to any Borrower pursuant to this Section 2.15, the Company may give notice to such Bank (with a copy to the Administrative Agent) that it wishes to seek one or more Eligible Assignees (which may be one or more of the Banks) to assume the Commitment of such Bank and to purchase its outstanding Loans. Each Bank giving a notice to any Borrower pursuant to this Section 2.15 agrees to sell its Commitment, Loans and interest in this Agreement pursuant to Section 9.11(c) to any such Eligible Assignee for an amount equal to the sum of the outstanding unpaid principal of and accrued interest on such Loans plus all other fees and amounts (including any compensation claimed by such Bank under Section 2.14 or Section 2.16) due such Bank hereunder calculated, in each case, to the date such Commitment, Loans, interest and fees are purchased, whereupon such Bank shall have no further Commitment or other obligation to any Borrower hereunder. (d) None of the Banks shall be permitted to terminate availability of Eurodollar Loans as provided in this Section 2.15 on a discriminatory basis (i.e., availability of Eurodollar Loans is not also terminated by the applicable Bank with respect to other customers of such Bank similarly situated where such customer is subject to documents providing for such right of termination). SECTION 2.16. Indemnity. The Company shall indemnify each Bank against any loss or reasonable expense which such Bank may sustain or incur as a consequence of (a) any failure by a Borrower to fulfill on the date of any Borrowing hereunder the applicable conditions set forth in Article III, (b) any failure by a Borrower to borrow or to refinance, convert (other than conversion into an ABR Loan) or continue any Loan hereunder after a Committed Borrowing Request pursuant to Article II has been given or after Competitive Bids have been accepted or after a notice of conversion or continuation has been given pursuant to Section 2.05, (c) any payment, prepayment or conversion of a Eurodollar Loan or Fixed Rate Loan required or permitted by any provision of this Agreement or otherwise made on a date other than the last day of the applicable Interest Period, (d) any default in the payment or prepayment of the principal amount of any Loan or any part thereof or interest accrued thereon, as and when due and payable (at the due date thereof, by notice of prepayment or otherwise), or (e) the occurrence of any Event of Default, including, in the case of any of the events set forth in clauses (a) through (e) of this Section 2.16, any loss or reasonable expense sustained or incurred or to be sustained or incurred in liquidating or employing deposits from third parties acquired to effect or maintain such Loan or any part thereof as a Eurodollar Loan or Fixed Rate Loan. Such loss or reasonable expense shall include an amount equal to the excess, if any, as reasonably determined by each Bank of (y) its cost of obtaining the funds for the Loan being paid, FACILITY A -34- 35 prepaid or converted or not borrowed, refinanced, converted or continued (based on the IBO Rate or, in the case of a Fixed Rate Loan, the fixed rate of interest applicable thereto) for the period from the date of such payment, prepayment or conversion or failure to borrow, refinance, convert or continue to the last day of the Interest Period for such Loan (or, in the case of a failure to borrow, refinance, convert or continue, the Interest Period for the Loan which would have commenced on the date of such failure to borrow, refinance, convert or continue) over (z) the amount of interest (as reasonably determined by such Bank) that would be realized by such Bank in reemploying the funds so paid, prepaid or converted or not borrowed, refinanced, converted or continued for such period or Interest Period, as the case may be. A certificate of each Bank setting forth any amount or amounts which such Bank is entitled to receive pursuant to this Section 2.16 together with either a calculation of such amount or amounts or a statement of the basis on which such amount or amounts have been determined shall be delivered to the Company (with a copy to the Administrative Agent) and such calculation or statement, made in good faith, shall create a rebuttable presumption that the same is accurate. The Company shall pay to the Administrative Agent for the account of each Bank the amount shown as due on any certificate within 30 days after its receipt of the same. Without prejudice to the survival of any other obligations of the Company hereunder, the obligations of the Company under this Section 2.16 shall survive the termination of this Agreement and/or the payment or assignment of any of the Loans. Without limitation of this Section 2.16, the provisions of this Section 2.16 shall be enforceable against the Company with respect to the conditions described in clauses (a) and (b) of this Section 2.16 with respect to any Committed Borrowing Request or Competitive Bid Request given by a Borrower hereunder on or after the Execution Date regardless of whether the Effective Date occurs. Notwithstanding the foregoing, in no event shall any Bank be permitted to receive any compensation hereunder constituting interest in excess of the Highest Lawful Rate. SECTION 2.17. Pro Rata Treatment. Except as required under clause (d) of the proviso of Section 2.05, Section 2.14, Section 2.15, or Section 2.16, (a) each Committed Borrowing and each refinancing of any Borrowing with a Committed Borrowing shall be allocated pro rata among the Banks in accordance with their respective available Commitments, (b) each payment of the Facility Fees and each reduction of the Commitments shall be allocated pro rata among the Banks in accordance with their respective Commitments and (c) each payment or prepayment of principal of any Committed Borrowing and each payment of interest on the Loans comprising part of a Committed Borrowing shall be allocated pro rata among the Banks participating in such Borrowing in accordance with the respective principal amounts of their outstanding Loans comprising such Borrowing. Except as required under clause (d) of the proviso to Section 2.05, each payment of principal of any Competitive Borrowing shall be allocated pro rata among the Banks participating in such Borrowing in accordance with the respective principal amounts of their outstanding Competitive Loans comprising such Borrowing. Each payment of interest on any Competitive Borrowing shall be allocated pro rata among the Banks participating in such Borrowing in accordance with the respective amounts of accrued and unpaid interest on their outstanding Competitive Loans comprising such Borrowing. For purposes of determining the available FACILITY A -35- 36 Commitments of the Banks at any time, each outstanding Competitive Borrowing shall be deemed to have utilized the Commitments of the Banks (including those Banks which shall not have made Loans as part of such Competitive Borrowing) pro rata in accordance with such respective Commitments. Each Bank agrees that in computing such Bank's portion of any Borrowing to be made hereunder, the Administrative Agent may, in its discretion, round each Bank's percentage of such Borrowing to the next higher or lower whole dollar amount. SECTION 2.18. Sharing of Setoffs. Each Bank agrees that if it shall, through the exercise of a right of banker's lien, setoff or counterclaim against the Borrowers (pursuant to Section 9.06 or otherwise), including, but not limited to, a secured claim under Section 506 of Title 11 of the United States Code or other security or interest arising from, or in lieu of, such secured claim, received by such Bank under any applicable bankruptcy, insolvency or other similar law or otherwise, or by similar means, obtain payment (voluntary or involuntary) (other than pursuant to Section 2.14, Section 2.15 or Section 2.16) of any Committed Loan or Loans as a result of which the unpaid principal portion of the Committed Loans of such Bank shall be proportionately less than the unpaid principal portion of the Committed Loans of any other Bank, it shall be deemed simultaneously to have purchased from such other Bank at face value, and shall promptly pay to such other Bank the purchase price for, a participation in the Committed Loans of such other Bank, so that the aggregate unpaid principal amount of the Committed Loans and participations in the Committed Loans held by each Bank shall be in the same proportion to the aggregate unpaid principal amount of all Committed Loans then outstanding as the principal amount of its Committed Loans prior to such exercise of banker's lien, setoff or counterclaim or other event was to the principal amount of all Committed Loans outstanding prior to such exercise of banker's lien, setoff or counterclaim or other event; provided, however, that, if any such purchase or purchases or adjustments shall be made pursuant to this Section 2.18 and the payment giving rise thereto shall thereafter be recovered, such purchase or purchases or adjustments shall be rescinded to the extent of such recovery and the purchase price or prices or adjustment restored without interest. Each Borrower expressly consents to the foregoing arrangements and agrees that any Bank holding a participation in a Committed Loan deemed to have been so purchased may, to the extent permitted by law, exercise any and all rights of banker's lien, setoff or counterclaim with respect to any and all moneys owing by such Borrower to such Bank by reason thereof as fully as if such Bank had made a Committed Loan directly to such Borrower in the amount of such participation. SECTION 2.19. Payments. (a) Each Borrower shall make each payment hereunder not later than noon, New York City time, on the day when due in lawful money of the United States (in freely transferable dollars) to the Administrative Agent at its address referred to in Section 9.02 for the account of the Banks, in federal or other immediately available funds. The Administrative Agent will promptly thereafter cause to be distributed like funds relating to the payment of principal or interest on Committed Loans (other than pursuant to Section 2.14, Section 2.15 and Section 2.16) or Facility Fees ratably to the Banks and like funds relating to the payment of any other amount (including payments of principal or interest on Competitive Loans which are not made ratably to the FACILITY A -36- 37 Banks) payable to any Bank to such Bank for the account of its Applicable Lending Office, in each case to be applied in accordance with the terms of this Agreement. If the Administrative Agent fails to send to any Bank its portion of any payment timely received by the Administrative Agent hereunder by the close of business on the day such payment was received, the Administrative Agent shall pay to such Bank interest on its portion of such payment from the day such payment was timely received by the Administrative Agent until the date such Bank's portion of such payment is sent to such Bank, at the Federal Funds Effective Rate. (b) Whenever any payment hereunder (including principal of or interest on any Borrowing or any fees or other amounts), shall be stated to be due on a day other than a Business Day, such payment shall be made on the next succeeding Business Day, and such extension of time shall in such case be included in the computation of payment of interest, fees or other amounts, as the case may be; provided, however, if such extension would cause payment of interest on or principal of a Eurodollar Loan to be made in the next following calendar month, such payment shall be made on the next preceding Business Day. (c) Unless the Administrative Agent shall have received notice from a Borrower prior to the date on which any payment is due to the Banks hereunder that such Borrower will not make such payment in full, the Administrative Agent may assume that such Borrower has made such payment in full to the Administrative Agent on such date and the Administrative Agent may, in reliance upon such assumption, cause to be distributed to each Bank on such due date an amount equal to the amount then due such Bank. If and to the extent a Borrower shall not have so made such payment in full to the Administrative Agent, each Bank shall repay to the Administrative Agent forthwith on demand such amount distributed to such Bank together with interest thereon, for each day from the date such amount is distributed to such Bank until the date such Bank repays such amount to the Administrative Agent, at the Federal Funds Effective Rate. SECTION 2.20. Taxes. (a) Except as expressly provided in the last sentence of Section 2.20(f), any and all payments by the Borrowers hereunder shall be made, in accordance with Section 2.19, free and clear of and without deduction for any and all present or future taxes, levies, imposts, deductions, charges or withholdings, and all liabilities with respect thereto, excluding taxes imposed on the Administrative Agent's or any Bank's income and franchise taxes imposed on the Administrative Agent or any Bank, in each case by the United States or any jurisdiction under the laws of which it is organized or any political subdivision of such jurisdiction of organization (all such nonexcluded taxes, levies, imposts, deductions, charges, withholdings and liabilities being hereinafter referred to as "Taxes"). If any Borrower shall be required by law to deduct any Taxes from or in respect of any sum payable hereunder to the Banks or the Administrative Agent (i) the sum payable shall be increased by the amount necessary so that after making all required deductions (including deductions applicable to additional sums payable under this Section 2.20) such Bank or the Administrative Agent (as the case may be) shall receive an amount equal to the sum it would have received had no such deductions been made, (ii) such Borrower shall make such deductions and FACILITY A -37- 38 (iii) such Borrower shall pay the full amount deducted to the relevant taxing authority or other governmental authority in accordance with applicable law. (b) In addition, each Borrower agrees to pay any present or future stamp or documentary taxes or any other excise or property taxes, charges or similar levies which arise from any payment made hereunder or from the execution, delivery or registration of, or otherwise with respect to, this Agreement or any Loan (hereinafter referred to as "Other Taxes"). (c) Each Borrower will indemnify each Bank and the Administrative Agent for the full amount of Taxes and Other Taxes (including any Taxes or Other Taxes imposed by any jurisdiction on amounts payable under this Section 2.20) paid by such Bank or the Administrative Agent, as the case may be, and any liability (including penalties, interest and expenses) arising therefrom or with respect thereto, whether or not such Taxes or Other Taxes were correctly or legally asserted. Such indemnification shall be made within 30 days after the date any Bank or the Administrative Agent, as the case may be, makes written demand therefor. If a Bank or the Administrative Agent shall become aware that it is entitled to receive a refund in respect of Taxes or Other Taxes, it shall promptly notify the applicable Borrower of the availability of such refund and shall, within 30 days after receipt by such Borrower, apply for such refund at such Borrower's expense. If any Bank or the Administrative Agent receives a refund in respect of any Taxes or Other Taxes for which such Bank or the Administrative Agent has received payment from a Borrower hereunder it shall promptly notify such Borrower of such refund and shall, within 30 days after receipt of a request by such Borrower (or promptly upon receipt, if such Borrower has requested application for such refund pursuant hereto), repay such refund to such Borrower without interest, provided that such Borrower, upon the request of such Bank or the Administrative Agent, agrees to return such refund (plus penalties, interest or other charges) to such Bank or the Administrative Agent in the event such Bank or the Administrative Agent is required to repay such refund. (d) Within 30 days after the date of any payment of Taxes or Other Taxes withheld by a Borrower in respect of any payment to any Bank (or transferee) or the Administrative Agent, such Borrower will furnish to the Administrative Agent, at its address referred to in Section 9.02, the original or a certified copy of a receipt evidencing payment thereof or, if such original or copy of a receipt is not available from the relevant taxing authority, other documentation of payment reasonably satisfactory to such Bank (or transferee) or the Administrative Agent. (e) Without prejudice to the survival of any other agreement contained herein, the agreements and obligations contained in this Section 2.20 shall survive the payment in full of principal and interest hereunder. (f) Each Bank which is organized outside the United States shall promptly notify the Borrowers of any change in its Applicable Lending Office and upon written request of any Borrower shall, prior to the immediately following due date of any payment by such Borrower FACILITY A -38- 39 hereunder, deliver to such Borrower such certificates, documents or other evidence, as required by the Code or Treasury Regulations issued pursuant thereto, including Internal Revenue Service Form 4224 or Form 1001 and any other certificate or statement or exemption required by Treasury Regulation Section 1.1441-1(a) or Section 1.1441-6(c) or any subsequent version thereof, properly completed and duly executed by such Bank establishing that such payment is (i) not subject to withholding under the Code because such payment is effectively connected with the conduct by such Bank of a trade or business in the United States or (ii) totally exempt from United States tax under a provision of an applicable tax treaty. Unless the Borrowers and the Administrative Agent have received forms or other documents satisfactory to them indicating that payments hereunder or under the Loans are not subject to United States withholding tax or are subject to such tax at a rate reduced by an applicable tax treaty, the Borrowers or the Administrative Agent shall withhold taxes from such payments at the applicable statutory rate in the case of payments to or for any Bank or assignee organized under the laws of a jurisdiction outside the United States. (g) Any Bank claiming any additional amounts payable pursuant to this Section 2.20 shall use reasonable efforts (consistent with legal and regulatory restrictions) to file any certificate or document requested by a Borrower or to change the jurisdiction of its Applicable Lending Office if the making of such a filing or change would avoid the need for or reduce the amount of any such additional amounts which may thereafter accrue and would not, in the sole determination of such Bank, be otherwise disadvantageous to such Bank. SECTION 2.21. Extensions of Termination Date. (a) The Company (for itself and on behalf of the other Borrowers) may, by notice to the Administrative Agent (a "Notice of Extension") given not less than 30 nor more than 45 days prior to the then effective Termination Date (such then effective Termination Date being an "Existing Termination Date"), advise the Banks that it requests an extension of the Existing Termination Date by not more than 364 calendar days, effective on the Existing Termination Date. The Administrative Agent will promptly, and in any event within five Business Days of the receipt of each Notice of Extension, notify the Banks of the contents of each such Notice of Extension. (b) Each Notice of Extension shall be irrevocable upon the Company and the other Borrowers and constitute a representation by the Borrowers that (i) neither any Event of Default nor any Default has occurred and is continuing, (ii) the representations and warranties contained in Article IV (other than those which expressly relate to an earlier date) are correct on and as of the date of such Notice of Extension, as though made on and as of such date and (iii) no Loans shall be outstanding on the Existing Termination Date. (c) In the event that a Notice of Extension is given to the Administrative Agent as provided in Section 2.21(a), and the Administrative Agent notifies a Bank of the contents thereof as provided in Section 2.21(a), such Bank shall on or before the fifteenth day next preceding the Existing Termination Date advise the Administrative Agent and the Company whether or not such FACILITY A -39- 40 Bank consents to the extension requested thereby and if any Bank fails to so advise the Administrative Agent and the Company, such Bank shall be deemed not to have consented to such extension. (d) Notwithstanding any provision of this Section 2.21 to the contrary, each Bank that has expressly consented to an extension of the Termination Date, may in its sole and absolute discretion at any time prior to the Existing Termination Date give the Administrative Agent written notice that such Bank has revoked its consent to such extension of the Existing Termination Date (a "Notice of Revocation"). Each Notice of Revocation shall be irrevocable. Upon receipt of any Notice of Revocation, the Administrative Agent will promptly notify the Borrowers and the Banks of the content of each Notice of Revocation and the Termination Date shall be the Existing Termination Date. (e) In the event (i) an extension of the Termination Date is consented to by all of the Banks and none of the Banks delivers a Notice of Revocation in accordance with Section 2.21(d) and (ii) on the Existing Termination Date the Borrowers deliver to the Administrative Agent and each of the Banks a certificate to the effect that no Default or Event of Default has occurred and is continuing on the Existing Termination Date and that the representations and warranties contained in Article IV (other than those which expressly relate to an earlier date) are correct on and as of the Existing Termination Date as though made on and as of such date, the Termination Date for the Loans and the Commitments of all of the Banks shall be automatically extended 364 calendar days past the Existing Termination Date, effective on the Existing Termination Date; provided, however, unless all outstanding Loans are repaid in full on the Existing Termination Date, the Termination Date for the Loans and the Commitments of the Banks shall be the Existing Termination Date. SECTION 2.22. Borrowing Subsidiary. The Company may designate any Wholly-owned Subsidiary (other than an Inactive Subsidiary) as a Borrowing Subsidiary. Upon the acceptance by the Administrative Agent of a Borrowing Subsidiary Counterpart of this Agreement in the form of Exhibit 2.22 (a "Borrowing Subsidiary Counterpart") executed by such Wholly-owned Subsidiary and the Company, such Wholly-owned Subsidiary shall be a Borrowing Subsidiary and a party to this Agreement. SECTION 2.23. Liability of Borrowing Subsidiaries. Notwithstanding anything in this Agreement to the contrary, in no event shall any Borrowing Subsidiary now or hereafter party to this Agreement be liable for the Loans or any other obligations of the Company or any other Borrowing Subsidiary hereunder; it being the intention of the parties hereto that each Borrowing Subsidiary shall be liable only for the Loans made to it and its other obligations hereunder. FACILITY A -40- 41 ARTICLE III CONDITIONS OF LENDING SECTION 3.01. Conditions Precedent to the Initial Loans to the Company. The obligation of each Bank to make its initial Loan to the Company is subject to the condition precedent that the Administrative Agent shall have received on or before the initial Borrowing Date the following, each dated (unless otherwise indicated) such date and, with respect to all such documents referred to in Section 3.01(a), Section 3.01(b), Section 3.01(c) and Section 3.01(d), in sufficient copies for each Bank and the Administrative Agent: (a) A counterpart of this Agreement (to which all of the Exhibits and Schedules have been attached) dated as of the date hereof executed by the Company, the Administrative Agent, the Co-Agents and the Banks. (b) (i) A copy of the articles of incorporation, as amended, of the Company, certified by the Secretary of State of the State of Texas and a certificate as to the good standing of the Company from the Comptroller of the State of Texas; (ii) a certificate of the Secretary or an Assistant Secretary of the Company certifying (A) that attached thereto is a true and complete copy of the bylaws of the Company as in effect on the date of such certificate and at all times since a date prior to the date of the resolutions described in (B) below, (B) that attached thereto is a true and complete copy of resolutions (i) duly adopted by the Executive Committee of the Board of Directors of the Company authorizing the execution, delivery and performance of this Agreement and the Agent's Fee Letter, and (ii) duly adopted by the Board of Directors of the Company, appointing said Executive Committee, and that such resolutions have not been modified, rescinded or amended and are in full force and effect, (C) that the articles of incorporation of the Company have not been amended since the last amendment thereto shown on the good standing certificate furnished pursuant to (i) above and (D) as to the incumbency and specimen signatures of each officer of the Company executing this Agreement and the Agent's Fee Letter and (iii) a certificate of another officer of the Company as to the incumbency and specimen signatures of the Secretary or Assistant Secretary of the Company. (c) A certificate of a Senior Vice President, an Executive Vice President or a Vice President of the Company certifying (i) the truth of the representations and warranties made by the Company in this Agreement and (ii) the absence of the occurrence and continuance of any Default or Event of Default and (iii) that on or prior to the initial Borrowing Date, the principal of and interest on all loans, all accrued fees and all other amounts due under the Existing Agreements shall have been paid in full and the commitments thereunder shall have been terminated. (d) The written opinions of (i) Liddell, Sapp, Zivley, Hill & LaBoon, L.L.P., counsel to the Company, addressed to the Administrative Agent and the Banks and in form and FACILITY A -41- 42 substance acceptable to the Administrative Agent and the Banks and (ii) James M. Shelger, Senior Vice President, General Counsel and Secretary of the Company, addressed to the Administrative Agent and the Banks and in form and substance acceptable to the Administrative Agent and the Banks. (e) An Administrative Questionnaire completed by each Bank. In addition, on the Effective Date the Administrative Agent shall have received all fees which it is entitled to receive on such date pursuant to the Agent's Fee Letter. SECTION 3.02. Conditions Precedent to the Initial Loan to each Borrowing Subsidiary. The obligation of each Bank to make its initial Loan to any Borrowing Subsidiary is subject to the further conditions precedent that the Administrative Agent shall have received on or before the Borrowing Date for such Loan the following, each dated such date, and in sufficient copies for each Bank and the Administrative Agent: (a) A Borrowing Subsidiary Counterpart executed by such Borrowing Subsidiary and acknowledged by the Company. (b) (i) A copy of the articles or certificate of incorporation (or other similar evidence of organization) of such Borrowing Subsidiary, together with all amendments, and a current certificate of good standing, both certified by the appropriate governmental officer, in its jurisdiction of organization; (ii) a certificate of the Secretary or Assistant Secretary of such Borrowing Subsidiary certifying, inter alia, (A) true and correct copies of the bylaws (or other similar document) of such Borrowing Subsidiary as in effect on the date of such certificate and at all times since a date prior to the date of the resolutions or other action described in clause (B) below, (B) true and complete copies of resolutions duly adopted by the Board of Directors of such Borrowing Subsidiary (or of the taking of such other action as may be necessary and appropriate under applicable law), authorizing such Borrowing Subsidiary to execute, deliver and perform its obligations under its Borrowing Subsidiary Counterpart and this Agreement, and to borrow and effect other transactions hereunder, and that such resolutions or other action has not been modified, rescinded or amended and is in full force and effect and (C) the incumbency and specimen signatures of the Persons executing any documents on behalf of such Borrowing Subsidiary; and (iii) a certificate of another officer of such Borrowing Subsidiary as to the incumbency and specimen signature of the Secretary or Assistant Secretary of such Borrowing Subsidiary. (c) A certificate of a principal officer of such Borrowing Subsidiary certifying (i) the truth of the representations and warranties set forth in this Agreement with respect to such Borrowing Subsidiary and (ii) the absence of the occurrence and continuance of any Default or Event of Default with respect to such Borrowing Subsidiary. FACILITY A -42- 43 (d) One or more written opinions of counsel to such Borrowing Subsidiaries, each in form and substance satisfactory to the Administrative Agent and the Banks. (e) A letter from Corporation Service Company, in form and substance satisfactory to the Administrative Agent, evidencing the obligation of Corporation Service Company to accept service of process in the State of New York on behalf of such Borrowing Subsidiary. (f) Such other documents as either the Administrative Agent or any Bank through the Administrative Agent may have reasonably requested. SECTION 3.03. Conditions Precedent to Each Committed Borrowing. The obligation of each Bank to make a Committed Loan on the occasion of any Committed Borrowing (including the initial Committed Borrowing) shall be subject to the further conditions precedent that on the Borrowing Date of such Committed Borrowing the following statements shall be true (and each of the giving of the applicable Committed Borrowing Request and the acceptance by a Borrower of the proceeds of such Committed Borrowing shall constitute a representation and warranty by the Company and such Borrower (if not the Company) that on the date of such Committed Borrowing such statements are true; provided, however, that to the extent such representation and warranty is made by a Borrowing Subsidiary, such representation and warranty shall (in the case of clauses (a) and (b) be made only with respect to such Borrowing Subsidiary and its Subsidiaries): (a) The representations and warranties contained in Article IV are correct on and as of the date of such Committed Borrowing, before and after giving effect to such Committed Borrowing and to the application of the proceeds therefrom, as though made on and as of such date; provided, however, that for purposes of this clause (a), on and after any date on which the Company delivers its consolidated financial statements to the Administrative Agent and the Banks pursuant to Section 5.01(a)(i) or 5.01(a)(ii), as the case may be, (A) the reference in the first sentence of Section 4.07 to the Company Financials shall be a reference to the consolidated financial statements of the Company and its Subsidiaries most recently delivered to the Administrative Agent and the Banks by the Company pursuant to Section 5.01(a)(i) or 5.01(a)(ii), as the case may be, prior to the date of such Committed Borrowing and (B) the reference in the last sentence of Section 4.07 to December 31, 1996, shall be a reference to the date of the audited consolidated financial statements most recently delivered to the Administrative Agent and the Banks pursuant to Section 5.01(a)(i); (b) No event has occurred and is continuing, or would result from such Committed Borrowing or from the application of the proceeds therefrom, which constitutes either a Default or an Event of Default; and FACILITY A -43- 44 (c) Following the making of such Committed Borrowing and all other Borrowings to be made on the same day under this Agreement, the aggregate principal amount of all Loans then outstanding shall not exceed the Total Commitment. SECTION 3.04. Conditions Precedent to Each Competitive Borrowing. The obligation of each Bank which is to make a Competitive Loan on the occasion of a Competitive Borrowing (including the initial Competitive Borrowing) to make such Competitive Loan as part of such Competitive Borrowing is subject to the further conditions precedent that: (a) The Administrative Agent shall have received a Competitive Bid Request with respect thereto; and (b) On the Borrowing Date of such Competitive Borrowing the following statements shall be true (and each of the giving of the applicable Competitive Bid Request and the acceptance by a Borrower of the proceeds of such Competitive Borrowing shall constitute a representation and warranty by the Company and such Borrower (if not the Company) that on the date of such Competitive Borrowing such statements are true; provided, however, that to the extent such representation and warranty is made by a Borrowing Subsidiary, such representation and warranty shall (in the case of clauses (i) and (ii)) be made only with respect to such Borrowing Subsidiary and its Subsidiaries): (i) The representations and warranties contained in Article IV are correct on and as of the date of such Competitive Borrowing, before and after giving effect to such Competitive Borrowing and to the application of the proceeds therefrom, as though made on and as of such date; provided, however, that for purposes of this clause (i), on and after any date on which the Company delivers its consolidated financial statements to the Administrative Agent and the Banks pursuant to Section 5.01(a)(i) or 5.01(a)(ii), as the case may be, (A) the reference in the first sentence of Section 4.07 to the Company Financials shall be a reference to the consolidated financial statements of the Company and its Subsidiaries most recently delivered to the Administrative Agent and the Banks by the Company pursuant to Section 5.01(a)(i) or 5.01(a)(ii), as the case may be, prior to the date of such Competitive Borrowing and (B) the reference in the last sentence of Section 4.07 to December 31, 1996, shall be a reference to the date of the audited consolidated financial statements most recently delivered to the Administrative Agent and the Banks pursuant to Section 5.01(a)(i); (ii) No event has occurred and is continuing, or would result from such Competitive Borrowing or from the application of the proceeds therefrom, which constitutes either a Default or an Event of Default; and FACILITY A -44- 45 (iii) Following the making of such Competitive Borrowing and all other Borrowings to be made on the same day under this Agreement, the aggregate principal amount of all Loans then outstanding shall not exceed the Total Commitment. SECTION 3.05. Conditions Precedent to Conversions and Continuations. The obligation of the Banks to convert any existing Committed Borrowing into a Eurodollar Committed Borrowing or to continue any existing Committed Borrowing as a Eurodollar Committed Borrowing is subject to the condition precedent that on the date of such conversion or continuation no Default or Event of Default shall have occurred and be continuing or would result from the making of such conversion or continuation. The acceptance of the benefits of each such conversion and continuation shall constitute a representation and warranty by the Company and each Borrowing Subsidiary to each of the Banks that no Default or Event of Default shall have occurred and be continuing or would result from the making of such conversion or continuation; provided, however, that to the extent such representation and warranty is made by a Borrowing Subsidiary, such representation and warranty shall be made only with respect to such Borrowing Subsidiary and its Subsidiaries. ARTICLE IV REPRESENTATIONS AND WARRANTIES The Company represents and warrants to the Administrative Agent and the Banks and, to the extent the following relates to any Borrowing Subsidiary or its Subsidiaries, such Borrowing Subsidiary severally represents and warrants to the Administrative Agent and the Banks as follows (all references in this Article IV to "this Agreement" being deemed to include also, in the case of any Borrowing Subsidiary, its Borrowing Subsidiary Counterpart): SECTION 4.01. Organization and Qualification. The Company and each of its Subsidiaries (except Inactive Subsidiaries) (a) are entities duly organized, validly existing and in good standing under the laws of the respective jurisdictions of their organization, (b) have the corporate or other power to own their property and to carry on their businesses as now conducted and (c) are duly qualified to do business as foreign corporations and are in good standing in every jurisdiction in which the failure to be so qualified would have a material adverse effect upon the business or properties of the Company and its Subsidiaries taken as a whole or upon the ability of any Borrower to perform its obligations under this Agreement or, in the case of the Company, the Guaranty. The Company is a Texas corporation. The corporations named in Schedule 4.01 are the only Subsidiaries of the Company on the date of this Agreement, and such Schedule accurately reflects the percentage of (y) the issued and outstanding capital stock and (z) the stock of each class having ordinary voting power, of each Subsidiary owned by the Company on the date of this Agreement and accurately identifies the Consolidated Subsidiaries, the Inactive Subsidiaries, the Substantially-owned Subsidiaries and the Wholly-owned Subsidiaries on the date of this Agreement. FACILITY A -45- 46 SECTION 4.02. Authorization, Validity, Etc. Each Borrower has the corporate or other power and authority to make and carry out this Agreement (and, in the case of the Company, the Guaranty), to make the Borrowings provided for herein and to perform its obligations hereunder (and, in the case of the Company, the Guaranty) and all such action has been duly authorized by all necessary corporate proceedings on its part. This Agreement has been duly and validly executed and delivered by the Borrowers and the Guaranty and the Agent's Fee Letter have been duly and validly executed and delivered by the Company and all such agreements constitute valid and legally binding agreements of the Borrowers parties thereto enforceable in accordance with their respective terms, except, in each case, as such enforceability may be limited by bankruptcy, insolvency or other laws of general application relating to or affecting the enforcement of creditors' rights. SECTION 4.03. Governmental Consents, Etc. No authorization, consent, approval, license or exemption of or filing or registration with any court or governmental department, commission, board, bureau, agency or instrumentality, domestic or foreign, is necessary for the valid execution, delivery or performance by any Borrower of this Agreement, or by the Company of the Guaranty or the Agent's Fee Letter. SECTION 4.04. Conflicting or Adverse Agreements or Restrictions. Neither the Company nor any of its Subsidiaries is a party to any contract or agreement or subject to any restriction which materially and adversely affects the business or assets or financial condition of the Company and its Subsidiaries taken as a whole. Neither the execution nor delivery of this Agreement or the Guaranty nor compliance with the terms and provisions hereof or thereof nor any Borrowing will be contrary to the provisions of, or constitute a default under, (a) the charter or bylaws of the Company or any of its Subsidiaries or (b) any applicable law or any applicable regulation, order, writ, injunction or decree of any court or governmental instrumentality or (c) any agreement to which the Company or any of its Subsidiaries is a party or by which it is bound or to which it is subject, which default, in the case of clause (b) or (c) of this Section 4.04 could, individually or together with all other such defaults described in this Section 4.04, reasonably be expected to result in a material adverse change in the business or condition of the Company and its Subsidiaries taken as a whole or upon the ability of any Borrower to perform its obligations under this Agreement and, in the case of the Company, the Guaranty. SECTION 4.05. Title to Assets. The Company and each Subsidiary (except Inactive Subsidiaries) have good and indefeasible title to their respective assets, subject to no Liens, except those permitted in Section 5.02(c). SECTION 4.06. Actions Pending. There is no action or proceeding pending or, to the knowledge of any Borrower, threatened against the Company or any of its Subsidiaries before any court or administrative agency which could reasonably be expected to result in a material adverse change in the business or condition of the Company and its Subsidiaries taken as a whole FACILITY A -46- 47 or upon the ability of such Borrower to perform its obligations under this Agreement and, in the case of the Company, the Guaranty. SECTION 4.07. Financial Statements. The Company has furnished or has caused to be furnished to each Bank (a) consolidated financial statements of the Company as at and for the fiscal year ended December 31, 1996, included in the Company's annual report for the fiscal year ended December 31, 1996 and accompanied by the report and opinion of Coopers & Lybrand L.L.P., (b) the Annual Report of the Company on Form 10-K for the fiscal year ended December 31, 1996 and (c) the Quarterly Report of the Company on Form 10-Q for the fiscal quarter ended March 31, 1997 (the financial statements described in clauses (a) through (c) being collectively, the "Company Financials"). The Company Financials have been prepared in conformity with GAAP consistently followed (except as otherwise disclosed in such financial statements) throughout the periods involved and present fairly the consolidated financial condition of the Company and its Consolidated Subsidiaries and the consolidated results of operations of the Company and its Consolidated Subsidiaries as at the dates and for the periods indicated. There has been no material adverse change in the consolidated condition or operation, financial or otherwise, of the Company and its Subsidiaries since December 31, 1996. SECTION 4.08. Default. Neither the Company nor any of its Subsidiaries is in default in any respect under the provisions of any instrument evidencing any Debt or of any agreement relating thereto, or in default in any respect under any order, writ, injunction or decree of any court, or in default in any respect under or in violation of any law, order, regulation or demand of any governmental instrumentality, which defaults or violations could reasonably be expected to have a material adverse effect upon the business or properties of the Company and its Subsidiaries taken as a whole or upon the ability of any Borrower to perform its obligations under this Agreement and, in the case of the Company, the Guaranty. SECTION 4.09. Investment Company Act. Neither the Company nor any of its Subsidiaries is, or is directly or indirectly controlled by or acting on behalf of any Person which is, an "investment company," as such term is defined in the Investment Company Act of 1940, as amended. SECTION 4.10. Public Utility Holding Company Act. Neither the Company nor any of its Subsidiaries is a non-exempt "holding company," or subject to regulation as such, or, to the knowledge of the Company's officers, an "affiliate" of a "holding company" or a "subsidiary company" of a "holding company," within the meaning of the Public Utility Holding Company Act of 1935, as amended. SECTION 4.11 ERISA. Neither the Company nor any of its Subsidiaries has incurred any accumulated funding deficiency, within the meaning of ERISA, material to the FACILITY A -47- 48 Company and its Subsidiaries taken as a whole, whether or not waived, or any liability material to the Company and its Subsidiaries, when taken as a whole, under Title IV of ERISA. SECTION 4.12. Payment of Taxes. The Company and each of its Subsidiaries (except Inactive Subsidiaries) have filed all federal and state income and franchise tax returns which, to the knowledge of the officers thereof, are required to be filed and have paid all taxes shown on said returns and all assessments which are due other than such taxes and assessments which are being contested in good faith by appropriate proceedings diligently conducted and for which reserves or other appropriate provisions, if any, as shall be required by GAAP, have been made. The consolidated federal income tax returns of the Company and its Consolidated Subsidiaries have been examined and reported on by the Internal Revenue Service for all fiscal years to and including the fiscal year ended December 31, 1992. SECTION 4.13. Purpose of Loans. None of the proceeds of the Loans will be used for the purpose of purchasing or carrying any "margin stock" within the meaning of Regulation G or Regulation U (herein called "Margin Stock") or for the purpose of reducing or retiring any indebtedness which was originally incurred to purchase or carry Margin Stock, or for any other purpose which might constitute a "purpose" credit within the meaning of Regulation G or Regulation U, as now in effect or as they may hereafter be amended. Margin Stock did not on December 31, 1996, and does not on the date hereof constitute more than 25% of the assets of the Company or any of its Subsidiaries, and the Company and the other Borrowers do not intend or foresee that Margin Stock will at any time during the term of this Agreement constitute more than 25% of such assets. SECTION 4.14. Patents, Etc. The Company and each of its Subsidiaries have all patents, patent rights or licenses, trademarks, service marks, trademark rights, trade names, trade name rights, and copyrights which are required in order for it to conduct its business as now conducted without any known material conflict with the rights of others. SECTION 4.15. No Material Guarantees or Letters of Credit. Each Assured Obligation and each Letter of Credit Obligation of the Company and its Subsidiaries is listed in the Company Financials, in the most recently delivered financial statements delivered pursuant to Section 5.01(a) or on Schedule 4.15, other than any such Assured Obligation or Letter of Credit Obligation which individually does not exceed $100,000 or which together with all such other Assured Obligations and Letter of Credit Obligations does not exceed $1,000,000; provided, however, after the Effective Date, Schedule 4.15 shall be deemed to include all Assured Obligations and Letter of Credit Obligations of the Company and its Subsidiaries incurred or issued in accordance with the provisions of Section 5.02(g). Neither the Company nor any of its Subsidiaries has any liability, contingent or otherwise, which either individually or collectively with all such other liabilities could reasonably be expected to have a material adverse effect upon the business or FACILITY A -48- 49 properties of the Company and its Subsidiaries taken as a whole or upon the ability of any Borrower to perform its obligations under this Agreement and, in the case of the Company, the Guaranty. SECTION 4.16. Enhancement Agreements. Schedule 4.16 describes the principal amount of all obligations, including all Debt, Letter of Credit Obligations and unfunded commitments which are covered by any Enhancement Agreement; provided, however, after the Execution Date, Schedule 4.16 shall be deemed to include all such principal obligations described on the schedule most recently delivered pursuant to the last sentence of Section 5.01(a). ARTICLE V COVENANTS SECTION 5.01. Affirmative Covenants. So long as any Loan shall remain unpaid or any Bank shall have any Commitment hereunder, unless the Majority Banks shall otherwise agree in writing, each Borrower covenants and agrees for itself and the Company covenants and agrees with respect to each other Borrower as follows: (a) Financial Statements and Other Information. The Company shall deliver to each Bank: (i) As soon as available, and in any event within 120 days after the end of each fiscal year, a copy of the annual audit report of the Company for such fiscal year containing a consolidated balance sheet, a consolidated statement of income, a consolidated statement of stockholders' equity and a consolidated statement of cash flows, all in reasonable detail and accompanied by a report and opinion of Coopers & Lybrand L.L.P. or another independent certified public accountant of recognized standing satisfactory to the Majority Banks. The Company will obtain from such accountants and deliver to each Bank at the time said financial statements are delivered the written statement of such accountants that in making the examination necessary for said report and opinion they have obtained no knowledge of any Event of Default or Default, or if such accountants shall have obtained knowledge of any Event of Default or Default, they shall state the nature and period of existence thereof in such statement; provided, that such accountants shall not be liable directly or indirectly to any such Bank for failure to obtain knowledge of any Event of Default or Default; (ii) As soon as available, and in any event within 60 days after the end of each of the first three quarterly accounting periods in each fiscal year, a consolidated statement of stockholders' equity and the report of the Company to the Securities and Exchange Commission on Form 10-Q; FACILITY A -49- 50 (iii) Promptly after sending or filing thereof, copies of all statements and reports sent to stockholders and all effective registration statements and regular or periodic reports filed with the Securities and Exchange Commission; (iv) Promptly upon request, such additional financial or other information as any Bank may reasonably request; (v) Promptly, and in any case within five days after the President, the Senior Vice President and Chief Financial Officer, the Vice President and Treasurer or the General Counsel of the Company learns thereof, notice of (A) the occurrence of a Default or an Event of Default, (B) any material default of the Company or any of its Subsidiaries under any other borrowed money obligation, (C) any monetary or other material default of the Company or any of its Subsidiaries under any material contract or (D) receipt of any notice from any federal or other governmental instrumentality of any violation by the Company or any of its Subsidiaries of any legal requirement, which violation together with all other such violations by the Company and its Subsidiaries could reasonably be expected to have a material adverse effect upon the business or properties of the Company and its Subsidiaries taken as a whole or upon the ability of any Borrower to perform its obligations under this Agreement and, in the case of the Company, the Guaranty, describing the nature of such Default, such Event of Default, such default or such violation and what action the Company or such Subsidiary, as the case may be, has taken or proposes to take with respect thereto; and (vi) Promptly after each annual meeting of the Company's shareholders, an Officer's Certificate of the election and incumbency of the Company's officers and directors in form and substance satisfactory to the Banks. All financial statements specified in clauses (i) and (ii) above shall be furnished in consolidated form for the Company and its Consolidated Subsidiaries. Investments by the Company in its Subsidiaries other than its Consolidated Subsidiaries shall be accounted for on the equity method. Together with each delivery of financial statements required by clauses (i) and (ii) above, the Company will deliver to each Bank (y) schedules and/or computations demonstrating that the Company is in compliance with its covenants in Sections 5.02(a), 5.02(b), 5.02(c) and 5.02(g) or reflecting any noncompliance therewith as at the applicable date and (z) an Officer's Certificate stating that there exists no Event of Default or Default, or, if any Event of Default or Default exists, stating the nature thereof, the period of existence thereof and what action the Company or any other Borrower has taken or proposes to take with respect thereto. Together with each delivery of financial statements required by clause (i) above, the Company will deliver to each such Bank a FACILITY A -50- 51 schedule of the principal amount of all obligations of the Company covered by any Enhancement Agreement. (b) Books and Records. Each Borrower shall maintain, and cause each of its Subsidiaries to maintain, proper books of record and account in accordance with generally accepted accounting practices. (c) Insurance. Each Borrower shall maintain, and cause each of its Subsidiaries to maintain, insurance with responsible companies (or by self insurance to the extent authorized by law) in such amounts and against such risks as is customarily carried on comparable business and properties, and furnish to the Banks, upon request by the Administrative Agent or any Bank, an Officer's Certificate containing full information as to the insurance carried and self insurance levels maintained; and promptly after notice in writing from the Administrative Agent obtain such additional insurance as the Administrative Agent may reasonably request and which is customarily carried on comparable businesses or properties. (d) Maintenance of Property. Each Borrower shall cause its property and the property of its Subsidiaries to be maintained, preserved, protected and kept in good repair, working order and condition so that the business carried on in connection therewith may be conducted properly and efficiently. (e) Inspection of Property and Records. Upon reasonable advance notice, each Borrower shall permit any Person designated by the Administrative Agent or any of the Banks in writing to visit and inspect any of the properties, corporate books and financial records of such Borrower and its Subsidiaries and discuss their respective affairs and finances with their principal officers, all at such times as the Administrative Agent or such Bank may reasonably request. (f) Existence, Laws, Obligations. The Company shall maintain its corporate existence, comply and cause its Subsidiaries (except Inactive Subsidiaries) to comply with all applicable statutes and governmental regulations, including all applicable environmental statutes and regulations (except those the validity or applicability of which the Company shall be contesting in good faith and by appropriate proceedings diligently conducted for which such reserves or other appropriate provisions, if any, as shall have been required by GAAP, have been made), where the failure to so comply would have a material adverse effect on the business, operations, property or condition of the Company and its Subsidiaries taken as a whole or upon the ability of any Borrower to perform its obligations under this Agreement and, in the case of the Company, the Guaranty, and pay and cause its Subsidiaries (except Inactive Subsidiaries) to pay all taxes, assessments, governmental charges, claims for labor, supplies, rent and other obligations which if unpaid might become a Lien against FACILITY A -51- 52 the property of the Company or such Subsidiary (except Inactive Subsidiaries), and where the failure to make such payment or where the creation of such Lien would have a material adverse effect on the business, operations, property or condition of the Company and its Subsidiaries taken as a whole or upon the ability of any Borrower to perform its obligations under this Agreement and, in the case of the Company, the Guaranty, except any of the foregoing liabilities being contested in good faith by appropriate proceedings diligently conducted for which such reserves or other appropriate provisions, if any, as shall have been required by GAAP, have been made. SECTION 5.02. Negative Covenants. So long as any Loan shall remain unpaid or any Bank shall have any Commitment hereunder, without the written consent of the Majority Banks: (a) Net Worth. The Company will not permit Net Worth at any time to be less than $1,100,000,000. (b) Debt. The Company will not permit the ratio of Consolidated Debt to Total Capitalization at any time to be greater than .65 to 1.0. (c) Liens, Etc. The Company will not, and will not permit any of its Subsidiaries to, incur any Liabilities secured by a Lien upon any of the assets of the Company or any such Subsidiary or upon any shares of stock or any long-term receivable of the Company due from any of its Subsidiaries (whether such assets, shares of stock or long-term receivables are now owned or hereafter acquired) without in any such case effectively providing concurrently with the incurrence of any such Liability that all sums payable at that time or thereafter under this Agreement and the Guaranty (together with, if the Company shall so determine, any other Liabilities of the Company or such Subsidiary then existing or thereafter created which is not subordinate to such sums) shall be secured equally and ratably with (or at the option of the Company, prior to) such Liability, so long as such Liability shall be so secured; provided, however, that nothing in this Section 5.02(c) shall prevent, restrict or apply to (and there shall be excluded from secured Debt in any computation under this Section 5.02(c)) Liabilities secured by): (i) Liens for taxes, assessments, or similar charges, incurred in the ordinary course of business that are not yet past due or which are being contested by the Company or such Subsidiary in good faith and against which adequate reserves as required by GAAP have been established by the Company or such Subsidiary, as the case may be; (ii) Pledges or deposits made in the ordinary course of business to secure payment of worker's compensation, or to participate in any fund in connection with FACILITY A -52- 53 worker's compensation, unemployment insurance, old-age pensions or other social security programs; (iii) Liens of mechanics, materialmen, repairmen, warehousemen, carriers or other like Liens, securing obligations incurred in the ordinary course of business that are not yet past due or which are being contested by the Company or such Subsidiary in good faith and against which adequate reserves as required by GAAP have been established by the Company or such Subsidiary, as the case may be; (iv) Liens which secure Liabilities owing by a Subsidiary of the Company to the Company or to another Subsidiary of the Company; (v) Deposits to secure the performance of bids, trade contracts (other than for borrowed money), leases, statutory obligations, surety and appeal bonds, performance bonds and other obligations of a like nature incurred in the ordinary course of business; (vi) Easements, rights-of-way, restrictions and other similar encumbrances incurred in the ordinary course of business which, in the aggregate, are not substantial in amount and which do not in any case materially detract from the value of the property subject thereto or materially interfere with the ordinary conduct of the business of the Company or such Subsidiary; and (vii) Liens not otherwise permitted under this Section 5.02(c) which secure Liabilities permitted hereunder not exceeding, as to the Company and its Consolidated Subsidiaries, 10% of Consolidated Assets at any time outstanding. (d) Stock of Subsidiaries, Merger, Sale of Assets, Etc. The Company will not permit any of its Subsidiaries to issue or dispose of its stock (other than directors' qualifying shares) except to the Company or to another Subsidiary of the Company, and the Company will not and will not permit any of its Subsidiaries to sell or otherwise dispose of any shares of stock of, or obligation (howsoever evidenced) from, any Subsidiary of the Company, or to merge or consolidate with any other corporation or sell, lease or transfer or otherwise dispose of all or a substantial part of its assets (as distinguished from sales of excess land and other assets in the ordinary course of business which are permitted), whether in one transaction or a series of transactions, provided, however, that so long as after giving effect thereto no Default or Event of Default shall exist, the following transactions shall be permitted pursuant to this Section 5.02(d): FACILITY A -53- 54 (i) Any corporation including any Subsidiary of the Company may merge or consolidate with the Company provided that the Company shall be the continuing or surviving corporation; (ii) Any corporation may merge into or consolidate with any Subsidiary of the Company provided that the continuing or surviving corporation is a Subsidiary of the Company; (iii) Any Subsidiary of the Company may sell, lease, transfer or otherwise dispose of any of its assets to the Company or another Subsidiary of the Company; (iv) Provident may sell, lease, transfer or otherwise dispose of the stock or any assets of any Enforcement Subsidiary in an arm's-length transaction; (v) The Company may, with respect to any Acquisition, effect a disposition of stock or assets to the extent required pursuant to any agreement or consent order entered into between the Company and the Federal Trade Commission in connection with and as a condition to such Acquisition; and (vi) The Company or any of its Subsidiaries may sell or otherwise dispose of the stock of, or all or substantially all of the assets of, any of their respective Subsidiaries if, after giving effect to such sale or other disposition the aggregate amount of all such sales and dispositions by the Company and its Subsidiaries (including all dispositions pursuant to clause (vi) above) occurring on and after the Execution Date to the date of such sale or disposition do not exceed 10% of Consolidated Assets on the date of such sale or disposition. Consensual Liens granted by the Company or any of its Subsidiaries permitted pursuant to Section 5.02(c) shall not constitute a "disposition" for purposes of this Section 5.02(d) until such time as holder of any such Lien forecloses or otherwise enforces such Lien. (e) Change in Accounting Method. The Company will not and will not permit any of its Subsidiaries to make any change in the method of computing depreciation for financial statement purposes or any other material change in accounting methods other than such changes as may be required by the Financial Accounting Standards Board or the Securities and Exchange Commission or to conform newly acquired Subsidiaries to the Company's accounting methods. Upon making any such change, the Company will promptly give the Banks notice thereof. (f) Change of Business. The Company will not and will not permit any of its Subsidiaries to engage in a line or lines of business other than those being engaged in by the FACILITY A -54- 55 Company or one or more of its existing Subsidiaries on the date of this Agreement and lines of business related to the death care industry. (g) Guaranties and Letters of Credit. The Company will not and will not permit any Subsidiary of the Company to make or permit to remain outstanding any Assurance or any Letter of Credit unless, after giving effect thereto, the aggregate amount of all Assured Obligations and Letter of Credit Obligations then outstanding shall not exceed 20% of Net Worth, excluding, without duplication, the sum of the aggregate outstanding amount of all Debt of the Company and its Subsidiaries guaranteed by any such Assurances. (h) ERISA. The Company will not at any time permit any Plan to: (i) Engage in any "prohibited transaction" as such term is defined in Section 4975 of the Code or in Section 406 of ERISA for which there is no applicable exemption; (ii) Incur any "accumulated funding deficiency" as such term is defined in Section 302 of ERISA and Section 412 of the Code, whether or not waived; (iii) Be terminated under circumstances which are likely to result in the imposition of a Lien on the property of the Company or any member of the ERISA Group pursuant to Section 4068 of ERISA, if and to the extent such termination is within the control of the Company; or (iv) Cease to comply in any material respect with the provisions of the Code and ERISA applicable to such Plan, if any event or condition described in clause (i), (ii), (iii) or (iv) above is likely to subject the Company or any member of its ERISA Group to a liability which, in the aggregate, is material in relation to the business, operations, property or condition, financial or otherwise, of the Company and the other members of its ERISA Group on a consolidated basis. (i) Restriction on Use of Proceeds. No Borrower nor any agent acting on behalf of any Borrower has taken or will take any action, or has suffered to exist or will suffer to exist any condition, that might cause this Agreement or any Loan to violate Regulation G, Regulation U, Regulation X, or any other regulation of the Board or to violate the Securities Exchange Act of 1934, as amended, in each case as in effect now or as the same may hereafter be in effect. No Borrower will use, directly or indirectly, the proceeds of any Loan hereunder to acquire any security (within the meaning of the Securities Exchange Act of 1934, as amended), in any tender offer subject to Section 13 or 14 of the Securities Exchange Act of 1934, as amended, unless such tender offer has been approved by the Board of FACILITY A -55- 56 Directors (or other analogous body) of the issuer of the securities that are the subject of such tender offer, so long as a majority of the directors (or members) constituting such Board (or such body) were directors (or members) at least 30 days prior to the making of such tender offer. ARTICLE VI EVENTS OF DEFAULT SECTION 6.01. Events of Default. If any of the following events ("Events of Default") shall occur and be continuing: (a) Failure to Pay the Loans or the Guaranty. The Company or any Borrowing Subsidiary shall fail to pay or prepay (i) any principal of or interest on any Loan or, in the case of the Company, any of the Guaranteed Obligations, when due under this Agreement or (ii) any other amount due hereunder within ten days following the date on which payment of such other amount is due; or (b) Failure to Pay Certain Other Indebtedness. The Company or any of its Subsidiaries does not pay principal of or interest on any other Debt, Assured Obligation or Letter of Credit Obligation, in an amount of $10,000,000 or more, owed to a financial institution, when due or within any grace period allowed by such Debt, Assured Obligation or Letter of Credit Obligation, or if the holder of such other Debt, Assured Obligation or Letter of Credit Obligation declares, or may declare, such other Debt, Assured Obligation or Letter of Credit Obligation due prior to its stated maturity because of the Company's or such Subsidiary's default thereunder unless such default is waived or cured within one business day of its discovery; or (c) Failure to Pay Other Indebtedness. The Company or any of its Subsidiaries does not pay principal of or interest on any Debt, Assured Obligation or Letter of Credit Obligation, in an amount of $10,000,000 or more (except those described in Sections 6.01(a) and 6.01(b)) within five days after the date due (or within any longer period of grace that may be allowed by the terms thereof) or if the holder or holders (or a trustee on behalf of such holder or holders) of such other obligation declares such Debt, Assured Obligation or Letter of Credit Obligation due (or such Debt, Assured Obligation or Letter of Credit Obligation becomes due without such declaration) prior to its stated maturity because of the Company's or such Subsidiary's default thereunder, provided that if the holder of any such Debt, Assured Obligation or Letter of Credit Obligation accelerates the maturity thereof and the Company or such Subsidiary promptly (and in any case within 30 days following such acceleration) pays such Debt, Assured Obligation or Letter of Credit Obligation, it shall not be in default under this Section 6.01(c) by reason of such acceleration; or FACILITY A -56- 57 (d) Misrepresentation. Any material representation or warranty made or deemed made by or on behalf of the Company or any Borrowing Subsidiary herein or in any writing furnished in connection with this Agreement shall be false or misleading in any material respect when made or deemed made or furnished; or (e) Violation of Certain Covenants. The Company violates any covenant, agreement or condition contained in Section 5.02; or (f) Violation of Other Covenants. The Company or any Borrowing Subsidiary violates any other covenant, agreement or condition contained herein and such violation shall not have been remedied within 30 days after written notice shall have been given to the Company or such Borrowing Subsidiary by the Administrative Agent; or (g) Assignment for Benefit of Creditors. The Company or any of its Material Subsidiaries makes an assignment for the benefit of creditors; or (h) Voluntary Bankruptcy. The Company or any of its Material Subsidiaries applies to any tribunal for the appointment of a trustee or receiver or custodian of any substantial part of the assets of the Company or such Material Subsidiary, or commences any proceedings relating to the Company or such Material Subsidiary under any bankruptcy, reorganization, rearrangement, insolvency, readjustment of debt, dissolution or other liquidation law of any jurisdiction; or (i) Involuntary Bankruptcy. Any such application is filed, or any such proceedings are commenced, against the Company or any of its Material Subsidiaries, and the Company or such Material Subsidiary indicates its approval, consent or acquiescence, or an order is entered appointing such trustee or receiver or custodian, or adjudicating the Company or any of its Material Subsidiaries bankrupt or insolvent, or approving the petition in any such proceedings, and such order remains in effect for 60 days; or (j) Dissolution or Split-Up. Any order is entered in any proceeding against the Company or any of its Subsidiaries (i) which shall have contributed more than 15% of Consolidated Net Income during the immediately preceding fiscal year or (ii) the tangible assets of which shall have constituted more than 15% of Tangible Consolidated Assets of the Company as at the end of the immediately preceding fiscal year, decreeing the dissolution or split-up of the Company or such Subsidiary, and such order remains in effect for 60 days; or (k) Failure to Pay Dividend. The Company does not pay any dividend on any of its capital stock as declared or permits any dividend to accumulate on any of its capital stock in respect of which cumulative dividends are provided for; or FACILITY A -57- 58 (l) Undischarged Judgment. Final judgment for the payment of money in excess of $10,000,000 shall be rendered against the Company or any of its Subsidiaries and the same shall remain undischarged for a period of 30 days during which execution shall not be effectively stayed; or (m) ERISA Default. The actuarial present value of unfunded vested benefits under all Plans (other than multiemployer plans, as defined in Section 3(37) of ERISA) shall exceed $10,000,000 (excluding in such computation any Plan with assets greater than benefit liabilities), or any one or more of the following events shall occur with respect to a Plan or Plans and such occurrence (or occurrences, in the aggregate) could result in liability of the Company or any of its Subsidiaries to the PBGC or to the Plan or Plans in the aggregate amount of $10,000,000 or more for the Company and such Subsidiaries taken as a whole: (i) Any finding or determination shall be made under Section 4041(c) or (e) of ERISA; (ii) Any fact or circumstance shall occur which, in the reasonable opinion of the Majority Banks, provides grounds for the commencement of any proceeding under Section 4042 of ERISA; (iii) Any proceeding shall be commenced under Section 4042 of ERISA; (iv) Any Plan termination; or (v) Any full or partial withdrawal (as such terms are defined in Title IV of ERISA); then, (i) if any Event of Default described in Section 6.01(h) or Section 6.01(i) shall occur and be continuing, all Loans then outstanding hereunder and interest accrued thereon and all other liabilities hereunder shall thereupon become and be immediately due and payable without presentment, demand, protest, notice of intent to accelerate, or other notice of any kind to any Borrower or any other Person, all of which are hereby expressly waived by each Borrower, the Commitments shall thereupon immediately terminate and the Banks shall be under no further obligation to make Loans hereunder, and (ii) if any other Event of Default shall occur and be continuing, the Administrative Agent shall (A) if requested by the Majority Banks, by notice to the Borrowers, terminate the Commitments and they shall thereupon immediately terminate and (B) if requested by the Majority Banks, by notice to the Borrowers, declare all Loans then outstanding hereunder and interest accrued thereon and all other liabilities of the Borrowers hereunder and under the Agent's Fee Letter to be immediately due and payable, and the same shall thereupon become and be forthwith due and payable without presentment, demand, protest, notice of intent to accelerate, or other notice FACILITY A -58- 59 of any kind to any Borrower or any other Person, all of which are hereby expressly waived by each Borrower. ARTICLE VII THE ADMINISTRATIVE AGENT SECTION 7.01. Authorization and Action. Subject to Section 7.06, each Bank hereby irrevocably appoints and authorizes the Administrative Agent to act on its behalf and to exercise such powers under this Agreement and the Guaranty as are specifically delegated to or required of the Administrative Agent by the terms hereof or thereof, together with such powers as are reasonably incidental thereto. As to any matters not expressly provided for by this Agreement (including enforcement or collection of the Loans) or the Guaranty, the Administrative Agent shall not be required to exercise any discretion or take any action, but shall be required to act or to refrain from acting (and shall be fully protected in so acting or refraining from acting) upon the instructions of the Majority Banks, and such instructions shall be binding upon all Banks; provided, however, that the Administrative Agent shall not be required to take any action which exposes the Administrative Agent to personal liability or which is contrary to this Agreement, the Guaranty or applicable law. SECTION 7.02. Administrative Agent's Reliance, Etc. Neither the Administrative Agent nor any of its directors, officers, agents or employees shall be liable for any action taken or omitted to be taken by it or them under or in connection with this Agreement or the Loans (a) with the consent or at the request of the Majority Banks or (b) in the absence of its or their own gross negligence or willful misconduct (IT BEING THE EXPRESS INTENTION OF THE PARTIES THAT THE ADMINISTRATIVE AGENT AND ITS DIRECTORS, OFFICERS, AGENTS AND EMPLOYEES SHALL HAVE NO LIABILITY FOR ACTIONS AND OMISSIONS UNDER THIS SECTION 7.02 RESULTING FROM THEIR SOLE ORDINARY OR CONTRIBUTORY NEGLIGENCE). Without limitation of the generality of the foregoing, the Administrative Agent: (i) may treat the original holder, or the holder named in the most recent notice of assignment received by it pursuant to this Section 7.02, as the case may be, of each Loan as the holder thereof until the Administrative Agent receives written notice of the assignment or transfer thereof signed by such holder and in form satisfactory to the Administrative Agent; (ii) may consult with legal counsel (including counsel for any Borrower), independent public accountants and other experts selected by it and shall not be liable for any action taken or omitted to be taken in good faith by it in accordance with the advice of such counsel, accountants or experts; (iii) makes no warranty or representation to any Bank and shall not be responsible to any Bank for any statements, warranties or representations made in or in connection with this Agreement or any Loan; (iv) except as otherwise expressly provided herein, shall not have any duty to ascertain or to inquire as to the performance or observance of any of the terms, covenants or conditions of this Agreement or to inspect the property (including the books and records) of any Borrower; (v) shall not be responsible to any Bank for the due execution, legality, validity, enforceability, genuineness, sufficiency or value FACILITY A -59- 60 of this Agreement or any instrument or document furnished pursuant hereto; and (vi) shall incur no liability under or in respect of this Agreement or any Loan by acting upon any notice, consent, certificate or other instrument or writing (which may be by facsimile transmission) reasonably believed by it to be genuine and signed or sent by the proper party or parties. SECTION 7.03. Administrative Agent and Affiliates; Chase and Affiliates. Without limiting the right of any other Bank to engage in any business transactions with the Borrowers or any of its Affiliates, with respect to their Commitments and the Loans, if any, made by them, Chase and each other Bank that may become the Administrative Agent shall have the same rights and powers under this Agreement and its Loans as any other Bank and may exercise the same as though it were not the Administrative Agent; and the term "Bank" or "Banks" shall, unless otherwise expressly indicated, include Chase and any such other Bank, in their individual capacities. Chase, each other Person who becomes the Administrative Agent and their respective Affiliates may be engaged in, or may hereafter engage in, one or more loans, letters of credit, leasing or other financing activities not the subject of this Agreement (collectively, the "Other Financings") with any Borrower or any of its Affiliates, or may act as trustee on behalf of, or depositary for, or otherwise engage in other business transactions with, any Borrower or any of its Affiliates (all Other Financings and other such business transactions being collectively, the "Other Activities") with no responsibility to account therefor to the Banks. Without limiting the rights and remedies of the Banks specifically set forth herein, no other Bank by virtue of being a Bank hereunder shall have any interest in (a) any Other Activities, (b) any present or future guarantee by or for the account of any Borrower not contemplated or included herein, (c) any present or future offset exercised by the Administrative Agent in respect of any such Other Activities, (d) any present or future property taken as security for any such Other Activities or (e) any property now or hereafter in the possession or control of the Administrative Agent which may be or become security for the obligations of any Borrower or any of its Affiliates hereunder and under the Loans by reason of the general description of indebtedness secured, or of property contained in any other agreements, documents or instruments related to such Other Activities; provided, however, that if any payment in respect of such guarantees or such property or the proceeds thereof shall be applied to reduction of the obligations hereunder, then each Bank shall be entitled to share in such application according to its pro rata portion of such obligations. SECTION 7.04. Bank Credit Decision. Each Bank acknowledges and agrees that it has, independently and without reliance upon the Administrative Agent or any other Bank and based on the financial statements referred to in Section 4.07 and such other documents and information as it has deemed appropriate, made its own credit analysis and decision to enter into this Agreement. Each Bank also acknowledges and agrees that it will, independently and without reliance upon the Administrative Agent or any other Bank and based on such documents and information as it shall deem appropriate at the time, continue to make its own credit decisions in taking or not taking action under this Agreement. FACILITY A -60- 61 SECTION 7.05. Administrative Agent's Indemnity. The Administrative Agent shall not be required to take any action hereunder or to prosecute or defend any suit in respect of this Agreement or the Loans unless indemnified to the Administrative Agent's satisfaction by the Banks against loss, cost, liability and expense. If any indemnity furnished to the Administrative Agent shall become impaired, it may call for additional indemnity and cease to do the acts indemnified against until such additional indemnity is given. In addition, the Banks agree to indemnify the Administrative Agent (to the extent not reimbursed by the Borrowers), ratably according to the respective aggregate principal amounts of the Committed Loans then owing to each of them (or if no Committed Loans are at the time outstanding, ratably according to the respective aggregate amounts of their Commitments, or if no Commitments are outstanding, the respective aggregate amounts of the Commitments immediately prior to the time the Commitments ceased to be outstanding), from and against any and all liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses or disbursements of any kind or nature whatsoever which may be imposed on, incurred by, or asserted against the Administrative Agent in any way relating to or arising out of this Agreement or any action taken or omitted by the Administrative Agent under this Agreement (including any action taken or omitted under Article II). Without limitation of the foregoing, each Bank agrees to reimburse the Administrative Agent promptly upon demand for its ratable share of any out-of-pocket expenses (including reasonable counsel fees) incurred by the Administrative Agent in connection with the preparation, execution, administration, or enforcement of, or legal advice in respect of rights or responsibilities under, this Agreement to the extent that the Administrative Agent is not reimbursed for such expenses by the Borrowers. The provisions of this Section 7.05 shall survive the termination of this Agreement and/or the payment or assignment of any of the Loans. NOTWITHSTANDING THE FOREGOING, NO BANK SHALL BE LIABLE UNDER THIS SECTION 7.05 TO THE ADMINISTRATIVE AGENT FOR ANY PORTION OF SUCH LIABILITIES, OBLIGATIONS, LOSSES, DAMAGES, PENALTIES, ACTIONS, JUDGMENTS, SUITS, COSTS, EXPENSES OR DISBURSEMENTS DUE TO THE ADMINISTRATIVE AGENT RESULTING FROM THE ADMINISTRATIVE AGENT'S GROSS NEGLIGENCE OR WILLFUL MISCONDUCT. EACH BANK AGREES, HOWEVER, THAT IT EXPRESSLY INTENDS, UNDER THIS SECTION 7.05, TO INDEMNIFY THE ADMINISTRATIVE AGENT RATABLY AS AFORESAID FOR ALL SUCH LIABILITIES, OBLIGATIONS, LOSSES, DAMAGES, PENALTIES, ACTIONS, JUDGMENTS, SUITS, COSTS, EXPENSES AND DISBURSEMENTS ARISING OUT OF OR RESULTING FROM THE ADMINISTRATIVE AGENT'S SOLE, ORDINARY OR CONTRIBUTORY NEGLIGENCE. SECTION 7.06. Successor Administrative Agent. The Administrative Agent may resign at any time by giving written notice thereof to the Banks and the Borrowers and may be removed as Administrative Agent under this Agreement at any time, with or without cause, by the Majority Banks. Upon any such resignation or removal, the Majority Banks shall have the right to appoint a successor Administrative Agent. If no successor Administrative Agent shall have been so appointed by the Majority Banks, and shall have accepted such appointment, within 30 calendar days after the retiring Administrative Agent's giving of notice of resignation or the Majority Banks' removal of the retiring Administrative Agent, then the retiring Administrative Agent may, on behalf of the Banks, appoint a successor Administrative Agent, which shall be a commercial bank organized or licensed under the laws of the United States of America or of any state thereof and FACILITY A -61- 62 having a combined capital and surplus of at least $500,000,000. Upon the acceptance of any appointment as Administrative Agent hereunder by a successor Administrative Agent, such successor Administrative Agent shall thereupon succeed to and become vested with all the rights, powers, privileges and duties of the retiring Administrative Agent, and the retiring Administrative Agent shall be discharged from its duties and obligations under this Agreement. After any retiring Administrative Agent's resignation or removal as Administrative Agent hereunder, the provisions of this Article VII shall inure to its benefit as to any actions taken or omitted to be taken by it while it was Administrative Agent under this Agreement. SECTION 7.07. Notice of Default. The Administrative Agent shall not be deemed to have knowledge or notice of the occurrence of any Default or Event of Default hereunder unless the Administrative Agent shall have received notice from a Bank or a Borrower referring to this Agreement, describing such Default or Event of Default and stating that such notice is a "notice of default." If the Administrative Agent receives such a notice, the Administrative Agent shall give notice thereof to the Banks; provided, however, if such notice is received from a Bank, the Administrative Agent also shall give notice thereof to the Company. The Administrative Agent shall be entitled to take action or refrain from taking action with respect to such Default or Event of Default as provided in Section 7.01 and Section 7.02. SECTION 7.08. No Duty of Co-Agents. No Co-Agent shall have any duties, responsibilities or liabilities in such capacity with respect to the administration or enforcement of this Agreement. ARTICLE VIII GUARANTY In consideration of the premises and in order to induce the Banks to make Loans hereunder to the Borrowing Subsidiaries: SECTION 8.01. Guaranty. The Company hereby unconditionally and irrevocably guarantees the punctual payment when due, whether at stated maturity, by acceleration or otherwise, of all obligations of each Borrowing Subsidiary to pay the principal of and interest on the Loans owed by such Borrowing Subsidiary (including interest accruing or becoming owing both prior to and subsequent to the commencement of any proceeding against or with respect to such Borrowing Subsidiary under any chapter of the Bankruptcy Code of 1978 (11 U.S.C. Section 101 et seq.), as from time to time amended, or any similar statute in any other jurisdiction, whether or not such interest may be the subject of an allowable claim in such proceeding), and all other amounts from time to time payable by such Borrowing Subsidiary under this Agreement (such obligations with respect to the Borrowing Subsidiaries being herein called the "Guaranteed Obligations"), and agrees to pay any and all reasonable costs and expenses incurred by each Bank and the Administrative Agent in FACILITY A -62- 63 enforcing any rights under this guaranty (including the reasonable fees and expenses of outside counsel or the reasonable allocated costs of in-house counsel). This guaranty is an absolute, irrevocable, unconditional, present and continuing guaranty of payment and not of collectibility and is in no way conditioned or contingent upon any attempt to collect from any Borrowing Subsidiary, or any other action, occurrence or circumstance whatsoever. SECTION 8.02. Guaranty Absolute. The Company guarantees that the Guaranteed Obligations will be paid strictly in accordance with the terms of this Agreement and the Loans owed by the Borrowing Subsidiaries. The Company agrees that the Guaranteed Obligations, this Agreement and all other instruments and agreements applicable to the Company and the Borrowing Subsidiaries (this Agreement and all such other instruments and agreements being hereinafter referred to in this Article VIII as the "Documents") may be extended or renewed, and Loans repaid and reborrowed in whole or in part, without notice to or assent by the Company, and that it will remain bound upon this guaranty notwithstanding any extension, renewal or other alteration of any Guaranteed Obligations or Documents, or any repayment and reborrowing of Loans. To the maximum extent permitted by applicable law, except as expressly provided in this Agreement, the obligations of the Company under this guaranty shall be absolute, unconditional and irrevocable, and shall be performed strictly in accordance with the terms hereof under any circumstances whatsoever, including: (a) any extension, renewal, modification, settlement, compromise, waiver or release in respect of any Guaranteed Obligations; (b) any extension, renewal, amendment, modification, rescission, waiver or release in respect of any of the Documents; (c) any release, exchange, substitution, non-perfection or invalidity of, or failure to exercise rights or remedies with respect to, any direct or indirect security for any Guaranteed Obligations, including the release of any Borrowing Subsidiary or other Person liable on any Guaranteed Obligations; (d) any change in the corporate existence, structure or ownership of the Company, any Borrowing Subsidiary or any insolvency, bankruptcy, reorganization or other similar proceeding affecting the Company, any Borrowing Subsidiary or any of their respective assets; (e) the existence of any claim, defense, set-off or other rights or remedies which any Borrowing Subsidiary at any time may have against the Company, or the Company or such Borrowing Subsidiary may have at any time against the Administrative Agent, any Bank, any other Borrowing Subsidiary or any other Person, whether in connection with this Agreement, the other Documents, the transactions contemplated thereby or any other FACILITY A -63- 64 transaction other than by the payment in full by the Borrowing Subsidiaries of the Guaranteed Obligations after the termination of the Commitments of the Banks; (f) any invalidity or unenforceability for any reason of this Agreement or any other Document, or any provision of law purporting to prohibit the payment or performance by the Company or any Borrowing Subsidiary of the Guaranteed Obligations or the Documents, or of any other obligation to the Administrative Agent or any Bank; or (g) any other circumstances or happening whatsoever, whether or not similar to any of the foregoing. SECTION 8.03. Effect of Debtor Relief Laws. If after receipt of any payment of, or proceeds of any security applied (or intended to be applied) to the payment of all or any part of the Guaranteed Obligations, the Administrative Agent or any Bank is for any reason compelled to surrender or voluntarily surrenders, such payment or proceeds to any Person (a) because such payment or application of proceeds is or may be avoided, invalidated, declared fraudulent, set aside, determined to be void or voidable as a preference, fraudulent conveyance, fraudulent transfer, impermissible set-off or a diversion of trust funds or (b) for any other reason, including (i) any judgment, decree or order of any court or administrative body having jurisdiction over the Administrative Agent, any Bank or any of their respective properties or (ii) any settlement or compromise of any such claim effected by the Administrative Agent or any Bank with any such claimant (including any Borrowing Subsidiary), then the Guaranteed Obligations or part thereof intended to be satisfied shall be reinstated and continue, and this guaranty shall continue in full force as if such payment or proceeds had not been received, notwithstanding any revocation thereof or the cancellation of any instrument evidencing any Guaranteed Obligations or otherwise; and the Company shall be liable to pay the Administrative Agent and the Banks, and hereby does indemnify the Administrative Agent and the Banks and hold them harmless for the amount of such payment or proceeds so surrendered and all expenses (including reasonable attorneys' fees, court costs and expenses attributable thereto) incurred by the Administrative Agent or any Bank in the defense of any claim made against it that any payment or proceeds received by the Administrative Agent or any Bank in respect of all or part of the Guaranteed Obligations must be surrendered. The provisions of this paragraph shall survive the termination of this Agreement, and any satisfaction and discharge of the Borrowing Subsidiaries by virtue of any payment, court order or any federal or state law. SECTION 8.04. Subrogation. Notwithstanding any payment or payments made by the Company hereunder, or any set-off or application by the Administrative Agent or any Bank of any security or of any credits or claims, the Company will not assert or exercise any rights of the Administrative Agent or any Bank or of the Company against any Borrowing Subsidiary to recover the amount of any payment made by the Company to the Administrative Agent or any Bank hereunder by way of any claim, remedy or subrogation, reimbursement, exoneration, contribution, indemnity, participation or otherwise arising by contract, by statute, under common law or FACILITY A -64- 65 otherwise, and the Company shall not have any right of recourse to or any claim against assets or property of any Borrowing Subsidiary, until all of the obligations of the Company and the Borrowing Subsidiaries under the Documents are paid in full. If any amount shall nevertheless be paid to the Company by a Borrowing Subsidiary prior to payment in full of the obligations of the Company and such Borrowing Subsidiary under the Documents, such amount shall be held in trust for the benefit of the Administrative Agent and the Banks and shall forthwith be paid to the Administrative Agent to be credited and applied to the Guaranteed Obligations, whether matured or unmatured. The provisions of this paragraph shall survive the termination of this Agreement, and any satisfaction and discharge of the Borrowing Subsidiaries by virtue of any payment, court order or any federal or state law. SECTION 8.05. Subordination. If the Company becomes the holder of any indebtedness payable by a Borrowing Subsidiary, the Company hereby subordinates all indebtedness owing to it from such Borrowing Subsidiary to all indebtedness of such Borrowing Subsidiary to the Administrative Agent and the Banks, and agrees that during the continuance of any Default or Event of Default it shall not accept any payment on the same until payment in full of the obligations of such Borrowing Subsidiary under this Agreement and the other Documents after the termination of the Commitments of the Banks, and shall in no circumstance whatsoever attempt to set-off or reduce any obligations hereunder because of such indebtedness. If any amount shall nevertheless be paid to the Company by a Borrowing Subsidiary prior to payment in full of the Guaranteed Obligations, such amount shall be held in trust for the benefit of the Administrative Agent and the Banks and shall forthwith be paid to the Administrative Agent to be credited and applied to the Guaranteed Obligations, whether matured or unmatured. SECTION 8.06. Waiver. The Company hereby waives promptness, diligence, notice of acceptance and, to the extent permitted by law, any other notice with respect to any of the Guaranteed Obligations and this guaranty and waives presentment, demand of payment, notice of intent to accelerate, notice of dishonor or nonpayment and any requirement that the Administrative Agent or any Bank institute suit, collection proceedings or take any other action to collect the Guaranteed Obligations, including any requirement that the Administrative Agent or any Bank protect, secure, perfect or insure any Lien against any property subject thereto or exhaust any right or take any action against any Borrowing Subsidiary or any other Person or any collateral (it being the intention of the Administrative Agent, the Banks and the Company that this guaranty is to be a guaranty of payment and not of collection). It shall not be necessary for the Administrative Agent or any Bank, in order to enforce any payment by the Company hereunder, to institute suit or exhaust its rights and remedies against any Borrowing Subsidiary or any other Person, including others liable to pay any Guaranteed Obligations, or to enforce its rights against any security ever given to secure payment thereof. The Company hereby expressly waives to the maximum extent permitted by applicable law each and every right to which it may be entitled by virtue of the suretyship laws of the State of Texas, including any and all rights it may have pursuant to Rule 31, Texas Rules of Civil Procedure, Section 17.001 of the Texas Civil Practice and Remedies Code and Chapter 34 of the FACILITY A -65- 66 Texas Business and Commerce Code. The Company hereby waives marshaling of assets and liabilities, notice by the Administrative Agent or any Bank of any indebtedness or liability to which such Bank applies or may apply any amounts received by such Bank, and of the creation, advancement, increase, existence, extension, renewal, rearrangement or modification of the Guaranteed Obligations. The Company expressly waives, to the extent permitted by applicable law, the benefit of any and all laws providing for exemption of property from execution or for valuation and appraisal upon foreclosure. SECTION 8.07. Full Force and Effect. This Guaranty is a continuing guaranty and shall remain in full force and effect until all of the obligations of the Company and the Borrowing Subsidiaries under this Agreement and the other Documents and all other amounts payable under this guaranty have been paid in full (after the termination of the Commitments of the Banks). All rights, remedies and powers provided in this guaranty may be exercised, and all waivers contained in this guaranty may be enforced, only to the extent that the exercise or enforcement thereof does not violate any provisions of applicable law which may not be waived. ARTICLE IX MISCELLANEOUS SECTION 9.01. Amendments, Etc. No amendment or waiver of any provision of this Agreement, nor consent to any departure by the Company herefrom, shall in any event be effective unless the same shall be in writing and signed by the Majority Banks in all cases, and then, in any case, such waiver or consent shall be effective only in the specific instance and for the specific purpose for which given; provided, however, that no amendment, waiver or consent shall, unless in writing and signed by each Bank affected thereby, do any of the following: (a) change the definition of "Majority Banks" contained in Section 1.01, (b) except as expressly provided in Section 2.14(f) or Section 2.15(c), reduce or increase the amount or alter the terms of the Commitments of any Banks or subject any Banks to any additional obligations, (c) reduce or forgive the principal of, or rate or amount of interest applicable to, any Loan other than as provided in this Agreement, or any fees hereunder, (d) postpone any date fixed for any payment of principal of, or interest on, the Loans or any fees hereunder, (e) change Section 4.13, this Section 9.01, the last sentence of Section 9.11(a) or Article VIII, (f) change the percentage of the Commitments or of the aggregate unpaid principal amount of the Loans, or the number of Banks, which shall be required for the Banks or any of them to take any action hereunder or (g) release the Guaranty; and provided that no amendment, waiver or consent shall, unless in writing and signed by the Administrative Agent in addition to the Banks required above to take such action, affect the rights or duties of the Administrative Agent under this Agreement. SECTION 9.02. Notices, Etc. The Administrative Agent, any Bank, or the holder of any Loan, giving consent or notice or making any request of any Borrower provided for hereunder, shall FACILITY A -66- 67 notify each Bank and the Administrative Agent thereof. In the event that the holder of any Loan (including any Bank) shall transfer such Loan, it shall promptly so advise the Administrative Agent which shall be entitled to assume conclusively that no transfer of any Loan has been made by any holder (including any Bank) unless and until the Administrative Agent receives written notice to the contrary. Notices, consents, requests, approvals, demands and other communications (collectively "Communications") provided for or required herein shall be in writing (including facsimile Communications) and mailed, sent by facsimile transmission or delivered: (a) If to any Borrower, to it: c/o Service Corporation International 1929 Allen Parkway P.O. Box 130548 Houston, Texas 77019-0548 Telecopy Number: (713) 525-9067 Attention: Secretary (b) If to the Administrative Agent, to it at: Chase Agent Services One Chase Manhattan Plaza, 8th Floor New York, New York 10081 Telephone Number: (212) 552-7953 Telecopy Number: (212) 552-5658 Attention: Sandra Miklave with a copy to: Texas Commerce Bank National Association 707 Travis Street, 5TCBE 78 Houston, Texas 77002 Telephone Number: (713) 216-5319 Telecopy Number: (713) 216-7500 Attention: Jan Danvers (c) If to any Bank, as specified on the signature page for such Bank hereto or, in the case of any Person who becomes a Bank after the date hereof, as specified on the signature page of the Assignment and Acceptance executed by such Bank, or as to any party, such other address or facsimile number as such party may hereafter specify for such purpose in a Communication to the other parties hereto. (d) All Communications shall, when mailed, sent by facsimile transmission or delivered, be effective when deposited in the mails to any party at its address specified above, on the FACILITY A -67- 68 signature page hereto, or on the signature page of such Assignment and Acceptance (or other address designated by such party to the other parties hereto) or sent by facsimile transmission to any party to the facsimile transmission number as set forth herein or on the signature pages hereto, or on the signature pages of such Assignment and Acceptance (or other facsimile number designated by such party in a Communication to the other parties hereto) or delivered personally to any party at its address specified above, on the signature page hereof or on the signature page of such Assignment and Acceptance (or other address designated by such party in a Communication to the other parties hereto; provided, however, Communications to the Administrative Agent pursuant to Article II or Article VII shall not be effective until received by the Administrative Agent; and provided, further, that each Borrower shall indemnify each of the Administrative Agent and the Banks against any costs, claim, loss, expense (including legal fees) or liability which any of them may sustain or incur as a consequence of any facsimile notice or communication originating from such Borrower not being actually received by or delivered to the intended recipient thereof or any facsimile communication purporting to originate from such Borrower being made or delivered fraudulently. SECTION 9.03. No Waiver; Remedies. No failure on the part of any Bank or the Administrative Agent to exercise, and no delay in exercising, any right hereunder shall operate as a waiver thereof; nor shall any single or partial exercise of any such right, or any abandonment or discontinuance of any steps to enforce such right, preclude any other or further exercise thereof or the exercise of any other right. No notice to or demand on any Borrower in any case shall entitle such Borrower to any other or further notice or demand in similar or other circumstances. The remedies herein provided are cumulative and not exclusive of any remedies provided by law. SECTION 9.04. Costs, Expenses and Taxes. The Company agrees to pay on demand: (a) all reasonable costs and expenses of the Administrative Agent in connection with the preparation, execution, delivery and administration of this Agreement and the other documents to be delivered hereunder, including the reasonable fees and out-of-pocket expenses of counsel for the Administrative Agent with respect thereto and with respect to advising the Administrative Agent as to its rights and responsibilities under this Agreement, and any modification, supplement or waiver of any of the terms of this Agreement or any modification or extension of the Loans, and (b) all reasonable costs and expenses of each of the Banks and the Administrative Agent (including reasonable counsel fees and expenses of outside counsel and the reasonable allocated costs of in-house legal services) in connection with the enforcement of this Agreement and the Loans. In addition, unless prohibited by applicable law, the Company shall pay any and all stamp, mortgage and similar taxes payable or determined to be payable in connection with the execution and delivery or enforcement of this Agreement and the Loans and the other documents to be delivered hereunder, and agrees to save the Administrative Agent and each Bank harmless from and against any and all liabilities with respect to or resulting from any delay in paying or omission to pay such taxes, if any, which may be payable or determined to be payable in connection with the execution and delivery or enforcement of this Agreement. Without prejudice to the survival of any other obligations of the FACILITY A -68- 69 Company hereunder, the obligations of the Company under this Section 9.04 shall survive the termination of this Agreement and the payment or assignment of the Loans. SECTION 9.05. Indemnity. (a) The Company shall indemnify the Administrative Agent, the Banks and each Affiliate thereof and their respective directors, officers, employees and agents from, and hold each of them harmless against, any and all losses, liabilities, claims and damages to which any of them may become subject, insofar as such losses, liabilities, claims and damages arise out of or result from (i) any actual or proposed use by any Borrower of the proceeds of any extension of credit by any Bank hereunder or (ii) any investigation, litigation or other proceeding (including any threatened investigation or proceeding) relating to the foregoing, and the Company shall reimburse the Administrative Agent and each Bank, and each Affiliate thereof and their respective directors, officers, employees and agents, upon demand for any expenses (including legal fees) reasonably incurred in connection with any such investigation or proceeding; but excluding any such losses, liabilities, claims, damages or expenses incurred by reason of the gross negligence or willful misconduct of the Person to be indemnified. (b) WITHOUT LIMITING ANY PROVISION OF THIS AGREEMENT, IT IS THE EXPRESS INTENTION OF THE PARTIES HERETO THAT EACH PERSON TO BE INDEMNIFIED HEREUNDER OR THEREUNDER SHALL BE INDEMNIFIED AND HELD HARMLESS AGAINST ANY AND ALL LOSSES, LIABILITIES, CLAIMS AND DAMAGES ARISING OUT OF OR RESULTING FROM THE ORDINARY, SOLE OR CONTRIBUTORY NEGLIGENCE OF SUCH PERSON. Without prejudice to the survival of any other obligations of the Company hereunder, the obligations of the Company under this Section 9.05 shall survive the termination of this Agreement and the payment or assignment of the Loans. SECTION 9.06. Right of Setoff. If any Event of Default shall have occurred and be continuing, each Bank is hereby authorized at any time and from time to time, to the fullest extent permitted by law, to set off and apply any and all deposits (general or special, time or demand, provisional or final) at any time held and other indebtedness at any time owing by such Bank or any branch, subsidiary or Affiliate of such Bank to or for the credit or the account of the Company and each Borrowing Subsidiary against any of and all the obligations of the Company or such Borrowing Subsidiary now or hereafter existing under this Agreement and any Loan held by such Bank, irrespective of whether or not such Bank or the Administrative Agent shall have made any demand under this Agreement and although such obligations may be unmatured. Each Bank agrees promptly to notify the Borrower as to which such setoff and application was made after any such setoff and application made by such Bank, but the failure to give such notice shall not affect the validity of such setoff and application. The rights of each Bank under this Section 9.06 are in addition to other rights and remedies (including other rights of setoff) which such Bank may have. SECTION 9.07. Governing Law. This Agreement and all other documents executed in connection herewith (including each Assignment and Acceptance and each Borrowing Subsidiary Counterpart), shall be deemed to be contracts and agreements executed by the Borrowers, FACILITY A -69- 70 the Administrative Agent and the Banks party thereto under the laws of the State of New York and of the United States and for all purposes shall be construed in accordance with, and governed by, the laws of said state and of the United States. Without limitation of the foregoing, nothing in this Agreement or in any such other agreement shall be deemed to constitute a waiver of any rights which any Bank may have under applicable federal legislation relating to the amount of interest which such Bank may contract for, take, receive, reserve or charge in respect of any Loans, including any right to contract for, take, receive, reserve and charge interest at the rate allowed by the law of the state where such Bank is located. SECTION 9.08. Interest. Anything in this Agreement to the contrary notwithstanding, no Borrower shall ever be required to pay unearned interest on any Loan and shall never be required to pay interest on such Loan at a rate in excess of the Highest Lawful Rate, and if the effective rate of interest which would otherwise be payable under this Agreement and such Loan would exceed the Highest Lawful Rate, or if the holder of such Loan shall receive any unearned interest or shall receive monies that are deemed to constitute interest which would increase the effective rate of interest payable by such Borrower under this Agreement and such Loan to a rate in excess of the Highest Lawful Rate, then (a) the amount of interest which would otherwise be payable by such Borrower under this Agreement and such Loan shall be reduced to the amount allowed under applicable law; and (b) any unearned interest paid by such Borrower or any interest paid by such Borrower in excess of the Highest Lawful Rate shall be credited on the principal of such Loan. It is further agreed that all calculations of the rate of interest contracted for, charged or received by any Bank under the Loans made by it, or under this Agreement, which are made for the purpose of determining whether such rate exceeds the Highest Lawful Rate applicable to such Bank (such Highest Lawful Rate being such Bank's "Maximum Permissible Rate"), shall be made, to the extent permitted by usury laws applicable to such Bank (now or hereafter enacted), by amortizing, prorating and spreading in equal parts during the period of the full stated term of the Loans all interest at any time contracted for, charged or received by such Bank in connection therewith. If at any time and from time to time (y) the amount of interest payable to any Bank on any date shall be computed at such Bank's Maximum Permissible Rate pursuant to this Section 9.08 and (z) in respect of any subsequent interest computation period the amount of interest otherwise payable to such Bank would be less than the amount of interest payable to such Bank computed at such Bank's Maximum Permissible Rate, then the amount of interest payable to such Bank in respect of such subsequent interest computation period shall continue to be computed at such Bank's Maximum Permissible Rate until the total amount of interest payable to such Bank shall equal the total amount of interest which would have been payable to such Bank if the total amount of interest had been computed without giving effect to this Section 9.08. SECTION 9.09. Survival of Representations, Warranties and Covenants. All representations, warranties and covenants contained herein or made in writing by the Borrowers in connection herewith shall survive the execution and delivery of this Agreement, and will bind and inure to the benefit of the respective successors and assigns of the parties hereto, whether so FACILITY A -70- 71 expressed or not, provided, that the undertaking of the Banks to make Loans to the Borrowers shall not inure to the benefit of any successor or assign of any Borrower. SECTION 9.10. Binding Effect. This Agreement shall become effective when it shall have been executed by the Company and the Administrative Agent and when the Administrative Agent shall have been notified by each Bank that such Bank has executed it and, except as provided in Section 9.09, thereafter shall be binding upon and inure to the benefit of the Company, any Borrowing Subsidiaries that may become party hereto, the Administrative Agent and each Bank and their respective successors and assigns. SECTION 9.11. Successors and Assigns; Participations. (a) Whenever in this Agreement any of the parties hereto is referred to, such reference shall be deemed to include the successors and permitted assigns of such party; and all covenants, promises and agreements by or on behalf of the Company, the Administrative Agent or the Banks that are contained in this Agreement shall bind and inure to the benefit of their respective successors and permitted assigns. No Borrower may assign or transfer any of its rights or obligations hereunder without the written consent of all the Banks. (b) Each Bank, without the consent of the Company, may sell participations to one or more banks or other entities in all or a portion of its rights and obligations under this Agreement (including, without limitation, all or a portion of its Commitments and the Loans owing to it); provided, however, that (i) the selling Bank's obligations under this Agreement shall remain unchanged; (ii) such Bank shall remain solely responsible to the other parties hereto for the performance of such obligations; (iii) the participating banks or other entities shall be entitled to the cost protection provisions contained in Article II and Section 9.04; and (iv) the Borrowers, the Administrative Agent and the other Banks shall continue to deal solely and directly with the selling Bank in connection with such Bank's rights and obligations under this Agreement; provided, however, that each Bank shall retain the sole right and responsibility to enforce the obligations of the Borrowers relating to the Loans including the right to approve any amendment, modification or waiver of any provision of this Agreement; and further provided, however, the selling Bank may grant a participant voting rights with respect to (x) amendments, modifications or waivers with respect to any fees payable hereunder (including the amount and the dates fixed for the payment of any such fees) or the amount of principal or the rate of interest payable on, or the dates fixed for any payment of principal of or interest on, the Loans and (y) amendments, modifications or waivers to, or release of, the Guaranty. Each Bank shall provide the Company with prompt notice of the identity of each participating bank to which a participation in its Commitment or any Committed Loan is sold and the amount of such participation. (c) With the prior consent of the Company and the Administrative Agent, such consent not to be unreasonably withheld, a Bank may assign to one or more Eligible Assignees (provided, however, no such consent shall be required if such Eligible Assignee is a Bank or an FACILITY A -71- 72 Affiliate of a Bank) and, without the consent of the Company or the Administrative Agent, a Bank may assign to one of its Affiliates, all or a portion of its interests, rights, and obligations under this Agreement (including all or a portion of its Commitments and the same portion of the Loans at the time owing to it); provided, however, that (i) each such assignment shall be of a constant, and not a varying, percentage of all the assigning Bank's rights and obligations under this Agreement and partial assignments shall (except in the case of assignments to an Affiliate of such Bank or to other Banks), be in a minimum principal amount of $5,000,000 and (ii) the parties to each such assignment shall execute and deliver to the Administrative Agent, for its acceptance and recording in the Register (as defined below), an Assignment and Acceptance substantially in the form of Exhibit 9.11 (an "Assignment and Acceptance"), together with a properly completed Administrative Questionnaire from such Eligible Assignee and a processing and recordation fee of $2,000; provided, however, no Borrower shall have any obligation to pay or reimburse any Person for the payment of such processing and recordation fee, except for assignments pursuant to Section 2.14 or Section 2.15. The Eligible Assignee party to each Assignment and Acceptance also shall deliver a copy of its Administrative Questionnaire to the Company. Upon such execution, delivery, acceptance and recording, from and after the effective date specified in each Assignment and Acceptance, which effective date shall be at least five Business Days after the execution thereof (unless otherwise provided in such Assignment and Acceptance) (x) the Eligible Assignee thereunder shall be a party hereto and, to the extent provided in such Assignment and Acceptance, have the rights and obligations of a Bank hereunder and (y) the assignor Bank thereunder shall, to the extent provided in such Assignment and Acceptance, be released from its obligations under this Agreement (and, in the case of an Assignment and Acceptance covering all of the remaining portion of an assigning Bank's rights and obligations under this Agreement, such Bank shall cease to be a party hereto, provided, however, such Bank shall have the benefits of Section 2.14, Section 2.20, Section 9.04 and Section 9.05). (d) By executing and delivering an Assignment and Acceptance, the Bank assignor thereunder and the Eligible Assignee confirm to and agree with each other and the other parties hereto as follows: (i) other than the representation and warranty that it is the legal and beneficial owner of the interest being assigned thereby free and clear of any adverse claim known to such Bank assignor, such Bank assignor makes no representation or warranty and assumes no responsibility with respect to any statements, warranties or representations made in or in connection with this Agreement or any other instrument or document furnished pursuant hereto or the execution, legality, validity, enforceability, genuineness, sufficiency or value of this Agreement or any other instrument or document furnished pursuant hereto; (ii) such Bank assignor makes no representation or warranty and assumes no responsibility with respect to the financial condition of any Borrower or the performance or observance of its respective obligations under this Agreement or any other instrument or document furnished pursuant hereto; (iii) such Eligible Assignee confirms that it has received a copy of this Agreement together with copies of the most recent financial statements delivered pursuant to Section 4.07 or Section 5.01(a) and such other documents and information as it has deemed appropriate to make its own credit analysis and decision to enter into such Assignment FACILITY A -72- 73 and Acceptance; (iv) such Eligible Assignee will, independently and without reliance upon the Administrative Agent, such Bank assignor or any other Bank and based on such documents and information as it shall deem appropriate at the time, continue to make its own credit decisions in taking or not taking action under this Agreement; (v) such Eligible Assignee appoints and authorizes the Administrative Agent to take such action on behalf of such Eligible Assignee and to exercise such powers under this Agreement as are delegated to the Administrative Agent by the terms hereof, together with such powers as are reasonably incidental thereto; (vi) such Eligible Assignee agrees that it will perform in accordance with their terms all of the obligations which by the terms of this Agreement are required to be performed by it as a Bank and (vii) such Eligible Assignee confirms that it is an Eligible Assignee as defined herein. (e) The Administrative Agent shall maintain at its office a copy of each Assignment and Acceptance delivered to it and a register for the recordation of the names and addresses of the Banks and the Commitments of, and principal amount of the Loans owing to, each Bank from time to time (the "Register"). The entries in the Register shall, to the extent permitted by law, be conclusive, in the absence of manifest error, and each Borrower, the Administrative Agent and the Banks may treat each Person whose name is recorded in the Register as a Bank hereunder for all purposes of this Agreement. The Register shall be available for inspection by any Borrower or any Bank at any reasonable time and from time to time upon reasonable prior notice. (f) Upon its receipt of an Assignment and Acceptance executed by an assigning Bank and an Eligible Assignee and, if required, the written consent to such assignment, the Administrative Agent shall, if such Assignment and Acceptance has been completed and is substantially in the form of Exhibit 9.11, (i) accept such Assignment and Acceptance, (ii) record the information contained therein in the Register and (iii) give prompt notice thereof to the Banks and the Borrowers. (g) Notwithstanding any other provision herein, any Bank may, in connection with any assignment or participation or proposed assignment or participation pursuant to this Section 9.11 disclose to the assignee or participant or proposed assignee or participant, any information relating to the Borrowers furnished to such Bank by or on behalf of any Borrower; provided, that prior to any such disclosure, each such assignee or participant or proposed assignee or participant shall agree to preserve the confidentiality, pursuant to Section 9.12, of any confidential information relating to the Borrowers received from such Bank. (h) Anything in this Section 9.11 to the contrary notwithstanding, any Bank may at any time, without the consent of any Borrower or the Administrative Agent, assign and pledge all or any portion of its Commitment and the Loans owing to it to any Federal Reserve Bank (and its transferees) as collateral security pursuant to Regulation A and any Operating Circular issued by such Federal Reserve Bank. No such assignment shall release the assigning Bank from its obligations hereunder. Notwithstanding the foregoing, in connection with any such pledge of such FACILITY A -73- 74 Loans to the Federal Reserve Bank, any Bank may request that such Loans be evidenced by a note or notes in form and substance satisfactory to such Bank and the Company. SECTION 9.12. Confidentiality. Each Bank agrees to exercise its best efforts to keep any information delivered or made available by the Company or any Borrowing Subsidiary to it (including any information obtained pursuant to Section 5.01(e)) which is clearly indicated to be confidential information, confidential from anyone other than Persons employed or retained by such Bank or any of its Affiliates who are or are expected to become engaged in evaluating, approving, structuring or administering the Loans; provided that nothing herein shall prevent any Bank from disclosing such information (a) to any other Bank; (b) pursuant to subpoena or upon the order of any court or administrative agency; (c) upon the request or demand of any regulatory agency or authority having jurisdiction over such Bank; (d) which has been publicly disclosed; (e) to the extent reasonably required in connection with any litigation to which the Administrative Agent, any Bank, any Borrower or their respective Affiliates may be a party; (f) to the extent reasonably required in connection with the exercise of any remedy hereunder; (g) to such Bank's legal counsel and independent auditors; and (h) to any actual or proposed participant or assignee of all or part of its rights hereunder which has agreed in writing to be bound by the provisions of this Section 9.12. SECTION 9.13. Separability. Should any clause, sentence, paragraph or Section of this Agreement be judicially declared to be invalid, unenforceable or void, such decision will not have the effect of invalidating or voiding the remainder of this Agreement, and the parties hereto agree that the part or parts of this Agreement so held to be invalid, unenforceable or void will be deemed to have been stricken herefrom and the remainder will have the same force and effectiveness as if such part or parts had never been included herein. SECTION 9.14. Limitation by Law. All waivers, indemnities and rights provided in this Agreement may be exercised only to the extent that the exercise thereof does not violate any applicable provision of law, and all the provisions of this Agreement are intended to be subject to all applicable mandatory provisions of law which may be controlling and to be limited to the extent necessary so that they will not render this Agreement invalid or unenforceable, in whole or in part. SECTION 9.15. Independence of Covenants. All covenants contained in this Agreement shall be given independent effect so that if a particular action or condition is not permitted by any such covenant, the fact that such action or condition would be permitted by an exception to, or otherwise be within the limitations of, another covenant shall not avoid the occurrence of a Default or Event of Default if such action is taken or condition exists. SECTION 9.16. Appointment of Company as Agent for the Other Borrowers. Each Borrowing Subsidiary hereby irrevocably appoints the Company as its agent for the purpose of giving on its behalf any notice and taking any other action provided for in this Agreement, and hereby agrees that it shall be bound by any such notice or action given or taken by the Company FACILITY A -74- 75 hereunder irrespective of whether or not any such notice shall have in fact been authorized by such Borrowing Subsidiary and irrespective of whether or not the agency provided for herein shall have theretofore been terminated. SECTION 9.17. Judgment. The obligations of each Borrower in respect of any sum due to any party hereto or any holder of the obligations owing hereunder (the "Applicable Creditor") shall, notwithstanding any judgment in a currency (the "Judgment Currency") other than the currency in which such sum is stated to be due hereunder (the "Agreement Currency"), be discharged only to the extent that, on the Business Day following receipt by the Applicable Creditor of any sum adjudged to be so due in the Judgment Currency, the Applicable Creditor may in accordance with normal banking procedures in the relevant jurisdiction purchase the Agreement Currency with the Judgment Currency; if the amount of the Agreement Currency so purchased is less than the sum originally due to the Applicable Creditor in the Agreement Currency, such Borrower agrees, as a separate obligation and notwithstanding any such judgment, to indemnify the Applicable Creditor against such loss. The obligations of the Borrowers contained in this Section 9.17 shall survive the termination of this Agreement and the payment of all other amounts owing hereunder. SECTION 9.18. SUBMISSION TO JURISDICTION; WAIVER OF IMMUNITIES. (a) ANY LEGAL ACTION OR PROCEEDING WITH RESPECT TO THIS AGREEMENT AND THE AGENT'S FEE LETTER MAY BE BROUGHT IN THE COURTS OF THE STATE OF NEW YORK OR OF THE UNITED STATES FOR THE SOUTHERN DISTRICT OF NEW YORK AND, BY EXECUTION AND DELIVERY OF THIS AGREEMENT, EACH BORROWER HEREBY IRREVOCABLY ACCEPTS FOR ITSELF AND IN RESPECT OF ITS PROPERTY, UNCONDITIONALLY, THE NON-EXCLUSIVE JURISDICTION OF THE AFORESAID COURTS WITH RESPECT TO ANY SUCH ACTION OR PROCEEDING. EACH BORROWING SUBSIDIARY HEREBY IRREVOCABLY DESIGNATES, APPOINTS AND EMPOWERS CORPORATION SERVICE COMPANY, WITH OFFICES ON THE DATE HEREOF AT 80 STATE STREET, ALBANY, NEW YORK 12201, AS ITS DESIGNEE, APPOINTEE AND AGENT TO RECEIVE, ACCEPT AND ACKNOWLEDGE FOR AND ON ITS BEHALF, AND IN RESPECT OF ITS PROPERTY, SERVICE OF ANY AND ALL LEGAL PROCESS, SUMMONS, NOTICES AND DOCUMENTS WHICH MAY BE SERVED IN ANY SUCH ACTION OR PROCEEDING. IF FOR ANY REASON SUCH DESIGNEE, APPOINTEE AND AGENT SHALL CEASE TO BE AVAILABLE TO ACT AS SUCH, EACH BORROWING SUBSIDIARY AGREES TO DESIGNATE A NEW DESIGNEE, APPOINTEE AND AGENT IN THE STATE OF NEW YORK ON THE TERMS AND FOR THE PURPOSES OF THIS PROVISION SATISFACTORY TO THE ADMINISTRATIVE AGENT. EACH BORROWING SUBSIDIARY FURTHER IRREVOCABLY CONSENTS TO THE SERVICE OF PROCESS OUT OF ANY OF THE AFOREMENTIONED COURTS IN ANY SUCH ACTION OR PROCEEDING BY THE MAILING OF COPIES THEREOF BY REGISTERED OR CERTIFIED MAIL, POSTAGE PREPAID, TO IT AT ITS ADDRESS FACILITY A -75- 76 PROVIDED IN SECTION 9.02, SUCH SERVICE TO BECOME EFFECTIVE THIRTY DAYS AFTER SUCH MAILING. NOTHING HEREIN SHALL AFFECT THE RIGHT OF THE ADMINISTRATIVE AGENT OR ANY BANK TO SERVE PROCESS IN ANY OTHER MANNER PERMITTED BY LAW OR TO COMMENCE LEGAL PROCEEDINGS OR OTHERWISE PROCEED AGAINST ANY BORROWING SUBSIDIARY IN ANY OTHER JURISDICTION. (b) TO THE EXTENT THAT ANY BORROWER HAS OR HEREAFTER MAY ACQUIRE ANY IMMUNITY (SOVEREIGN OR OTHERWISE) FROM ANY LEGAL ACTION, SUIT OR PROCEEDING, FROM JURISDICTION OF ANY COURT OR FROM SET-OFF OR ANY LEGAL PROCESS (WHETHER SERVICE OF NOTICE, ATTACHMENT PRIOR TO JUDGMENT, ATTACHMENT IN AID OF EXECUTION OF JUDGMENT, EXECUTION OF JUDGMENT OR OTHERWISE) WITH RESPECT TO ITSELF OR ANY OF ITS PROPERTY, SUCH BORROWER HEREBY IRREVOCABLY WAIVES AND AGREES NOT TO PLEAD OR CLAIM SUCH IMMUNITY IN RESPECT OF ITS OBLIGATIONS UNDER THIS AGREEMENT. EACH BORROWER HEREBY AGREES THAT THE WAIVERS SET FORTH IN THIS SECTION 9.18 SHALL HAVE THE FULLEST EFFECT PERMITTED UNDER THE FOREIGN SOVEREIGN IMMUNITIES ACT OF 1976 OF THE UNITED STATES OF AMERICA AND ARE INTENDED TO BE IRREVOCABLE AND NOT SUBJECT TO WITHDRAWAL FOR PURPOSES OF SUCH ACT. SECTION 9.19. Entire Agreement. This Agreement (including the Exhibits and Schedules hereto), the Borrowing Subsidiary Counterparts, if any, the Assignment and Acceptances, if any, and the Agent's Fee Letter embody the entire agreement and understanding among the Company, the Administrative Agent and the Banks relating to the subject matter hereof and thereof and supersede all prior proposals, agreements and understandings relating to such subject matter. SECTION 9.20. Execution in Counterparts. This Agreement may be executed in any number of counterparts and by different parties hereto in separate counterparts, each of which when so executed shall be deemed to be an original and all of which taken together shall constitute one and the same agreement. FACILITY A -76- 77 IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed by their respective officers thereunto duly authorized, as of the date first above written. SERVICE CORPORATION INTERNATIONAL By: ------------------------------------------ Name: Gregory L. Cauthen Title: Vice President and Treasurer FACILITY A 78 THE CHASE MANHATTAN BANK, as Administrative Agent By: ------------------------------------------ Name: Title: FACILITY A 79 CO-AGENTS: BANK OF AMERICA ILLINOIS, as Co-Agent By: ------------------------------------------ Name: Title: FACILITY A 80 CITIBANK N.A., as Co-Agent By: ------------------------------------------ Name: Title: FACILITY A 81 NATIONSBANK, N.A., as Co-Agent By: ------------------------------------------ Name: Title: FACILITY A 82 ROYAL BANK OF CANADA, as Co-Agent By: ------------------------------------------ Name: Title: FACILITY A 83 SOCIETE GENERALE, as Co-Agent By: ------------------------------------------ Name: Title: FACILITY A 84 UNION BANK OF SWITZERLAND, as Co-Agent By: ------------------------------------------ Name: Title: FACILITY A 85 BANKS ABN AMRO BANK N.V., HOUSTON AGENCY By: ------------------------------------ Name: Title: By: ------------------------------------ Name: Title: Three Riverway, Suite 1700 Houston, Texas 77056 Telecopy No.: (713) 629-7533 Domestic Lending Office ABN AMRO Bank N.V., Houston Agency Three Riverway, Suite 1700 Houston, Texas 77056 Attn: Ms. Josephine Zozdorado Telecopy No.: (713) 964-3331 Eurodollar Lending Office ABN AMRO Bank N.V., Houston Agency Three Riverway, Suite 1700 Houston, Texas 77056 Attn: Mr. David Orr Telecopy No.: (713) 964-3323 Commitment: $15,000,000.00 86 BANK OF AMERICA ILLINOIS By: ------------------------------------ Name: Title: 231 South LaSalle Street Chicago, Illinois 60697 Telecopy No.: (312) 987-1276 Domestic Lending Office Bank of America Illinois 1850 Gateway Boulevard Concord, California 94520 Attn: Camille Gibby Telecopy No.: (510) 675-7759 Eurodollar Lending Office Bank of America Illinois 1850 Gateway Boulevard Concord, California 94520 Attn: Camille Gibby Telecopy No.: (510) 675-7759 Commitment: $25,500,000.00 -2- 87 THE BANK OF NEW YORK By: ------------------------------------ Name: Title: One Wall Street, 22nd Floor New York, New York 10286 Telecopy No.: (212) 635-6434 Domestic Lending Office One Wall Street, 22nd Floor New York, New York 10286 Attn: Larry Geter Telecopy No.: (212) 635-6740 Eurodollar Lending Office One Wall Street, 22nd Floor New York, New York 10286 Attn: Larry Geter Telecopy No.: (212) 635-6740 Commitment: $15,000,000.00 -3- 88 BANQUE NATIONALE DE PARIS, HOUSTON AGENCY By: ------------------------------------ Name: Title: 333 Clay Street, Suite 3400 Houston, Texas 77002 Telecopy No.: (713) 659-1414 Domestic Lending Office Banque Nationale De Paris, Houston Agency 333 Clay Street, Suite 3400 Houston, Texas 77002 Attn: Donna Rose Telecopy No.: (713) 659-1414 Eurodollar Lending Office Banque Nationale De Paris, Houston Agency 333 Clay Street, Suite 3400 Houston, Texas 77002 Attn: Donna Rose Telecopy No.: (713) 659-1414 Commitment: $9,000,000.00 -4- 89 THE BANK OF TOKYO-MITSUBISHI, LTD., HOUSTON AGENCY By: ------------------------------------ Name: Title: 1100 Louisiana Street, Suite 2800 Houston, Texas 77002-5216 Telecopy No.: (713) 658-0116 Domestic Lending Office The Bank of Tokyo-Mitsubishi, Ltd., Houston Agency 1100 Louisiana Street, Suite 2800 Houston, Texas 77002-5216 Attn: David L. Denbina, P.E. Telecopy No.: (713) 658-0116 Eurodollar Lending Office The Bank of Tokyo-Mitsubishi, Ltd., Houston Agency 1100 Louisiana Street, Suite 2800 Houston, Texas 77002-5216 Attn: David L. Denbina, P.E. Telecopy No.: (713) 658-0116 Commitment: $15,000,000.00 -5- 90 CIBC, INC. By: ------------------------------------ Name: Title: Two Paces West 2727 Paces Ferry Road, Suite 1200 Atlanta, Georgia 30339 Telecopy No.: (404) 319-4950 Domestic Lending Office CIBC, Inc. Two Paces West 2727 Paces Ferry Road, Suite 1200 Atlanta, Georgia 30339 Attn: Kelli Jones Telecopy No.: (770) 319-4817 Eurodollar Lending Office CIBC, Inc. Two Paces West 2727 Paces Ferry Road, Suite 1200 Atlanta, Georgia 30339 Attn: Kelli Jones Telecopy No.: (770) 319-4817 Commitment: $15,000,000.00 -6- 91 CITIBANK, N.A. By: ------------------------------------ Name: Title: 400 Perimeter Center Terrace Suite 600 Atlanta, Georgia 30346 Telecopy No.: (770) 668-8137 Domestic Lending Office Citibank, N.A. 1 Court Square, 7th Floor Long Island City, New York 11120 Eurodollar Lending Office Citibank, N.A. 1 Court Square, 7th Floor Long Island City, New York 11120 Commitment: $25,500,000.00 -7- 92 COMMERZBANK AKTIENGESELLSCHAFT, ATLANTA AGENCY By: ------------------------------------ Name: Title: By: ------------------------------------ Name: Title: Promenade Two, Suite 3500 1230 Peachtree Street, N.E. Atlanta, Georgia 30309 Telecopy No.: (404) 888-6539 Domestic Lending Office Commerzbank Aktiengesellschaft, Atlanta Agency Promenade Two, Suite 3500 1230 Peachtree Street, N.E. Atlanta, Georgia 30309 Attn: David Suttles - AVP Telecopy No.: (404) 888-6539 Eurodollar Lending Office Commerzbank Aktiengesellschaft, Atlanta Agency Promenade Two, Suite 3500 1230 Peachtree Street, N.E. Atlanta, Georgia 30309 Attn: David Suttles - AVP Telecopy No.: (404) 888-6539 Commitment: $6,000,000.00 -8- 93 CREDIT LYONNAIS NEW YORK BRANCH By: ------------------------------------ Name: Title: 1301 Avenue of the Americas New York, New York 10019 Telecopy No.: (212) 954-3312 Domestic Lending Office Credit Lyonnais New York Branch 1301 Avenue of the Americas New York, New York 10019 Telecopy No.: (212) 954-3312 Eurodollar Lending Office Credit Lyonnais New York Branch 1301 Avenue of the Americas New York, New York 10019 Telecopy No.: (212) 954-3312 Commitment: $6,000,000.00 with notices to: Credit Lyonnais Dallas Representative Office 2200 Ross Avenue, Suite 4400W Dallas, Texas 75201 -9- 94 THE FUJI BANK, LIMITED By: ------------------------------------ Name: Title: One Houston Center 1221 McKinney, Suite 4100 Houston, Texas 77010 Telecopy No.: (713) 759-0048 Domestic Lending Office The Fuji Bank, Limited One Houston Center 1221 McKinney, Suite 4100 Houston, Texas 77010 Attn: Frances Flores Telecopy No.: (713) 951-0590 Eurodollar Lending Office The Fuji Bank, Limited One Houston Center 1221 McKinney, Suite 4100 Houston, Texas 77010 Attn: Frances Flores Telecopy No.: (713) 951-0590 Commitment: $6,000,000.00 -10- 95 NATIONSBANK N.A. By: ------------------------------------ Name: Title: 700 Louisiana, 8th Floor Houston, Texas 77002 Telecopy No.: (713) 247-5719 Domestic Lending Office NationsBank N.A. 101 North Tryon Street Charlotte, NC 28255 Attn: Kerri Thompson Telecopy No.: (704) 386-8694 Eurodollar Lending Office NationsBank N.A. 101 North Tryon Street Charlotte, NC 28255 Attn: Kerri Thompson Telecopy No.: (704) 386-8694 Commitment: $25,500,000.00 -11- 96 ROYAL BANK OF CANADA By: ------------------------------------ Name: Title: 12450 Greenspoint Drive, Suite 1450 Houston, Texas 77060 Telecopy No.: (281) 874-0081 Domestic Lending Office Royal Bank of Canada c/o New York Branch Financial Square, 32 Old Slip New York, New York 10005 Telecopy No.: (212) 428-2372 Eurodollar Lending Office Royal Bank of Canada c/o New York Branch Financial Square, 32 Old Slip New York, New York 10005 Telecopy No.: (212) 428-2372 Commitment: $25,500,000.00 -12- 97 ISTITUTO BANCARIO SAN PAOLO DI TORINO SPA By: ------------------------------------- Name: Title: By: ------------------------------------ Name: Title: 245 Park Avenue, 35th Floor New York, New York 10167 Telecopy No.: (212) 599-5303 Domestic Lending Office Istituto Bancario San Paolo Di Torino S.P.A. 245 Park Avenue, 35th Floor New York, New York 10167 Attn: Robert Wurster Telecopy No.: (212) 599-5303 Eurodollar Lending Office Istituto Bancario San Paolo Di Torino S.P.A. 245 Park Avenue, 35th Floor New York, New York 10167 Attn: Robert Wurster Telecopy No.: (212) 599-5303 Commitment: $6,000,000.00 -13- 98 SOCIETE GENERALE, SOUTHWEST AGENCY By: ------------------------------------ Name: Title: 2001 Ross Avenue, Suite 4800 Dallas, Texas 75201 Telecopy No.: (214) 754-0171 Domestic Lending Office Societe Generale, Southwest Agency 2001 Ross Avenue, Suite 4800 Dallas, Texas 75201 Telecopy No.: (214) 754-0171 Eurodollar Lending Office Societe Generale, Southwest Agency 2001 Ross Avenue, Suite 4800 Dallas, Texas 75201 Telecopy No.: (214) 754-0171 Commitment: $25,500,000.00 -14- 99 SUNTRUST BANK, ATLANTA By: ------------------------------------ Name: Title: By: ------------------------------------ Name: Title: Center 120 25 Park Place, NE Atlanta, Georgia 30303 Telecopy No.: (404) 827-6270 Domestic Lending Office Suntrust Bank, Atlanta Center 120 25 Park Place, NE Atlanta, Georgia 30303 Telecopy No.: (404) 827-6270 Eurodollar Lending Office Suntrust Bank, Atlanta Center 120 25 Park Place, NE Atlanta, Georgia 30303 Telecopy No.: (404) 827-6270 Commitment: $15,000,000.00 -15- 100 TEXAS COMMERCE BANK NATIONAL ASSOCIATION By: ------------------------------------ Name: Title: 712 Main Street 5TCB-E 78 Houston, Texas 77002 Telecopy No.: (713) 216-7500 Domestic Lending Office Texas Commerce Bank National Association 712 Main Street Houston, Texas 77002 Attn: Gloria Aguilar Telecopy No.: (713) 216-7500 Eurodollar Lending Office Texas Commerce Bank National Association 712 Main Street Houston, Texas 77002 Attn: Gloria Aguilar Telecopy No.: (713) 216-7500 Commitment: $30,000,000.00 -16- 101 UNION BANK OF SWITZERLAND By: ------------------------------------ Name: Title: By: ------------------------------------ Name: Title: 299 Park Avenue New York, New York 10171 Telecopy No.: (212) 821-5534 Domestic Lending Office Union Bank of Switzerland 299 Park Avenue New York, New York 10171 Telecopy No.: (212) 821-5534 Eurodollar Lending Office Union Bank of Switzerland 299 Park Avenue New York, New York 10171 Telecopy No.: (212) 821-5534 Commitment: $25,500,000.00 -17- 102 WESTPAC BANKING CORPORATION By: ------------------------------------ Name: Title: 575 Fifth Avenue New York, New York 10017 Telecopy No.: (212) 551-1995 Domestic Lending Office Westpac Banking Corporation 575 Fifth Avenue New York, New York 10017 Attn: Craig Jones Telecopy No.: (212) 551-1995 Eurodollar Lending Office Westpac Banking Corporation 575 Fifth Avenue New York, New York 10017 Attn: Craig Jones Telecopy No.: (212) 551-1995 Commitment: $9,000,000.00 -18- EX-99.2 15 1ST AMEND.TO COMPETITIVE ADVANCE & REVOLVING CRED. 1 EXHIBIT 99.2 AGREEMENT AND FIRST AMENDMENT TO COMPETITIVE ADVANCE AND REVOLVING CREDIT FACILITY AGREEMENT (FACILITY A) THIS AGREEMENT AND FIRST AMENDMENT TO COMPETITIVE ADVANCE AND REVOLVING CREDIT FACILITY AGREEMENT (FACILITY A) (this "Amendment") dated as of June 26, 1998 is among: (a) SERVICE CORPORATION INTERNATIONAL, a Texas corporation (the "Company"); (b) the banks and other financial institutions listed on the signature pages hereof, (collectively, the "Banks"); (c) THE CHASE MANHATTAN BANK, a New York banking corporation, as administrative agent for the Banks (in such capacity, the "Administrative Agent"); and (d) BANK OF AMERICA NATIONAL TRUST & SAVINGS ASSOCIATION, CITIBANK, N.A., NATIONSBANK, N.A., ROYAL BANK OF CANADA, SOCIETE GENERALE, and UNION BANK OF SWITZERLAND (collectively, the "Co-Agents"). PRELIMINARY STATEMENT The Company, the Banks, the Administrative Agent and the Co-Agents have entered into a Competitive Advance and Revolving Credit Facility Agreement (Facility A) dated as of June 27, 1997 (said Competitive Advance and Revolving Credit Facility Agreement (Facility A) being the "Credit Agreement"). All capitalized terms defined in the Credit Agreement and not otherwise defined herein shall have the same meanings herein as in the Credit Agreement. The 2 Company, the Banks, the Administrative Agent and the Co-Agents have agreed, upon the terms and conditions specified herein, to amend the Credit Agreement as hereinafter set forth: NOW THEREFORE, in consideration of the premises and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged by the parties hereto, the Company, the Banks, the Administrative Agent and the Co-Agents hereby agree as follows: SECTION 1. Amendments to Section 1.01 of the Credit Agreement. The definition of the term "Original Termination Date" contained in Section 1.01 of the Credit Agreement is hereby amended in its entirety to read as follows: "'Original Termination Date' means June 25, 1999.". SECTION 2. Amendment to Section 2.07(a) of the Credit Agreement. Section 2.07(a) of the Credit Agreement is hereby amended in its entirety to read as follows: "(a) The Company agrees to pay to each Bank, through the Administrative Agent, (i) on each March 31, June 30, September 30 and December 31 from the Execution Date to the date on which the Commitment of such Bank has been terminated and (ii) on the Maturity Date and on any other date on which the Commitment of such Bank has been terminated, facility fees (such facility fees being the "Facility Fees"), in immediately available funds, equal to .08 of 1% of the amount of the Commitment of such Bank from time to time outstanding, whether used, deemed used or unused, during the preceding quarter (or shorter period commencing with the Execution Date and/or ending with the Maturity Date).". SECTION 3. Amendment to Section 2.09(a) of the Credit Agreement. Section 2.09(a) of the Credit Agreement is hereby amended in its entirety to read as follows: -2- 3 "(a) Subject to the provisions of Section 2.09(d) and Section 2.10, the Loans comprising each Eurodollar Borrowing shall bear interest (computed on the basis of the actual number of days elapsed over a year of 360 days) at a rate per annum equal to (i) in the case of each Eurodollar Committed Loan, the lesser of (A) the IBO Rate for the Interest Period in effect for such Borrowing plus .14 of 1% and (B) the Highest Lawful Rate, and (ii) in the case of each Eurodollar Competitive Loan, the lesser of (A) the IBO Rate for the Interest Period in effect for such Borrowing plus the Margin offered by the Bank making such Loan and accepted by a Borrower pursuant to Section 2.03 and (B) the Highest Lawful Rate.". SECTION 4. Conditions of Effectiveness. This Amendment shall become effective when, and only when the following conditions shall have been fulfilled: (a) the Company, the Administrative Agent, the Co-Agents and each Bank shall have executed a counterpart hereof and delivered the same to the Administrative Agent or, in the case of any Bank as to which an executed counterpart hereof shall not have been so delivered, the Administrative Agent shall have received written confirmation by telecopy or other similar writing from such Bank of execution of a counterpart hereof by such Bank; and (b) the Administrative Agent shall have received from the Company a certificate of the Secretary or Assistant Secretary of the Company certifying that attached thereto is (i) a true and complete copy of the general borrowing resolutions of the Board of Directors of the Company authorizing the execution, delivery and performance of the Credit Agreement, as amended hereby, and (ii) the incumbency and specimen signature of each officer of the Company executing this Amendment. -3- 4 SECTION 5. Representations and Warranties True; No Default or Event of Default. The Company hereby represents and warrants to the Administrative Agent, the Co-Agents and the Banks that after giving effect to the execution and delivery of this Amendment: (a) the representations and warranties set forth in the Credit Agreement are true and correct on the date hereof as though made on and as of such date; provided, however, that for purposes of this Section 5, (i) the reference in the first sentence of Section 4.07 to the Company Financials shall be a reference to the consolidated financial statements of the Company and its Subsidiaries most recently delivered to the Administrative Agent and the Banks by the Company pursuant to Section 5.01(a)(i) or 5.01(a)(ii), as the case may be, and (ii) the reference in the last sentence of Section 4.07 to December 31, 1996, shall be a reference to December 31, 1997; and (b) no event has occurred and is continuing that constitutes either a Default or an Event of Default. SECTION 7. Reference to the Credit Agreement and Effect on the Notes and Other Documents Executed Pursuant to the Credit Agreement. (a) Upon the effectiveness of this Amendment, each reference in the Credit Agreement to "this Agreement," "hereunder," "herein," "hereof" or words of like import shall mean and be a reference to the Credit Agreement, as amended hereby. (b) Upon the effectiveness of this Amendment, each reference in the Notes and the other documents and agreements delivered or to be delivered pursuant to the Credit Agreement shall mean and be a reference to the Credit Agreement, as amended hereby. (c) The Credit Agreement and the Notes and other documents and agreements delivered pursuant to the Credit Agreement, and modified by the amendments referred to above, shall remain in full force and effect and are hereby ratified and confirmed. -4- 5 SECTION 7. Execution in Counterparts. This Amendment may be executed in any number of counterparts and by different parties hereto in separate counterparts, each of which when so executed and delivered shall be deemed to be an original and all of which taken together shall constitute but one and the same instrument. SECTION 8. GOVERNING LAW; BINDING EFFECT. THIS AMENDMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF TEXAS AND APPLICABLE FEDERAL LAW AND SHALL BE BINDING UPON THE COMPANY, THE ADMINISTRATIVE AGENT, THE CO-AGENTS AND THE BANKS AND THEIR RESPECTIVE SUCCESSORS AND ASSIGNS. SECTION 10. Headings. Section headings in this Amendment are included herein for convenience of reference only and shall not constitute a part of this Amendment for any other purpose. SECTION 11. ENTIRE AGREEMENT. THE CREDIT AGREEMENT (INCLUDING THE EXHIBITS AND SCHEDULES HERETO), AS AMENDED HEREBY, THE BORROWING SUBSIDIARY COUNTERPARTS, IF ANY, THE ASSIGNMENT AND ACCEPTANCES, IF ANY, AND THE AGENT'S FEE LETTER EMBODY THE ENTIRE AGREEMENT AND UNDERSTANDING AMONG THE COMPANY, THE ADMINISTRATIVE AGENT, THE CO-AGENTS AND THE BANKS RELATING TO THE SUBJECT MATTER HEREOF AND THEREOF AND SUPERSEDE ALL PRIOR PROPOSALS, AGREEMENTS AND UNDERSTANDINGS RELATING TO SUCH SUBJECT MATTER. -5- 6 IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be executed effective as of the date first stated herein, by their respective officers thereunto duly authorized. SERVICE CORPORATION INTERNATIONAL By: --------------------------------- Name: Gregory L. Cauthen Title: Vice President and Treasurer -6- 7 THE CHASE MANHATTAN BANK, as Administrative Agent By: --------------------------------- Name: Title: 8 CO-AGENTS: BANK OF AMERICA NATIONAL TRUST & SAVINGS ASSOCIATION, as Co-Agent By: --------------------------------- Name: Title: 9 CITIBANK N.A., as Co-Agent By: --------------------------------- Name: Title: 10 NATIONSBANK, N.A., as Co-Agent By: --------------------------------- Name: Title: 11 ROYAL BANK OF CANADA, as Co-Agent By: --------------------------------- Name: Title: 12 SOCIETE GENERALE, as Co-Agent By: --------------------------------- Name: Title: 13 UNION BANK OF SWITZERLAND, as Co-Agent By: --------------------------------- Name: Title: 14 BANKS ABN AMRO BANK N.V., HOUSTON AGENCY By: --------------------------------- Name: Title: By: --------------------------------- Name: Title: Commitment: $15,000,000.00 FACILITY A 15 BANK OF AMERICA NATIONAL TRUST & SAVINGS ASSOCIATION By: --------------------------------- Name: Title: Commitment: $25,500,000.00 FACILITY A 16 THE BANK OF NEW YORK By: --------------------------------- Name: Title: Commitment: $15,000,000.00 FACILITY A 17 THE BANK OF TOKYO-MITSUBISHI, LTD., HOUSTON AGENCY By: --------------------------------- Name: Title: Commitment: $15,000,000.00 FACILITY A 18 BANQUE NATIONALE DE PARIS, HOUSTON AGENCY By: --------------------------------- Name: Title: Commitment: $9,000,000.00 FACILITY A 19 CHASE BANK OF TEXAS, NATIONAL ASSOCIATION By: --------------------------------- Name: Title: Commitment: $30,000,000.00 FACILITY A 20 CIBC, INC. By: --------------------------------- Name: Title: Commitment: $15,000,000.00 FACILITY A 21 CITIBANK, N.A. By: --------------------------------- Name: Title: Commitment: $25,500,000.00 FACILITY A 22 COMMERZBANK AKTIENGESELLSCHAFT, ATLANTA AGENCY By: --------------------------------- Name: Title: By: --------------------------------- Name: Title: Commitment: $6,000,000.00 FACILITY A 23 CREDIT LYONNAIS NEW YORK BRANCH By: --------------------------------- Name: Title: Commitment: $6,000,000.00 FACILITY A 24 THE FUJI BANK, LIMITED By: --------------------------------- Name: Title: Commitment: $6,000,000.00 FACILITY A 25 ISTITUTO BANCARIO SAN PAOLO DI TORINO SPA By: --------------------------------- Name: Title: By: --------------------------------- Name: Title: Commitment: $6,000,000.00 FACILITY A 26 NATIONSBANK N.A. By: --------------------------------- Name: Title: Commitment: $25,500,000.00 FACILITY A 27 ROYAL BANK OF CANADA By: --------------------------------- Name: Title: Commitment: $25,500,000.00 FACILITY A 28 SOCIETE GENERALE, SOUTHWEST AGENCY By: --------------------------------- Name: Title: Commitment: $25,500,000.00 FACILITY A 29 SUNTRUST BANK, ATLANTA By: --------------------------------- Name: Title: By: --------------------------------- Name: Title: Commitment: $15,000,000.00 FACILITY A 30 UNION BANK OF SWITZERLAND By: --------------------------------- Name: Title: By: --------------------------------- Name: Title: Commitment: $25,500,000.00 FACILITY A 31 WESTPAC BANKING CORPORATION By: --------------------------------- Name: Title: Commitment: $9,000,000.00 FACILITY A EX-99.3 16 2ND AMEND.TO COMPETITIVE ADVANCE & REVOLVING CRED. 1 EXHIBIT 99.3 Execution Copy AGREEMENT AND SECOND AMENDMENT TO COMPETITIVE ADVANCE AND REVOLVING CREDIT FACILITY AGREEMENT (FACILITY A) THIS AGREEMENT AND SECOND AMENDMENT TO COMPETITIVE ADVANCE AND REVOLVING CREDIT FACILITY AGREEMENT (FACILITY A) (this "Amendment") dated as of June 25, 1999 is among: (a) SERVICE CORPORATION INTERNATIONAL, a Texas corporation (the "Company"); (b) the banks and other financial institutions listed under the caption "Continuing Bank" on the signature pages hereof, (collectively, the "Continuing Banks"); (c) the banks listed under the caption "Retiring Bank" on the signature pages hereof (collectively, the "Retiring Banks"); (d) the banks listed under the caption "New Bank" on the signature pages hereof (collectively, the "New Banks") and together with the Continuing Banks collectively, the "Banks"); (e) THE CHASE MANHATTAN BANK, a New York banking corporation, as administrative agent for the Banks (in such capacity, the "Administrative Agent"); and (d) BANK OF AMERICA NT & SA, CITIBANK, N.A., ROYAL BANK OF CANADA, SOCIETE GENERALE, SOUTHWEST AGENCY and UBS AG, STAMFORD BRANCH (collectively, the "Co-Agents"). PRELIMINARY STATEMENT The Company, the Administrative Agent and the Co-Agents, the Continuing Banks and the Retiring Banks have entered into a Competitive Advance and Revolving Credit Facility Agreement (Facility A) dated as of June 27, 1997, as amended pursuant to an Agreement and First Amendment to Competitive Advance and Revolving Credit Facility Agreement (Facility A) dated as of June 26, 1998 (said Competitive Advance and Revolving Credit Facility Agreement (Facility A), as so amended, being the "Credit Agreement"). All capitalized terms defined in the Credit Agreement and not otherwise defined herein shall have the same meanings herein as in the Credit Agreement. The Company, the Banks, the Retiring Banks (as only to Section 11(b) hereof), the Administrative Agent and the Co-Agents have agreed, upon the terms and conditions specified herein, to amend the Credit Agreement as hereinafter set forth: 2 NOW, THEREFORE, in consideration of the premises and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged by the parties hereto, the Company, the Banks, the Retiring Banks, the Administrative Agent and the Co-Agents hereby agree as follows: SECTION 1. Amendments to Section 1.01 of the Credit Agreement. (a) The definition of the term "Commitment" contained in Section 1.01 of the Credit Agreement is hereby amended in its entirety to read as follows: "'Commitment' means, (a) with respect to each Bank, the amount specified for such Bank on such Bank's signature page to the Second Amendment and (b) with respect to each Person who becomes a Bank after the Second Amendment Execution Date, the amount specified for such Person on the signature page of the Assignment and Acceptance, to which it is a party, in each case, as such amount may be permanently terminated or reduced from time to time pursuant to Section 2.12, Section 2.14, Section 2.15 or Section 9.11, and as such amount may be increased from time to time pursuant to Section 2.14, Section 2.15 or Section 9.11. The Commitment of each Bank shall automatically and permanently terminate on the Maturity Date.". (b) The definition of the term "Original Termination Date" contained in Section 1.01 of the Credit Agreement is hereby amended in its entirety to read as follows: "'Original Termination Date' means June 23, 2000.". (c) The following defined terms are hereby added to Section 1.01 of the Credit Agreement: (i) "Second Amendment" means the Agreement and Second Amendment to Competitive Advance and Revolving Credit Facility Agreement (Facility A) dated as of June 25, 1999 among the Company, the Banks party thereto, the Administrative Agent, the Co- Agents and the Retiring Banks (as defined therein). (ii) "Second Amendment Execution Date" means the date the Second Amendment has been executed by all the parties thereto. (iii) "Utilization Fees" has the meaning specified in Section 2.07. SECTION 2. Amendment to Section 2.07 of the Credit Agreement. Section 2.07 of the Credit Agreement is hereby amended in its entirety to read as follows: "SECTION 2.07. Fees. -2- 3 (a) The Company agrees to pay to each Bank, through the Administrative Agent, (i) on each March 31, June 30, September 30 and December 31 from the Execution Date to the date on which the Commitment of such Bank has been terminated and (ii) on the Maturity Date and on any other date on which the Commitment of such Bank has been terminated, facility fees (such facility fees being the 'Facility Fees'), in immediately available funds, at a rate per annum equal to .125 of 1% of the amount of the Commitment of such Bank from time to time outstanding, whether used, deemed used or unused, during the preceding quarter (or shorter period commencing with the Execution Date and/or ending with the Maturity Date). (b) The Company agrees to pay to each Bank, through the Administrative Agent a utilization fee (the 'Utilization Fee'), which shall accrue at a rate per annum equal to .125 of 1% of each Bank's Commitment for (i) each day during the period from and including the Second Amendment Execution Date to but excluding the Termination Date on which the outstanding Committed Loans of such Bank exceed 25% of such Bank's Commitment, and (ii) each day on and after the Termination Date on which the outstanding Committed Loans of such Bank exceed 25% of such Bank's Commitment on the day immediately preceding the Termination Date. All Utilization Fees shall be payable in arrears on each September 30, December 31, March 31 and June 30 during the period from and including the Second Amendment Effective Date to, but excluding, the date the Committed Loans are paid in full. (c) All Facility Fees and Utilization Fees shall be computed by the Administrative Agent on the basis of the actual number of days elapsed in a year of 360 days, and such computations, made in good faith, shall create a rebuttable presumption that they are accurate. The Facility Fees due to each Bank shall commence to accrue on the Execution Date and shall cease to accrue on the earlier of the Maturity Date and the termination of the Commitment of such Bank as provided herein. The Utilization Fees due to each Bank shall commence to accrue on the Second Amendment Execution Date and shall cease to accrue on the earlier of the Maturity Date and the termination of the Commitment of such Bank as provided herein. (d) The Facility Fees and the Utilization Fees due under this Section 2.07 shall be paid on the date due, in immediately available funds, to the Administrative Agent for distribution among the Banks. (e) The Company agrees to pay to the Administrative Agent the fees as provided in the Agent's Fee Letter. (f) Notwithstanding the foregoing, in no event shall any Bank be permitted to receive any compensation hereunder constituting interest in excess of the Highest Lawful Rate.". -3- 4 SECTION 3. Amendment to Section 2.09(a) of the Credit Agreement. Section 2.09(a) of the Credit Agreement is hereby amended in its entirety to read as follows: "(a) Subject to the provisions of Section 2.09(d) and Section 2.10, the Loans comprising each Eurodollar Borrowing shall bear interest (computed on the basis of the actual number of days elapsed over a year of 360 days) at a rate per annum equal to (i) in the case of each Eurodollar Committed Loan, the lesser of (A) the IBO Rate for the Interest Period in effect for such Borrowing plus .375 of 1% and (B) the Highest Lawful Rate, and (ii) in the case of each Eurodollar Competitive Loan, the lesser of (A) the IBO Rate for the Interest Period in effect for such Borrowing plus the Margin offered by the Bank making such Loan and accepted by a Borrower pursuant to Section 2.03 and (B) the Highest Lawful Rate.". SECTION 4. Conditions of Effectiveness. This Amendment shall become effective when, and only when the following conditions shall have been fulfilled: (a) the Company, the Administrative Agent, the Co-Agents, each Bank and each Retiring Bank shall have executed a counterpart hereof and delivered the same to the Administrative Agent or, in the case of any Bank or Retiring Bank as to which an executed counterpart hereof shall not have been so delivered, the Administrative Agent shall have received written confirmation by telecopy or other similar writing from such Bank or Retiring Bank of execution of a counterpart hereof by such Bank or Retiring Bank; and (b) the Administrative Agent shall have received from the Company a certificate of the Secretary or Assistant Secretary of the Company certifying that attached thereto is (i) a true and complete copy of the general borrowing resolutions of the Board of Directors of the Company authorizing the execution, delivery and performance of the Credit Agreement, as amended hereby, and (ii) the incumbency and specimen signature of each officer of the Company executing this Amendment. SECTION 5. Representations and Warranties True; No Default or Event of Default. The Company hereby represents and warrants to the Administrative Agent, the Co-Agents and the Banks and the Retiring Banks that after giving effect to the execution and delivery of this Amendment: (a) the representations and warranties set forth in the Credit Agreement are true and correct on the date hereof as though made on and as of such date; provided, however, that for purposes of this Section 5, the reference in the first sentence of Section 4.07 to the Company Financials shall be a reference to the consolidated financial statements of the Company and its Subsidiaries most recently delivered to the Administrative Agent and the Banks by the Company pursuant to Section 5.01(a)(i) or 5.01(a)(ii), as the case may be, and (b) no event has occurred and is continuing that constitutes either a Default or an Event of Default. -4- 5 SECTION 6. Reference to the Credit Agreement and Effect on the Notes and Other Documents Executed Pursuant to the Credit Agreement. (a) Upon the effectiveness of this Amendment, each reference in the Credit Agreement to "this Agreement," "hereunder," "herein," "hereof" or words of like import shall mean and be a reference to the Credit Agreement, as amended hereby. (b) Upon the effectiveness of this Amendment, each reference in the documents and agreements delivered or to be delivered pursuant to the Credit Agreement shall mean and be a reference to the Credit Agreement, as amended hereby. (c) Upon the effectiveness of this Amendment, each reference in the Credit Agreement to "Commitment" and "Termination Date" shall mean and be a reference to each such term as amended hereby. (d) The Credit Agreement and other documents and agreements delivered pursuant to the Credit Agreement, and modified by the amendments referred to above, shall remain in full force and effect and are hereby ratified and confirmed. SECTION 7. Execution in Counterparts. This Amendment may be executed in any number of counterparts and by different parties hereto in separate counterparts, each of which when so executed and delivered shall be deemed to be an original and all of which taken together shall constitute but one and the same instrument. SECTION 8. GOVERNING LAW; BINDING EFFECT. THIS AMENDMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF TEXAS AND APPLICABLE FEDERAL LAW AND SHALL BE BINDING UPON THE COMPANY, THE ADMINISTRATIVE AGENT, THE CO-AGENTS, THE BANKS AND THE RETIRING BANKS AND THEIR RESPECTIVE SUCCESSORS AND ASSIGNS. SECTION 9. Headings. Section headings in this Amendment are included herein for convenience of reference only and shall not constitute a part of this Amendment for any other purpose. SECTION 10. ENTIRE AGREEMENT. THE CREDIT AGREEMENT (INCLUDING THE EXHIBITS AND SCHEDULES HERETO), AS AMENDED HEREBY, THE BORROWING SUBSIDIARY COUNTERPARTS, IF ANY, THE ASSIGNMENT AND ACCEPTANCES, IF ANY, AND THE AGENT'S FEE LETTER EMBODY THE ENTIRE AGREEMENT AND UNDERSTANDING AMONG THE COMPANY, THE ADMINISTRATIVE AGENT, THE CO-AGENTS, THE BANKS AND THE RETIRING BANKS RELATING TO THE SUBJECT MATTER HEREOF AND THEREOF AND -5- 6 SUPERSEDE ALL PRIOR PROPOSALS, AGREEMENTS AND UNDERSTANDINGS RELATING TO SUCH SUBJECT MATTER. SECTION 11. Execution by Retiring Banks. (a) Each of the Banks (as defined in the Credit Agreement) is either a Continuing Bank or a Retiring Bank. (b) Each of the Retiring Banks is executing this Amendment solely for the purpose of acknowledging and agreeing that upon the effectiveness of this Amendment and the payment to it of all principal, interest, fees and any other amounts due and owing to it under the Credit Agreement and any related document or instrument, such Retiring Bank shall not have any commitment or obligation to the Company under the Credit Agreement or any related document or instrument and shall cease to be a Bank thereunder, and the Company shall have no obligation to any Retiring Bank under the Credit Agreement or this Amendment, except as provided in Sections 2.14, 2.15, 2.16, 2.20, 9.04 and 9.05 of the Credit Agreement. -6- 7 IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be executed effective as of the date first stated herein, by their respective officers thereunto duly authorized. SERVICE CORPORATION INTERNATIONAL By: ------------------------------- Todd A. Matherne Vice President and Treasurer -7- 8 THE CHASE MANHATTAN BANK, as Administrative Agent By: ------------------------------- Name: Title: 9 CO-AGENTS: BANK OF AMERICA NT & SA, as Co-Agent By: ------------------------------- Name: ----------------------------- Title: ---------------------------- 10 CITIBANK, N.A., as Co-Agent By: ------------------------------- Name: ----------------------------- Title: ---------------------------- 11 ROYAL BANK OF CANADA, as Co-Agent By: ------------------------------- Name: ----------------------------- Title: ---------------------------- 12 SOCIETE GENERALE, SOUTHWEST AGENCY, as Co-Agent By: ------------------------------- Name: ----------------------------- Title: ---------------------------- 13 UBS AG, STAMFORD BRANCH, as Co-Agent By: ------------------------------- Name: ----------------------------- Title: ---------------------------- 14 CONTINUING BANK: ABN AMRO BANK N.V. By: ------------------------------- Name: ----------------------------- Title: ---------------------------- By: ------------------------------- Name: ----------------------------- Title: ---------------------------- Commitment: $15,000,000 FACILITY A 15 CONTINUING BANK: BANK OF AMERICA NT & SA By: ------------------------------- Name: ----------------------------- Title: ---------------------------- Commitment: $30,000,000 FACILITY A 16 CONTINUING BANK: THE BANK OF NEW YORK By: ------------------------------- Name: ----------------------------- Title: ---------------------------- Commitment: $15,000,000 FACILITY A 17 NEW BANK: BANK ONE, TEXAS, N.A. By: ------------------------------- Name: ----------------------------- Title: ---------------------------- Commitment: $20,000,000 FACILITY A 18 CONTINUING BANK: BANQUE NATIONALE DE PARIS, HOUSTON AGENCY By: ------------------------------- Name: ----------------------------- Title: ---------------------------- Commitment: $9,000,000 FACILITY A 19 CONTINUING BANK: CHASE BANK OF TEXAS NATIONAL ASSOCATION By: ------------------------------- Name: ----------------------------- Title: ---------------------------- Commitment: $44,000,000 FACILITY A 20 RETIRING BANK: CIBC, INC. By: ------------------------------- Name: ----------------------------- Title: ---------------------------- FACILITY A 21 CONTINUING BANK: CITIBANK, N.A. By: ------------------------------- Name: ----------------------------- Title: ---------------------------- Commitment: $25,500,000 FACILITY A 22 CONTINUING BANK: COMMERZBANK AKTIENGESELLSHAFT, ATLANTA AGENCY By: ------------------------------- Name: ----------------------------- Title: ---------------------------- By: ------------------------------- Name: ----------------------------- Title: ---------------------------- Commitment: $21,000,000 FACILITY A 23 CONTINUING BANK: CREDIT LYONNAIS NEW YORK BRANCH By: ------------------------------- Name: ----------------------------- Title: ---------------------------- Commitment: $20,000,000 FACILITY A 24 RETIRING BANK: THE FUJI BANK, LIMITED By: ------------------------------- Name: ----------------------------- Title: ---------------------------- FACILITY A 25 RETIRING BANK: ISTITUTO BANCARIO SAN PAOLO DI TORINO ISTITUTO MOBILIARE ALIANO SPA By: ------------------------------- Name: ----------------------------- Title: ---------------------------- By: ------------------------------- Name: ----------------------------- Title: ---------------------------- FACILITY A 26 CONTINUING BANK: ROYAL BANK OF CANADA By: ------------------------------- Name: ----------------------------- Title: ---------------------------- Commitment: $25,500,000 FACILITY A 27 CONTINUING BANK: SOCIETE GENERALE, SOUTHWEST AGENCY By: ------------------------------- Name: ----------------------------- Title: ---------------------------- Commitment: $25,500,000 FACILITY A 28 CONTINUING BANK: SUNTRUST BANK, ATLANTA By: ------------------------------- Name: ----------------------------- Title: ---------------------------- By: ------------------------------- Name: ----------------------------- Title: ---------------------------- Commitment: $15,000,000 FACILITY A 29 CONTINUING BANK: UBS AG, STAMFORD BRANCH By: ------------------------------- Name: ----------------------------- Title: ---------------------------- By: ------------------------------- Name: ----------------------------- Title: ---------------------------- Commitment: $25,500,000 FACILITY A 30 CONTINUING BANK: WESTPAC BANKING CORPORATION By: ------------------------------- Name: ----------------------------- Title: ---------------------------- Commitment: $9,000,000 FACILITY A EX-99.4 17 3RD AMEND.TO COMPETITIVE ADVANCE & REVOLVING CRED. 1 EXHIBIT 99.4 AGREEMENT AND THIRD AMENDMENT TO COMPETITIVE ADVANCE AND REVOLVING CREDIT FACILITY AGREEMENT (FACILITY A) THIS AGREEMENT AND THIRD AMENDMENT TO COMPETITIVE ADVANCE AND REVOLVING CREDIT FACILITY AGREEMENT (FACILITY A) (this "Amendment") dated as of November 2, 1999 is among: (a) SERVICE CORPORATION INTERNATIONAL, a Texas corporation (the "Company"); (b) the banks and other financial institutions listed on the signature pages hereof, (collectively, the "Banks"); and (c) THE CHASE MANHATTAN BANK, a New York banking corporation, as administrative agent for the Banks (in such capacity, the "Administrative Agent"). PRELIMINARY STATEMENT The Company, the Banks, the Administrative Agent and the Co-Agents (defined therein), are parties to a Competitive Advance and Revolving Credit Facility Agreement (Facility A) dated as of June 27, 1997, as amended pursuant to an Agreement and First Amendment to Competitive Advance and Revolving Credit Facility Agreement (Facility A) dated as of June 26, 1998 and an Agreement and Second Amendment to Competitive Advance and Revolving Credit Facility Agreement (Facility A) dated as of June 25, 1999 (said Competitive Advance and Revolving Credit Facility Agreement (Facility A), as so amended, being the "Credit Agreement"). All capitalized terms defined in the Credit Agreement and not otherwise defined herein shall have the same meanings herein as in the Credit Agreement. The Company, the Banks and the Administrative Agent have agreed, upon the terms and conditions specified herein, to amend the Credit Agreement as hereinafter set forth: NOW, THEREFORE, in consideration of the premises and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged by the parties hereto, the Company, the Banks and the Administrative Agent hereby agree as follows: SECTION 1. Amendments to Section 1.01 of the Credit Agreement. (a) The definitions of the term "Consolidated Net Income" and contained in Section 1.01 of the Credit Agreement is hereby amended in its entirety to read as follows: FACILITY A 2 "'Consolidated Net Income' means, for any period, the net income of the Company and its Subsidiaries for such period (taken as a cumulative whole), determined on a consolidated basis in accordance with GAAP and adjusted to exclude (a) net after-tax extraordinary gains or losses, (b) restructuring charges, and (c) the cumulative effect of any changes in accounting principles. (b) The following defined terms are hereby added to Section 1.01 of the Credit Agreement: (i) "Applicable Percentage" means, for any day, (a) with respect to any Eurodollar Loan, the applicable percentage set forth below under the caption "Eurodollar Spread" and (b) with respect to the Facility Fee, the applicable percentage set forth below under the caption "Facility Fee Rate", in each case determined by reference to the highest level applicable based upon the ratings by S&P and Moody's in effect on such date for the Index Debt:
Level 1 Level 2 Level 3 Level 4 ------- ------- ------- ------- Ratings >=BBB and >=BBB- and >=BB+ and =Baa2 >=Baa3 >=Ba1 Eurodollar Spread 1.00% 1.25% 1.375% 1.50% Facility Fee Rate 0.25% 0.25% 0.375% 0.50%
For purposes of the foregoing, (i) if either Moody's or S&P shall not have in effect a rating for the Index Debt (other than by reason of the circumstances referred to in the last sentence of this paragraph), then such rating agency shall be deemed to have established a rating below BB+ or Ba1, as the case may be; (ii) if the ratings established or deemed to have been established by Moody's and S&P for the Index Debt shall fall within different levels, the Applicable Percentage shall be based on the lower of the two ratings; and (iii) if the ratings established or deemed to have been established by Moody's or S&P for the Index Debt shall be changed (other than as a result of a change in the rating system of Moody's or S&P), such change shall be effective as of the date on which it is first announced by the applicable rating agency. Each change in the Applicable Percentage shall apply for purposes of determining interest on the outstanding Eurodollar Loans and the Facility Fee during the period commencing on the effective date of such change and ending on the date immediately preceding the effective date of the next such change. If the rating system of Moody's or S&P shall change, or if either such rating agency shall cease to be in the business of rating corporate debt obligations, the Company and the Banks shall negotiate in good faith to amend this definition to reflect such changed rating system or the absence of ratings from such rating agency and, pending the FACILITY A -2- 3 effectiveness of such amendment, the Applicable Percentage shall be determined by reference to the rating most recently in effect prior to such change or cessation. (ii) "Consolidated EBITDA" means, in respect of any fiscal quarter, the sum of (a) Consolidated Net Income for such fiscal quarter and (b) the amount of all Interest Expense, taxes paid during such fiscal quarter, depreciation and amortization allowances and other non-cash expenses of the Company and its Subsidiaries, as determined on a consolidated basis in accordance with GAAP, but in the case of clause (b) only to the extent deducted in the determination of Consolidated Net Income for such fiscal quarter. (iii) "Interest Expense" means, with respect to any fiscal quarter, without duplication, the following (in each case, eliminating all offsetting debits and credits between the Company and its Subsidiaries and all other items required to be eliminated in the course of the preparation of consolidated financial statements of the Company and its Subsidiaries in accordance with GAAP): all interest in respect of Debt of the Company and its Subsidiaries (including imputed interest on Capital Lease Obligations) paid in cash during, and deducted in determining Consolidated Net Income for, such fiscal quarter. (iv) "Third Amendment" means the Agreement and Third Amendment to Competitive Advance and Revolving Credit Facility Agreement (Facility A) dated as of November 2, 1999 among the Company, the Banks party thereto and the Administrative Agent. (v) "Third Amendment Execution Date" means the date the Third Amendment has been executed by all the parties thereto. (c) The defined term "Utilization Fees" and the definition thereof is hereby deleted from Section 1.01 of the Credit Agreement. SECTION 2. Amendments to Article II of the Credit Agreement. (a) Section 2.07 of the Credit Agreement is hereby amended in its entirety to read as follows: "SECTION 2.07. Fees. (a) The Company agrees to pay in immediately available funds to the Administrative Agent for the account of each Bank, through the Administrative Agent, (i) on each March 31, June 30, September 30 and December 31 commencing December 31, 1999 from the Third Amendment Execution Date to the date on which the Commitment of such Bank has been terminated and (ii) on the Maturity Date and on any other date on which the Commitment of such Bank has been terminated, facility fees (each a "Facility Fee" and collectively, the "Facility FACILITY A -3- 4 Fees"), which shall accrue at the Applicable Percentage on the amount of the Commitment of such Bank from time to time outstanding, whether used, deemed used or unused, during the preceding quarter (or shorter period commencing with the Third Amendment Execution Date and/or ending with the Maturity Date); provided, however, if any Loans are outstanding to any Bank after the Maturity Date then such Facility Fee shall continue to accrue on the daily amount of such Bank's outstanding Loans from and including the Maturity Date to but excluding the date all such Loans are paid in full. (b) Intentionally Omitted. (c) All Facility Fees shall be computed by the Administrative Agent on the basis of the actual number of days elapsed in a year of 360 days, and such computations, made in good faith, shall create a rebuttable presumption that they are accurate. The Facility Fees due to each Bank shall commence to accrue on the Execution Date and shall cease to accrue on the earlier of the Maturity Date and the termination of the Commitment of such Bank as provided herein. (d) The Facility Fees due under this Section 2.07 shall be paid on the date due, in immediately available funds, to the Administrative Agent for distribution among the Banks. (e) The Company agrees to pay to the Administrative Agent the fees as provided in the Agent's Fee Letter. (f) Notwithstanding the foregoing, in no event shall any Bank be permitted to receive any compensation hereunder constituting interest in excess of the Highest Lawful Rate.". (b) Section 2.09(a) of the Credit Agreement is hereby amended in its entirety to read as follows: "(a) Subject to the provisions of Section 2.09(d) and Section 2.10, the Loans comprising each Eurodollar Borrowing shall bear interest (computed on the basis of the actual number of days elapsed over a year of 360 days) at a rate per annum equal to (i) in the case of each Eurodollar Committed Loan, the lesser of (A) the IBO Rate for the Interest Period in effect for such Borrowing plus the Applicable Percentage in effect for such Loans from time to time and (B) the Highest Lawful Rate, and (ii) in the case of each Eurodollar Competitive Loan, the lesser of (A) the IBO Rate for the Interest Period in effect for such Borrowing plus the Margin offered by the Bank making such Loan and accepted by a Borrower pursuant to Section 2.03 and (B) the Highest Lawful Rate.". FACILITY A -4- 5 SECTION 3. Amendments to Article V. Article V of the Credit Agreement is hereby amended as follows: (a) The penultimate sentence of Section 5.01(a) is hereby amended in its entirety to read as follows: "Together with each delivery of financial statements required by clauses (i) and (ii) above, the Company will deliver to each Bank (y) schedules and/or computations demonstrating that the Company is in compliance with its covenants in Sections 5.02(a), 5.02(b), 5.02(c), 5.02(g) and 5.02(j) or reflecting any noncompliance therewith as at the applicable date and (z) an Officer's Certificate stating that there exists no Event of Default or Default, or, if any Event of Default or Default, stating the nature thereof, the period of existence thereof and what action the Company or any other Borrower has taken or proposes to take with respect thereto.". (b) Section 5.02(a) of the Credit Agreement is hereby amended in its entirety to read as follows: "(a) Net Worth. The Company will not permit Net Worth at any time to be less than the sum of (a) $2,500,000,000, plus (b) 50% of Consolidated Net Income (if positive) for each fiscal quarter ending during the period from January 1, 1999 to the end of its most recently completed fiscal quarter, plus (c) 100% of the net proceeds received by the Company on or after January 1, 1999 from all shares, rights to purchase, warrants, options, participations or other equivalents of the Company's equity, including all common stock and preferred stock.". (c) Section 5.02(b) of the Credit Agreement is hereby amended in its entirety to read as follows: "(b) Debt. (i) The Company will not permit the ratio of Consolidated Debt to Total Capitalization at any time to be greater than .60 to 1.0. (ii) The Company will not permit the sum of (A) the aggregate amount of Debt of its Subsidiaries (other than Debt held by the Company) plus (B) Assured Obligations of its Subsidiaries to exceed 20% of Net Worth.". (d) Section 5.02 of the Credit Agreement is hereby amended to add the following as Section 5.02(j): "(j) EBITDA. The Company will not permit the ratio of Consolidated EBITDA to Interest Expense at any time to be less than 2.75 to 1.0, calculated at the FACILITY A -5- 6 end of each fiscal quarter for such fiscal quarter and the immediately preceding three fiscal quarters.". SECTION 4. The Credit Agreement is hereby amended to delete all references to the term "Utilization Fees". SECTION 5. Conditions of Effectiveness. This Amendment shall become effective when, and only when the following conditions shall have been fulfilled: (a) the Company, the Administrative Agent and the Majority Banks shall have executed a counterpart hereof and delivered the same to the Administrative Agent or, in the case of any Bank as to which an executed counterpart hereof shall not have been so delivered, the Administrative Agent shall have received written confirmation by telecopy or other similar writing from such Bank of execution of a counterpart hereof by such Bank; and (b) the Administrative Agent shall have received from the Company a certificate of the Secretary or Assistant Secretary of the Company certifying that attached thereto is (i) a true and complete copy of the general borrowing resolutions of the Board of Directors of the Company authorizing the execution, delivery and performance of the Credit Agreement, as amended hereby, and (ii) the incumbency and specimen signature of each officer of the Company executing this Amendment. SECTION 6. Representations and Warranties True; No Default or Event of Default. The Company hereby represents and warrants to the Administrative Agent, the Co-Agents and the Banks that after giving effect to the execution and delivery of this Amendment: (a) the representations and warranties set forth in the Credit Agreement are true and correct on the date hereof as though made on and as of such date; provided, however, that for purposes of this Section 6, the reference in the first sentence of Section 4.07 to the Company Financials shall be a reference to the consolidated financial statements of the Company and its Subsidiaries most recently delivered to the Administrative Agent and the Banks by the Company pursuant to Section 5.01(a)(i) or 5.01(a)(ii), as the case may be, and (b) no event has occurred and is continuing that constitutes either a Default or an Event of Default. SECTION 7. Reference to the Credit Agreement and Effect on the Other Documents Executed Pursuant to the Credit Agreement. (a) Upon the effectiveness of this Amendment, each reference in the Credit Agreement to "this Agreement," "hereunder," "herein," "hereof" or words of like import shall mean and be a reference to the Credit Agreement, as amended hereby. (b) Upon the effectiveness of this Amendment, each reference in the documents and agreements delivered or to be delivered pursuant to the Credit Agreement shall mean and be a reference to the Credit Agreement, as amended hereby. FACILITY A -6- 7 (c) Upon the effectiveness of this Amendment, each reference in the Credit Agreement to "Consolidated Net Income" shall mean and be a reference to such term as amended hereby. (d) The Credit Agreement and other documents and agreements delivered pursuant to the Credit Agreement, and modified by the amendments referred to above, shall remain in full force and effect and are hereby ratified and confirmed. SECTION 8. Execution in Counterparts. This Amendment may be executed in any number of counterparts and by different parties hereto in separate counterparts, each of which when so executed and delivered shall be deemed to be an original and all of which taken together shall constitute but one and the same instrument. SECTION 9. GOVERNING LAW; BINDING EFFECT. THIS AMENDMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF TEXAS AND APPLICABLE FEDERAL LAW AND SHALL BE BINDING UPON THE COMPANY, THE ADMINISTRATIVE AGENT, THE CO-AGENTS, THE BANKS AND THE RETIRING BANKS AND THEIR RESPECTIVE SUCCESSORS AND ASSIGNS. SECTION 10. Headings. Section headings in this Amendment are included herein for convenience of reference only and shall not constitute a part of this Amendment for any other purpose. SECTION 11. ENTIRE AGREEMENT. THE CREDIT AGREEMENT (INCLUDING THE EXHIBITS AND SCHEDULES HERETO), AS AMENDED HEREBY, THE BORROWING SUBSIDIARY COUNTERPARTS, IF ANY, THE ASSIGNMENT AND ACCEPTANCES, IF ANY, AND THE AGENT'S FEE LETTER EMBODY THE ENTIRE AGREEMENT AND UNDERSTANDING AMONG THE COMPANY, THE ADMINISTRATIVE AGENT, THE CO-AGENTS, THE BANKS AND THE RETIRING BANKS RELATING TO THE SUBJECT MATTER HEREOF AND THEREOF AND SUPERSEDE ALL PRIOR PROPOSALS, AGREEMENTS AND UNDERSTANDINGS RELATING TO SUCH SUBJECT MATTER. FACILITY A -7- 8 IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be executed effective as of the date first stated herein, by their respective officers thereunto duly authorized. SERVICE CORPORATION INTERNATIONAL By: ------------------------------------- Todd A. Matherne Senior Vice President and Treasurer FACILITY A 9 THE CHASE MANHATTAN BANK, as Administrative Agent By: ----------------------------- Name: Title: FACILITY A 10 BANK: ABN AMRO BANK N.V. By: ---------------------------- Name: -------------------------- Title: ------------------------- By: ---------------------------- Name: -------------------------- Title: ------------------------- Commitment: $15,000,000 FACILITY A 11 BANK: BANK OF AMERICA, N.A. By: ---------------------------- Name: -------------------------- Title: ------------------------- Commitment: $30,000,000 FACILITY A 12 BANK: THE BANK OF NEW YORK By: ---------------------------- Name: -------------------------- Title: ------------------------- Commitment: $15,000,000 FACILITY A 13 BANK: BANK ONE, TEXAS, N.A. By: ---------------------------- Name: -------------------------- Title: ------------------------- Commitment: $20,000,000 FACILITY A 14 BANK: BANQUE NATIONALE DE PARIS, HOUSTON AGENCY By: ---------------------------- Name: -------------------------- Title: ------------------------- Commitment: $9,000,000 FACILITY A 15 BANK: CHASE BANK OF TEXAS, NATIONAL ASSOCIATION, f/k/a TEXAS COMMERCE BANK NATIONAL ASSOCIATION By: ---------------------------- Name: -------------------------- Title: ------------------------- Commitment: $44,000,000 FACILITY A 16 BANK: CITIBANK, N.A. By: ---------------------------- Name: -------------------------- Title: ------------------------- Commitment: $25,500,000 FACILITY A 17 BANK: COMMERZBANK AKTIENGESELLSCHAFT, ATLANTA AGENCY By: ---------------------------- Name: -------------------------- Title: ------------------------- By: ---------------------------- Name: -------------------------- Title: ------------------------- Commitment: $21,000,000 FACILITY A 18 BANK: CREDIT LYONNAIS NEW YORK BRANCH By: ---------------------------- Name: -------------------------- Title: ------------------------- Commitment: $20,000,000 FACILITY A 19 BANK: ROYAL BANK OF CANADA By: ---------------------------- Name: -------------------------- Title: ------------------------- Commitment: $25,500,000 FACILITY A 20 BANK: SOCIETE GENERALE By: ---------------------------- Name: -------------------------- Title: ------------------------- Commitment: $25,500,000 FACILITY A 21 BANK: SUNTRUST BANK, ATLANTA By: ---------------------------- Name: -------------------------- Title: ------------------------- By: ---------------------------- Name: -------------------------- Title: ------------------------- Commitment: $15,000,000 FACILITY A 22 BANK: UBS AG, STAMFORD BRANCH, f/k/a UNION BANK OF SWITZERLAND By: ---------------------------- Name: -------------------------- Title: ------------------------- By: ---------------------------- Name: -------------------------- Title: ------------------------- Commitment: $25,500,000 FACILITY A 23 BANK: WESTPAC BANKING CORPORATION By: ---------------------------- Name: -------------------------- Title: ------------------------- Commitment: $9,000,000 FACILITY A EX-99.5 18 COMPETITIVE ADVANCE & REVOLVING CREDIT FACILITY B 1 EXHIBIT 99.5 COMPETITIVE ADVANCE AND REVOLVING CREDIT FACILITY AGREEMENT (FACILITY B) THIS COMPETITIVE ADVANCE AND REVOLVING CREDIT FACILITY AGREEMENT (FACILITY B) dated as of June 27, 1997, among: (a) SERVICE CORPORATION INTERNATIONAL, a Texas corporation (the "Company"); (b) 611102 Saskatchewan Ltd., a Saskatchewan corporation, and Service Corporation International Australia Pty Limited, a company limited by shares incorporated in South Australia (collectively, the "Initial Borrowing Subsidiaries"), and each other "Borrowing Subsidiary", as herein defined, that becomes party hereto; (c) the banks and other financial institutions named under the caption "Banks" on the signature pages hereof (such banks together with each other Person who becomes a Bank pursuant to Section 9.11, collectively, the "Banks"); (d) THE CHASE MANHATTAN BANK, a New York banking corporation, as administrative agent for the Banks (in such capacity together with any other Person who becomes the Administrative Agent pursuant to Section 7.06, the "Administrative Agent"); and (e) BANK OF AMERICA ILLINOIS, CITIBANK N.A., NATIONSBANK, N.A., ROYAL BANK OF CANADA, SOCIETE GENERALE, and UNION BANK OF SWITZERLAND (collectively, the "Co-Agents"). PRELIMINARY STATEMENT The Company has requested that the Banks extend a credit facility to the Company and the Borrowing Subsidiaries in order to enable the Company and the Borrowing Subsidiaries to borrow on a revolving credit basis on and after the date hereof, on the terms and conditions set forth herein, a principal amount not in excess of $700,000,000 at any time outstanding. The Company has also requested that the Banks provide a procedure pursuant to which each Bank may, on an uncommitted basis, bid up to the full amount of the Total Commitment (as herein defined), regardless of such Bank's individual Commitment, on borrowings by the Company and the Borrowing Subsidiaries thereunder. The proceeds of all such borrowings are to be used for general corporate purposes of the Borrowers including credit support for the Company's commercial paper program. The Banks are willing to extend such credit to the Company and the Borrowing FACILITY B 2 Subsidiaries on the terms and subject to the conditions herein set forth. Accordingly, the Company, the Borrowing Subsidiaries, the Banks and the Administrative Agent agree as follows: ARTICLE I DEFINITIONS, ACCOUNTING TERMS AND CONSTRUCTION SECTION 1.01. Certain Defined Terms. As used in this Agreement, the following terms shall have the following meanings: "ABR Borrowing" means a Borrowing comprised of ABR Loans. "ABR Loan" means any Committed Loan bearing interest at a rate determined by reference to the Alternate Base Rate in accordance with the provisions of Article II. "Acquisition" means the acquisition by the Company or any of its Subsidiaries of a business, including any assets, leases and liabilities (contingent or otherwise) related thereto, either by the cash purchase of stock or assets or by an exchange or issuance of securities (including merger) or assumption of liabilities or by a combination thereof. "Administrative Agent" has the meaning specified in the introduction to this Agreement. "Administrative Questionnaire" means an Administrative Questionnaire in the form of Exhibit 1.01A, which each Bank shall complete and provide to the Administrative Agent and the Company. "Affiliate" means, when used with respect to any Person, any other Person which controls or is controlled by or is under common control with such Person. As used in this definition, "control" means the possession, directly or indirectly, of power to direct or cause the direction of management or policies (whether through ownership of securities or partnership or ownership interests, by contract or otherwise). "Agent's Fee Letter" means the fee letter agreement dated April 29, 1997 between the Company and the Administrative Agent. "Aggregate Competitive Loan Exposure" means the aggregate amount of the Banks' Competitive Loan Exposures. FACILITY B -2- 3 "Aggregate Outstanding Dollar Revolving Extensions of Credit" means as to any Bank at any time, the aggregate principal amount of all Committed Loans made by such Bank then outstanding. "Aggregate Revolving Credit Exposure" means the aggregate amount of the Banks' Revolving Credit Exposures. "Agreement" means this Competitive Advance and Revolving Credit Facility Agreement (Facility B). "Agreement Currency" has the meaning assigned to such term in Section 9.17. "Alternate Base Rate" means, for any date, a rate per annum (rounded upwards, if necessary, to the next 1/16 of 1%) equal to the greater of (a) the Prime Rate in effect on such day and (b) the Federal Funds Effective Rate in effect on such day plus 1/2 of 1%. "Prime Rate" means, as of a particular date, the prime rate most recently determined by the Administrative Agent at the Principal Office, automatically fluctuating upward and downward with and at the time specified in each such announcement without notice to any Borrower or any other Person, which prime rate may not necessarily represent the lowest or best rate actually charged to a customer. "Federal Funds Effective Rate" means, for any day, the weighted average of the rates on overnight federal funds transactions with members of the Federal Reserve System arranged by federal funds brokers, as published for such day (or, if such day is not a Business Day, for the next preceding Business Day) by the Federal Reserve Bank of New York, or, if such rate is not so published for any day which is a Business Day, the average of the quotations for such day on such transactions received by the Administrative Agent from three federal funds brokers of recognized standing selected by it. If for any reason the Administrative Agent shall have determined (which determination, made in good faith, shall create a rebuttable presumption that the same is accurate) that it is unable to ascertain the Federal Funds Effective Rate for any reason, including the inability or failure of the Administrative Agent to obtain sufficient quotations in accordance with the terms hereof, the Alternate Base Rate shall be determined without regard to clause (b) of the first sentence of this definition until the circumstances giving rise to such inability no longer exist. Any change in the Alternate Base Rate due to a change in the Prime Rate or the Federal Funds Effective Rate shall be effective on the effective date of such change in the Prime Rate or the Federal Funds Effective Rate, respectively. "Applicable Creditor" has the meaning specified in Section 9.17. "Applicable Differential" means, on any date, with respect to a Eurodollar Committed Borrowing, the applicable differential for such Borrowing set forth below based upon the rating applicable on such date to the Index Debt: FACILITY B -3- 4 Eurodollar Committed Loan Differential (in 1/100 of 1% per annum) -------------------------- Category 1 A or higher by S&P; or A2 or higher by Moody's 13.0 Category 2 Lower than A and equal to or higher than BBB + by S&P; or lower than A2 and equal to or higher than Baa1 by Moody's 14.0 Category 3 BBB by S&P; or Baa2 by Moody's 20.0 Category 4 BBB - or lower by S&P; or Baa3 or lower by Moody's 25.0
For purposes of the foregoing, (a) if neither Moody's nor S&P shall have in effect a rating for the Index Debt, then both such rating agencies will be deemed to have established ratings for the Index Debt in Category 4; (b) if only one of S&P and Moody's shall have in effect a rating for the Index Debt, the Company and the Banks will negotiate in good faith to agree upon another rating agency to be substituted by an amendment to this Agreement for the rating agency which shall not have a rating in effect, and, pending the effectiveness of such amendment, the Applicable Differential will be determined by reference to the available rating; (c) if the ratings established or deemed to have been established by S&P and Moody's shall fall within different Categories, the Applicable Differential shall be determined by reference to the superior (or numerically lower) Category; and (d) if any rating established or deemed to have been established by S&P or Moody's shall be changed (other than as a result of a change in the rating system of either Moody's or S&P), such change shall be effective as of the date on which such change is first announced by the rating agency making such change. Each change in the Applicable Differential shall apply to all Eurodollar Committed Loans that are outstanding at any time during the period commencing on the effective date of such change and ending on the date immediately preceding the effective date of the next such change. If the rating system of either S&P or Moody's shall change prior to the Maturity Date, the Company and the Banks shall negotiate in good faith to amend the references to specific ratings in this definition to reflect such changed rating system. FACILITY B -4- 5 "Applicable Fee Percentage" means, on any date, with respect to the Total Commitment, the applicable percentage set forth below based upon the rating applicable on such date to the Index Debt: Applicable Fee Percentage in 1/100 of 1% per annum ------------------------ Category 1 A or higher by S&P; or A2 or higher by Moody's 7.0 Category 2 Lower than A and equal to or higher than BBB + by S&P; or lower than A2 and equal to or higher than Baa1 by Moody's 8.0 Category 3 BBB by S&P; or Baa2 by Moody's 10.0 Category 4 BBB- or lower by S&P; or Baa3 or lower by Moody's 15.0
For purposes of the foregoing, (a) if neither Moody's nor S&P shall have in effect a rating for the Index Debt, then both such rating agencies will be deemed to have established ratings for the Index Debt in Category 4; (b) if only one of S&P and Moody's shall have in effect a rating for the Index Debt, the Company and the Banks will negotiate in good faith to agree upon another rating agency to be substituted by an amendment to this Agreement for the rating agency which shall not have a rating in effect, and, pending the effectiveness of such amendment, the Applicable Fee Percentage will be determined by reference to the available rating; (c) if the ratings established or deemed to have been established by S&P and Moody's shall fall within different Categories, the Applicable Fee Percentage shall be determined by reference to the superior (or numerically lower) Category; and (d) if any rating established or deemed to have been established by S&P or Moody's shall be changed (other than as a result of a change in the rating system of either S&P or Moody's), such change shall be effective as of the date on which such change is first announced by the rating agency making such change. Each change in the Applicable Fee Percentage shall apply during the period commencing on the effective date of such change and ending on the date immediately preceding the effective date of the next such change. If the rating system of either S&P or Moody's shall change prior to the Maturity Date, the Company and the Banks shall negotiate in good faith to amend the references to specific ratings in this definition to reflect such changed rating system. FACILITY B -5- 6 "Applicable Lending Office" means, with respect to each Bank, such Bank's Domestic Lending Office in the case of an ABR Loan or a Fixed Rate Loan denominated in Dollars, such Bank's Eurocurrency Lending Office in the case of a Eurocurrency Loan and such Bank (or its Affiliate, branch or agency, as specified by such Bank) in the case of a Foreign Currency Loan. "Assignment and Acceptance" has the meaning specified in Section 9.11(c). "Assurance" means, as to any Person, any guaranty or other contingent liability of such Person (other than any endorsement for collection or deposit in the ordinary course of business) including, without limitation, contingent liabilities as an account party in respect of letters of credit, direct or indirect, with respect to any obligation of another Person, through an agreement or otherwise, including (a) any endorsement or discount with recourse or other undertaking substantially equivalent to or having economic effect similar to a guarantee in respect of any such obligation and (b) any agreement (i) to purchase, or to advance or supply funds for the payment or purchase of, any such obligation, (ii) to purchase, sell or lease property, products, materials or supplies, or transportation or services, in order to enable such other Person to pay any such obligation or to assure the owner thereof against loss regardless of the delivery or non-delivery of the property, products, materials or supplies or transportation or services or (iii) to make any loan, advance or capital contribution to or other investment in, or to otherwise provide funds to or for, such other Person in order to enable such Person to satisfy any obligation (including any liability for a dividend, stock liquidation payment or expense) or to assure a minimum equity, working capital or other balance sheet condition for the benefit of the holder of any such obligation. Notwithstanding the foregoing, the term "Assurance" shall not include any guaranty or other contingent liability, direct or indirect, with respect to (u) bonds, indemnity agreements and similar arrangements which are provided to assure that the Company and its Subsidiaries fully perform their obligations regarding prearranged funeral services and goods and/or construction of burial facilities, (v) obligations of a Person acquired, or of a business which has been acquired, in an Acquisition, provided that such obligations arose prior to such Acquisition and were not created, incurred or assumed in contemplation thereof, (w) obligations of a Subsidiary arising from an Acquisition, (x) any duly authorized registered guaranty of the Company of a promissory note of its Subsidiary issued or to be issued with respect to an Acquisition in accordance with an Indenture dated as of May 1, 1970, executed and delivered between the Company and TCB, as Trustee, (y) Letters of Credit, or (z) obligations of the Company under the Enhancement Agreements. In no event shall any unfunded commitment extended by Provident in the ordinary course of its business of extending financing to the death care industry be considered an Assurance and the loans and advances made by Provident pursuant to any such commitment shall constitute investments and not Assurances. The amount of any Assurance shall be equal to the outstanding amount of the obligation directly or indirectly guaranteed (to the full extent of the obligation in respect of which such Assurance is given or the maximum liability in respect of such Assurance of the Person giving the same, whichever shall be less). FACILITY B -6- 7 "Assured Obligation" means, as to any Person, any amount guaranteed or otherwise supported by such Person pursuant to an Assurance. "Australian Addendum" means the Foreign Currency Addendum, dated as of the date hereof, between the Company, Service Corporation International Australia Pty Limited, and the Foreign Currency Agent and the Foreign Currency Banks named therein. "Available Commitment" means as to any Bank, at any time of determination, an amount equal to such Bank's Commitment at such time minus such Bank's Revolving Credit Exposure at such time. "Bank of America" means Bank of America National Trust and Savings Association. "Banks" has the meaning specified in the introduction to this Agreement. "Board" means the Board of Governors of the Federal Reserve System of the United States. "Borrowers" means the Company and the Borrowing Subsidiaries. "Borrowing" means a Loan or group of Loans of a single Type and currency made by the Banks (or, in the case of a Competitive Borrowing, by the Bank or Banks whose Competitive Bids have been accepted pursuant to Section 2.03) on a single date and as to which a single Interest Period is in effect. "Borrowing Date" means, with respect to each Borrowing made pursuant to Section 2.03 or Section 2.04, the Business Day upon which the proceeds of such Borrowing are to be made available to a Borrower. "Borrowing Subsidiary" means each Initial Borrowing Subsidiary and any other Wholly-owned Subsidiary of the Company (other than an Inactive Subsidiary) designated as a Borrowing Subsidiary by the Company pursuant to Section 2.22. "Borrowing Subsidiary Counterpart" has the meaning specified in Section 2.22. "Business Day" means any day other than a Saturday, Sunday or legal holiday in the State of New York or Texas or other day on which banks in New York City or in Houston, Texas are required or authorized by law to close; provided, however, that, when used in connection with a Eurocurrency Loan, the term "Business Day" shall also exclude any day on which banks are not open for dealings in deposits in Dollars or the relevant Foreign Currency in the London interbank market. FACILITY B -7- 8 "Calculation Date" means the last Business Day of each calendar week. "Canadian Addendum" means the Foreign Currency Addendum, dated as of the date hereof, between the Company, 611102 Saskatchewan Limited, and the Foreign Currency Agent and the Foreign Currency Banks named therein. "Capital Lease" means, as to any Person, any lease in respect of which the obligations of such Person constitute Capitalized Lease Obligations. "Capitalized Lease Obligations" means, as to any Person, all lease obligations which shall have been or should be, in accordance with GAAP, capitalized on the books of such Person. "Chase" means The Chase Manhattan Bank, a New York banking corporation and the successor to Chemical Bank, a New York banking corporation. "Co-Agents" has the meaning specified in the introduction to this Agreement. "Code" means the Internal Revenue Code of 1986 and the regulations promulgated thereunder. "Commitment" means, with respect to each Bank, the amount set forth beneath the name of such Bank on the signature pages hereof (or, as to any Person that becomes a Bank after the Execution Date, on the signature page of the Assignment and Acceptance executed by such Person), as such amount may be permanently terminated or reduced from time to time pursuant to Section 2.12, Section 2.14, Section 2.15 or Section 9.11, and as such amount may be increased from time to time by assignment or assumption pursuant to Section 2.14, Section 2.15 or Section 9.11. The Commitment of each Bank shall automatically and permanently terminate on the Maturity Date. "Committed Borrowing" means a borrowing consisting of concurrent Committed Loans from each of the Banks pursuant to Section 2.04 distributed ratably among the Banks in accordance with their respective Available Commitments or resulting from a conversion or continuation of an existing Committed Borrowing pursuant to Section 2.06. "Committed Borrowing Request" has the meaning specified in Section 2.04. "Committed Loans" means the revolving loans made by the Banks to the Company pursuant to Section 2.04. Each Committed Loan shall be a Eurodollar Committed Loan or an ABR Loan. The term "Committed Loan" shall not include any Foreign Currency Revolving Loan. "Communications" has the meaning specified in Section 9.02. "Company" has the meaning specified in the introduction to this Agreement. FACILITY B -8- 9 "Company Financials" has the meaning specified in Section 4.07. "Competitive Bid" means an offer by a Bank to make a Competitive Loan pursuant to Section 2.03. "Competitive Bid Rate" means, as to any Competitive Bid made by a Bank pursuant to Section 2.03(b), (i) in the case of a Eurocurrency Competitive Loan, the Margin (which will be added to or subtracted from the IBO Rate), and (ii) in the case of a Fixed Rate Loan, the fixed rate of interest, in each case, offered by the Bank making such Competitive Bid. "Competitive Bid Request" means a request for Competitive Bids made pursuant to Section 2.03 in the form of Exhibit 2.03A. "Competitive Borrowing" means a borrowing consisting of a Competitive Loan or concurrent Competitive Loans from each Bank whose Competitive Bid as all or as a part of such borrowing, as the case may be, has been accepted by a Borrower under the bidding procedure described in Section 2.03. "Competitive Loan" means a Loan from a Bank to a Borrower pursuant to the bidding procedure described in Section 2.03, and shall be either a Eurocurrency Competitive Loan or a Fixed Rate Loan, and shall include a Competitive Loan denominated in a Foreign Currency. "Competitive Loan Exposure" means, with respect to any Bank at any time, the sum of the aggregate principal amount of all outstanding Competitive Loans made by such Bank denominated in Dollars and the Dollar Equivalent of all outstanding Competitive Loans made by such Bank denominated in Foreign Currencies. "Consolidated Assets" means, as to any Person, total consolidated assets (including assets subject to Capital Leases) of such Person and of its Consolidated Subsidiaries, as determined in accordance with GAAP. "Consolidated Debt" means the Debt of the Company and its Consolidated Subsidiaries. "Consolidated Net Income" means consolidated net income (after taxes) of the Company and its Consolidated Subsidiaries determined in accordance with GAAP. "Consolidated Subsidiary" means, with respect to any Person, each Subsidiary of such Person the accounts of which are or should be consolidated with the accounts of such Person in reporting the consolidated financial statements of such Person in accordance with GAAP. FACILITY B -9- 10 "Debt" means, when used with respect to any Person, without duplication, (a) all indebtedness of such Person for borrowed money (whether by loan or the issuance and sale of debt securities) or for the deferred purchase price of property or services (excluding, however, Letter of Credit Obligations of such Person), (b) all indebtedness created or arising under any conditional sale or other title retention agreement with respect to property acquired by such Person (even though the rights and remedies of the seller or lender under such agreement in the event of default are limited to repossession or sale of such property), (c) all Capitalized Lease Obligations of such Person, (d) all obligations of such Person in respect of interest rate protection agreements, foreign currency exchange agreements or other similar agreements and arrangements (the amount of any such obligation to be the amount that would be payable upon the acceleration, termination or liquidation thereof), (e) liabilities in respect of unfunded vested benefits under Plans, and (f) all Debt of such Person referred to in clause (a), (b) (c) or (d) above secured by (or for which the holder of such Debt has an existing right, contingent or otherwise to be secured by) any Lien upon or interest in property (including accounts and general intangibles, as such terms are defined in the Uniform Commercial Code in effect in the State of New York) owned by such Person, even though such Person has not assumed or become liable for the payment of such Debt. For purposes of this Agreement, the term "Debt" shall exclude (i) Operating Lease Obligations and (ii) obligations in respect of agreements and arrangements described in clause (d) above to the extent (and only to the extent) such agreements and arrangements are entered into to protect such Person and its Subsidiaries against interest rate and exchange rate risks related to their respective businesses, and not for speculative purposes. "Default" means the occurrence of any event which with the giving of notice or the passage of time or both could become an Event of Default. "Document" has the meaning specified in Section 8.02. "Dollar Borrowing" means a Borrowing comprised of Dollar Loans. "Dollar Equivalent" means, on any date of determination, with respect to any amount in any Foreign Currency, the equivalent in Dollars of such amount, determined by the Administrative Agent using the Exchange Rate with respect to such Foreign Currency then in effect as determined pursuant to Section 1.04(a). "Dollar Facility Excess" has the meaning specified in Section 2.24(b). "Dollar Facility Overage" means an amount equal to the excess of (a) the Total Commitment over (b) the aggregate amount of all Foreign Currency Facility Maximum Borrowing Amounts (determined, if applicable, after giving effect to any reduction therein made pursuant to Section 2.24(c)). "Dollar Loan" means any Loan denominated in Dollars. FACILITY B -10- 11 "Dollar Revolving Credit Excess" has the meaning specified in Section 2.24(a). "Dollar Revolving Credit Overage" means, with respect to any Bank, an amount equal to the excess, if any, of (a) such Bank's Commitment over (b) the aggregate Foreign Currency Bank Maximum Borrowing Amounts with respect to all Foreign Currency Addenda to which such Bank or any of its Affiliates is a party. "Dollars", "dollars" and the symbol "$", without more, mean the lawful currency of the United States of America. "Domestic Lending Office" means, with respect to any Bank, the office of such Bank specified as its "Domestic Lending Office" on such Bank's signature page to this Agreement or, as to any Person who becomes a Bank after the Execution Date, on the signature page of the Assignment and Acceptance executed by such Person or such other office of such Bank as such Bank may hereafter designate from time to time as its "Domestic Lending Office" by notice to the Company and the Administrative Agent. "Effective Date" means the date on which the conditions to borrowing set forth in Article III are first met. "Eligible Assignee" means (a) any Bank or any Affiliate of a Bank; (b) a commercial bank organized or licensed under the laws of the United States, or any state thereof, and having total assets in excess of $1,000,000,000; (c) a commercial bank organized under the laws of any other country which is a member of the OECD, or a political subdivision of any such country, and having total assets in excess of $1,000,000,000; provided that such bank is acting through a branch or agency located in the country in which it is organized or another country which is also a member of the OECD; (d) the central bank of any country which is a member of the OECD; and (e) any other lender approved by the Administrative Agent and the Company (which approval shall not be unreasonably withheld). "Enforcement Subsidiary" means, as to Provident, any Wholly-owned Subsidiary formed by Provident for the purpose of foreclosing or otherwise realizing upon the assets securing obligations due to Provident pursuant to investments made by Provident. "Enhancement Agreements" means the Support Agreements, the Inducement Agreement and all other similar agreements. "ERISA" means the Employee Retirement Income Security Act of 1974, as amended from time to time, and the regulations promulgated thereunder. FACILITY B -11- 12 "ERISA Group" means all corporations, trades or businesses (whether or not incorporated) and other Persons which, together with the Company, are treated as a single employer under Section 414(b), (c), (m) or (o) of the Code. "Eurocurrency Borrowing" means a Borrowing comprised of Eurocurrency Loans. "Eurocurrency Competitive Loan" means any Competitive Loan (including any Competitive Loan denominated in any Foreign Currency) bearing interest at a rate determined by reference to the IBO Rate in accordance with the provisions of Article II. "Eurocurrency Foreign Currency Borrowing" means any Borrowing comprised of Eurocurrency Foreign Currency Loans. "Eurocurrency Foreign Currency Loan" means any Foreign Currency Revolving Loan bearing interest at a rate determined by reference to the IBO Rate in accordance with the provisions of Article II. "Eurocurrency Lending Office" means, with respect to each Bank, the branch or Affiliate of such Bank which such Bank has designated as its "Eurocurrency Lending Office" on such Bank's signature page to this Agreement or, as to any Person who becomes a Bank after the Execution Date, on the signature page of the Assignment and Acceptance executed by such Person or such other office of such Bank as such Bank may hereafter designate from time to time as its "Eurocurrency Lending Office" by notice to the Company and the Administrative Agent. "Eurocurrency Liabilities" has the meaning assigned to that term in Regulation D. "Eurocurrency Loan" means any Eurocurrency Competitive Loan, Eurodollar Committed Loan or Eurocurrency Foreign Currency Loan. "Eurodollar Committed Borrowing" means any Committed Borrowing comprised of Eurodollar Committed Loans. "Eurodollar Committed Loan" means any Committed Loan bearing interest at a rate determined by reference to the IBO Rate in accordance with the provisions of Article II. "Event of Default" means any of the events described in Article VI. "Exchange Rate" means with respect to any Foreign Currency on a particular date, the rate at which such Foreign Currency may be exchanged into Dollars, as set forth on such date on the Reuters currency page more particularly described in the Foreign Currency Addendum for Loans to be made in such Foreign Currency. In the event that such rate does not appear on any Reuters currency page, the Exchange Rate with respect to such Foreign Currency shall be determined by FACILITY B -12- 13 reference to such other publicly available service for displaying exchange rates as may be agreed upon by the Administrative Agent and the Borrower or, in the absence of such agreement, such Exchange Rate shall instead be the Administrative Agent's spot rate of exchange in the interbank market where its foreign currency exchange operations in respect of such Foreign Currency are then being conducted, at or about 10:00 A.M., local time, at such date for the purchase of Dollars with such Foreign Currency, for delivery two Business Days later; provided, however, that if at the time of any such determination, for any reason, no such spot rate is being quoted, the Administrative Agent may use any reasonable method it deems applicable to determine such rate, and such determination shall, to the extent permitted by law, be conclusive absent manifest error. "Execution Date" means the earliest date upon which all of the following shall have occurred: counterparts of this Agreement shall have been executed by the Company, each Bank and the Administrative Agent, and the Administrative Agent shall have received counterparts hereof which taken together, bear the signatures of the Company and each Bank. "Existing Agreements" means (a) the Competitive Advance and Revolving Credit Facility Agreement (Facility A) dated as of June 30, 1995 among the Company, the banks and other financial institutions party thereto, Bank of America and NationsBank, as co-agents, Chase, as auction administration agent, and TCB, as administrative agent, as amended from time to time to the date hereof, and (b) the Existing Facility B Credit Agreement. "Existing Facility B Credit Agreement" means the Competitive Advance and Revolving Credit Facility Agreement (Facility B) dated as of June 30, 1995 among the Company, the other Borrowers (as defined therein), the banks and other financial institutions party thereto, Bank of America and NationsBank, as co-agents, Chase, as auction administration agent, and TCB, as administrative agent, together with (a) the Sterling Addendum dated as of July 13, 1995 among the Company, Family Funeral Directors Limited, the local lenders party thereto and Chemical Investment Bank Limited, as local currency agent for such local lenders, (b) the Australian Addendum dated as of July 13, 1995 among the Company, Service Corporation International Australia Pty Limited, the local lenders party thereto and Westpac Banking Corporation, as local currency agent for such local lenders and (c) the Canadian Addendum dated as of August 30, 1995 among the Company, 611102 Saskatchewan Ltd., the local lenders party thereto and Royal Bank of Canada, as local currency agent for such local lenders. "Facility A Credit Agreement" means the Competitive Advance and Revolving Credit Facility Agreement (Facility A) dated as of the date hereof among the Company, the other Borrowers (as defined therein), the banks and other financial institutions party thereto, Chase, as administrative agent, and the Co-Agents (as defined therein). "Facility Fees" has the meaning specified in Section 2.07(a). "FDIC" means the Federal Deposit Insurance Corporation (or any successor thereto). FACILITY B -13- 14 "Federal Funds Effective Rate" has the meaning specified in the definition of the term Alternate Base Rate. "Financial Provisions" has the meaning specified in Section 1.02(c). "Fixed Rate Borrowing" means a Borrowing comprised of Fixed Rate Loans. "Fixed Rate Loan" means any Competitive Loan (including any Competitive Loan denominated in any Foreign Currency) bearing interest at a fixed percentage rate per annum specified by the Bank making such Loan in its Competitive Bid. "Foreign Currency" means, as the context may require, any or all of (a) the Australian dollar, or other lawful currency of the Commonwealth of Australia, (b) the Belgian franc, or other lawful currency of the Kingdom of Belgium, (c) the Canadian dollar, or other lawful currency of Canada, (d) the French franc, or other lawful currency of the Republic of France, (e) the mark, or other lawful currency of the Federal Republic of Germany, (f) the pound sterling, or other lawful currency of the United Kingdom of Great Britain and Northern Ireland, (g) the lire, or other lawful currency of currency of the Italian Republic, (h) the Dutch guilder, or other lawful currency of the Kingdom of The Netherlands, (i) the peseta, or other the lawful currency of the Republic of Spain, (j) the Swiss franc, or other lawful currency of the Swiss Confederation, and (k) any currency that is adopted as a Foreign Currency pursuant to Section 2.22, provided, in any such case, that an Exchange Rate may be calculated with respect thereto, and provided, further, that this definition and Section 2.22 shall in any circumstances and in all events be subject to the provisions of Section 9.18. "Foreign Currency Addendum" means the Australian Addendum, the Canadian Addendum, the Multicurrency Addendum, and each other foreign currency addendum between the Company, one or more Borrowing Subsidiaries, the Foreign Currency Agent named therein and one or more Foreign Currency Banks, in a form acceptable to the Company, such Borrowing Subsidiaries, such Foreign Currency Agent and such Foreign Currency Banks, the acceptability of such agreement to any such Person being conclusively evidenced by its execution by such Person. "Foreign Currency Agent" means, with respect to any Foreign Currency Addendum, the Person named as the foreign currency agent therein. "Foreign Currency Bank" means any Bank (or any Affiliate, branch or agency thereof) party to a Foreign Currency Addendum. In the event any agency or Affiliate of a Bank shall be party to a Foreign Currency Addendum, such agency or Affiliate shall, to the extent of any commitment extended and any Loans made by it, have all the rights of such Bank hereunder, provided, that such Bank shall continue to the exclusion of such agency or Affiliate to have all the voting and consensual rights vested in it by the terms hereof. FACILITY B -14- 15 "Foreign Currency Bank Maximum Borrowing Amount" has the meaning specified in Section 2.23(b). "Foreign Currency Borrowing" means a Borrowing comprised of Foreign Currency Loans. "Foreign Currency Equivalent" means, on any date of determination, with respect to any amount in Dollars, the equivalent in the relevant Foreign Currency of such amount, determined by the Administrative Agent using the Exchange Rate (or the inverse of such Exchange Rate, as the case may be) with respect to such Foreign Currency then in effect as determined pursuant to Section 1.04(a). "Foreign Currency Facility Maximum Borrowing Amount" has the meaning specified in Section 2.23(b). "Foreign Currency Loan" means any Loan denominated in a currency other than Dollars. A Foreign Currency Loan shall be a Competitive Loan or a Foreign Currency Revolving Loan. "Foreign Currency Loans (Dollar Equivalent)" means the Dollar Equivalent of the relevant Foreign Currency Loans. "Foreign Currency Revolving Borrowing" means any Borrowing comprised of Foreign Currency Revolving Loans. "Foreign Currency Revolving Loan" means any Foreign Currency Loan other than a Competitive Loan. "FST" means SCI Texas Funeral Services, Inc., a Texas corporation. "Funded Debt" means any Debt of any Person (including any Capitalized Lease Obligation of such Person, but not including any deferred taxes) payable more than one year from the date of the creation thereof; provided, however, the term Funded Debt shall include the principal amount of all Loans outstanding under this Agreement and the principal amount of all loans outstanding under the Facility A Credit Agreement. The interests of minority shareholders in such Person's Consolidated Subsidiaries which are shown on the liability side of a balance sheet as "minority interests" but which are not "obligations" are not within the definition of "Funded Debt." "GAAP" means generally accepted accounting principles as set forth in the opinions, statements and pronouncements of the Accounting Principles Board of the American Institute of Certified Public Accountants, the Financial Accounting Standards Board and such other Persons as shall be approved by a significant segment of the accounting profession and concurred in by the FACILITY B -15- 16 independent certified public accountants certifying any audited financial statements of the Company, as such principles shall be in effect at the time of any computation or determination or as of the date of the relevant financial statements, as the case may be (the "Relevant Date"), subject to Section 1.02. "Guaranteed Obligations" has the meaning specified in Section 8.01. "Guaranty" means the guaranty of the Company contained in Article VIII. "Highest Lawful Rate" means, as to any Bank, at the particular time in question, the maximum nonusurious rate of interest which, under applicable law, such Bank is then permitted to charge the Borrowers on the Loans. If the maximum rate of interest which, under applicable law, the Banks are permitted to charge the Borrowers on the Loans shall change after the date hereof, to the extent permitted by applicable law, the Highest Lawful Rate shall be automatically increased or decreased, as the case may be, as of the effective time of such change without notice to any Borrower or any other Person. "Home Jurisdiction Withholding Taxes" means (a) in the case of the Company, withholding for United States income taxes, United States back-up withholding taxes and United States withholding taxes and (b) with respect to 611102 Saskatchewan Ltd., withholding for withholding taxes imposed by the Dominion of Canada, (c) with respect to the Service Corporation International Australia Pty Limited, withholding for withholding taxes imposed by the Commonwealth of Australia and (d) withholding for withholding taxes imposed by any country whose currency is added as a Foreign Currency pursuant to Section 2.25. "IBO Rate" means, with respect to each date during each Interest Period pertaining to a Eurocurrency Borrowing (other than an Interest Period of 14 days), the rate appearing on page 3740 or 3750, as the case may be, of the Dow Jones Markets (or on any successor or substitute page, or on any page of any successor to or substitute for Dow Jones Markets, providing rate quotations comparable to those currently provided on such page, as determined by the Administrative Agent from time to time for purposes of providing quotations of interest rates applicable to deposits in Dollars or the applicable Foreign Currency in the London interbank market) or if any such currency does not appear on either such page (or any such successor or substitute page, or page of any successor to as substitute for Dow Jones Markets), such additional page of the Dow Jones Markets upon which such currency appears, as agreed between the Administrative Agent and the Company from time to time, at approximately 11:00 a.m., London time, two Business Days prior to the commencement of such Interest Period, as the rate for deposits in Dollars or the applicable Foreign Currency approximately equal in principal amount to such Eurocurrency Borrowing and with a maturity equal to such Interest Period. In the event that such rate is not available at such time for any reason and in the case of any Interest Period of 14 days, then the "IBO Rate" with respect to such Eurocurrency Borrowing for such Interest Period shall be the rate (rounded to the nearest 1/16 of 1% or, if there is no nearest 1/16 of 1%, the next higher 1/16 of 1%) at which deposits in Dollars or the FACILITY B -16- 17 applicable Foreign Currency approximately equal in principal amount to such Eurocurrency Borrowing and with a maturity equal to such Interest Period are offered in immediately available funds to the Administrative Agent by leading banks in the London interbank market at approximately 11:00 a.m., London time (or as soon thereafter as possible), two Business Days prior to the commencement of such Interest Period. "Inactive Subsidiaries" means Subsidiaries of the Company which are not actively engaged in the conduct of business and whose assets and/or Liabilities are not material to the financial condition of the Company and its Subsidiaries taken as a whole. "Index Debt" means the Company's senior, unsecured, non-credit enhanced Funded Debt. "Inducement Agreement" means, collectively, the letter agreement dated August 23, 1993 among the Company, PSI Funding, Inc. and FST and the letter agreement dated April 5, 1993 among the Company, TCB and Provident. "Initial Borrowing Subsidiaries" has the meaning specified in the introduction to this Agreement. "Intangibles" has the meaning normally ascribed thereto in accordance with GAAP and shall include (a) excess cost over fair market value of tangible assets acquired, (b) patents and patent rights, (c) trademarks, service marks and trade names, (d) copyrights and (e) goodwill. "Interest Payment Date" means (a) with respect to any Eurocurrency Loan or ABR Loan, the last day of the Interest Period applicable thereto and, in addition, the date on which such Loan is repaid or prepaid and, in the case of a Eurocurrency Loan with an Interest Period of 6 months, the day that would have been the Interest Payment Date for such Loan had an Interest Period of 3 months been applicable to such Loan, (b) in the case of a Fixed Rate Loan, the last day of the Interest Period applicable thereto and (c) in the case of a Foreign Currency Revolving Loan (other than a Eurocurrency Loan), such days as shall be specified in the applicable Foreign Currency Addendum. "Interest Period" means: (a) with respect to any Borrowing that is a Committed Borrowing or Foreign Currency Revolving Borrowing: (i) If such Borrowing is a Eurodollar Committed Borrowing, the period commencing on the Borrowing Date of such Borrowing or on the last day of the immediately preceding Interest Period applicable to such Borrowing, as the case may be, and ending (A) 14 days thereafter (subject to market availability) or (B) on the FACILITY B -17- 18 numerically corresponding day (or if there is no corresponding day, the last day) in the calendar month that is one, two, three or six months thereafter, as a Borrower may elect; (ii) If such Borrowing is an ABR Borrowing, the period commencing on the Borrowing Date of such Borrowing and ending on the earlier of (A) the next succeeding March 31, June 30, September 30 or December 31, and (B) the Maturity Date; (iii) If such Borrowing is a Foreign Currency Revolving Borrowing (other than a Eurocurrency Foreign Currency Borrowing), such periods as shall be specified in the applicable Foreign Currency Addendum; and (iv) If such Borrowing is a Eurocurrency Foreign Currency Borrowing, the period commencing on the Borrowing Date of such Borrowing and ending on the numerically corresponding day (or if there is no corresponding day, the last day) in the calendar month that is one, two, three or six months thereafter, as a Borrower may elect; or (b) with respect to any Competitive Borrowing: (i) If such Competitive Borrowing is a Fixed Rate Borrowing, the period commencing on the Borrowing Date of such Borrowing and ending on the date specified in the Competitive Bid in which the offer to make such Fixed Rate Borrowing was extended; provided, however, that each such period shall have a duration of not less than seven calendar days nor more than 180 days; and (ii) If such Competitive Borrowing is a Eurocurrency Borrowing, the period commencing on the Borrowing Date of such Borrowing and ending on the numerically corresponding date (or if there is no corresponding date, the last day ) in the calendar month that is one, two, three or six months thereafter, as a Borrower may elect. Notwithstanding the foregoing (i) if any Interest Period would end on a day which shall not be a Business Day, such Interest Period shall be extended to the next succeeding Business Day unless, with respect to Eurocurrency Loans only, such next succeeding Business Day would fall in the next calendar month, in which case such Interest Period shall end on the next preceding Business Day and (ii) no Interest Period may be selected for any Borrowing that ends later than the Maturity Date. Interest shall accrue from and including the first day of an Interest Period to but excluding the last day of such Interest Period. FACILITY B -18- 19 "Judgment Currency" has the meaning specified in Section 9.17. "Letter of Credit Obligations" means, when used with respect to any Person, the contingent obligations of such Person in respect of Letters of Credit. "Letters of Credit" means, as to any Person, letters of credit issued for the account of such Person other than letters of credit issued to pay the purchase price of goods or services acquired in the ordinary course of business by such Person or any other Person. "Liabilities" of any Person has the meaning normally ascribed thereto in accordance with GAAP and shall include (a) Capitalized Lease Obligations of such Person or any of its Subsidiaries, (b) the interests of minority shareholders in Consolidated Subsidiaries of such Person, (c) indebtedness secured by Liens against any property of such Person or any of its Subsidiaries whether or not such Person or such Subsidiary is liable for the payment thereof, (d) subordinated debt and (e) deferred liabilities. "Lien" means, when used with respect to any Person, any mortgage, lien, charge, pledge, security interest or encumbrance of any kind (whether voluntary or involuntary and whether imposed or created by operation of law or otherwise) upon, or pledge of, any of its property or assets, whether now owned or hereafter acquired, or any lease intended as security, any conditional sale agreement, or any other title retention agreement. "Loan" means a Competitive Loan, a Committed Loan, a Eurocurrency Loan, a Fixed Rate Loan, an ABR Loan or a Foreign Currency Loan. "Majority Banks" means, at any time, Banks holding at least 662/3% of the Total Commitment or (if either the Total Commitment has been terminated or "Majority Banks" is being determined for purposes of Article VI) Banks holding at least 662/3% of the then aggregate Dollar Equivalent of the unpaid principal amount of the outstanding Loans. "Margin" means, as to any Eurocurrency Competitive Loan, the margin (expressed as a percentage rate per annum in the form of a decimal to no more than four decimal places) to be added to or subtracted from the IBO Rate in order to determine the interest rate applicable to such Loan, as specified in the Competitive Bid relating to such Loan. "Margin Stock" has the meaning specified in Section 4.13. "Material Subsidiary" means, with respect to any Person, each Subsidiary of such Person that would be a "significant subsidiary" as such term is defined in Regulation S-X promulgated pursuant to the Securities Exchange Act of 1934 as amended to the Effective Date; provided, however, for purposes of determining whether any Subsidiary is a "Material Subsidiary," the reference to "10 percent" in clauses (1), (2) and (3) of the definition of "significant subsidiary" contained in said Regulation S-X shall be a reference to 5 percent; and further provided, however, FACILITY B -19- 20 notwithstanding the foregoing, when used with respect to the Company, each Borrowing Subsidiary shall be a Material Subsidiary of the Company. "Maturity Date" means June 27, 2002, or the earlier termination in whole of the Total Commitment pursuant to Section 2.12 or Section 6.01. "Maximum Permissible Rate" has the meaning specified in Section 9.08. "Moody's" means Moody's Investors Service. "Multicurrency Addendum" means a Foreign Currency Addendum in a form acceptable the Company, the Administrative Agent, the Foreign Currency Agent(s) named therein and the Foreign Currency Banks named therein, the acceptability of such agreement to any such Person being conclusively evidenced by its execution by such Person. "NationsBank" means NationsBank, N.A., a national banking association. "Net Worth" means, in relation to the Company and its Subsidiaries, Consolidated Assets of the Company less total consolidated liabilities of the Company and its Consolidated Subsidiaries, as determined in accordance with GAAP. "OECD" means the Organization for Economic Cooperation and Development (or any successor). "Officer's Certificate" means, as to any Borrower, a certificate signed in the name of such Borrower by its President, one of its Vice Presidents, its Treasurer, its Secretary or one of its Assistant Treasurers or Assistant Secretaries. "Operating Lease Obligations" means obligations of a Person in respect of any lease or agreement to lease other than Capitalized Lease Obligations of such Person. "Other Activities" has the meaning specified in Section 7.03. "Other Financings" has the meaning specified in Section 7.03. "Other Taxes" has the meaning specified in Section 2.20. "PBGC" means the Pension Benefit Guaranty Corporation or any entity succeeding to all or any of its functions under ERISA. "Person" means an individual, partnership, corporation (including a business trust), limited liability company, joint stock company, trust, unincorporated association, joint venture or FACILITY B -20- 21 other entity, or a foreign state or political subdivision thereof or any agency of such state or subdivision. "Plan" means any employee pension benefit plan maintained or contributed to by the Company or any of its Subsidiaries or by any trade or business (whether or not incorporated) under common control (as defined in Section 4001(a)(14) or 4001(b) of ERISA) with the Company and insured by the PBGC under Title IV of ERISA. "Prime Rate" has the meaning specified in the definition of the term Alternate Base Rate. "Principal Office" means the office of the Administrative Agent located at 270 Park Avenue, New York, New York 10017, or such other office as the Administrative Agent may hereafter designate in writing as such to the other parties hereto. "Provident" means Provident Services, Inc., a Delaware corporation. "Register" has the meaning specified in Section 9.11(e). "Regulation A" means Regulation A of the Board (respecting loans to depository institutions), as the same is from time to time in effect, and all official rulings and interpretations thereunder or thereof. "Regulation D" means Regulation D of the Board (respecting reserve requirements), as the same is from time to time in effect, and all official rulings and interpretations thereunder or thereof. "Regulation G" means Regulation G of the Board (respecting margin credit extended by Persons other than banks or registered broker dealers), as the same is from time to time in effect, and all official rulings and interpretations thereunder or thereof. "Regulation U" means Regulation U of the Board (respecting margin credit extended by banks), as the same is from time to time in effect, and all official rulings and interpretations thereunder or thereof. "Regulation X" means Regulation X of the Board (respecting borrowers who obtain margin credit), as the same is from time to time in effect, and all official rulings and interpretations thereunder or thereof. "Relevant Date" has the meaning specified in the definition of the term GAAP. "Reset Date" has the meaning specified in Section 1.04(c). FACILITY B -21- 22 "Revolving Credit Exposure" means, with respect to any Bank at any time, the aggregate principal amount at such time of all outstanding Committed Loans of such Bank plus the aggregate Dollar Equivalent of the principal amount of all outstanding Foreign Currency Revolving Loans of such Bank and each Affiliate, branch or agency of such Bank that is a Foreign Currency Bank. "S&P" means Standard & Poor's Ratings Group, a division of McGraw-Hill, Inc. "Subsidiary" means, with respect to any Person, any corporation in which more than 50% of the stock of each class having ordinary voting power shall, at the time as of which any determination is being made, be owned of record and beneficially by such Person directly and/or through one or more other Subsidiaries. "Substantially-owned Subsidiary" means a Subsidiary of the Company at least 80% of the outstanding capital stock of which, at the time any determination is being made, is owned of record and beneficially by the Company directly and/or through one or more other Subsidiaries. "Support Agreements" means (a) the Support Agreement dated as of September 14, 1988 between the Company and Provident, (b) the Australian Support Agreement dated as of November 1, 1993 between the Company and Service Corporation International Australia Pty Limited and (c) the three Support Agreements dated respectively as of January 28, 1994, September 30, 1994 and November 14, 1994, each between the Company and FST. "Tangible Consolidated Assets" means, as to any Person, Consolidated Assets less all Intangibles of such Person and its Consolidated Subsidiaries. "Taxes" has the meaning specified in Section 2.20. "TCB" means Texas Commerce Bank National Association, a national banking association. "Total Capitalization" means, as of the date any determination is made, the sum of Net Worth plus Consolidated Debt. "Total Commitment" means, at any time, the aggregate amount of the Banks' Commitments, as in effect at such time. "Type" means, when used in respect of any Loan or Borrowing, each of the following types of Loans or Borrowings as applicable: Eurocurrency Loan or Eurocurrency Borrowing, (whether or not any such Loan or Borrowing is a Foreign Currency Loan or Foreign Currency Borrowing) ABR Loan or ABR Borrowing and Fixed Rate Loan or Fixed Rate Borrowing. "United States" and "U.S." each means United States of America. FACILITY B -22- 23 "Wholly-owned Subsidiary" means, as to any Person, a Subsidiary, 100% of the stock of every class of which (except for directors' qualifying shares) at the time as of which any determination is being made, is owned of record and beneficially by such Person directly and/or through one or more other Subsidiaries. SECTION 1.02. Accounting Terms and Determinations. (a) Except as otherwise provided in this Agreement, all computations and determinations as to accounting or financial matters and all financial statements to be delivered pursuant to this Agreement shall be made and prepared in accordance with GAAP (including principles of consolidation where appropriate), and all accounting or financial terms shall have the meanings ascribed to such terms by GAAP. (b) If any change in GAAP after the date of this Agreement shall be required to be applied to transactions then or thereafter in existence, and a violation of or default under one or more provisions of this Agreement shall have occurred or in the opinion of the Company would likely occur which would not have occurred or be likely to occur if no change in accounting principles had taken place: (i) the parties agree that such violation or default shall not constitute an Event of Default or a Default for a period of 60 days from the date the Company notifies the Administrative Agent of the application of this Section 1.02(b) identifying such change and the provisions of this Agreement affected thereby; (ii) the parties agree in such event to negotiate in good faith an amendment of this Agreement which shall approximate to the extent possible the economic effect of the original financial covenants after taking into account such change in GAAP; and (iii) if the parties are unable to agree on such an amendment within such 60-day period, the Company shall have the option of (A) prepaying the Loans (pursuant to Section 2.13 and the other applicable provisions hereof) within 120 days from the date the Company notifies the Administrative Agent of the application of this Section 1.02(b) or (B) making all future calculations by application of GAAP applied on a basis consistent with those in effect immediately prior to such change in GAAP. If the Company does not exercise either such option within said period by written notice to the Administrative Agent, then as used in this Agreement, "GAAP" shall mean generally accepted accounting principles in effect at the Relevant Date. (c) If any change in GAAP after the date of this Agreement shall be required to be applied to transactions or conditions then or thereafter in existence, and the Administrative Agent shall assert that the effect of such change is or shall likely be to distort materially the effect of any of the definitions of financial terms in Article I or any of the financial covenants of the Company in Article V (the "Financial Provisions"), so that the intended economic effect of any of the Financial Provisions will not in fact be accomplished: FACILITY B -23- 24 (i) the Administrative Agent shall notify the Company of such assertion, specifying the change in GAAP which is objected to, and until otherwise determined as provided below, the specified change in GAAP shall not be made by the Company in its financial statements for the purpose of applying the Financial Provisions; and (ii) the parties shall follow the procedures set forth in paragraph (ii) and the first sentence of paragraph (iii) of subsection (b) of this Section 1.02. If the parties are unable to agree on an amendment as provided in said paragraph (ii) and if the Company does not exercise the option set forth in the first sentence of said paragraph (iii) within the specified period, then as used in this Agreement "GAAP" shall mean generally accepted accounting principles in effect at the Relevant Date, except that the specified change in GAAP which is objected to by the Administrative Agent shall not be made in applying the Financial Provisions. SECTION 1.03. Interpretation. (a) In this Agreement, unless a clear contrary intention appears: (i) the singular number includes the plural number and vice versa; (ii) reference to any gender includes each other gender; (iii) the words "herein," "hereof" and "hereunder" and other words of similar import refer to this Agreement as a whole and not to any particular Article, Section or other subdivision; (iv) reference to any Person includes such Person's successors and assigns but, if applicable, only if such successors and assigns are permitted by this Agreement, and reference to a Person in a particular capacity excludes such Person in any other capacity or individually, provided that nothing in this clause (iv) is intended to authorize any assignment not otherwise permitted by this Agreement; (v) reference to any agreement, document or instrument, including this Agreement, means such agreement, document or instrument as amended, supplemented or modified and in effect from time to time in accordance with the terms thereof and, if applicable, the terms hereof; (vi) unless the context indicates otherwise, reference to any Article, Section, Schedule or Exhibit means such Article or Section hereof or such Schedule or Exhibit hereto; (vii) the word "including" (and with correlative meaning "include") means including, without limiting the generality of any description preceding such term; FACILITY B -24- 25 (viii) with respect to the determination of any period of time, the word "from" means "from and including" and the word "to" means "to but excluding"; and (ix) reference to any law means such as amended, modified, codified or reenacted, in whole or in part, and in effect from time to time. (b) The Article and Section headings herein and the Table of Contents are for convenience only and shall not affect the construction hereof. (c) No provision of this Agreement shall be interpreted or construed against any Person solely because that Person or its legal representative drafted such provision. SECTION 1.04. Certain Calculations. (a) Not later than 2:00 p.m., New York City time, on each Calculation Date, the Administrative Agent shall (i) determine the Exchange Rate as of such Calculation Date with respect to each Foreign Currency covered by a Foreign Currency Addendum and each Foreign Currency in which any outstanding Competitive Loan is denominated and (ii) give notice thereof to the Banks, the Company and the relevant Borrower Subsidiaries. The Exchange Rates so determined shall become effective on the first Business Day immediately following the relevant Calculation Date (a "Reset Date") and shall remain effective until the next succeeding Reset Date. (b) Not later than 6:00 p.m., New York City time, on each Reset Date and each Borrowing Date, the Administrative Agent shall (i) determine the Dollar Equivalent of the Foreign Currency Revolving Loans then outstanding (after giving effect to any Foreign Currency Loans to be made or repaid on such date) and of each Competitive Loan denominated in a Foreign Currency and (ii) notify the Banks, the Company and the relevant Borrowing Subsidiaries of the results of such determination. ARTICLE II THE CREDITS SECTION 2.01. Commitments. (a) Subject to the terms and conditions and relying upon the representations and warranties herein set forth, each Bank agrees, severally and not jointly, to make Committed Loans to the Borrowers, at any time and from time to time on and after the Effective Date and until the Maturity Date. Each Bank's Commitment, as in effect on the Execution Date, is set forth opposite its name on the signature page hereto for such Bank. Such Commitments may be terminated or reduced from time to time pursuant to Section 2.12. (b) Subject to the terms and conditions and relying upon the representations and warranties herein set forth and in the applicable Foreign Currency Addendum, each Foreign Currency Bank agrees, severally and not jointly, to make Foreign Currency Revolving Loans to the FACILITY B -25- 26 Borrowers, at any time and from time to time on and after the execution of the applicable Foreign Currency Addendum and until the Maturity Date. (c) Notwithstanding anything to the contrary contained in this Agreement, in no event may Committed Loans or Foreign Currency Revolving Loans be borrowed under this Article II if, after giving effect thereto (and to any concurrent repayment or prepayment of Loans), (i) the sum of the Aggregate Revolving Credit Exposure and the Aggregate Competitive Loan Exposure would exceed the Total Commitment then in effect, (ii) the Revolving Credit Exposure of any Bank would exceed such Bank's Commitment, (iii) the Dollar Equivalent of the aggregate principal amount of outstanding Foreign Currency Revolving Loans denominated in a specified Foreign Currency or currencies would exceed the applicable Foreign Currency Facility Maximum Borrowing Amount or (iv) the Dollar Equivalent of the aggregate principal amount of outstanding Foreign Currency Loans would exceed $500,000,000. (d) Within the foregoing limits and subject to the terms, conditions and limitations set forth herein, the Borrowers may borrow, pay or prepay and reborrow hereunder, on and after the Effective Date and prior to the Maturity Date. The respective commitments of the Foreign Currency Banks Parties to the Australian Addendum and the Canadian Addendum to make Foreign Currency Loans thereunder are set forth in those Foreign Currency Addenda. The commitments of the Banks (or their Affiliates) to make Foreign Currency Loans pursuant to Foreign Currency Addenda in Spanish pesetas, Italian lira, Swiss francs, Belgium francs and in other Foreign Currencies are set forth on Exhibit 2.01. SECTION 2.02. Loans. (a) Each Committed Loan shall be made as part of a Borrowing consisting of Loans made by the Banks ratably in accordance with their Available Commitments; provided, however, that the failure of any Bank to make any Committed Loan shall not in itself relieve any other Bank of its obligation to lend hereunder (it being understood, however, that no Bank shall be responsible for the failure of any other Bank to make any Loan required to be made by such other Bank). Each Foreign Currency Revolving Loan shall be made as part of a Borrowing consisting of Loans made by the Foreign Currency Banks parties to a Foreign Currency Addendum ratably in accordance with the applicable Foreign Currency Bank Maximum Borrowing Amounts under such Foreign Currency Addendum; provided, however, that the failure of any Foreign Currency Bank to make any Foreign Currency Revolving Loan shall not in itself relieve any other Foreign Currency Bank of its obligation to lend under such Foreign Currency Addendum (it being understood, however, that no Foreign Currency Bank shall be responsible for the failure of any other Foreign Currency Bank to make any Foreign Currency Revolving Loan required to be made by such other Foreign Currency Bank). Each Competitive Loan shall be made in accordance with the procedures set forth in Section 2.03. The Loans comprising any Borrowing shall be (i) in the case of Competitive Loans, in an aggregate principal amount which is an integral multiple of $1,000,000 or 100,000 units of the applicable Foreign Currency, as the case may be, and not less than $5,000,000, or the Foreign Currency Equivalent thereof, subject to the proviso at the end of Section 2.03(d) and to Section 2.03(j), (ii) in the case of Committed Loans, in an aggregate principal FACILITY B -26- 27 amount which is an integral multiple of $1,000,000 and not less than $5,000,000 (or an aggregate principal amount equal to the remaining balance of the Available Commitments) and (iii) in the case of Foreign Currency Revolving Loans, in an aggregate principal amount which is not less than the Foreign Currency Equivalent of $5,000,000. All Committed Loans made pursuant to this Article II shall be in Dollars. Subject to Section 2.11 and Section 2.15, Competitive Loans made pursuant to this Article II shall be in Dollars or any Foreign Currency. (b) Each Competitive Borrowing shall be comprised entirely of Eurocurrency Competitive Loans or Fixed Rate Loans, and each Committed Borrowing shall be comprised entirely of Eurodollar Committed Loans or ABR Loans, as a Borrower may request pursuant to Section 2.03 or 2.04, as applicable. Each Bank may at its option make any Eurocurrency Loan or Foreign Currency Loan by causing its Applicable Lending Office to make such Loan; provided that any exercise of such option shall not affect the obligation of any Borrower to repay such Loan in accordance with the terms of this Agreement. Borrowings of more than one Type may be outstanding at the same time; provided, however, that no Borrower shall be entitled to request any Borrowing which, if made, would result in an aggregate of more than ten separate Committed Loans of any Bank to the Borrowers being outstanding hereunder at any one time. For purposes of the foregoing, Loans having different Interest Periods, regardless of whether they commence on the same date, shall be considered separate Loans. (c) Subject to Section 2.03(j), Section 2.04(b), Section 2.05 and, in the case of any Foreign Currency Revolving Loan, to any alternative procedures set forth in the applicable Foreign Currency Addendum, each Bank shall make each Loan to be made by it hereunder on the proposed date thereof by wire transfer of immediately available funds to the Administrative Agent in New York City, not later than 12:30 p.m., New York City time, and the Administrative Agent shall by 3:00 p.m., New York City time, credit the amounts so received to the general deposit account of the Company with the Administrative Agent or, if a Borrowing shall not occur on such date because any condition precedent herein specified shall not have been met, return the amounts so received to the respective Banks. Competitive Loans shall be made by the Bank or Banks whose Competitive Bids therefor are accepted pursuant to Section 2.03 in the amounts so accepted and Committed Loans and Foreign Currency Revolving Loans shall be made by the Banks, or the Banks party to the applicable Foreign Currency Addendum, as the case may be, pro rata in accordance with Section 2.17. Unless the Administrative Agent shall have received notice from a Bank prior to the date of any Borrowing that such Bank will not make available to the Administrative Agent such Bank's portion of such Borrowing, the Administrative Agent may assume that such Bank has made such portion available to the Administrative Agent on the date of such Borrowing in accordance with this Section 2.02(c) and the Administrative Agent may, in reliance upon such assumption, make available to the requesting Borrower on such date a corresponding amount. If and to the extent that such Bank shall not have made such portion available to the Administrative Agent, such Bank and the requesting Borrower severally agree to repay to the Administrative Agent forthwith on demand such corresponding amount together with interest thereon, for each day from the date such amount is made available to such Borrower until the date such amount is repaid to the Administrative Agent FACILITY B -27- 28 at (i) in the case of such Borrower, the interest rate applicable at the time to the Loans comprising such Borrowing and (ii) in the case of such Bank, the Federal Funds Effective Rate. If such Bank shall repay to the Administrative Agent such corresponding amount, such amount shall constitute such Bank's Loan as part of such Borrowing for purposes of this Agreement. (d) Notwithstanding any other provision of this Agreement, no Borrower shall be entitled to request any Borrowing pursuant to Section 2.03 or Section 2.04 if the Interest Period requested with respect thereto would end after the Maturity Date. SECTION 2.03. Competitive Bid Procedure. (a) In order to request Competitive Bids, a Borrower shall hand deliver or send by facsimile transmission to the Administrative Agent a duly completed Competitive Bid Request, to be received by the Administrative Agent (i) in the case of a Eurocurrency Competitive Borrowing, not later than 10:00 a.m., New York City time, five Business Days before the Borrowing Date specified for a proposed Competitive Borrowing, and (ii) in the case of a Fixed Rate Borrowing, not later than 10:00 a.m., New York City time, one Business Day before the Borrowing Date specified for a proposed Competitive Borrowing. No Committed Loan shall be requested in or made pursuant to a Competitive Bid Request. A Competitive Bid Request that does not conform substantially to the format of Exhibit 2.03(A) may be rejected at the Administrative Agent's sole discretion (to the extent permitted by law), and the Administrative Agent shall promptly notify the Borrower requesting such Competitive Bid of such rejection by facsimile transmission. Each Competitive Bid Request shall in each case refer to this Agreement and specify (x) whether the Competitive Borrowing then being requested is to be a Eurocurrency Competitive Borrowing or a Fixed Rate Borrowing, (y) the Borrowing Date of such Competitive Borrowing (which shall be a Business Day) and the currency and the aggregate principal amount thereof (which shall be in a minimum principal amount of $5,000,000 or the Foreign Currency Equivalent of such amount and in an integral multiple of $1,000,000, or 100,000 units of the applicable Foreign Currency, as the case may be), and (z) the Interest Period with respect thereto. Promptly after its receipt of a Competitive Bid Request that is not rejected as aforesaid, the Administrative Agent shall invite by facsimile transmission (in substantially the form set forth in Exhibit 2.03(B)) the Banks to bid, on the terms and conditions of this Agreement, to make Competitive Loans pursuant to such Competitive Bid Request. Notwithstanding the foregoing, the Administrative Agent shall have no obligation to invite any Bank to make a Competitive Bid pursuant to this Section 2.02(a) until such Bank has delivered a properly completed Administrative Questionnaire to the Administrative Agent. (b) On and after the Effective Date, each Bank may, in its sole discretion, make one or more Competitive Bids responsive to each Competitive Bid Request of a Borrower. Each Competitive Bid by a Bank must be received by the Administrative Agent via facsimile transmission, in the form of Exhibit 2.03(C), (i) in the case of a Eurocurrency Competitive Borrowing, not later than 2:00 p.m., New York City time, four Business Days before the Borrowing Date specified for a proposed Competitive FACILITY B -28- 29 Borrowing and (ii) in the case of a Fixed Rate Borrowing, not later than 10:00 a.m., New York City time, on the Borrowing Date specified for a proposed Competitive Borrowing. Competitive Bids that do not conform substantially to the format of Exhibit 2.03(C) may be rejected by the Administrative Agent after conferring with, and upon the instruction of, the Borrower requesting such Competitive Bid, and the Administrative Agent shall notify the applicable Bank of such rejection as soon as practicable. Each Competitive Bid shall refer to this Agreement and (x) specify the principal amount (which shall be in a minimum principal amount of $5,000,000 or the Foreign Currency Equivalent of such amount and in an integral multiple of $1,000,000 or 100,000 units of the applicable Foreign Currency, as the case may be, and which may equal the entire aggregate principal amount of the Competitive Borrowing requested by the Borrower requesting such Competitive Bid, irrespective of such Bank's Commitment) of the Competitive Loan that the applicable Bank is willing to make to such Borrower, (y) specify the Competitive Bid Rate or Rates at which such Bank is prepared to make the Competitive Loan or Loans and (z) confirm the Interest Period with respect thereto specified by such Borrower in its Competitive Bid Request. If any Bank shall elect not to make a Competitive Bid, such Bank shall so notify the Administrative Agent by facsimile transmission (A) in the case of Eurocurrency Competitive Loans, not later than 2:00 p.m., New York City time, four Business Days before the Borrowing Date specified for a proposed Competitive Borrowing, and (B) in the case of Fixed Rate Loans, not later than 10:00 a.m., New York City time, on the Borrowing Date specified for a proposed Competitive Borrowing; provided, however, that failure by any Bank to give such notice shall not cause such Bank to be obligated to make any Competitive Loan as part of such Competitive Borrowing or subject such Bank to any other liability hereunder. A Competitive Bid submitted by a Bank pursuant to this paragraph (b) shall be irrevocable. (c) The Administrative Agent shall promptly notify the Borrower requesting such Competitive Bid by facsimile transmission of all the Competitive Bids made, the Competitive Bid Rate and the maximum principal amount of each Competitive Loan in respect of which a Competitive Bid was made and the identity of the Bank that made each such Competitive Bid. The Administrative Agent shall send a copy of all Competitive Bids to such Borrower for its records as soon as practicable after completion of the bidding process set forth in this Section 2.03. (d) A Borrower may in its sole and absolute discretion, subject only to the provisions of this Section 2.03(d), accept or reject any Competitive Bid referred to in Section 2.03(c). Such Borrower shall notify the Administrative Agent by telephone, confirmed by facsimile transmission, whether and to what extent it has decided to accept or reject any or all of the Competitive Bids referred to in Section 2.03(c), (i) in the case of a Eurocurrency Competitive Borrowing, not later than 10:00 a.m., New York City time, three Business Days before the Borrowing Date specified for a proposed Competitive Borrowing and (ii) in the case of a Fixed Rate Borrowing, not later than noon, New York City time, on the Borrowing Date specified for a proposed Competitive Borrowing, provided, however, (A) the failure by a Borrower to accept or reject any Competitive Bid referred to in Section 2.03(c) shall be deemed to be a rejection of such Competitive Bid, (B) no Borrower shall accept a Competitive Bid made at a particular Competitive Bid Rate if such Borrower has decided to reject a Competitive Bid made at a lower Competitive Bid Rate, (C) the aggregate amount of the Competitive Bids accepted by a Borrower shall not exceed the FACILITY B -29- 30 principal amount specified in the related Competitive Bid Request, (D) if a Borrower shall accept a Competitive Bid or Bids made at a particular Competitive Bid Rate but the amount of such Competitive Bid or Bids shall cause the total amount of Competitive Bids to be accepted by such Borrower to exceed the amount specified in the Competitive Bid Request, then such Borrower shall accept a portion of such Competitive Bid or Bids in an amount equal to the amount specified in the Competitive Bid Request less the amount of all other Competitive Bids accepted with respect to such Competitive Bid Request, which acceptance, in the case of multiple Competitive Bids at such Competitive Bid Rate, shall be made pro rata in accordance with the amount of each such Competitive Bid at such Competitive Bid Rate, and (E) except pursuant to clause (D) above, no Competitive Bid shall be accepted for a Competitive Loan unless such Competitive Loan is in a minimum principal amount of $5,000,000 because of the provisions of clause (D) above, or the Foreign Currency Equivalent of such amount and an integral multiple of $1,000,000 or 100,000 units of the applicable Foreign Currency, as the case may be; provided further, however, that if a Competitive Loan must be in an amount less than $5,000,000, such Competitive Loan may be for a minimum of $1,000,000 or 100,000 units of the applicable Foreign Currency, as the case may be, or any integral multiple thereof, and in calculating the pro rata allocation of acceptances or portions of multiple Competitive Bids at a particular Competitive Bid Rate pursuant to clause (D) the amounts shall be rounded to integral multiples of $1,000,000 or 100,000 units of the applicable Foreign Currency, as the case may be, in a manner which shall be in the discretion of such Borrower. A notice given by a Borrower pursuant to this Section 2.03(d) shall be irrevocable. (e) The Administrative Agent shall promptly notify each Bank making a Competitive Bid whether or not its Competitive Bid or corresponding Competitive Bids have been accepted (and if so, in what amount and at what Competitive Bid Rate) by facsimile transmission sent by the Administrative Agent, and each successful bidder will thereupon become bound, subject to the other applicable conditions hereof, to make the Competitive Loan in respect of which its Competitive Bid has been accepted. After completing the notifications referred to in the immediately preceding sentence, the Administrative Agent shall notify each Bank of the aggregate principal amount of all Competitive Bids accepted. (f) The Administrative Agent shall notify each Bank of (i) the IBO Rate applicable to any Eurocurrency Competitive Loan to be made by such Bank pursuant to a Competitive Bid that has been accepted by a Borrower pursuant to Section 2.03(d), and (ii) the sum of the applicable IBO Rate plus the Margin bid by such Bank. (g) A Competitive Bid Request shall not be made within five Business Days of the date after the date of any previous Competitive Bid Request, unless the Company and the Administrative Agent shall mutually agree otherwise and notice of such agreement shall have been given to the Banks. (h) If the Administrative Agent or any Affiliate of the Administrative Agent shall at any time be a Bank with a Commitment hereunder and shall elect to submit a Competitive Bid FACILITY B -30- 31 in its capacity as a Bank, it shall submit such Competitive Bid directly to the Borrower requesting such Competitive Bid one quarter of an hour earlier than the latest time at which the other Banks are required to submit their Competitive Bids to the Administrative Agent pursuant to paragraph (b) above. (i) All notices required by this Section 2.03 shall be given in accordance with Section 9.02. (j) Competitive Loans may be made in Foreign Currencies to the extent requested in any Competitive Bid Request. Competitive Bids denominated in a Foreign Currency shall not be made pursuant to a Foreign Currency Addendum. With respect to any such Competitive Loans, the Company, and the Administrative Agent may from time to time agree to modifications of the procedures set forth in Section 2.02(b), Section 2.02(c) and this Section 2.03 (other than Section 2.03(h)) applicable thereto, and such modifications shall be set forth in the applicable Competitive Bid Request. SECTION 2.04. Committed and Foreign Currency Revolving Borrowing Procedure. (a) In order to effect a Committed Borrowing, a Borrower shall give written notice (or telephone notice promptly confirmed in writing) to the Administrative Agent, substantially in the form of Exhibit 2.04 (a "Committed Borrowing Request"), (i) in the case of a Eurodollar Committed Borrowing, not later than noon, New York City time, three Business Days before the Borrowing Date specified for such proposed Committed Borrowing, and (ii) in the case of an ABR Borrowing, not later than 11:00 a.m., New York City time, on the Borrowing Date specified for such proposed Committed Borrowing. No Fixed Rate Loan or Eurocurrency Competitive Loan shall be requested or made pursuant to a Committed Borrowing Request. Such Committed Borrowing Request shall be irrevocable and shall in each case refer to this Agreement and specify (x) whether the Borrowing then being requested is to be a Eurodollar Committed Borrowing or an ABR Borrowing, (y) the Borrowing Date of such Borrowing (which shall be a Business Day) and the aggregate amount thereof (which shall not be less than $5,000,000 and shall be an integral multiple of $1,000,000) and (z) the Interest Period with respect thereto. If no election as to the Type of Committed Borrowing is specified in any such notice, then the requested Committed Borrowing shall be an ABR Borrowing. If no Interest Period with respect to any Eurodollar Committed Borrowing is specified in any such Committed Borrowing Request, then the Borrower making such request shall be deemed to have selected an Interest Period of one month's duration. If a Borrower shall not have given notice in accordance with this Section 2.04 of its election to refinance a Committed Borrowing prior to the end of the Interest Period in effect for such Borrowing, then such Borrower shall (unless such Borrowing is repaid at the end of such Interest Period) be deemed to have given notice of an election to refinance such Borrowing with an ABR Borrowing. The Administrative Agent shall promptly advise the Banks of any Committed Borrowing Request given pursuant to this Section 2.04 and of each Bank's portion of the requested Committed Borrowing by facsimile transmission. FACILITY B -31- 32 (b) In order to effect a Foreign Currency Revolving Borrowing, a Borrower shall give the notice required under the relevant Foreign Currency Addendum and shall promptly deliver a copy of such notice to the Administrative Agent. SECTION 2.05. Refinancings. Each Borrower may refinance all or any part of any of its Borrowings with a Borrowing of the same or a different Type made pursuant to Section 2.03 or Section 2.04, subject to the conditions and limitations set forth herein and elsewhere in this Agreement, including refinancings of Competitive Borrowings with Committed Borrowings and of Committed Borrowings with Competitive Borrowings. Any Borrowing or part thereof so refinanced shall be deemed to be repaid in accordance with Section 2.08 with the proceeds of a new Borrowing hereunder and the proceeds of the new Borrowing, to the extent they do not exceed the principal amount of the Borrowing being refinanced, shall not be paid by the Banks to the Administrative Agent or by the Administrative Agent to the Borrower to which such Borrowing has been made pursuant to Section 2.02(c); provided, however, that (a) if the principal amount extended by a Bank in a refinancing is greater than the principal amount, if any, extended by such Bank in the Borrowing being refinanced, then such Bank shall pay such difference to the Administrative Agent for distribution to the Banks described in clause (b) below, (b) if the principal amount extended by a Bank in the Borrowing being refinanced is greater than the principal amount, if any, being extended by such Bank in the refinancing, the Administrative Agent shall return the difference to such Bank out of amounts received pursuant to clause (a) above, (c) to the extent any Bank fails to pay the Administrative Agent amounts due from it pursuant to clause (a) above, any Borrowing or portion thereof being refinanced shall not be deemed repaid in accordance with Section 2.08 to the extent of such failure and such Borrower shall pay such amount to the Administrative Agent pursuant to Section 2.08 and (d) to the extent such Borrower fails to pay to the Administrative Agent any amounts due in accordance with Section 2.08 as a result of the failure of a Bank to pay the Administrative Agent any amounts due as described in clause (c) above, the portion of any refinanced Borrowing deemed not repaid shall be deemed to be outstanding solely to the Bank which has failed to pay the Administrative Agent amounts due from it pursuant to clause (a) above to the full extent of such Bank's portion of such refinanced Loan. SECTION 2.06. Conversion and Continuation of Committed Borrowings. Each Borrower shall have the right at any time upon prior irrevocable notice to the Administrative Agent (a) not later than 8:30 a.m., New York City time, one Business Day prior to conversion, to convert any Eurodollar Committed Borrowing into an ABR Borrowing, (b) not later than noon, New York City time, three Business Days prior to conversion or continuation, to convert any ABR Borrowing into a Eurodollar Committed Borrowing or to continue any Eurodollar Committed Borrowing as a Eurodollar Committed Borrowing for an additional Interest Period and (c) not later than 11:00 a.m., New York City time, three Business Days prior to conversion, to convert the Interest Period with respect to any Eurodollar Committed Borrowing to another permissible Interest Period, subject in each case to the following: FACILITY B -32- 33 (i) each conversion or continuation shall be made pro rata among the Banks in accordance with the respective principal amounts of the Loans comprising the converted or continued Committed Borrowing and no Borrowing may be converted into or continued as a Borrowing in a different currency; (ii) if less than all the outstanding principal amount of any Committed Borrowing shall be converted or continued, the aggregate principal amount of such Committed Borrowing converted or continued shall be an integral multiple of $1,000,000 or 100,000 units of the applicable Foreign Currency and not less than $5,000,000 or the Foreign Currency Equivalent of such amount; (iii) if any Eurodollar Committed Borrowing is converted at a time other than the end of the Interest Period applicable thereto, such Borrower shall pay, upon demand, any amounts due to the Banks pursuant to Section 2.16; (iv) any portion of a Committed Borrowing maturing or required to be repaid in less than one month (or 14 days, if such an Interest Period is available) may not be converted into or continued as a Eurodollar Committed Borrowing; (v) any portion of a Committed Borrowing which cannot be continued as or converted into a Eurodollar Committed Borrowing by reason of clause (iv) above shall be automatically converted into or continued as an ABR Borrowing at the end of the Interest Period in effect for such Borrowing; and (vi) no Interest Period may be selected for any Eurodollar Committed Borrowing that would end later than the Maturity Date. Each notice pursuant to this Section 2.06 shall be irrevocable and shall refer to this Agreement and specify (w) the identity and amount of the Committed Borrowing that a Borrower requests be converted or continued, (x) whether such Committed Borrowing is to be converted to or continued as a Eurodollar Committed Borrowing or an ABR Borrowing, (y) if such notice requests a conversion, the date of such conversion (which shall be a Business Day) and (z) if such Committed Borrowing is to be converted to or continued as a Eurodollar Committed Borrowing, the Interest Period with respect thereto. If no Interest Period is specified in any such notice with respect to any conversion to or continuation as a Eurodollar Committed Borrowing, a Borrower shall be deemed to have selected an Interest Period of one month's duration. The Administrative Agent shall promptly advise the other Banks of any notice given pursuant to this Section 2.06 and of each Bank's portion of any converted or continued Committed Borrowing. If a Borrower shall not have given notice in accordance with this Section 2.06 to continue any Committed Borrowing into a subsequent Interest Period (and shall not otherwise have given notice in accordance with this Section 2.06 to convert such Committed Borrowing), such Committed Borrowing shall, at the end of the Interest FACILITY B -33- 34 Period applicable thereto (unless repaid pursuant to the terms hereof), automatically be converted into or continued as an ABR Borrowing. SECTION 2.07. Fees. (a) The Company agrees to pay to each Bank, through the Administrative Agent, (i) on each March 31, June 30, September 30 and December 31 from the Execution Date to the date on which the Commitment of such Bank has been terminated and (ii) on the Maturity Date and on any other date on which the Commitment of such Bank has been terminated, facility fees (such facility fees being the "Facility Fees"), in immediately available funds, equal to the Applicable Fee Percentage of the amount of the Commitment of such Bank from time to time outstanding, whether used, deemed used or unused, during the preceding quarter (or shorter period commencing with the Execution Date and/or ending with the Maturity Date). (b) All Facility Fees shall be computed by the Administrative Agent on the basis of the actual number of days elapsed in a year of 360 days, and such computations, made in good faith, shall create a rebuttable presumption that they are accurate. The Facility Fees due to each Bank shall commence to accrue on the Execution Date and shall cease to accrue on the earlier of the Maturity Date and the termination of the Commitment of such Bank as provided herein. (c) The Facility Fees due under this Section 2.07 shall be paid on the date due, in immediately available funds, to the Administrative Agent for distribution among the Banks. (d) The Company agrees to pay to the Administrative Agent the fees as provided in the Agent's Fee Letter. (e) Notwithstanding the foregoing, in no event shall any Bank be permitted to receive any compensation hereunder constituting interest in excess of the Highest Lawful Rate. SECTION 2.08. Repayment of Loans. (a) Each Borrower agrees to pay the outstanding principal balance of each Loan (i) in the case of a Competitive Loan, on the last day of the Interest Period applicable to such Loan and on the Maturity Date, and (ii) in the case of a Committed Loan or Foreign Currency Revolving Loan, on the Maturity Date unless another date is specified in the Foreign Currency Addendum relating to such Foreign Currency Revolving Loan. Each Loan shall bear interest from the date of the Borrowing of which such Loan is a part on the outstanding principal balance thereof as set forth in Section 2.09. (b) Each Bank shall, and is hereby authorized by each Borrower to make in its internal records relating to each Loan an appropriate notation evidencing the date, amount and the Type of each Loan of such Bank to such Borrower, the rate of interest applicable to such Loan and the Foreign Currency, if any, in which such Loan is made, and each payment or prepayment of principal of and interest on such Loan. The aggregate unpaid principal amount so recorded shall be presumptive evidence of the principal amount owing by such Borrower to such Bank in respect of such Loan. The failure of any Bank to make such a notation or any error therein shall not in any FACILITY B -34- 35 manner affect the obligation of such Borrower to repay the Loans made by such Bank in accordance with the terms hereof. SECTION 2.09. Interest on Loans. (a) Subject to the provisions of Section 2.09(d) and Section 2.10, the Loans comprising each Eurocurrency Borrowing shall bear interest (computed on the basis of the actual number of days elapsed over a year of 360 days) at a rate per annum equal to (i) in the case of each Eurodollar Committed Loan, the lesser of (A) the IBO Rate for the Interest Period in effect for such Borrowing plus the Applicable Differential from time to time in effect and (B) the Highest Lawful Rate, (ii) in the case of each Eurocurrency Competitive Loan, the lesser of (A) the IBO Rate for the Interest Period in effect for such Borrowing plus the Margin offered by the Bank making such Loan and accepted by a Borrower pursuant to Section 2.03 and (B) the Highest Lawful Rate, (iii) in the case of each Foreign Currency Revolving Loan that is a Eurocurrency Loan, the lesser of (A) the IBO Rate for the Interest Period in effect for such Borrowing plus any spread specified in the applicable Foreign Currency Addendum and (B) the Highest Lawful Rate and (iv) in the case of each Foreign Currency Revolving Loan (other than a Eurocurrency Loan), such rate as shall be specified in the applicable Foreign Currency Addendum. (b) Subject to the provisions of Section 2.09(d) and Section 2.10, the Loans comprising each ABR Borrowing shall bear interest (computed on the basis of the actual number of days elapsed over a year of 365 or 366 days, as the case may be, if the Alternate Base Rate shall be based on the Prime Rate, and a year of 360 days otherwise) at a rate per annum equal to the Alternate Base Rate, but not in excess of the Highest Lawful Rate. (c) Subject to the provisions of Section 2.10, each Fixed Rate Loan shall bear interest at a rate per annum (computed on the basis of the actual number of days elapsed over a year of 360 days) equal to the fixed rate of interest offered by the Bank making such Loan and accepted by a Borrower pursuant to Section 2.03, but not in excess of the Highest Lawful Rate. (d) Interest on each Loan shall be payable in arrears on each Interest Payment Date applicable to such Loan except as otherwise provided in this Agreement or in an applicable Foreign Currency Addendum. The applicable IBO Rate or Alternate Base Rate for each Interest Period or day within an Interest Period, as the case may be, shall be determined by the Administrative Agent (which determination, made in good faith, shall create a rebuttable presumption that the same is accurate). The Administrative Agent shall promptly advise the Company and each Bank, as appropriate, of such determination. SECTION 2.10. Interest on Overdue Amounts. If any Borrower shall default in the payment of the principal of or interest on any Loan or any other amount becoming due hereunder, whether at scheduled maturity by notice of prepayment, acceleration or otherwise, such Borrower shall on demand from time to time pay interest, to the extent permitted by law, on such defaulted amount up to (but not including) the date of actual payment (after as well as before judgment) at a rate per annum equal to the lesser of (a) the Alternate Base Rate plus 2% per annum (if the Alternate FACILITY B -35- 36 Base Rate is based on the Prime Rate, computed on the basis of the actual number of days elapsed over a year of 365 or 366 days, as the case may be; if the Alternate Base Rate is based on the Federal Funds Effective Rate, computed on the basis of the actual number of days elapsed over a year of 360 days) and (b) the Highest Lawful Rate, or in the case of Foreign Currency Revolving Loans such other rate as may be specified in the related Foreign Currency Addendum. SECTION 2.11. Alternate Rate of Interest. In the event, and on each occasion, that on the day two Business Days prior to the commencement of any Interest Period for a Eurocurrency Borrowing, (a) the Administrative Agent shall have determined that deposits in the principal amounts and currencies of the Loans comprising such Borrowing are not generally available in the London interbank market, or (b) the Majority Banks shall have determined (and notified the Administrative Agent) that the rate at which such deposits are being offered will not adequately and fairly reflect the cost to any Bank of making or maintaining its Eurocurrency Loan during such Interest Period, the Administrative Agent shall, as soon as practicable thereafter, give written notice of such determination to the Borrowers and the Banks. In the event of any such determination, any request by a Borrower for a Eurocurrency Loan shall, until the circumstances giving rise to such notice no longer exist, be deemed to be a request for an ABR Loan (if the requested Eurocurrency Loan was to be a Dollar Loan or a Foreign Currency Revolving Loan pursuant to a Foreign Currency Addendum in which no "Base Rate" is specified) or a request for a Foreign Currency Loan bearing interest by reference to the "Base Rate" specified in the applicable Foreign Currency Addendum (if the requested Eurocurrency Loan was to be a Foreign Currency Revolving Loan pursuant to a Foreign Currency Addendum in which a "Base Rate" is specified). Each such determination by the Administrative Agent or the Majority Banks hereunder, made in good faith, shall create a rebuttable presumption that the same is accurate. SECTION 2.12. Termination and Reduction of Commitments. (a) The Total Commitment shall be automatically terminated on the Maturity Date. (b) Subject to Section 2.13(b), upon at least ten Business Days' prior irrevocable written or facsimile notice to the Administrative Agent, the Company may at any time in whole permanently terminate, or from time to time in part permanently reduce, the Total Commitment; provided, however, that (i) each partial reduction of the Total Commitment shall be in an integral multiple of $1,000,000 and in a minimum principal amount of $25,000,000 and (ii) no such termination or reduction shall be permitted if, after giving effect thereto and to any repayments of the Loans made on the effective date thereof, (A) the sum of the Aggregate Revolving Credit Exposure and the Aggregate Competitive Loan Exposure would exceed the Total Commitment then in effect or (B) the Revolving Credit Exposure of any Bank would exceed such Bank's Commitment. Such notice shall specify the date and the amount of the termination or reduction of the Total Commitment. The Administrative Agent shall promptly notify the Banks of the amount of any such termination or reduction of the Total Commitment. FACILITY B -36- 37 (c) Except in the circumstances described in Section 2.14 or Section 2.15, each reduction in the Total Commitment hereunder shall be made ratably among the Banks in accordance with their respective Commitments. The Company shall pay to the Administrative Agent for the account of the Banks, on the date of each termination or reduction, the Facility Fees on the amount of the Commitments so terminated or reduced, accrued through the date of such termination or reduction. SECTION 2.13. Prepayment. (a) Each Borrower shall have the right at any time and from time to time to prepay any Committed Borrowing or Foreign Currency Revolving Borrowing, in whole or in part, upon written or facsimile notice (or telephone notice promptly confirmed by written or facsimile notice) to the Administrative Agent: (i) before 10:00 a.m., New York City time, five Business Days prior to prepayment, in the case of Eurodollar Committed Loans, (ii) before 10:00 a.m., New York City time, one Business Day prior to prepayment, in the case of ABR Loans and (iii) in the case of Foreign Currency Revolving Loans, such time as shall be specified in the applicable Foreign Currency Addendum; provided, however, that each partial prepayment shall be in an amount which is an integral multiple of $1,000,000 or 100,000 units of the applicable Foreign Currency and not less than $10,000,000 (or the Foreign Currency Equivalent thereof). No Borrower shall have the right to prepay any Competitive Borrowing. (b) On the date of any termination or reduction of the Commitments pursuant to Section 2.12(b), the Borrowers shall pay or prepay so much of the Committed Borrowings as shall be necessary in order that the aggregate principal amount of the Competitive Loans and Committed Loans outstanding will not exceed the Total Commitment, after giving effect to such termination or reduction. (c) Each notice of prepayment given by a Borrower shall specify the prepayment date and the principal amount of each Borrowing (or portion thereof) to be prepaid, shall be irrevocable and shall commit such Borrower to prepay such Borrowing (or portion thereof) by the amount stated therein on the date stated therein. All prepayments under this Section 2.13 shall be subject to Section 2.16 and Section 2.17 but otherwise without premium or penalty. All prepayments under this Section 2.13 shall be accompanied by accrued interest on the principal amount being prepaid to the date of prepayment. (d) If, on the last day of any Interest Period for any Borrowing or Borrowings, the sum of the Aggregate Revolving Credit Exposure and the Aggregate Competitive Loan Exposure exceeds the Total Commitment, the applicable Borrower (or, if more than one, the applicable Borrower(s) designated by the Company) shall, on such day, prepay such Borrowing(s) in an amount equal to the lesser of (i) such excess and (ii) the aggregate amount of such Borrowing(s). (e) If, on the last day of any Interest Period for any Borrowing, the Revolving Credit Exposure of any Bank in respect of a Loan included in such Borrowing exceeds such Bank's Commitment, the applicable Borrower shall, on such day, prepay such Borrowing in an amount equal FACILITY B -37- 38 to the lesser of (i) the amount necessary to eliminate such excess and (ii) the amount of such Borrowing. SECTION 2.14. Reserve Requirements; Change in Circumstances. (a) It is understood that the cost to each Bank of making or maintaining any of the Loans may fluctuate as a result of the applicability of, or changes in, reserve requirements imposed by the Board, including reserve requirements under Regulation D in connection with Eurocurrency Liabilities, and any other similar reserve, liquid asset or other requirement established by any governmental authority of the United States or of the jurisdiction of any Foreign Currency or in which any subject Loans in such currency are made to which banks in such jurisdiction are subject. Subject to Section 9.08, each Borrower agrees to pay to each Bank, as provided in Section 2.14(d), at any time when such Bank shall be required to maintain reserves with respect to liabilities or assets consisting of or including Eurocurrency Liabilities, additional interest on the unpaid principal amount of each Eurocurrency Loan of such Bank from the date of such Loan until such principal amount is paid in full, payable on each Interest Payment Date for such Eurocurrency Loan, at an interest rate per annum equal at all times during each Interest Period to the excess of (i) the rate obtained by dividing the IBO Rate for such Interest Period by a percentage equal to 100% minus the reserve percentage applicable during such Interest Period under regulations issued from time to time by the Board (or if more than one such percentage is so applicable, minus the daily average of such percentages for those days in such Interest Period during which any such percentage shall be so applicable) for determining the maximum requirement (including any emergency, supplemental or other marginal reserve requirement) for such Bank with respect to liabilities or assets consisting of or including Eurocurrency Liabilities over (ii) the IBO Rate for such Interest Period. It is understood by the parties hereto that the rates of interest applicable to Eurocurrency Loans have been determined on the assumption that no such reserve requirements exist or will exist and that such rates do not reflect costs imposed on the Banks in connection with such reserve requirements. It is agreed that for purposes of this Section 2.14(a) the Eurocurrency Loans made hereunder shall be deemed to constitute Eurocurrency Liabilities and to be subject to the reserve requirements of Regulation D without benefit of or credit for proration, exemptions or offsets which might otherwise be available to the Banks from time to time under Regulation D. (b) Notwithstanding any other provision herein, if after the Execution Date the introduction of any applicable law or regulation or any change in applicable law or regulation or in the interpretation or administration thereof by any governmental authority charged with the interpretation or administration thereof, or compliance by any Bank with any applicable guideline or request from any central bank or governmental authority (whether or not having the force of law), including the implementation of the European monetary unit (i) shall change the basis of taxation of payments to any Bank of the principal of or interest on any Eurocurrency Loan, Fixed Rate Loan or Foreign Currency Loan made by such Bank or any other fees or amounts payable hereunder (other than (x) taxes imposed on the overall net income of such Bank or its Applicable Lending Office by the jurisdiction in which such Bank or its Applicable Lending Office has its principal office or by any political subdivision or taxing authority therein (or any tax which is enacted or adopted by such FACILITY B -38- 39 jurisdiction, political subdivision or taxing authority as a direct substitute for any such taxes) or (y) any tax, assessment or other governmental charge that would not have been imposed but for the failure of any Bank to comply with any certification, information, documentation or other reporting requirement), (ii) shall impose, modify or deem applicable any reserve, special deposit or similar requirement against assets of, deposits with or for the account of, or credit extended by, such Bank, or (iii) shall impose on such Bank or the London interbank market any other condition affecting this Agreement or any Eurocurrency Loan, Fixed Rate Loan or Foreign Currency Loan made by such Bank, and the result of any of the foregoing shall be to increase the cost to such Bank of maintaining its Commitment or of making or maintaining any Eurocurrency Loan, Fixed Rate Loan or Foreign Currency Loan or to reduce the amount of any sum received or receivable by such Bank hereunder (whether of principal, interest or otherwise) in respect thereof by an amount deemed in good faith by such Bank to be material, then each Borrower shall pay to the Administrative Agent for the account of such Bank such additional amount or amounts with respect to the Eurocurrency Loans, Fixed Rate Loans and Foreign Currency Loans of such Borrower as will compensate such Bank for such increase or reduction to such Bank upon demand by such Bank (through the Administrative Agent). (c) If any Bank shall have determined in good faith that the applicability of any law, rule, regulation or guideline adopted pursuant to or arising out of the July 1988 report of the Basle Committee on Banking Regulations and Supervisory Practices entitled "International Convergence of Capital Measurement and Capital Standards" or the adoption after the Execution Date of any other law, rule, regulation or guideline regarding capital adequacy, or any change in any of the foregoing or any change in the interpretation or administration thereof by any governmental authority, central bank or comparable agency charged with the interpretation or administration thereof, or compliance by any Bank (or any lending office of such Bank) with any request or directive regarding capital adequacy (whether or not having the force of law) of any such authority, central bank or comparable agency, has or would have the effect of reducing the rate of return on such Bank's capital as a consequence of this Agreement or the Loans made by such Bank pursuant hereto to a level below that which such Bank could have achieved but for such applicability, adoption, change or compliance (taking into consideration such Bank's policies with respect to capital adequacy) by an amount deemed by such Bank to be material, then from time to time, as provided in Section 2.14(d), each Borrower shall pay to such Bank such additional amount or amounts as will compensate such Bank for any such increased capital requirement. (d) Each Bank will notify the Borrowers through the Administrative Agent of any event occurring after the date of this Agreement which will entitle such Bank to compensation pursuant to this Section 2.14, as promptly as practicable, and in any event within 90 days after it becomes aware thereof and determines to request compensation. A certificate of a Bank setting forth in reasonable detail (i) such amount or amounts as shall be necessary to compensate such Bank (or participating banks or other entities pursuant to Section 9.11) as specified in paragraph (a), (b) or (c) above, as the case may be, and (ii) the calculation of such amount or amounts under clause (a)(i), shall be delivered to the Borrowers (with a copy to the Administrative Agent) and shall, to the extent FACILITY B -39- 40 permitted by law, be conclusive absent manifest error. The Borrowers shall pay to the Administrative Agent for the account of such Bank the amount shown as due on any such certificate within 10 days after its receipt of the same. (e) Except as expressly provided in Section 2.14(d), failure on the part of any Bank to demand compensation for any increased costs or reduction in amounts received or receivable or reduction in return on capital with respect to any Interest Period or any other period shall not constitute a waiver of such Bank's rights to demand compensation for any increased costs or reduction in amounts received or receivable or reduction in return on capital with respect to such Interest Period or any other period; provided that no Borrower shall be required to compensate a Bank pursuant to this Section 2.14 for any increased costs or reductions incurred more than 270 days prior to the date that such Bank notifies such Borrower of the change in law giving rise to such increased costs or reductions and of such Bank's intention to claim compensation therefor; provided further that, if the change in law giving rise to such increased costs or reductions is retroactive, then the 270-day period referred to above shall be extended to include the period of retroactive effect thereof. The protection of this Section 2.14 shall be available to each Bank regardless of any possible contention of invalidity or inapplicability of law, regulation or condition which shall have been imposed. (f) In the event any Bank shall seek compensation pursuant to this Section 2.14, the Company may give notice to such Bank (with copies to the Administrative Agent) that it wishes to seek one or more Eligible Assignees (which may be one or more of the Banks) to assume the Commitment of such Bank and to purchase its outstanding Loans. Each Bank requesting compensation pursuant to this Section 2.14 agrees to sell its Commitment, Loans and interest in this Agreement pursuant to Section 9.11(c) to any such Eligible Assignee for an amount equal to the sum of the outstanding unpaid principal of and accrued interest on such Loans plus all other fees and amounts (including any compensation claimed by such Bank under this Section 2.14 or Section 2.16) due such Bank hereunder calculated, in each case, to the date such Commitment, Loans and interest are purchased, whereupon such Bank shall have no further Commitment or other obligation to any Borrower hereunder. (g) Without prejudice to the survival of any other obligations of the Borrowers hereunder, the obligations of the Borrower under this Section 2.14 shall survive the termination of this Agreement and the payment or assignment of the Loans. (h) Notwithstanding anything in this Section 2.14 to the contrary, in no event shall any Bank be permitted to take or receive any compensation hereunder constituting interest in excess of the Highest Lawful Rate. SECTION 2.15. Change in Circumstances. (a) Notwithstanding any other provision herein, if any change in any law or regulation or in the interpretation thereof by any governmental authority charged with the administration or interpretation thereof shall make it unlawful for any FACILITY B -40- 41 Bank or its Eurocurrency Lending Office to make or maintain any Eurocurrency Loan or Foreign Currency Loan or to give effect to its obligations as contemplated hereby, or shall limit the convertibility into Dollars of any Foreign Currency (or make such conversion commercially impracticable), then, by written notice to the Borrower and to the Administrative Agent, such Bank may: (i) declare that Eurocurrency Loans or Loans in any affected Foreign Currency, as applicable, will not thereafter be made by such Bank hereunder, whereupon such Bank shall not submit a Competitive Bid in response to a request for Eurocurrency Competitive Loans or Competitive Loans in such Foreign Currency, as applicable, and any request by a Borrower for a Eurodollar Committed Borrowing or Foreign Currency Revolving Borrowing in such Foreign Currency, as applicable, shall, as to such Bank only (unless such Borrower (x) shall have withdrawn such request, in which case such request shall be of no force and effect, or (y) shall have made a new request for a Borrowing of a different Type in accordance with the terms hereof, which shall be deemed to supersede such request for a Eurodollar Committed Borrowing), be deemed a request for an ABR Loan in Dollars; and (ii) require that all outstanding Eurocurrency Loans or Loans in such Foreign Currency, as applicable, made by it be converted to ABR Loans in Dollars in which event all such Loans shall be automatically converted to ABR Loans in Dollars, as of the effective date of such notice as provided in Section 2.15(b). In the event any Bank shall exercise its rights under clause (i) or (ii) above with respect to Eurocurrency Loans, all payments and prepayments of principal which would otherwise have been applied to repay the Eurocurrency Loans that would have been made by such Bank or the converted Eurocurrency Loans of such Bank shall instead be applied to repay the ABR Loans made by such Bank or the Banks, as the case may be, in lieu of, or resulting from the conversion of, such Eurocurrency Loans. In the event any Foreign Currency Bank shall exercise its rights under clause (i) or (ii) above with respect to Foreign Currency Loans, all payments and prepayments in respect of such Foreign Currency Loans shall thereafter be made in Dollars, converted at the then prevailing Exchange Rate. (b) For purposes of this Section 2.15, a notice to any Borrower (with a copy to the Administrative Agent) by any Bank pursuant to Section 2.15(a) shall be effective as to each Eurocurrency Loan, if lawful, on the last day of the Interest Period currently applicable to such Eurocurrency Loan; in all other cases such notice shall be effective on the date of receipt by the Borrower. (c) In the event any Bank shall give a notice to any Borrower pursuant to this Section 2.15, the Company may give notice to such Bank (with a copy to the Administrative Agent) that it wishes to seek one or more Eligible Assignees (which may be one or more of the Banks) to assume the Commitment of such Bank and to purchase its outstanding Loans. Each Bank giving a FACILITY B -41- 42 notice to any Borrower pursuant to this Section 2.15 agrees to sell its Commitment, Loans and interest in this Agreement pursuant to Section 9.11(c) to any such Eligible Assignee for an amount equal to the sum of the outstanding unpaid principal of and accrued interest on such Loans plus all other fees and amounts (including any compensation claimed by such Bank under Section 2.14 or Section 2.16) due such Bank hereunder calculated, in each case, to the date such Commitment, Loans, interest and fees are purchased, whereupon such Bank shall have no further Commitment or other obligation to any Borrower hereunder. (d) None of the Banks shall be permitted to terminate availability of Eurocurrency Loans as provided in this Section 2.15 on a discriminatory basis (i.e., availability of Eurocurrency Loans is not also terminated by the applicable Bank with respect to other customers of such Bank similarly situated where such customer is subject to documents providing for such right of termination). SECTION 2.16. Indemnity. The Company shall indemnify each Bank against any loss or reasonable expense which such Bank may sustain or incur as a consequence of (a) any failure by a Borrower to fulfill on the date of any Borrowing hereunder the applicable conditions set forth in Article III, (b) any failure by a Borrower to borrow or to refinance, convert (other than conversion into an ABR Loan) or continue any Loan hereunder after a Committed Borrowing Request pursuant to Article II has been given or after Competitive Bids have been accepted or after a notice of conversion or continuation has been given pursuant to Section 2.05, (c) any payment, prepayment or conversion of a Eurocurrency Loan or Fixed Rate Loan required or permitted by any provision of this Agreement or otherwise made on a date other than the last day of the applicable Interest Period, (d) any default in the payment or prepayment of the principal amount of any Loan or any part thereof or interest accrued thereon, as and when due and payable (at the due date thereof, by notice of prepayment or otherwise), or (e) the occurrence of any Event of Default, including, in the case of any of the events set forth in clauses (a) through (e) of this Section 2.16, any loss or reasonable expense sustained or incurred or to be sustained or incurred in liquidating or employing deposits from third parties acquired to effect or maintain such Loan or any part thereof as a Eurocurrency Loan or Fixed Rate Loan. Such loss or reasonable expense shall include an amount equal to the excess, if any, as reasonably determined by each Bank of (y) its cost of obtaining the funds for the Loan being paid, prepaid or converted or not borrowed, refinanced, converted or continued (based on the IBO Rate or, in the case of a Fixed Rate Loan, the fixed rate of interest applicable thereto) for the period from the date of such payment, prepayment or conversion or failure to borrow, refinance, convert or continue to the last day of the Interest Period for such Loan (or, in the case of a failure to borrow, refinance, convert or continue, the Interest Period for the Loan which would have commenced on the date of such failure to borrow, refinance, convert or continue) over (z) the amount of interest (as reasonably determined by such Bank) that would be realized by such Bank in reemploying the funds so paid, prepaid or converted or not borrowed, refinanced, converted or continued for such period or Interest Period, as the case may be. A certificate of each Bank setting forth any amount or amounts which such Bank is entitled to receive pursuant to this Section 2.16 together with either a calculation of such amount or amounts or a statement of the basis on which FACILITY B -42- 43 such amount or amounts have been determined shall be delivered to the Company (with a copy to the Administrative Agent) and such calculation or statement, made in good faith shall create a rebuttable presumption that the same is accurate. The Company shall pay to the Administrative Agent for the account of each Bank the amount shown as due on any certificate within 30 days after its receipt of the same. Without prejudice to the survival of any other obligations of the Company hereunder, the obligations of the Company under this Section 2.16 shall survive the termination of this Agreement and/or the payment or assignment of any of the Loans. Without limitation of this Section 2.16, the provisions of this Section 2.16 shall be enforceable against the Company with respect to the conditions described in clauses (a) and (b) of this Section 2.16 with respect to any Committed Borrowing Request or Competitive Bid Request given by a Borrower hereunder on or after the Execution Date regardless of whether the Effective Date occurs. Notwithstanding the foregoing, in no event shall any Bank be permitted to receive any compensation hereunder constituting interest in excess of the Highest Lawful Rate. SECTION 2.17. Pro Rata Treatment. Except as required under clause (d) of the proviso of Section 2.05, Section 2.14, Section 2.15, or Section 2.16, (a) each Committed Borrowing and each refinancing of any Borrowing with a Committed Borrowing shall be allocated pro rata among the Banks in accordance with their respective Available Commitments, (b) each payment of the Facility Fees and each reduction of the Commitments shall be allocated pro rata among the Banks in accordance with their respective Commitments, (c) each payment or prepayment of principal (other than any prepayment pursuant to Section 2.24(d)) of any Committed Borrowing and each payment of interest on the Loans comprising part of a Committed Borrowing shall be allocated pro rata among the Banks participating in such Borrowing in accordance with the respective principal amounts of their outstanding Loans comprising such Borrowing, (d) each Foreign Currency Revolving Borrowing shall be allocated pro rata among the Banks participating in such Borrowing, in accordance with their respective Foreign Currency Bank Maximum Borrowing Amounts with respect to the applicable Foreign Currency and (e) each payment or prepayment of principal of any Foreign Currency Revolving Borrowing and each payment of interest on the Loans comprising part of a Foreign Currency Revolving Borrowing shall be allocated pro rata among the Banks participating in such Borrowing in accordance with the respective principal amounts of their outstanding Loans comprising such Borrowing. Except as required under clause (d) of the proviso of Section 2.05, each payment of interest on any Competitive Borrowing shall be allocated pro rata among the Banks participating in such Borrowing in accordance with the respective amounts of accrued and unpaid interest on their outstanding Competitive Loans comprising such Borrowing. Each Bank agrees that in computing such Bank's portion of any Borrowing to be made hereunder, the Administrative Agent may, in its discretion, round each Bank's percentage of such Borrowing to the next higher or lower whole dollar amount or the Equivalent Amount in the case of a Foreign Currency Borrowing. SECTION 2.18. Sharing of Setoffs. Each Bank agrees that if it shall, through the exercise of a right of banker's lien, setoff or counterclaim against the Borrowers (pursuant to Section 9.06 or otherwise), including, but not limited to, a secured claim under Section 506 of Title FACILITY B -43- 44 11 of the United States Code or other security or interest arising from, or in lieu of, such secured claim, received by such Bank under any applicable bankruptcy, insolvency or other similar law or otherwise, or by similar means, obtain payment (voluntary or involuntary) (other than pursuant to Section 2.14, Section 2.15 or Section 2.16) of any Committed Loan or Loans as a result of which the unpaid principal portion of the Committed Loans of such Bank shall be proportionately less than the unpaid principal portion of the Committed Loans of any other Bank, it shall be deemed simultaneously to have purchased from such other Bank at face value, and shall promptly pay to such other Bank the purchase price for, a participation in the Committed Loans of such other Bank, so that the aggregate unpaid principal amount of the Committed Loans and participations in the Committed Loans held by each Bank shall be in the same proportion to the aggregate unpaid principal amount of all Committed Loans then outstanding as the principal amount of its Committed Loans prior to such exercise of banker's lien, setoff or counterclaim or other event was to the principal amount of all Committed Loans outstanding prior to such exercise of banker's lien, setoff or counterclaim or other event; provided, however, that, if any such purchase or purchases or adjustments shall be made pursuant to this Section 2.18 and the payment giving rise thereto shall thereafter be recovered, such purchase or purchases or adjustments shall be rescinded to the extent of such recovery and the purchase price or prices or adjustment restored without interest. Each Borrower expressly consents to the foregoing arrangements and agrees that any Bank holding a participation in a Committed Loan deemed to have been so purchased may, to the extent permitted by law, exercise any and all rights of banker's lien, setoff or counterclaim with respect to any and all moneys owing by such Borrower to such Bank by reason thereof as fully as if such Bank had made a Committed Loan directly to such Borrower in the amount of such participation. SECTION 2.19. Payments. (a) Each Borrower shall make each payment hereunder not later than noon, New York City time, on the day when due to the Administrative Agent at its address referred to in Section 9.02 for the account of the Banks, in federal or other immediately available funds (or, in the case of Foreign Currency Revolving Loans, such other time and place as shall be specified in the applicable Foreign Currency Addendum, or in the case of Competitive Loans denominated in a Foreign Currency as may be agreed upon by the Company, the Administrative Agent and the Bank or Banks whose Competitive Bids have been accepted). The Administrative Agent will promptly thereafter cause to be distributed like funds relating to the payment of principal or interest on Committed Loans (other than pursuant to Section 2.14, Section 2.15 and Section 2.16) or Facility Fees ratably to the Banks and like funds relating to the payment of any other amount (including payments of principal or interest on Competitive Loans which are not made ratably to the Banks) payable to any Bank to such Bank for the account of its Applicable Lending Office, in each case to be applied in accordance with the terms of this Agreement. If the Administrative Agent fails to send to any Bank its portion of any payment timely received by the Administrative Agent hereunder by the close of business on the day such payment was received, the Administrative Agent shall pay to such Bank interest on its portion of such payment from the day such payment was timely received by the Administrative Agent until the date such Bank's portion of such payment is sent to such Bank, at the Federal Funds Effective Rate. FACILITY B -44- 45 (b) Whenever any payment hereunder (including principal of or interest on any Borrowing or any fees or other amounts), shall be stated to be due on a day other than a Business Day, such payment shall be made on the next succeeding Business Day, and such extension of time shall in such case be included in the computation of payment of interest, fees or other amounts, as the case may be; provided, however, if such extension would cause payment of interest on or principal of a Eurocurrency Loan to be made in the next following calendar month, such payment shall be made on the next preceding Business Day. (c) Unless the Administrative Agent shall have received notice from a Borrower prior to the date on which any payment is due to the Banks hereunder that such Borrower will not make such payment in full, the Administrative Agent may assume that such Borrower has made such payment in full to the Administrative Agent on such date and the Administrative Agent may, in reliance upon such assumption, cause to be distributed to each Bank on such due date an amount equal to the amount then due such Bank. If and to the extent a Borrower shall not have so made such payment in full to the Administrative Agent, each Bank shall repay to the Administrative Agent forthwith on demand such amount distributed to such Bank together with interest thereon, for each day from the date such amount is distributed to such Bank until the date such Bank repays such amount to the Administrative Agent, at the Federal Funds Effective Rate. The provisions of this Section 2.19(c) shall apply, mutatis mutandis, for the benefit of the Foreign Currency Agent under each Foreign Currency Addendum from time to time in effect, whether or not such Foreign Currency Addendum shall expressly so provide. SECTION 2.20. Taxes. (a) Any and all payments by the Borrowers hereunder (including any payments made under Section 2.09) shall be made, in accordance with Section 2.19, free and clear of and without deduction for any and all present or future taxes, levies, imposts, deductions, charges or withholdings, and all liabilities with respect thereto, excluding taxes imposed on the Administrative Agent's or any Bank's income and franchise taxes imposed on the Administrative Agent or any Bank, in each case by the United States or any jurisdiction under the laws of which it is organized or any political subdivision of such jurisdiction of organization (all such nonexcluded taxes, levies, imposts, deductions, charges, withholdings and liabilities being hereinafter referred to as "Taxes"). If any Borrower shall be required by law to deduct any Taxes from or in respect of any sum payable hereunder to the Banks or the Administrative Agent (i) the sum payable shall be increased by the amount necessary so that after making all required deductions (including deductions applicable to additional sums payable under this Section 2.20) such Bank or the Administrative Agent (as the case may be) shall receive an amount equal to the sum it would have received had no such deductions been made, (ii) such Borrower shall make such deductions and (iii) such Borrower shall pay the full amount deducted to the relevant taxing authority or other governmental authority in accordance with applicable law. (b) In addition, each Borrower agrees to pay any present or future stamp or documentary taxes or any other excise or property taxes, charges or similar levies which arise from FACILITY B -45- 46 any payment made hereunder or from the execution, delivery or registration of, or otherwise with respect to, this Agreement or any Loan (hereinafter referred to as "Other Taxes"). (c) Each Borrower will indemnify each Bank and the Administrative Agent for the full amount of Taxes and Other Taxes (including any Taxes or Other Taxes imposed by any jurisdiction on amounts payable under this Section 2.20) paid by such Bank or the Administrative Agent, as the case may be, and any liability (including penalties, interest and expenses) arising therefrom or with respect thereto, whether or not such Taxes or Other Taxes were correctly or legally asserted. Such indemnification shall be made within 30 days after the date any Bank or the Administrative Agent, as the case may be, makes written demand therefor. If a Bank or the Administrative Agent shall become aware that it is entitled to receive a refund in respect of Taxes or Other Taxes, it shall promptly notify the applicable Borrower of the availability of such refund and shall, within 30 days after receipt by such Borrower, apply for such refund at such Borrower's expense. If any Bank or the Administrative Agent receives a refund in respect of any Taxes or Other Taxes for which such Bank or the Administrative Agent has received payment from a Borrower hereunder it shall promptly notify such Borrower of such refund and shall, within 30 days after receipt of a request by such Borrower (or promptly upon receipt, if such Borrower has requested application for such refund pursuant hereto), repay such refund to such Borrower without interest, provided that such Borrower, upon the request of such Bank or the Administrative Agent, agrees to return such refund (plus penalties, interest or other charges) to such Bank or the Administrative Agent in the event such Bank or the Administrative Agent is required to repay such refund. (d) Within 30 days after the date of any payment of Taxes or Other Taxes withheld by a Borrower in respect of any payment to any Bank (or transferee) or the Administrative Agent, such Borrower will furnish to the Administrative Agent, at its address referred to in Section 9.02, the original or a certified copy of a receipt evidencing payment thereof or, if such original or copy of a receipt is not available from the relevant taxing authority, other documentation of payment reasonably satisfactory to such Bank (or transferee) or the Administrative Agent. (e) Without prejudice to the survival of any other agreement contained herein, the agreements and obligations contained in this Section 2.20 shall survive the payment in full of principal and interest hereunder. (f) Each Bank that is organized outside the United States and each Foreign Currency Bank shall promptly after the later of the date hereof or the date in which it shall become a "Bank" hereunder, or the date on which it shall execute and deliver a Foreign Currency Addendum, or shall become a party thereto, and from time to time thereafter upon the obsolescence or expiration of any previously delivered form or certificate (but only so long as such Bank or Foreign Currency Bank remains lawfully able to do so), provide the Company and the Administrative Agent with any form or certificate that is required by any taxing authority (including, if applicable, two original Internal Revenue Service forms 1001 or 4224, as appropriate (or any successor form or other form prescribed by the Internal Revenue Service), an original Internal Revenue Service form W-9 (or any FACILITY B -46- 47 successor form), as shall be appropriate to establish, subject to the penultimate sentence of this Section 2.19(f), that such Bank or Foreign Currency Bank is exempt from Home Jurisdiction Withholding Taxes on payments pursuant to this Agreement (including any payments made under any Foreign Currency Addendum); provided, however, that such Bank or Foreign Currency Bank shall have been advised in writing by the Company or any other Borrower (including at the time any renewal form is due) of the form or certificate applicable to it, determined by reference to the jurisdiction of organization and Applicable Lending Offices of such Bank or Foreign Currency Bank, or such other branch or office of such Bank or Foreign Currency Bank designated by such Bank or Foreign Currency Bank from time to time as the branch or office at which any of its Loans are to be made or maintained. Each Bank and Foreign Currency Bank shall promptly notify the Company and the Administrative Agent if, because of any change in the jurisdiction of organization or an Applicable Lending Office of such Bank or Foreign Currency Bank, (A) it is required to withdraw or cancel any form or certificate previously submitted by it or any form or certificate has otherwise become ineffective or inaccurate or (B) payments to it are or will be subject to withholding of any Home Jurisdiction Withholding Tax to a greater or lesser extent than the extent to which payments to it pursuant to this Agreement were previously subject. If any form or document referred to in this Section 2.19(f) requires the disclosure of information, other than information necessary to compute the tax payable and information required on the date hereof by Internal Revenue Service form 1001 or 4224, that each Bank or Foreign Currency Bank reasonably considers to be confidential, such Bank or Foreign Currency Bank shall give notice thereof to the Company and the Administrative Agent (and if such notice is given by a Foreign Currency Bank, the relevant foreign Currency Agent and the relevant Foreign Currency Borrower) and shall not be obligated to include in such form or document such confidential information; provided, however, such form or document will state that such confidential information may be requested directly from such Bank or Foreign Currency Bank. Unless the Borrowers and the Administrative Agent have received forms or other documents satisfactory to them indicating that payments hereunder or under the Loans are not subject to United States withholding tax or are subject to such tax at a rate reduced by an applicable tax treaty, the Borrowers, the Administrative Agent or the Foreign Currency Agent shall withhold taxes from such payments at the applicable statutory rate in the case of payments to or for any Bank organized under the laws of a jurisdiction outside the United States or any Foreign Currency Bank. (g) Any Bank or Foreign Currency Bank claiming any additional amounts payable pursuant to this Section 2.20 shall use reasonable efforts (consistent with legal and regulatory restrictions) to file any certificate or document requested by a Borrower or to change the jurisdiction of its Applicable Lending Office if the making of such a filing or change would avoid the need for or reduce the amount of any such additional amounts which may thereafter accrue and would not, in the sole determination of such Bank or Foreign Currency Bank, be otherwise disadvantageous to such Bank or Foreign Currency Bank. SECTION 2.21. Borrowing Subsidiary. The Company may designate any Wholly- owned Subsidiary (other than an Inactive Subsidiary) as an additional Borrowing Subsidiary. Upon the acceptance by the Administrative Agent of a Borrowing Subsidiary Counterpart of this FACILITY B -47- 48 Agreement in the form of Exhibit 2.22 (a "Borrowing Subsidiary Counterpart") executed by such Wholly-owned Subsidiary and the Company, such Wholly-owned Subsidiary shall be a Borrowing Subsidiary and a party to this Agreement. SECTION 2.22. Liability of Borrowing Subsidiaries. Notwithstanding anything in this Agreement to the contrary, in no event shall any Borrowing Subsidiary now or hereafter party to this Agreement be liable for the Loans or any other obligations of the Company or any other Borrowing Subsidiary hereunder; it being the intention of the parties hereto that each Borrowing Subsidiary shall be liable only for the Loans made to it and its other obligations hereunder. SECTION 2.23. Terms of Foreign Currency Facilities. (a) The Company may in its discretion from time to time designate that one or more Borrowers may borrow Foreign Currency Loans on a revolving basis from any one or more Banks, with the consent of each such Bank in its sole discretion, by delivering a Foreign Currency Addendum to the Administrative Agent and the Banks (through the Administrative Agent) executed by the Company, each such Borrower and each such Bank; provided, however, that on the effective date of such designation (i) an Exchange Rate with respect to each Foreign Currency covered by such Foreign Currency Addendum shall be determinable by reference to the Reuters currency pages (or comparable publicly available screen) and (ii) no Default or Event of Default shall have occurred and be continuing. Each Borrower and, by agreeing to any Foreign Currency Addendum, each relevant Foreign Currency Bank, acknowledges and agrees that each reference in this Agreement to any Bank shall, to the extent applicable, be deemed to be a reference to such Foreign Currency Bank, subject to the second sentence of the definition of such term. (b) Each Foreign Currency Addendum shall set forth (i) the maximum amount (expressed in Dollars and without duplication) available to be borrowed from all Foreign Currency Banks under such Foreign Currency Addendum (as the same may be reduced from time to time pursuant to Section 2.24(a) or Section 2.24(b), a "Foreign Currency Facility Maximum Borrowing Amount") and (ii) with respect to each Foreign Currency Bank party to such Foreign Currency Addendum, the maximum amount (expressed in Dollars and without duplication) available to be borrowed from such Foreign Currency Bank thereunder (as the same may be reduced from time to time pursuant to Section 2.24(a) or Section 2.24(b), a "Foreign Currency Bank Maximum Borrowing Amount"). In no event shall the aggregate of all Foreign Currency Bank Maximum Borrowing Amounts in respect of any Foreign Currency Bank at any time exceed such Bank's Commitment. Except as provided in Section 2.23(c), the making of Foreign Currency Loans by a Foreign Currency Bank under a Foreign Currency Addendum shall under no circumstances reduce the amount available to be borrowed from such Bank under any other Foreign Currency Addendum to which such Bank is a party. (c) Except as otherwise required by applicable law, in no event shall the Foreign Currency Banks have the right to accelerate the Foreign Currency Loans outstanding thereunder, or to terminate their commitments (if any) to make Foreign Currency Loans prior to the stated FACILITY B -48- 49 termination date in respect thereof, except that such Foreign Currency Banks shall, in each case, have such rights upon an acceleration of the Loans and a termination of the Commitments pursuant to Article VI, respectively. No Foreign Currency Loan may be made (i) which is denominated in any currency other than a Foreign Currency, (ii) if a Default or an Event of Default shall have occurred and be continuing or would result therefrom or (iii) if, after giving effect thereto, (A) the sum of the aggregate principal amount of the Dollar Loans and Foreign Currency Loans (Dollar Equivalent) (other than Competitive Loans) of any Bank then outstanding would exceed such Bank's Commitment, (B) the Dollar Equivalent of the aggregate principal amount of outstanding Foreign Currency Revolving Loans denominated in a specified Foreign Currency would exceed the applicable Foreign Currency Facility Maximum Borrowing Amount or (C) the sum of the Aggregate Revolving Credit Exposure and the Aggregate Competitive Loan Exposure would exceed the Total Commitment. (d) The relevant Foreign Currency Banks, or, if so specified in the relevant Foreign Currency Addendum, an agent acting on their behalf, shall furnish to the Administrative Agent, promptly following the making, payment or prepayment of each Foreign Currency Revolving Loan, or at any other time at the request of the Administrative Agent, a statement setting forth the outstanding Foreign Currency Revolving Loans made under such Foreign Currency Addendum and the amount and terms of any pending prepayment notices or borrowing requests received by such Banks or agent through the date of the Administrative Agent's request. (e) The relevant Borrower shall furnish to the Administrative Agent copies of any amendment, supplement or other modification to the terms of any Foreign Currency Addendum promptly after the effectiveness thereof. (f) The Company may terminate any Foreign Currency Addendum, if there are not any Loans outstanding thereunder (or, if there are Loans outstanding thereunder) with the consent of each Foreign Currency Bank party thereto in its sole discretion, by written notice to the Administrative Agent, which notice shall be executed by the Company, each relevant Borrower and, if their consent is required, each such Foreign Currency Bank. Once notice of such termination is received by the Administrative Agent, such Foreign Currency Addendum and the loans and other obligations outstanding thereunder shall immediately cease to be subject to the terms of this Agreement. SECTION 2.24. Currency Fluctuations, etc. (a) If, on any Reset Date or any Borrowing Date (after giving effect to (i) any Loans to be made or repaid on such date and (ii) any amendment, supplement or other modification to any Foreign Currency Addendum effective on such date of which the Administrative Agent has received notice), the Aggregate Outstanding Dollar Revolving Extensions of Credit of any Bank exceeds the Dollar Revolving Credit Overage of such Bank (the amount of such excess, the "Dollar Revolving Credit Excess"), then the Administrative Agent shall promptly notify the Company of such Dollar Revolving Credit Excess. Within three Business Days after receiving such notice (during which time the Banks shall not be obligated to FACILITY B -49- 50 make any further Loans hereunder), the Company may (i) prepay Loans other than Foreign Currency Loans (or cause any Borrower to prepay Loans other than Foreign Currency Loans made to it) and/or (ii) as indicated in a facsimile notice (or telephone notice promptly confirmed by facsimile transmission) to the Administrative Agent, reduce the Foreign Currency Maximum Borrowing Amount with respect to any one or more Foreign Currency Addenda (and prepay Foreign Currency Loans to the extent required as a result of such reduction) so that the aggregate amount under clauses (i) and (ii) equals or exceeds and thereby eliminates such Dollar Revolving Credit Excess. To the extent the Company does not so eliminate such Dollar Revolving Credit Excess by the third Business Day, then such Bank's Foreign Currency Bank Maximum Borrowing Amount under each Foreign Currency Addendum to which such Bank is a party shall be reduced on such third Business Day by an amount equal to the product of such Dollar Revolving Credit Excess times a fraction the numerator of which shall equal the Foreign Currency Bank Maximum Borrowing Amount under such Foreign Currency Addendum and the denominator of which shall equal the aggregate of all Foreign Currency Bank Maximum Borrowing Amounts of such Bank under all Foreign Currency Addenda to which it is a party. After giving effect to any such reduction in Foreign Currency Bank Maximum Borrowing Amounts, the Foreign Currency Facility Maximum Borrowing Amount with respect to each Foreign Currency Addendum shall in turn be reduced to an amount equal to the aggregate of Foreign Currency Bank Maximum Borrowing Amounts of all Banks party to such Foreign Currency Addendum. Reductions in Foreign Currency Facility Maximum Borrowing Amounts and Foreign Currency Bank Maximum Borrowing Amounts pursuant to this Section 2.24(a) shall be effective until the amount thereof shall be recalculated by the Administrative Agent on the next succeeding Reset Date or Borrowing Date, and shall not be deemed to reduce the stated amount of any commitment of any Foreign Currency Bank in respect of any Foreign Currency Addendum, whether or not such Foreign Currency Bank shall at the time by reason of its Foreign Currency Bank Maximum Borrowing Amount be obligated to make Foreign Currency Loans thereunder in the full amount of such commitment. (b) If, on any Reset Date or Borrowing Date (after giving effect to (i) any Loans to be made or repaid on such date and (ii) any amendment, supplement or other modification to any Foreign Currency Addendum effective on such date of which the Administrative Agent has received notice), the sum of (A) the Aggregate Outstanding Dollar Revolving Extensions of Credit of all the Banks and (B) the Aggregate Competitive Loan Exposure exceeds the Dollar Facility Overage (the amount of such excess, the "Dollar Facility Excess"), then the Administrative Agent shall promptly notify the Company of such Dollar Facility Excess. Within three Business Days after receiving such notice (during which time the Banks shall not be obligated to make any further Loans hereunder), the Company may (i) prepay Loans other than Foreign Currency Loans (or cause any Borrower to prepay Loans other than Foreign Currency Loans made to it) and/or (ii) as indicated in a facsimile notice (or telephone notice promptly confirmed by facsimile transmission) to the Administrative Agent, reduce the Foreign Currency Facility Maximum Borrowing Amount with respect to any one or more Foreign Currency Addenda (and prepay Foreign Currency Loans to the extent required as a result of such reduction) so that the aggregate amount under clauses (i) and (ii) equals or exceeds and thereby eliminates such Dollar Facility Excess. To the extent the Company does not so eliminate FACILITY B -50- 51 such Dollar Facility Excess by the third Business Day, then the Foreign Currency Facility Maximum Borrowing Amount under each Foreign Currency Addendum shall be reduced on such third Business Day by an amount equal to the product of such Dollar Facility Excess times a fraction the numerator of which shall equal the Foreign Currency Facility Maximum Borrowing Amount under such Foreign Currency Addendum and the denominator of which shall equal the aggregate of the Foreign Currency Facility Maximum Borrowing Amounts with respect to all Foreign Currency Addenda. Each such reduction in the Foreign Currency Facility Maximum Borrowing Amount under a Foreign Currency Addendum shall in turn reduce the respective Foreign Currency Bank Maximum Borrowing Amounts of each Foreign Currency Bank party to such Foreign Currency Addendum, pro rata on the basis of the respective Foreign Currency Bank Maximum Borrowing Amounts of such Foreign Currency Banks. Reductions in Foreign Currency Facility Maximum Borrowing Amounts and Foreign Currency Bank Maximum Borrowing Amounts pursuant to this Section 2.24(b) shall be effective until the amount thereof shall be recalculated by the Administrative Agent on the next succeeding Reset Date or Borrowing Date, and shall not be deemed to reduce the stated amount of any commitment of any Foreign Currency Bank in respect of any Foreign Currency Addendum. (c) If, on any Reset Date, the Dollar Equivalent of the Foreign Currency Loans outstanding under a Foreign Currency Addendum exceeds 105% of the Foreign Currency Facility Maximum Borrowing Amount with respect thereto (after giving effect to any reductions therein effected pursuant to Section 2.24(a) or Section 2.24(b) on such date), then the relevant Borrower shall, within three Business Days after notice thereof from the Administrative Agent, prepay Foreign Currency Loans in an aggregate amount such that, after giving effect thereto, (i) the Dollar Equivalent of all such Foreign Currency Loans shall be equal to or less than such Foreign Currency Facility Maximum Borrowing Amount and (ii) the Dollar Equivalent of the Foreign Currency Loans of each relevant Foreign Currency Bank shall be equal to or less than such Foreign Currency Bank's Foreign Currency Bank Maximum Borrowing Amount with respect to such Foreign Currency Addendum. (d) If, on any Reset Date, the Revolving Credit Exposure of any Bank exceeds 105% of such Bank's Commitment, then, within three Business Days after notice thereof from the Administrative Agent, the Company shall prepay and/or cause the relevant Borrowing Subsidiaries to prepay the Loans in accordance with this Agreement, in an aggregate amount such that, after giving effect thereto, the Revolving Credit Exposure of such Bank shall be equal to or less than such Bank's Revolving Credit Commitment. (e) The Administrative Agent shall promptly notify the relevant Banks of the amount of any reductions in Foreign Currency Facility Maximum Borrowing Amounts or Foreign Currency Bank Maximum Borrowing Amounts, and the amount of any prepayments, required pursuant to this Section 2.24. SECTION 2.25. Designation of Additional Foreign Currencies. (a) The Company may from time to time request that any one or more additional freely available currencies which are FACILITY B -51- 52 freely transferable and freely convertible into Dollars be designated as "Foreign Currencies" hereunder by providing written notice to the Administrative Agent specifying (i) each proposed new currency and (ii) any proposed Borrowing Subsidiary to be a Borrower with respect to such proposed Foreign Currency. The Administrative Agent shall promptly forward to each Bank a copy of any such notice. Within ten Business Days following the receipt of such notice, each Bank shall notify the Administrative Agent in writing whether such designation is acceptable to such Bank, in its sole discretion, and (without such advice constituting a commitment on the part of such Bank to do so) whether such Bank has an interest in funding Loans in the proposed new currency and, if so, the level (as an amount expressed in Dollars) of such Bank's interest, and the Administrative Agent promptly shall notify the Company thereof. (b) In the event that such designation is acceptable to the Majority Banks, and that the Administrative Agent shall determine (after consultation with the Company) that indications of interest in funding Loans in such proposed new currency sufficient to satisfy the Company's projected need for Loans denominated in such currency have been received from the Banks, the Company shall cause the proposed Borrower to deliver to the Administrative Agent (i) a Borrowing Subsidiary Counterpart, as provided in Section 2.21, (ii) a Foreign Currency Addendum, as provided in Section 2.23, and (iii) such other documents and instruments as the Administrative Agent reasonably may request. (c) From and after the date upon which the Administrative Agent has received the documents (all of which shall be in form and substance reasonably satisfactory to the Administrative Agent) described in Section 2.25(b), the term "Foreign Currency" shall be deemed to be amended to reflect the designation of such currency as a Foreign Currency, the terms "Borrowing Subsidiary" and "Borrower" shall be deemed to be amended to reflect such new Borrowing Subsidiary, and the term "Home Jurisdiction Withholding Taxes" shall be deemed to be amended to reflect the withholding taxes of the country of such new currency. (d) The Administrative Agent shall give prompt notice to the Banks of the effectiveness of such designation and shall deliver to each copies of all documents delivered pursuant to Section 2.25(b). ARTICLE III CONDITIONS OF LENDING SECTION 3.01. Conditions Precedent to the Initial Loans to the Company or an Initial Borrowing Subsidiary. The obligation of each Bank to make its initial Loan to the Company or an Initial Borrowing Subsidiary is subject to the condition precedent that the Administrative Agent shall have received on or before the initial Borrowing Date the following, each dated (unless otherwise indicated) such date and, with respect to all such documents referred to in Section 3.01(a), FACILITY B -52- 53 Section 3.01(b), Section 3.01(c), Section 3.01(d), Section 3.01(e), Section 3.01(f), Section 3.01(g), and Section 3.01(h) in sufficient copies for each Bank and the Administrative Agent: (a) A counterpart of (i) this Agreement (to which all of the Exhibits and Schedules have been attached) dated as of the date hereof executed by the Company, the Initial Borrowing Subsidiaries, the Administrative Agent and the Banks, and (ii) in the case of an Initial Borrowing Subsidiary, its Foreign Currency Addendum, executed by the Company, the applicable Foreign Currency Agent and each of the Foreign Currency Banks parties thereto. (b) (i) A copy of the articles of incorporation, as amended, of the Company, certified by the Secretary of State of the State of Texas and a certificate as to the good standing of the Company from the Comptroller of the State of Texas; (ii) a certificate of the Secretary or an Assistant Secretary of the Company certifying (A) that attached thereto is a true and complete copy of the bylaws of the Company as in effect on the date of such certificate and at all times since a date prior to the date of the resolutions described in (B) below, (B) that attached thereto is a true and complete copy of resolutions (i) duly adopted by the Executive Committee of the Board of Directors of the Company authorizing the execution, delivery and performance of this Agreement and the Agent's Fee Letter and (ii) duly adopted by the Board of Directors of the Company, appointing said Executive Committee, and that such resolutions have not been modified, rescinded or amended and are in full force and effect, (C) that the articles of incorporation of the Company have not been amended since the last amendment thereto shown on the good standing certificate furnished pursuant to (i) above and (D) as to the incumbency and specimen signatures of each officer of the Company executing this Agreement and the Agent's Fee Letter and (iii) a certificate of another officer of the Company as to the incumbency and specimen signatures of the Secretary or Assistant Secretary of the Company. (c) (i) A copy of the articles or certificate of incorporation (or other similar evidence of organization) of each Initial Borrowing Subsidiary, together with all amendments, and a current certificate of good standing, both certified by the appropriate governmental officer, in its jurisdiction of organization; (ii) a certificate of the Secretary or Assistant Secretary of such Initial Borrowing Subsidiary certifying, inter alia, (A) true and correct copies of the bylaws (or other similar document) of such Initial Borrowing Subsidiary as in effect on the date of such certificate and at all times since a date prior to the date of the resolutions or other action described in clause (B) below, (B) true and complete copies of resolutions duly adopted by the Board of Directors of such Initial Borrowing Subsidiary (or of the taking of such other action as may be necessary and appropriate under applicable law), authorizing such Initial Borrowing Subsidiary to execute, deliver and perform its obligations under this Agreement and to borrow and effect other transactions hereunder, and that such resolutions or other action has not been modified, rescinded or amended and is in full force and effect and (C) the incumbency and specimen signatures of the Persons executing any FACILITY B -53- 54 documents on behalf of such Initial Borrowing Subsidiary; and (iii) a certificate of another officer of such Initial Borrowing Subsidiary as to the incumbency and specimen signature of the Secretary or Assistant Secretary of such Initial Borrowing Subsidiary. (d) A certificate of a Senior Vice President, an Executive Vice President or a Vice President of the Company certifying (i) the truth of the representations and warranties made by the Company in this Agreement and (ii) the absence of the occurrence and continuance of any Default or Event of Default and (iii) that on or prior to the initial Borrowing Date, the principal of and interest on all loans, all accrued fees and all other amounts due under the Existing Agreements shall have been paid in full and the commitments thereunder shall have been terminated. (e) A certificate of a principal officer of each Initial Borrowing Subsidiary certifying (i) the truth of the representations and warranties set forth in this Agreement with respect to such Initial Borrowing Subsidiary and (ii) the absence of the occurrence and continuance of any Default or Event of Default with respect to such Initial Borrowing Subsidiary. (f) The written opinions of (i) Liddell, Sapp, Zivley, Hill & LaBoon, L.L.P., counsel to the Company and the Initial Borrowing Subsidiaries, addressed to the Administrative Agent and the Banks and in form and substance acceptable to the Administrative Agent and the Banks and (ii) James M. Shelger, Senior Vice President, General Counsel and Secretary of the Company, addressed to the Administrative Agent and the Banks and in form and substance acceptable to the Administrative Agent and the Banks. (g) One or more written opinions of local counsel to each Initial Borrowing Subsidiary, each in form and substance satisfactory to the Administrative Agent and the Banks. (h) A letter from Corporation Service Company, in form and substance satisfactory to the Administrative Agent, evidencing the obligation of Corporation Service Company to accept service of process in the State of New York on behalf of each Initial Borrowing Subsidiary. (i) An Administrative Questionnaire completed by each Bank. In addition, on the Effective Date the Administrative Agent shall have received all fees which it is entitled to receive on such date pursuant to the Agent's Fee Letter. SECTION 3.02. Conditions Precedent to the Initial Loan to each Borrowing Subsidiary (other than an Initial Borrowing Subsidiary). The obligation of each Bank to make its initial Loan to any Borrowing Subsidiary (other than an Initial Borrowing Subsidiary) is subject to FACILITY B -54- 55 the further conditions precedent that the Administrative Agent shall have received on or before the Borrowing Date for such Loan the following, each dated such date, and in sufficient copies for each Bank: (a) A Borrowing Subsidiary Counterpart executed by such Borrowing Subsidiary and acknowledged by the Company and, if such Borrowing Subsidiary is to obtain Foreign Currency Loans, a counterpart of its Foreign Currency Addendum, executed by the Company, the applicable Foreign Currency Agent and the Foreign Currency Banks parties thereto. (b) (i) A copy of the articles or certificate of incorporation (or other similar evidence of organization) of such Borrowing Subsidiary, together with all amendments, and a current certificate of good standing, both certified by the appropriate governmental officer, in its jurisdiction of organization; (ii) a certificate of the Secretary or Assistant Secretary of such Borrowing Subsidiary certifying, inter alia, (A) true and correct copies of the bylaws (or other similar document) of such Borrowing Subsidiary as in effect on the date of such certificate and at all times since a date prior to the date of the resolutions or other action described in clause (B) below, (B) true and complete copies of resolutions duly adopted by the Board of Directors of such Borrowing Subsidiary (or of the taking of such other action as may be necessary and appropriate under applicable law), authorizing such Borrowing Subsidiary to execute, deliver and perform its obligations under its Borrowing Subsidiary Counterpart this Agreement, and to borrow and effect other transactions hereunder, and that such resolutions or other action has not been modified, rescinded or amended and is in full force and effect and (C) the incumbency and specimen signatures of the Persons executing any documents on behalf of such Borrowing Subsidiary; and (iii) a certificate of another officer of such Borrowing Subsidiary as to the incumbency and specimen signature of the Secretary or Assistant Secretary of such Borrowing Subsidiary. (c) A certificate of a principal officer of such Borrowing Subsidiary certifying (i) the truth of the representations and warranties set forth in this Agreement with respect to such Borrowing Subsidiary and (ii) the absence of the occurrence and continuance of any Default or Event of Default with respect to such Borrowing Subsidiary. (d) Written opinions of (i) counsel to such Borrowing Subsidiaries, and (ii) the respective Foreign Currency Agents, each in form and substance (including, without limitation, the allocation as between such counsel of the matters covered by their respective opinions) satisfactory to the Administrative Agent and the Banks. (e) A letter from Corporation Service Company in form and substance satisfactory to the Administrative Agent, evidencing the obligation of Corporation Service Company to accept service of process in the State of New York on behalf of such Borrowing Subsidiary. FACILITY B -55- 56 (f) Such other documents as either the Administrative Agent or any Bank through the Administrative Agent may have reasonably requested. SECTION 3.03. Conditions Precedent to Each Committed Borrowing and Foreign Currency Revolving Borrowing. The obligation of each Bank to make a Committed Loan on the occasion of any Committed Borrowing and each Foreign Currency Revolving Loan on the occasion of any Foreign Currency Revolving Borrowing (including the initial Committed Borrowing and the initial Foreign Currency Revolving Borrowing) shall be subject to the further conditions precedent that on the Borrowing Date of such Borrowing or Foreign Currency Revolving Borrowing the following statements shall be true (and each of the giving of the applicable Committed Borrowing Request or the notice required by the applicable Foreign Currency Addendum and the acceptance by a Borrower of the proceeds of such Borrowing shall constitute a representation and warranty by the Company and such Borrower (if not the Company) that on the date of such Borrowing such statements are true; provided, however, that to the extent such representation and warranty is made by a Borrowing Subsidiary, such representation and warranty shall (in the case of clauses (a) and (b) be made only with respect to such Borrowing Subsidiary and its Subsidiaries): (a) The representations and warranties contained in Article IV are correct on and as of the date of such Borrowing, before and after giving effect to such Borrowing and to the application of the proceeds therefrom, as though made on and as of such date; provided, however, that for purposes of this clause (a), on and after any date on which the Company delivers its consolidated financial statements to the Administrative Agent and the Banks pursuant to Section 5.01(a)(i) or 5.01(a)(ii), as the case may be, (A) the reference in the first sentence of Section 4.07 to the Company Financials shall be a reference to the consolidated financial statements of the Company and its Subsidiaries most recently delivered to the Administrative Agent and the Banks by the Company pursuant to Section 5.01(a)(i) or 5.01(a)(ii), as the case may be, prior to the date of such Borrowing and (B) the reference in the last sentence of Section 4.07 to December 31, 1996, shall be a reference to the date of the audited consolidated financial statements most recently delivered to the Administrative Agent and the Banks pursuant to Section 5.01(a)(i); (b) No event has occurred and is continuing, or would result from such Borrowing or from the application of the proceeds therefrom, which constitutes either a Default or an Event of Default; and (c) Following the making of such Borrowing and all other Borrowings to be made on the same day under this Agreement, the aggregate principal amount of all Loans (by Dollar Equivalent in the case of Foreign Currency Loans) then outstanding shall not exceed the Total Commitment. SECTION 3.04. Conditions Precedent to Each Competitive Borrowing. The obligation of each Bank which is to make a Competitive Loan on the occasion of a Competitive FACILITY B -56- 57 Borrowing (including the initial Competitive Borrowing) to make such Competitive Loan as part of such Competitive Borrowing is subject to the further conditions precedent that: (a) The Administrative Agent shall have received a Competitive Bid Request with respect thereto; and (b) On the Borrowing Date of such Competitive Borrowing the following statements shall be true (and each of the giving of the applicable Competitive Bid Request and the acceptance by a Borrower of the proceeds of such Competitive Borrowing shall constitute a representation and warranty by the Company and such Borrower (if not the Company) that on the date of such Competitive Borrowing such statements are true; provided, however, that to the extent such representation and warranty is made by a Borrowing Subsidiary, such representation and warranty shall (in the case of clauses (i) and (ii) be made only with respect to such Borrowing Subsidiary and its Subsidiaries): (i) The representations and warranties contained in Article IV are correct on and as of the date of such Competitive Borrowing, before and after giving effect to such Competitive Borrowing and to the application of the proceeds therefrom, as though made on and as of such date; provided, however, that for purposes of this clause (i), on and after any date on which the Company delivers its consolidated financial statements to the Administrative Agent and the Banks pursuant to Section 5.01(a)(i) or 5.01(a)(ii), as the case may be, (A) the reference in the first sentence of Section 4.07 to the Company Financials shall be a reference to the consolidated financial statements of the Company and its Subsidiaries most recently delivered to the Administrative Agent and the Banks by the Company pursuant to Section 5.01(a)(i) or 5.01(a)(ii), as the case may be, prior to the date of such Competitive Borrowing and (B) the reference in the last sentence of Section 4.07 to December 31, 1996, shall be a reference to the date of the audited consolidated financial statements most recently delivered to the Administrative Agent and the Banks pursuant to Section 5.01(a)(i); (ii) No event has occurred and is continuing, or would result from such Competitive Borrowing or from the application of the proceeds therefrom, which constitutes either a Default or an Event of Default; and (iii) Following the making of such Competitive Borrowing and all other Borrowings to be made on the same day under this Agreement, the aggregate principal amount of all Loans (by Dollar Equivalent in the case of Foreign Currency Loans) then outstanding shall not exceed the Total Commitment. SECTION 3.05. Conditions Precedent to Conversions and Continuations. The obligation of the Banks to convert any existing Committed Borrowing into a Eurodollar Committed FACILITY B -57- 58 Borrowing or to continue any existing Committed Borrowing as a Eurodollar Committed Borrowing is subject to the condition precedent that on the date of such conversion or continuation no Default or Event of Default shall have occurred and be continuing or would result from the making of such conversion or continuation. The acceptance of the benefits of each such conversion and continuation shall constitute a representation and warranty by the Company and each Borrowing Subsidiary to each of the Banks that no Default or Event of Default shall have occurred and be continuing or would result from the making of such conversion or continuation; provided, however, that to the extent such representation and warranty is made by a Borrowing Subsidiary, such representation and warranty shall be made only with respect to such Borrowing Subsidiary and its Subsidiaries. ARTICLE IV REPRESENTATIONS AND WARRANTIES The Company represents and warrants to the Administrative Agent and the Banks and, to the extent the following relates to any Borrowing Subsidiary or its Subsidiaries, such Borrowing Subsidiary severally represents and warrants to the Administrative Agent and the Banks as follows (all references in this Article IV to "this Agreement" being deemed to include also, in the case of any Borrowing Subsidiary (other than an Initial Borrowing Subsidiary), its Borrowing Subsidiary Counterpart): SECTION 4.01. Organization and Qualification. The Company and each of its Subsidiaries (except Inactive Subsidiaries) (a) are entities duly organized, validly existing and in good standing under the laws of the respective jurisdictions of their organization, (b) have the corporate or other power to own their property and to carry on their businesses as now conducted and (c) are duly qualified to do business as foreign corporations and are in good standing in every jurisdiction in which the failure to be so qualified would have a material adverse effect upon the business or properties of the Company and its Subsidiaries taken as a whole or upon the ability of any Borrower to perform its obligations under this Agreement or, in the case of the Company, the Guaranty. The Company is a Texas corporation. The corporations named in Schedule 4.01 are the only Subsidiaries of the Company on the date of this Agreement, and such Schedule accurately reflects the percentage of (y) the issued and outstanding capital stock and (z) the stock of each class having ordinary voting power, of each Subsidiary owned by the Company on the date of this Agreement and accurately identifies the Consolidated Subsidiaries, the Inactive Subsidiaries, the Substantially-owned Subsidiaries and the Wholly-owned Subsidiaries on the date of this Agreement. SECTION 4.02. Authorization, Validity, Etc. Each Borrower has the corporate or other power and authority to make and carry out this Agreement (and, in the case of the Company, the Guaranty), to make the Borrowings provided for herein and to perform its obligations hereunder (and, in the case of the Company, the Guaranty) and all such action has been duly authorized by all necessary corporate proceedings on its part. This Agreement has been duly and validly executed and FACILITY B -58- 59 delivered by the Borrowers and the Guaranty and the Agent's Fee Letter have been duly and validly executed and delivered by the Company and all such agreements constitute valid and legally binding agreements of the Borrowers parties thereto enforceable in accordance with their respective terms, except, in each case, as such enforceability may be limited by bankruptcy, insolvency or other laws of general application relating to or affecting the enforcement of creditors' rights. SECTION 4.03. Governmental Consents, Etc. No authorization, consent, approval, license or exemption of or filing or registration with any court or governmental department, commission, board, bureau, agency or instrumentality, domestic or foreign, is necessary for the valid execution, delivery or performance by any Borrower of this Agreement, or by the Company of the Guaranty or the Agent's Fee Letter. SECTION 4.04. Conflicting or Adverse Agreements or Restrictions. Neither the Company nor any of its Subsidiaries is a party to any contract or agreement or subject to any restriction which materially and adversely affects the business or assets or financial condition of the Company and its Subsidiaries taken as a whole. Neither the execution nor delivery of this Agreement or the Guaranty nor compliance with the terms and provisions hereof or thereof nor any Borrowing will be contrary to the provisions of, or constitute a default under, (a) the charter or bylaws of the Company or any of its Subsidiaries or (b) any applicable law or any applicable regulation, order, writ, injunction or decree of any court or governmental instrumentality or (c) any agreement to which the Company or any of its Subsidiaries is a party or by which it is bound or to which it is subject, which default, in the case of clause (b) or (c) of this Section 4.04 could, individually or together with all other such defaults described in this Section 4.04, reasonably be expected to result in a material adverse change in the business or condition of the Company and its Subsidiaries taken as a whole or upon the ability of any Borrower to perform its obligations under this Agreement and, in the case of the Company, the Guaranty. SECTION 4.05. Title to Assets. The Company and each Subsidiary (except Inactive Subsidiaries) have good and indefeasible title to their respective assets, subject to no Liens, except those permitted in Section 5.02(c). SECTION 4.06. Actions Pending. There is no action or proceeding pending or, to the knowledge of any Borrower, threatened against the Company or any of its Subsidiaries before any court or administrative agency which could reasonably be expected to result in a material adverse change in the business or condition of the Company and its Subsidiaries taken as a whole or upon the ability of such Borrower to perform its obligations under this Agreement and, in the case of the Company, the Guaranty. SECTION 4.07. Financial Statements. The Company has furnished or has caused to be furnished to each Bank (a) consolidated financial statements of the Company as at and for the fiscal year ended December 31, 1996, included in the Company's annual report for the fiscal year ended December 31, 1996 and accompanied by the report and opinion of Coopers & Lybrand L.L.P., FACILITY B -59- 60 (b) the Annual Report of the Company on Form 10-K for the fiscal year ended December 31, 1996 and (c) the Quarterly Report of the Company on Form 10-Q for the fiscal quarter ended March 31, 1997 (the financial statements described in clauses (a) through (c) being collectively, the "Company Financials"). The Company Financials have been prepared in conformity with GAAP consistently followed (except as otherwise disclosed in such financial statements) throughout the periods involved and present fairly the consolidated financial condition of the Company and its Consolidated Subsidiaries and the consolidated results of operations of the Company and its Consolidated Subsidiaries as at the dates and for the periods indicated. There has been no material adverse change in the consolidated condition or operation, financial or otherwise, of the Company and its Subsidiaries since December 31, 1996. SECTION 4.08. Default. Neither the Company nor any of its Subsidiaries is in default in any respect under the provisions of any instrument evidencing any Debt or of any agreement relating thereto, or in default in any respect under any order, writ, injunction or decree of any court, or in default in any respect under or in violation of any law, order, regulation or demand of any governmental instrumentality, which defaults or violations could reasonably be expected to have a material adverse effect upon the business or properties of the Company and its Subsidiaries taken as a whole or upon the ability of any Borrower to perform its obligations under this Agreement and, in the case of the Company, the Guaranty. SECTION 4.09. Investment Company Act. Neither the Company nor any of its Subsidiaries is, or is directly or indirectly controlled by or acting on behalf of any Person which is, an "investment company," as such term is defined in the Investment Company Act of 1940, as amended. SECTION 4.10. Public Utility Holding Company Act. Neither the Company nor any of its Subsidiaries is a non-exempt "holding company," or subject to regulation as such, or, to the knowledge of the Company's officers, an "affiliate" of a "holding company" or a "subsidiary company" of a "holding company," within the meaning of the Public Utility Holding Company Act of 1935, as amended. SECTION 4.11 ERISA. Neither the Company nor any of its Subsidiaries has incurred any accumulated funding deficiency, within the meaning of ERISA, material to the Company and its Subsidiaries taken as a whole, whether or not waived, or any liability material to the Company and its Subsidiaries, when taken as a whole, under Title IV of ERISA. SECTION 4.12. Payment of Taxes. The Company and each of its Subsidiaries (except Inactive Subsidiaries) have filed all federal and state income and franchise tax returns which, to the knowledge of the officers thereof, are required to be filed and have paid all taxes shown on said returns and all assessments which are due other than such taxes and assessments which are being contested in good faith by appropriate proceedings diligently conducted and for which reserves or other appropriate provisions, if any, as shall be required by GAAP, have been made. The FACILITY B -60- 61 consolidated federal income tax returns of the Company and its Consolidated Subsidiaries have been examined and reported on by the Internal Revenue Service for all fiscal years to and including the fiscal year ended December 31, 1992. SECTION 4.13. Purpose of Loans. None of the proceeds of the Loans will be used for the purpose of purchasing or carrying any "margin stock" within the meaning of Regulation G or Regulation U (herein called "Margin Stock") or for the purpose of reducing or retiring any indebtedness which was originally incurred to purchase or carry Margin Stock, or for any other purpose which might constitute a "purpose" credit within the meaning of Regulation G or Regulation U, as now in effect or as they may hereafter be amended. Margin Stock did not on December 31, 1996, and does not on the date hereof constitute more than 25% of the assets of the Company or any of its Subsidiaries, and the Company and the other Borrowers do not intend or foresee that Margin Stock will at any time during the term of this Agreement constitute more than 25% of such assets. SECTION 4.14. Patents, Etc. The Company and each of its Subsidiaries have all patents, patent rights or licenses, trademarks, service marks, trademark rights, trade names, trade name rights, and copyrights which are required in order for it to conduct its business as now conducted without any known material conflict with the rights of others. SECTION 4.15. No Material Guarantees or Letters of Credit. Each Assured Obligation and each Letter of Credit Obligation of the Company and its Subsidiaries is listed in the Company Financials, in the most recently delivered financial statements delivered pursuant to Section 5.01(a) or on Schedule 4.15, other than any such Assured Obligation or Letter of Credit Obligation which individually does not exceed $100,000 or which together with all such other Assured Obligations and Letter of Credit Obligations does not exceed $1,000,000; provided, however, after the Effective Date, Schedule 4.15 shall be deemed to include all Assured Obligations and Letter of Credit Obligations of the Company and its Subsidiaries incurred or issued in accordance with the provisions of Section 5.02(g). Neither the Company nor any of its Subsidiaries has any liability, contingent or otherwise, which either individually or collectively with all such other liabilities could reasonably be expected to have a material adverse effect upon the business or properties of the Company and its Subsidiaries taken as a whole or upon the ability of any Borrower to perform its obligations under this Agreement and, in the case of the Company, the Guaranty. SECTION 4.16. Enhancement Agreements. Schedule 4.16 describes the principal amount of all obligations, including all Debt, Letter of Credit Obligations and unfunded commitments which are covered by any Enhancement Agreement; provided, however, after the Execution Date, Schedule 4.16 shall be deemed to include all such principal obligations described on the schedule most recently delivered pursuant to the last sentence of Section 5.01(a). FACILITY B -61- 62 ARTICLE V COVENANTS SECTION 5.01. Affirmative Covenants. So long as any Loan shall remain unpaid or any Bank shall have any Commitment hereunder, unless the Majority Banks shall otherwise agree in writing, each Borrower covenants and agrees for itself and the Company covenants and agrees with respect to each other Borrower as follows: (a) Financial Statements and Other Information. The Company shall deliver to each Bank: (i) As soon as available, and in any event within 120 days after the end of each fiscal year, a copy of the annual audit report of the Company for such fiscal year containing a consolidated balance sheet, a consolidated statement of income, a consolidated statement of stockholders' equity and a consolidated statement of cash flows, all in reasonable detail and accompanied by a report and opinion of Coopers & Lybrand L.L.P. or another independent certified public accountant of recognized standing satisfactory to the Majority Banks. The Company will obtain from such accountants and deliver to each Bank at the time said financial statements are delivered the written statement of such accountants that in making the examination necessary for said report and opinion they have obtained no knowledge of any Event of Default or Default, or if such accountants shall have obtained knowledge of any Event of Default or Default, they shall state the nature and period of existence thereof in such statement; provided, that such accountants shall not be liable directly or indirectly to any such Bank for failure to obtain knowledge of any Event of Default or Default; (ii) As soon as available, and in any event within 60 days after the end of each of the first three quarterly accounting periods in each fiscal year, a consolidated statement of stockholders' equity and the report of the Company to the Securities and Exchange Commission on Form 10-Q; (iii) Promptly after sending or filing thereof, copies of all statements and reports sent to stockholders and all effective registration statements and regular or periodic reports filed with the Securities and Exchange Commission; (iv) Promptly upon request, such additional financial or other information as any Bank may reasonably request; (v) Promptly, and in any case within five days after the President, the Senior Vice President and Chief Financial Officer, the Vice President and Treasurer or the General Counsel of the Company learns thereof, notice of (A) the occurrence of a Default or an Event of Default, (B) any material default of the Company or any FACILITY B -62- 63 of its Subsidiaries under any other borrowed money obligation, (C) any monetary or other material default of the Company or any of its Subsidiaries under any material contract or (D) receipt of any notice from any federal or other governmental instrumentality of any violation by the Company or any of its Subsidiaries of any legal requirement, which violation together with all other such violations by the Company and its Subsidiaries could reasonably be expected to have a material adverse effect upon the business or properties of the Company and its Subsidiaries taken as a whole or upon the ability of any Borrower to perform its obligations under this Agreement and, in the case of the Company, the Guaranty, describing the nature of such Default, such Event of Default, such default or such violation and what action the Company or such Subsidiary, as the case may be, has taken or proposes to take with respect thereto; and (vi) Promptly after each annual meeting of the Company's shareholders, an Officer's Certificate of the election and incumbency of the Company's officers and directors in form and substance satisfactory to the Banks. All financial statements specified in clauses (i) and (ii) above shall be furnished in consolidated form for the Company and its Consolidated Subsidiaries. Investments by the Company in its Subsidiaries other than its Consolidated Subsidiaries shall be accounted for on the equity method. Together with each delivery of financial statements required by clauses (i) and (ii) above, the Company will deliver to each Bank (y) schedules and/or computations demonstrating that the Company is in compliance with its covenants in Sections 5.02(a), 5.02(b), 5.02(c) and 5.02(g) or reflecting any noncompliance therewith as at the applicable date and (z) an Officer's Certificate stating that there exists no Event of Default or Default, or, if any Event of Default or Default exists, stating the nature thereof, the period of existence thereof and what action the Company or any other Borrower has taken or proposes to take with respect thereto. Together with each delivery of financial statements required by clause (i) above, the Company will deliver to each such Bank a schedule of the principal amount of all obligations of the Company covered by any Enhancement Agreement. (b) Books and Records. Each Borrower shall maintain, and cause each of its Subsidiaries to maintain, proper books of record and account in accordance with generally accepted accounting practices. (c) Insurance. Each Borrower shall maintain, and cause each of its Subsidiaries to maintain, insurance with responsible companies (or by self insurance to the extent authorized by law) in such amounts and against such risks as is customarily carried on comparable business and properties, and furnish to the Banks, upon request by the Administrative Agent or any Bank, an Officer's Certificate containing full information as to the insurance carried and self insurance levels maintained; and promptly after notice in writing from the Administrative Agent obtain such additional insurance as the FACILITY B -63- 64 Administrative Agent may reasonably request and which is customarily carried on comparable businesses or properties. (d) Maintenance of Property. Each Borrower shall cause its property and the property of its Subsidiaries to be maintained, preserved, protected and kept in good repair, working order and condition so that the business carried on in connection therewith may be conducted properly and efficiently. (e) Inspection of Property and Records. Upon reasonable advance notice, each Borrower shall permit any Person designated by the Administrative Agent or any of the Banks in writing to visit and inspect any of the properties, corporate books and financial records of such Borrower and its Subsidiaries and discuss their respective affairs and finances with their principal officers, all at such times as the Administrative Agent or such Bank may reasonably request. (f) Existence, Laws, Obligations. The Company shall maintain its corporate existence, comply and cause its Subsidiaries (except Inactive Subsidiaries) to comply with all applicable statutes and governmental regulations, including all applicable environmental statutes and regulations (except those the validity or applicability of which the Company shall be contesting in good faith and by appropriate proceedings diligently conducted for which such reserves or other appropriate provisions, if any, as shall have been required by GAAP, have been made), where the failure to so comply would have a material adverse effect on the business, operations, property or condition of the Company and its Subsidiaries taken as a whole or upon the ability of any Borrower to perform its obligations under this Agreement and, in the case of the Company, the Guaranty, and pay and cause its Subsidiaries (except Inactive Subsidiaries) to pay all taxes, assessments, governmental charges, claims for labor, supplies, rent and other obligations which if unpaid might become a Lien against the property of the Company or such Subsidiary (except Inactive Subsidiaries), and where the failure to make such payment or where the creation of such Lien would have a material adverse effect on the business, operations, property, or condition of the Company and its Subsidiaries taken as a whole or upon the ability of any Borrower to perform its obligations under this Agreement and, in the case of the Company, the Guaranty, except any of the foregoing liabilities being contested in good faith by appropriate proceedings diligently conducted for which such reserves or other appropriate provisions, if any, as shall have been required by GAAP, have been made. SECTION 5.02. Negative Covenants. So long as any Loan shall remain unpaid or any Bank shall have any Commitment hereunder, without the written consent of the Majority Banks: (a) Net Worth. The Company will not permit Net Worth at any time to be less than $1,100,000,000. FACILITY B -64- 65 (b) Debt. The Company will not permit the ratio of Consolidated Debt to Total Capitalization at any time to be greater than .65 to 1.0. (c) Liens, Etc. The Company will not, and will not permit any of its Subsidiaries to, incur any Liabilities secured by a Lien upon any of the assets of the Company or any such Subsidiary or upon any shares of stock or any long-term receivable of the Company due from any of its Subsidiaries (whether such assets, shares of stock or long-term receivables are now owned or hereafter acquired) without in any such case effectively providing concurrently with the incurrence of any such Liability that all sums payable at that time or thereafter under this Agreement and the Guaranty (together with, if the Company shall so determine, any other Liabilities of the Company or such Subsidiary then existing or thereafter created which is not subordinate to such sums) shall be secured equally and ratably with (or at the option of the Company, prior to) such Liability, so long as such Liability shall be so secured; provided, however, that nothing in this Section 5.02(c) shall prevent, restrict or apply to (and there shall be excluded from secured Debt in any computation under this Section 5.02(c)) Liabilities secured by): (i) Liens for taxes, assessments, or similar charges, incurred in the ordinary course of business that are not yet past due or which are being contested by the Company or such Subsidiary in good faith and against which adequate reserves as required by GAAP have been established by the Company or such Subsidiary, as the case may be; (ii) Pledges or deposits made in the ordinary course of business to secure payment of worker's compensation, or to participate in any fund in connection with worker's compensation, unemployment insurance, old-age pensions or other social security programs; (iii) Liens of mechanics, materialmen, repairmen, warehousemen, carriers or other like Liens, securing obligations incurred in the ordinary course of business that are not yet past due or which are being contested by the Company or such Subsidiary in good faith and against which adequate reserves as required by GAAP have been established by the Company or such Subsidiary, as the case may be; (iv) Liens which secure Liabilities owing by a Subsidiary of the Company to the Company or to another Subsidiary of the Company; (v) Deposits to secure the performance of bids, trade contracts (other than for borrowed money), leases, statutory obligations, surety and appeal bonds, performance bonds and other obligations of a like nature incurred in the ordinary course of business; FACILITY B -65- 66 (vi) Easements, rights-of-way, restrictions and other similar encumbrances incurred in the ordinary course of business which, in the aggregate, are not substantial in amount and which do not in any case materially detract from the value of the property subject thereto or materially interfere with the ordinary conduct of the business of the Company or such Subsidiary; and (vii) Liens not otherwise permitted under this Section 5.02(c) which secure Liabilities permitted hereunder not exceeding, as to the Company and its Consolidated Subsidiaries, 10% of Consolidated Assets at any time outstanding. (d) Stock of Subsidiaries, Merger, Sale of Assets, Etc. The Company will not permit any of its Subsidiaries to issue or dispose of its stock (other than directors' qualifying shares) except to the Company or to another Subsidiary of the Company, and the Company will not and will not permit any of its Subsidiaries to sell or otherwise dispose of any shares of stock of, or obligation (howsoever evidenced) from, any Subsidiary of the Company, or to merge or consolidate with any other corporation or sell, lease or transfer or otherwise dispose of all or a substantial part of its assets (as distinguished from sales of excess land and other assets in the ordinary course of business which are permitted), whether in one transaction or a series of transactions, provided, however, that so long as after giving effect thereto no Default or Event of Default shall exist, the following transactions shall be permitted pursuant to this Section 5.02(d): (i) Any corporation including any Subsidiary of the Company may merge or consolidate with the Company provided that the Company shall be the continuing or surviving corporation; (ii) Any corporation may merge into or consolidate with any Subsidiary of the Company provided that the continuing or surviving corporation is a Subsidiary of the Company; (iii) Any Subsidiary of the Company may sell, lease, transfer or otherwise dispose of any of its assets to the Company or another Subsidiary of the Company; (iv) Provident may sell, lease, transfer or otherwise dispose of the stock or any assets of any Enforcement Subsidiary in an arm's-length transaction; (v) The Company may, with respect to any Acquisition, effect a disposition of stock or assets to the extent required pursuant to any agreement or consent order entered into between the Company and the Federal Trade Commission in connection with and as a condition to such Acquisition; and FACILITY B -66- 67 (vi) The Company or any of its Subsidiaries may sell or otherwise dispose of the stock of, or all or substantially all of the assets of, any of their respective Subsidiaries if, after giving effect to such sale or other disposition the aggregate amount of all such sales and dispositions by the Company and its Subsidiaries (including all dispositions pursuant to clause (vi) above) occurring on and after the Execution Date to the date of such sale or disposition do not exceed 10% of Consolidated Assets on the date of such sale or disposition. Consensual Liens granted by the Company or any of its Subsidiaries permitted pursuant to Section 5.02(c) shall not constitute a "disposition" for purposes of this Section 5.02(d) until such time as holder of any such Lien forecloses or otherwise enforces such Lien. (e) Change in Accounting Method. The Company will not and will not permit any of its Subsidiaries to make any change in the method of computing depreciation for financial statement purposes or any other material change in accounting methods other than such changes as may be required by the Financial Accounting Standards Board or the Securities and Exchange Commission or to conform newly acquired Subsidiaries to the Company's accounting methods. Upon making any such change, the Company will promptly give the Banks notice thereof. (f) Change of Business. The Company will not and will not permit any of its Subsidiaries to engage in a line or lines of business other than those being engaged in by the Company or one or more of its existing Subsidiaries on the date of this Agreement and lines of business related to the death care industry. (g) Guaranties and Letters of Credit. The Company will not and will not permit any Subsidiary of the Company to make or permit to remain outstanding any Assurance or any Letter of Credit unless, after giving effect thereto, the aggregate amount of all Assured Obligations and Letter of Credit Obligations then outstanding shall not exceed 20% of Net Worth, excluding, without duplication, the sum of the aggregate outstanding amount of all Debt of the Company and its Subsidiaries guaranteed by any such Assurances. (h) ERISA. The Company will not at any time permit any Plan to: (i) Engage in any "prohibited transaction" as such term is defined in Section 4975 of the Code or in Section 406 of ERISA for which there is no applicable exemption; (ii) Incur any "accumulated funding deficiency" as such term is defined in Section 302 of ERISA and Section 412 of the Code, whether or not waived; FACILITY B -67- 68 (iii) Be terminated under circumstances which are likely to result in the imposition of a Lien on the property of the Company or any member of the ERISA Group pursuant to Section 4068 of ERISA, if and to the extent such termination is within the control of the Company; or (iv) Cease to comply in any material respect with the provisions of the Code and ERISA applicable to such Plan, if any event or condition described in clause (i), (ii), (iii) or (iv) above is likely to subject the Company or any member of its ERISA Group to a liability which, in the aggregate, is material in relation to the business, operations, property or condition, financial or otherwise, of the Company and the other members of its ERISA Group on a consolidated basis. (i) Restriction on Use of Proceeds. No Borrower nor any agent acting on behalf of any Borrower has taken or will take any action, or has suffered to exist or will suffer to exist any condition, that might cause this Agreement or any Loan to violate Regulation G, Regulation U, Regulation X, or any other regulation of the Board or to violate the Securities Exchange Act of 1934, as amended, in each case as in effect now or as the same may hereafter be in effect. No Borrower will use, directly or indirectly, the proceeds of any Loan hereunder to acquire any security (within the meaning of the Securities Exchange Act of 1934, as amended), in any tender offer subject to Section 13 or 14 of the Securities Exchange Act of 1934, as amended, unless such tender offer has been approved by the Board of Directors (or other analogous body) of the issuer of the securities that are the subject of such tender offer, so long as a majority of the directors (or members) constituting such Board (or such body) were directors (or members) at least 30 days prior to the making of such tender offer. ARTICLE VI EVENTS OF DEFAULT SECTION 6.01. Events of Default. If any of the following events ("Events of Default") shall occur and be continuing: (a) Failure to Pay the Loans or the Guaranty. The Company or any Borrowing Subsidiary shall fail to pay or prepay (i) any principal of or interest on any Loan or, in the case of the Company, any of the Guaranteed Obligations, when due under this Agreement or (ii) any other amount due hereunder within ten days following the date on which payment of such other amount is due; or (b) Failure to Pay Certain Other Indebtedness. The Company or any of its Subsidiaries does not pay principal of or interest on any other Debt, Assured Obligation or FACILITY B -68- 69 Letter of Credit Obligation, in an amount of $10,000,000 or more, owed to a financial institution, when due or within any grace period allowed by such Debt, Assured Obligation or Letter of Credit Obligation, or if the holder of such other Debt, Assured Obligation or Letter of Credit Obligation declares, or may declare, such other Debt, Assured Obligation or Letter of Credit Obligation due prior to its stated maturity because of the Company's or such Subsidiary's default thereunder unless such default is waived or cured within one business day of its discovery; or (c) Failure to Pay Other Indebtedness. The Company or any of its Subsidiaries does not pay principal of or interest on any Debt, Assured Obligation or Letter of Credit Obligation, in an amount of $10,000,000 or more (except those described in Sections 6.01(a) and 6.01(b)) within five days after the date due (or within any longer period of grace that may be allowed by the terms thereof) or if the holder or holders (or a trustee on behalf of such holder or holders) of such other obligation declares such Debt, Assured Obligation or Letter of Credit Obligation due (or such Debt, Assured Obligation or Letter of Credit Obligation becomes due without such declaration) prior to its stated maturity because of the Company's or such Subsidiary's default thereunder, provided that if the holder of any such Debt, Assured Obligation or Letter of Credit Obligation accelerates the maturity thereof and the Company or such Subsidiary promptly (and in any case within 30 days following such acceleration) pays such Debt, Assured Obligation or Letter of Credit Obligation, it shall not be in default under this Section 6.01(c) by reason of such acceleration; or (d) Misrepresentation. Any material representation or warranty made or deemed made by or on behalf of the Company or any Borrowing Subsidiary herein or in any writing furnished in connection with this Agreement shall be false or misleading in any material respect when made or deemed made or furnished; or (e) Violation of Certain Covenants. The Company violates any covenant, agreement or condition contained in Section 5.02; or (f) Violation of Other Covenants. The Company or any Borrowing Subsidiary violates any other covenant, agreement or condition contained herein and such violation shall not have been remedied within 30 days after written notice shall have been given to the Company or such Borrowing Subsidiary by the Administrative Agent; or (g) Assignment for Benefit of Creditors. The Company or any of its Material Subsidiaries makes an assignment for the benefit of creditors; or (h) Voluntary Bankruptcy. The Company or any of its Material Subsidiaries applies to any tribunal for the appointment of a trustee or receiver or custodian (or other Person performing similar duties) of any substantial part of the assets of the Company or such FACILITY B -69- 70 Material Subsidiary, or commences any proceedings relating to the Company or such Material Subsidiary under any bankruptcy, reorganization, rearrangement, insolvency, readjustment of debt, dissolution or other liquidation law of any jurisdiction; or (i) Involuntary Bankruptcy. Any such application is filed, or any such proceedings are commenced, against the Company or any of its Material Subsidiaries, and the Company or such Material Subsidiary indicates its approval, consent or acquiescence, or an order is entered appointing such trustee or receiver or custodian, or adjudicating the Company or any of its Material Subsidiaries bankrupt or insolvent, or approving the petition in any such proceedings, and such order remains in effect for 60 days; or (j) Dissolution or Split-Up. Any order is entered in any proceeding against the Company or any of its Subsidiaries (i) which shall have contributed more than 15% of Consolidated Net Income during the immediately preceding fiscal year or (ii) the tangible assets of which shall have constituted more than 15% of Tangible Consolidated Assets of the Company as at the end of the immediately preceding fiscal year, decreeing the dissolution or split-up of the Company or such Subsidiary, and such order remains in effect for 60 days; or (k) Failure to Pay Dividend. The Company does not pay any dividend on any of its capital stock as declared or permits any dividend to accumulate on any of its capital stock in respect of which cumulative dividends are provided for; or (l) Undischarged Judgment. Final judgment for the payment of money in excess of $10,000,000 shall be rendered against the Company or any of its Subsidiaries and the same shall remain undischarged for a period of 30 days during which execution shall not be effectively stayed; or (m) ERISA Default. The actuarial present value of unfunded vested benefits under all Plans (other than multiemployer plans, as defined in Section 3(37) of ERISA) shall exceed $10,000,000 (excluding in such computation any Plan with assets greater than benefit liabilities), or any one or more of the following events shall occur with respect to a Plan or Plans and such occurrence (or occurrences, in the aggregate) could result in liability of the Company or any of its Subsidiaries to the PBGC or to the Plan or Plans in the aggregate amount of $10,000,000 or more for the Company and such Subsidiaries taken as a whole: (i) Any finding or determination shall be made under Section 4041(c) or (e) of ERISA; (ii) Any fact or circumstance shall occur which, in the reasonable opinion of the Majority Banks, provides grounds for the commencement of any proceeding under Section 4042 of ERISA; FACILITY B -70- 71 (iii) Any proceeding shall be commenced under Section 4042 of ERISA; (iv) Any Plan termination; or (v) Any full or partial withdrawal (as such terms are defined in Title IV of ERISA); then, (i) if any Event of Default described in Section 6.01(h) or Section 6.01(i) shall occur and be continuing, all Loans then outstanding hereunder and interest accrued thereon and all other liabilities hereunder shall thereupon become and be immediately due and payable without presentment, demand, protest, notice of intent to accelerate, or other notice of any kind to any Borrower or any other Person, all of which are hereby expressly waived by each Borrower, the Commitments shall thereupon immediately terminate and the Banks shall be under no further obligation to make Loans hereunder, and (ii) if any other Event of Default shall occur and be continuing, the Administrative Agent shall (A) if requested by the Majority Banks, by notice to the Borrowers, terminate the Commitments and they shall thereupon immediately terminate and (B) if requested by the Majority Banks, by notice to the Borrowers, declare all Loans then outstanding hereunder and interest accrued thereon and all other liabilities of the Borrowers hereunder and under the Agent's Fee Letter to be immediately due and payable, and the same shall thereupon become and be forthwith due and payable without presentment, demand, protest, notice of intent to accelerate, or other notice of any kind to any Borrower or any other Person, all of which are hereby expressly waived by each Borrower. ARTICLE VII THE ADMINISTRATIVE AGENT SECTION 7.01. Authorization and Action. Subject to Section 7.06, each Bank hereby irrevocably appoints and authorizes the Administrative Agent to act on its behalf and to exercise such powers under this Agreement and the Guaranty as are specifically delegated to or required of the Administrative Agent by the terms hereof or thereof, together with such powers as are reasonably incidental thereto. As to any matters not expressly provided for by this Agreement (including enforcement or collection of the Loans) or the Guaranty, the Administrative Agent shall not be required to exercise any discretion or take any action, but shall be required to act or to refrain from acting (and shall be fully protected in so acting or refraining from acting) upon the instructions of the Majority Banks, and such instructions shall be binding upon all Banks; provided, however, that the Administrative Agent shall not be required to take any action which exposes the Administrative Agent to personal liability or which is contrary to this Agreement, the Guaranty or applicable law. FACILITY B -71- 72 SECTION 7.02. Administrative Agent's Reliance, Etc. Neither the Administrative Agent nor any of its directors, officers, agents or employees shall be liable for any action taken or omitted to be taken by it or them under or in connection with this Agreement or the Loans (a) with the consent or at the request of the Majority Banks or (b) in the absence of its or their own gross negligence or willful misconduct (IT BEING THE EXPRESS INTENTION OF THE PARTIES THAT THE ADMINISTRATIVE AGENT AND ITS DIRECTORS, OFFICERS, AGENTS AND EMPLOYEES SHALL HAVE NO LIABILITY FOR ACTIONS AND OMISSIONS UNDER THIS SECTION 7.02 RESULTING FROM THEIR SOLE ORDINARY OR CONTRIBUTORY NEGLIGENCE). Without limitation of the generality of the foregoing, the Administrative Agent: (i) may treat the original holder, or the holder named in the most recent notice of assignment received by it pursuant to this Section 7.02, as the case may be, of each Loan as the holder thereof until the Administrative Agent receives written notice of the assignment or transfer thereof signed by such holder and in form satisfactory to the Administrative Agent; (ii) may consult with legal counsel (including counsel for any Borrower), independent public accountants and other experts selected by it and shall not be liable for any action taken or omitted to be taken in good faith by it in accordance with the advice of such counsel, accountants or experts; (iii) makes no warranty or representation to any Bank and shall not be responsible to any Bank for any statements, warranties or representations made in or in connection with this Agreement or any Loan; (iv) except as otherwise expressly provided herein, shall not have any duty to ascertain or to inquire as to the performance or observance of any of the terms, covenants or conditions of this Agreement or to inspect the property (including the books and records) of any Borrower; (v) shall not be responsible to any Bank for the due execution, legality, validity, enforceability, genuineness, sufficiency or value of this Agreement or any instrument or document furnished pursuant hereto; and (vi) shall incur no liability under or in respect of this Agreement or any Loan by acting upon any notice, consent, certificate or other instrument or writing (which may be by facsimile transmission) reasonably believed by it to be genuine and signed or sent by the proper party or parties. SECTION 7.03. Administrative Agent and Affiliates; Chase and Affiliates. Without limiting the right of any other Bank to engage in any business transactions with the Borrowers or any of its Affiliates, with respect to their Commitments and the Loans, if any, made by them, Chase and each other Bank that may become the Administrative Agent shall have the same rights and powers under this Agreement and its Loans as any other Bank and may exercise the same as though it were not the Administrative Agent; and the term "Bank" or "Banks" shall, unless otherwise expressly indicated, include Chase and any such other Bank, in their individual capacities. Chase, each other Person who becomes the Administrative Agent and their respective Affiliates may be engaged in, or may hereafter engage in, one or more loans, letters of credit, leasing or other financing activities not the subject of this Agreement (collectively, the "Other Financings") with any Borrower or any of its Affiliates, or may act as trustee on behalf of, or depositary for, or otherwise engage in other business transactions with, any Borrower or any of its Affiliates (all Other Financings and other such business transactions being collectively, the "Other Activities") with no responsibility to account therefor to the Banks. Without limiting the rights and remedies of the Banks specifically set forth herein, no other Bank by virtue of being a Bank hereunder shall have any interest in (a) any Other Activities, (b) any present or future guarantee by or for the account of any FACILITY B -72- 73 Borrower not contemplated or included herein, (c) any present or future offset exercised by the Administrative Agent in respect of any such Other Activities, (d) any present or future property taken as security for any such Other Activities or (e) any property now or hereafter in the possession or control of the Administrative Agent which may be or become security for the obligations of any Borrower or any of its Affiliates hereunder and under the Loans by reason of the general description of indebtedness secured, or of property contained in any other agreements, documents or instruments related to such Other Activities; provided, however, that if any payment in respect of such guarantees or such property or the proceeds thereof shall be applied to reduction of the obligations hereunder, then each Bank shall be entitled to share in such application according to its pro rata portion of such obligations. SECTION 7.04. Bank Credit Decision. Each Bank acknowledges and agrees that it has, independently and without reliance upon the Administrative Agent or any other Bank and based on the financial statements referred to in Section 4.07 and such other documents and information as it has deemed appropriate, made its own credit analysis and decision to enter into this Agreement. Each Bank also acknowledges and agrees that it will, independently and without reliance upon the Administrative Agent or any other Bank and based on such documents and information as it shall deem appropriate at the time, continue to make its own credit decisions in taking or not taking action under this Agreement. SECTION 7.05. Administrative Agent's Indemnity. The Administrative Agent shall not be required to take any action hereunder or to prosecute or defend any suit in respect of this Agreement or the Loans unless indemnified to the Administrative Agent's satisfaction by the Banks against loss, cost, liability and expense. If any indemnity furnished to the Administrative Agent shall become impaired, it may call for additional indemnity and cease to do the acts indemnified against until such additional indemnity is given. In addition, the Banks agree to indemnify the Administrative Agent (to the extent not reimbursed by the Borrowers), ratably according to the respective aggregate principal amounts of the Committed Loans then owing to each of them (or if no Committed Loans are at the time outstanding, ratably according to the respective aggregate amounts of their Commitments, or if no Commitments are outstanding, the respective aggregate amounts of the Commitments immediately prior to the time the Commitments ceased to be outstanding), from and against any and all liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses or disbursements of any kind or nature whatsoever which may be imposed on, incurred by, or asserted against the Administrative Agent in any way relating to or arising out of this Agreement or any action taken or omitted by the Administrative Agent under this Agreement (including any action taken or omitted under Article II). Without limitation of the foregoing, each Bank agrees to reimburse the Administrative Agent promptly upon demand for its ratable share of any out-of-pocket expenses (including reasonable counsel fees) incurred by the Administrative Agent in connection with the preparation, execution, administration, or enforcement of, or legal advice in respect of rights or responsibilities under, this Agreement to the extent that the Administrative Agent is not reimbursed for such expenses by the Borrowers. The provisions of this Section 7.05 shall survive the termination of this Agreement and/or the payment or assignment of FACILITY B -73- 74 any of the Loans. NOTWITHSTANDING THE FOREGOING, NO BANK SHALL BE LIABLE UNDER THIS SECTION 7.05 TO THE ADMINISTRATIVE AGENT FOR ANY PORTION OF SUCH LIABILITIES, OBLIGATIONS, LOSSES, DAMAGES, PENALTIES, ACTIONS, JUDGMENTS, SUITS, COSTS, EXPENSES OR DISBURSEMENTS DUE TO THE ADMINISTRATIVE AGENT RESULTING FROM THE ADMINISTRATIVE AGENT'S GROSS NEGLIGENCE OR WILLFUL MISCONDUCT. EACH BANK AGREES, HOWEVER, THAT IT EXPRESSLY INTENDS, UNDER THIS SECTION 7.05, TO INDEMNIFY THE ADMINISTRATIVE AGENT RATABLY AS AFORESAID FOR ALL SUCH LIABILITIES, OBLIGATIONS, LOSSES, DAMAGES, PENALTIES, ACTIONS, JUDGMENTS, SUITS, COSTS, EXPENSES AND DISBURSEMENTS ARISING OUT OF OR RESULTING FROM THE ADMINISTRATIVE AGENT'S SOLE, ORDINARY OR CONTRIBUTORY NEGLIGENCE. SECTION 7.06. Successor Administrative Agent. The Administrative Agent may resign at any time by giving written notice thereof to the Banks and the Borrowers and may be removed as Administrative Agent under this Agreement at any time, with or without cause, by the Majority Banks. Upon any such resignation or removal, the Majority Banks shall have the right to appoint a successor Administrative Agent. If no successor Administrative Agent shall have been so appointed by the Majority Banks, and shall have accepted such appointment, within 30 calendar days after the retiring Administrative Agent's giving of notice of resignation or the Majority Banks' removal of the retiring Administrative Agent, then the retiring Administrative Agent may, on behalf of the Banks, appoint a successor Administrative Agent, which shall be a commercial bank organized or licensed under the laws of the United States of America or of any state thereof and having a combined capital and surplus of at least $500,000,000. Upon the acceptance of any appointment as Administrative Agent hereunder by a successor Administrative Agent, such successor Administrative Agent shall thereupon succeed to and become vested with all the rights, powers, privileges and duties of the retiring Administrative Agent, and the retiring Administrative Agent shall be discharged from its duties and obligations under this Agreement. After any retiring Administrative Agent's resignation or removal as Administrative Agent hereunder, the provisions of this Article VII shall inure to its benefit as to any actions taken or omitted to be taken by it while it was Administrative Agent under this Agreement. SECTION 7.07. Notice of Default. The Administrative Agent shall not be deemed to have knowledge or notice of the occurrence of any Default or Event of Default hereunder unless the Administrative Agent shall have received notice from a Bank or a Borrower referring to this Agreement, describing such Default or Event of Default and stating that such notice is a "notice of default." If the Administrative Agent receives such a notice, the Administrative Agent shall give notice thereof to the Banks; provided, however, if such notice is received from a Bank, the Administrative Agent also shall give notice thereof to the Company. The Administrative Agent shall be entitled to take action or refrain from taking action with respect to such Default or Event of Default as provided in Section 7.01 and Section 7.02. SECTION 7.08. No Duty of Co-Agents. No Co-Agent shall have any duties, responsibilities or liabilities in such capacity with respect to the administration or enforcement of this Agreement. FACILITY B -74- 75 ARTICLE VIII GUARANTY In consideration of the premises and in order to induce the Banks to make Loans hereunder to the Borrowing Subsidiaries: SECTION 8.01. Guaranty. The Company hereby unconditionally and irrevocably guarantees the punctual payment when due, whether at stated maturity, by acceleration or otherwise, of all obligations of each Borrowing Subsidiary to pay the principal of and interest on the Loans owed by such Borrowing Subsidiary (including interest accruing or becoming owing both prior to and subsequent to the commencement of any proceeding against or with respect to such Borrowing Subsidiary under any chapter of the Bankruptcy Code of 1978 (11 U.S.C. ss. 101 et seq.), as from time to time amended, or any similar statute in any other jurisdiction, whether or not such interest may be the subject of an allowable claim in such proceeding), and all other amounts from time to time payable by such Borrowing Subsidiary under this Agreement, including the Foreign Currency Loans made pursuant to the terms of any Foreign Currency Addendum (such obligations with respect to the Borrowing Subsidiaries being herein called the "Guaranteed Obligations"), and agrees to pay any and all reasonable costs and expenses incurred by each Bank and the Administrative Agent in enforcing any rights under this guaranty (including the reasonable fees and expenses of outside counsel or the reasonable allocated costs of in-house counsel). This guaranty is an absolute, irrevocable, unconditional, present and continuing guaranty of payment and not of collectibility and is in no way conditioned or contingent upon any attempt to collect from any Borrowing Subsidiary, or any other action, occurrence or circumstance whatsoever. SECTION 8.02. Guaranty Absolute. The Company guarantees that the Guaranteed Obligations will be paid strictly in accordance with the terms of this Agreement and the Loans owed by the Borrowing Subsidiaries. The Company agrees that the Guaranteed Obligations, this Agreement, the Foreign Currency Addenda and all other instruments and agreements applicable to the Company and the Borrowing Subsidiaries (this Agreement and all such other instruments and agreements being hereinafter referred to in this Article VIII as the "Documents") may be extended or renewed, and Loans repaid and reborrowed in whole or in part, without notice to or assent by the Company, and that it will remain bound upon this guaranty notwithstanding any extension, renewal or other alteration of any Guaranteed Obligations or Documents, or any repayment and reborrowing of Loans. To the maximum extent permitted by applicable law, except as expressly provided in this Agreement, the obligations of the Company under this guaranty shall be absolute, unconditional and irrevocable, and shall be performed strictly in accordance with the terms hereof under any circumstances whatsoever, including: (a) any extension, renewal, modification, settlement, compromise, waiver or release in respect of any Guaranteed Obligations; FACILITY B -75- 76 (b) any extension, renewal, amendment, modification, rescission, waiver or release in respect of any of the Documents; (c) any release, exchange, substitution, non-perfection or invalidity of, or failure to exercise rights or remedies with respect to, any direct or indirect security for any Guaranteed Obligations, including the release of any Borrowing Subsidiary or other Person liable on any Guaranteed Obligations; (d) any change in the corporate existence, structure or ownership of the Company, any Borrowing Subsidiary or any insolvency, bankruptcy, reorganization or other similar proceeding affecting the Company, any Borrowing Subsidiary or any of their respective assets; (e) the existence of any claim, defense, set-off or other rights or remedies which any Borrowing Subsidiary at any time may have against the Company, or the Company or such Borrowing Subsidiary may have at any time against the Administrative Agent, any Bank, any other Borrowing Subsidiary or any other Person, whether in connection with this Agreement, the other Documents, the transactions contemplated thereby or any other transaction other than by the payment in full by the Borrowing Subsidiaries of the Guaranteed Obligations after the termination of the Commitments of the Banks; (f) any invalidity or unenforceability for any reason of this Agreement or any other Document, or any provision of law purporting to prohibit the payment or performance by the Company or any Borrowing Subsidiary of the Guaranteed Obligations or the Documents, or of any other obligation to the Administrative Agent or any Bank; or (g) any other circumstances or happening whatsoever, whether or not similar to any of the foregoing. SECTION 8.03. Effect of Debtor Relief Laws. If after receipt of any payment of, or proceeds of any security applied (or intended to be applied) to the payment of all or any part of the Guaranteed Obligations, the Administrative Agent or any Bank is for any reason compelled to surrender or voluntarily surrenders, such payment or proceeds to any Person (a) because such payment or application of proceeds is or may be avoided, invalidated, declared fraudulent, set aside, determined to be void or voidable as a preference, fraudulent conveyance, fraudulent transfer, impermissible set-off or a diversion of trust funds or (b) for any other reason, including (i) any judgment, decree or order of any court or administrative body having jurisdiction over the Administrative Agent, any Bank or any of their respective properties or (ii) any settlement or compromise of any such claim effected by the Administrative Agent or any Bank with any such claimant (including any Borrowing Subsidiary), then the Guaranteed Obligations or part thereof intended to be satisfied shall be reinstated and continue, and this guaranty shall continue in full force as if such payment or proceeds had not been received, notwithstanding any revocation thereof or the FACILITY B -76- 77 cancellation of any instrument evidencing any Guaranteed Obligations or otherwise; and the Company shall be liable to pay the Administrative Agent and the Banks, and hereby does indemnify the Administrative Agent and the Banks and hold them harmless for the amount of such payment or proceeds so surrendered and all expenses (including reasonable attorneys' fees, court costs and expenses attributable thereto) incurred by the Administrative Agent or any Bank in the defense of any claim made against it that any payment or proceeds received by the Administrative Agent or any Bank in respect of all or part of the Guaranteed Obligations must be surrendered. The provisions of this paragraph shall survive the termination of this Agreement, and any satisfaction and discharge of the Borrowing Subsidiaries by virtue of any payment, court order or any federal or state law. SECTION 8.04. Subrogation. Notwithstanding any payment or payments made by the Company hereunder, or any set-off or application by the Administrative Agent or any Bank of any security or of any credits or claims, the Company will not assert or exercise any rights of the Administrative Agent or any Bank or of the Company against any Borrowing Subsidiary to recover the amount of any payment made by the Company to the Administrative Agent or any Bank hereunder by way of any claim, remedy or subrogation, reimbursement, exoneration, contribution, indemnity, participation or otherwise arising by contract, by statute, under common law or otherwise, and the Company shall not have any right of recourse to or any claim against assets or property of any Borrowing Subsidiary, until all of the obligations of the Company and the Borrowing Subsidiaries under the Documents are paid in full. If any amount shall nevertheless be paid to the Company by a Borrowing Subsidiary prior to payment in full of the obligations of the Company and such Borrowing Subsidiary under the Documents, such amount shall be held in trust for the benefit of the Administrative Agent and the Banks and shall forthwith be paid to the Administrative Agent to be credited and applied to the Guaranteed Obligations, whether matured or unmatured. The provisions of this paragraph shall survive the termination of this Agreement, and any satisfaction and discharge of the Borrowing Subsidiaries by virtue of any payment, court order or any federal or state law. SECTION 8.05. Subordination. If the Company becomes the holder of any indebtedness payable by a Borrowing Subsidiary, the Company hereby subordinates all indebtedness owing to it from such Borrowing Subsidiary to all indebtedness of such Borrowing Subsidiary to the Administrative Agent and the Banks, and agrees that during the continuance of any Default or Event of Default it shall not accept any payment on the same until payment in full of the obligations of such Borrowing Subsidiary under this Agreement and the other Documents after the termination of the Commitments of the Banks, and shall in no circumstance whatsoever attempt to set-off or reduce any obligations hereunder because of such indebtedness. If any amount shall nevertheless be paid to the Company by a Borrowing Subsidiary prior to payment in full of the Guaranteed Obligations, such amount shall be held in trust for the benefit of the Administrative Agent and the Banks and shall forthwith be paid to the Administrative Agent to be credited and applied to the Guaranteed Obligations, whether matured or unmatured. FACILITY B -77- 78 SECTION 8.06. Waiver. The Company hereby waives promptness, diligence, notice of acceptance and, to the extent permitted by law, any other notice with respect to any of the Guaranteed Obligations and this guaranty and waives presentment, demand of payment, notice of intent to accelerate, notice of dishonor or nonpayment and any requirement that the Administrative Agent or any Bank institute suit, collection proceedings or take any other action to collect the Guaranteed Obligations, including any requirement that the Administrative Agent or any Bank protect, secure, perfect or insure any Lien against any property subject thereto or exhaust any right or take any action against any Borrowing Subsidiary or any other Person or any collateral (it being the intention of the Administrative Agent, the Banks and the Company that this guaranty is to be a guaranty of payment and not of collection). It shall not be necessary for the Administrative Agent or any Bank, in order to enforce any payment by the Company hereunder, to institute suit or exhaust its rights and remedies against any Borrowing Subsidiary or any other Person, including others liable to pay any Guaranteed Obligations, or to enforce its rights against any security ever given to secure payment thereof. The Company hereby expressly waives to the maximum extent permitted by applicable law each and every right to which it may be entitled by virtue of the suretyship laws of the State of Texas, including any and all rights it may have pursuant to Rule 31, Texas Rules of Civil Procedure, Section 17.001 of the Texas Civil Practice and Remedies Code and Chapter 34 of the Texas Business and Commerce Code. The Company hereby waives marshaling of assets and liabilities, notice by the Administrative Agent or any Bank of any indebtedness or liability to which such Bank applies or may apply any amounts received by such Bank, and of the creation, advancement, increase, existence, extension, renewal, rearrangement or modification of the Guaranteed Obligations. The Company expressly waives, to the extent permitted by applicable law, the benefit of any and all laws providing for exemption of property from execution or for valuation and appraisal upon foreclosure. SECTION 8.07. Full Force and Effect. This Guaranty is a continuing guaranty and shall remain in full force and effect until all of the obligations of the Company and the Borrowing Subsidiaries under this Agreement and the other Documents and all other amounts payable under this guaranty have been paid in full (after the termination of the Commitments of the Banks). All rights, remedies and powers provided in this guaranty may be exercised, and all waivers contained in this guaranty may be enforced, only to the extent that the exercise or enforcement thereof does not violate any provisions of applicable law which may not be waived. ARTICLE IX MISCELLANEOUS SECTION 9.01. Amendments, Etc. No amendment or waiver of any provision of this Agreement, nor consent to any departure by the Company herefrom, shall in any event (except as contemplated by Section 2.03(j) be effective unless the same shall be in writing and signed by the Majority Banks in all cases, and then, in any case, such waiver or consent shall be effective only in the specific instance and for the specific purpose for which given; provided, however, that no FACILITY B -78- 79 amendment, waiver or consent shall, unless in writing and signed by each Bank affected thereby, do any of the following: (a) change the definitions of "Applicable Differential," "Applicable Fee Percentage" or "Majority Banks" contained in Section 1.01, (b) except as expressly provided in Section 2.14(f) or Section 2.15(c), reduce or increase the amount or alter the terms of the Commitments of any Banks or subject any Banks to any additional obligations, (c) reduce or forgive the principal of, or rate or amount of interest applicable to, any Loan other than as provided in this Agreement, or any fees hereunder, (d) postpone any date fixed for any payment of principal of, or interest on, the Loans or any fees hereunder, (e) change Section 4.13, this Section 9.01, the last sentence of Section 9.11(a) or Article VIII, (f) change the percentage of the Commitments or of the aggregate unpaid principal amount of the Loans, or the number of Banks, which shall be required for the Banks or any of them to take any action hereunder or (g) release the Guaranty; and provided that no amendment, waiver or consent shall, unless in writing and signed by the Administrative Agent in addition to the Banks required above to take such action, affect the rights or duties of the Administrative Agent under this Agreement. SECTION 9.02. Notices, Etc. The Administrative Agent, any Bank, or the holder of any Loan, giving consent or notice or making any request of any Borrower provided for hereunder, shall notify each Bank and the Administrative Agent thereof. In the event that the holder of any Loan (including any Bank) shall transfer such Loan, it shall promptly so advise the Administrative Agent which shall be entitled to assume conclusively that no transfer of any Loan has been made by any holder (including any Bank) unless and until the Administrative Agent receives written notice to the contrary. Notices, consents, requests, approvals, demands and other communications (collectively "Communications") provided for or required herein shall be in writing (including facsimile Communications) and mailed, sent by facsimile transmission or delivered: (a) If to any Borrower, to it: c/o Service Corporation International 1929 Allen Parkway P.O. Box 130548 Houston, Texas 77019-0548 Telecopy Number: (713) 525-9067 Attention: Secretary (b) If to the Administrative Agent, to it at: Chase Agent Services One Chase Manhattan Plaza, 8th Floor New York, New York 10081 Telephone Number: (212) 552-7953 Telecopy Number: (212) 552-5658 Attention: Sandra Miklave FACILITY B -79- 80 with a copy to: Texas Commerce Bank National Association 707 Travis Street, 5TCBE 78 Houston, Texas 77002 Telephone Number: (713) 216-5319 Telecopy Number: (713) 216-7500 Attention: Jan Danvers (c) If to any Bank, as specified on the signature page for such Bank hereto or, in the case of any Person who becomes a Bank after the date hereof, as specified on the signature page of the Assignment and Acceptance executed by such Bank, or as to any party, such other address or facsimile number as such party may hereafter specify for such purpose in a Communication to the other parties hereto. (d) All Communications shall, when mailed, sent by facsimile transmission or delivered, be effective when deposited in the mails to any party at its address specified above, on the signature page hereto, or on the signature page of such Assignment and Acceptance (or other address designated by such party to the other parties hereto) or sent by facsimile transmission to any party to the facsimile transmission number as set forth herein or on the signature pages hereto, or on the signature pages of such Assignment and Acceptance (or other facsimile number designated by such party in a Communication to the other parties hereto) or delivered personally to any party at its address specified above, on the signature page hereof or on the signature page of such Assignment and Acceptance (or other address designated by such party in a Communication to the other parties hereto; provided, however, Communications to the Administrative Agent pursuant to Article II or Article VII shall not be effective until received by the Administrative Agent; and provided, further, that each Borrower shall indemnify each of the Administrative Agent and the Banks against any costs, claim, loss, expense (including legal fees) or liability which any of them may sustain or incur as a consequence of any facsimile notice or communication originating from such Borrower not being actually received by or delivered to the intended recipient thereof or any facsimile communication purporting to originate from such Borrower being made or delivered fraudulently. SECTION 9.03. No Waiver; Remedies. No failure on the part of any Bank or the Administrative Agent to exercise, and no delay in exercising, any right hereunder shall operate as a waiver thereof; nor shall any single or partial exercise of any such right, or any abandonment or discontinuance of any steps to enforce such right, preclude any other or further exercise thereof or the exercise of any other right. No notice to or demand on any Borrower in any case shall entitle such Borrower to any other or further notice or demand in similar or other circumstances. The remedies herein provided are cumulative and not exclusive of any remedies provided by law. FACILITY B -80- 81 SECTION 9.04. Costs, Expenses and Taxes. The Company agrees to pay on demand: (a) all reasonable costs and expenses of the Administrative Agent in connection with the preparation, execution, delivery and administration of this Agreement and the other documents to be delivered hereunder, including the reasonable fees and out-of-pocket expenses of counsel for the Administrative Agent with respect thereto and with respect to advising the Administrative Agent as to its rights and responsibilities under this Agreement, and any modification, supplement or waiver of any of the terms of this Agreement or any modification or extension of the Loans, and (b) all reasonable costs and expenses of each of the Banks and the Administrative Agent (including reasonable counsel fees and expenses of outside counsel and the reasonable allocated costs of in-house legal services) in connection with the enforcement of this Agreement and the Loans. In addition, unless prohibited by applicable law, the Company shall pay any and all stamp, mortgage and similar taxes payable or determined to be payable in connection with the execution and delivery or enforcement of this Agreement and the Loans and the other documents to be delivered hereunder, and agrees to save the Administrative Agent and each Bank harmless from and against any and all liabilities with respect to or resulting from any delay in paying or omission to pay such taxes, if any, which may be payable or determined to be payable in connection with the execution and delivery or enforcement of this Agreement. Without prejudice to the survival of any other obligations of the Company hereunder, the obligations of the Company under this Section 9.04 shall survive the termination of this Agreement and the payment or assignment of the Loans. SECTION 9.05. Indemnity. (a) The Company shall indemnify the Administrative Agent, the Banks and each Affiliate thereof and their respective directors, officers, employees and agents from, and hold each of them harmless against, any and all losses, liabilities, claims and damages to which any of them may become subject, insofar as such losses, liabilities, claims and damages arise out of or result from (i) any actual or proposed use by any Borrower of the proceeds of any extension of credit by any Bank hereunder or (ii) any investigation, litigation or other proceeding (including any threatened investigation or proceeding) relating to the foregoing, and the Company shall reimburse the Administrative Agent and each Bank, and each Affiliate thereof and their respective directors, officers, employees and agents, upon demand for any expenses (including legal fees) reasonably incurred in connection with any such investigation or proceeding; but excluding any such losses, liabilities, claims, damages or expenses incurred by reason of the gross negligence or willful misconduct of the Person to be indemnified. (b) WITHOUT LIMITING ANY PROVISION OF THIS AGREEMENT, IT IS THE EXPRESS INTENTION OF THE PARTIES HERETO THAT EACH PERSON TO BE INDEMNIFIED HEREUNDER OR THEREUNDER SHALL BE INDEMNIFIED AND HELD HARMLESS AGAINST ANY AND ALL LOSSES, LIABILITIES, CLAIMS AND DAMAGES ARISING OUT OF OR RESULTING FROM THE ORDINARY, SOLE OR CONTRIBUTORY NEGLIGENCE OF SUCH PERSON. Without prejudice to the survival of any other obligations of the Company hereunder, the obligations of the Company under this Section 9.05 shall survive the termination of this Agreement and the payment or assignment of the Loans. FACILITY B -81- 82 SECTION 9.06. Right of Setoff. If any Event of Default shall have occurred and be continuing, each Bank is hereby authorized at any time and from time to time, to the fullest extent permitted by law, to set off and apply any and all deposits (general or special, time or demand, provisional or final) at any time held and other indebtedness at any time owing by such Bank or any branch, subsidiary or Affiliate of such Bank to or for the credit or the account of the Company and each Borrowing Subsidiary against any of and all the obligations of the Company or such Borrowing Subsidiary now or hereafter existing under this Agreement and any Loan held by such Bank, irrespective of whether or not such Bank or the Administrative Agent shall have made any demand under this Agreement and although such obligations may be unmatured. Each Bank agrees promptly to notify the Borrower as to which such setoff and application was made after any such setoff and application made by such Bank, but the failure to give such notice shall not affect the validity of such setoff and application. The rights of each Bank under this Section 9.06 are in addition to other rights and remedies (including other rights of setoff) which such Bank may have. SECTION 9.07. Governing Law. This Agreement and all other documents executed in connection herewith (including the Foreign Currency Addenda, each Assignment and Acceptance and each Borrowing Subsidiary Counterpart), shall be deemed to be contracts and agreements executed by the Borrowers, the Administrative Agent and the Banks party thereto under the laws of the State of New York and of the United States and for all purposes shall be construed in accordance with, and governed by, the laws of said state and of the United States. Without limitation of the foregoing, nothing in this Agreement or in any such other agreement shall be deemed to constitute a waiver of any rights which any Bank may have under applicable federal legislation relating to the amount of interest which such Bank may contract for, take, receive, reserve or charge in respect of any Loans, including any right to contract for, take, receive, reserve and charge interest at the rate allowed by the law of the state where such Bank is located. SECTION 9.08. Interest. Anything in this Agreement to the contrary notwithstanding, no Borrower shall ever be required to pay unearned interest on any Loan and shall never be required to pay interest on such Loan at a rate in excess of the Highest Lawful Rate, and if the effective rate of interest which would otherwise be payable under this Agreement and such Loan would exceed the Highest Lawful Rate, or if the holder of such Loan shall receive any unearned interest or shall receive monies that are deemed to constitute interest which would increase the effective rate of interest payable by such Borrower under this Agreement and such Loan to a rate in excess of the Highest Lawful Rate, then (a) the amount of interest which would otherwise be payable by such Borrower under this Agreement and such Loan shall be reduced to the amount allowed under applicable law; and (b) any unearned interest paid by such Borrower or any interest paid by such Borrower in excess of the Highest Lawful Rate shall be credited on the principal of such Loan. It is further agreed that all calculations of the rate of interest contracted for, charged or received by any Bank under the Loans made by it, or under this Agreement, which are made for the purpose of determining whether such rate exceeds the Highest Lawful Rate applicable to such Bank (such Highest Lawful Rate being such Bank's "Maximum Permissible Rate"), shall be made, to the FACILITY B -82- 83 extent permitted by usury laws applicable to such Bank (now or hereafter enacted), by amortizing, prorating and spreading in equal parts during the period of the full stated term of the Loans all interest at any time contracted for, charged or received by such Bank in connection therewith. If at any time and from time to time (y) the amount of interest payable to any Bank on any date shall be computed at such Bank's Maximum Permissible Rate pursuant to this Section 9.08 and (z) in respect of any subsequent interest computation period the amount of interest otherwise payable to such Bank would be less than the amount of interest payable to such Bank computed at such Bank's Maximum Permissible Rate, then the amount of interest payable to such Bank in respect of such subsequent interest computation period shall continue to be computed at such Bank's Maximum Permissible Rate until the total amount of interest payable to such Bank shall equal the total amount of interest which would have been payable to such Bank if the total amount of interest had been computed without giving effect to this Section 9.08. SECTION 9.09. Survival of Representations, Warranties and Covenants. All representations, warranties and covenants contained herein or made in writing by the Borrowers in connection herewith shall survive the execution and delivery of this Agreement, and will bind and inure to the benefit of the respective successors and assigns of the parties hereto, whether so expressed or not, provided, that the undertaking of the Banks to make Loans to the Borrowers shall not inure to the benefit of any successor or assign of any Borrower. SECTION 9.10. Binding Effect. This Agreement shall become effective when it shall have been executed by the Company and the Administrative Agent and when the Administrative Agent shall have been notified by each Bank that such Bank has executed it and, except as provided in Section 9.09, thereafter shall be binding upon and inure to the benefit of the Company, any Borrowing Subsidiaries that may become party hereto, the Administrative Agent and each Bank and their respective successors and assigns. SECTION 9.11. Successors and Assigns; Participations. (a) Whenever in this Agreement any of the parties hereto is referred to, such reference shall be deemed to include the successors and permitted assigns of such party; and all covenants, promises and agreements by or on behalf of the Company, the Administrative Agent or the Banks that are contained in this Agreement shall bind and inure to the benefit of their respective successors and permitted assigns. No Borrower may assign or transfer any of its rights or obligations hereunder without the written consent of all the Banks. (b) Each Bank, without the consent of the Company, may sell participations to one or more banks or other entities in all or a portion of its rights and obligations under this Agreement (including, without limitation, all or a portion of its Commitments and the Loans owing FACILITY B -83- 84 to it); provided, however, that (i) the selling Bank's obligations under this Agreement shall remain unchanged; (ii) such Bank shall remain solely responsible to the other parties hereto for the performance of such obligations; (iii) the participating banks or other entities shall be entitled to the cost protection provisions contained in Article II and Section 9.04; and (iv) the Borrowers, the Administrative Agent and the other Banks shall continue to deal solely and directly with the selling Bank in connection with such Bank's rights and obligations under this Agreement; provided, however, that each Bank shall retain the sole right and responsibility to enforce the obligations of the Borrowers relating to the Loans including the right to approve any amendment, modification or waiver of any provision of this Agreement; and further provided, however, the selling Bank may grant a participant voting rights with respect to (x) amendments, modifications or waivers with respect to any fees payable hereunder (including the amount and the dates fixed for the payment of any such fees) or the amount of principal or the rate of interest payable on, or the dates fixed for any payment of principal of or interest on, the Loans and (y) amendments, modifications or waivers to, or release of, the Guaranty. Each Bank shall provide the Company with prompt notice of the identity of each participating bank to which a participation in its Commitment or any Committed Loan is sold and the amount of such participation. (c) With the prior consent of the Company and the Administrative Agent, such consent not to be unreasonably withheld, a Bank may assign to one or more Eligible Assignees (provided, however, no such consent shall be required if such Eligible Assignee is a Bank or an Affiliate of a Bank) and, without the consent of the Company or the Administrative Agent, a Bank may assign to one of its Affiliates, all or a portion of its interests, rights, and obligations under this Agreement (including all or a portion of its Commitments and the same portion of the Loans at the time owing to it); provided, however, that (i) each such assignment shall be of a constant, and not a varying, percentage of all the assigning Bank's rights and obligations under this Agreement and partial assignments shall (except in the case of assignments to an Affiliate of such Bank or to other Banks), be in a minimum principal amount of $5,000,000 and (ii) the parties to each such assignment shall execute and deliver to the Administrative Agent, for its acceptance and recording in the Register (as defined below), an Assignment and Acceptance substantially in the form of Exhibit 9.11 (an "Assignment and Acceptance"), together with a properly completed Administrative Questionnaire from such Eligible Assignee, and a processing and recordation fee of $2,000; provided, however, no Borrower shall have any obligation to pay or reimburse any Person for the payment of such processing and recordation fee, except for assignments pursuant to Section 2.14 or Section 2.15. The Eligible Assignee party to each Assignment and Acceptance also shall deliver a copy of its Administrative Questionnaire to the Company. Upon such execution, delivery, acceptance and recording, from and after the effective date specified in each Assignment and Acceptance, which effective date shall be at least five Business Days after the execution thereof (unless otherwise provided in such Assignment and Acceptance) (x) the Eligible Assignee thereunder shall be a party FACILITY B -84- 85 hereto and, to the extent provided in such Assignment and Acceptance, have the rights and obligations of a Bank hereunder and (y) the assignor Bank thereunder shall, to the extent provided in such Assignment and Acceptance, be released from its obligations under this Agreement (and, in the case of an Assignment and Acceptance covering all of the remaining portion of an assigning Bank's rights and obligations under this Agreement, such Bank shall cease to be a party hereto, provided, however, such Bank shall have the benefits of Section 2.14, Section 2.20, Section 9.04 and Section 9.05). (d) By executing and delivering an Assignment and Acceptance, the Bank assignor thereunder and the Eligible Assignee confirm to and agree with each other and the other parties hereto as follows: (i) other than the representation and warranty that it is the legal and beneficial owner of the interest being assigned thereby free and clear of any adverse claim known to such Bank assignor, such Bank assignor makes no representation or warranty and assumes no responsibility with respect to any statements, warranties or representations made in or in connection with this Agreement or any other instrument or document furnished pursuant hereto or the execution, legality, validity, enforceability, genuineness, sufficiency or value of this Agreement or any other instrument or document furnished pursuant hereto; (ii) such Bank assignor makes no representation or warranty and assumes no responsibility with respect to the financial condition of any Borrower or the performance or observance of its respective obligations under this Agreement or any other instrument or document furnished pursuant hereto; (iii) such Eligible Assignee confirms that it has received a copy of this Agreement together with copies of the most recent financial statements delivered pursuant to Section 4.07 or Section 5.01(a) and such other documents and information as it has deemed appropriate to make its own credit analysis and decision to enter into such Assignment and Acceptance; (iv) such Eligible Assignee will, independently and without reliance upon the Administrative Agent, such Bank assignor or any other Bank and based on such documents and information as it shall deem appropriate at the time, continue to make its own credit decisions in taking or not taking action under this Agreement; (v) such Eligible Assignee appoints and authorizes the Administrative Agent to take such action on behalf of such Eligible Assignee and to exercise such powers under this Agreement as are delegated to the Administrative Agent by the terms hereof, together with such powers as are reasonably incidental thereto; (vi) such Eligible Assignee agrees that it will perform in accordance with their terms all of the obligations which by the terms of this Agreement are required to be performed by it as a Bank and (vii) such Eligible Assignee confirms that it is an Eligible Assignee as defined herein. (e) The Administrative Agent shall maintain at its office a copy of each Assignment and Acceptance delivered to it and a register for the recordation of the names and addresses of the Banks and the Commitments of, and principal amount of the Loans owing to, each Bank from time to time (the "Register"). The entries in the Register shall, to the extent permitted FACILITY B -85- 86 by law, be conclusive, in the absence of manifest error, and each Borrower, the Administrative Agent and the Banks may treat each Person whose name is recorded in the Register as a Bank hereunder for all purposes of this Agreement. The Register shall be available for inspection by any Borrower or any Bank at any reasonable time and from time to time upon reasonable prior notice. (f) Upon its receipt of an Assignment and Acceptance executed by an assigning Bank and an Eligible Assignee and, if required, the written consent to such assignment, the Administrative Agent shall, if such Assignment and Acceptance has been completed and is substantially in the form of Exhibit 9.11, (i) accept such Assignment and Acceptance, (ii) record the information contained therein in the Register and (iii) give prompt notice thereof to the Banks and the Borrowers. (g) Notwithstanding any other provision herein, any Bank may, in connection with any assignment or participation or proposed assignment or participation pursuant to this Section 9.11 disclose to the assignee or participant or proposed assignee or participant, any information relating to the Borrowers furnished to such Bank by or on behalf of any Borrower; provided, that prior to any such disclosure, each such assignee or participant or proposed assignee or participant shall agree to preserve the confidentiality, pursuant to Section 9.12, of any confidential information relating to the Borrowers received from such Bank. (h) Anything in this Section 9.11 to the contrary notwithstanding, any Bank may at any time, without the consent of any Borrower or the Administrative Agent, assign and pledge all or any portion of its Commitment and the Loans owing to it to any Federal Reserve Bank (and its transferees) as collateral security pursuant to Regulation A and any Operating Circular issued by such Federal Reserve Bank. No such assignment shall release the assigning Bank from its obligations hereunder. Notwithstanding the foregoing, in connection with any such pledge of such Loans to the Federal Reserve Bank, any Bank may request that such Loans be evidenced by a note or notes in form and substance satisfactory to such Bank and the Company. SECTION 9.12. Confidentiality. Each Bank agrees to exercise its best efforts to keep any information delivered or made available by the Company or any Borrowing Subsidiary to it (including any information obtained pursuant to Section 5.01(e)) which is clearly indicated to be confidential information, confidential from anyone other than Persons employed or retained by such Bank or any of its Affiliates who are or are expected to become engaged in evaluating, approving, structuring or administering the Loans; provided that nothing herein shall prevent any Bank from disclosing such information (a) to any other Bank; (b) pursuant to subpoena or upon the order of any court or administrative agency; (c) upon the request or demand of any regulatory agency or authority having jurisdiction over such Bank; (d) which has been publicly disclosed; (e) to the extent FACILITY B -86- 87 reasonably required in connection with any litigation to which the Administrative Agent, any Bank, any Borrower or their respective Affiliates may be a party; (f) to the extent reasonably required in connection with the exercise of any remedy hereunder; (g) to such Bank's legal counsel and independent auditors; and (h) to any actual or proposed participant or assignee of all or part of its rights hereunder which has agreed in writing to be bound by the provisions of this Section 9.12. SECTION 9.13. Separability. Should any clause, sentence, paragraph or Section of this Agreement be judicially declared to be invalid, unenforceable or void, such decision will not have the effect of invalidating or voiding the remainder of this Agreement, and the parties hereto agree that the part or parts of this Agreement so held to be invalid, unenforceable or void will be deemed to have been stricken herefrom and the remainder will have the same force and effectiveness as if such part or parts had never been included herein. SECTION 9.14. Limitation by Law. All waivers, indemnities and rights provided in this Agreement may be exercised only to the extent that the exercise thereof does not violate any applicable provision of law, and all the provisions of this Agreement are intended to be subject to all applicable mandatory provisions of law which may be controlling and to be limited to the extent necessary so that they will not render this Agreement invalid or unenforceable, in whole or in part. SECTION 9.15. Independence of Covenants. All covenants contained in this Agreement shall be given independent effect so that if a particular action or condition is not permitted by any such covenant, the fact that such action or condition would be permitted by an exception to, or otherwise be within the limitations of, another covenant shall not avoid the occurrence of a Default or Event of Default if such action is taken or condition exists. SECTION 9.16. Appointment of Company as Agent for the Other Borrowers. Each Borrowing Subsidiary hereby irrevocably appoints the Company as its agent for the purpose of giving on its behalf any notice and taking any other action provided for in this Agreement, and hereby agrees that it shall be bound by any such notice or action given or taken by the Company hereunder irrespective of whether or not any such notice shall have in fact been authorized by such Borrowing Subsidiary and irrespective of whether or not the agency provided for herein shall have theretofore been terminated. SECTION 9.17. Judgment. The obligations of each Borrower in respect of any sum due to any party hereto or any holder of the obligations owing hereunder (the "Applicable Creditor") shall, notwithstanding any judgment in a currency (the "Judgment Currency") other than the currency in which such sum is stated to be due hereunder (the "Agreement Currency"), be discharged only to the extent that, on the Business Day following receipt by the Applicable Creditor of any sum FACILITY B -87- 88 adjudged to be so due in the Judgment Currency, the Applicable Creditor may in accordance with normal banking procedures in the relevant jurisdiction purchase the Agreement Currency with the Judgment Currency; if the amount of the Agreement Currency so purchased is less than the sum originally due to the Applicable Creditor in the Agreement Currency, such Borrower agrees, as a separate obligation and notwithstanding any such judgment, to indemnify the Applicable Creditor against such loss. The obligations of the Borrowers contained in this Section 9.17 shall survive the termination of this Agreement and the payment of all other amounts owing hereunder. SECTION 9.18. European Monetary Union. (a) If, as a result of the implementation of European monetary union, (i) any Foreign Currency ceases to be lawful currency of the nation issuing the same and is replaced by a European common currency, or (ii) any Foreign Currency and a European common currency are at the same time recognized by the central bank or comparable authority of the nation issuing such Foreign Currency as lawful currency of such nation and the Administrative Agent or the Majority Banks shall so request in a notice delivered to the Company, then any amount payable hereunder by any party hereto in such Foreign Currency shall instead be payable in the European common currency and the amount so payable shall be determined by translating the amount payable in such currency to such European common currency at the exchange rate recognized by the European Central Bank for the purposes of implementing European monetary union. Prior to making any such request with respect to any currency, each amount payable hereunder in such Foreign Currency will, except under the circumstances described in Section 2.15, continue to be payable only in that Foreign Currency. (b) Each Borrower agrees, at the request of the Majority Banks, at the time of or at any time following the implementation of European monetary union, to enter into an agreement amending this Agreement in such manner as the Majority Banks shall reasonably specify in order to reflect the implementation of such monetary union and to place the parties hereto in a substantially equivalent position to the position they would have been in hereunder had such monetary union not been implemented. SECTION 9.19. SUBMISSION TO JURISDICTION; WAIVER OF IMMUNITIES. (a) ANY LEGAL ACTION OR PROCEEDING WITH RESPECT TO THIS AGREEMENT, THE FOREIGN CURRENCY ADDENDA AND THE AGENT'S FEE LETTER MAY BE BROUGHT IN THE COURTS OF THE STATE OF NEW YORK OR OF THE UNITED STATES FOR THE SOUTHERN DISTRICT OF NEW YORK AND, BY EXECUTION AND DELIVERY OF THIS AGREEMENT, EACH BORROWER HEREBY IRREVOCABLY ACCEPTS FOR ITSELF AND IN RESPECT OF ITS PROPERTY, UNCONDITIONALLY, THE NON-EXCLUSIVE JURISDICTION OF THE AFORESAID COURTS WITH RESPECT TO ANY SUCH ACTION OR PROCEEDING. EACH BORROWING SUBSIDIARY HEREBY IRREVOCABLY DESIGNATES, APPOINTS AND FACILITY B -88- 89 EMPOWERS CORPORATION SERVICE COMPANY, WITH OFFICES ON THE DATE HEREOF AT 80 STATE STREET, ALBANY, NEW YORK 12201, AS ITS DESIGNEE, APPOINTEE AND AGENT TO RECEIVE, ACCEPT AND ACKNOWLEDGE FOR AND ON ITS BEHALF, AND IN RESPECT OF ITS PROPERTY, SERVICE OF ANY AND ALL LEGAL PROCESS, SUMMONS, NOTICES AND DOCUMENTS WHICH MAY BE SERVED IN ANY SUCH ACTION OR PROCEEDING. IF FOR ANY REASON SUCH DESIGNEE, APPOINTEE AND AGENT SHALL CEASE TO BE AVAILABLE TO ACT AS SUCH, EACH BORROWING SUBSIDIARY AGREES TO DESIGNATE A NEW DESIGNEE, APPOINTEE AND AGENT IN THE STATE OF NEW YORK ON THE TERMS AND FOR THE PURPOSES OF THIS PROVISION SATISFACTORY TO THE ADMINISTRATIVE AGENT. EACH BORROWING SUBSIDIARY FURTHER IRREVOCABLY CONSENTS TO THE SERVICE OF PROCESS OUT OF ANY OF THE AFOREMENTIONED COURTS IN ANY SUCH ACTION OR PROCEEDING BY THE MAILING OF COPIES THEREOF BY REGISTERED OR CERTIFIED MAIL, POSTAGE PREPAID, TO IT AT ITS ADDRESS PROVIDED IN SECTION 9.02, SUCH SERVICE TO BECOME EFFECTIVE THIRTY DAYS AFTER SUCH MAILING. NOTHING HEREIN SHALL AFFECT THE RIGHT OF THE ADMINISTRATIVE AGENT OR ANY BANK TO SERVE PROCESS IN ANY OTHER MANNER PERMITTED BY LAW OR TO COMMENCE LEGAL PROCEEDINGS OR OTHERWISE PROCEED AGAINST ANY BORROWING SUBSIDIARY IN ANY OTHER JURISDICTION. (b) TO THE EXTENT THAT ANY BORROWER HAS OR HEREAFTER MAY ACQUIRE ANY IMMUNITY (SOVEREIGN OR OTHERWISE) FROM ANY LEGAL ACTION, SUIT OR PROCEEDING, FROM JURISDICTION OF ANY COURT OR FROM SET-OFF OR ANY LEGAL PROCESS (WHETHER SERVICE OF NOTICE, ATTACHMENT PRIOR TO JUDGMENT, ATTACHMENT IN AID OF EXECUTION OF JUDGMENT, EXECUTION OF JUDGMENT OR OTHERWISE) WITH RESPECT TO ITSELF OR ANY OF ITS PROPERTY, SUCH BORROWER HEREBY IRREVOCABLY WAIVES AND AGREES NOT TO PLEAD OR CLAIM SUCH IMMUNITY IN RESPECT OF ITS OBLIGATIONS UNDER THIS AGREEMENT AND THE FOREIGN CURRENCY ADDENDA. EACH BORROWER HEREBY AGREES THAT THE WAIVERS SET FORTH IN THIS SECTION 9.19 SHALL HAVE THE FULLEST EFFECT PERMITTED UNDER THE FOREIGN SOVEREIGN IMMUNITIES ACT OF 1976 OF THE UNITED STATES OF FACILITY B -89- 90 AMERICA AND ARE INTENDED TO BE IRREVOCABLE AND NOT SUBJECT TO WITHDRAWAL FOR PURPOSES OF SUCH ACT. SECTION 9.20. Entire Agreement. This Agreement (including the Exhibits and Schedules hereto), the Borrowing Subsidiary Counterparts, if any, the Assignment and Acceptances, if any, the Foreign Currency Addenda, and the Agent's Fee Letter embody the entire agreement and understanding among the Company, the Administrative Agent and the Banks relating to the subject matter hereof and thereof and supersede all prior proposals, agreements and understandings relating to such subject matter. SECTION 9.21. Execution in Counterparts. This Agreement may be executed in any number of counterparts and by different parties hereto in separate counterparts, each of which when so executed shall be deemed to be an original and all of which taken together shall constitute one and the same agreement. IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed by their respective officers thereunto duly authorized, as of the date first above written. SERVICE CORPORATION INTERNATIONAL By: -------------------------------------- Name: Gregory L. Cauthen Title: Vice President and Treasurer FACILITY B 91 611102 SASKATCHEWAN LTD. By: -------------------------------------- Name: Title: FACILITY B 92 SERVICE CORPORATION INTERNATIONAL AUSTRALIAN PTY LIMITED By: -------------------------------------- Name: Title: FACILITY B 93 THE CHASE MANHATTAN BANK, as Administrative Agent By: -------------------------------------- Name: Title: FACILITY B 94 CO-AGENTS: BANK OF AMERICA ILLINOIS, as Co-Agent By: -------------------------------------- Name: Title: FACILITY B 95 CITIBANK N.A., as Co-Agent By: -------------------------------------- Name: Title: FACILITY B 96 NATIONSBANK, N.A., as Co-Agent By: -------------------------------------- Name: Title: FACILITY B 97 ROYAL BANK OF CANADA, as Co-Agent By: -------------------------------------- Name: Title: FACILITY B 98 SOCIETE GENERALE, as Co-Agent By: -------------------------------------- Name: Title: FACILITY B 99 UNION BANK OF SWITZERLAND, as Co-Agent By: -------------------------------------- Name: Title: FACILITY B 100 BANKS ABN AMRO BANK N.V., HOUSTON AGENCY By: --------------------------------------- Name: David P. Orr Title: Vice President By: --------------------------------------- Name: Ronald A. Mahle Title: Group Vice President Three Riverway, Suite 1700 Houston, Texas 77056 Telecopy No.: (713) 629-7533 Domestic Lending Office ABN AMRO Bank N.V., Houston Agency Three Riverway, Suite 1700 Houston, Texas 77056 Attn: Ms. Josephine Zozdorado Telecopy No.: (713) 964-3331 Eurodollar Lending Office ABN AMRO Bank N.V., Houston Agency Three Riverway, Suite 1700 Houston, Texas 77056 Attn: Mr. David Orr Telecopy No.: (713) 964-3323 Commitment: $35,000,000.00 FACILITY B 101 BANK OF AMERICA ILLINOIS By: --------------------------------------- Name: Title: 231 South LaSalle Street Chicago, Illinois 60697 Telecopy No.: (312) 987-1276 Domestic Lending Office Bank of America Illinois 1850 Gateway Boulevard Concord, California 94520 Attn: Camille Gibby Telecopy No.: (510) 675-7759 Eurodollar Lending Office Bank of America Illinois 1850 Gateway Boulevard Concord, California 94520 Attn: Camille Gibby Telecopy No.: (510) 675-7759 Commitment: $59,500,000.00 FACILITY B 102 THE BANK OF NEW YORK By: --------------------------------------- Name: Title: One Wall Street, 22nd Floor New York, New York 10286 Telecopy No.: (212) 635-6434 Domestic Lending Office One Wall Street, 22nd Floor New York, New York 10286 Attn: Larry Geter Telecopy No.: (212) 635-6740 Eurodollar Lending Office One Wall Street, 22nd Floor New York, New York 10286 Attn: Larry Geter Telecopy No.: (212) 635-6740 Commitment: $35,000,000.00 FACILITY B 103 BANQUE NATIONALE DE PARIS, HOUSTON AGENCY By: --------------------------------------- Name: John L. Stacy Title: Vice President 333 Clay Street, Suite 3400 Houston, Texas 77002 Telecopy No.: (713) 659-1414 Domestic Lending Office Banque Nationale De Paris, Houston Agency 333 Clay Street, Suite 3400 Houston, Texas 77002 Attn: Donna Rose Telecopy No.: (713) 659-1414 Eurodollar Lending Office Banque Nationale De Paris, Houston Agency 333 Clay Street, Suite 3400 Houston, Texas 77002 Attn: Donna Rose Telecopy No.: (713) 659-1414 Commitment: $21,000,000.00 FACILITY B 104 THE BANK OF TOKYO-MITSUBISHI, LTD., HOUSTON AGENCY By: --------------------------------------- Name: Title: 1100 Louisiana Street, Suite 2800 Houston, Texas 77002-5216 Telecopy No.: (713) 658-0116 Domestic Lending Office The Bank of Tokyo-Mitsubishi, Ltd., Houston Agency 1100 Louisiana Street, Suite 2800 Houston, Texas 77002-5216 Attn: David L. Denbina, P.E. Telecopy No.: (713) 658-0116 Eurodollar Lending Office The Bank of Tokyo-Mitsubishi, Ltd., Houston Agency 1100 Louisiana Street, Suite 2800 Houston, Texas 77002-5216 Attn: David L. Denbina, P.E. Telecopy No.: (713) 658-0116 Commitment: $35,000,000.00 FACILITY B 105 CIBC, INC. By: --------------------------------------- Name:Robin W. Elliott Title:Authorized Signatory Two Paces West 2727 Paces Ferry Road, Suite 1200 Atlanta, Georgia 30339 Telecopy No.: (404) 319-4950 Domestic Lending Office CIBC, Inc. Two Paces West 2727 Paces Ferry Road, Suite 1200 Atlanta, Georgia 30339 Attn: Kelli Jones Telecopy No.: (770) 319-4817 Eurodollar Lending Office CIBC, Inc. Two Paces West 2727 Paces Ferry Road, Suite 1200 Atlanta, Georgia 30339 Attn: Kelli Jones Telecopy No.: (770) 319-4817 Commitment: $35,000,000.00 FACILITY B 106 CITIBANK, N.A. By: --------------------------------------- Name: Title: 400 Perimeter Center Terrace Suite 600 Atlanta, Georgia 30346 Telecopy No.: (770) 668-8137 Domestic Lending Office Citibank, N.A. 1 Court Square, 7th Floor Long Island City, New York 11120 Eurodollar Lending Office Citibank, N.A. 1 Court Square, 7th Floor Long Island City, New York 11120 Commitment: $59,500,000.00 FACILITY B 107 COMMERZBANK AKTIENGESELLSCHAFT, ATLANTA AGENCY By: --------------------------------------- Name: Title: By: --------------------------------------- Name: Title: Promenade Two, Suite 3500 1230 Peachtree Street, N.E. Atlanta, Georgia 30309 Telecopy No.: (404) 888-6539 Domestic Lending Office Commerzbank Aktiengesellschaft, Atlanta Agency Promenade Two, Suite 3500 1230 Peachtree Street, N.E. Atlanta, Georgia 30309 Attn: David Suttles - AVP Telecopy No.: (404) 888-6539 Eurodollar Lending Office Commerzbank Aktiengesellschaft, Atlanta Agency Promenade Two, Suite 3500 1230 Peachtree Street, N.E. Atlanta, Georgia 30309 Attn: David Suttles - AVP Telecopy No.: (404) 888-6539 Commitment: $14,000,000.00 FACILITY B 108 CREDIT LYONNAIS NEW YORK BRANCH By: --------------------------------------- Name: Title: 1301 Avenue of the Americas New York, New York 10019 Telecopy No.: (212) 954-3312 Domestic Lending Office Credit Lyonnais New York Branch 1301 Avenue of the Americas New York, New York 10019 Telecopy No.: (212) 954-3312 Eurodollar Lending Office Credit Lyonnais New York Branch 1301 Avenue of the Americas New York, New York 10019 Telecopy No.: (212) 954-3312 Commitment: $14,000,000.00 with notices to: Credit Lyonnais Dallas Representative Office 2200 Ross Avenue, Suite 4400W Dallas, Texas 75201 FACILITY B 109 THE FUJI BANK, LIMITED By: --------------------------------------- Name: Title: One Houston Center 1221 McKinney, Suite 4100 Houston, Texas 77010 Telecopy No.: (713) 759-0048 Domestic Lending Office The Fuji Bank, Limited One Houston Center 1221 McKinney, Suite 4100 Houston, Texas 77010 Attn: Frances Flores Telecopy No.: (713) 951-0590 Eurodollar Lending Office The Fuji Bank, Limited One Houston Center 1221 McKinney, Suite 4100 Houston, Texas 77010 Attn: Frances Flores Telecopy No.: (713) 951-0590 Commitment: $14,000,000.00 FACILITY B 110 ISTITUTO BANCARIO SAN PAOLO DI TORINO SPA By: --------------------------------------- Name: William J. De Angelo Title: First Vice President By: --------------------------------------- Name: Robert S. Wurster Title: First Vice President 245 Park Avenue, 35th Floor New York, New York 10167 Telecopy No.: (212) 599-5303 Domestic Lending Office Istituto Bancario San Paolo Di Torino S.P.A. 245 Park Avenue, 35th Floor New York, New York 10167 Attn: Robert Wurster Telecopy No.: (212) 599-5303 Eurodollar Lending Office Istituto Bancario San Paolo Di Torino S.P.A. 245 Park Avenue, 35th Floor New York, New York 10167 Attn: Robert Wurster Telecopy No.: (212) 599-5303 Commitment: $14,000,000.00 FACILITY B 111 NATIONSBANK N.A. By: --------------------------------------- Name: Title: 700 Louisiana, 8th Floor Houston, Texas 77002 Telecopy No.: (713) 247-5719 Domestic Lending Office NationsBank N.A. 101 North Tryon Street Charlotte, NC 28255 Attn: Kerri Thompson Telecopy No.: (704) 386-8694 Eurodollar Lending Office NationsBank N.A. 101 North Tryon Street Charlotte, NC 28255 Attn: Kerri Thompson Telecopy No.: (704) 386-8694 Commitment: $59,500,000.00 FACILITY B 112 ROYAL BANK OF CANADA By: --------------------------------------- Name: Title: 12450 Greenspoint Drive, Suite 1450 Houston, Texas 77060 Telecopy No.: (281) 874-0081 Domestic Lending Office Royal Bank of Canada c/o New York Branch Financial Square, 32 Old Slip New York, New York 10005 Telecopy No.: (212) 428-2372 Eurodollar Lending Office Royal Bank of Canada c/o New York Branch Financial Square, 32 Old Slip New York, New York 10005 Telecopy No.: (212) 428-2372 Commitment: $59,500,000.00 FACILITY B 113 SOCIETE GENERALE, SOUTHWEST AGENCY By: --------------------------------------- Name: Title: 2001 Ross Avenue, Suite 4800 Dallas, Texas 75201 Telecopy No.: (214) 754-0171 Domestic Lending Office Societe Generale, Southwest Agency 2001 Ross Avenue, Suite 4800 Dallas, Texas 75201 Telecopy: (214) 754-0171 Eurodollar Lending Office Societe Generale, Southwest Agency 2001 Ross Avenue, Suite 4800 Dallas, Texas 75201 Telecopy: (214) 754-0171 Commitment: $59,500,000.00 FACILITY B 114 SUNTRUST BANK, ATLANTA By: --------------------------------------- Name: Title: By: --------------------------------------- Name: Title: Center 120 25 Park Place, NE Atlanta, Georgia 30303 Telecopy No.: (404) 827-6270 Domestic Lending Office Suntrust Bank, Atlanta Center 120 25 Park Place, NE Atlanta, Georgia 30303 Telecopy: (404) 827-6270 Eurodollar Lending Office Suntrust Bank, Atlanta Center 120 25 Park Place, NE Atlanta, Georgia 30303 Telecopy: (404) 827-6270 Commitment: $35,000,000.00 FACILITY B 115 TEXAS COMMERCE BANK NATIONAL ASSOCIATION By: --------------------------------------- Name: Jan Danvers Title: Senior Vice President 712 Main Street 5TCB-E 78 Houston, Texas 77002 Telecopy No.: (713) 216-7500 Domestic Lending Office Texas Commerce Bank National Association 712 Main Street Houston, Texas 77002 Attn: Gloria Aguilar Telecopy No.: (713) 216-7500 Eurodollar Lending Office Texas Commerce Bank National Association 712 Main Street Houston, Texas 77002 Attn: Gloria Aguilar Telecopy No.: (713) 216-7500 Commitment: $70,000,000.00 FACILITY B 116 UNION BANK OF SWITZERLAND By: --------------------------------------- Name: Title: By: --------------------------------------- Name: Title: 299 Park Avenue New York, New York 10171 Telecopy No.: (212) 821-5534 Domestic Lending Office Union Bank of Switzerland 299 Park Avenue New York, New York 10171 Telecopy: (212) 821-5534 Eurodollar Lending Office Union Bank of Switzerland 299 Park Avenue New York, New York 10171 Telecopy: (212) 821-5534 Commitment: $59,500,000.00 FACILITY B 117 WESTPAC BANKING CORPORATION By: --------------------------------------- Name: Craig Jones Title: Vice President 575 Fifth Avenue New York, New York 10017 Telecopy No.: (212) 551-1995 Domestic Lending Office Westpac Banking Corporation 575 Fifth Avenue New York, New York 10017 Attn: Craig Jones Telecopy No.: (212) 551-1995 Eurodollar Lending Office Westpac Banking Corporation 575 Fifth Avenue New York, New York 10017 Attn: Craig Jones Telecopy No.: (212) 551-1995 Commitment: $21,000,000.00 FACILITY B EX-99.6 19 1ST AMEND.TO COMPETITIVE ADVANCE & REVOLVING CRED. 1 EXHIBIT 99.6 AGREEMENT AND FIRST AMENDMENT TO COMPETITIVE ADVANCE AND REVOLVING CREDIT FACILITY AGREEMENT (FACILITY B) THIS AGREEMENT AND FIRST AMENDMENT TO COMPETITIVE ADVANCE AND REVOLVING CREDIT FACILITY AGREEMENT (FACILITY B) (this "Amendment") dated as of November 2, 1999 is among: (a) SERVICE CORPORATION INTERNATIONAL, a Texas corporation (the "Company"); (b) SERVICE CORPORATION INTERNATIONAL, PLC, SERVICE CORPORATION INTERNATIONAL AUSTRALIA PTY LIMITED, 61102 SASKATCHEWAN LTD., SCI INTERNATIONAL LIMITED and SCI NEDERLAND, B.V. (formerly FONTINA INVESTMENTS B.V.), (collectively, the "Borrowing Subsidiaries"); (c) the banks and other financial institutions listed on the signature pages hereof, (collectively, the "Banks"); and (d) THE CHASE MANHATTAN BANK, a New York banking corporation, as administrative agent for the Banks (in such capacity, the "Administrative Agent"). PRELIMINARY STATEMENT The Company, the Borrowing Subsidiaries, the Banks, the Administrative Agent and the Co-Agents (defined therein), are parties to a Competitive Advance and Revolving Credit Facility Agreement (Facility B) dated as of June 27, 1997 (said Competitive Advance and Revolving Credit Facility Agreement (Facility B) being the "Credit Agreement"). All capitalized terms defined in the Credit Agreement and not otherwise defined herein shall have the same meanings herein as in the Credit Agreement. The Company, the Banks and the Administrative Agent have agreed, upon the terms and conditions specified herein, to amend the Credit Agreement as hereinafter set forth: NOW, THEREFORE, in consideration of the premises and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged by the parties hereto, the Company, the Banks and the Administrative Agent hereby agree as follows: FACILITY B 2 SECTION 1. Amendments to Section 1.01 of the Credit Agreement. (a) The terms "Applicable Differential" and "Applicable Fee Percentage" and the respective definitions thereof are hereby deleted from the Credit Agreement. (b) The definitions of the term "Consolidated Net Income" contained in Section 1.01 of the Credit Agreement is hereby amended in its entirety to read as follows: "'Consolidated Net Income' means, for any period, the net income of the Company and its Subsidiaries for such period (taken as a cumulative whole), determined on a consolidated basis in accordance with GAAP and adjusted to exclude (a) net after-tax extraordinary gains or losses, (b) restructuring charges, and (c) the cumulative effect of any changes in accounting principles. (b) The following defined terms are hereby added to Section 1.01 of the Credit Agreement: (i) "Applicable Percentage" means, for any day, (a) with respect to any Eurodollar Loan, the applicable percentage set forth below under the caption "Eurodollar Spread" and (b) with respect to the Facility Fee, the applicable percentage set forth below under the caption "Facility Fee Rate", in each case determined by reference to the highest level applicable based upon the ratings by S&P and Moody's in effect on such date for the Index Debt:
Level 1 Level 2 Level 3 Level 4 --------- ---------- --------- ------- Ratings >=BBB and >=BBB- and >=BB+ and =Baa2 >=Baa3 >=Ba1 Eurodollar Spread 1.00% 1.25% 1.375% 1.50% Facility Fee Rate 0.25% 0.25% 0.375% 0.50%
For purposes of the foregoing, (i) if either Moody's or S&P shall not have in effect a rating for the Index Debt (other than by reason of the circumstances referred to in the last sentence of this paragraph), then such rating agency shall be deemed to have established a rating below BB+ or Ba1, as the case may be; (ii) if the ratings established or deemed to have been established by Moody's and S&P for the Index Debt shall fall within different levels, the Applicable Percentage shall be based on the lower of the two ratings; and (iii) if the ratings established or deemed to have been established by Moody's or S&P for the Index Debt shall be changed (other than as a result of a change in the rating system of Moody's or S&P), such change shall be effective as of the date on which it is first announced by the applicable rating agency. Each change in the Applicable Percentage shall apply for purposes FACILITY B -2- 3 of determining interest on the outstanding Eurodollar Loans and the Facility Fee during the period commencing on the effective date of such change and ending on the date immediately preceding the effective date of the next such change. If the rating system of Moody's or S&P shall change, or if either such rating agency shall cease to be in the business of rating corporate debt obligations, the Company and the Banks shall negotiate in good faith to amend this definition to reflect such changed rating system or the absence of ratings from such rating agency and, pending the effectiveness of such amendment, the Applicable Percentage shall be determined by reference to the rating most recently in effect prior to such change or cessation. (ii) "Consolidated EBITDA" means, in respect of any fiscal quarter, the sum of (a) Consolidated Net Income for such fiscal quarter and (b) the amount of all Interest Expense, taxes paid during such fiscal quarter, depreciation and amortization allowances and other non-cash expenses of the Company and its Subsidiaries, as determined on a consolidated basis in accordance with GAAP, but in the case of clause (b) only to the extent deducted in the determination of Consolidated Net Income for such fiscal quarter. (iii) "Interest Expense" means, with respect to any fiscal quarter, without duplication, the following (in each case, eliminating all offsetting debits and credits between the Company and its Subsidiaries and all other items required to be eliminated in the course of the preparation of consolidated financial statements of the Company and its Subsidiaries in accordance with GAAP): all interest in respect of Debt of the Company and its Subsidiaries (including imputed interest on Capital Lease Obligations) paid in cash during, and deducted in determining Consolidated Net Income for, such fiscal quarter. (iv) "First Amendment" means the Agreement and First Amendment to Competitive Advance and Revolving Credit Facility Agreement (Facility B) dated as of November 2, 1999 among the Company, the Banks party thereto and the Administrative Agent. (v) "First Amendment Execution Date" means the date the First Amendment has been executed by all the parties thereto. SECTION 2. Amendments to Article II of the Credit Agreement. (a) Section 2.07(a) of the Credit Agreement is hereby amended in its entirety to read as follows: "(a) The Company agrees to pay in immediately available funds to the Administrative Agent for the account of each Bank, through the Administrative Agent, (i) on each March 31, June 30, September 30 and December 31 commencing December 31, 1999 from the First Amendment Execution Date to FACILITY B -3- 4 the date on which the Commitment of such Bank has been terminated and (ii) on the Maturity Date and on any other date on which the Commitment of such Bank has been terminated, facility fees (each a "Facility Fee"and collectively, the "Facility Fees"), which shall accrue at the Applicable Percentage on the amount of the Commitment of such Bank from time to time outstanding, whether used, deemed used or unused, during the preceding quarter (or shorter period commencing with the First Amendment Execution Date and/or ending with the Maturity Date), provided, however, if any Loans are outstanding to any Bank after the Maturity Date then such Facility Fee shall continue to accrue on the daily amount of such Bank's outstanding Loans from and including the Maturity Date to but excluding the date all such Loans are paid in full.". (b) Section 2.09(a) of the Credit Agreement is hereby amended in its entirety to read as follows: "(a) Subject to the provisions of Section 2.09(d) and Section 2.10, the Loans comprising each Eurocurrency Borrowing shall bear interest (computed on the basis of the actual number of days elapsed over a year of 360 days) at a rate per annum equal to (i) in the case of each Eurodollar Committed Loan, the lesser of (A) the IBO Rate for the Interest Period in effect for such Borrowing plus the Applicable Percentage in effect for such Loans from time to time and (B) the Highest Lawful Rate, (ii) in the case of each Eurocurrency Competitive Loan, the lesser of (A) the IBO Rate for the Interest Period in effect for such Borrowing plus the Margin offered by the Bank making such Loan and accepted by a Borrower pursuant to Section 2.03 and (B) the Highest Lawful Rate,(iii) in the case of each Foreign Currency Revolving Loan that is a Eurocurrency Loan, the lesser of (A) the IBO Rate for the Interest Period in effect for such Borrowing plus any spread specified in the applicable Foreign Currency Addendum and (B) the Highest Lawful Rate and (iv) in the case of each Foreign Currency Revolving Loan (other than a Eurocurrency Loan), such rate as shall be specified in the applicable Foreign Currency Addendum.". SECTION 3. Amendments to Article V. Article V of the Credit Agreement is hereby amended as follows: (a) The penultimate sentence of Section 5.01(a) is hereby amended in its entirety to read as follows: "Together with each delivery of financial statements required by clauses (i) and (ii) above, the Company will deliver to each Bank (y) schedules and/or computations demonstrating that the Company is in compliance with its covenants in Sections 5.02(a), 5.02(b), 5.02(c), 5.02(g) and 5.02(j) or reflecting any noncompliance therewith as at the applicable date and (z) an Officer's Certificate stating that there exists no Event of Default or Default, or, if any Event of Default or FACILITY B -4- 5 Default, stating the nature thereof, the period of existence thereof and what action the Company or any other Borrower has taken or proposes to take with respect thereto.". (b) Section 5.02(a) of the Credit Agreement is hereby amended in its entirety to read as follows: "(a) Net Worth. The Company will not permit Net Worth at any time to be less than the sum of (a) $2,500,000,000, plus (b) 50% of Consolidated Net Income (if positive) for each fiscal quarter ending during the period from January 1, 1999 to the end of its most recently completed fiscal quarter, plus (c) 100% of the net proceeds received by the Company on or after January 1, 1999 from all shares, rights to purchase, warrants, options, participations or other equivalents of the Company's equity, including all common stock and preferred stock.". (c) Section 5.02(b) of the Credit Agreement is hereby amended in its entirety to read as follows: "(b) Debt. (i) The Company will not permit the ratio of Consolidated Debt to Total Capitalization at any time to be greater than .60 to 1.0. (ii) The Company will not permit the sum of (A) the aggregate amount of Debt of its Subsidiaries (other than Debt held by the Company) plus (B) Assured Obligations of its Subsidiaries to exceed 20% of Net Worth.". (d) Section 5.02 of the Credit Agreement is hereby amended to add the following as Section 5.02(j): "(j) EBITDA. The Company will not permit the ratio of Consolidated EBITDA to Interest Expense at any time to be less than 2.75 to 1.0, calculated at the end of each fiscal quarter for such fiscal quarter and the immediately preceding three fiscal quarters.". SECTION 4. Amendment to Section 9.02. Clause (a) of Section 9.02 is hereby amended in its entirety to read as follows: "(a) change the definitions of "Applicable Percentages" or "Majority Banks" contained in Section 1.01,". SECTION 5. Conditions of Effectiveness. This Amendment shall become effective when, and only when the following conditions shall have been fulfilled: FACILITY B -5- 6 (a) the Company, the Administrative Agent and the Majority Banks shall have executed a counterpart hereof and delivered the same to the Administrative Agent or, in the case of any Bank as to which an executed counterpart hereof shall not have been so delivered, the Administrative Agent shall have received written confirmation by telecopy or other similar writing from such Bank of execution of a counterpart hereof by such Bank; and (b) the Administrative Agent shall have received from the Company a certificate of the Secretary or Assistant Secretary of the Company certifying that attached thereto is (i) a true and complete copy of the general borrowing resolutions of the Board of Directors of the Company authorizing the execution, delivery and performance of the Credit Agreement, as amended hereby, and (ii) the incumbency and specimen signature of each officer of the Company executing this Amendment. SECTION 6. Representations and Warranties True; No Default or Event of Default. The Company hereby represents and warrants to the Administrative Agent, the Co-Agents and the Banks that after giving effect to the execution and delivery of this Amendment: (a) the representations and warranties set forth in the Credit Agreement are true and correct on the date hereof as though made on and as of such date; provided, however, that for purposes of this Section 6, the reference in the first sentence of Section 4.07 to the Company Financials shall be a reference to the consolidated financial statements of the Company and its Subsidiaries most recently delivered to the Administrative Agent and the Banks by the Company pursuant to Section 5.01(a)(i) or 5.01(a)(ii), as the case may be, and (b) no event has occurred and is continuing that constitutes either a Default or an Event of Default. SECTION 7. Reference to the Credit Agreement and Effect on the Other Documents Executed Pursuant to the Credit Agreement. (a) Upon the effectiveness of this Amendment, each reference in the Credit Agreement to "this Agreement," "hereunder," "herein," "hereof" or words of like import shall mean and be a reference to the Credit Agreement, as amended hereby. (b) Upon the effectiveness of this Amendment, each reference in the documents and agreements delivered or to be delivered pursuant to the Credit Agreement shall mean and be a reference to the Credit Agreement, as amended hereby. (c) Upon the effectiveness of this Amendment, each reference in the Credit Agreement to "Consolidated Net Income" shall mean and be a reference to such term as amended hereby. (d) The Credit Agreement and other documents and agreements delivered pursuant to the Credit Agreement, and modified by the amendments referred to above, shall remain in full force and effect and are hereby ratified and confirmed. FACILITY B -6- 7 SECTION 8. Execution in Counterparts. This Amendment may be executed in any number of counterparts and by different parties hereto in separate counterparts, each of which when so executed and delivered shall be deemed to be an original and all of which taken together shall constitute but one and the same instrument. SECTION 9. GOVERNING LAW; BINDING EFFECT. THIS AMENDMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF TEXAS AND APPLICABLE FEDERAL LAW AND SHALL BE BINDING UPON THE COMPANY, THE ADMINISTRATIVE AGENT, THE CO-AGENTS, THE BANKS AND THE RETIRING BANKS AND THEIR RESPECTIVE SUCCESSORS AND ASSIGNS. SECTION 10. Headings. Section headings in this Amendment are included herein for convenience of reference only and shall not constitute a part of this Amendment for any other purpose. SECTION 11. ENTIRE AGREEMENT. THE CREDIT AGREEMENT (INCLUDING THE EXHIBITS AND SCHEDULES HERETO), AS AMENDED HEREBY, THE BORROWING SUBSIDIARY COUNTERPARTS, THE ASSIGNMENT AND ACCEPTANCES, IF ANY, AND THE AGENT'S FEE LETTER EMBODY THE ENTIRE AGREEMENT AND UNDERSTANDING AMONG THE COMPANY, THE ADMINISTRATIVE AGENT, THE CO-AGENTS, THE BANKS AND THE RETIRING BANKS RELATING TO THE SUBJECT MATTER HEREOF AND THEREOF AND SUPERSEDE ALL PRIOR PROPOSALS, AGREEMENTS AND UNDERSTANDINGS RELATING TO SUCH SUBJECT MATTER. FACILITY B -7- 8 IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be executed effective as of the date first stated herein, by their respective officers thereunto duly authorized. SERVICE CORPORATION INTERNATIONAL By: -------------------------------------- Todd A. Matherne Senior Vice President and Treasurer FACILITY B 9 SERVICE CORPORATION INTERNATIONAL, PLC By: -------------------------------------- Name: Title: FACILITY B 10 SCI INTERNATIONAL LIMITED By: -------------------------------------- Name: Title: FACILITY B 11 SCI NEDERLAND, B.V. (formerly, FONTINA INVESTMENTS B.V.) By: -------------------------------------- Name: Title: FACILITY B 12 611102 SASKATCHEWAN LTD. By: -------------------------------------- Name: Title: FACILITY B 13 SERVICE CORPORATION INTERNATIONAL AUSTRALIAN PTY LIMITED By: -------------------------------------- Name: Title: FACILITY B 14 THE CHASE MANHATTAN BANK, as Administrative Agent By: -------------------------------------- Name: Title: FACILITY B 15 BANK: ABN AMRO BANK N.V. By: -------------------------------------- Name: ------------------------------------ Title: ----------------------------------- By: -------------------------------------- Name: ------------------------------------ Title: ----------------------------------- Commitment: $35,000,000 FACILITY B 16 BANK: BANK OF AMERICA, N.A., F/K/A BANK OF AMERICA ILLINOIS By: -------------------------------------- Name: ------------------------------------ Title: ----------------------------------- Commitment: $119,000,000 FACILITY B 17 BANK: THE BANK OF NEW YORK By: -------------------------------------- Name: ------------------------------------ Title: ----------------------------------- Commitment: $35,000,000 FACILITY B 18 BANK: BANQUE NATIONALE DE PARIS, HOUSTON AGENCY By: -------------------------------------- Name: ------------------------------------ Title: ----------------------------------- Commitment: $21,000,000 FACILITY B 19 BANK: CHASE BANK OF TEXAS, NATIONAL ASSOCIATION, f/k/a TEXAS COMMERCE BANK NATIONAL ASSOCIATION By: -------------------------------------- Name: ------------------------------------ Title: ----------------------------------- Commitment: $70,000,000 FACILITY B 20 BANK: CIBC, INC. By: -------------------------------------- Name: ------------------------------------ Title: ----------------------------------- Commitment: $35,000,000 FACILITY B 21 BANK: CITIBANK, N.A. By: -------------------------------------- Name: ------------------------------------ Title: ----------------------------------- Commitment: $59,500,000 FACILITY B 22 BANK: COMMERZBANK AKTIENGESELLSCHAFT, ATLANTA AGENCY By: -------------------------------------- Name: ------------------------------------ Title: ----------------------------------- By: -------------------------------------- Name: ------------------------------------ Title: ----------------------------------- Commitment: $14,000,000 FACILITY B 23 BANK: CREDIT COMMERCIAL DE FRANCE By: -------------------------------------- Name: ------------------------------------ Title: ----------------------------------- By: -------------------------------------- Name: ------------------------------------ Title: ----------------------------------- Commitment: $35,000,000 FACILITY B 24 BANK: CREDIT LYONNAIS NEW YORK BRANCH By: -------------------------------------- Name: ------------------------------------ Title: ----------------------------------- Commitment: $14,000,000 FACILITY B 25 BANK: THE FUJI BANK, LIMITED By: -------------------------------------- Name: ------------------------------------ Title: ----------------------------------- Commitment: $14,000,000 FACILITY B 26 BANK: SAN PAOLO IMI S.p.A. By: -------------------------------------- Name: ------------------------------------ Title: ----------------------------------- By: -------------------------------------- Name: ------------------------------------ Title: ----------------------------------- Commitment: $14,000,000 FACILITY B 27 BANK: ROYAL BANK OF CANADA By: -------------------------------------- Name: ------------------------------------ Title: ----------------------------------- Commitment: $59,500,000 FACILITY B 28 BANK: SOCIETE GENERALE By: -------------------------------------- Name: ------------------------------------ Title: ----------------------------------- Commitment: $59,500,000 FACILITY B 29 BANK: SUNTRUST BANK, ATLANTA By: -------------------------------------- Name: ------------------------------------ Title: ----------------------------------- By: -------------------------------------- Name: ------------------------------------ Title: ----------------------------------- Commitment: $35,000,000 FACILITY B 30 BANK: UBS AG, STAMFORD BRANCH, f/k/a UNION BANK OF SWITZERLAND By: -------------------------------------- Name: ------------------------------------ Title: ----------------------------------- By: -------------------------------------- Name: ------------------------------------ Title: ----------------------------------- Commitment: $59,500,000 FACILITY B 31 BANK: WESTPAC BANKING CORPORATION By: -------------------------------------- Name: ------------------------------------ Title: ----------------------------------- Commitment: $21,000,000 FACILITY B EX-99.7 20 CREDIT AGREEMENT - FINANCIAL INSTITUTIONS 1 EXHIBIT 99.7 EXECUTION COPY ================================================================================ CREDIT AGREEMENT DATED AS OF NOVEMBER 2, 1999 AMONG SERVICE CORPORATION INTERNATIONAL, AS THE COMPANY, THE LENDERS PARTY HERETO, THE CHASE MANHATTAN BANK, AS THE ADMINISTRATIVE AGENT, MORGAN GUARANTY TRUST COMPANY OF NEW YORK, AS THE SYNDICATION AGENT, AND BANK OF AMERICA, NATIONAL ASSOCIATION, CITIBANK, N.A., AND CREDIT LYONNAIS NEW YORK BRANCH AS THE MANAGING AGENTS CHASE SECURITIES INC. AS THE SOLE BOOK MANAGER/LEAD ARRANGER ================================================================================ Amended and Restated Credit Agreement 2 TABLE OF CONTENTS ARTICLE I DEFINITIONS, ACCOUNTING TERMS AND CONSTRUCTION..............................................1 SECTION 1.01. Certain Defined Terms.......................................................................1 SECTION 1.02. Accounting Terms and Determinations........................................................15 SECTION 1.03. Interpretation.............................................................................16 ARTICLE II THE CREDITS................................................................................17 SECTION 2.01. Commitments................................................................................17 SECTION 2.02. Loans......................................................................................18 SECTION 2.03. [Intentionally Omitted]....................................................................19 SECTION 2.04. Borrowing Procedure........................................................................19 SECTION 2.05. Refinancings...............................................................................19 SECTION 2.06. Conversion and Continuation of Borrowings..................................................20 SECTION 2.07. Fees.......................................................................................21 SECTION 2.08. Repayment of Loans.........................................................................22 SECTION 2.09. Interest on Loans..........................................................................22 SECTION 2.10. Interest on Overdue Amounts................................................................22 SECTION 2.11. Alternate Rate of Interest.................................................................23 SECTION 2.12. Termination and Reduction of Commitments...................................................23 SECTION 2.13. Prepayment.................................................................................24 SECTION 2.14. Reserve Requirements; Change in Circumstances..............................................24 SECTION 2.15. Change in Circumstances....................................................................27 SECTION 2.16. Indemnity..................................................................................28 SECTION 2.17. Pro Rata Treatment.........................................................................29 SECTION 2.18. Sharing of Setoffs.........................................................................29 SECTION 2.19. Payments...................................................................................30 SECTION 2.20. Taxes......................................................................................31 SECTION 2.21. Extensions of Termination Date.............................................................32 ARTICLE III CONDITIONS OF LENDING......................................................................33 SECTION 3.01. Conditions Precedent to the Initial Loans to the Company...................................33 SECTION 3.02. Conditions Precedent to Each Borrowing.....................................................35 SECTION 3.03. Conditions Precedent to Conversions and Continuations......................................35 ARTICLE IV REPRESENTATIONS AND WARRANTIES.............................................................36 SECTION 4.01. Organization and Qualification.............................................................36 SECTION 4.02. Authorization, Validity, Etc...............................................................36 SECTION 4.03. Governmental Consents, Etc.................................................................36 SECTION 4.04. Conflicting or Adverse Agreements or Restrictions..........................................37 SECTION 4.05. Title to Assets............................................................................37 SECTION 4.06. Actions Pending............................................................................37 SECTION 4.07. Financial Statements.......................................................................37
Amended and Restated Credit Agreement -i- 3 SECTION 4.08. Default....................................................................................38 SECTION 4.09. Investment Company Act.....................................................................38 SECTION 4.10. Public Utility Holding Company Act.........................................................38 SECTION 4.11. ERISA......................................................................................38 SECTION 4.12. Payment of Taxes...........................................................................38 SECTION 4.13. Purpose of Loans...........................................................................38 SECTION 4.14. Patents, Etc...............................................................................39 SECTION 4.15. No Material Guarantees or Letters of Credit................................................39 SECTION 4.16. Enhancement Agreements.....................................................................39 SECTION 4.17. Year 2000..................................................................................39 ARTICLE V COVENANTS.............................................................................40 SECTION 5.01. Affirmative Covenants......................................................................40 SECTION 5.02. Negative Covenants.........................................................................42 ARTICLE VI EVENTS OF DEFAULT.....................................................................47 SECTION 6.01. Events of Default..........................................................................47 ARTICLE VII THE ADMINISTRATIVE AGENT.............................................................50 SECTION 7.01. Authorization and Action...................................................................50 SECTION 7.02. Administrative Agent's Reliance, Etc.......................................................50 SECTION 7.03. Administrative Agent and Affiliates; Chase and Affiliates..................................51 SECTION 7.04. Bank Credit Decision.......................................................................51 SECTION 7.05. Administrative Agent's Indemnity...........................................................52 SECTION 7.06. Successor Administrative Agent.............................................................52 SECTION 7.07. Notice of Default..........................................................................53 SECTION 7.08. No Duty....................................................................................53 ARTICLE VIII MISCELLANEOUS.........................................................................53 SECTION 8.01. Amendments, Etc............................................................................53 SECTION 8.02. Notices, Etc...............................................................................54 SECTION 8.03. No Waiver; Remedies........................................................................55 SECTION 8.04. Costs, Expenses and Taxes..................................................................55 SECTION 8.05. Indemnity..................................................................................56 SECTION 8.06. Right of Setoff............................................................................56 SECTION 8.07. Governing Law..............................................................................57 SECTION 8.08. Interest...................................................................................57 SECTION 8.09. Survival of Representations, Warranties and Covenants......................................57 SECTION 8.10. Binding Effect.............................................................................58 SECTION 8.11. Successors and Assigns; Participations.....................................................58 SECTION 8.12. Confidentiality............................................................................61 SECTION 8.13. Separability...............................................................................61 SECTION 8.14. Limitation by Law..........................................................................61 SECTION 8.15. Independence of Covenants..................................................................61
Amended and Restated Credit Agreement -ii- 4 SECTION 8.16. Judgment...................................................................................61 SECTION 8.17. Submission to Jurisdiction; Waiver of Immunities...........................................62 SECTION 8.18. Entire Agreement...........................................................................63 SECTION 8.19. Execution in Counterparts..................................................................63
Annex I - Commitments Exhibit 1.01. Administrative Questionnaire Exhibit 2.04. Form of Borrowing Request Exhibit 8.11. Form of Assignment and Acceptance Schedule 4.01 Subsidiaries Schedule 4.15 Assurances and Letters of Credit Schedule 4.16 Enhancement Agreements Amended and Restated Credit Agreement -iii- 5 CREDIT AGREEMENT THIS CREDIT AGREEMENT dated as of November 2, 1999, among: (a) SERVICE CORPORATION INTERNATIONAL, a Texas corporation (the "Company"); (b) the banks and other financial institutions named under the caption "Banks" on the signature pages hereof (such banks together with each other Person who becomes a Bank pursuant to Section 8.11, collectively, the "Banks"); and (c) THE CHASE MANHATTAN BANK, a New York banking corporation, as administrative agent for the Banks (in such capacity together with any other Person who becomes the Administrative Agent pursuant to Section 7.06, the "Administrative Agent"). P R E L I M I N A R Y S T A T E M E N T A. The Company has requested that the Banks extend a credit facility to the Company in order to enable the Company to borrow on a revolving credit basis on and after the date hereof, on the terms and conditions set forth herein, a principal amount not in excess of $600,000,000. The Banks are willing to extend such credit to the Company on the terms and subject to the conditions herein set forth. Accordingly, the Company, the Banks and the Administrative Agent agree as follows: ARTICLE I DEFINITIONS, ACCOUNTING TERMS AND CONSTRUCTION SECTION 1.01. Certain Defined Terms. As used in this Agreement, the following terms shall have the following meanings: "ABR Borrowing" means a Borrowing comprised of ABR Loans. "ABR Loan" means any Loan bearing interest at a rate determined by reference to the Alternate Base Rate in accordance with the provisions of Article II. "Acquisition" means the acquisition by the Company or any of its Subsidiaries of a business, including any assets, leases and liabilities (contingent or otherwise) related thereto, either by the purchase of stock or assets for cash or other property or by an exchange or issuance of Equity Interests (including merger) or assumption of liabilities or by a combination thereof. Amended and Restated Credit Agreement 6 "Administrative Agent" has the meaning specified in the introduction to this Agreement. "Administrative Questionnaire" means an Administrative Questionnaire in the form of Exhibit 1.01, which each Bank shall complete and provide to the Administrative Agent and the Company. "Affiliate" means, when used with respect to any Person, any other Person which controls or is controlled by or is under common control with such Person. As used in this definition, "control" means the possession, directly or indirectly, of power to direct or cause the direction of management or policies (whether through ownership of securities or partnership or ownership interests, by contract or otherwise). "Agreement" means this Credit Agreement. "Agreement Currency" has the meaning specified in Section 8.16. "Alternate Base Rate" means, for any date, a rate per annum (rounded upwards, if necessary, to the next 1/16 of 1%) equal to the greater of (a) the Prime Rate in effect on such day and (b) the Federal Funds Effective Rate in effect on such day plus 1/2 of 1%. "Prime Rate" means, as of a particular date, the prime rate most recently determined by the Administrative Agent at the Principal Office, automatically fluctuating upward and downward with and at the time specified in each such announcement without notice to the Company or any other Person, which prime rate may not necessarily represent the lowest or best rate actually charged to a customer. "Federal Funds Effective Rate" means, for any day, the weighted average of the rates on overnight federal funds transactions with members of the Federal Reserve System arranged by federal funds brokers, as published for such day (or, if such day is not a Business Day, for the next preceding Business Day) by the Federal Reserve Bank of New York, or, if such rate is not so published for any day which is a Business Day, the average of the quotations for such day on such transactions received by the Administrative Agent from three federal funds brokers of recognized standing selected by it. If for any reason the Administrative Agent shall have determined (which determination, made in good faith, shall create a rebuttable presumption that the same is accurate) that it is unable to ascertain the Federal Funds Effective Rate for any reason, including the inability or failure of the Administrative Agent to obtain sufficient quotations in accordance with the terms hereof, the Alternate Base Rate shall be determined without regard to clause (b) of the first sentence of this definition until the circumstances giving rise to such inability no longer exist. Any change in the Alternate Base Rate due to a change in the Prime Rate or the Federal Funds Effective Rate shall be effective on the effective date of such change in the Prime Rate or the Federal Funds Effective Rate, respectively. "Applicable Creditor" has the meaning specified in Section 8.16. Amended and Restated Credit Agreement -2- 7 "Applicable Lending Office" means, with respect to each Bank, such Bank's Domestic Lending Office in the case of an ABR Loan and such Bank's Eurodollar Lending Office in the case of a Eurodollar Loan. "Applicable Percentage" means, for any day, (a) with respect to any Eurodollar Loan, the applicable percentage set forth below under the caption "Eurodollar Spread" and (b) with respect to the Facility Fee, the applicable percentage set forth below under the caption "Facility Fee Rate", in each case determined by reference to the highest level applicable based upon the ratings by S&P and Moody's in effect on such date for the Index Debt:
Level 1 Level 2 Level 3 Level 4 ------- ------- ------- ------- Ratings >=BBB and >=BBB- and >=BB+ and =Baa2 >=Baa3 >=Ba1 Eurodollar Spread 1.00% 1.25% 1.375% 1.50% Facility Fee Rate 0.25% 0.25% 0.375% 0.50%
For purposes of the foregoing, (i) if either Moody's or S&P shall not have in effect a rating for the Index Debt (other than by reason of the circumstances referred to in the last sentence of this paragraph), then such rating agency shall be deemed to have established a rating below BB+ or Ba1, as the case may be; (ii) if the ratings established or deemed to have been established by Moody's and S&P for the Index Debt shall fall within different levels, the Applicable Percentage shall be based on the lower of the two ratings; and (iii) if the ratings established or deemed to have been established by Moody's or S&P for the Index Debt shall be changed (other than as a result of a change in the rating system of Moody's or S&P), such change shall be effective as of the date on which it is first announced by the applicable rating agency. Each change in the Applicable Percentage shall apply for purposes of determining interest on the outstanding Eurodollar Loans and the Facility Fee during the period commencing on the effective date of such change and ending on the date immediately preceding the effective date of the next such change. If the rating system of Moody's or S&P shall change, or if either such rating agency shall cease to be in the business of rating corporate debt obligations, the Company and the Banks shall negotiate in good faith to amend this definition to reflect such changed rating system or the absence of ratings from such rating agency and, pending the effectiveness of such amendment, the Applicable Percentage shall be determined by reference to the rating most recently in effect prior to such change or cessation. "Assignment and Acceptance" has the meaning specified in Section 8.11(c). "Assurance" means, as to any Person, any guaranty or other contingent liability of such Person (other than any endorsement for collection or deposit in the ordinary course of business) including, without limitation, contingent liabilities as an account party in respect of letters of credit, Amended and Restated Credit Agreement -3- 8 direct or indirect, with respect to any obligation of another Person, through an agreement or otherwise, including (a) any endorsement or discount with recourse or other undertaking substantially equivalent to or having economic effect similar to a guarantee in respect of any such obligation and (b) any agreement (i) to purchase, or to advance or supply funds for the payment or purchase of, any such obligation, (ii) to purchase, sell or lease property, products, materials or supplies, or transportation or services, in order to enable such other Person to pay any such obligation or to assure the owner thereof against loss regardless of the delivery or non-delivery of the property, products, materials or supplies or transportation or services or (iii) to make any loan, advance or capital contribution to or other investment in, or to otherwise provide funds to or for, such other Person in order to enable such Person to satisfy any obligation (including any liability for a dividend, stock liquidation payment or expense) or to assure a minimum equity, working capital or other balance sheet condition for the benefit of the holder of any such obligation. Notwithstanding the foregoing, the term "Assurance" shall not include any guaranty or other contingent liability, direct or indirect, with respect to (u) bonds, indemnity agreements and similar arrangements which are provided to assure that the Company and its Subsidiaries fully perform their obligations regarding prearranged funeral services and goods and/or construction of burial facilities, (v) obligations of a Person acquired, or of a business which has been acquired, in an Acquisition, provided that such obligations arose prior to such Acquisition and were not created, incurred or assumed in contemplation thereof, (w) obligations of a Subsidiary arising from an Acquisition, (x) any duly authorized registered guaranty of the Company of a promissory note of its Subsidiary issued or to be issued with respect to an Acquisition in accordance with an Indenture dated as of May 1, 1970, executed and delivered between the Company and Chase Bank of Texas, as Trustee, (y) Letters of Credit, or (z) obligations of the Company under the Enhancement Agreements. In no event shall any unfunded commitment extended by Provident in the ordinary course of its business of extending financing to the death care industry be considered an Assurance and the loans and advances made by Provident pursuant to any such commitment shall constitute investments and not Assurances. The amount of any Assurance shall be equal to the outstanding amount of the obligation directly or indirectly guaranteed (to the full extent of the obligation in respect of which such Assurance is given or the maximum liability in respect of such Assurance of the Person giving the same, whichever shall be less). "Assured Obligation" means, as to any Person, any amount guaranteed or otherwise supported by such Person pursuant to an Assurance. "Banks" has the meaning specified in the introduction to this Agreement. "Board" means the Board of Governors of the Federal Reserve System of the United States. "Borrowing" means a borrowing consisting of concurrent Loans from each of the Banks pursuant to Section 2.04 distributed ratably among the Banks in accordance with their Amended and Restated Credit Agreement -4- 9 respective Commitments or resulting from a conversion or continuation of an existing Borrowing pursuant to Section 2.06. "Borrowing Date" means, with respect to each Borrowing made pursuant to Section 2.03 or Section 2.04, the Business Day upon which the proceeds of such Borrowing are to be made available to the Company. "Borrowing Request" has the meaning specified in Section 2.04. "Business Day" means any day other than a Saturday, Sunday or legal holiday in the State of New York or Texas or other day on which banks in New York City or in Houston, Texas are required or authorized by law to close; provided, however, that, when used in connection with a Eurodollar Loan, the term "Business Day" shall also exclude any day on which banks are not open for dealings in dollar deposits in the London interbank market. "Capital Lease" means, as to any Person, any lease in respect of which the obligations of such Person constitute Capitalized Lease Obligations. "Capitalized Lease Obligations" means, as to any Person, all lease obligations which shall have been or should be, in accordance with GAAP, capitalized on the books of such Person. "Chase" means The Chase Manhattan Bank, a New York banking corporation. "Chase Bank of Texas" means Chase Bank of Texas, National Association, a national banking association. "Code" means the Internal Revenue Code of 1986 and the regulations promulgated thereunder. "Commitment" means, with respect to each Bank, the amount set forth beneath the name of such Bank on Annex I (or, as to any Person that becomes a Bank after the Execution Date, on the signature page of the Assignment and Acceptance executed by such Person), as such amount may be permanently terminated or reduced from time to time pursuant to Section 2.12, Section 2.14, Section 2.15 or Section 8.11, and as such amount may be increased from time to time by assignment or assumption pursuant to Section 2.14, Section 2.15 or Section 8.11. The Commitment of each Bank shall automatically and permanently terminate on the Maturity Date. "Communications" has the meaning specified in Section 8.02. "Company" has the meaning specified in the introduction to this Agreement. "Company Financials" has the meaning specified in Section 4.07. Amended and Restated Credit Agreement -5- 10 "Consolidated Assets" means, as to any Person, total consolidated assets (including assets subject to Capital Leases) of such Person and of its Subsidiaries, as determined on a consolidated basis in accordance with GAAP. "Consolidated Debt" means the Debt of the Company and its Subsidiaries, as determined on a consolidated basis in accordance with GAAP. "Consolidated EBITDA" means, in respect of any fiscal quarter, the sum of (a) Consolidated Net Income for such fiscal quarter and (b) the amount of all Interest Expense, taxes paid during such fiscal quarter, depreciation and amortization allowances and other non-cash expenses of the Company and its Subsidiaries, as determined on a consolidated basis in accordance with GAAP, but in the case of clause (b) only to the extent deducted in the determination of Consolidated Net Income for such fiscal quarter. "Consolidated Net Income" means, for any period, the net income of the Company and its Subsidiaries for such period (taken as a cumulative whole), determined on a consolidated basis in accordance with GAAP and adjusted to exclude (a) net after-tax extraordinary gains or losses, (b) restructuring charges, and (c) the cumulative effect of any changes in accounting principles. "Consolidated Subsidiary" means, with respect to any Person, each Subsidiary of such Person the accounts of which are or should be consolidated with the accounts of such Person in reporting the consolidated financial statements of such Person in accordance with GAAP. "Debt" means, when used with respect to any Person, without duplication, (a) all indebtedness of such Person for borrowed money (whether by loan or the issuance and sale of debt securities) or for the deferred purchase price of property or services (excluding, however, Letter of Credit Obligations of such Person), (b) all indebtedness created or arising under any conditional sale or other title retention agreement with respect to property acquired by such Person (even though the rights and remedies of the seller or lender under such agreement in the event of default are limited to repossession or sale of such property), (c) all Capitalized Lease Obligations of such Person, (d) all obligations of such Person in respect of interest rate protection agreements, foreign currency exchange agreements or other similar agreements and arrangements (the amount of any such obligation to be the amount that would be payable upon the acceleration, termination or liquidation thereof), (e) liabilities in respect of unfunded vested benefits under Plans, and (f) all Debt of such Person referred to in clause (a), (b) (c) or (d) above secured by (or for which the holder of such Debt has an existing right, contingent or otherwise to be secured by) any Lien upon or interest in property (including accounts and general intangibles, as such terms are defined in the Uniform Commercial Code in effect in the State of New York) owned by such Person, even though such Person has not assumed or become liable for the payment of such Debt. For purposes of this Agreement, the term "Debt" shall exclude (i) Operating Lease Obligations and (ii) obligations in respect of agreements and arrangements described in clause (d) above to the extent (and only to the extent) such Amended and Restated Credit Agreement -6- 11 agreements and arrangements are entered into to protect such Person and its Subsidiaries against interest rate and exchange rate risks related to their respective businesses, and not for speculative purposes. "Default" means the occurrence of any event which with the giving of notice or the passage of time or both could become an Event of Default. "Distribution" means (a) dividends or other distributions or payments on capital stock or other Equity Interests of the Company (except distributions in such stock or other Equity Interests); and (b) the redemption or acquisition of Equity Interests of the Company or of warrants, rights or other options to purchase Equity Interests of the Company (except when solely in exchange for Equity Interests of the Company) unless made, contemporaneously, from the net proceeds of a sale of Equity Interests of the Company. "Dollars","dollars" and the symbol "$", without more, mean the lawful currency of the United States of America. "Domestic Lending Office" means, with respect to any Bank, the office of such Bank specified as its "Domestic Lending Office" on such Bank's signature page to this Agreement or, as to any Person who becomes a Bank after the Execution Date, on the signature page of the Assignment and Acceptance executed by such Person or such other office of such Bank as such Bank may hereafter designate from time to time as its "Domestic Lending Office" by notice to the Company and the Administrative Agent. "Effective Date" means the date on which the conditions to borrowing set forth in Article III are first met. "Eligible Assignee" means (a) any Bank or any Affiliate of a Bank; (b) a commercial bank organized or licensed under the laws of the United States, or any state thereof, and having total assets in excess of $1,000,000,000; (c) a commercial bank organized under the laws of any other country which is a member of the OECD, or a political subdivision of any such country, and having total assets in excess of $1,000,000,000; provided that such bank is acting through a branch or agency located in the country in which it is organized or another country which is also a member of the OECD; (d) the central bank of any country which is a member of the OECD; and (e) any other lender approved by the Administrative Agent and the Company (which approval shall not be unreasonably withheld). "Enforcement Subsidiary" means, as to Provident, any Wholly-owned Subsidiary formed by Provident for the purpose of foreclosing or otherwise realizing upon the assets securing obligations due to Provident pursuant to investments made by Provident. Amended and Restated Credit Agreement -7- 12 "Enhancement Agreements" means the Support Agreements, the Inducement Agreement and all other similar agreements. "Equity Interests" means, with respect to any Person, shares of the capital stock, partnership interests or other equity interests in such Person or any warrants, options or other rights to acquire any such equity interests. "ERISA" means the Employee Retirement Income Security Act of 1974, as amended from time to time, and the regulations promulgated thereunder. "ERISA Group" means all corporations, trades or businesses (whether or not incorporated) and other Persons which, together with the Company, are treated as a single employer under Section 414(b), (c), (m) or (o) of the Code. "Eurocurrency Liabilities" has the meaning assigned to that term in Regulation D. "Eurodollar Borrowing" means a Borrowing comprised of Eurodollar Loans. "Eurodollar Lending Office" means, with respect to each Bank, the branch or Affiliate of such Bank which such Bank has designated as its "Eurodollar Lending Office" on such Bank's signature page to this Agreement or, as to any Person who becomes a Bank after the Execution Date, on the signature page of the Assignment and Acceptance executed by such Person or such other office of such Bank as such Bank may hereafter designate from time to time as its "Eurodollar Lending Office" by notice to the Company and the Administrative Agent. "Eurodollar Loan" means any Loan bearing interest at a rate determined by reference to the IBO Rate in accordance with the provisions of Article II. "Event of Default" means any of the events described in Article VI. "Execution Date" means the earliest date upon which all of the following shall have occurred: counterparts of this Agreement shall have been executed by the Company, each Bank and the Administrative Agent, and the Administrative Agent shall have received counterparts hereof which taken together, bear the signatures of the Company and each Bank. "Existing Termination Date" has the meaning specified in Section 2.21. "Extended Termination Date" means, as at any date, the date to which the Termination Date has then most recently been extended pursuant to Section 2.21. "Facility Fees" has the meaning specified in Section 2.07(a). Amended and Restated Credit Agreement -8- 13 "FDIC" means the Federal Deposit Insurance Corporation (or any successor thereto). "Federal Funds Effective Rate" has the meaning specified in the definition of the term Alternate Base Rate. "Fee Letter" means the fee letter agreement dated October 11, 1999 between the Company, the Administrative Agent and Chase Securities Inc. "Financial Provisions" has the meaning specified in Section 1.02(c). "FST" means SCI Texas Funeral Services, Inc., a Texas corporation. "Funded Debt" means any Debt of any Person (including any Capitalized Lease Obligation of such Person, but not including any deferred taxes) payable more than one year from the date of the creation thereof. The interests of minority shareholders in such Person's Consolidated Subsidiaries which are shown on the liability side of a balance sheet as "minority interests" but which are not "obligations" are not within the definition of "Funded Debt." "GAAP" means generally accepted accounting principles as set forth in the opinions, statements and pronouncements of the Accounting Principles Board of the American Institute of Certified Public Accountants, the Financial Accounting Standards Board and such other Persons as shall be approved by a significant segment of the accounting profession and concurred in by the independent certified public accountants certifying any audited financial statements of the Company, as such principles shall be in effect at the time of any computation or determination or as of the date of the relevant financial statements, as the case may be (the "Relevant Date"), subject to Section 1.02. "Highest Lawful Rate" means, as to any Bank, at the particular time in question, the maximum nonusurious rate of interest which, under applicable law, such Bank is then permitted to charge the Company on the Loans. If the maximum rate of interest which, under applicable law, the Banks are permitted to charge the Company on the Loans shall change after the date hereof, to the extent permitted by applicable law, the Highest Lawful Rate shall be automatically increased or decreased, as the case may be, as of the effective time of such change without notice to the Company or any other Person. "IBO Rate" means, with respect to each date during each Interest Period pertaining to a Eurodollar Borrowing (other than an Interest Period of 14 days), the rate appearing on page 3750 of Telerate (or on any successor or substitute page, or any page of any successor to or substitute for Telerate, providing rate quotations comparable to those currently provided on such page, as determined by the Administrative Agent from time to time for purposes of providing quotations of interest rates applicable to deposits in Dollars in the London interbank market) at approximately 11:00 a.m., London time, two Business Days prior to the commencement of such Interest Period, Amended and Restated Credit Agreement -9- 14 as the rate for deposits in Dollars approximately equal in principal amount to such Eurodollar Borrowing and with a maturity equal to such Interest Period. In the event that such rate is not available at such time for any reason, and in the case of an Interest Period of 14 days, then the "IBO Rate" with respect to such Eurodollar Borrowing for such Interest Period shall be the rate (rounded to the nearest 1/16 of 1% or, if there is no nearest 1/16 of 1%, the next higher 1/16 of 1%) at which deposits in Dollars approximately equal in principal amount to such Eurodollar Borrowing and with a maturity equal to such Interest Period are offered in immediately available funds to the Administrative Agent by leading banks in the London interbank market at approximately 11:00 a.m., London time (or as soon thereafter as possible), two Business Days prior to the commencement of such Interest Period. "Inactive Subsidiaries" means Subsidiaries of the Company which are not actively engaged in the conduct of business and whose assets and/or Liabilities are not material to the financial condition of the Company and its Subsidiaries taken as a whole. "Index Debt" means the Company's senior, unsecured, non-credit enhanced Funded Debt. "Inducement Agreement" means, collectively, the letter agreement dated August 23, 1993 among the Company, PSI Funding, Inc. and FST and the letter agreement dated April 5, 1993 among the Company, Chase Bank of Texas and Provident. "Intangibles" has the meaning normally ascribed thereto in accordance with GAAP and shall include (a) excess cost over fair market value of tangible assets acquired, (b) patents and patent rights, (c) trademarks, service marks and trade names, (d) copyrights and (e) goodwill. "Interest Expense" means, with respect to any fiscal quarter, without duplication, the following (in each case, eliminating all offsetting debits and credits between the Company and its Subsidiaries and all other items required to be eliminated in the course of the preparation of consolidated financial statements of the Company and its Subsidiaries in accordance with GAAP): all interest in respect of Debt of the Company and its Subsidiaries (including imputed interest on Capital Lease Obligations) paid in cash during, and deducted in determining Consolidated Net Income for, such fiscal quarter. "Interest Payment Date" means with respect to any Eurodollar Loan or ABR Loan, the last day of the Interest Period applicable thereto and, in addition, the date on which such Loan is repaid or prepaid and, in the case of a Eurodollar Loan with an Interest Period of 6 months, the day that would have been the Interest Payment Date for such Loan had an Interest Period of 3 months been applicable to such Loan. "Interest Period" means, with respect to any Borrowing: Amended and Restated Credit Agreement -10- 15 (a) If such Borrowing is a Eurodollar Borrowing, the period commencing on the Borrowing Date of such Borrowing or on the last day of the immediately preceding Interest Period applicable to such Borrowing, as the case may be, and ending (A) 14 days thereafter (subject to market availability) or (B) on the numerically corresponding day (or if there is no corresponding day, the last day) in the calendar month that is one, two, three or six months thereafter, as the Company may elect; and (b) If such Borrowing is an ABR Borrowing, the period commencing on the Borrowing Date of such Borrowing and ending on the earliest of (A) the next succeeding March 31, June 30, September 30 or December 31, and (B) the Maturity Date. Notwithstanding the foregoing, (i) if any Interest Period would end on a day which shall not be a Business Day, such Interest Period shall be extended to the next succeeding Business Day unless, with respect to Eurodollar Loans only, such next succeeding Business Day would fall in the next calendar month, in which case such Interest Period shall end on the next preceding Business Day, and (ii) no Interest Period may be selected for any Borrowing that ends later than the Maturity Date. Interest shall accrue from and including the first day of an Interest Period to but excluding the last day of such Interest Period. "Judgment Currency" has the meaning specified in Section 8.16. "Letter of Credit Obligations" means, when used with respect to any Person, the contingent obligations of such Person in respect of Letters of Credit. "Letters of Credit" means, as to any Person, letters of credit issued for the account of such Person other than letters of credit issued to pay the purchase price of goods or services acquired in the ordinary course of business by such Person or any other Person. "Liabilities" of any Person has the meaning normally ascribed thereto in accordance with GAAP and shall include (a) Capitalized Lease Obligations of such Person or any of its Subsidiaries, (b) the interests of minority shareholders in consolidated Subsidiaries of such Person, (c) indebtedness secured by Liens against any property of such Person or any of its Subsidiaries whether or not such Person or such Subsidiary is liable for the payment thereof, (d) subordinated debt and (e) deferred liabilities. "Lien" means, when used with respect to any Person, any mortgage, lien, charge, pledge, security interest or encumbrance of any kind (whether voluntary or involuntary and whether imposed or created by operation of law or otherwise) upon, or pledge of, any of its property or assets, whether now owned or hereafter acquired, or any lease intended as security, any conditional sale agreement, or any other title retention agreement. Amended and Restated Credit Agreement -11- 16 "Loans" means the revolving loans made by the Banks to the Company pursuant to Section 2.04. Each Loan shall be a Eurodollar Loan or an ABR Loan. "Majority Banks" means, at any time, Banks holding at least 662/3% of the Total Commitment or (if either the Total Commitment has been terminated or "Majority Banks" is being determined for purposes of Article VI) Banks holding at least 662/3% of the then aggregate unpaid principal amount of the outstanding Loans. "Margin Stock" has the meaning specified in Section 4.13. "Material Subsidiary" means, with respect to any Person, each Subsidiary of such Person that would be a "significant subsidiary" as such term is defined in Regulation S-X promulgated pursuant to the Securities Exchange Act of 1934 as amended to the Effective Date; provided, however, for purposes of determining whether any Subsidiary is a "Material Subsidiary," the reference to "10 percent" in clauses (1), (2) and (3) of the definition of "significant subsidiary" contained in said Regulation S-X shall be a reference to 5 percent. "Maturity Date" means the Existing Termination Date. "Maximum Permissible Rate" has the meaning specified in Section 8.08. "Moody's" means Moody's Investors Service. "Net Worth" means, in relation to the Company and its Subsidiaries, Consolidated Assets of the Company less total liabilities of the Company and its Subsidiaries, as determined on a consolidated basis in accordance with GAAP. "Notice of Extension" has the meaning specified in Section 2.21. "Notice of Revocation" has the meaning specified in Section 2.21. "OECD" means the Organization for Economic Cooperation and Development (or any successor). "Officer's Certificate" means a certificate signed in the name of the Company by its President, one of its Vice Presidents, its Treasurer, its Secretary or one of its Assistant Treasurers or Assistant Secretaries. "Operating Lease Obligations" means obligations of a Person in respect of any lease or agreement to lease other than Capitalized Lease Obligations of such Person. "Original Termination Date" means October 29, 2000. Amended and Restated Credit Agreement -12- 17 "Other Activities" has the meaning specified in Section 7.03. "Other Financings" has the meaning specified in Section 7.03. "Other Taxes" has the meaning specified in Section 2.20. "PBGC" means the Pension Benefit Guaranty Corporation or any entity succeeding to all or any of its functions under ERISA. "Person" means an individual, partnership, corporation (including a business trust), limited liability company, joint stock company, trust, unincorporated association, joint venture or other entity, or a foreign state or political subdivision thereof or any agency of such state or subdivision. "Plan" means any employee pension benefit plan maintained or contributed to by the Company or any of its Subsidiaries or by any trade or business (whether or not incorporated) under common control (as defined in Section 4001(a)(14) or 4001(b) of ERISA) with the Company and insured by the PBGC under Title IV of ERISA. "Prime Rate" has the meaning specified in the definition of the term Alternate Base Rate. "Principal Office" means the office of the Administrative Agent located at 270 Park Avenue, New York, New York 10017, or such other office as the Administrative Agent may hereafter designate in writing as such to the other parties hereto. "Provident" means Provident Services, Inc., a Delaware corporation. "Register" has the meaning specified in Section 8.11(e). "Regulation A" means Regulation A of the Board (respecting loans to depository institutions), as the same is from time to time in effect, and all official rulings and interpretations thereunder or thereof. "Regulation D" means Regulation D of the Board (respecting reserve requirements), as the same is from time to time in effect, and all official rulings and interpretations thereunder or thereof. "Regulation U" means Regulation U of the Board (respecting margin credit extended by banks), as the same is from time to time in effect, and all official rulings and interpretations thereunder or thereof. Amended and Restated Credit Agreement -13- 18 "Regulation X" means Regulation X of the Board (respecting borrowers who obtain margin credit), as the same is from time to time in effect, and all official rulings and interpretations thereunder or thereof. "Relevant Date" has the meaning specified in the definition of the term GAAP. "S&P" means Standard & Poor's Ratings Services, a division of The McGraw-Hill Companies, Inc. "Subsidiary" means, with respect to any Person, any corporation in which more than 50% of the stock of each class having ordinary voting power shall, at the time as of which any determination is being made, be owned of record and beneficially by such Person directly and/or through one or more other Subsidiaries. "Substantially-owned Subsidiary" means a Subsidiary of the Company at least 80% of the outstanding capital stock of which, at the time any determination is being made, is owned of record and beneficially by the Company directly and/or through one or more other Subsidiaries. "Support Agreements" means (a) the Support Agreement dated as of September 14, 1988 between the Company and Provident, (b) the Australian Support Agreement dated as of November 1, 1993 between the Company and Service Corporation International Australia Pty Limited and (c) the three Support Agreements dated respectively as of January 28, 1994, September 30, 1994 and November 14, 1994, each between the Company and FST. "Tangible Consolidated Assets" means, as to any Person, Consolidated Assets less all Intangibles of such Person and its Consolidated Subsidiaries. "Taxes" has the meaning specified in Section 2.20. "Termination Date" means, except as expressly provided in Section 2.21(d) and Section 2.21(e), at any time, the Original Termination Date or an Extended Termination Date, as the case may be or, in either case, the earlier date of termination in whole of the Total Commitment pursuant to Section 2.12 or Section 6.01. "Total Capitalization" means, as of the date any determination is made, the sum of Net Worth plus Consolidated Debt. "Total Commitment" means, at any time, the aggregate amount of the Banks' Commitments, as in effect at such time. Amended and Restated Credit Agreement -14- 19 "Type" means, when used in respect of any Loan or Borrowing, each of the following types of Loans or Borrowings as applicable: Eurodollar Loan or Eurodollar Borrowing and ABR Loan or ABR Borrowing. "United States" and "U.S." each means United States of America. "Wholly-owned Subsidiary" means, as to any Person, a Subsidiary, 100% of the stock of every class of which (except for directors' qualifying shares) at the time as of which any determination is being made, is owned of record and beneficially by such Person directly and/or through one or more other Subsidiaries. SECTION 1.02. Accounting Terms and Determinations. (a) Except as otherwise provided in this Agreement, all computations and determinations as to accounting or financial matters and all financial statements to be delivered pursuant to this Agreement shall be made and prepared in accordance with GAAP (including principles of consolidation where appropriate), and all accounting or financial terms shall have the meanings ascribed to such terms by GAAP. (b) If any change in GAAP after the date of this Agreement shall be required to be applied to transactions then or thereafter in existence, and a violation of or default under one or more provisions of this Agreement shall have occurred or in the opinion of the Company would likely occur which would not have occurred or be likely to occur if no change in accounting principles had taken place: (i) the parties agree that such violation or default shall not constitute an Event of Default or a Default for a period of 60 days from the date the Company notifies the Administrative Agent of the application of this Section 1.02(b) identifying such change and the provisions of this Agreement affected thereby; (ii) the parties agree in such event to negotiate in good faith an amendment of this Agreement which shall approximate to the extent possible the economic effect of the original financial covenants after taking into account such change in GAAP; and (iii) if the parties are unable to agree on such an amendment within such 60-day period, the Company shall have the option of (A) prepaying the Loans (pursuant to Section 2.13 and the other applicable provisions hereof) within 120 days from the date the Company notifies the Administrative Agent of the application of this Section 1.02(b) or (B) making all future calculations by application of GAAP applied on a basis consistent with those in effect immediately prior to such change in GAAP. If the Company does not exercise either such option within said period by written notice to the Administrative Amended and Restated Credit Agreement -15- 20 Agent, then as used in this Agreement, "GAAP" shall mean generally accepted accounting principles in effect at the Relevant Date. (c) If any change in GAAP after the date of this Agreement shall be required to be applied to transactions or conditions then or thereafter in existence, and the Administrative Agent shall assert that the effect of such change is or shall likely be to distort materially the effect of any of the definitions of financial terms in Article I or any of the financial covenants of the Company in Article V (the "Financial Provisions"), so that the intended economic effect of any of the Financial Provisions will not in fact be accomplished: (i) the Administrative Agent shall notify the Company of such assertion, specifying the change in GAAP which is objected to, and until otherwise determined as provided below, the specified change in GAAP shall not be made by the Company in its financial statements for the purpose of applying the Financial Provisions; and (ii) the parties shall follow the procedures set forth in paragraph (ii) and the first sentence of paragraph (iii) of subsection (b) of this Section 1.02. If the parties are unable to agree on an amendment as provided in said paragraph (ii) and if the Company does not exercise the option set forth in the first sentence of said paragraph (iii) within the specified period, then as used in this Agreement "GAAP" shall mean generally accepted accounting principles in effect at the Relevant Date, except that the specified change in GAAP which is objected to by the Administrative Agent shall not be made in applying the Financial Provisions. SECTION 1.03. Interpretation. (a) In this Agreement, unless a clear contrary intention appears: (i) the singular number includes the plural number and vice versa; (ii) reference to any gender includes each other gender; (iii) the words "herein," "hereof" and "hereunder" and other words of similar import refer to this Agreement as a whole and not to any particular Article, Section or other subdivision; (iv) reference to any Person includes such Person's successors and assigns but, if applicable, only if such successors and assigns are permitted by this Agreement, and reference to a Person in a particular capacity excludes such Person in any other capacity or individually, provided that nothing in this clause (iv) is intended to authorize any assignment not otherwise permitted by this Agreement; Amended and Restated Credit Agreement -16- 21 (v) reference to any agreement, document or instrument, including this Agreement, means such agreement, document or instrument as amended, supplemented or modified and in effect from time to time in accordance with the terms thereof and, if applicable, the terms hereof; (vi) unless the context indicates otherwise, reference to any Article, Section, Schedule or Exhibit means such Article or Section hereof or such Schedule or Exhibit hereto; (vii) the word "including" (and with correlative meaning "include") means including, without limiting the generality of any description preceding such term; (viii) with respect to the determination of any period of time, the word "from" means "from and including" and the word "to" means "to but excluding"; and (ix) reference to any law means such as amended, modified, codified or reenacted, in whole or in part, and in effect from time to time. (b) The Article and Section headings herein and the Table of Contents are for convenience only and shall not affect the construction hereof. (c) No provision of this Agreement shall be interpreted or construed against any Person solely because that Person or its legal representative drafted such provision. ARTICLE II THE CREDITS SECTION 2.01. Commitments. (a) Subject to the terms and conditions and relying upon the representations and warranties herein set forth, each Bank agrees, severally and not jointly, to make Loans to the Company, at any time and from time to time on and after the Effective Date and until the Termination Date in an aggregate principal amount at any time outstanding not to exceed such Bank's Commitment, subject, however, to the conditions that (i) at no time shall the outstanding aggregate principal amount of all Loans exceed the Total Commitment and (ii) at all times the outstanding aggregate principal amount of all Loans made by each Bank shall equal the product of (A) the percentage which its Commitment represents of the Total Commitment times (B) the outstanding aggregate principal amount of all Loans made pursuant to Section 2.04. Each Bank's Commitment, as in effect on the Execution Date, is set forth opposite its name on Annex I. Such Commitments may be terminated or reduced from time to time pursuant to Section 2.12. Amended and Restated Credit Agreement -17- 22 (b) Within the foregoing limits and subject to the terms, conditions and limitations set forth herein, the Company may borrow, pay or prepay and reborrow hereunder, on and after the Effective Date and prior to the Termination Date. SECTION 2.02. Loans. (a) Each Loan shall be made as part of a Borrowing consisting of Loans made by the Banks ratably in accordance with their Commitments; provided, however, that the failure of any Bank to make any Loan shall not in itself relieve any other Bank of its obligation to lend hereunder (it being understood, however, that no Bank shall be responsible for the failure of any other Bank to make any Loan required to be made by such other Bank). The Loans comprising any Borrowing shall be in an aggregate principal amount which is an integral multiple of $1,000,000 and not less than $5,000,000 (or an aggregate principal amount equal to the remaining balance of the available Commitments). (b) Each Bank may at its option make any Eurodollar Loan by causing its Eurodollar Lending Office to make such Loan; provided that any exercise of such option shall not affect the obligation of the Company to repay such Loan in accordance with the terms of this Agreement. Borrowings of more than one Type may be outstanding at the same time; provided, however, that the Company shall not be entitled to request any Borrowing which, if made, would result in an aggregate of more than ten separate Loans of any Bank to the Company being outstanding hereunder at any one time. For purposes of the foregoing, Loans having different Interest Periods, regardless of whether they commence on the same date, shall be considered separate Loans. (c) Subject to Section 2.05, each Bank shall make each Loan to be made by it hereunder on the proposed date thereof by wire transfer of immediately available funds to the Administrative Agent in New York City, not later than 12:30 p.m., New York City time, and the Administrative Agent shall by 3:00 p.m., New York City time, credit the amounts so received to the general deposit account of the Company with the Administrative Agent or, if a Borrowing shall not occur on such date because any condition precedent herein specified shall not have been met, return the amounts so received to the respective Banks. Unless the Administrative Agent shall have received notice from a Bank prior to the date of any Borrowing that such Bank will not make available to the Administrative Agent such Bank's portion of such Borrowing, the Administrative Agent may assume that such Bank has made such portion available to the Administrative Agent on the date of such Borrowing in accordance with this Section 2.02(c) and the Administrative Agent may, in reliance upon such assumption, make available to the Company on such date a corresponding amount. If and to the extent that such Bank shall not have made such portion available to the Administrative Agent, such Bank and the Company severally agree to repay to the Administrative Agent forthwith on demand such corresponding amount together with interest thereon, for each day from the date such amount is made available to the Company until the date such amount is repaid to the Administrative Agent at (i) in the case of the Company, the interest rate applicable at the time to the Loans comprising such Borrowing and (ii) in the case of such Bank, the Federal Funds Effective Rate. If such Bank shall repay to the Administrative Agent such Amended and Restated Credit Agreement -18- 23 corresponding amount, such amount shall constitute such Bank's Loan as part of such Borrowing for purposes of this Agreement. (d) Notwithstanding any other provision of this Agreement, the Company shall not be entitled to request any Borrowing pursuant to Section 2.04 if the Interest Period requested with respect thereto would end after the Maturity Date. SECTION 2.03. [Intentionally Omitted] SECTION 2.04. Borrowing Procedure. In order to effect a Borrowing, the Company shall give written notice (or telephone notice promptly confirmed in writing) to the Administrative Agent, substantially in the form of Exhibit 2.04 (a "Borrowing Request"), (a) in the case of a Eurodollar Borrowing, not later than noon, New York City time, three Business Days before the Borrowing Date specified for such proposed Borrowing, and (b) in the case of an ABR Borrowing, not later than 11:00 a.m., New York City time, on the Borrowing Date specified for such proposed Borrowing. Such Borrowing Request shall be irrevocable and shall in each case refer to this Agreement and specify (x) whether the Borrowing then being requested is to be a Eurodollar Borrowing or an ABR Borrowing, (y) the Borrowing Date of such Borrowing (which shall be a Business Day) and the aggregate amount thereof (which shall not be less than $5,000,000 and shall be an integral multiple of $1,000,000) and (z) the Interest Period with respect thereto. If no election as to the Type of Borrowing is specified in any such notice, then the requested Borrowing shall be an ABR Borrowing. If no Interest Period with respect to any Eurodollar Borrowing is specified in any such Borrowing Request, then the Company shall be deemed to have selected an Interest Period of one month's duration. If the Company shall not have given notice in accordance with this Section 2.04 of its election to refinance a Borrowing prior to the end of the Interest Period in effect for such Borrowing, then the Company shall (unless such Borrowing is repaid at the end of such Interest Period) be deemed to have given notice of an election to refinance such Borrowing with an ABR Borrowing. The Administrative Agent shall promptly advise the Banks of any Borrowing Request given pursuant to this Section 2.04 and of each Bank's portion of the requested Borrowing by facsimile transmission. SECTION 2.05. Refinancings. The Company may refinance all or any part of any of its Borrowings with a Borrowing of the same or a different Type made pursuant to Section 2.03 or Section 2.04, subject to the conditions and limitations set forth herein and elsewhere in this Agreement. Any Borrowing or part thereof so refinanced shall be deemed to be repaid in accordance with Section 2.08 with the proceeds of a new Borrowing hereunder and the proceeds of the new Borrowing, to the extent they do not exceed the principal amount of the Borrowing being refinanced, shall not be paid by the Banks to the Administrative Agent or by the Administrative Agent to the Company pursuant to Section 2.02(c); provided, however, that (a) if the principal amount extended by a Bank in a refinancing is greater than the principal amount, if any, extended by such Bank in the Borrowing being refinanced, then such Bank shall pay such difference to the Administrative Agent Amended and Restated Credit Agreement -19- 24 for distribution to the Banks described in clause (b) below, (b) if the principal amount extended by a Bank in the Borrowing being refinanced is greater than the principal amount, if any, being extended by such Bank in the refinancing, the Administrative Agent shall return the difference to such Bank out of amounts received pursuant to clause (a) above, (c) to the extent any Bank fails to pay the Administrative Agent amounts due from it pursuant to clause (a) above, any Borrowing or portion thereof being refinanced shall not be deemed repaid in accordance with Section 2.08 to the extent of such failure and the Company shall pay such amount to the Administrative Agent pursuant to Section 2.08 and (d) to the extent the Company fails to pay to the Administrative Agent any amounts due in accordance with Section 2.08 as a result of the failure of a Bank to pay the Administrative Agent any amounts due as described in clause (c) above, the portion of any refinanced Borrowing deemed not repaid shall be deemed to be outstanding solely to the Bank which has failed to pay the Administrative Agent amounts due from it pursuant to clause (a) above to the full extent of such Bank's portion of such refinanced Loan. SECTION 2.06. Conversion and Continuation of Borrowings. The Company shall have the right at any time upon prior irrevocable notice to the Administrative Agent (a) not later than 8:30 a.m., New York City time, one Business Day prior to conversion, to convert any Eurodollar Borrowing into an ABR Borrowing, (b) not later than noon, New York City time, three Business Days prior to conversion or continuation, to convert any ABR Borrowing into a Eurodollar Borrowing or to continue any Eurodollar Borrowing as a Eurodollar Borrowing for an additional Interest Period and (c) not later than 11:00 a.m., New York City time, three Business Days prior to conversion, to convert the Interest Period with respect to any Eurodollar Borrowing to another permissible Interest Period, subject in each case to the following: (i) each conversion or continuation shall be made pro rata among the Banks in accordance with the respective principal amounts of the Loans comprising the converted or continued Borrowing; (ii) if less than all the outstanding principal amount of any Borrowing shall be converted or continued, the aggregate principal amount of such Borrowing converted or continued shall be an integral multiple of $1,000,000 and not less than $5,000,000; (iii) if any Eurodollar Borrowing is converted at a time other than the end of the Interest Period applicable thereto, the Company shall pay, upon demand, any amounts due to the Banks pursuant to Section 2.16; (iv) any portion of a Borrowing maturing or required to be repaid in less than one month (or 14 days, if such an Interest Period is available) may not be converted into or continued as a Eurodollar Borrowing; (v) any portion of a Borrowing which cannot be continued as or converted into a Eurodollar Borrowing by reason of clause (iv) above shall be automatically converted Amended and Restated Credit Agreement -20- 25 into or continued as an ABR Borrowing at the end of the Interest Period in effect for such Borrowing; and (vi) no Interest Period may be selected for any Eurodollar Borrowing that would end later than the Maturity Date. Each notice pursuant to this Section 2.06 shall be irrevocable and shall refer to this Agreement and specify (w) the identity and amount of the Borrowing that the Company requests be converted or continued, (x) whether such Borrowing is to be converted to or continued as a Eurodollar Borrowing or an ABR Borrowing, (y) if such notice requests a conversion, the date of such conversion (which shall be a Business Day) and (z) if such Borrowing is to be converted to or continued as a Eurodollar Borrowing, the Interest Period with respect thereto. If no Interest Period is specified in any such notice with respect to any conversion to or continuation as a Eurodollar Borrowing, the Company shall be deemed to have selected an Interest Period of one month's duration. The Administrative Agent shall promptly advise the other Banks of any notice given pursuant to this Section 2.06 and of each Bank's portion of any converted or continued Borrowing. If the Company shall not have given notice in accordance with this Section 2.06 to continue any Borrowing into a subsequent Interest Period (and shall not otherwise have given notice in accordance with this Section 2.06 to convert such Borrowing), such Borrowing shall, at the end of the Interest Period applicable thereto (unless repaid pursuant to the terms hereof), automatically be converted into or continued as an ABR Borrowing. SECTION 2.07. Fees. (a) The Company agrees to pay in immediately available funds to the Administrative Agent for the account of each Bank, (i) on each March 31, June 30, September 30 and December 31, commencing December 31, 1999, and (ii) on the Maturity Date and on any other date on which the Commitment of such Bank has been terminated, facility fees (each a "Facility Fee" and collectively, the "Facility Fees"), which shall accrue at the Applicable Percentage on the amount of the Commitment of such Bank from time to time outstanding, whether used, deemed used or unused, during the calendar quarter (or shorter period commencing with the Execution Date and/or ending on the Maturity Date) then ended; provided, however, if any Loans are outstanding to any Bank after the Maturity Date then such Facility Fee shall continue to accrue on the daily amount of such Bank's outstanding Loans from and including the Maturity Date to but excluding the date all such Loans are paid in full. (b) All Facility Fees shall be computed by the Administrative Agent on the basis of the actual number of days elapsed in a year of 360 days, and such computations, made in good faith, shall create rebuttable presumption that they are accurate. The Facility Fees due to each Bank shall commence to accrue on the Execution Date and shall cease to accrue on the earlier of the Maturity Date and the termination of the Commitment of such Bank as provided herein. (c) The Facility Fees due under this Section 2.07 shall be paid on the date due, in immediately available funds, to the Administrative Agent for distribution among the Banks. Amended and Restated Credit Agreement -21- 26 (d) The Company agrees to pay to the Administrative Agent the fees as provided in the Fee Letter. (e) Notwithstanding the foregoing, in no event shall any Bank be permitted to receive any compensation hereunder constituting interest in excess of the Highest Lawful Rate. SECTION 2.08. Repayment of Loans. (a) The Company agrees to pay the outstanding principal balance of each Loan on the Maturity Date. Each Loan shall bear interest from the date of the Borrowing of which such Loan is a part on the outstanding principal balance thereof as set forth in Section 2.09. (b) Each Bank shall, and is hereby authorized by the Company to make in its internal records relating to each Loan an appropriate notation evidencing the date, amount and the Type of each Loan of such Bank to the Company, the rate of interest applicable to such Loan and each payment or prepayment of principal of and interest on such Loan. The aggregate unpaid principal amount so recorded shall be presumptive evidence of the principal amount owing by the Company to such Bank in respect of such Loan. The failure of any Bank to make such a notation or any error therein shall not in any manner affect the obligation of the Company to repay the Loans made by such Bank in accordance with the terms hereof. SECTION 2.09. Interest on Loans. (a) Subject to the provisions of Sections 2.09(c), 2.10 and 2.11, the Loans comprising each Eurodollar Borrowing shall bear interest (computed on the basis of the actual number of days elapsed over a year of 360 days) at a rate per annum equal to the lesser of (i) the IBO Rate for the Interest Period in effect for such Borrowing plus the Applicable Percentage in effect for such Loans from time to time and (ii) the Highest Lawful Rate (b) Subject to the provisions of Section 2.09(c) and Section 2.10, the Loans comprising each ABR Borrowing shall bear interest (computed on the basis of the actual number of days elapsed over a year of 365 or 366 days, as the case may be, if the Alternate Base Rate shall be based on the Prime Rate, and a year of 360 days otherwise) at a rate per annum equal to the Alternate Base Rate, but not in excess of the Highest Lawful Rate. (c) Interest on each Loan shall be payable in arrears on each Interest Payment Date applicable to such Loan except as otherwise provided in this Agreement. The applicable IBO Rate or Alternate Base Rate for each Interest Period or day within an Interest Period, as the case may be, shall be determined by the Administrative Agent (which determination, made in good faith, shall create a rebuttable presumption that the same is accurate). The Administrative Agent shall promptly advise the Company and each Bank, as appropriate, of such determination. SECTION 2.10. Interest on Overdue Amounts. If the Company shall default in the payment of the principal of or interest on any Loan or any other amount becoming due hereunder, Amended and Restated Credit Agreement -22- 27 whether at scheduled maturity, by notice of prepayment, acceleration or otherwise the Company shall on demand from time to time pay interest, to the extent permitted by law, on such defaulted amount up to (but not including) the date of actual payment (after as well as before judgment) at a rate per annum equal to the lesser of (a) the Alternate Base Rate plus 2% per annum (if the Alternate Base Rate is based on the Prime Rate, computed on the basis of the actual number of days elapsed over a year of 365 or 366 days, as the case may be; if the Alternate Base Rate is based on the Federal Funds Effective Rate, computed on the basis of the actual number of days elapsed over a year of 360 days) and (b) the Highest Lawful Rate. SECTION 2.11. Alternate Rate of Interest. In the event, and on each occasion, that on the day two Business Days prior to the commencement of any Interest Period for a Eurodollar Borrowing, (a) the Administrative Agent shall have determined that dollar deposits in the principal amounts of the Loans comprising such Borrowing are not generally available in the London interbank market, or (b) the Majority Banks shall have determined (and notified the Administrative Agent) that the rate at which such dollar deposits are being offered will not adequately and fairly reflect the cost to any Bank of making or maintaining its Eurodollar Loan during such Interest Period, the Administrative Agent shall, as soon as practicable thereafter, give written notice of such determination to the Company and the Banks. In the event of any such determination, any request by the Company for a Eurodollar Loan shall, until the circumstances giving rise to such notice no longer exist, be deemed to be a request for an ABR Loan. Each such determination by the Administrative Agent or the Majority Banks hereunder, made in good faith, shall create a rebuttable presumption that the same is accurate. SECTION 2.12. Termination and Reduction of Commitments. (a) The Total Commitment shall be automatically terminated on the Maturity Date. (b) Subject to Section 2.13(b), upon at least ten Business Days' prior irrevocable written or facsimile notice to the Administrative Agent, the Company may at any time in whole permanently terminate, or from time to time in part permanently reduce, the Total Commitment; provided, however, that each partial reduction of the Total Commitment shall be in an integral multiple of $1,000,000 and in a minimum principal amount of $25,000,000. Such notice shall specify the date and the amount of the termination or reduction of the Total Commitment. The Administrative Agent shall promptly notify the Banks of the amount of any such termination or reduction of the Total Commitment. (c) Except in the circumstances described in Section 2.14 or Section 2.15, each reduction in the Total Commitment hereunder shall be made ratably among the Banks in accordance with their respective Commitments. The Company shall pay to the Administrative Agent for the account of the Banks, on the date of each termination or reduction, the Facility Fees on the amount of the Commitments so terminated or reduced, accrued through the date of such termination or reduction. Amended and Restated Credit Agreement -23- 28 SECTION 2.13. Prepayment. (a) The Company shall have the right at any time and from time to time to prepay any Borrowing, in whole or in part, upon written or facsimile notice (or telephone notice promptly confirmed by written or facsimile notice) to the Administrative Agent: (i) before 10:00 a.m., New York City time, five Business Days prior to prepayment, in the case of Eurodollar Loans and (ii) before 10:00 a.m., New York City time, one Business Day prior to prepayment, in the case of ABR Loans; provided, however, that each partial prepayment shall be in an amount which is an integral multiple of $1,000,000 and not less than $10,000,000. (b) On the date of any termination or reduction of the Commitments pursuant to Section 2.12(b), the Company shall pay or prepay so much of the Borrowings as shall be necessary in order that the aggregate principal amount of the Loans outstanding will not exceed the Total Commitment, after giving effect to such termination or reduction. (c) Each notice of prepayment given by the Company shall specify the prepayment date and the principal amount of each Borrowing (or portion thereof) to be prepaid, shall be irrevocable and shall commit the Company to prepay such Borrowing (or portion thereof) by the amount stated therein on the date stated therein. All prepayments under this Section 2.13 shall be subject to Section 2.16 and Section 2.17 but otherwise without premium or penalty. All prepayments under this Section 2.13 shall be accompanied by accrued interest on the principal amount being prepaid to the date of prepayment. SECTION 2.14. Reserve Requirements; Change in Circumstances. (a) It is understood that the cost to each Bank of making or maintaining any of the Loans may fluctuate as a result of the applicability of, or changes in, reserve requirements imposed by the Board, including reserve requirements under Regulation D in connection with Eurocurrency Liabilities. Subject to Section 8.08, the Company agrees to pay to each Bank, as provided in Section 2.14(d), at any time when such Bank shall be required to maintain reserves with respect to liabilities or assets consisting of or including Eurocurrency Liabilities, additional interest on the unpaid principal amount of each Eurodollar Loan of such Bank from the date of such Loan until such principal amount is paid in full, payable on each Interest Payment Date for such Eurodollar Loan, at an interest rate per annum equal at all times during each Interest Period to the excess of (i) the rate obtained by dividing the IBO Rate for such Interest Period by a percentage equal to 100% minus the reserve percentage applicable during such Interest Period under regulations issued from time to time by the Board (or if more than one such percentage is so applicable, minus the daily average of such percentages for those days in such Interest Period during which any such percentage shall be so applicable) for determining the maximum requirement (including any emergency, supplemental or other marginal reserve requirement) for such Bank with respect to liabilities or assets consisting of or including Eurocurrency Liabilities over (ii) the IBO Rate for such Interest Period. It is understood by the parties hereto that the rates of interest applicable to Eurodollar Loans have been determined on the assumption that no such reserve requirements exist or will exist and that such rates do not reflect costs imposed on the Banks in connection with such reserve requirements. It is agreed that for purposes of this Section 2.14(a) the Eurodollar Loans made hereunder shall be deemed to constitute Amended and Restated Credit Agreement -24- 29 Eurocurrency Liabilities and to be subject to the reserve requirements of Regulation D without benefit of or credit for proration, exemptions or offsets which might otherwise be available to the Banks from time to time under Regulation D. (b) Notwithstanding any other provision herein, if after the Execution Date the introduction of any applicable law or regulation or any change in applicable law or regulation or in the interpretation or administration thereof by any governmental authority charged with the interpretation or administration thereof, or compliance by any Bank with any applicable guideline or request from any central bank or governmental authority (whether or not having the force of law) (i) shall change the basis of taxation of payments to any Bank of the principal of or interest on any Eurodollar Loan made by such Bank or any other fees or amounts payable hereunder (other than (x) taxes imposed on the overall net income of such Bank or its Applicable Lending Office by the jurisdiction in which such Bank or its Applicable Lending Office has its principal office or by any political subdivision or taxing authority therein (or any tax which is enacted or adopted by such jurisdiction, political subdivision or taxing authority as a direct substitute for any such taxes) or (y) any tax, assessment or other governmental charge that would not have been imposed but for the failure of any Bank to comply with any certification, information, documentation or other reporting requirement), (ii) shall impose, modify or deem applicable any reserve, special deposit or similar requirement against assets of, deposits with or for the account of, or credit extended by, such Bank, or (iii) shall impose on such Bank or the London interbank market any other condition affecting this Agreement or any Eurodollar Loan made by such Bank, and the result of any of the foregoing shall be to increase the cost to such Bank of maintaining its Commitment or of making or maintaining any Eurodollar Loan or to reduce the amount of any sum received or receivable by such Bank hereunder (whether of principal, interest or otherwise) in respect thereof by an amount deemed in good faith by such Bank to be material, then the Company shall pay to the Administrative Agent for the account of such Bank such additional amount or amounts with respect to the Eurodollar Loans as will compensate such Bank for such increase or reduction to such Bank upon demand by such Bank (through the Administrative Agent). (c) If any Bank shall have determined in good faith that the applicability of any law, rule, regulation or guideline adopted pursuant to or arising out of the July 1988 report of the Basle Committee on Banking Regulations and Supervisory Practices entitled "International Convergence of Capital Measurement and Capital Standards" or the adoption after the Execution Date of any other law, rule, regulation or guideline regarding capital adequacy, or any change in any of the foregoing or any change in the interpretation or administration thereof by any governmental authority, central bank or comparable agency charged with the interpretation or administration thereof, or compliance by any Bank (or any lending office of such Bank) with any request or directive regarding capital adequacy (whether or not having the force of law) of any such authority, central bank or comparable agency, has or would have the effect of reducing the rate of return on such Bank's capital as a consequence of this Agreement or the Loans made by such Bank pursuant hereto to a level below that which such Bank could have achieved but for such applicability, adoption, change or compliance (taking into consideration such Bank's policies with respect to Amended and Restated Credit Agreement -25- 30 capital adequacy) by an amount deemed by such Bank to be material, then from time to time, as provided in Section 2.14(d), the Company shall pay to such Bank such additional amount or amounts as will compensate such Bank for any such increased capital requirement. (d) Each Bank will notify the Company through the Administrative Agent of any event occurring after the date of this Agreement which will entitle such Bank to compensation pursuant to this Section 2.14, as promptly as practicable, and in any event within 90 days after it becomes aware thereof and determines to request compensation. A certificate of a Bank setting forth in reasonable detail (i) such amount or amounts as shall be necessary to compensate such Bank (or participating banks or other entities pursuant to Section 8.11) as specified in paragraph (a), (b) or (c) above, as the case may be, and (ii) the calculation of such amount or amounts under clause (a)(i), shall be delivered to the Company (with a copy to the Administrative Agent) and shall, to the extent permitted by law, be conclusive absent manifest error. The Company shall pay to the Administrative Agent for the account of such Bank the amount shown as due on any such certificate within 10 days after its receipt of the same. (e) Except as expressly provided in Section 2.14(d), failure on the part of any Bank to demand compensation for any increased costs or reduction in amounts received or receivable or reduction in return on capital with respect to any Interest Period or any other period shall not constitute a waiver of such Bank's rights to demand compensation for any increased costs or reduction in amounts received or receivable or reduction in return on capital with respect to such Interest Period or any other period; provided that the Company shall not be required to compensate a Bank pursuant to this Section 2.14 for any increased costs or reductions incurred more than 270 days prior to the date that such Bank notifies the Company of the change in law giving rise to such increased costs or reductions and of such Bank's intention to claim compensation therefor; provided further that, if the change in law giving rise to such increased costs or reductions is retroactive, then the 270-day period referred to above shall be extended to include the period of retroactive effect thereof. The protection of this Section 2.14 shall be available to each Bank regardless of any possible contention of invalidity or inapplicability of law, regulation or condition which shall have been imposed. (f) In the event any Bank shall seek compensation pursuant to this Section 2.14, the Company may give notice to such Bank (with copies to the Administrative Agent) that it wishes to seek one or more Eligible Assignees (which may be one or more of the Banks) to assume the Commitment of such Bank and to purchase its outstanding Loans. Each Bank requesting compensation pursuant to this Section 2.14 agrees to sell its Commitment, Loans and interest in this Agreement pursuant to Section 8.11(c) to any such Eligible Assignee for an amount equal to the sum of the outstanding unpaid principal of and accrued interest on such Loans plus all other fees and amounts (including any compensation claimed by such Bank under this Section 2.14 or Section 2.16) due such Bank hereunder calculated, in each case, to the date such Commitment, Loans and interest are purchased, whereupon such Bank shall have no further Commitment or other obligation to the Company hereunder. Amended and Restated Credit Agreement -26- 31 (g) Without prejudice to the survival of any other obligations of the Company hereunder, the obligations of the Company under this Section 2.14 shall survive the termination of this Agreement and the payment or assignment of the Loans. (h) Notwithstanding anything in this Section 2.14 to the contrary, in no event shall any Bank be permitted to take or receive any compensation hereunder constituting interest in excess of the Highest Lawful Rate. SECTION 2.15. Change in Circumstances. (a) Notwithstanding any other provision herein, if any change in any law or regulation or in the interpretation thereof by any governmental authority charged with the administration or interpretation thereof shall make it unlawful for any Bank or its Eurodollar Lending Office to make or maintain any Eurodollar Loan or to give effect to its obligations as contemplated hereby, then, by written notice to the Company and to the Administrative Agent, such Bank may: (i) declare that Eurodollar Loans will not thereafter be made by such Bank hereunder, whereupon any request by the Company for a Eurodollar Borrowing shall, as to such Bank only (unless the Company (x) shall have withdrawn such request, in which case such request shall be of no force and effect, or (y) shall have made a new request for a Borrowing of a different Type in accordance with the terms hereof, which shall be deemed to supersede such request for a Eurodollar Borrowing), be deemed a request for an ABR Loan; and (ii) require that all outstanding Eurodollar Loans made by it be converted to ABR Loans, in which event all such Eurodollar Loans shall be automatically converted to ABR Loans as of the effective date of such notice as provided in Section 2.15(b). In the event any Bank shall exercise its rights under clause (i) or (ii) above with respect to Eurodollar Loans, all payments and prepayments of principal which would otherwise have been applied to repay the Eurodollar Loans that would have been made by such Bank or the converted Eurodollar Loans of such Bank shall instead be applied to repay the ABR Loans made by such Bank or the Banks, as the case may be, in lieu of, or resulting from the conversion of, such Eurodollar Loans. (b) For purposes of this Section 2.15, a notice to the Company (with a copy to the Administrative Agent) by any Bank pursuant to Section 2.15(a) shall be effective as to each Eurodollar Loan, if lawful, on the last day of the Interest Period currently applicable to such Eurodollar Loan; in all other cases such notice shall be effective on the date of receipt by the Company. (c) In the event any Bank shall give a notice to the Company pursuant to this Section 2.15, the Company may give notice to such Bank (with a copy to the Administrative Agent) that it wishes to seek one or more Eligible Assignees (which may be one or more of the Banks) to Amended and Restated Credit Agreement -27- 32 assume the Commitment of such Bank and to purchase its outstanding Loans. Each Bank giving a notice to the Company pursuant to this Section 2.15 agrees to sell its Commitment, Loans and interest in this Agreement pursuant to Section 8.11(c) to any such Eligible Assignee for an amount equal to the sum of the outstanding unpaid principal of and accrued interest on such Loans plus all other fees and amounts (including any compensation claimed by such Bank under Section 2.14 or Section 2.16) due such Bank hereunder calculated, in each case, to the date such Commitment, Loans, interest and fees are purchased, whereupon such Bank shall have no further Commitment or other obligation to the Company hereunder. (d) None of the Banks shall be permitted to terminate availability of Eurodollar Loans as provided in this Section 2.15 on a discriminatory basis (i.e., availability of Eurodollar Loans is not also terminated by the applicable Bank with respect to other customers of such Bank similarly situated where such customer is subject to documents providing for such right of termination). SECTION 2.16. Indemnity. The Company shall indemnify each Bank against any loss or reasonable expense which such Bank may sustain or incur as a consequence of (a) any failure by the Company to fulfill on the date of any Borrowing hereunder the applicable conditions set forth in Article III, (b) any failure by the Company to borrow or to refinance, convert (other than conversion into an ABR Loan) or continue any Loan hereunder after a Borrowing Request pursuant to Article II has been given or after a notice of conversion or continuation has been given pursuant to Section 2.05, (c) any payment, prepayment or conversion of a Eurodollar Loan required or permitted by any provision of this Agreement or otherwise made on a date other than the last day of the applicable Interest Period, (d) any default in the payment or prepayment of the principal amount of any Loan or any part thereof or interest accrued thereon, as and when due and payable (at the due date thereof, by notice of prepayment or otherwise), or (e) the occurrence of any Event of Default, including, in the case of any of the events set forth in clauses (a) through (e) of this Section 2.16, any loss or reasonable expense sustained or incurred or to be sustained or incurred in liquidating or employing deposits from third parties acquired to effect or maintain such Loan or any part thereof as a Eurodollar Loan. Such loss or reasonable expense shall include an amount equal to the excess, if any, as reasonably determined by each Bank of (y) its cost of obtaining the funds for the Loan being paid, prepaid or converted or not borrowed, refinanced, converted or continued (based on the IBO Rate) for the period from the date of such payment, prepayment or conversion or failure to borrow, refinance, convert or continue to the last day of the Interest Period for such Loan (or, in the case of a failure to borrow, refinance, convert or continue, the Interest Period for the Loan which would have commenced on the date of such failure to borrow, refinance, convert or continue) over (z) the amount of interest (as reasonably determined by such Bank) that would be realized by such Bank in reemploying the funds so paid, prepaid or converted or not borrowed, refinanced, converted or continued for such period or Interest Period, as the case may be. A certificate of each Bank setting forth any amount or amounts which such Bank is entitled to receive pursuant to this Section 2.16 together with either a calculation of such amount or amounts or a statement of the basis on which such amount or amounts have been determined shall be delivered to the Company (with Amended and Restated Credit Agreement -28- 33 a copy to the Administrative Agent) and such calculation or statement, made in good faith, shall create a rebuttable presumption that the same is accurate. The Company shall pay to the Administrative Agent for the account of each Bank the amount shown as due on any certificate within 30 days after its receipt of the same. Without prejudice to the survival of any other obligations of the Company hereunder, the obligations of the Company under this Section 2.16 shall survive the termination of this Agreement and/or the payment or assignment of any of the Loans. Without limitation of this Section 2.16, the provisions of this Section 2.16 shall be enforceable against the Company with respect to the conditions described in clauses (a) and (b) of this Section 2.16 with respect to any Borrowing Request given by the Company hereunder on or after the Execution Date regardless of whether the Effective Date occurs. Notwithstanding the foregoing, in no event shall any Bank be permitted to receive any compensation hereunder constituting interest in excess of the Highest Lawful Rate. SECTION 2.17. Pro Rata Treatment. Except as required under clause (d) of the proviso of Section 2.05, Section 2.14, Section 2.15, or Section 2.16, (a) each Borrowing and each refinancing of any Borrowing with another Borrowing shall be allocated pro rata among the Banks in accordance with their respective available Commitments, (b) each payment of the Facility Fees and each reduction of the Commitments shall be allocated pro rata among the Banks in accordance with their respective Commitments and (c) each payment or prepayment of principal of any Borrowing and each payment of interest on the Loans comprising part of a Borrowing shall be allocated pro rata among the Banks participating in such Borrowing in accordance with the respective principal amounts of their outstanding Loans comprising such Borrowing. Each Bank agrees that in computing such Bank's portion of any Borrowing to be made hereunder, the Administrative Agent may, in its discretion, round each Bank's percentage of such Borrowing to the next higher or lower whole dollar amount. SECTION 2.18. Sharing of Setoffs. Each Bank agrees that if it shall, through the exercise of a right of banker's lien, setoff or counterclaim against the Company (pursuant to Section 8.06 or otherwise), including, but not limited to, a secured claim under Section 506 of Title 11 of the United States Code or other security or interest arising from, or in lieu of, such secured claim, received by such Bank under any applicable bankruptcy, insolvency or other similar law or otherwise, or by similar means, obtain payment (voluntary or involuntary) (other than pursuant to Section 2.14, Section 2.15 or Section 2.16) of any Loan or Loans as a result of which the unpaid principal portion of the Loans of such Bank shall be proportionately less than the unpaid principal portion of the Loans of any other Bank, it shall be deemed simultaneously to have purchased from such other Bank at face value, and shall promptly pay to such other Bank the purchase price for, a participation in the Loans of such other Bank, so that the aggregate unpaid principal amount of the Loans and participations in the Loans held by each Bank shall be in the same proportion to the aggregate unpaid principal amount of all Loans then outstanding as the principal amount of its Loans prior to such exercise of banker's lien, setoff or counterclaim or other event was to the principal amount of all Loans outstanding prior to such exercise of banker's lien, setoff or counterclaim or other event; provided, however, that, if any such purchase or purchases or adjustments shall be made Amended and Restated Credit Agreement -29- 34 pursuant to this Section 2.18 and the payment giving rise thereto shall thereafter be recovered, such purchase or purchases or adjustments shall be rescinded to the extent of such recovery and the purchase price or prices or adjustment restored without interest. The Company expressly consents to the foregoing arrangements and agrees that any Bank holding a participation in a Loan deemed to have been so purchased may, to the extent permitted by law, exercise any and all rights of banker's lien, setoff or counterclaim with respect to any and all moneys owing by the Company to such Bank by reason thereof as fully as if such Bank had made a Loan directly to the Company in the amount of such participation. SECTION 2.19. Payments. (a) The Company shall make each payment hereunder not later than noon, New York City time, on the day when due in lawful money of the United States (in freely transferable dollars) to the Administrative Agent at its address referred to in Section 8.02 for the account of the Banks, in federal or other immediately available funds. The Administrative Agent will promptly thereafter cause to be distributed like funds relating to the payment of principal or interest on Loans (other than pursuant to Section 2.14, Section 2.15 and Section 2.16), Facility Fees ratably to the Banks and like funds relating to the payment of any other amount payable to any Bank to such Bank for the account of its Applicable Lending Office, in each case to be applied in accordance with the terms of this Agreement. If the Administrative Agent fails to send to any Bank its portion of any payment timely received by the Administrative Agent hereunder by the close of business on the day such payment was received, the Administrative Agent shall pay to such Bank interest on its portion of such payment from the day such payment was timely received by the Administrative Agent until the date such Bank's portion of such payment is sent to such Bank, at the Federal Funds Effective Rate. (b) Whenever any payment hereunder (including principal of or interest on any Borrowing or any fees or other amounts), shall be stated to be due on a day other than a Business Day, such payment shall be made on the next succeeding Business Day, and such extension of time shall in such case be included in the computation of payment of interest, fees or other amounts, as the case may be; provided, however, if such extension would cause payment of interest on or principal of a Eurodollar Loan to be made in the next following calendar month, such payment shall be made on the next preceding Business Day. (c) Unless the Administrative Agent shall have received notice from the Company prior to the date on which any payment is due to the Banks hereunder that the Company will not make such payment in full, the Administrative Agent may assume that the Company has made such payment in full to the Administrative Agent on such date and the Administrative Agent may, in reliance upon such assumption, cause to be distributed to each Bank on such due date an amount equal to the amount then due such Bank. If and to the extent the Company shall not have so made such payment in full to the Administrative Agent, each Bank shall repay to the Administrative Agent forthwith on demand such amount distributed to such Bank together with interest thereon, for each day from the date such amount is distributed to such Bank until the date such Bank repays such amount to the Administrative Agent, at the Federal Funds Effective Rate. Amended and Restated Credit Agreement -30- 35 SECTION 2.20. Taxes. (a) Except as expressly provided in the last sentence of Section 2.20(f), any and all payments by the Company hereunder shall be made, in accordance with Section 2.19, free and clear of and without deduction for any and all present or future taxes, levies, imposts, deductions, charges or withholdings, and all liabilities with respect thereto, excluding taxes imposed on the Administrative Agent's or any Bank's income and franchise taxes imposed on the Administrative Agent or any Bank, in each case by the United States or any jurisdiction under the laws of which it is organized or any political subdivision of such jurisdiction of organization (all such nonexcluded taxes, levies, imposts, deductions, charges, withholdings and liabilities being hereinafter referred to as "Taxes"). If the Company shall be required by law to deduct any Taxes from or in respect of any sum payable hereunder to the Banks or the Administrative Agent (i) the sum payable shall be increased by the amount necessary so that after making all required deductions (including deductions applicable to additional sums payable under this Section 2.20) such Bank or the Administrative Agent (as the case may be) shall receive an amount equal to the sum it would have received had no such deductions been made, (ii) the Company shall make such deductions and (iii) the Company shall pay the full amount deducted to the relevant taxing authority or other governmental authority in accordance with applicable law. (b) In addition, the Company agrees to pay any present or future stamp or documentary taxes or any other excise or property taxes, charges or similar levies which arise from any payment made hereunder or from the execution, delivery or registration of, or otherwise with respect to, this Agreement or any Loan (hereinafter referred to as "Other Taxes"). (c) The Company will indemnify each Bank and the Administrative Agent for the full amount of Taxes and Other Taxes (including any Taxes or Other Taxes imposed by any jurisdiction on amounts payable under this Section 2.20) paid by such Bank or the Administrative Agent, as the case may be, and any liability (including penalties, interest and expenses) arising therefrom or with respect thereto, whether or not such Taxes or Other Taxes were correctly or legally asserted. Such indemnification shall be made within 30 days after the date any Bank or the Administrative Agent, as the case may be, makes written demand therefor. If a Bank or the Administrative Agent shall become aware that it is entitled to receive a refund in respect of Taxes or Other Taxes, it shall promptly notify the Company of the availability of such refund and shall, within 30 days after receipt by the Company, apply for such refund at the Company's expense. If any Bank or the Administrative Agent receives a refund in respect of any Taxes or Other Taxes for which such Bank or the Administrative Agent has received payment from the Company hereunder it shall promptly notify the Company of such refund and shall, within 30 days after receipt of a request by the Company (or promptly upon receipt, if the Company has requested application for such refund pursuant hereto), repay such refund to the Company without interest, provided that the Company, upon the request of such Bank or the Administrative Agent, agrees to return such refund (plus penalties, interest or other charges) to such Bank or the Administrative Agent in the event such Bank or the Administrative Agent is required to repay such refund. Amended and Restated Credit Agreement -31- 36 (d) Within 30 days after the date of any payment of Taxes or Other Taxes withheld by the Company in respect of any payment to any Bank (or transferee) or the Administrative Agent, the Company will furnish to the Administrative Agent, at its address referred to in Section 8.02, the original or a certified copy of a receipt evidencing payment thereof or, if such original or copy of a receipt is not available from the relevant taxing authority, other documentation of payment reasonably satisfactory to such Bank (or transferee) or the Administrative Agent. (e) Without prejudice to the survival of any other agreement contained herein, the agreements and obligations contained in this Section 2.20 shall survive the payment in full of principal and interest hereunder. (f) Each Bank which is organized outside the United States shall promptly notify the Company of any change in its Applicable Lending Office and upon written request of the Company shall, prior to the immediately following due date of any payment by the Company hereunder, deliver to the Company such certificates, documents or other evidence, as required by the Code or Treasury Regulations issued pursuant thereto, including Internal Revenue Service Form 4224 or Form 1001 and any other certificate or statement or exemption required by Treasury Regulation Section 1.1441-1(a) or Section 1.1441-6(c) or any subsequent version thereof, properly completed and duly executed by such Bank establishing that such payment is (i) not subject to withholding under the Code because such payment is effectively connected with the conduct by such Bank of a trade or business in the United States or (ii) totally exempt from United States tax under a provision of an applicable tax treaty. Unless the Company and the Administrative Agent have received forms or other documents satisfactory to them indicating that payments hereunder or under the Loans are not subject to United States withholding tax or are subject to such tax at a rate reduced by an applicable tax treaty, the Company or the Administrative Agent shall withhold taxes from such payments at the applicable statutory rate in the case of payments to or for any Bank or assignee organized under the laws of a jurisdiction outside the United States. (g) Any Bank claiming any additional amounts payable pursuant to this Section 2.20 shall use reasonable efforts (consistent with legal and regulatory restrictions) to file any certificate or document requested by the Company or to change the jurisdiction of its Applicable Lending Office if the making of such a filing or change would avoid the need for or reduce the amount of any such additional amounts which may thereafter accrue and would not, in the sole determination of such Bank, be otherwise disadvantageous to such Bank. SECTION 2.21. Extensions of Termination Date. (a) The Company may, by notice to the Administrative Agent (a "Notice of Extension") given not less than 30 nor more than 45 days prior to the then effective Termination Date (such then effective Termination Date being an "Existing Termination Date"), advise the Banks that it requests an extension of the Existing Termination Date by not more than 364 calendar days, effective on the Existing Termination Date. The Administrative Agent will promptly, and in any event within five Business Days of the receipt of each Notice of Extension, notify the Banks of the contents of each such Notice of Extension. Amended and Restated Credit Agreement -32- 37 (b) Each Notice of Extension shall be irrevocable upon the Company and constitute a representation by the Company that (i) neither any Event of Default nor any Default has occurred and is continuing, (ii) the representations and warranties contained in Article IV (other than those which expressly relate to an earlier date) are correct on and as of the date of such Notice of Extension, as though made on and as of such date and (iii) no Loans shall be outstanding on the Existing Termination Date. (c) In the event that a Notice of Extension is given to the Administrative Agent as provided in Section 2.21(a), and the Administrative Agent notifies a Bank of the contents thereof as provided in Section 2.21(a), such Bank shall on or before the fifteenth day next preceding the Existing Termination Date advise the Administrative Agent and the Company whether or not such Bank consents to the extension requested thereby and if any Bank fails to so advise the Administrative Agent and the Company, such Bank shall be deemed not to have consented to such extension. (d) Notwithstanding any provision of this Section 2.21 to the contrary, each Bank that has expressly consented to an extension of the Termination Date, may in its sole and absolute discretion at any time prior to the Existing Termination Date give the Administrative Agent written notice that such Bank has revoked its consent to such extension of the Existing Termination Date (a "Notice of Revocation"). Each Notice of Revocation shall be irrevocable. Upon receipt of any Notice of Revocation, the Administrative Agent will promptly notify the Company and the Banks of the content of each Notice of Revocation and the Termination Date shall be the Existing Termination Date. (e) In the event (i) an extension of the Termination Date is consented to by all of the Banks and none of the Banks delivers a Notice of Revocation in accordance with Section 2.21(d) and (ii) on the Existing Termination Date the Company deliver to the Administrative Agent and each of the Banks a certificate to the effect that no Default or Event of Default has occurred and is continuing on the Existing Termination Date and that the representations and warranties contained in Article IV (other than those which expressly relate to an earlier date) are correct on and as of the Existing Termination Date as though made on and as of such date, the Termination Date for the Loans and the Commitments of all of the Banks shall be automatically extended 364 calendar days past the Existing Termination Date, effective on the Existing Termination Date; provided, however, unless all outstanding Loans are repaid in full on the Existing Termination Date, the Termination Date for the Loans and the Commitments of the Banks shall be the Existing Termination Date. ARTICLE III CONDITIONS OF LENDING SECTION 3.01. Conditions Precedent to the Initial Loans to the Company. The obligation of each Bank to make its initial Loan to the Company is subject to the condition precedent Amended and Restated Credit Agreement -33- 38 that the Administrative Agent shall have received on or before the initial Borrowing Date the following, each dated (unless otherwise indicated) such date and, with respect to all such documents referred to in Section 3.01(a), Section 3.01(b), Section 3.01(c) and Section 3.01(d), in sufficient copies for each Bank and the Administrative Agent: (a) A counterpart of this Agreement (to which all of the Exhibits and Schedules have been attached) dated as of the date hereof executed by the Company, the Administrative Agent, the Co-Agents and the Banks. (b) (i) A copy of the articles of incorporation, as amended, of the Company, certified by the Secretary of State of the State of Texas and a certificate as to the good standing of the Company from the Comptroller of the State of Texas; (ii) a certificate of the Secretary or an Assistant Secretary of the Company certifying (A) that attached thereto is a true and complete copy of the bylaws of the Company as in effect on the date of such certificate and at all times since a date prior to the date of the resolutions described in (B) below, (B) that attached thereto is a true and complete copy of resolutions (i) duly adopted by the Executive Committee of the Board of Directors of the Company authorizing the execution, delivery and performance of this Agreement and the Fee Letter, and (ii) duly adopted by the Board of Directors of the Company, appointing said Executive Committee, and that such resolutions have not been modified, rescinded or amended and are in full force and effect, (C) that the articles of incorporation of the Company have not been amended since the last amendment thereto shown on the good standing certificate furnished pursuant to (i) above and (D) as to the incumbency and specimen signatures of each officer of the Company executing this Agreement and the Fee Letter and (iii) a certificate of another officer of the Company as to the incumbency and specimen signatures of the Secretary or Assistant Secretary of the Company. (c) A certificate of a Senior Vice President, an Executive Vice President or a Vice President of the Company certifying (i) the truth of the representations and warranties made by the Company in this Agreement and (ii) the absence of the occurrence and continuance of any Default or Event of Default. (d) The written opinions of (i) Locke Liddell & Sapp LLP, counsel to the Company, addressed to the Administrative Agent and the Banks and in form and substance acceptable to the Administrative Agent and the Banks and (ii) James M. Shelger, Senior Vice President, General Counsel and Secretary of the Company, addressed to the Administrative Agent and the Banks and in form and substance acceptable to the Administrative Agent and the Banks. (e) An Administrative Questionnaire completed by each Bank. (f) (i) The Competitive Advance and Revolving Credit Facility Agreement (Facility A) dated as of June 27, 1997 among the Company, the banks party thereto, the Administrative Agent and the Co-Agents (as defined therein), as amended, and (ii) the Competitive Advance and Revolving Credit Facility Agreement (Facility B) dated as of June 27, 1997 among the Amended and Restated Credit Agreement -34- 39 Company, certain Subsidiaries of the Company, the banks party thereto, the Administrative Agent and the Co-Agents (as defined therein) shall have been amended contemporaneously with this Amendment to conform the financial covenants, rate of interest applicable to the Committed Loans (as defined therein) and rate at which facility fees accrue thereunder to the corresponding provisions of this Agreement. In addition, on the Effective Date the Administrative Agent shall have received all fees which it is entitled to receive on such date pursuant to the Fee Letter. SECTION 3.02. Conditions Precedent to Each Borrowing. The obligation of each Bank to make a Loan on the occasion of any Borrowing (including the initial Borrowing) shall be subject to the further conditions precedent that on the Borrowing Date of such Borrowing the following statements shall be true (and each of the giving of the applicable Borrowing Request and the acceptance by the Company of the proceeds of such Borrowing shall constitute a representation and warranty by the Company that on the date of such Borrowing such statements are true): (a) The representations and warranties contained in Article IV are correct on and as of the date of such Borrowing, before and after giving effect to such Borrowing and to the application of the proceeds therefrom, as though made on and as of such date; provided, however, that for purposes of this clause (a), on and after any date on which the Company delivers its consolidated financial statements to the Administrative Agent and the Banks pursuant to Section 5.01(a)(i) or 5.01(a)(ii), as the case may be, (A) the reference in the first sentence of Section 4.07 to the Company Financials shall be a reference to the consolidated financial statements of the Company and its Subsidiaries most recently delivered to the Administrative Agent and the Banks by the Company pursuant to Section 5.01(a)(i) or 5.01(a)(ii), as the case may be, prior to the date of such Borrowing and (B) the reference in the last sentence of Section 4.07 to June 30, 1998, shall be a reference to the date of the audited consolidated financial statements most recently delivered to the Administrative Agent and the Banks pursuant to Section 5.01(a)(i); (b) No event has occurred and is continuing, or would result from such Borrowing or from the application of the proceeds therefrom, which constitutes either a Default or an Event of Default; and (c) Following the making of such Borrowing and all other Borrowings to be made on the same day under this Agreement, the aggregate principal amount of all Loans then outstanding shall not exceed the Total Commitment. SECTION 3.03. Conditions Precedent to Conversions and Continuations. The obligation of the Banks to convert any existing Borrowing into a Eurodollar Borrowing or to continue any existing Borrowing as a Eurodollar Borrowing is subject to the condition precedent that on the date of such conversion or continuation no Default or Event of Default shall have occurred and be continuing or would result from the making of such conversion or continuation. The Amended and Restated Credit Agreement -35- 40 acceptance of the benefits of each such conversion and continuation shall constitute a representation and warranty by the Company to each of the Banks that no Default or Event of Default shall have occurred and be continuing or would result from the making of such conversion or continuation. ARTICLE IV REPRESENTATIONS AND WARRANTIES The Company represents and warrants to the Administrative Agent and the Banks as follows: SECTION 4.01. Organization and Qualification. The Company and each of its Subsidiaries (except Inactive Subsidiaries) (a) are entities duly organized, validly existing and in good standing under the laws of the respective jurisdictions of their organization, (b) have the corporate or other power to own their property and to carry on their businesses as now conducted and (c) are duly qualified to do business as foreign corporations and are in good standing in every jurisdiction in which the failure to be so qualified would have a material adverse effect upon the business or properties of the Company and its Subsidiaries taken as a whole or upon the ability of the Company to perform its obligations under this Agreement or the Fee Letter. The Company is a Texas corporation. The corporations named in Schedule 4.01 are the only Subsidiaries of the Company on the date of this Agreement, and such Schedule accurately reflects the percentage of (y) the issued and outstanding capital stock and (z) the stock of each class having ordinary voting power, of each Subsidiary owned by the Company on the date of this Agreement and accurately identifies the Consolidated Subsidiaries, the Inactive Subsidiaries, the Substantially-owned Subsidiaries and the Wholly-owned Subsidiaries on the date of this Agreement. SECTION 4.02. Authorization, Validity, Etc. The Company has the corporate or other power and authority to make and carry out this Agreement to make the Borrowings provided for herein and to perform its obligations hereunder and under the Fee Letter, and all such action has been duly authorized by all necessary corporate proceedings on its part. This Agreement and the Fee Letter have been duly and validly executed and delivered by the Company and both such agreements constitute valid and legally binding agreements of the Company enforceable in accordance with their respective terms, except, in each case, as such enforceability may be limited by bankruptcy, insolvency or other laws of general application relating to or affecting the enforcement of creditors' rights. SECTION 4.03. Governmental Consents, Etc. No authorization, consent, approval, license or exemption of or filing or registration with any court or governmental department, commission, board, bureau, agency or instrumentality, domestic or foreign, is necessary for the valid execution, delivery or performance by the Company of this Agreement or the Fee Letter. Amended and Restated Credit Agreement -36- 41 SECTION 4.04. Conflicting or Adverse Agreements or Restrictions. Neither the Company nor any of its Subsidiaries is a party to any contract or agreement or subject to any restriction which materially and adversely affects the business or assets or financial condition of the Company and its Subsidiaries taken as a whole. Neither the execution nor delivery of this Agreement or the Fee Letter nor compliance with the terms and provisions hereof or thereof nor any Borrowing will be contrary to the provisions of, or constitute a default under, (a) the charter or bylaws of the Company or any of its Subsidiaries or (b) any applicable law or any applicable regulation, order, writ, injunction or decree of any court or governmental instrumentality or (c) any agreement to which the Company or any of its Subsidiaries is a party or by which it is bound or to which it is subject, which default, in the case of clause (b) or (c) of this Section 4.04 could, individually or together with all other such defaults described in this Section 4.04, reasonably be expected to result in a material adverse change in the business or condition of the Company and its Subsidiaries taken as a whole or upon the ability of the Company to perform its obligations under this Agreement and the Fee Letter. SECTION 4.05. Title to Assets. The Company and each Subsidiary (except Inactive Subsidiaries) have good and indefeasible title to their respective assets, subject to no Liens, except those permitted in Section 5.02(d). SECTION 4.06. Actions Pending. There is no action or proceeding pending or, to the knowledge of the Company, threatened against the Company or any of its Subsidiaries before any court or administrative agency which could reasonably be expected to result in a material adverse change in the business or condition of the Company and its Subsidiaries taken as a whole or upon the ability of the Company to perform its obligations under this Agreement and the Fee Letter. SECTION 4.07. Financial Statements. The Company has furnished or has caused to be furnished to each Bank (a) consolidated financial statements of the Company as at and for the fiscal year ended December 31, 1998, included in the Company's annual report for the fiscal year ended December 31, 1998 and accompanied by the report and opinion of Coopers & Lybrand L.L.P. (currently PricewaterhouseCoopers LLP), (b) the Annual Report of the Company on Form 10-K for the fiscal year ended December 31, 1998 and (c) the Quarterly Reports of the Company on Form 10-Q for the fiscal quarters ended March 31 and June 30, 1999 (the financial statements described in clauses (a) through (c) being collectively, the "Company Financials"). The Company Financials have been prepared in conformity with GAAP consistently followed (except as otherwise disclosed in such financial statements) throughout the periods involved and present fairly the consolidated financial condition of the Company and its Consolidated Subsidiaries and the consolidated results of operations of the Company and its Consolidated Subsidiaries as at the dates and for the periods indicated. There has been no material adverse change in the consolidated condition or operation, financial or otherwise, of the Company and its Subsidiaries since June 30, 1998. Amended and Restated Credit Agreement -37- 42 SECTION 4.08. Default. Neither the Company nor any of its Subsidiaries is in default in any respect under the provisions of any instrument evidencing any Debt or of any agreement relating thereto, or in default in any respect under any order, writ, injunction or decree of any court, or in default in any respect under or in violation of any law, order, regulation or demand of any governmental instrumentality, which defaults or violations could reasonably be expected to have a material adverse effect upon the business or properties of the Company and its Subsidiaries taken as a whole or upon the ability of the Company to perform its obligations under this Agreement and the Fee Letter. SECTION 4.09. Investment Company Act. Neither the Company nor any of its Subsidiaries is, or is directly or indirectly controlled by or acting on behalf of any Person which is, an "investment company," as such term is defined in the Investment Company Act of 1940, as amended. SECTION 4.10. Public Utility Holding Company Act. Neither the Company nor any of its Subsidiaries is a non-exempt "holding company," or subject to regulation as such, or, to the knowledge of the Company's officers, an "affiliate" of a "holding company" or a "subsidiary company" of a "holding company," within the meaning of the Public Utility Holding Company Act of 1935, as amended. SECTION 4.11. ERISA. Neither the Company nor any of its Subsidiaries has incurred any accumulated funding deficiency, within the meaning of ERISA, material to the Company and its Subsidiaries taken as a whole, whether or not waived, or any liability material to the Company and its Subsidiaries, when taken as a whole, under Title IV of ERISA. SECTION 4.12. Payment of Taxes. The Company and each of its Subsidiaries (except Inactive Subsidiaries) have filed all federal and state income and franchise tax returns which, to the knowledge of the officers thereof, are required to be filed and have paid all taxes shown on said returns and all assessments which are due other than such taxes and assessments which are being contested in good faith by appropriate proceedings diligently conducted and for which reserves or other appropriate provisions, if any, as shall be required by GAAP, have been made. The consolidated federal income tax returns of the Company and its Consolidated Subsidiaries have been examined and reported on by the Internal Revenue Service for all fiscal years to and including the fiscal year ended December 31, 1994. SECTION 4.13. Purpose of Loans. None of the proceeds of the Loans will be used for the purpose of purchasing or carrying any "margin stock" within the meaning of Regulation U (herein called "Margin Stock") or for the purpose of reducing or retiring any indebtedness which was originally incurred to purchase or carry Margin Stock, or for any other purpose which might constitute a "purpose" credit within the meaning of Regulation U, as now in effect or as they may hereafter be amended. Margin Stock did not on December 31, 1998, and does not on the date hereof constitute more than 25% of the assets of the Company or any of its Subsidiaries, and the Company Amended and Restated Credit Agreement -38- 43 does not intend or foresee that Margin Stock will at any time during the term of this Agreement constitute more than 25% of such assets. SECTION 4.14. Patents, Etc. The Company and each of its Subsidiaries have all patents, patent rights or licenses, trademarks, service marks, trademark rights, trade names, trade name rights, and copyrights which are required in order for it to conduct its business as now conducted without any known material conflict with the rights of others. SECTION 4.15. No Material Guarantees or Letters of Credit. Each Assured Obligation and each Letter of Credit Obligation of the Company and its Subsidiaries is listed in the Company Financials, in the most recently delivered financial statements delivered pursuant to Section 5.01(a) or on Schedule 4.15, other than any such Assured Obligation or Letter of Credit Obligation which individually does not exceed $100,000 or which together with all such other Assured Obligations and Letter of Credit Obligations does not exceed $1,000,000; provided, however, after the Effective Date, Schedule 4.15 shall be deemed to include all Assured Obligations and Letter of Credit Obligations of the Company and its Subsidiaries incurred or issued in accordance with the provisions of Section 5.02(h). Neither the Company nor any of its Subsidiaries has any liability, contingent or otherwise, which either individually or collectively with all such other liabilities could reasonably be expected to have a material adverse effect upon the business or properties of the Company and its Subsidiaries taken as a whole or upon the ability of the Company to perform its obligations under this Agreement and the Fee Letter. SECTION 4.16. Enhancement Agreements. Schedule 4.16 describes the principal amount of all obligations, including all Debt, Letter of Credit Obligations and unfunded commitments which are covered by any Enhancement Agreement; provided, however, after the Execution Date, Schedule 4.16 shall be deemed to include all such principal obligations described on the schedule most recently delivered pursuant to the last sentence of Section 5.01(a). SECTION 4.17. Year 2000. Any reprogramming required to prevent the occurrence of a material adverse effect upon the business or properties of the Company and its Subsidiaries taken as a whole or upon the ability of the Company to perform its obligations under this Agreement and the Fee Letter, in and following the year 2000, of (a) the computer systems of the Company and its Subsidiaries and (b) equipment containing embedded microchips (including systems and equipment supplied by others or with which the systems of the Company or any of its Subsidiaries interface) and the testing of all mission critical systems and equipment, as so reprogrammed, will be completed by November 30, 1999. The cost to the Company of such reprogramming and testing and of the reasonably foreseeable consequences of year 2000 to the Company and its Subsidiaries (including reprogramming errors and the failure of others' systems or equipment) will not result in a Default or an Event of Default or could reasonably be expected to have a material adverse effect upon the business or properties of the Company and its Subsidiaries taken as a whole or upon the ability of the Company to perform its obligations under this Agreement and the Fee Letter. Except for such of the reprogramming referred to in the preceding sentence as may be necessary, the Amended and Restated Credit Agreement -39- 44 computer and management information systems of the Company and its Subsidiaries are and, with ordinary course upgrading and maintenance, will continue for the term of this Credit Agreement to be, sufficient to permit the Company and its Subsidiaries to conduct their businesses without a material adverse effect upon the business or properties of the Company and its Subsidiaries taken as a whole or upon the ability of the Company to perform its obligations under this Credit Agreement and the Fee Letter. ARTICLE V COVENANTS SECTION 5.01. Affirmative Covenants. So long as any Loan shall remain unpaid or any Bank shall have any Commitment hereunder, unless the Majority Banks shall otherwise agree in writing, as follows: (a) Financial Statements and Other Information. The Company shall deliver to each Bank: (i) As soon as available, and in any event within 120 days after the end of each fiscal year, a copy of the annual audit report of the Company for such fiscal year containing a consolidated balance sheet, a consolidated statement of income, a consolidated statement of stockholders' equity and a consolidated statement of cash flows, all in reasonable detail and accompanied by a report and opinion of PricewaterhouseCoopers L.L.P. or another independent certified public accountant of recognized standing satisfactory to the Majority Banks. The Company will obtain from such accountants and deliver to each Bank at the time said financial statements are delivered the written statement of such accountants that in making the examination necessary for said report and opinion they have obtained no knowledge of any Event of Default or Default, or if such accountants shall have obtained knowledge of any Event of Default or Default, they shall state the nature and period of existence thereof in such statement; provided, that such accountants shall not be liable directly or indirectly to any such Bank for failure to obtain knowledge of any Event of Default or Default; (ii) As soon as available, and in any event within 60 days after the end of each of the first three quarterly accounting periods in each fiscal year, a consolidated statement of stockholders' equity and the report of the Company to the Securities and Exchange Commission on Form 10-Q; (iii) Promptly after sending or filing thereof, copies of all statements and reports sent to stockholders and all effective registration statements and regular or periodic reports filed with the Securities and Exchange Commission; Amended and Restated Credit Agreement -40- 45 (iv) Promptly upon request, such additional financial or other information as any Bank may reasonably request; (v) Promptly, and in any case within five days after the President, the Senior Vice President and Chief Financial Officer, the Vice President and Treasurer or the General Counsel of the Company learns thereof, notice of (A) the occurrence of a Default or an Event of Default, (B) any material default of the Company or any of its Subsidiaries under any other borrowed money obligation, (C) any monetary or other material default of the Company or any of its Subsidiaries under any material contract or (D) receipt of any notice from any federal or other governmental instrumentality of any violation by the Company or any of its Subsidiaries of any legal requirement, which violation together with all other such violations by the Company and its Subsidiaries could reasonably be expected to have a material adverse effect upon the business or properties of the Company and its Subsidiaries taken as a whole or upon the ability of the Company to perform its obligations under this Agreement and the Fee Letter, describing the nature of such Default, such Event of Default, such default or such violation and what action the Company or such Subsidiary, as the case may be, has taken or proposes to take with respect thereto; and (vi) Promptly after each annual meeting of the Company's shareholders, an Officer's Certificate of the election and incumbency of the Company's officers and directors in form and substance satisfactory to the Banks. All financial statements specified in clauses (i) and (ii) above shall be furnished in consolidated form for the Company and its Consolidated Subsidiaries. Investments by the Company in its Subsidiaries other than its Consolidated Subsidiaries shall be accounted for on the equity method. Together with each delivery of financial statements required by clauses (i) and (ii) above, the Company will deliver to each Bank (y) schedules and/or computations demonstrating that the Company is in compliance with its covenants in Sections 5.02(a), 5.02(b), 5.02(c), 5.02(d), 5.02(h), 5.02(k) and 5.02(l) or reflecting any noncompliance therewith as at the applicable date and (z) an Officer's Certificate stating that there exists no Event of Default or Default, or, if any Event of Default or Default exists, stating the nature thereof, the period of existence thereof and what action the Company has taken or proposes to take with respect thereto. Together with each delivery of financial statements required by clause (i) above, the Company will deliver to each such Bank a schedule of the principal amount of all obligations of the Company covered by any Enhancement Agreement. (b) Books and Records. The Company shall maintain, and cause each of its Subsidiaries to maintain, proper books of record and account in accordance with generally accepted accounting practices. (c) Insurance. The Company shall maintain, and cause each of its Subsidiaries to maintain, insurance with responsible companies (or by self insurance to the extent authorized by Amended and Restated Credit Agreement -41- 46 law) in such amounts and against such risks as is customarily carried on comparable business and properties, and furnish to the Banks, upon request by the Administrative Agent or any Bank, an Officer's Certificate containing full information as to the insurance carried and self insurance levels maintained; and promptly after notice in writing from the Administrative Agent obtain such additional insurance as the Administrative Agent may reasonably request and which is customarily carried on comparable businesses or properties. (d) Maintenance of Property. The Company shall cause its property and the property of its Subsidiaries to be maintained, preserved, protected and kept in good repair, working order and condition so that the business carried on in connection therewith may be conducted properly and efficiently. (e) Inspection of Property and Records. Upon reasonable advance notice, the Company shall permit any Person designated by the Administrative Agent or any of the Banks in writing to visit and inspect any of the properties, corporate books and financial records of the Company and its Subsidiaries and discuss their respective affairs and finances with their principal officers, all at such times as the Administrative Agent or such Bank may reasonably request. (f) Existence, Laws, Obligations. The Company shall maintain its corporate existence, comply and cause its Subsidiaries (except Inactive Subsidiaries) to comply with all applicable statutes and governmental regulations, including all applicable environmental statutes and regulations (except those the validity or applicability of which the Company shall be contesting in good faith and by appropriate proceedings diligently conducted for which such reserves or other appropriate provisions, if any, as shall have been required by GAAP, have been made), where the failure to so comply would have a material adverse effect on the business, operations, property or condition of the Company and its Subsidiaries taken as a whole or upon the ability of the Company to perform its obligations under this Agreement and the Fee Letter, and pay and cause its Subsidiaries (except Inactive Subsidiaries) to pay all taxes, assessments, governmental charges, claims for labor, supplies, rent and other obligations which if unpaid might become a Lien against the property of the Company or such Subsidiary (except Inactive Subsidiaries), and where the failure to make such payment or where the creation of such Lien would have a material adverse effect on the business, operations, property or condition of the Company and its Subsidiaries taken as a whole or upon the ability of the Company to perform its obligations under this Agreement and the Fee Letter, except any of the foregoing liabilities being contested in good faith by appropriate proceedings diligently conducted for which such reserves or other appropriate provisions, if any, as shall have been required by GAAP, have been made. SECTION 5.02. Negative Covenants. So long as any Loan shall remain unpaid or any Bank shall have any Commitment hereunder, without the written consent of the Majority Banks: (a) Net Worth. The Company will not permit Net Worth at any time to be less than the sum of (a) $2,500,000,000, plus (b) 50% of Consolidated Net Income (if positive) for each Amended and Restated Credit Agreement -42- 47 fiscal quarter ending during the period from January 1, 1999 to the end of its most recently completed fiscal quarter, plus (c) 100% of the net proceeds received by the Company after January 1, 1999 from all shares, rights to purchase, warrants, options, participations or other equivalents of the Company's equity, including all common stock and preferred stock. (b) Debt. (i) The Company will not permit the ratio of Consolidated Debt to Total Capitalization at any time to be greater than .60 to 1.0. (ii) The Company will not permit the sum of (A) the aggregate amount of Debt of its Subsidiaries (other than Debt held by the Company) plus (B) Assured Obligations of its Subsidiaries to exceed 20% of Net Worth. (c) EBITDA. The Company will not permit the ratio of Consolidated EBITDA to Interest Expense at any time to be less than 2.75 to 1.0 calculated at the end of each fiscal quarter for such fiscal quarter and the immediately preceding three fiscal quarters." (d) Liens, Etc. The Company will not, and will not permit any of its Subsidiaries to, incur any Liabilities secured by a Lien upon any of the assets of the Company or any such Subsidiary or upon any shares of stock or any long-term receivable of the Company due from any of its Subsidiaries (whether such assets, shares of stock or long-term receivables are now owned or hereafter acquired) without in any such case effectively providing concurrently with the incurrence of any such Liability that all sums payable at that time or thereafter under this Agreement (together with, if the Company shall so determine, any other Liabilities of the Company or such Subsidiary then existing or thereafter created which is not subordinate to such sums) shall be secured equally and ratably with (or at the option of the Company, prior to) such Liability, so long as such Liability shall be so secured; provided, however, that nothing in this Section 5.02(d) shall prevent, restrict or apply to (and there shall be excluded from secured Debt in any computation under this Section 5.02(d)) Liabilities secured by): (i) Liens for taxes, assessments, or similar charges, incurred in the ordinary course of business that are not yet past due or which are being contested by the Company or such Subsidiary in good faith and against which adequate reserves as required by GAAP have been established by the Company or such Subsidiary, as the case may be; (ii) Pledges or deposits made in the ordinary course of business to secure payment of worker's compensation, or to participate in any fund in connection with worker's compensation, unemployment insurance, old-age pensions or other social security programs; (iii) Liens of mechanics, materialmen, repairmen, warehousemen, carriers or other like Liens, securing obligations incurred in the ordinary course of business that are not yet past due or which are being contested by the Company or such Subsidiary in good Amended and Restated Credit Agreement -43- 48 faith and against which adequate reserves as required by GAAP have been established by the Company or such Subsidiary, as the case may be; (iv) Liens which secure Liabilities owing by a Subsidiary of the Company to the Company or to another Subsidiary of the Company; (v) Deposits to secure the performance of bids, trade contracts (other than for borrowed money), leases, statutory obligations, surety and appeal bonds, performance bonds and other obligations of a like nature incurred in the ordinary course of business; (vi) Easements, rights-of-way, restrictions and other similar encumbrances incurred in the ordinary course of business which, in the aggregate, are not substantial in amount and which do not in any case materially detract from the value of the property subject thereto or materially interfere with the ordinary conduct of the business of the Company or such Subsidiary; and (vii) Liens not otherwise permitted under this Section 5.02(d) which secure Liabilities permitted hereunder not exceeding, as to the Company and its Consolidated Subsidiaries, 5% of Consolidated Assets at any time outstanding. (e) Stock of Subsidiaries, Merger, Sale of Assets, Etc. The Company will not permit any of its Subsidiaries to issue or dispose of its Equity Interests (other than directors' qualifying shares) except to the Company or to another Subsidiary of the Company, and the Company will not and will not permit any of its Subsidiaries to sell or otherwise dispose of any Equity Interests of, or obligation (howsoever evidenced) from, any Subsidiary of the Company, or merge or consolidate with any other corporation or sell, lease or transfer or otherwise dispose of all or a substantial part of its assets (as distinguished from sales of excess land and other assets in the ordinary course of business which are permitted), whether in one transaction or a series of transactions, provided, however, that so long as after giving effect thereto no Default or Event of Default shall exist, the following transactions shall be permitted pursuant to this Section 5.02(e): (i) Any corporation including any Subsidiary of the Company may merge or consolidate with the Company provided that the Company shall be the continuing or surviving corporation; (ii) Any corporation may merge into or consolidate with any Subsidiary of the Company provided that the continuing or surviving corporation is a Subsidiary of the Company; (iii) Any Subsidiary of the Company may sell, lease, transfer or otherwise dispose of any of its assets to the Company or another Subsidiary of the Company; Amended and Restated Credit Agreement -44- 49 (iv) Provident may sell, lease, transfer or otherwise dispose of the Equity Interests or any assets of any Enforcement Subsidiary in an arm's-length transaction; (v) The Company may, with respect to any Acquisition, effect a disposition of Equity Interests or assets to the extent required pursuant to any agreement or consent order entered into between the Company and the Federal Trade Commission in connection with and as a condition to such Acquisition; and (vi) The Company or any of its Subsidiaries may sell or otherwise dispose of all or any part of their respective assets if, after giving effect to such sale or other disposition the aggregate amount of all such sales and dispositions by the Company and its Subsidiaries (including all dispositions pursuant to clause (v) above) occurring on and after the Execution Date to the date of such sale or disposition do not exceed 10% of Consolidated Assets on the date of such sale or disposition. Consensual Liens granted by the Company or any of its Subsidiaries permitted pursuant to Section 5.02(d) shall not constitute a "disposition" for purposes of this Section 5.02(d) until such time as holder of any such Lien forecloses or otherwise enforces such Lien. (f) Change in Accounting Method. The Company will not and will not permit any of its Subsidiaries to make any change in the method of computing depreciation for financial statement purposes or any other material change in accounting methods other than such changes as may be required by the Financial Accounting Standards Board or the Securities and Exchange Commission or to conform newly acquired Subsidiaries to the Company's accounting methods. Upon making any such change, the Company will promptly give the Banks notice thereof. (g) Change of Business. The Company will not and will not permit any of its Subsidiaries to engage in a line or lines of business other than those being engaged in by the Company or one or more of its existing Subsidiaries on the date of this Agreement and lines of business related to the death care industry. (h) Guaranties and Letters of Credit. The Company will not and will not permit any Subsidiary of the Company to make or permit to remain outstanding any Assurance or any Letter of Credit unless, after giving effect thereto, the aggregate amount of all Assured Obligations and Letter of Credit Obligations then outstanding shall not exceed 20% of Net Worth, excluding, without duplication, the sum of the aggregate outstanding amount of all Debt of the Company and its Subsidiaries guaranteed by any such Assurances. (i) ERISA. The Company will not at any time permit any Plan to: Amended and Restated Credit Agreement -45- 50 (i) Engage in any "prohibited transaction" as such term is defined in Section 4975 of the Code or in Section 406 of ERISA for which there is no applicable exemption; (ii) Incur any "accumulated funding deficiency" as such term is defined in Section 302 of ERISA and Section 412 of the Code, whether or not waived; (iii) Be terminated under circumstances which are likely to result in the imposition of a Lien on the property of the Company or any member of the ERISA Group pursuant to Section 4068 of ERISA, if and to the extent such termination is within the control of the Company; or (iv) Cease to comply in any material respect with the provisions of the Code and ERISA applicable to such Plan, if any event or condition described in clause (i), (ii), (iii) or (iv) above is likely to subject the Company or any member of its ERISA Group to a liability which, in the aggregate, is material in relation to the business, operations, property or condition, financial or otherwise, of the Company and the other members of its ERISA Group on a consolidated basis. (j) Restriction on Use of Proceeds. Neither the Company nor any agent acting on behalf of the Company has taken or will take any action, or has suffered to exist or will suffer to exist any condition, that might cause this Agreement or any Loan to violate Regulation U, Regulation X, or any other regulation of the Board or to violate the Securities Exchange Act of 1934, as amended, in each case as in effect now or as the same may hereafter be in effect. The Company will not use, directly or indirectly, the proceeds of any Loan hereunder to acquire any security (within the meaning of the Securities Exchange Act of 1934, as amended), in any tender offer subject to Section 13 or 14 of the Securities Exchange Act of 1934, as amended, unless such tender offer has been approved by the Board of Directors (or other analogous body) of the issuer of the securities that are the subject of such tender offer, so long as a majority of the directors (or members) constituting such Board (or such body) were directors (or members) at least 30 days prior to the making of such tender offer. (k) Distributions. The Company will not, and will not permit any Subsidiary to, at any time, declare or make, or incur any liability to declare or make, any Distribution unless immediately after giving effect to such action: (i) the aggregate amount of Distributions of the Company and its Subsidiaries declared or made during the period commencing on November 2, 1999, and ending on the date such Distribution is declared or made, inclusive, would not exceed the sum of Amended and Restated Credit Agreement -46- 51 (A) 50% of Consolidated Net Income for such period (or minus 100% of Consolidated Net Income for such period if Consolidated Net Income for such period is a loss), plus (B) the aggregate amount of proceeds of issuance of the capital stock of the Company for such period; and (ii) no Default or Event of Default would exist. (l) Acquisitions. The Company will not nor will it permit any of its Subsidiaries to make any Acquisition or series of related Acquisitions if the aggregate fair market value of the total consideration provided by the Company and such Subsidiaries (including cash and other property and liabilities assumed and including Equity Interests) would exceed $250,000,000. ARTICLE VI EVENTS OF DEFAULT SECTION 6.01. Events of Default. If any of the following events ("Events of Default") shall occur and be continuing: (a) Failure to Pay the Loans. The Company shall fail to pay or prepay (i) any principal of or interest on any Loan when due under this Agreement or (ii) any other amount due hereunder within ten days following the date on which payment of such other amount is due; or (b) Failure to Pay Certain Other Indebtedness. The Company or any of its Subsidiaries does not pay principal of or interest on any other Debt, Assured Obligation or Letter of Credit Obligation, in an amount of $50,000,000 or more, owed to a financial institution, when due or within any grace period allowed by such Debt, Assured Obligation or Letter of Credit Obligation, or if the holder of such other Debt, Assured Obligation or Letter of Credit Obligation declares, or may declare, such other Debt, Assured Obligation or Letter of Credit Obligation due prior to its stated maturity because of the Company's or such Subsidiary's default thereunder unless such default is waived or cured within one business day of its discovery; or (c) Failure to Pay Other Indebtedness. The Company or any of its Subsidiaries does not pay principal of or interest on any Debt, Assured Obligation or Letter of Credit Obligation, in an amount of $50,000,000 or more (except those described in Sections 6.01(a) and 6.01(b)) within five days after the date due (or within any longer period of grace that may be allowed by the terms thereof) or if the holder or holders (or a trustee on behalf of such holder or holders) of such other obligation declares such Debt, Assured Obligation or Amended and Restated Credit Agreement -47- 52 Letter of Credit Obligation due (or such Debt, Assured Obligation or Letter of Credit Obligation becomes due without such declaration) prior to its stated maturity because of the Company's or such Subsidiary's default thereunder, provided that if the holder of any such Debt, Assured Obligation or Letter of Credit Obligation accelerates the maturity thereof and the Company or such Subsidiary promptly (and in any case within 30 days following such acceleration) pays such Debt, Assured Obligation or Letter of Credit Obligation, it shall not be in default under this Section 6.01(c) by reason of such acceleration; or (d) Misrepresentation. Any material representation or warranty made or deemed made by or on behalf of the Company herein or in any writing furnished in connection with this Agreement shall be false or misleading in any material respect when made or deemed made or furnished; or (e) Violation of Certain Covenants. The Company violates any covenant, agreement or condition contained in Section 5.02; or (f) Violation of Other Covenants. The Company violates any other covenant, agreement or condition contained herein and such violation shall not have been remedied within 30 days after written notice shall have been given to the Company by the Administrative Agent; or (g) Assignment for Benefit of Creditors. The Company or any of its Material Subsidiaries makes an assignment for the benefit of creditors; or (h) Voluntary Bankruptcy. The Company or any of its Material Subsidiaries applies to any tribunal for the appointment of a trustee or receiver or custodian of any substantial part of the assets of the Company or such Material Subsidiary, or commences any proceedings relating to the Company or such Material Subsidiary under any bankruptcy, reorganization, rearrangement, insolvency, readjustment of debt, dissolution or other liquidation law of any jurisdiction; or (i) Involuntary Bankruptcy. Any such application is filed, or any such proceedings are commenced, against the Company or any of its Material Subsidiaries, and the Company or such Material Subsidiary indicates its approval, consent or acquiescence, or an order is entered appointing such trustee or receiver or custodian, or adjudicating the Company or any of its Material Subsidiaries bankrupt or insolvent, or approving the petition in any such proceedings, and such order remains in effect for 60 days; or (j) Dissolution or Split-Up. Any order is entered in any proceeding against the Company or any of its Subsidiaries (i) which shall have contributed more than 15% of Consolidated Net Income during the immediately preceding fiscal year or (ii) the tangible assets of which shall have constituted more than 15% of Tangible Consolidated Assets of the Amended and Restated Credit Agreement -48- 53 Company as at the end of the immediately preceding fiscal year, decreeing the dissolution or split-up of the Company or such Subsidiary, and such order remains in effect for 60 days; or (k) Failure to Pay Dividend. The Company does not pay any dividend on any of its capital stock as declared or permits any dividend to accumulate on any of its capital stock in respect of which cumulative dividends are provided for; or (l) Undischarged Judgment. Final judgment for the payment of money in excess of $10,000,000 shall be rendered against the Company or any of its Subsidiaries and the same shall remain undischarged for a period of 30 days during which execution shall not be effectively stayed; or (m) ERISA Default. The actuarial present value of unfunded vested benefits under all Plans (other than multiemployer plans, as defined in Section 3(37) of ERISA) shall exceed $10,000,000 (excluding in such computation any Plan with assets greater than benefit liabilities), or any one or more of the following events shall occur with respect to a Plan or Plans and such occurrence (or occurrences, in the aggregate) could result in liability of the Company or any of its Subsidiaries to the PBGC or to the Plan or Plans in the aggregate amount of $10,000,000 or more for the Company and such Subsidiaries taken as a whole: (i) Any finding or determination shall be made under Section 4041(c) or (e) of ERISA; (ii) Any fact or circumstance shall occur which, in the reasonable opinion of the Majority Banks, provides grounds for the commencement of any proceeding under Section 4042 of ERISA; (iii) Any proceeding shall be commenced under Section 4042 of ERISA; (iv) Any Plan termination; or (v) Any full or partial withdrawal (as such terms are defined in Title IV of ERISA); then, (i) if any Event of Default described in Section 6.01(h) or Section 6.01(i) shall occur and be continuing, all Loans then outstanding hereunder and interest accrued thereon and all other liabilities hereunder shall thereupon become and be immediately due and payable without presentment, demand, protest, notice of intent to accelerate, or other notice of any kind to the Company or any other Person, all of which are hereby expressly waived by the Company, the Commitments shall thereupon immediately terminate and the Banks shall be under no further obligation to make Loans hereunder, and (ii) if any other Event of Default Amended and Restated Credit Agreement -49- 54 shall occur and be continuing, the Administrative Agent shall (A) if requested by the Majority Banks, by notice to the Company, terminate the Commitments and they shall thereupon immediately terminate and (B) if requested by the Majority Banks, by notice to the Company, declare all Loans then outstanding hereunder and interest accrued thereon and all other liabilities of the Company hereunder and under the Fee Letter to be immediately due and payable, and the same shall thereupon become and be forthwith due and payable without presentment, demand, protest, notice of intent to accelerate, or other notice of any kind to the Company or any other Person, all of which are hereby expressly waived by the Company. ARTICLE VII THE ADMINISTRATIVE AGENT SECTION 7.01. Authorization and Action. Subject to Section 7.06, each Bank hereby irrevocably appoints and authorizes the Administrative Agent to act on its behalf and to exercise such powers under this Agreement as are specifically delegated to or required of the Administrative Agent by the terms hereof or thereof, together with such powers as are reasonably incidental thereto. As to any matters not expressly provided for by this Agreement (including enforcement or collection of the Loans) the Administrative Agent shall not be required to exercise any discretion or take any action, but shall be required to act or to refrain from acting (and shall be fully protected in so acting or refraining from acting) upon the instructions of the Majority Banks, and such instructions shall be binding upon all Banks; provided, however, that the Administrative Agent shall not be required to take any action which exposes the Administrative Agent to personal liability or which is contrary to this Agreement, or applicable law. SECTION 7.02. Administrative Agent's Reliance, Etc. Neither the Administrative Agent nor any of its directors, officers, agents or employees shall be liable for any action taken or omitted to be taken by it or them under or in connection with this Agreement or the Loans (a) with the consent or at the request of the Majority Banks or (b) in the absence of its or their own gross negligence or willful misconduct (IT BEING THE EXPRESS INTENTION OF THE PARTIES THAT THE ADMINISTRATIVE AGENT AND ITS DIRECTORS, OFFICERS, AGENTS AND EMPLOYEES SHALL HAVE NO LIABILITY FOR ACTIONS AND OMISSIONS UNDER THIS SECTION 7.02 RESULTING FROM THEIR SOLE ORDINARY OR CONTRIBUTORY NEGLIGENCE). Without limitation of the generality of the foregoing, the Administrative Agent: (i) may treat the original holder, or the holder named in the most recent notice of assignment received by it pursuant to this Section 7.02, as the case may be, of each Loan as the holder thereof until the Administrative Agent receives written notice of the assignment or transfer thereof signed by such holder and in form satisfactory to the Administrative Agent; (ii) may consult with legal counsel (including counsel for the Company), independent public accountants and other experts selected by it and shall not be liable for any action taken or omitted to be taken in good faith by it in accordance with the advice of such counsel, accountants or experts; (iii) makes no warranty or representation to any Bank and shall not be responsible to any Bank for any statements, warranties or representations made in or in connection with this Agreement or any Loan; (iv) except as Amended and Restated Credit Agreement -50- 55 otherwise expressly provided herein, shall not have any duty to ascertain or to inquire as to the performance or observance of any of the terms, covenants or conditions of this Agreement or to inspect the property (including the books and records) of the Company; (v) shall not be responsible to any Bank for the due execution, legality, validity, enforceability, genuineness, sufficiency or value of this Agreement or any instrument or document furnished pursuant hereto; and (vi) shall incur no liability under or in respect of this Agreement or any Loan by acting upon any notice, consent, certificate or other instrument or writing (which may be by facsimile transmission) reasonably believed by it to be genuine and signed or sent by the proper party or parties. SECTION 7.03. Administrative Agent and Affiliates; Chase and Affiliates. Without limiting the right of any other Bank to engage in any business transactions with the Company or any of its Affiliates, with respect to their Commitments and the Loans, if any, made by them, Chase and each other Bank that may become the Administrative Agent shall have the same rights and powers under this Agreement and its Loans as any other Bank and may exercise the same as though it were not the Administrative Agent; and the term "Bank" or "Banks" shall, unless otherwise expressly indicated, include Chase and any such other Bank, in their individual capacities. Chase, each other Person who becomes the Administrative Agent and their respective Affiliates may be engaged in, or may hereafter engage in, one or more loans, letters of credit, leasing or other financing activities not the subject of this Agreement (collectively, the "Other Financings") with the Company or any of its Affiliates, or may act as trustee on behalf of, or depositary for, or otherwise engage in other business transactions with, the Company or any of its Affiliates (all Other Financings and other such business transactions being collectively, the "Other Activities") with no responsibility to account therefor to the Banks. Without limiting the rights and remedies of the Banks specifically set forth herein, no other Bank by virtue of being a Bank hereunder shall have any interest in (a) any Other Activities, (b) any present or future guarantee by or for the account of the Company not contemplated or included herein, (c) any present or future offset exercised by the Administrative Agent in respect of any such Other Activities, (d) any present or future property taken as security for any such Other Activities or (e) any property now or hereafter in the possession or control of the Administrative Agent which may be or become security for the obligations of the Company or any of its Affiliates hereunder and under the Loans by reason of the general description of indebtedness secured, or of property contained in any other agreements, documents or instruments related to such Other Activities; provided, however, that if any payment in respect of such guarantees or such property or the proceeds thereof shall be applied to reduction of the obligations hereunder, then each Bank shall be entitled to share in such application according to its pro rata portion of such obligations. SECTION 7.04. Bank Credit Decision. Each Bank acknowledges and agrees that it has, independently and without reliance upon the Administrative Agent or any other Bank and based on the financial statements referred to in Section 4.07 and such other documents and information as it has deemed appropriate, made its own credit analysis and decision to enter into this Agreement. Each Bank also acknowledges and agrees that it will, independently and without reliance upon the Administrative Agent or any other Bank and based on such documents and Amended and Restated Credit Agreement -51- 56 information as it shall deem appropriate at the time, continue to make its own credit decisions in taking or not taking action under this Agreement. SECTION 7.05. Administrative Agent's Indemnity. The Administrative Agent shall not be required to take any action hereunder or to prosecute or defend any suit in respect of this Agreement or the Loans unless indemnified to the Administrative Agent's satisfaction by the Banks against loss, cost, liability and expense. If any indemnity furnished to the Administrative Agent shall become impaired, it may call for additional indemnity and cease to do the acts indemnified against until such additional indemnity is given. In addition, the Banks agree to indemnify the Administrative Agent (to the extent not reimbursed by the Company), ratably according to the respective aggregate principal amounts of the Loans then owing to each of them (or if no Loans are at the time outstanding, ratably according to the respective aggregate amounts of their Commitments, or if no Commitments are outstanding, the respective aggregate amounts of the Commitments immediately prior to the time the Commitments ceased to be outstanding), from and against any and all liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses or disbursements of any kind or nature whatsoever which may be imposed on, incurred by, or asserted against the Administrative Agent in any way relating to or arising out of this Agreement or any action taken or omitted by the Administrative Agent under this Agreement (including any action taken or omitted under Article II). Without limitation of the foregoing, each Bank agrees to reimburse the Administrative Agent promptly upon demand for its ratable share of any out-of-pocket expenses (including reasonable counsel fees) incurred by the Administrative Agent in connection with the preparation, execution, administration, or enforcement of, or legal advice in respect of rights or responsibilities under, this Agreement to the extent that the Administrative Agent is not reimbursed for such expenses by the Company. The provisions of this Section 7.05 shall survive the termination of this Agreement and/or the payment or assignment of any of the Loans. Notwithstanding the foregoing, no Bank shall be liable under this Section 7.05 to the Administrative Agent for any portion of such liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses or disbursements due to the Administrative Agent resulting from the Administrative Agent's gross negligence or willful misconduct. Each Bank agrees, however, that it expressly intends, under this Section 7.05, to indemnify the Administrative Agent ratably as aforesaid for all such liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses and disbursements arising out of or resulting from the Administrative Agent's sole, ordinary or contributory negligence. SECTION 7.06. Successor Administrative Agent. The Administrative Agent may resign at any time by giving written notice thereof to the Banks and the Company and may be removed as Administrative Agent under this Agreement at any time, with or without cause, by the Majority Banks. Upon any such resignation or removal, the Majority Banks shall have the right to appoint a successor Administrative Agent. If no successor Administrative Agent shall have been so appointed by the Majority Banks, and shall have accepted such appointment, within 30 calendar days after the retiring Administrative Agent's giving of notice of resignation or the Majority Banks' removal of the retiring Administrative Agent, then the retiring Administrative Agent may, on behalf Amended and Restated Credit Agreement -52- 57 of the Banks, appoint a successor Administrative Agent, which shall be a commercial bank organized or licensed under the laws of the United States of America or of any state thereof and having a combined capital and surplus of at least $500,000,000. Upon the acceptance of any appointment as Administrative Agent hereunder by a successor Administrative Agent, such successor Administrative Agent shall thereupon succeed to and become vested with all the rights, powers, privileges and duties of the retiring Administrative Agent, and the retiring Administrative Agent shall be discharged from its duties and obligations under this Agreement. After any retiring Administrative Agent's resignation or removal as Administrative Agent hereunder, the provisions of this Article VII shall inure to its benefit as to any actions taken or omitted to be taken by it while it was Administrative Agent under this Agreement. SECTION 7.07. Notice of Default. The Administrative Agent shall not be deemed to have knowledge or notice of the occurrence of any Default or Event of Default hereunder unless the Administrative Agent shall have received notice from a Bank or the Company referring to this Agreement, describing such Default or Event of Default and stating that such notice is a "notice of default." If the Administrative Agent receives such a notice, the Administrative Agent shall give notice thereof to the Banks; provided, however, if such notice is received from a Bank, the Administrative Agent also shall give notice thereof to the Company. The Administrative Agent shall be entitled to take action or refrain from taking action with respect to such Default or Event of Default as provided in Section 7.01 and Section 7.02. SECTION 7.08. No Duty. No agent other than the Administrative Agent shall have any duties, responsibilities or liabilities in such capacity with respect to the administration or enforcement of this Agreement. ARTICLE VIII MISCELLANEOUS SECTION 8.01. Amendments, Etc. No amendment or waiver of any provision of this Agreement, nor consent to any departure by the Company herefrom, shall in any event be effective unless the same shall be in writing and signed by the Majority Banks in all cases, and then, in any case, such waiver or consent shall be effective only in the specific instance and for the specific purpose for which given; provided, however, that no amendment, waiver or consent shall, unless in writing and signed by each Bank affected thereby, do any of the following: (a) change the definition of "Majority Banks" contained in Section 1.01, (b) except as expressly provided in Section 2.14(f) or Section 2.15(c), reduce or increase the amount or alter the terms of the Commitments of any Banks or subject any Banks to any additional obligations, (c) reduce or forgive the principal of, or rate or amount of interest applicable to, any Loan other than as provided in this Agreement, or any fees hereunder, (d) postpone any date fixed for any payment of principal of, or interest on, the Loans or any fees hereunder, (e) change Section 4.13, this Section 8.01, the last sentence of Section 8.11(a) or, (f) change the percentage of the Commitments or of the aggregate unpaid principal amount of the Amended and Restated Credit Agreement -53- 58 Loans, or the number of Banks, which shall be required for the Banks or any of them to take any action hereunder; and provided that no amendment, waiver or consent shall, unless in writing and signed by the Administrative Agent in addition to the Banks required above to take such action, affect the rights or duties of the Administrative Agent under this Agreement. SECTION 8.02. Notices, Etc. The Administrative Agent, any Bank, or the holder of any Loan, giving consent or notice or making any request of the Company provided for hereunder, shall notify each Bank and the Administrative Agent thereof. In the event that the holder of any Loan (including any Bank) shall transfer such Loan, it shall promptly so advise the Administrative Agent which shall be entitled to assume conclusively that no transfer of any Loan has been made by any holder (including any Bank) unless and until the Administrative Agent receives written notice to the contrary. Notices, consents, requests, approvals, demands and other communications (collectively "Communications") provided for or required herein shall be in writing (including facsimile Communications) and mailed, sent by facsimile transmission or delivered: (a) If to the Company, to it at: 1929 Allen Parkway P.O. Box 130548 Houston, Texas 77019-0548 Telecopy Number: (713) 525-9067 Attention: Secretary (b) If to the Administrative Agent, to it at: Chase Agent Services One Chase Manhattan Plaza, 8th Floor New York, New York 10081 Telephone Number: (212) 552-7277 Telecopy Number: (212) 552-5658 Attention: Janet Belden with a copy to: Chase Bank of Texas, National Association 707 Travis Street, 5 CBBN 78 Houston, Texas 77002 Telephone Number: (713) 216-5324 Telecopy Number: (713) 216-6004 Attention: Michael Ondruch (c) If to any Bank, as specified on the signature page for such Bank hereto or, in the case of any Person who becomes a Bank after the date hereof, as specified on the signature page of the Assignment and Acceptance executed by such Bank, or as to any party, such other address or Amended and Restated Credit Agreement -54- 59 facsimile number as such party may hereafter specify for such purpose in a Communication to the other parties hereto. (d) All Communications shall, when mailed, sent by facsimile transmission or delivered, be effective when deposited in the mails to any party at its address specified above, on the signature page hereto, or on the signature page of such Assignment and Acceptance (or other address designated by such party to the other parties hereto) or sent by facsimile transmission to any party to the facsimile transmission number as set forth herein or on the signature pages hereto, or on the signature pages of such Assignment and Acceptance (or other facsimile number designated by such party in a Communication to the other parties hereto) or delivered personally to any party at its address specified above, on the signature page hereof or on the signature page of such Assignment and Acceptance (or other address designated by such party in a Communication to the other parties hereto; provided, however, Communications to the Administrative Agent pursuant to Article II or Article VII shall not be effective until received by the Administrative Agent; and provided, further, that the Company shall indemnify each of the Administrative Agent and the Banks against any costs, claim, loss, expense (including legal fees) or liability which any of them may sustain or incur as a consequence of any facsimile notice or communication originating from the Company not being actually received by or delivered to the intended recipient thereof or any facsimile communication purporting to originate from the Company being made or delivered fraudulently. SECTION 8.03. No Waiver; Remedies. No failure on the part of any Bank or the Administrative Agent to exercise, and no delay in exercising, any right hereunder shall operate as a waiver thereof; nor shall any single or partial exercise of any such right, or any abandonment or discontinuance of any steps to enforce such right, preclude any other or further exercise thereof or the exercise of any other right. No notice to or demand on the Company in any case shall entitle the Company to any other or further notice or demand in similar or other circumstances. The remedies herein provided are cumulative and not exclusive of any remedies provided by law. SECTION 8.04. Costs, Expenses and Taxes. The Company agrees to pay on demand: (a) all reasonable costs and expenses of the Administrative Agent in connection with the preparation, execution, delivery and administration of this Agreement and the other documents to be delivered hereunder, including the reasonable fees and out-of-pocket expenses of counsel for the Administrative Agent with respect thereto and with respect to advising the Administrative Agent as to its rights and responsibilities under this Agreement, and any modification, supplement or waiver of any of the terms of this Agreement or any modification or extension of the Loans, and (b) all reasonable costs and expenses of each of the Banks and the Administrative Agent (including reasonable counsel fees and expenses of outside counsel and the reasonable allocated costs of in-house legal services) in connection with the enforcement of this Agreement and the Loans. In addition, unless prohibited by applicable law, the Company shall pay any and all stamp, mortgage and similar taxes payable or determined to be payable in connection with the execution and delivery or enforcement of this Agreement and the Loans and the other documents to be delivered hereunder, and agrees to save the Administrative Agent and each Bank harmless from and against any and all Amended and Restated Credit Agreement -55- 60 liabilities with respect to or resulting from any delay in paying or omission to pay such taxes, if any, which may be payable or determined to be payable in connection with the execution and delivery or enforcement of this Agreement. Without prejudice to the survival of any other obligations of the Company hereunder, the obligations of the Company under this Section 8.04 shall survive the termination of this Agreement and the payment or assignment of the Loans. SECTION 8.05. Indemnity. (a) The Company shall indemnify the Administrative Agent, the Banks and each Affiliate thereof and their respective directors, officers, employees and agents from, and hold each of them harmless against, any and all losses, liabilities, claims and damages to which any of them may become subject, insofar as such losses, liabilities, claims and damages arise out of or result from (i) any actual or proposed use by the Company of the proceeds of any extension of credit by any Bank hereunder or (ii) any investigation, litigation or other proceeding (including any threatened investigation or proceeding) relating to the foregoing, and the Company shall reimburse the Administrative Agent and each Bank, and each Affiliate thereof and their respective directors, officers, employees and agents, upon demand for any expenses (including legal fees) reasonably incurred in connection with any such investigation or proceeding; but excluding any such losses, liabilities, claims, damages or expenses incurred by reason of the gross negligence or willful misconduct of the Person to be indemnified. (b) WITHOUT LIMITING ANY PROVISION OF THIS AGREEMENT, IT IS THE EXPRESS INTENTION OF THE PARTIES HERETO THAT EACH PERSON TO BE INDEMNIFIED HEREUNDER OR THEREUNDER SHALL BE INDEMNIFIED AND HELD HARMLESS AGAINST ANY AND ALL LOSSES, LIABILITIES, CLAIMS AND DAMAGES ARISING OUT OF OR RESULTING FROM THE ORDINARY, SOLE OR CONTRIBUTORY NEGLIGENCE OF SUCH PERSON. Without prejudice to the survival of any other obligations of the Company hereunder, the obligations of the Company under this Section 8.05 shall survive the termination of this Agreement and the payment or assignment of the Loans. SECTION 8.06. Right of Setoff. If any Event of Default shall have occurred and be continuing, each Bank is hereby authorized at any time and from time to time, to the fullest extent permitted by law, to set off and apply any and all deposits (general or special, time or demand, provisional or final) at any time held and other indebtedness at any time owing by such Bank or any branch, subsidiary or Affiliate of such Bank to or for the credit or the account of the Company against any of and all the obligations of the Company now or hereafter existing under this Agreement and any Loan held by such Bank, irrespective of whether or not such Bank or the Administrative Agent shall have made any demand under this Agreement and although such obligations may be unmatured. Each Bank agrees promptly to notify the Company as to which such setoff and application was made after any such setoff and application made by such Bank, but the failure to give such notice shall not affect the validity of such setoff and application. The rights of each Bank under this Section 8.06 are in addition to other rights and remedies (including other rights of setoff) which such Bank may have. Amended and Restated Credit Agreement -56- 61 SECTION 8.07. Governing Law. This Agreement and all other documents executed in connection herewith (including each Assignment and Acceptance ) shall be deemed to be contracts and agreements executed by the Company, the Administrative Agent and the Banks party thereto under the laws of the State of New York and of the United States and for all purposes shall be construed in accordance with, and governed by, the laws of said state and of the United States. Without limitation of the foregoing, nothing in this Agreement or in any such other agreement shall be deemed to constitute a waiver of any rights which any Bank may have under applicable federal legislation relating to the amount of interest which such Bank may contract for, take, receive, reserve or charge in respect of any Loans, including any right to contract for, take, receive, reserve and charge interest at the rate allowed by the law of the state where such Bank is located. SECTION 8.08. Interest. Anything in this Agreement to the contrary notwithstanding, the Company shall never be required to pay unearned interest on any Loan and shall never be required to pay interest on such Loan at a rate in excess of the Highest Lawful Rate, and if the effective rate of interest which would otherwise be payable under this Agreement and such Loan would exceed the Highest Lawful Rate, or if the holder of such Loan shall receive any unearned interest or shall receive monies that are deemed to constitute interest which would increase the effective rate of interest payable by the Company under this Agreement and such Loan to a rate in excess of the Highest Lawful Rate, then (a) the amount of interest which would otherwise be payable by the Company under this Agreement and such Loan shall be reduced to the amount allowed under applicable law; and (b) any unearned interest paid by the Company or any interest paid by the Company in excess of the Highest Lawful Rate shall be credited on the principal of such Loan. It is further agreed that all calculations of the rate of interest contracted for, charged or received by any Bank under the Loans made by it, or under this Agreement, which are made for the purpose of determining whether such rate exceeds the Highest Lawful Rate applicable to such Bank (such Highest Lawful Rate being such Bank's "Maximum Permissible Rate"), shall be made, to the extent permitted by usury laws applicable to such Bank (now or hereafter enacted), by amortizing, prorating and spreading in equal parts during the period of the full stated term of the Loans all interest at any time contracted for, charged or received by such Bank in connection therewith. If at any time and from time to time (y) the amount of interest payable to any Bank on any date shall be computed at such Bank's Maximum Permissible Rate pursuant to this Section 8.08 and (z) in respect of any subsequent interest computation period the amount of interest otherwise payable to such Bank would be less than the amount of interest payable to such Bank computed at such Bank's Maximum Permissible Rate, then the amount of interest payable to such Bank in respect of such subsequent interest computation period shall continue to be computed at such Bank's Maximum Permissible Rate until the total amount of interest payable to such Bank shall equal the total amount of interest which would have been payable to such Bank if the total amount of interest had been computed without giving effect to this Section 8.08. SECTION 8.09. Survival of Representations, Warranties and Covenants. All representations, warranties and covenants contained herein or made in writing by the Company in Amended and Restated Credit Agreement -57- 62 connection herewith shall survive the execution and delivery of this Agreement, and will bind and inure to the benefit of the respective successors and assigns of the parties hereto, whether so expressed or not, provided, that the undertaking of the Banks to make Loans to the Company shall not inure to the benefit of any successor or assign of the Company. SECTION 8.10. Binding Effect. This Agreement shall become effective when it shall have been executed by the Company and the Administrative Agent and when the Administrative Agent shall have been notified by each Bank that such Bank has executed it and, except as provided in Section 8.09, thereafter shall be binding upon and inure to the benefit of the Company, the Administrative Agent and each Bank and their respective successors and assigns. SECTION 8.11. Successors and Assigns; Participations. (a) Whenever in this Agreement any of the parties hereto is referred to, such reference shall be deemed to include the successors and permitted assigns of such party; and all covenants, promises and agreements by or on behalf of the Company, the Administrative Agent or the Banks that are contained in this Agreement shall bind and inure to the benefit of their respective successors and permitted assigns. The Company may not assign or transfer any of its rights or obligations hereunder without the written consent of all the Banks. (b) Each Bank, without the consent of the Company, may sell participations to one or more banks or other entities in all or a portion of its rights and obligations under this Agreement (including, without limitation, all or a portion of its Commitments and the Loans owing to it); provided, however, that (i) the selling Bank's obligations under this Agreement shall remain unchanged; (ii) such Bank shall remain solely responsible to the other parties hereto for the performance of such obligations; (iii) the participating banks or other entities shall be entitled to the cost protection provisions contained in Article II and Section 8.04; and (iv) the Company, the Administrative Agent and the other Banks shall continue to deal solely and directly with the selling Bank in connection with such Bank's rights and obligations under this Agreement; provided, however, that each Bank shall retain the sole right and responsibility to enforce the obligations of the Company relating to the Loans including the right to approve any amendment, modification or waiver of any provision of this Agreement; and further provided, however, the selling Bank may grant a participant voting rights with respect to amendments, modifications or waivers with respect to any fees payable hereunder (including the amount and the dates fixed for the payment of any such fees) or the amount of principal or the rate of interest payable on, or the dates fixed for any payment of principal of or interest on, the Loans. Each Bank shall provide the Company with prompt notice of the identity of each participating bank to which a participation in its Commitment or any Loan is sold and the amount of such participation. (c) With the prior consent of the Company and the Administrative Agent, such consent not to be unreasonably withheld, a Bank may assign to one or more Eligible Assignees (provided, however, no such consent shall be required if such Eligible Assignee is a Bank or an Affiliate of a Bank) and, without the consent of the Company or the Administrative Agent, a Bank Amended and Restated Credit Agreement -58- 63 may assign to one of its Affiliates, all or a portion of its interests, rights, and obligations under this Agreement (including all or a portion of its Commitments and the same portion of the Loans at the time owing to it); provided, however, that (i) each such assignment shall be of a constant, and not a varying, percentage of all the assigning Bank's rights and obligations under this Agreement and partial assignments shall (except in the case of assignments to an Affiliate of such Bank or to other Banks), be in a minimum principal amount of $5,000,000 and (ii) the parties to each such assignment shall execute and deliver to the Administrative Agent, for its acceptance and recording in the Register (as defined below), an Assignment and Acceptance substantially in the form of Exhibit 8.11 (an "Assignment and Acceptance"), together with a properly completed Administrative Questionnaire from such Eligible Assignee and a processing and recordation fee of $2,000; provided, however, the Company shall not have any obligation to pay or reimburse any Person for the payment of such processing and recordation fee, except for assignments pursuant to Section 2.14 or Section 2.15. The Eligible Assignee party to each Assignment and Acceptance also shall deliver a copy of its Administrative Questionnaire to the Company. Upon such execution, delivery, acceptance and recording, from and after the effective date specified in each Assignment and Acceptance, which effective date shall be at least five Business Days after the execution thereof (unless otherwise provided in such Assignment and Acceptance) (x) the Eligible Assignee thereunder shall be a party hereto and, to the extent provided in such Assignment and Acceptance, have the rights and obligations of a Bank hereunder and (y) the assignor Bank thereunder shall, to the extent provided in such Assignment and Acceptance, be released from its obligations under this Agreement (and, in the case of an Assignment and Acceptance covering all of the remaining portion of an assigning Bank's rights and obligations under this Agreement, such Bank shall cease to be a party hereto, provided, however, such Bank shall have the benefits of Section 2.14, Section 2.20, Section 8.04 and Section 8.05). (d) By executing and delivering an Assignment and Acceptance, the Bank assignor thereunder and the Eligible Assignee confirm to and agree with each other and the other parties hereto as follows: (i) other than the representation and warranty that it is the legal and beneficial owner of the interest being assigned thereby free and clear of any adverse claim known to such Bank assignor, such Bank assignor makes no representation or warranty and assumes no responsibility with respect to any statements, warranties or representations made in or in connection with this Agreement or any other instrument or document furnished pursuant hereto or the execution, legality, validity, enforceability, genuineness, sufficiency or value of this Agreement or any other instrument or document furnished pursuant hereto; (ii) such Bank assignor makes no representation or warranty and assumes no responsibility with respect to the financial condition of the Company or the performance or observance of its obligations under this Agreement or any other instrument or document furnished pursuant hereto; (iii) such Eligible Assignee confirms that it has received a copy of this Agreement together with copies of the most recent financial statements delivered pursuant to Section 4.07 or Section 5.01(a) and such other documents and information as it has deemed appropriate to make its own credit analysis and decision to enter into such Assignment and Acceptance; (iv) such Eligible Assignee will, independently and without reliance upon the Administrative Agent, such Bank assignor or any other Bank and based on such documents and Amended and Restated Credit Agreement -59- 64 information as it shall deem appropriate at the time, continue to make its own credit decisions in taking or not taking action under this Agreement; (v) such Eligible Assignee appoints and authorizes the Administrative Agent to take such action on behalf of such Eligible Assignee and to exercise such powers under this Agreement as are delegated to the Administrative Agent by the terms hereof, together with such powers as are reasonably incidental thereto; (vi) such Eligible Assignee agrees that it will perform in accordance with their terms all of the obligations which by the terms of this Agreement are required to be performed by it as a Bank and (vii) such Eligible Assignee confirms that it is an Eligible Assignee as defined herein. (e) The Administrative Agent shall maintain at its office a copy of each Assignment and Acceptance delivered to it and a register for the recordation of the names and addresses of the Banks and the Commitments of, and principal amount of the Loans owing to, each Bank from time to time (the "Register"). The entries in the Register shall, to the extent permitted by law, be conclusive, in the absence of manifest error, and the Company, the Administrative Agent and the Banks may treat each Person whose name is recorded in the Register as a Bank hereunder for all purposes of this Agreement. The Register shall be available for inspection by the Company or any Bank at any reasonable time and from time to time upon reasonable prior notice. (f) Upon its receipt of an Assignment and Acceptance executed by an assigning Bank and an Eligible Assignee and, if required, the written consent to such assignment, the Administrative Agent shall, if such Assignment and Acceptance has been completed and is substantially in the form of Exhibit 8.11, (i) accept such Assignment and Acceptance, (ii) record the information contained therein in the Register and (iii) give prompt notice thereof to the Banks and the Company. (g) Notwithstanding any other provision herein, any Bank may, in connection with any assignment or participation or proposed assignment or participation pursuant to this Section 8.11 disclose to the assignee or participant or proposed assignee or participant, any information relating to the Company furnished to such Bank by or on behalf of the Company; provided, that prior to any such disclosure, each such assignee or participant or proposed assignee or participant shall agree to preserve the confidentiality, pursuant to Section 8.12, of any confidential information relating to the Company received from such Bank. (h) Anything in this Section 8.11 to the contrary notwithstanding, any Bank may at any time, without the consent of the Company or the Administrative Agent, assign and pledge all or any portion of its Commitment and the Loans owing to it to any Federal Reserve Bank (and its transferees) as collateral security pursuant to Regulation A and any Operating Circular issued by such Federal Reserve Bank. No such assignment shall release the assigning Bank from its obligations hereunder. Notwithstanding the foregoing, in connection with any such pledge of such Loans to the Federal Reserve Bank, any Bank may request that such Loans be evidenced by a note or notes in form and substance satisfactory to such Bank and the Company. Amended and Restated Credit Agreement -60- 65 SECTION 8.12. Confidentiality. Each Bank agrees to exercise its best efforts to keep any information delivered or made available by the Company to it (including any information obtained pursuant to Section 5.01(e)) which is clearly indicated to be confidential information, confidential from anyone other than Persons employed or retained by such Bank or any of its Affiliates who are or are expected to become engaged in evaluating, approving, structuring or administering the Loans; provided that nothing herein shall prevent any Bank from disclosing such information (a) to any other Bank; (b) pursuant to subpoena or upon the order of any court or administrative agency; (c) upon the request or demand of any regulatory agency or authority having jurisdiction over such Bank; (d) which has been publicly disclosed; (e) to the extent reasonably required in connection with any litigation to which the Administrative Agent, any Bank, the Company or their respective Affiliates may be a party; (f) to the extent reasonably required in connection with the exercise of any remedy hereunder; (g) to such Bank's legal counsel and independent auditors; and (h) to any actual or proposed participant or assignee of all or part of its rights hereunder which has agreed in writing to be bound by the provisions of this Section 8.12. SECTION 8.13. Separability. Should any clause, sentence, paragraph or Section of this Agreement be judicially declared to be invalid, unenforceable or void, such decision will not have the effect of invalidating or voiding the remainder of this Agreement, and the parties hereto agree that the part or parts of this Agreement so held to be invalid, unenforceable or void will be deemed to have been stricken herefrom and the remainder will have the same force and effectiveness as if such part or parts had never been included herein. SECTION 8.14. Limitation by Law. All waivers, indemnities and rights provided in this Agreement may be exercised only to the extent that the exercise thereof does not violate any applicable provision of law, and all the provisions of this Agreement are intended to be subject to all applicable mandatory provisions of law which may be controlling and to be limited to the extent necessary so that they will not render this Agreement invalid or unenforceable, in whole or in part. SECTION 8.15. Independence of Covenants. All covenants contained in this Agreement shall be given independent effect so that if a particular action or condition is not permitted by any such covenant, the fact that such action or condition would be permitted by an exception to, or otherwise be within the limitations of, another covenant shall not avoid the occurrence of a Default or Event of Default if such action is taken or condition exists. SECTION 8.16. Judgment. The obligations of the Company in respect of any sum due to any party hereto or any holder of the obligations owing hereunder (the "Applicable Creditor") shall, notwithstanding any judgment in a currency (the "Judgment Currency") other than the currency in which such sum is stated to be due hereunder (the "Agreement Currency"), be discharged only to the extent that, on the Business Day following receipt by the Applicable Creditor of any sum adjudged to be so due in the Judgment Currency, the Applicable Creditor may in accordance with normal banking procedures in the relevant jurisdiction purchase the Agreement Currency with the Judgment Currency; if the amount of the Agreement Currency so purchased is less than the sum Amended and Restated Credit Agreement -61- 66 originally due to the Applicable Creditor in the Agreement Currency, the Company agrees, as a separate obligation and notwithstanding any such judgment, to indemnify the Applicable Creditor against such loss. The obligations of the Company contained in this Section 8.16 shall survive the termination of this Agreement and the payment of all other amounts owing hereunder. SECTION 8.17. SUBMISSION TO JURISDICTION; WAIVER OF IMMUNITIES. (a) ANY LEGAL ACTION OR PROCEEDING WITH RESPECT TO THIS AGREEMENT AND THE FEE LETTER MAY BE BROUGHT IN THE COURTS OF THE STATE OF NEW YORK OR OF THE UNITED STATES FOR THE SOUTHERN DISTRICT OF NEW YORK AND, BY EXECUTION AND DELIVERY OF THIS AGREEMENT, THE COMPANY HEREBY IRREVOCABLY ACCEPTS FOR ITSELF AND IN RESPECT OF ITS PROPERTY, UNCONDITIONALLY, THE NON-EXCLUSIVE JURISDICTION OF THE AFORESAID COURTS WITH RESPECT TO ANY SUCH ACTION OR PROCEEDING. THE COMPANY HEREBY IRREVOCABLY DESIGNATES, APPOINTS AND EMPOWERS CORPORATION SERVICE COMPANY, WITH OFFICES ON THE DATE HEREOF AT 80 STATE STREET, ALBANY, NEW YORK 12201, AS ITS DESIGNEE, APPOINTEE AND AGENT TO RECEIVE, ACCEPT AND ACKNOWLEDGE FOR AND ON ITS BEHALF, AND IN RESPECT OF ITS PROPERTY, SERVICE OF ANY AND ALL LEGAL PROCESS, SUMMONS, NOTICES AND DOCUMENTS WHICH MAY BE SERVED IN ANY SUCH ACTION OR PROCEEDING. IF FOR ANY REASON SUCH DESIGNEE, APPOINTEE AND AGENT SHALL CEASE TO BE AVAILABLE TO ACT AS SUCH, THE COMPANY AGREES TO DESIGNATE A NEW DESIGNEE, APPOINTEE AND AGENT IN THE STATE OF NEW YORK ON THE TERMS AND FOR THE PURPOSES OF THIS PROVISION SATISFACTORY TO THE ADMINISTRATIVE AGENT. THE COMPANY FURTHER IRREVOCABLY CONSENTS TO THE SERVICE OF PROCESS OUT OF ANY OF THE AFOREMENTIONED COURTS IN ANY SUCH ACTION OR PROCEEDING BY THE MAILING OF COPIES THEREOF BY REGISTERED OR CERTIFIED MAIL, POSTAGE PREPAID, TO IT AT ITS ADDRESS PROVIDED IN SECTION 8.02, SUCH SERVICE TO BECOME EFFECTIVE THIRTY DAYS AFTER SUCH MAILING. NOTHING HEREIN SHALL AFFECT THE RIGHT OF THE ADMINISTRATIVE AGENT OR ANY BANK TO SERVE PROCESS IN ANY OTHER MANNER PERMITTED BY LAW OR TO COMMENCE LEGAL PROCEEDINGS OR OTHERWISE PROCEED AGAINST THE COMPANY IN ANY OTHER JURISDICTION. (b) TO THE EXTENT THAT THE COMPANY HAS OR HEREAFTER MAY ACQUIRE ANY IMMUNITY (SOVEREIGN OR OTHERWISE) FROM ANY LEGAL ACTION, SUIT OR PROCEEDING, FROM JURISDICTION OF ANY COURT OR FROM SET-OFF OR ANY LEGAL PROCESS (WHETHER SERVICE OF NOTICE, ATTACHMENT PRIOR TO JUDGMENT, ATTACHMENT IN AID OF Amended and Restated Credit Agreement -62- 67 EXECUTION OF JUDGMENT, EXECUTION OF JUDGMENT OR OTHERWISE) WITH RESPECT TO ITSELF OR ANY OF ITS PROPERTY, THE COMPANY HEREBY IRREVOCABLY WAIVES AND AGREES NOT TO PLEAD OR CLAIM SUCH IMMUNITY IN RESPECT OF ITS OBLIGATIONS UNDER THIS AGREEMENT. THE COMPANY HEREBY AGREES THAT THE WAIVERS SET FORTH IN THIS SECTION 8.17 SHALL HAVE THE FULLEST EFFECT PERMITTED UNDER THE FOREIGN SOVEREIGN IMMUNITIES ACT OF 1976 OF THE UNITED STATES OF AMERICA AND ARE INTENDED TO BE IRREVOCABLE AND NOT SUBJECT TO WITHDRAWAL FOR PURPOSES OF SUCH ACT. SECTION 8.18. Entire Agreement. This Agreement (including the Exhibits and Schedules hereto), the Assignment and Acceptances, if any, and the Fee Letter embody the entire agreement and understanding among the Company, the Administrative Agent and the Banks relating to the subject matter hereof and thereof and supersede all prior proposals, agreements and understandings relating to such subject matter. SECTION 8.19. Execution in Counterparts. This Agreement may be executed in any number of counterparts and by different parties hereto in separate counterparts, each of which when so executed shall be deemed to be an original and all of which taken together shall constitute one and the same agreement. Amended and Restated Credit Agreement -63- 68 IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed by their respective officers thereunto duly authorized, as of the date first above written. SERVICE CORPORATION INTERNATIONAL By: ----------------------------------- Name: Todd A. Matherne Title: Senior Vice President and Treasurer Amended and Restated Credit Agreement 69 THE CHASE MANHATTAN BANK, as Administrative Agent By: ----------------------------------- Name: Title: Amended and Restated Credit Agreement 70 BANKS ABN AMRO BANK N.V. By: ----------------------------------- Name: Title: By: ----------------------------------- Name: Title: Three Riverway, Suite 1700 Houston, Texas 77056 Telecopy No.: (713) 629-7533 Domestic Lending Office ABN AMRO Bank N.V. 208 South LaSalle Street Suite 1500 Chicago, Illinois 60603 Attn: Credit Administration Telephone: (312) 992-5118 Telecopy No.: (312) 992-5111 Eurodollar Lending Office ABN AMRO Bank N.V. 208 South LaSalle Street Suite 1500 Chicago, Illinois 60603 Attn: Credit Administration Telephone: (312) 992-5118 Telecopy No.: (312) 992-5111 Amended and Restated Credit Agreement 71 BANQUE NATIONALE DE PARIS, HOUSTON AGENCY By: ----------------------------------- Name: Title: 333 Clay Street, Suite 3400 Houston, Texas 77002 Telecopy No.: (713) 659-1414 Domestic Lending Office Banque Nationale De Paris, Houston Agency 333 Clay Street, Suite 3400 Houston, Texas 77002 Attn: Donna Rose Telecopy No.: (713) 659-1414 Eurodollar Lending Office Banque Nationale De Paris, Houston Agency 333 Clay Street, Suite 3400 Houston, Texas 77002 Attn: Donna Rose Telecopy No.: (713) 659-1414 Amended and Restated Credit Agreement 72 BANK ONE, TEXAS, NA By: ----------------------------------- Name: Title: 910 Travis Street, 7th Floor Houston, Texas 77002 Telecopy No.: (713) 751-6199 Domestic Lending Office Bank One, Texas, NA 910 Travis Street, 7th Floor Houston, Texas 77002 Telecopy No.: (713) 751-6199 Eurodollar Lending Office Bank One, Texas, NA 910 Travis Street, 7th Floor Houston, Texas 77002 Amended and Restated Credit Agreement 73 CITIBANK, N.A. By: ------------------------------------ Name: Title: 400 Perimeter Center Terrace Suite 600 Atlanta, Georgia 30346 Telecopy No.: (770) 668-8137 Domestic Lending Office Citibank, N.A. 399 Park Avenue, 10th Floor, Zone 7 New York, New York 10043 Eurodollar Lending Office Citibank, N.A. 399 Park Avenue, 10th Floor, Zone 7 New York, New York 10043 Amended and Restated Credit Agreement 74 COMMERZBANK AKTIENGESELLSCHAFT, ATLANTA AGENCY By: ----------------------------------- Name: Title: By: ------------------------------------ Name: Title: Promenade Two, Suite 3500 1230 Peachtree Street, N.E. Atlanta, Georgia 30309 Telecopy No.: (404) 888-6539 Domestic Lending Office Commerzbank Aktiengesellschaft, Atlanta Agency Promenade Two, Suite 3500 1230 Peachtree Street, N.E. Atlanta, Georgia 30309 Attn: David Suttles - AVP Telecopy No.: (404) 888-6539 Eurodollar Lending Office Commerzbank Aktiengesellschaft, Atlanta Agency Promenade Two, Suite 3500 1230 Peachtree Street, N.E. Atlanta, Georgia 30309 Attn: David Suttles - AVP Telecopy No.: (404) 888-6539 Amended and Restated Credit Agreement 75 CREDIT LYONNAIS NEW YORK BRANCH By: ----------------------------------- Name: Title: 1301 Avenue of the Americas New York, New York 10019 Telecopy No.: (212) 954-3312 Domestic Lending Office Credit Lyonnais New York Branch 1301 Avenue of the Americas New York, New York 10019 Telecopy No.: (212) 954-3312 Eurodollar Lending Office Credit Lyonnais New York Branch 1301 Avenue of the Americas New York, New York 10019 Telecopy No.: (212) 954-3312 with notices to: Credit Lyonnais Dallas Representative Office 2200 Ross Avenue, Suite 4400W Dallas, Texas 75201 Amended and Restated Credit Agreement 76 LLOYDS TSB BANK plc By: ----------------------------------- Name: Title: By: ----------------------------------- Name: Title: Lloyds TSB Bank plc, Miami One Biscayne Tower, Suite 3200 2 South Biscayne Boulevard Miami, Florida 33131 Domestic Lending Office Lloyds TSB Bank plc, Miami One Biscayne Tower, Suite 3200 2 South Biscayne Boulevard Miami, Florida 33131 Eurodollar Lending Office Lloyds TSB Bank plc, Miami One Biscayne Tower, Suite 3200 2 South Biscayne Boulevard Miami, Florida 33131 Amended and Restated Credit Agreement 77 MORGAN GUARANTY TRUST COMPANY OF NEW YORK By: ----------------------------------- Name: Title: 60 Wall Street New York, New York 10260-0060 Telecopy No.: (212) 648-5249 Domestic Lending Office Morgan Guaranty Trust Company of New York 60 Wall Street New York, New York 10260-0060 Telecopy No.: (212) 648-5249 Eurodollar Lending Office Morgan Guaranty Trust Company of New York 60 Wall Street New York, New York 10260-0060 Telecopy No.: (212) 648-5249 Amended and Restated Credit Agreement 78 BANK OF AMERICA, N.A. f/k/a NationsBank, N.A. By: ----------------------------------- Name: Title: 700 Louisiana, 8th Floor Houston, Texas 77002 Telecopy No.: (713) 247-6360 Domestic Lending Office Bank of America, N.A. f/k/a NationsBank, N.A. 101 North Tryon Street Charlotte, NC 28255 Attn: Matthew Menz Telecopy No.: (704) 409-0083 Eurodollar Lending Office Bank of America, N.A. f/k/a NationsBank, N.A. 101 North Tryon Street Charlotte, NC 28255 Attn: Matthew Menz Telecopy No.: (704) 409-0083 Amended and Restated Credit Agreement 79 ROYAL BANK OF CANADA By: ----------------------------------- Name: Title: 12450 Greenspoint Drive, Suite 1450 Houston, Texas 77060 Telecopy No.: (281) 874-0081 Domestic Lending Office Royal Bank of Canada 1 Liberty Plaza New York, New York 10006 Telecopy No.: (212)428-2372 Eurodollar Lending Office Royal Bank of Canada 1 Liberty Plaza New York, New York 10006 Telecopy No.: (212) 428-2372 Amended and Restated Credit Agreement 80 SOCIETE GENERALE By: ----------------------------------- Name: Title: 181 West Madison, Suite 3400 Chicago, Illinois 60602 Telecopy No.: (312) 578-5099 Domestic Lending Office Societe Generale 181 West Madison, Suite 3400 Chicago, Illinois 60602 Telecopy No.: (312) 578-5099 Eurodollar Lending Office Societe Generale 181 West Madison, Suite 3400 Chicago, Illinois 60602 Telecopy No.: (312) 578-5099 Amended and Restated Credit Agreement 81 CHASE BANK OF TEXAS, NATIONAL ASSOCIATION By: ----------------------------------- Michael Ondruch Vice President 712 Main Street Houston, Texas 77002 Telecopy No.: (713) 216-6004 Telephone No.: (713) 216-5324 Attention: Michael Ondruch Domestic Lending Office Chase Bank of Texas, National Association 712 Main Street Houston, Texas 77002 Telecopy No.: (713) 216-6004 Eurodollar Lending Office Chase Bank of Texas, National Association 712 Main Street Houston, Texas 77002 Telecopy No.: (713) 216-6004 Amended and Restated Credit Agreement 82 UBS AG, STAMFORD BRANCH By: ----------------------------------- Name: Title: By: ----------------------------------- Name: Title: 677 Washington Blvd. 6 North Stamford, Connecticut 06901 Telecopy No.: (203) 719-3898 Domestic Lending Office UBS AG, Stamford Branch 677 Washington Blvd. Stamford, Connecticut 06901 Telecopy No.: (203) 719-3898 Eurodollar Lending Office UBS AG, Stamford Branch 677 Washington Blvd. 6 North Stamford, Connecticut 06901 Telecopy No.: (203) 719-3898 Amended and Restated Credit Agreement 83 ANNEX I COMMITMENTS Chase Bank of Texas, National Association $ 88,474,576.28 ABN AMRO Bank N.V. $ 41,758,474.58 Bank of America, N.A., f/k/a NationsBank, N.A. $ 60,000,000.00 Bank One, Texas, NA $ 41,758,474.58 Banque Nationale de Paris, Houston Agency $ 15,000,000.00 Citibank, N.A. $ 55,677,966.10 Commerzbank Aktiengesellshaft, Atlanta Agency $ 41,758,474.58 Credit Lyonnais New York Branch $ 55,677,966.10 Lloyds TSB Bank plc $ 23,199,152.53 Morgan Guaranty Trust Company of New York $ 74,237,288.14 Royal Bank of Canada $ 23,199,152.53 Societe Generale $ 37,500,000.00 UBS AG, Stamford Branch $ 41,758,474.58 ---------------------- TOTAL $ 600,000,000.00
Amended and Restated Credit Agreement EX-99.12 21 MOTION TO DISMISS THE CONSOLIDATED CLASS ACTION 1 EXHIBIT 99.12 UNITED STATES DISTRICT COURT SOUTHERN DISTRICT OF TEXAS HOUSTON DIVISION ) ) IN RE SERVICE CORPORATION ) INTERNATIONAL ) CIVIL ACTION NO. H-99-0280 ) (Judge Lynn N. Hughes) ) ) DEFENDANTS' REPLY TO PLAINTIFFS' OPPOSITION TO DEFENDANTS' MOTION TO DISMISS THE CONSOLIDATED CLASS ACTION COMPLAINT J. Clifford Gunter III Andrew M. Edison Bracewell & Patterson, L.L.P. South Tower Pennzoil Place 711 Louisiana, Suite 2900 Houston, Texas 77002-2781 Telephone: (713) 223-2900 Facsimile: (713) 221-1212 COUNSEL FOR DEFENDANTS 2 TABLE OF CONTENTS
PAGE ---- INTRODUCTION......................................................................................................1 ARGUMENT .........................................................................................................2 A. Plaintiffs Fail to Plead with Sufficient Particularity..........................................2 1. Plaintiffs are Pleading on Information and Belief......................................3 2. Plaintiffs do not Plead the Factual Basis for their Allegations........................5 3. Plaintiffs Must Identify Internal Documents and Informants Relied Upon in Filing the Complaint....................................................6 4. The Preneed Study and Defendants' Alleged Statements do not Support the Allegations in the Complaint...............................................8 B. Plaintiffs Fail to Adequately Allege Scienter..................................................11 1. Plaintiffs do not State with Particularity Facts Giving Rise to a Strong Inference of Scienter for Each Act or Omission Alleged...............................................................................11 2. Plaintiffs' Allegations of Motive and Opportunity are not Sufficient..................12 C. Many of the Alleged Misstatements are not Actionable as a Matter of Law.........................................................................................15 D. Plaintiffs' Section 11 and Section 12(a)(2) Claims Fail........................................16 1. Plaintiffs' Section 11 and 12(a)(2) Claims are Subject to Rule 9(b) and the Reform Act. ..................................................................16 2. The Accuracy of the Registration Statement/Prospectus is Tested on its Effective Date - November 20, 1998.............................................17 3. The Registration Statement/Prospectus did not Require Defendants to Disclose all Ongoing Developments Relating to SCI's Business.....................................................................19 CONCLUSION.......................................................................................................23 CERTIFICATE OF SERVICE...........................................................................................23
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PAGE ---- CASES - ----- Acito v. IMCERA Group, Inc., 47 F.3d 47 (2d Cir. 1995) ...............................................................................15 Decker v. Massey-Ferguson, Ltd., 534 F. Supp. 873 (S.D.N.Y. 1981) (same), aff'd in part, rev'd in part on other grounds, 681 F.2d 111 (2d Cir. 1982)...............................................................................7 Finkel v. Stratton Corp., 754 F. Supp. 318 (S.D.N.Y. 1990), aff'd in part, rev'd in part on other grounds, 962 F.2d 169 (2d Cir. 1992)..............................................18 Hartsell v. Source Media, Inc., 1999 WL 649645 (N.D. Tex. 1999) ..........................................................................3 Hockey v. Medhekar, 1997 WL 203704 (N.D. Cal. 1997) ..........................................................................6 In re Cirrus Logic Sec. Litig., 946 F. Supp. 1446 (N.D. Cal. 1996) ......................................................................13 In re Donald J. Trump Casino Securities Litigation, 793 F. Supp. 543 (D.M.J. 1992), aff'd, 7 F.3d 357 (3d Cir. 1993) ........................................21 In re Fine Host Corp. Sec. Litig., 25 F. Supp.2d 61 (D.Conn. 1988) .........................................................................14 In re Green Tree Financial Corp. Stock Litigation, 1999 WL 684173 (D. Minn. 1999) ................................................................................3 In re Health Management, 970 F. Supp. 192 (E.D.N.Y. 1997) ........................................................................15 In re Health Mngmt Syst. Inc. Sec. Litig., 1998 WL 283286 (S.D.N.Y. 1998) ...........................................................................3 In re PETsMART, Inc. Securities Litigation, 61 F. Supp.2d 982 (D.Ariz. 1999) .........................................................................3
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PAGE ---- CASES - ----- In re Silicon Graphics Sec. Litig., 183 F.3d 970 (9th Cir. 1999) .............................................................................3 Law v. Medco Research, Inc., 113 F.3d 781 (7th Cir. 1997) .............................................................................7 Lirette v. Shiva Corp., 999 F. Supp. 164 (D. Mass. 1998) .........................................................................3 Marksman Partners L.P. v. Chantal Pharmaceutical Corp., 927 F. Supp. 1297 (C.D. Cal. 1996) .......................................................................7 Medhekar v. United States Dist. Court, 99 F.3d 325 (9th Cir. 1996) ..............................................................................6 Melder v. Morris, 27 F.3d 1097 (5th Cir. 1994) ............................................................................16 Mills v. Polar Molecule Corp., 12 F.3d 1170 (2d Cir. 1993) .............................................................................12 Moll v. U.S. Life Title Ins. Co., 654 F. Supp. 1012 (S.D.N.Y. 1987) ........................................................................7 Nelson v. Paramount Communications, Inc., 872 F. Supp. 1242 (S.D.N.Y. 1994) .......................................................................17 Novak v. Kasaks, 997 F. Supp. 425 (S.D.N.Y. 1998) ......................................................................4, 7 Plevy v. Haggerty, 38 F. Supp. 2d 816 (C.D.Cal. 1998) ......................................................................14 RGB Eye Associates v. Physicians Resource Group, Inc., 1999 WL 980801 (N.D. Tex. 1999) .........................................................................13 Rubin v. Trimble, 1997 WL 227956 (N.D.Cal. 1997) ...........................................................................7 Salinger v. Projectavision, Inc., 972 F. Supp. 222 (S.D. N.Y. 1997) .......................................................................15 Sears v. Likens, 912 F.2d 889 (7th Cir. 1990) ............................................................................16
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PAGE ---- CASES - ----- Segan v. Dreyfus Corp., 513 F.2d 695 (2d Cir. 1975) ..............................................................................7 Shapiro v. UJB Fin. Corp., 964 F.2d 272 (3d Cir.), cert. denied, 506 U.S. 934 (1992) ...............................................16 Shaw v. Digital Equipment Corp., 82 F.3d 1194 (1st Cir. 1996). ...........................................................................22 Tirone v. Calderone-Curran Ranches, Inc., 1978 WL 1095 (W.D.N.Y. 1978) ............................................................................18 Tuchman v. DSC Communications Corp., 4 F.3d 1061 (5th Cir. 1994) ..........................................................................2, 14 Walish v. Leverage Group, Inc., 1998 WL 314644 (E.D. Pa. 1998) ..........................................................................12 Williams v. WMX Techs., Inc., 112 F.3d 175 (5th Cir.), cert. denied, 118 S.Ct. 412 (1997) ..........................................10-12 Zeid v. Kimberley, 973 F. Supp. 910 (N.D. Cal. 1997), vacated, 1999 WL 993649 (9th Cir. 1999)................................4 STATUTES/RULES - -------------- 15 U.S.C. Section 77k(a) .....................................................................................17 15 U.S.C. Section 77l(2)......................................................................................17 15 U.S.C. Section 78u-4(b)(1)(B)...............................................................................3 15 U.S.C. Section 78u-4(b)(3)(B)...............................................................................6 Private Securities Litigation Reform Act of 1995......................................................in passium
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PAGE ---- OTHER - ----- 141 Cong. Rec. H2848 (March 8, 1995)...........................................................................8 141 Cong. Rec. H2849 (March 8, 1995)...........................................................................8 3A Harold S. Bloomenthal, Securities and Federal Corporate Law Section 8.23 (1993) ...........................18 Fed. R. Civ. P. 8(a)(2)........................................................................................2 Fed. R. Civ. P. 9(b)........................................................................................2, 3 H.R. Conf. Rep. No. 104-369 (1995).............................................................................8 Thomas Lee Hazen, Treatise on the Law of Securities Regulation. Section 7.3 (3d ed. 1995) ...............................................................................18
-v- 7 UNITED STATES DISTRICT COURT SOUTHERN DISTRICT OF TEXAS HOUSTON DIVISION ) ) IN RE SERVICE CORPORATION ) INTERNATIONAL ) CIVIL ACTION NO. H-99-0280 ) (Judge Lynn N. Hughes) ) ) DEFENDANTS' REPLY TO PLAINTIFFS' OPPOSITION TO DEFENDANTS' MOTION TO DISMISS THE CONSOLIDATED CLASS ACTION COMPLAINT Defendants file this Reply to Plaintiffs' Opposition to Defendants' Motion to Dismiss the Consolidated Class Action Complaint, and would show the Court as follows: INTRODUCTION Why do Plaintiffs struggle to evade the requirements of the Private Securities Litigation Reform Act of 1995 ("Reform Act")? If Plaintiffs had facts to support their claim that a fraud has taken place, one would expect that they would have complied with the Reform Act by pleading particularized facts or information in their possession and demonstrating that these allegations give rise to a strong inference of fraudulent intent. Rather than comply with the Reform Act, Plaintiffs will concoct any argument they can to evade the tough new requirements that Congress laid down. Plaintiffs argue that the Consolidated Class Action Complaint ("CCAC") is plead neither on personal knowledge nor on information and belief, but on a new species of pleading, "investigation of counsel," that remarkably allows them to evade all of the Reform Act's heightened pleading requirements. Rather than respond to Defendants' scienter arguments, Plaintiffs hunker down and repeat their mantra that the court is compelled to accept as true all of the CCAC's allegations, no 8 matter how demonstrably false or inadequate.(1) The Reform Act forbids this kind of stonewalling. Plaintiffs must allege in their complaint all of the facts or information in their possession so that the Court can decide at the pleading stage if their allegations are sufficient to create a strong inference of fraudulent intent. Plaintiffs cannot simply assert "beliefs," no matter how particularized, and glide into discovery in search of a claim. In this case, Plaintiffs' opposition is an exercise in denial. Plaintiffs essentially ignore that the Reform Act ever happened, simply rehashing the allegations of the CCAC and failing to distinguish the wealth of authority that has held that such allegations insufficient under the Reform Act. If the Reform Act is to have any bite, it must stop this case at the pleading stage. ARGUMENT A. PLAINTIFFS FAIL TO PLEAD WITH SUFFICIENT PARTICULARITY. In most cases, all a plaintiff's complaint must contain is a "short and plain statement of the claim showing that the pleader is entitled to relief." Fed. R. Civ. P. 8(a)(2). In a federal securities fraud case, however, a plaintiff may not take refuge in the usually liberal standards employed in a Rule 12(b)(6) motion. Instead, a plaintiff seeking to avoid dismissal for failure to state a claim "must plead specific facts, not mere conclusory allegations." Tuchman v. DSC Communications Corp., 14 F.3d 1061, 1067 (5th Cir. 1994). Indeed, Rule 9(b) imposes a heightened level of pleading for fraud claims: "In all averments of fraud or mistake, the circumstances constituting fraud or mistake shall be stated with particularity." Fed. R. Civ. P. 9(b). See also Tuchman, 14 F.3d at 1067 (applying Rule 9(b) to federal securities fraud claims). The Reform Act imposes an even higher pleading - ---------------------- (1) Plaintiffs correctly note that there are two principal claims at issue in this case. The first claim is brought under Section 10(b) on behalf of both SCI shareholders and former ECI shareholders. The second claim is brought under Sections 11 and 12(a)(2) on behalf of former ECI shareholders. Both claims should be dismissed. -2- 9 burden, expressly providing that when a plaintiff's complaint is based upon information and belief, the plaintiff must "state with particularity all facts upon which the belief is formed." 15 U.S.C. Section 78u-4(b)(1)(B) (emphasis added).(2) Quite simply, Plaintiffs have failed to satisfy this burden.(3) 1. PLAINTIFFS ARE PLEADING ON INFORMATION AND BELIEF. Plaintiffs offer several excuses for their failure to comply with the Reform Act. First, they contend they need not comply with the Reform Act because they are pleading on the basis of "investigation of counsel," not on knowledge or on information and belief. See Opposition Brief at pp. 21-22. As one would expect, the Reform Act's requirement that plaintiffs state the factual basis for their claims may not be sidestepped simply by claiming that allegations which are clearly based on "information and belief" are, in actuality, based on "investigation of counsel." See In re Health Management Sys. Inc. Sec. Litig., 1998 WL 283286, *3 (S.D.N.Y. 1998) (investigation of counsel is an unacceptable approach to pleading falsity under the Reform Act); Hartsell v. Source Media, Inc., 1999 WL 649645, *1 (N.D. Tex. 1999) (holding that allegations made on "investigation of counsel" are to be treated the same as allegations made on "information and belief"); In re Green Tree Financial Corp. Stock Litigation, 1999 WL 684173, *10 (D. Minn. 1999) (same); In re PETsMART, Inc. Securities Litigation, 61 F. Supp.2d 982 (D.Ariz. 1999) (same); Lirette v. Shiva Corp., 999 F. Supp. 164, 165 (D. Mass. 1998) ("assertions that the allegations that follow are ... - ------------------ (2) "Although the words `facts' and `particularity' are not defined in the statute, their meaning is plain...[W]e read the statutory command that a plaintiff plead all the `facts' with `particularity' to mean that a plaintiff must provide a list of all relevant circumstances in great detail." In re Silicon Graphics Sec. Litig., 183 F.3d 970 (9th Cir. 1999) (Silicon Graphics II). (3) As described in Section D.1., Plaintiffs' Section 11 and 12(a)(2) claims are subject to Rule 9(b) and the Reform Act. -3- 10 founded on 'information and belief' [and] based upon 'investigation by Plaintiffs' counsel' ... utterly failed to comply with" the Reform Act"). If allegations based upon investigation of counsel are permitted to replace allegations based upon information and belief, the Reform Act's heightened pleading requirements will be easily evaded. See, e.g., Novak v. Kasaks, 997 F. Supp. 425, 431 (S.D.N.Y. 1998) (pleading based on investigation of counsel held not sufficient to avoid the Reform Act's requirement that plaintiffs state the factual basis for their claim). This violates both the letter and the spirit of the Reform Act. Plaintiffs cite several cases which appear, at first glance, to endorse "investigation of counsel" as a means to avoid the Reform Act's pleading requirements for allegations based on information and belief. See, e.g., Zeid v. Kimberley, 973 F. Supp. 910, 915 (N.D. Cal. 1997), vacated, 1999 WL 993649 (9th Cir. 1999). A closer look at these cases, however, reveals that they actually support a heightened pleading requirement. In Zeid, for example, the plaintiffs' insisted that their complaint was based on investigation of counsel rather than on information and belief to mean that their claims were based on personal knowledge. Id. This holding did not, as Plaintiffs suggest, reduce Plaintiffs' burden to plead their claims with particularity. Rather, it heightened it. The Zeid court held that plaintiffs who base their claims on "investigation of counsel" were required to meet the strict, rather than the relaxed, pleading requirements of Rule 9(b) and the Reform Act. Id. In other words, the Zeid court held that plaintiffs who based their complaint on "investigation of counsel" had undertaken to do more than plead the facts from which falsity and intent to defraud could be inferred; they had undertaken to plead with particularity (1) each statement alleged to have been misleading; (2) the reason or reasons why the statement is misleading; and (3) as to each statement, those facts giving rise to a strong inference that the defendants acted with scienter. Id. -4- 11 2. PLAINTIFFS DO NOT PLEAD THE FACTUAL BASIS FOR THEIR ALLEGATIONS. Plaintiffs spend page after page in their Opposition Brief merely restating the allegations contained in the CCAC. The problem with Plaintiffs's approach is that the CCAC provides no "particular facts" supporting Plaintiffs' alleged belief that SCI committed fraud. Rather than plead particularized facts, Plaintiffs have pled only "particularized beliefs" hoping to slip past the strong inference requirement. Plaintiffs offer no clue regarding the "information" upon which their "particularized beliefs" are based. Because they do not plead such detailed information, Plaintiffs have disabled the Court from doing the task that Congress mandated: determining whether the facts in Plaintiffs' possession -- rather than Plaintiffs' speculations -- give rise to a strong inference of fraud. For example, the CCAC alleges that SCI failed to actively manage its mortuary trust assets, and that by 1998 that failure had an increasing impact on SCI's profit margins. See CCAC at p. 36. According to the CCAC, rather than disclose that SCI had an enormous backlog of unmanaged, underperforming preneed funeral trust funds and that a material number of SCI's preneed funeral contracts had been, and would continue to be, performed at significant losses, SCI falsely represented that SCI was actively managing its backlog of acquired preneed trust assets. See CCAC at p. 45, 47. These conclusory allegations, which anyone can make, are not sufficient to meet Plaintiffs' pleading burden. As explained in detail in the Defendants' Motion to Dismiss, the CCAC does not plead the sources of their information, how they received such information, and why such information rendered the Defendants' statements false or misleading.(4) It is not enough simply to - ----------------- (4) As noted in Defendants' Motion to Dismiss, "Plaintiffs point to a number of statements made by the SCI Defendants and claim, without providing any factual support, that the opposite of -5- 12 allege that SCI's preneed funeral business was in the tank, and that SCI failed to disclose it. If that were the case, every securities fraud case would survive a motion to dismiss. Plaintiffs must provide concrete facts which support their allegations - not merely repeat unsubstantiated assertions. Even more egregious is Plaintiffs' tacit admission that with respect to the most central allegations in the CCAC - that SCI's preneed business was unprofitable and negatively impacted the Company's overall profit margins and performance - there is no factual basis whatsoever for their allegations. Instead, Plaintiffs assert that discovery is required to provide a basis for their alleged "belief." See Opposition Brief at p. 25. The Reform Act requires that a complaint plead specific facts that a fraud has occurred before discovery may commence. 15 U.S.C. Section 78u-4(b)(3)(B) (all discovery shall be stayed during the pendency of a motion to dismiss); Medhekar v. United States Dist. Court, 99 F.3d 325, 328 (9th Cir. 1996) ("Congress clearly intended that complaints in these securities actions should stand or fall based on the actual knowledge of the plaintiffs rather than information produced by the defendants after the action has been filed."). Under the Reform Act, Plaintiffs' faint hopes hope that the discovery process might lead eventually to some plausible cause of action cannot satisfy their heightened obligation to plead particularized facts evidencing fraud. 3. PLAINTIFFS MUST IDENTIFY INTERNAL DOCUMENTS AND INFORMANTS RELIED UPON IN FILING THE COMPLAINT. The Reform Act specifically requires a plaintiff to identify the source of information offered in support of Plaintiffs' allegations and specific details concerning the content and origin of supposed "internal documents." See, e.g., Silicon Graphics II, 183 F.3d at 985 ("a plaintiff must provide, in great detail, all the relevant facts forming the basis of her belief"); Hockey v. Medhekar, 1997 WL - ----------------- what the SCI Defendants said was true." See Defendants' Motion to Dismiss at p.15. This does not pass muster. -6- 13 203704, *8 (N.D. Cal. 1997) ("Nowhere in plaintiffs' complaint is there a reference to a particular corporate documents or data. Plaintiffs do not attempt to show when these documents were created, by whom they were drafted, or even whether [the company] regularly prepared such documents"). Citing several Pre-Reform Act Second Circuit cases,(5) Plaintiffs claims that they do not have to "specify which internal documents they relied on or even that they relied on internal documents at all." See Opposition Brief at p. 27. In making this argument, Plaintiffs ignore the fact that post-Reform Act cases universally hold that the Reform Act increases the pleading requirements for securities fraud, and do not limit this increased standard solely to scienter. See, e.g., Law v. Medco Research, Inc., 113 F.3d 781, 785 (7th Cir. 1997) (Reform Act "stiffened" the requirement that fraud be pled with particularity); Marksman Partners L.P. v. Chantal Pharmaceutical Corp., 927 F. Supp. 1297, 1308 (C.D. Cal. 1996) ("the pleading standard in securities fraud cases has been made more rigorous"); Rubin v. Trimble, 1997 WL 227956, at *8 (N.D.Cal. 1997) (Reform Act "significantly raised the pleading standard for federal securities claims"). Despite Plaintiffs' wish to be subject to the less demanding pre-Reform Act pleading requirements, the Reform Act's heightened pleading standard is in full force and effect. - ----------------- (5) Contrary to Plaintiffs' assertion that, prior to the Reform Act, the Second Circuit employed a relaxed pleading standard, Second Circuit courts enforced three explicit requirements for information and belief pleading. First, a plaintiff had to identify the specific sources of his information. Second, the plaintiff had to identify what information was gleaned from each source. Finally, plaintiff then had to link each belief to the specific source of information upon which it was based. These requirements served an important purpose: "to allow each defendant and the Court to review the sources and determine, at the pleading stage, whether an inference of fraud may be fairly drawn from the information contained therein." Moll v. U.S. Life Title Ins. Co., 654 F. Supp. 1012, 1035 (S.D.N.Y. 1987). See also Segan v. Dreyfus Corp., 513 F.2d 695, 696 (2d Cir. 1975) ("A suit charging fraud may not be based on facts so secret that the defendants cannot be told what they are"); Decker v. Massey-Ferguson, Ltd., 534 F. Supp. 873 (S.D.N.Y. 1981) (same), aff'd in part, rev'd in part on other grounds, 681 F.2d 111 (2d Cir. 1982). -7- 14 Part of the Reform Act's increased pleading standard includes a requirement to identify internal documents and informants relied upon in filing the complaint. See, e.g., Novak, 997 F. Supp. at 435. Plaintiffs fail to do this. If Plaintiffs had a factual basis for their claims, one would think they would gladly set forth their alleged evidence, rather than throw up every roadblock known to man. Congress clearly intended to impose on plaintiffs the obligation to reveal everything they know about the alleged misconduct for which they sue, including the precise identity of their source of that belief, whether it is documents or individuals. In enacting the Reform Act, Congress specifically rejected an alternative that would simply have required plaintiffs to plead facts that support their beliefs. See 141 Cong. Rec. H2848 (March 8, 1995). Instead, Congress adopted a requirement that a plaintiff must "state with particularity all facts upon which the belief is formed." 15 U.S.C. Section 78u-4(b)(1)(B). Congress rejected the alternative language even though its proponent, Congressman Dingell, pointed out that the enacted language would require plaintiffs to name confidential informants, among others, to satisfy the pleading standard. See 141 Cong. Rec. H2849 (March 8, 1995) (the Reform Act requires a plaintiff to include in his pleadings "the names of confidential informants, employees, competitors, Government employees, members of the media, and others who have provided information leading to the filing of the case"). This heightened pleading requirement is not, as Plaintiffs assert, an unfair burden. Rather, it signifies Congress' recognition that "[u]nwarranted fraud claims can lead to serious injury to reputation for which our legal system offers no redress." H.R. Conf. Rep. No. 104-369, at 41, 48 (1995). 4. THE PRENEED STUDY AND DEFENDANTS' ALLEGED STATEMENTS DO NOT SUPPORT THE ALLEGATIONS IN THE COMPLAINT. -8- 15 The only internal SCI document cited by Plaintiffs in the CCAC to support their allegations was the Preneed Study. In citing the Preneed Study, Plaintiffs took a considerable gamble. If, in fact, the Preneed Study did not support Plaintiffs' claims, Plaintiffs would be left without any factual support for their claims. That is exactly what has occurred. The Preneed Study,(6) which was attached as Exhibit C to Defendants' Motion to Dismiss, conclusively demonstrates that Plaintiffs' allegations, as contained in the CCAC, are without merit. See Defendants' Motion to Dismiss at pp. 17-21. Not surprisingly, Plaintiffs suggest that this Court should not be permitted to look at the Preneed Study, but should instead "accept as true reasonable inferences drawn from plaintiffs' allegations." See Opposition Brief at p. 25. Unfortunately for Plaintiffs, the Fifth Circuit does not put on blinders and accept unsupportable conclusions. In Melder v. Morris, 27 F.3d 1097, 1100 (5th Cir. 1994), for example, the Fifth Circuit dismissed a securities fraud claim when the plaintiffs alleged misstatements in a prospectus, "but upon further review these alleged misstatements amount[ed] to gross mischaracterizations of the contents of the prospectuses." The same is the case here. While the CCAC repeatedly alleges that the Preneed Study confirmed that "a material number of SCI's funeral services had been and would continue to be, performed at significant losses to SCI"(7) and that "a significant number of independent funeral homes acquired by SCI failed to - ----------------- (6) Plaintiffs assert that Defendants have "submitted a collection of select unauthenticated internal SCI documents that [Defendants] conclusorily assert constitute the preneed study alleged in the Complaint." See Opposition Brief at p. 6. This is simply not true. The Preneed Study is authenticated by the declaration of Mary Beth Russo, a former SCI employee who was responsible for coordinating the Preneed Study. (7) See CCAC at pp. 32, 35, 44 and 74(a). -9- 16 actively manage their mortuary trust assets,"(8) the Preneed Study contains no such statements. Faced with the clear and unequivocal language of the Preneed Study, Plaintiffs are forced to retreat from such allegations, and, instead, pick around the edges to find any morsel in the Preneed Study that will support their claims. Plaintiffs point to various sentences in the Preneed Study, most taken wholly out of context, in a desperate attempt to salvage their claim.(9) Plaintiffs are not successful.(10) Furthermore, Plaintiffs make much of so-called "admissions" by Defendants that the fourth quarter earnings shortfall was caused by SCI's unprofitable preneed business. See Opposition Brief at p. 26. Plaintiffs cite an industry publication, however, that does not even purport to quote an SCI executive. See CCAC at p. 127 ("SCI has said in the past that it loses money on some of its preneed services because the contract was sold at too low a price"). Under the Reform Act, such articles do not support a claim for fraud. See, e.g., Williams v. WMX Techs., Inc., 112 F.3d 175, 179 (5th Cir.), cert. denied, 118 S.Ct. 412 (1997) ("failure of [articles] to identify specific statements made by any - ----------------- (8) Id. (9) For example, Plaintiffs claim that the Preneed Study confirmed that SCI did not have a "scientific, analytical approach, focused on meeting SCI's financial objectives." See Opposition Brief at 6. This quote is taken completely out of context, as the Preneed Study actually states that "Although SCI previously had an overall asset allocation policy for these trusts, the new allocation has been developed based upon a more scientific, analytical approach, focused on meeting SCI's financial objectives." See Exhibit C-3 to Defendants' Motion to Dismiss, at SCI0070 (emphasis added). (10) Plaintiffs also claim that SCI's trust fund returns had to be more than 8.5 percent annually to cover the increasing cost of funeral services. See Opposition Brief at 7. This figure is ludicrous, and demonstrates why the Reform Act implemented strict pleading requirements. Plaintiffs pluck the 8.5 percent figure from the sky, failing to identify where, if at all, such a figure came from. See CCAC at P. 26. If Plaintiffs are not required to identify their sources, Plaintiffs can make unsubstantial assertions that have no basis in fact and routinely survive a motion to dismiss. That is exactly what the Reform Act was designed to prevent. In this case, the absurdity of Plaintiffs' 8.5 percent annual figure is demonstrated by Heiligbrodt's statement that preneed contracts sold in the 1980s were priced 20 percent less than today. See CCAC at P. 126. That suggests an increase in the cost of funeral services at less than 2 percent per year, not an inflated 8.5 percent per year. -10- 17 of the defendants is fatal"); In re Marion Merrell Dow, Inc., 1993 WL 393810, *3 (W.D. Mo. 1993) (for the plaintiffs to use the contents of newspaper articles for the basis of a securities fraud claim, "the defendants must have had some sort of control over the statements [in newspaper articles], either as a press release or a direct quote"). Plaintiffs also rely on Defendant Heiligbrodt's comment that "the at need value of many of the preneed plans sold in the 1980s is about 20 percent less than the company presently charges for its services." This is not, as Plaintiffs claim, an admission of liability. Rather, it reflects the simple fact that there is inflation, that prices have risen over time, and that a preneed funeral sold 15 to 20 years ago for, say $4,000, would cost a customer more today.(11) B. PLAINTIFFS FAIL TO ADEQUATELY ALLEGE SCIENTER. 1. PLAINTIFFS DO NOT STATE WITH PARTICULARITY FACTS GIVING RISE TO A STRONG INFERENCE OF SCIENTER FOR EACH ACT OR OMISSION ALLEGED. The Reform Act expressly requires that "the complaint shall, with respect to each act or omission alleged to violate this chapter, state with particularity facts giving rise to a strong inference that the defendant acted with the required state of mind." 15 U.S.C. Section 78u-4(b)(2) (emphasis added). As explained above, the CCAC lacks such specific factual allegations. Without such "corroborating details, the Court simply "cannot determine whether there is any factual basis for alleging that the officers knew that their statements were false at the time they were made." Silicon Graphics II, 183 F.2d at 985. The CCAC should, therefore, be dismissed. - ----------------- (11) It is also important to remember that if a preneed customer purchased a preneed funeral for say, $4,000, in 1985, that money would be deposited in a mortuary trust fund or used to pay premiums on life insurance policies. "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." See Exhibit B to Defendants' Motion to Dismiss at p.16. -11- 18 Although Plaintiffs limit their discussion of the legislative history of the Reform Act to a footnote, it is clear that the Reform Act sets out a new, more rigorous standard for pleading scienter than is found in prior case law. Defendants' Motion to Dismiss concisely set forth the relevant legislative history, and there is no need to repeat that analysis again here.(12) See Defendants' Motion to Dismiss at pp. 28-32. Under the heightened scienter standard, allegations of motive and opportunity alone will no longer be presumed sufficient to support the required strong inference of scienter, but instead a plaintiff claiming securities fraud must allege specific facts constituting strong circumstantial evidence that the Defendants' conduct involved knowledge or severely reckless disregard of wrongdoing. Plaintiffs' attempt to make an end-run around the Reform Act's pleading requirements for scienter by claiming that they have alleged specific facts which create a strong inference that the defendants acted knowingly or recklessly. Once again, it is not sufficient to raise conclusory allegations. See, e.g., Walish v. Leverage Group, Inc., 1998 WL 314644, at *3 (E.D. Pa. 1998) (allegations that defendants "knowingly made false statements" and "recklessly created a false and misleading impression" do not meet the standards for pleading scienter under the Reform Act). Plaintiffs must specify a meaningful factual basis for the allegation that Defendants knew facts contradicting their public statements. There is no such factual detail here, much less "a list of all relevant circumstances in great detail." Silicon Graphics II, 183 F.2d at 984. - ----------------- (12) Contrary to plaintiffs' suggestion, the Fifth Circuit in Williams, 112 F.3d 175, did not hold that allegations of motive and opportunity alone satisfy the Reform Act's heightened requirement for pleading scienter. Instead, the Williams court, in the course of dismissing plaintiffs' securities fraud claims, merely opined that the Reform Act's heightened pleading standard is consistent with Second Circuit case law requiring a plaintiff to "specify the statements contended to be fraudulent, identify the speaker, state when and where the statements were made, and explain why the statements were fraudulent." 112 F.3d at 177-78 (citing Mills v. Polar Molecule Corp., 12 F.3d 1170, 1175 (2d Cir. 1993)). -12- 19 2. PLAINTIFFS' ALLEGATIONS OF MOTIVE AND OPPORTUNITY ARE NOT SUFFICIENT. Even if this Court finds that the Reform Act's scienter requirement can be met by allegations showing only motive and opportunity, Plaintiffs' allegations fail because they do not adequately establish motive on the part of Defendants. a. ALLEGATIONS THAT DEFENDANTS MADE FALSE AND MISLEADING STATEMENTS TO MAINTAIN SCI'S BOND RATING AND FACILITATE THE SCI-ECI MERGER FAIL TO CREATE THE REQUIRED INFERENCE OF SCIENTER. It is important to remember that the only allegations raised in the CCAC to support an inference of scienter were that Defendants made false and misleading statements: (1) to maintain SCI's bond rating; and (2) to facilitate the consummation of the SCI-ECI merger. In Defendants' Motion to Dismiss, Defendants cited a plethora of case law for the proposition that these motive allegations fail to satisfy the Reform Act. See Defendants' Motion to Dismiss at pp. 33-35. Defendants also explained that if all a securities fraud plaintiff had to do to sufficiently plead scienter was to allege that the defendants artificially inflated a stock's price to obtain more favorable terms in a stock-for-stock transaction "nearly every stock-for-stock transaction conducted in the United States could be subject to challenge." In re Cirrus Logic Sec. Litig., 946 F. Supp. 1446, 1477 (N.D. Cal. 1996). Like two ships passing in the night, Plaintiffs ignore Defendants' arguments, and simply cite several cases which suggest that allegations that defendants had a motive to artificially inflate stock price to facilitate a stock-for-stock transaction suffices to allege scienter. See Opposition Brief at pp. 33-34.(13) - ----------------- (13) Interestingly, Plaintiffs do not respond to the cases cited by Defendants in which courts refused to infer motive from allegations that misstatements were made to maintain a high bond or credit rating. -13- 20 A recent case from the Northern District of Texas highlights the sensibility of Defendants' position, and demonstrates the flaws in Plaintiffs' argument. In RGB Eye Associates v. Physicians Resource Group, Inc., 1999 WL 980801, *9 (N.D. Tex. 1999), a case decided on October 27, 1999, Judge Fitzwater refused to accept plaintiffs' scienter allegations that the defendant had an incentive to maximize the price of its stock so that it could expand through acquisitions and acquire other physicians' practices. The reason: "courts reject motive theories that would almost universally permit an inference of fraud...`Accordingly, assertions that would almost universally be true...are inadequate of themselves to plead motive.' Such allegations are `alone insufficient to plead a strong inference of fraud.'" Id. (citations omitted). Similarly, Plaintiffs' scienter allegations in this case should be rejected, as they fail to satisfy the Reform Act's heightened standard for pleading scienter. b. PLAINTIFFS' ALLEGATION THAT THE SCI DEFENDANTS MADE MISSTATEMENTS TO MAINTAIN AND ENHANCE THEIR EXECUTIVE POSITIONS FAILS TO CREATE THE REQUIRED INFERENCE OF SCIENTER. In a footnote in their Opposition Brief, Plaintiffs allege, for the very first time, that the Individual Defendants had "motives to maintain and enhance the price of SCI common stock to protect and enhance their executive positions and the substantial compensation and prestige obtained thereby." See Opposition Brief at p. 35 fn. 20. The problem with Plaintiffs' argument is that the Fifth Circuit, on numerous occasions, has rejected similar attempts to allege scienter. "Accepting the plaintiffs' allegation of motive -- basically that the defendant officers and directors were motivated by incentive compensation -- would effectively eliminate the state of mind requirement as to all corporate officers and defendants." Melder, 27 F.3d at 1102. "Incentive compensation can hardy be the basis on which an allegation of fraud is predicated. On a practical level, were the opposite true, the executives of -14- 21 virtually every corporation in the United States would be subject to fraud allegations." Tuchman, 14 F.3d at 1068. See also In re Fine Host Corp. Sec. Litig., 25 F. Supp.2d 61, 69 (D.Conn. 1988) (rejecting allegation that defendants' incentive compensation was based, in part, on the strength of [the company's] financial result); Plevy v. Haggerty, 38 F. Supp. 2d 816, 833 (C.D.Cal. 1998) (the motive "to reap the benefits of munificent incentive compensations plans that were tied to [the company's] reported earnings and stock prices... [is] insufficient as a matter of law."); Acito v. IMCERA Group, Inc., 47 F.3d 47, 54 (2d Cir. 1995) ("incentive compensation can hardly be the basis on which an allegation of fraud is predicated"); Salinger v. Projectavision, Inc., 972 F. Supp. 222, 234 (S.D. N.Y. 1997) (a generalized interest in executive compensation tied to stock price performance are insufficient allegations of scienter). c. PLAINTIFFS ALLEGE NO BASIS FOR IMPUTING MOTIVES TO THE INDIVIDUAL DEFENDANTS. Even if Plaintiffs have successfully pled scienter with respect to SCI, Plaintiffs' securities fraud claim should be dismissed against the Individual Defendants because Plaintiffs' factual allegations do not indicate that key officers and directors had any motive to commit fraud. Plaintiffs recognize that to adequately plead motive they must show "concrete benefits that could be realized by one or more of the false statements." In re Health Management, 970 F. Supp. 192, 202 (E.D.N.Y. 1997). Here, Plaintiffs cannot show -- and do not allege - that the Individual Defendants realized any concrete benefits. To the contrary, Plaintiffs concede that there is a total absence of insider trading in this case, thereby eliminating any financial motive on the part of the Individual Defendants to engage in fraudulent activity. See Opposition Brief at p. 34. The Individual Defendants should, therefore, be dismissed. C. MANY OF THE ALLEGED MISSTATEMENTS ARE NOT ACTIONABLE AS A MATTER OF LAW. -15- 22 Defendants' Motion to Dismiss explained that a number of statements alleged to be false and misleading are merely non-actionable statements of corporate optimism. See Defendants' Motion to Dismiss at pp. 23-27. While Defendants readily concede that not every statement in the CCAC is a statement of puffery, Defendants stick by their contention that those selected statements identified in their Motion to Dismiss are, in fact, nonactionable expressions of optimism. See CCAC at pp. 75, 78, 84 and 96. Defendants' Motion to Dismiss identifies these statements in detail. Along those same lines, some, but not all, of the statements challenged by Plaintiffs are simply announcements of past financial results and, therefore, not actionable. See CCAC at pp. 78, 86 and 96. Similarly, the Reform Act's safe harbor provisions protect not every statement in the CCAC, but only those selected forward-looking statements allegedly made by Defendants. D. PLAINTIFFS' SECTION 11 AND SECTION 12(a)(2) CLAIMS FAIL. 1. PLAINTIFFS' SECTION 11 AND 12(a)(2) CLAIMS ARE SUBJECT TO RULE 9(b) AND THE REFORM ACT. Ignoring Fifth Circuit authority directly on point, Plaintiffs cite three cases from outside the Fifth Circuit and argue that their Section 11 and 12(a)(2)(14) claims are not subject to the particularity requirements of Rule 9(b) and the Reform Act. See Opposition Brief at 20. Plaintiffs' position is without merit. In Melder, 27 F.3d 1097, the Fifth Circuit addressed this very issue, holding that the particularity requirements of Rule 9(b) apply to claims brought under Section 11 and Section 12(a)(2) of the 1933 Securities Act. The Fifth Circuit noted: [Plaintiffs] maintain that their 19[3]3 Securities Act claims were inappropriately subjected to the Rule 9(b) heightened pleading standard. This argument is untenable in light of the complaint's - ----------------- (14) Congress amended Section 12 of the Securities Act of 1933 in the Reform Act, adding subsection 12(b) to section 12 and redesignating subsections 12(1) and 12(2) as 12(a)(1) and 12(a)(2). Most of the cases refer to section 12(2), the pre-amendment designation. -16- 23 wholesale adoption of the allegations under the securities fraud claims for purposes of the Securities Act claims. When 1933 Securities Act claims are grounded in fraud rather than negligence as they clearly are here, Rule 9(b) applies. Id. at 1100 fn. 6. See also Shapiro v. UJB Fin. Corp., 964 F.2d 272, 287-89 (3d Cir.), cert. denied, 506 U.S. 934 (1992) (holding that Rule 9(b) applies to Section 11 and 12(a)(2) claims); Sears v. Likens, 912 F.2d 889, 892-93 (7th Cir. 1990) (same). Given the Fifth Circuit's analysis, there is no reason to believe that the Reform Act should be treated any differently. When Plaintiffs' claims are grounded in fraud rather than negligence, the Reform Act's strict pleading requirements should also apply to Plaintiffs' Section 11 and 12(a)(2) claims. 2. THE ACCURACY OF THE REGISTRATION STATEMENT/PROSPECTUS IS TESTED ON ITS EFFECTIVE DATE - NOVEMBER 20, 1998. Plaintiffs' Opposition Brief suggests that all Plaintiffs have to do to state a cognizable claim under Sections 11 and 12(a)(2) is to plead that (1) the fourth quarter had ended; (2) the fourth quarter's poor results were necessarily complete; (3) Defendants closed on the ECI transaction without disclosing these results; and (4) the Registration Statement/Prospectus affirmatively represented that SCI experienced no events which would have a materially adverse effect on its business condition. See Opposition Brief at 2. This is simply not the case. Section 11 creates an express right of action for securities purchasers where "any part of the registration statement, when such part became effective, contained an untrue statement of a material fact or omitted to state a material fact. 15 U.S.C. Section 77k(a) (emphasis added). Similarly, Section 12(2) imposes liability for using a prospectus "which includes an untrue statement of a material fact or omits to state a material fact necessary in order to make the statements, in light of the circumstances under which they were made, not misleading." 15 U.S.C. Section 77l(2). -17- 24 The accuracy of the Registration Statement/Prospectus is, therefore, tested on its effective date, which in this case is November 20, 1998.(15) See 15 U.S.C. Section 77k(a) (liability attaches for misstatements in a prospectus at the time such part becomes effective); Nelson v. Paramount Communications, Inc., 872 F. Supp. 1242, 1246 (S.D.N.Y. 1994) (Section 11, by its own terms, is limited to material omissions in parts of registration statements that were misleading "when such part[s] became effective"); 3A Harold S. Bloomenthal, Securities and Federal Corporate Law Section 8.23, at 8-102 (1993) ("The prospectus for purposes of section 11 speaks as of the date the registration statement becomes effective"). "[W]hen subsequent events make an effective Registration Statement misleading, Section 11 does not apply." Thomas Lee Hazen, Treatise on the Law of Securities Regulation Section 7.3, at 387 (3d ed. 1995). Plaintiffs suggest that the supplement to the prospectus dated December 17, 1998(16) was, in actuality, an amendment to the Registration Statement/Prospectus, thereby altering the effective date.(17) See Opposition Brief at 18 fn. 8. This argument is unpersuasive. Amendments to a registration statement require compliance with certain administrative procedures before the Securities and Exchange Commission. Supplements to a prospectus can be accomplished by merely the filing of copies with the Commission. There has been no showing by Plaintiffs that the supplements to the Prospectus contained information which could be properly only be included in - ----------------- (15) See CCAC at p. 7. (16) The December 17, 1998 supplement is attached as Exhibit A. (17) On December 14, 1998, SCI and ECI executed an amendment to the merger agreement. That amendment increased the minimum price of SCI common stock used to calculate the merger consideration to be received by ECI's stockholders from $34 to $38, and increased the maximum amount of asset divestitures required to obtain antitrust approval. See Exhibit A. On December 17, 1999, a supplement to the Registration Statement/Prospectus was filed with the Securities Exchange Commission. Id. There was never an amendment to the Registration Statement/Prospectus. -18- 25 an amendment to the Registration Statement or that the supplements were issued under procedures pertinent to amendments. Tirone v. Calderone-Curran Ranches, Inc., 1978 WL 1095, *3 (W.D.N.Y. 1978); see also Finkel v. Stratton Corp., 754 F. Supp. 318, 327 (S.D.N.Y. 1990), aff'd in part, rev'd in part on other grounds, 962 F.2d 169 (2d Cir. 1992) (filing a supplemental prospectus dated July, 1985 did not make the effective date for Section 11 purposes July 1985; rather, the effective date for Section 11 remained the date the Registration Statement was originally filed). The question in this case is not, as Plaintiffs posit, whether Defendants failed to disclose in the Registration Statement/Prospectus any material information concerning SCI's financial condition as of January 19, 1999, the date the SCI-ECI transaction closed. Rather, the key question is whether the CCAC contains sufficient allegations that the Defendants failed to disclose in the Registration Statement any material information concerning SCI's financial condition as of November 20, 1998. The answer, quite simply, is no. Despite Plaintiffs' protestations to the contrary, the fact that the quarter was halfway completed does not automatically mean that, as of November 20, 1998, SCI was in possession of information which indicated that the quarter as a whole would fall below analysts' expectations. This is especially true in the death care industry because "[t]he death rate tends to be somewhat higher in the winter months and [SCI's] funeral service locations generally experience a higher volume of business during those months" See Exhibit B to Defendants' Motion to Dismiss at p.2. While Plaintiffs claim that SCI had computer reports detailing cemetery and funeral volumes, Plaintiffs concede that SCI could not, as of November 20, 1998, predict that cemetery and funeral sales for the remaining half of the quarter would fail to meet or exceed analysts' expectations. -19- 26 3. THE REGISTRATION STATEMENT/PROSPECTUS DID NOT REQUIRE DEFENDANTS TO DISCLOSE ALL ONGOING DEVELOPMENTS RELATING TO SCI'S BUSINESS. Plaintiffs repeatedly claim that the Registration Statement/Prospectus was patently misleading because it contained a provision requiring SCI to disclose up until the closing of the SCI-ECI transaction any event which was having a "material adverse effect" on its business conditions. This argument is a red herring. Plaintiffs conveniently forget to mention that the merger agreement, which is attached to the Registration Statement/Prospectus,(18) defines "material adverse effect" as follows: any event, occurrence, fact, condition, change, development or effect that is or could reasonably be anticipated to be materially adverse to the business, assets (including intangible assets), liabilities, financial condition, results of operations, properties (including intangible properties) or business prospects of [ECI] and all of its Subsidiaries or [SCI] and all of its Subsidiaries, as applicable, taken as a whole, EXCLUDING SPECIFICALLY ANY SUCH EVENT, OCCURRENCE, FACT, CONDITION, CHANGE, DEVELOPMENT OR EFFECT RESULTING FROM . . . CHANGES GENERALLY APPLICABLE TO COMPANIES ENGAGED IN BUSINESSES OR INDUSTRIES SIMILAR TO THOSE IN WHICH [ECI] AND ITS SUBSIDIARIES AND [SCI] AND ITS SUBSIDIARIES ARE ENGAGED. See Exhibit B, at A-36 to A-37 (emphasis added). Thus, contrary to Plaintiffs' assertions, Defendants were under no obligation to disclose adverse business conditions if those conditions were generally applicable to companies engaged in businesses or industries in which SCI and ECI were engaged, i.e., the death care industry. To further this point, the Registration Statement/Prospectus contained detailed, meaningful disclosures indicating that the information contained in the Registration Statement/Prospectus was effective only as of November 20, 1998. In particular, the Registration Statement/Prospectus stated as follows: - ----------------- (18) The Registration Statement/Prospectus is attached as Exhibit B. -20- 27 THIS PROXY STATEMENT/PROSPECTUS IS DATED NOVEMBER 20, 1998. YOU SHOULD NOT ASSUME THAT THE INFORMATION CONTAINED IN THE PROXY STATEMENT/PROSPECTUS IS ACCURATE AS OF ANY DATE OTHER THAN SUCH DATE, AND NEITHER THE MAILING OF THIS PROXY STATEMENT/PROSPECTUS TO STOCKHOLDERS NOR THE ISSUANCE OF SCI COMMON STOCK IN THE MERGER SHALL CREATE ANY IMPLICATION TO THE CONTRARY. NEITHER THE DELIVERY OF THIS PROXY STATEMENT/PROSPECTUS NOR ANY DISTRIBUTION OF SECURITIES MADE HEREUNDER SHALL CREATE AN IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF SCI OR ECI SINCE THE DATE OF THIS PROXY STATEMENT/PROSPECTUS OR THAT THE INFORMATION IN THIS PROXY STATEMENT/PROSPECTUS IS CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE OF THIS PROXY STATEMENT/PROSPECTUS. Id. at p. 3 (emphasis in original). This cautionary language cannot be ignored. See In re Donald J. Trump Casino Securities Litigation, 793 F. Supp. 543, 553 (D.N.J. 1992), aff'd, 7 F.3d 357 (3d Cir. 1993) ("the allegations of the complaint are not read in isolation; they cannot be separated from the language of the Prospectus, including whatever cautionary language appears in that text"). Even a cursory reading of the Registrations Statement/Prospectus reveals that the information in the Registration Statement/Prospectus is only represented as correct as of the date of the Registration Statement/Prospectus - November 20, 1998. At the same time, SCI made investors aware that there were several "important factors which could cause actual results to differ materially from those in forward-looking statements." See Form 10-Q for the quarter ended September 30, 1998, attached as Exhibit I to Defendants' Motion to Dismiss, at 22-23.(19) Those factors 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). - ----------------- (19) The Form 10-Q for the Quarter ended September 30, 1998 was expressly incorporated into the Registration Statement/Prospectus. See Exhibit B at p.2. -21- 28 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. Id. It is hard to imagine a more detailed cautionary statement. Plaintiffs rely heavily on the First Circuit's opinion in Shaw v. Digital Equipment Corp., 82 F.3d 1194 (1st Cir. 1996). In Shaw, the Registration Statement's effective date was March 21, 1994, a mere 11 days before the end of the quarter then in progress. The Shaw plaintiffs alleged that, as of the Registration Statement's effective date, the defendants were aware of material facts portending unexpectedly large losses, and that the failure to disclose these material facts in the Registration Statement/Prospectus violated both sections 11 and 12(a)(2). The present case presents an entirely different factual situation. Here, the effective date of the Registration Statement/Prospectus is November 20, 1998, just about halfway through the quarter then in progress, and almost two full months before the announcement of SCI's fourth quarter 1998 earnings. As explained above, it is unreasonable to assume that, simply because half of the quarter had occurred, Plaintiffs could foresee that the quarter as a whole would turn out to be disappointing. In short, Plaintiffs have failed to plead sufficient facts to demonstrate otherwise. -22- 29 CONCLUSION For the above reasons, Defendants' Motion to Dismiss the Consolidated Class Action Complaint should be granted. Plaintiffs' Consolidated Class Action Complaint should be dismissed. Respectfully submitted, Bracewell & Patterson, L.L.P. By: --------------------------------- J. Clifford Gunter III State Bar No. 08627000 Andrew M. Edison State Bar No. 00790029 South Tower Pennzoil Place 711 Louisiana, Suite 2900 Houston, Texas 77002-2781 Telephone: (713) 223-2900 Facsimile: (713) 221-1212 COUNSEL FOR DEFENDANTS CERTIFICATE OF SERVICE I hereby certify that a true and correct copy of the foregoing document was forwarded by messenger on the 24th day of November, 1999 to Plaintiffs' Lead Counsel: Mr. Roger E. Greenberg Greenberg, Peden, Siegmyer & Oshman, P.C. 12 Greenway Plaza 10th Floor Houston, Texas 77046 ---------------------------------------- Andrew M. Edison -23- EX-99.14 22 DEFENDANTS' ORIGINAL ANSWER TO ORIGINAL PETITION 1 EXHIBIT 99.14 NO. 32548-99-11 JAMES P. HUNTER, III and ) IN THE DISTRICT COURT OF JAMES P. HUNTER, III FAMILY TRUST, ) ) Plaintiffs, ) ) VS. ) ) SERVICE CORPORATION ) INTERNATIONAL, ROBERT L. WALTRIP, ) L. WILLIAM HEILIGBRODT, GEORGE R. ) CHAMPAGNE, W. BLAIR WALTRIP, ) JAMES M. SHELGER, WESLEY T. ) MCRAE and PRICEWATERHOUSE ) COOPERS, L.L.P., ) ) Defendants. ) ANGELINA COUNTY, TEXAS SERVICE CORPORATION INTERNATIONAL, ROBERT L. WALTRIP, L. WILLIAM HEILIGBRODT, GEORGE R. CHAMPAGNE, W. BLAIR WALTRIP, JAMES M. SHELGER, AND WESLEY T. MCRAE'S ORIGINAL ANSWER Defendants Service Corporation International, Robert L. Waltrip, L. William Heiligbrodt, George R. Champagne, W. Blair Waltrip, James M. Shelger and Wesley T. McRae (collectively "SCI Defendants") file their Original Answer, as follows. GENERAL DENIAL The SCI Defendants deny each and every, all and singular, material allegations contained in Plaintiff's Original Petition as provided under Rule 92 and demand that this court require the Plaintiff to prove its charges and allegations as required by the Constitution and laws of this state. Without waiving the foregoing general denial, the SCI Defendants assert the following affirmative defenses. AFFIRMATIVE DEFENSES 1. Plaintiff has failed to take reasonable steps to mitigate damages. 2 2. Plaintiff's claim for exemplary or punitive damages is barred because exemplary or punitive damages are not properly available and/or any award of exemplary or punitive damages is unconstitutional. 3. Plaintiff's own conduct is the proximate cause of any damages sustained. 4. Pursuant to Section 33A(2) of the Texas Securities Act, Plaintiff knew of any alleged untruth or omission. 5. Pursuant to Section 33A(2) of the Texas Securities Act, the SCI Defendants did not know, and in the exercise of reasonable care, could not have known, of any alleged untruth or omission. WHEREFORE, premises considered, Service Corporation International, Robert L. Waltrip, L. William Heiligbrodt, George R. Champagne, W. Blair Waltrip, James M. Shelger and Wesley T. McRae pray that a take-nothing judgment be entered against the Plaintiff in this case, that the Plaintiff's claims be dismissed with prejudice to refile the same, and that Service Corporation International, Robert L. Waltrip, L. William Heiligbrodt, George R. Champagne, W. Blair Waltrip, James M. Shelger and Wesley T. McRae receive any and all further relief to which they are entitled. Respectfully submitted, Bracewell & Patterson, L.L.P. By: ------------------------------------ J. Clifford Gunter III State Bar No. 08627000 Andrew M. Edison State Bar No. 00790629 Thomas F.A. Hetherington State Bar No. 24007359 3 South Tower Pennzoil Place 711 Louisiana, Suite 2900 Houston, Texas 77002-2781 Telephone: (713) 223-2900 Facsimile: (713) 221-1212 Counsel for Defendants Service Corporation International, Robert L. Waltrip, L. William Heiligbrodt, George R. Champagne, W. Blair Waltrip, James M. Shelger and Wesley T. McRae CERTIFICATE OF SERVICE I hereby certify that a true and correct copy of the foregoing document has been forwarded on this 29th day of November, 1999, to: Mark L.D. Wawro Susman Godfrey L.L.P. 1000 Louisiana St., Suite 5100 Houston, Texas 77002 Ms. Martha A. Evans Susman Godfrey L.L.P. 2323 Bryan St., Suite 1400 Dallas, Texas 75201 ----------------------------------- Andrew M. Edison -----END PRIVACY-ENHANCED MESSAGE-----