-----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, SO2RymkhuOPk9jOQXLT+FiUsgAgraEnHaTwFt58c/PbOqEtq4B1t6kmpUf/qCy6R 8b4U+HZBt/H3NOCg372e/g== 0000950129-97-001336.txt : 19970329 0000950129-97-001336.hdr.sgml : 19970329 ACCESSION NUMBER: 0000950129-97-001336 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 19 CONFORMED PERIOD OF REPORT: 19961231 FILED AS OF DATE: 19970328 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: SERVICE CORPORATION INTERNATIONAL CENTRAL INDEX KEY: 0000089089 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-PERSONAL SERVICES [7200] IRS NUMBER: 741488375 STATE OF INCORPORATION: TX FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: 1934 Act SEC FILE NUMBER: 001-06402 FILM NUMBER: 97568061 BUSINESS ADDRESS: STREET 1: 1929 ALLEN PKWY STREET 2: P O BOX 130548 CITY: HOUSTON STATE: TX ZIP: 77219 BUSINESS PHONE: 7135225141 MAIL ADDRESS: STREET 1: P O BOX 130548 CITY: HOUSTON STATE: TX ZIP: 77219-0548 10-K 1 SERVICE CORPORATION INTERNATIONAL - 12/31/96 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, 1996 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM TO COMMISSION FILE NUMBER 1-6402-1 ------------------------ SERVICE CORPORATION INTERNATIONAL (Exact name of registrant as specified in its charter) TEXAS 74-1488375 (State or other jurisdiction of (I.R.S. employer incorporation or organization) identification No.) 1929 ALLEN PARKWAY 77019 HOUSTON, TEXAS (Zip code) (Address of principal executive offices)
Registrant's telephone number, including area code: 713/522-5141 ------------------------ SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
TITLE OF EACH CLASS NAME OF EACH EXCHANGE ON WHICH REGISTERED ------------------- ----------------------------------------- Common Stock ($1 par value) New York Stock Exchange Preferred Share Purchase Rights New York Stock Exchange $3.125 Term Convertible Shares, New York Stock Exchange Series A, of SCI Finance LLC, a subsidiary of the registrant
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 $7,482,259,803 based upon a closing market price of $32.125 on March 21, 1997 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 21, 1997 was 238,757,934 (excluding treasury shares). DOCUMENTS INCORPORATED BY REFERENCE Portions of the registrant's Proxy Statement in connection with its 1997 Annual Meeting of Shareholders (Part III) ================================================================================ 2 PART I ITEM 1. BUSINESS. Service Corporation International was incorporated in Texas on July 5, 1962. The term "Company" or "SCI" includes the registrant and its subsidiaries, unless the context indicates otherwise. The Company is the largest provider of death care services in the world. At December 31, 1996, the Company operated 2,882 funeral service locations, 345 cemeteries and 150 crematoria located in North America, Europe and the Pacific Rim. In addition, the Company provides capital financing to independent funeral home and cemetery operators. The Company has continued to expand through the acquisition of funeral service locations, cemeteries and crematoria, both domestically and internationally. In 1996, the Company acquired 210 funeral service locations, 35 cemeteries and 9 crematoria. The Company has acquired most of its present operations through acquisitions. For information regarding acquisitions, see Note 3 to the consolidated financial statements in Item 8 of this Form 10-K. For financial information about the Company's industry segments, including the identifiable assets of the Company by industry segments, see Note 14 to the consolidated financial statements in Item 8 of this Form 10-K. FUNERAL AND CEMETERY OPERATIONS The Funeral and Cemetery Operations consist of the Company's funeral service locations, cemeteries and related businesses. The operations are organized into five North American divisions covering the United States and Canada, a European division which includes the Company's French and United Kingdom operations, and a Pacific Rim division. Each division is under the direction of divisional executive management with substantial industry experience. Local funeral service location and cemetery managers, under the direction of the divisional management, receive support and resources from SCI's headquarters in Houston, Texas and have substantial autonomy with respect to the manner in which services are conducted. The majority of the Company's funeral service locations and cemeteries are managed in groups called clusters. Clusters are established primarily in metropolitan areas to take advantage of operational efficiencies, including the sharing of service personnel, vehicles, preparation services, clerical staff and certain building facility costs. Funeral Service Locations. The funeral service locations provide all professional services relating to funerals, including the use of funeral facilities and motor vehicles. Funeral service locations sell caskets, coffins, burial vaults, cremation receptacles, flowers and burial garments, and certain funeral service locations also operate crematoria. The Company owns 140 funeral service location/cemetery combinations and operates 53 flower shops engaged principally in the design and sale of funeral floral arrangements. These flower shops provide floral arrangements to some of the Company's funeral homes and cemeteries. In addition to selling its services and products to client families at the time of need, the Company also sells prearranged funeral services in most of its service markets, including foreign markets. Funeral prearrangement is a means through which a customer contractually agrees to the terms of a funeral to be performed in the future. The funds collected from prearranged funeral contracts are generally held in trust, are used to purchase life insurance or annuity contracts from third party insurers or, with respect to French contracts, are held in the Company's French insurance subsidiary. This French insurance subsidiary sells prearranged funeral insurance contracts primarily in connection with the Company's French funeral service operations. Funds paid on prearranged funerals may not be withdrawn until the funeral is performed or until cancellation by the customer. At December 31, 1996, the Company's unfulfilled prearranged funeral contracts, including accumulated trust fund earnings and increased benefits on insurance products, amounted to $2,726 million of which $239 million is estimated, based on actuarial assumptions, to be fulfilled in 1997. The unfulfilled prearranged funeral contracts at December 31, 1995 were $2,362 million. For additional informa- 1 3 tion concerning prearranged funeral activities, see Note 4 to the consolidated financial statements in Item 8 of this Form 10-K. The Company has multiple funeral service locations and cemeteries in a number of metropolitan areas. Within individual metropolitan areas, the funeral service locations and cemeteries operate under various names because most operations were acquired as existing businesses and generally continue to be operated under the same name as before acquisition. The death rate tends to be somewhat higher in the winter months and the Company's funeral service locations generally experience a higher volume of business during those months. Since 1984, the Company has operated under the Federal Trade Commission's ("FTC") comprehensive trade regulation rule for the funeral industry. The rule contains minimum guidelines for funeral industry practices, requires extensive price and other affirmative disclosures and imposes mandatory itemization of funeral goods and services. From time to time in connection with acquisitions, the Company has entered into consent orders with the FTC that have required the Company to dispose of certain operations to proceed with acquisitions or have limited the Company's ability to make acquisitions in specified areas. The trade regulation rule and the various consent orders have not had a materially adverse effect on the Company's operations. Cemeteries. The Company's cemeteries sell cemetery interment rights (including mausoleum spaces and lawn crypts) and certain merchandise including stone and bronze memorials and burial vaults. The Company's cemeteries also perform interment services and provide management and maintenance of cemetery grounds. Certain cemeteries also operate crematoria. Cemetery sales are often made on a preneed basis pursuant to installment contracts providing for monthly payments. A portion of the proceeds from cemetery sales is generally required by law to be paid into perpetual care trust funds. Earnings of perpetual care trust funds are used to defray the maintenance cost of cemeteries. In addition, all or a portion of the proceeds from the sale of preneed cemetery merchandise may be required by law to be paid into trust until the merchandise is purchased on behalf of the customer. For additional information regarding cemetery trust funds, see Notes 2 and 5 to the consolidated financial statements in Item 8 of this Form 10-K. Death Care Industry. The funeral industry is characterized by a large number of locally owned, independent operations. The Company believes that based on the total number of funeral services performed in 1996, the Company, including companies acquired by it, performed approximately 10%, 29%, 14% 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 operations. The Company's cemetery properties compete with other cemeteries in the same general area. To compete successfully, the Company's cemeteries must maintain competitive prices, attractive and well-maintained properties, a good reputation, an effective sales force and high professional standards. FINANCIAL SERVICES OPERATION Since 1988, the Company's wholly owned subsidiary, Provident Services, Inc. ("Provident"), has provided secured financing to independent funeral home and cemetery operators. The majority of Provident's loans are made to clients seeking to finance funeral home or cemetery acquisitions. Additionally, Provident provides construction loans for funeral home or cemetery improvement and expansion. Loan packages take traditional forms of secured financing comparable to arrangements offered by leading commercial banks. Provident's loans are generally made at interest rates which float with the prime lending rate. 2 4 Provident had $146 million in loans outstanding at December 31, 1996 and unfunded loan commitments amounting to $55 million. Such loans outstanding decreased from $214 million in loans outstanding at December 31, 1995. Provident obtains its funds primarily from the Company's variable interest rate bank borrowings. Provident is in competition with banks and other lending institutions, many of which have substantially greater resources than Provident. However, Provident believes that its knowledge of the death care industry provides it with the ability to make more accurate assessments of funeral home and cemetery loans, thereby providing Provident a competitive advantage in making such loans. EMPLOYEES At December 31, 1996, the Company employed 22,607 (13,987 in the United States) persons on a full time basis and 10,776 (7,422 in the United States) persons on a part time basis. Of the full time employees, 22,009 were in the Funeral and Cemetery Operations, eight were in Financial Services and 590 were in corporate services. All of the Company's eligible United States employees who so elect are covered by the Company's group health and life insurance plans, and all eligible United States employees are participants in retirement plans of the Company or various subsidiaries. Although labor disputes are experienced from time to time, in general relations with employees are considered satisfactory. REGULATION The Company's various operations are subject to regulations, supervision and licensing under various federal, state, local and Australian, Canadian, French, United Kingdom and other foreign statutes, ordinances and regulations. The Company believes that it is in substantial compliance with the significant provisions of such statutes, ordinances and regulations. See discussion of FTC funeral industry trade regulation and consent orders in "Funeral Service Locations" above. In May 1995, the Monopolies and Mergers Commission (the "Commission") of the United Kingdom issued a report with respect to SCI's 1994 acquisition of Plantsbrook Group plc that recommended that SCI divest of certain operations in ten localities to achieve a competitive balance satisfactory to the Commission. In 1997, this matter was settled and SCI is divesting 12 funeral service locations in ten localities. The Company believes the settlement will not have a materially adverse effect on the Company's operations in the United Kingdom. The French funeral services industry is currently undergoing significant regulatory change. Historically, the French funeral services industry has been controlled, as provided by national legislation, either (i) directly by municipalities through municipality-operated funeral establishments ("Municipal Monopoly"), or (ii) indirectly by the remaining municipalities that have contracted for funeral service activities with third party providers, such as SCI's French operations ("Exclusive Municipal Authority"). Legislation has been passed that will generally end municipal control of the French funeral service business and will allow the public to choose their funeral service provider. Under such legislation, the Exclusive Municipal Authority was abolished in January 1996, and the Municipal Monopolies will be eliminated by January 1998. Cemeteries in France, however, are and will continue to be controlled by municipalities and religious organizations, with third parties, such as SCI, providing cemetery merchandise such as markers and monuments. ITEM 2. PROPERTIES. The Company's executive headquarters are located at 1929 Allen Parkway, Houston, Texas 77019, in a 12-story office building. A wholly owned subsidiary of the Company owns an undivided one-half interest in the building and its parking garage. The property consists of approximately 1.3 acres, 250,000 square feet of office space in the building and 160,000 square feet of parking space in the garage. The Company leases all of the office space in the building pursuant to a lease that expires June 30, 2005 providing for monthly rent of $43,000 through July 2000 and $59,000 thereafter. The Company pays all operating expenses. One half of the rent is paid to the wholly owned subsidiary and the other half is paid to the owners of the remaining undivided 3 5 one-half interest. The Company owns and utilizes a three-story building at 1919 Allen Parkway, Houston, Texas 77019 containing 43,000 square feet of office space. At December 31, 1996, the Company owned the real estate and buildings of 2,307 of its funeral service and cemetery locations and leased facilities in connection with 1,070 of such operations. In addition, the Company leased four aircraft pursuant to cancelable leases. At December 31, 1996, the Company operated 10,987 vehicles, of which 7,505 were owned and 3,482 were leased. For additional information regarding leases, see Note 10 to the consolidated financial statements in Item 8 of this Form 10-K. The Company's 345 cemeteries contain an aggregate of approximately 25,751 acres, of which approximately 55% are developed. The specialized nature of the Company's businesses requires that its facilities be well maintained and kept in good condition. Management believes that these standards are met. ITEM 3. LEGAL PROCEEDINGS. Although the Company is involved in legal proceedings, the Company does not believe that any of the proceedings is material pursuant to the standards set forth in Item 103 of Regulation S-K promulgated under the Securities Exchange Act of 1934. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. None. 4 6 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 21, 1997 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................................ (66) Chairman of the Board and Chief 1962 Executive Officer L. William Heiligbrodt....................... (55) President and Chief Operating Officer 1988 W. Blair Waltrip............................. (42) Executive Vice President Operations 1980 John W. Morrow, Jr. ......................... (61) Executive Vice President 1989 Corporate Development Jerald L. Pullins............................ (55) Executive Vice President 1992 European Operations George R. Champagne.......................... (43) Senior Vice President 1989 Chief Financial Officer Glenn G. McMillen............................ (54) Senior Vice President Operations 1993 Richard T. Sells............................. (57) Senior Vice President Prearranged 1987 Sales James M. Shelger............................. (47) Senior Vice President General Counsel 1987 and Secretary Jack L. Stoner............................... (51) Senior Vice President Administration 1992 T. Craig Benson.............................. (35) Vice President International 1990 Operations Gregory L. Cauthen........................... (39) Vice President Treasurer 1995 W. Mark Hamilton............................. (32) Vice President Finance 1996 European Operations Lowell A. Kirkpatrick, Jr. .................. (38) Vice President Corporate Development 1994 Todd A. Matherne............................. (42) Vice President Investor Relations 1996 Vincent L. Visosky........................... (49) Vice President Operational Controller 1989 Henry M. Nelly, III.......................... (52) President -- Provident Services, Inc., 1989 a subsidiary of the Company
- --------------- (1) Indicates the year a person was first elected as an officer although there were subsequent periods when certain persons ceased being officers of the Company. Unless otherwise indicated below, the persons listed above have been executive officers or employees for more than five years. Mr. Matherne joined the Company in April 1995 as Managing Director Investor Relations and was promoted in May 1996 to Vice President Investor Relations. Prior thereto, Mr. Matherne was Vice President and General Manager of Baker Hughes Treatment Services, an environmental services business. Each officer of the Company is elected by the Board of Directors and holds his office until his successor is elected and qualified or until his earlier death, resignation or removal in the manner prescribed in the Bylaws of the Company. Each officer of a subsidiary of the Company is elected by the subsidiary's board of directors and holds his office until his successor is elected and qualified or until his earlier death, resignation or removal in the manner prescribed in the bylaws of the subsidiary. There is no family relationship between any of the 5 7 persons in the preceding table except that W. Blair Waltrip is a son of R. L. Waltrip, that T. Craig Benson is a son-in-law of R. L. Waltrip and that T. Craig Benson and W. Blair Waltrip are brothers-in-law. PART II ITEM 5. MARKET FOR THE COMPANY'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS. The Company's common stock has been traded on the New York Stock Exchange since May 14, 1974. On December 31, 1996, there were 7,730 holders of record of the Company's common stock. The Company has declared 95 consecutive quarterly dividends on its common stock since it began paying dividends in 1974. The dividend rate is currently $.075 per share per quarter, or an indicated annual rate of $.30 per share. For the three years ended December 31, 1996, dividends per share were $.24, $.22 and $.21, respectively. The table below shows the Company's quarterly high and low common stock prices:
YEARS ENDED DECEMBER 31, -------------------------------------------------------- 1996 1995 1994 ---------------- ---------------- ---------------- HIGH LOW HIGH LOW HIGH LOW ------ ------ ------ ------ ------ ------ First................................ $24.75 $19.44 $14.56 $13.13 $14.00 $12.38 Second............................... 30.13 24.13 15.81 13.44 12.94 11.25 Third................................ 29.44 27.63 19.75 15.19 13.32 12.44 Fourth............................... 30.75 26.50 22.00 18.81 13.88 12.07
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. ITEM 6. SELECTED FINANCIAL DATA.
YEARS ENDED DECEMBER 31,* -------------------------------------------------------------- 1996 1995 1994 1993 1992 ---------- ---------- ---------- ---------- ---------- (IN THOUSANDS, EXCEPT PER SHARE AND RATIO AMOUNTS) Revenues......................... $2,294,194 $1,652,126 $1,117,175 $ 899,178 $ 772,477 Income before income taxes....... 413,881 294,211 219,021 173,492 139,336 Income before cumulative effect of change in accounting principles..................... 265,298 183,588 131,045 103,092 86,536 Net income....................... 265,298 183,588 131,045 101,061 86,536 Earnings per share: Primary........................ 1.10 .90 .75 .61 .56 Fully diluted.................. 1.07 .85 .72 .58 .53 Dividends per share.............. .24 .22 .21 .20 .20 Total assets..................... 8,869,770 7,672,387 5,161,888 3,683,304 2,611,123 Long-term debt................... 2,048,737 1,712,464 1,330,177 1,062,222 980,029 Convertible preferred securities of SCI Finance LLC............. 172,500 172,500 172,500 -- -- Stockholders' equity............. 2,235,317 1,975,345 1,196,622 884,513 683,097 Shares outstanding............... 236,193 234,542 189,714 169,718 153,810 Ratio of earnings to fixed charges**...................... 3.24 2.84 3.13 3.19 3.03
- --------------- * All common stock and per share data has been restated for a two-for-one common stock split on August 30, 1996. The year ended December 31, 1993 reflects a change in accounting principles adopted January 1, 1993. The year ended December 31, 1992 reflect results as historically reported. 6 8 ** For purposes of computing the ratio of earnings to fixed charges, earnings consist of income from continuing operations before income taxes, less undistributed income of equity investees which are less than 50% owned, plus the minority interest of majority-owned subsidiaries with fixed charges and plus fixed charges (excluding capitalized interest). Fixed charges consist of interest expense, whether capitalized or expensed, amortization of debt costs, dividends on preferred securities of SCI Finance LLC and one-third of rental expense which the Company considers representative of the interest factor in the rentals. SCI International Limited SCI International Limited ("International") is a wholly owned subsidiary of the Company. International, through wholly owned subsidiaries, began operations in mid-1993 and owns substantially all of the Company's foreign operations. Set forth below is certain summary financial information for International.
YEARS ENDED DECEMBER 31, -------------------------------------- 1996 1995 1994 ---------- ---------- ---------- (DOLLARS IN THOUSANDS) Revenues............................................... $ 883,203 $ 439,750 $ 99,033 ---------- ---------- ---------- Gross profit........................................... $ 143,924 $ 88,551 $ 30,068 ---------- ---------- ---------- Net income............................................. $ 55,748 $ 21,163 $ 4,353 ---------- ---------- ---------- Current assets......................................... $ 223,930 $ 207,411 $ 215,104 Non-current assets..................................... 2,520,118 2,218,977 885,417 ---------- ---------- ---------- Total assets........................................... $2,744,048 $2,426,388 $1,100,521 ---------- ---------- ---------- Current liabilities.................................... $ 303,304 $ 257,682 $ 258,723 Non-current liabilities................................ $2,198,718 1,584,979 805,939 ---------- ---------- ---------- Total liabilities...................................... $2,502,022 $1,842,661 $1,064,662 ---------- ---------- ---------- Stockholder's equity................................... $ 242,026 $ 583,727 $ 35,859 ---------- ---------- ----------
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. (DOLLARS IN THOUSANDS, EXCEPT AVERAGE SALES PRICES AND PER SHARE DATA) The Company's primary objective is to maximize shareholder value. To accomplish this goal, the Company's strategy has been to provide consistent growth in earnings per share. The growth strategy initiates with the Company producing significant cash flow from its existing cluster operations, then grows by using that cash to expand clusters through add-on acquisitions, new construction, and improvements to existing locations. The Company also expands its network through strategic acquisition of larger, multi-location death care companies, typically funding these transactions by accessing the debt and equity markets when appropriate. All businesses are continuously improved by further leveraging operating and overhead costs; enhancing buying power; expanding preneed sales; and improving products, services and systems. The majority of the Company's funeral service locations and cemeteries are managed in groups called clusters. Clusters are established in and around metropolitan areas to take advantage of operational efficiencies, particularly the sharing of operating expenses such as service personnel, vehicles, preparation services, clerical staff and certain building facility costs. Personnel costs, the largest operating expense for the Company, is the cost component most beneficially affected by clustering. The sharing of employees, as well as the other costs mentioned, allow the Company to more efficiently utilize its operating facilities during the traditional fluctuation in the number of funeral services and cemetery interments performed in a given period. The Company's acquisitions are primarily located within existing cluster areas or create new cluster area opportunities. The Company has successfully implemented the cluster strategy in its North American, United Kingdom and Australian operations and is proceeding with implementation in its French operations which 7 9 were acquired in August 1995. The Company has approximately 311 clusters in North America, the United Kingdom and Australia, which range in size from two operations to 63 operations. There may be more than one cluster in a given metropolitan area, depending upon the level and degree of shared costs. RESULTS OF OPERATIONS: Year ended 1996 compared to 1995 Segment information for the Company's three lines of business was as follows:
YEARS ENDED DECEMBER 31, PERCENTAGE -------------------------------------------------- INCREASE INCREASE 1996 1995 (DECREASE) (DECREASE) ----------------------- ----------------------- ---------- ---------- Revenues: Funeral....................... $ 1,663,387 $ 1,166,247 $497,140 42.6% Cemetery...................... 612,421 463,754 148,667 32.1 Financial services............ 18,386 22,125 (3,739) (16.9) ----------- ----------- -------- ----- 2,294,194 1,652,126 642,068 38.9 Costs and expenses: Funeral....................... (1,282,546) (871,096) 411,450 47.2 Cemetery...................... (397,700) (303,312) 94,388 31.1 Financial services............ (9,496) (12,497) (3,001) (24.0) ----------- ----------- -------- ----- (1,689,742) (1,186,905) 502,837 42.4 Gross profit margin and percentage: Funeral....................... 380,841 22.9% 295,151 25.3% 85,690 29.0 Cemetery...................... 214,721 35.1% 160,442 34.6% 54,279 33.8 Financial services............ 8,890 48.4% 9,628 43.5% (738) (7.7) ----------- ----------- -------- ----- $ 604,452 26.3% $ 465,221 28.2% $139,231 29.9% =========== =========== ========
FUNERAL Funeral revenues were as follows:
YEARS ENDED DECEMBER 31, ------------------------ PERCENTAGE 1996 1995 INCREASE INCREASE ---------- ---------- ---------- ---------- Existing clusters: United States............................... $ 807,829 $ 730,053 $ 77,776 10.7% Other European.............................. 141,969 130,849 11,120 8.5 Other foreign*.............................. 99,951 87,044 12,907 14.8 ---------- ---------- -------- ---- 1,049,749 947,946 101,803 10.7 New clusters:** United States............................... 25,203 10,999 14,204 Other European.............................. 27,691 6,980 20,711 Other foreign*.............................. 15,450 4,278 11,172 France...................................... 537,079 190,091 346,988 ---------- ---------- -------- 605,423 212,348 393,075 ---------- ---------- -------- ---- Total clusters...................... 1,655,172 1,160,294 494,878 42.7 Non-cluster and disposed operations........... 8,215 5,953 2,262 ---------- ---------- -------- ---- Total funeral revenues.............. $1,663,387 $1,166,247 $497,140 42.6% ========== ========== ======== ====
- --------------- * Other foreign primarily includes Australian and Canadian operations. ** Represents new geographic cluster areas entered into since the beginning of 1995 for the period that those businesses were owned by the Company. 8 10 The $101,803 increase in revenues at existing clusters was primarily the result of a 7.7% increase in North American funeral services performed at existing cluster locations (226,822 compared to 210,611) and a 3.0% higher average sales price ($3,745 compared to $3,635). Included in this increase were $79,290 in increased revenues from locations acquired since the beginning of 1995. The remaining existing cluster revenue increase of $22,513 was contributed by operations acquired before 1995. The 1995 results for France represent approximately four months of Company ownership. The increase in Other European new cluster revenue is primarily due to non-French European operations added through the August 1995 OGF/PFG acquisition (See note three to the consolidated financial statements). The death rate in the Company's primary markets has remained relatively constant for several years and is expected to remain at this rate for at least the near future; however, due to the increasing proportion of people over age 65 in the Company's primary markets, demand for funeral services could increase in the decades to come. It is anticipated that the Company's near term revenue growth will continue to be primarily generated from acquired operations (added to existing clusters and the creation of new clusters) as well as from potentially higher average sales prices from improved merchandising of funeral services and products and periodic price increases. The Company is the world's largest in the funeral service industry and currently performs approximately 10%, 29%, 14% and 24% of the funeral services in North America, France, the United Kingdom and Australia, respectively. The Company believes that there are approximately 8,000 potential acquisition candidates in North America that meet its current metropolitan acquisition criteria and numerous other candidates outside of North America. The Company plans to continue to aggressively seek to acquire these potential candidates. During the year ended December 31, 1996, the Company sold (net of cancellations) approximately $523,000 of prearranged funeral services compared to approximately $367,000 for the same period in 1995. The obligations are funded through both trust funded and insurance backed contracts. These prearranged funeral services are deferred and will be reflected in funeral revenues in the periods that the funeral services are performed. The current emphasis on sales of prearranged funerals is expected to continue. Funeral costs and expenses were as follows:
YEARS ENDED DECEMBER 31, ------------------------ PERCENTAGE 1996 1995 INCREASE INCREASE ----------- --------- -------- ---------- Existing clusters: United States............................... $ 520,864 $482,497 $ 38,367 8.0% Other European.............................. 104,176 101,327 2,849 2.8 Other foreign*.............................. 65,549 57,650 7,899 13.7 ---------- -------- -------- ---- 690,589 641,474 49,115 7.7 New clusters:** United States............................... 18,431 8,148 10,283 Other European.............................. 24,978 6,986 17,992 Other foreign............................... 10,855 3,396 7,459 France...................................... 466,136 165,778 300,358 ---------- -------- -------- 520,400 184,308 336,092 ---------- -------- -------- ---- Total clusters...................... 1,210,989 825,782 385,207 46.6 Non-cluster and disposed operations........... 9,237 7,582 1,655 Administrative overhead....................... 62,320 37,732 24,588 65.2 ---------- -------- -------- ---- Total funeral costs and expenses.... $1,282,546 $871,096 $411,450 47.2% ========== ======== ======== ====
The total gross profit for existing clusters increased to $359,160 in 1996 from $306,472 in 1995, and the related gross profit percentage for existing clusters increased to 34.2% from 32.3% last year. Acquisitions since the beginning of 1995, included in existing clusters, accounted for $23,980 of the existing gross profit increase. Typically, acquisitions will temporarily exhibit slightly lower gross profit margins than those experienced by the Company's existing locations at least until such time as these locations are assimilated into the Company's 9 11 cluster management strategy. The gross profit margin for those funeral operations in existing clusters that were acquired before 1995 increased to 35.0% in 1996 from 32.7% last year due to the increased revenues discussed above without a corresponding percentage increase in personnel and other operating costs. Contributing to the overall funeral gross profit margin decline (22.9% compared to 25.3% last year) was the Company's French operations. French operations had an increased gross profit margin of 13.2% in 1996, compared to 12.8% in 1995, however 1996 reflects a full years results compared to the four months of ownership in 1995. The French margin is consistent with the Company's expectations for these operations which have historically produced lower gross margins than the Company's operations in North America and Australia. Administrative overhead costs expressed as a percentage of revenues increased in 1996 to 3.7%, compared to 3.2% last year. This administrative overhead cost increase was primarily attributable to the addition of the French operations as well as the Company's realignment of its North American operating structure. This realignment is expected to enhance the clusters' ability to manage increased levels of business. CEMETERY Cemetery revenues were as follows:
YEARS ENDED DECEMBER 31, ------------------------ PERCENTAGE 1996 1995 INCREASE INCREASE ---------- ---------- -------- ---------- Existing clusters: United States................................ $506,330 $395,821 $110,509 27.9% Other European............................... 13,978 11,307 2,671 23.6 Other foreign*............................... 46,485 39,979 6,506 16.3 -------- -------- -------- ---- 566,793 447,107 119,686 26.8 -------- -------- -------- ---- New clusters:** United States................................ 41,221 12,972 28,249 Other European............................... 1,307 796 511 -------- -------- -------- 42,528 13,768 28,760 -------- -------- -------- ---- Total clusters....................... 609,321 460,875 148,446 32.2 Non-cluster and disposed operations............ 3,100 2,879 221 -------- -------- -------- ---- Total cemetery revenues.............. $612,421 $463,754 $148,667 32.1% ======== ======== ======== ====
Revenues for existing clusters increased due to an increased volume of sales and higher average sales prices for property and merchandise. Included in the existing cluster increase were $82,470 in increased revenues from cemeteries acquired since the beginning of 1995. This increase was primarily due to the impact of reporting a full years' results from the Gibraltar acquisition in October 1995 (see note three to the consolidated financial statements). A majority of the Gibraltar properties were additions to existing clusters. The remaining existing cluster revenue increase of $37,216 was contributed by operations acquired before 1995. The Company plans to continue to emphasize the selling of preneed cemetery property and merchandise by maintaining an active and well-trained sales force. Additionally, future growth through acquisitions is considered likely. 10 12 Cemetery costs and expenses were as follows:
YEARS ENDED DECEMBER 31, ------------------------ PERCENTAGE 1996 1995 INCREASE INCREASE ---------- ---------- -------- ---------- Existing clusters: United States................................ $304,732 $246,790 $ 57,942 23.5% Other European............................... 8,404 5,799 2,605 44.9 Other foreign*............................... 25,322 20,227 5,095 25.2 -------- -------- -------- ---- 338,458 272,816 65,642 24.1 New clusters:** United States................................ 24,547 8,581 15,966 Other European............................... 1,181 570 611 -------- -------- -------- 25,728 9,151 16,577 -------- -------- -------- ---- Total clusters....................... 364,186 281,967 82,219 29.2 Non-cluster and disposed operations............ 4,129 3,509 620 Administrative overhead........................ 29,385 17,836 11,549 64.8 -------- -------- -------- ---- Total cemetery costs and expenses.... $397,700 $303,312 $ 94,388 31.1% ======== ======== ======== ====
Costs at existing clusters increased $65,642 due primarily to an increase of $48,846 from cemeteries acquired since the beginning of 1995, while costs from existing cluster cemeteries acquired before 1995 increased $16,796. The overall cemetery gross profit margin increased to 35.1% in 1996 from 34.6% last year. This increase reflects strong growth in sales of preneed cemetery property and merchandise as well as continued cost control in all major expense categories. Administrative overhead costs have increased to 4.8% of revenues this year compared to 3.8% last year. This administrative overhead cost increase was primarily attributable to increased costs from additional infrastructure added in the Company's United Kingdom operations as well as the Company's realignment of its North American operating structure which should enhance the clusters' ability to manage increased levels of business. Acquisitions typically have lower gross profit margins, at least until such time that they are assimilated into the Company's cluster management strategy and preneed selling programs are fully implemented. FINANCIAL SERVICES The Company's wholly-owned finance subsidiary, Provident Services, Inc. ("Provident") increased its gross margin percentage to 48.4% from 43.5%. This was primarily attributable to early termination fees associated with the payoff of outstanding loans in August 1996, by two of Provident's largest customers. These payoffs reduced the average outstanding loan portfolio during the current year to approximately $191,000 with an average interest rate spread of 3.6% compared to approximately $206,000 and 3.7%, respectively, last year. OTHER INCOME AND EXPENSES Expressed as a percentage of revenues, general and administrative expenses were 2.8% in 1996 compared to 3.2% last year. These expenses increased by approximately $9,600 or 17.9% during the year primarily due to the recognition of $6,000 in costs relating to the Loewen transaction (see below) as well as increases in personnel costs. On October 3, 1996, the Company filed a registration statement with the Securities and Exchange Commission ("SEC") with regard to a proposed acquisition of the outstanding shares of Loewen Group Inc. ("Loewen"), a publicly traded death care company, through an exchange offer. On January 7, 1997, the Company announced that it had withdrawn its proposed exchange offer for Loewen. Interest expense, which excludes the amount incurred through financial service operations, increased $20,409 or 17.3% during the current year primarily from incremental borrowings incurred to fund the Company's acquisition program. The 1996 increase is the result of an increase of approximately $296,875 in the Company's average debt (excluding debt related to Provident) outstanding during the year ended 11 13 December 31, 1996, compared to the prior year. The increased interest associated with the higher debt level was offset by a slightly lower average interest rate for the year. The provision for income taxes reflected a 35.9% effective tax rate for 1996 as compared to a 37.6% effective tax rate in the prior year. The decrease in the effective tax rate is due primarily to lower taxes from international operations. RESULTS OF OPERATIONS: Year ended 1995 compared to 1994 Segment information for the Company's three lines of business was as follows:
YEARS ENDED DECEMBER 31, -------------------------------------------- PERCENTAGE 1995 1994 INCREASE INCREASE -------------------- -------------------- -------- ---------- Revenues: Funeral......................... $ 1,166,247 $ 754,408 $411,839 54.6% Cemetery........................ 463,754 343,521 120,233 35.0 Financial services.............. 22,125 19,246 2,879 15.0 ----------- ----------- -------- ---- 1,652,126 1,117,175 534,951 47.9 Costs and expenses: Funeral......................... (871,096) (531,803) 339,293 63.8 Cemetery........................ (303,312) (233,295) 70,017 30.0 Financial services.............. (12,497) (10,882) 1,615 14.8 ----------- ----------- -------- ---- (1,186,905) (775,980) 410,925 53.0 Gross profit margin and percentage: Funeral......................... 295,151 25.3% 222,605 29.5% 72,546 32.6 Cemetery........................ 160,442 34.6% 110,226 32.1% 50,216 45.6 Financial services.............. 9,628 43.5% 8,364 43.5% 1,264 15.1 ----------- ----------- -------- ---- $ 465,221 28.2% $ 341,195 30.5% $124,026 36.4% =========== =========== ========
FUNERAL Funeral revenues were as follows:
YEARS ENDED DECEMBER 31, ------------------------ INCREASE PERCENTAGE 1995 1994 (DECREASE) INCREASE ----------- --------- ---------- ---------- Existing clusters: United States............................... $ 720,608 $633,569 $ 87,039 13.7% Other foreign*.............................. 83,441 68,166 15,275 22.4 ---------- -------- -------- ---- 804,049 701,735 102,314 14.6 New clusters:** United States............................... 20,975 4,450 16,525 Other foreign*.............................. 6,146 1,631 4,515 United Kingdom.............................. 131,523 39,277 92,246 ---------- -------- -------- 158,644 45,358 113,286 ---------- -------- -------- ---- Total clusters...................... 962,693 747,093 215,600 28.9 France and other European..................... 198,018 -- 198,018 Non-cluster and disposed operations........... 5,536 7,315 (1,779) ---------- -------- -------- ---- Total funeral revenues.............. $1,166,247 $754,408 $411,839 54.6% ========== ======== ======== ====
- --------------- * Other foreign primarily includes Australian and Canadian operations. ** Represents new geographic cluster areas entered into since the beginning of 1994 for the period that those businesses were owned by the Company. 12 14 The $102,314 increase in revenues at existing clusters was primarily the result of a 9.7% increase in North American funeral services performed (207,834 compared to 189,481) and a 3.9% higher average sales price ($3,638 compared to $3,501). Included in this increase were $77,434 in increased revenues from locations acquired since the beginning of 1994. The remaining revenue increase of $24,880 was contributed by operations acquired before 1994. The France and other European operations represent approximately four months of Company ownership, while the 1994 United Kingdom operations represent approximately four months of Company ownership. During the year ended December 31, 1995, the Company sold (net of cancellations) approximately $367,000 of prearranged funeral services compared to approximately $245,000 for the same period in 1994. The Company also acquired approximately $508,000 of deferred revenues associated with prearranged funerals in the 1995 French acquisition. Funeral costs and expenses were as follows:
YEARS ENDED DECEMBER 31, ------------------------ INCREASE PERCENTAGE 1995 1994 (DECREASE) INCREASE ---------- ---------- ---------- ---------- Existing clusters: United States................................ $473,991 $413,663 $ 60,328 14.6% Other foreign*............................... 54,227 44,725 9,502 21.2 -------- -------- -------- ---- 528,218 458,388 69,830 15.2 New clusters:** United States................................ 16,292 3,679 12,613 Other foreign*............................... 4,762 1,286 3,476 United Kingdom............................... 101,992 29,909 72,083 -------- -------- -------- 123,046 34,874 88,172 -------- -------- -------- ---- Total clusters....................... 651,264 493,262 158,002 32.0 France and other European...................... 173,437 -- 173,437 Non-cluster and disposed operations............ 8,663 9,733 (1,070) Administrative overhead........................ 37,732 28,808 8,924 31.0 -------- -------- -------- ---- Total funeral costs and expenses..... $871,096 $531,803 $339,293 63.8% ======== ======== ======== ====
The total gross profit for existing clusters increased to $275,831 in 1995 from $243,347 in 1994, while the related gross profit margin percentage for existing clusters declined slightly to 34.3% from 34.7% in 1994. Acquisitions since the beginning of 1994, included in existing clusters, accounted for $19,905 of the existing gross profit increase and were the primary reason for the existing cluster gross profit margin decline. Typically, acquisitions will temporarily exhibit slightly lower gross profit margins than those experienced by the Company's existing locations at least until such time as these locations are assimilated into the Company's cluster management strategy. This was especially noticeable given the large number of acquired operations incorporated into existing clusters in 1995 and 1994. The gross profit margin for those funeral operations in existing clusters that were acquired before 1994 increased to 36.0% in 1995 from 35.5% in 1994 due to the increased revenues discussed above without a corresponding percentage increase in personnel and other operating costs. Contributing to the overall funeral gross profit margin decline (25.3% compared to 29.5% in 1994) were the Company's United Kingdom and French operations. The Company's United Kingdom operations had a gross profit margin of 22.5% for the year ended December 31, 1995, compared to 23.9% in 1994 (four months of ownership). France and other European operations had a gross profit margin of 12.4% in 1995 (four months of ownership). These margins are consistent with the Company's expectations for its European funeral operations which have historically produced lower gross margins than the Company's operations in North America and Australia. Administrative overhead costs expressed as a percentage of revenues declined in 1995 to 3.2%, compared to 3.8% in 1994. 13 15 CEMETERY Cemetery revenues were as follows:
YEARS ENDED DECEMBER 31, ------------------------ PERCENTAGE 1995 1994 INCREASE INCREASE ---------- ---------- -------- ---------- Existing clusters: United States................................ $392,949 $310,211 $ 82,738 26.7% Other foreign*............................... 39,979 27,876 12,103 43.4 -------- -------- -------- ---- 432,928 338,087 94,841 28.1 New clusters:** United States................................ 14,148 -- 14,148 United Kingdom............................... 12,232 3,316 8,916 -------- -------- -------- 26,380 3,316 23,064 -------- -------- -------- ---- Total clusters....................... 459,308 341,403 117,905 34.5 Non-cluster and disposed operations............ 4,446 2,118 2,328 -------- -------- -------- ---- Total cemetery revenues.............. $463,754 $343,521 $120,233 35.0% ======== ======== ======== ====
Revenues for existing clusters increased due to an increased volume of sales and higher average sales prices for property and merchandise. Included in the existing cluster increase were $38,157 in increased revenues from cemeteries acquired since the beginning of 1994. Cemetery costs and expenses were as follows:
YEARS ENDED DECEMBER 31, ------------------------ PERCENTAGE 1995 1994 INCREASE INCREASE ---------- ---------- -------- ---------- Existing clusters: United States.................................. $244,550 $197,189 $47,361 24.0% Other foreign*................................. 20,227 14,107 6,120 43.4 -------- -------- ------- ---- 264,777 211,296 53,481 25.3 New clusters:** United States.................................. 10,438 -- 10,438 United Kingdom................................. 6,517 2,425 4,092 -------- -------- ------- 16,955 2,425 14,530 -------- -------- ------- ---- Total clusters......................... 281,732 213,721 68,011 31.8 Non-cluster and disposed operations.............. 3,744 2,045 1,699 Administrative overhead.......................... 17,836 17,529 307 1.8 -------- -------- ------- ---- Total cemetery costs and expenses...... $303,312 $233,295 $70,017 30.0% ======== ======== ======= ====
Costs at existing clusters increased $53,481 due primarily to an increase of $26,404 from cemeteries acquired since the beginning of 1994, while costs from existing cluster cemeteries acquired before 1994 increased $27,077. The overall cemetery gross profit margin increased to 34.6% in 1995 from 32.1% in 1994. This increase reflects strong growth in sales of preneed cemetery property and merchandise as well as continued cost control in all major expense categories. Administrative overhead costs decreased to 3.8% of revenues in 1995 compared to 5.1% in 1994. 14 16 FINANCIAL SERVICES Provident reported an improved interest rate spread offset by higher administrative expenses. The average outstanding loan portfolio during 1995 was approximately $206,000 with an average interest rate spread of 3.7% compared to approximately $235,000 and 3.4%, respectively, in 1994. OTHER INCOME AND EXPENSES Expressed as a percentage of revenues, general and administrative expenses were 3.2% in 1995 compared to 4.6% in 1994. These expenses increased by $1,900 or 3.7% during the year primarily from corporate transportation and travel costs partially offset by decreased professional fees and other corporate expenses. Interest expense, which excludes the amount incurred through financial service operations, increased $38,025 or 47.5% during 1995 primarily from incremental borrowings incurred to fund the Company's international acquisition program. Of the increase, approximately $27,000 is the result of financings for the United Kingdom acquisition and represents a full year of interest compared to only four months in 1994. Approximately $10,000 of the remaining increase is due to debt related to the French acquisition in late August 1995. The provision for income taxes reflected a 37.6% effective tax rate for 1995 as compared to a 40.2% effective tax rate in 1994. The decrease in the effective tax rate is due primarily to lower taxes from international operations. FINANCIAL CONDITION AND LIQUIDITY AT DECEMBER 31, 1996: GENERAL Historically, the Company has funded its working capital needs and capital expenditures primarily through cash provided by operating activities and borrowings under bank revolving credit agreements and commercial paper. Funding required for the Company's acquisition program has been generated through public and private offerings of debt and the issuance of equity securities supplemented by the Company's revolving credit agreements and additional securities registered with the SEC. The Company believes cash from operations, additional funds available under its revolving credit agreements, proceeds from offerings of securities and the other registered securities will be sufficient to continue its current acquisition program and operating policies. At December 31, 1996, the Company had net working capital of $106,497 and a current ratio of 1.18:1, compared to working capital of $47,850 and a current ratio of 1.08:1 at December 31, 1995. 1996 PUBLIC OFFERINGS In May 1996, the Company issued $300,000 of notes which were sold through an underwritten public offering. These notes were issued in two tranches of $150,000 each with maturities in June 2001 and 2006 and interest rates of 6.75% and 7.20%, respectively. The proceeds of this offering were primarily used to repay existing debt outstanding under the Company's revolving credit agreements. REVOLVING CREDIT AGREEMENTS The Company has various revolving credit facilities and lines of credit which provide for aggregate borrowings of up to $850,000. At December 31, 1996, $544,852 of these facilities and lines was available. INTEREST RATE AND CURRENCY MANAGEMENT The Company uses derivatives primarily in the form of interest rate swaps and cross-currency interest rate swaps in combination with local currency borrowings in order to manage its mix of fixed and floating rate debt and to substantially hedge the Company's net investment in foreign assets. Accordingly, movements in currency rates that impact the swaps are generally offset by a corresponding movement in the value of the underlying assets being hedged and movements in interest rates that impact the fair value of the interest rate 15 17 swaps are generally offset by a corresponding movement in the value of the underlying debt being hedged. Similarly, currency movements that impact foreign interest expense due under the cross-currency interest rate swaps are generally offset by a corresponding movement in the earnings of the foreign operation. In general, interest rates are managed such that 30% to 50% of the total debt (excluding debt which offsets the Provident loan receivable portfolio) is floating rate and thus is sensitive to interest rate fluctuations. After giving effect to the interest rate swaps discussed more fully in note eight to the Company's consolidated financial statements, the Company's total debt has been converted into approximately $1,174,000 of fixed interest rate debt at a weighted average rate of 8.00% and approximately $1,052,000 of floating interest rate debt at a weighted average rate of 5.28%. At December 31, 1996, a one percent increase in the various floating rate indices referenced in the debt and swaps would cause a $10,520 net increase in interest expense. However, the Company's overall sensitivity to floating interest rate fluctuations on amounts owed would be partially mitigated by a corresponding higher interest rate on the receivables issued by Provident (approximately $146,000 in receivables at December 31, 1996). Further interest rate risk is diversified in that approximately 42% of the Company's floating rate exposure is based in four markets other than the United States. In the first quarter of 1997, the Company initiated the repurchase of three issues of its outstanding notes and intends to refinance such repurchased notes in a manner that should reduce future interest expense (see note eighteen to the consolidated financial statements). In general, the Company hedges up to 100% of its net investment in foreign assets when such investment is considered significant and when it is reasonably cost efficient to do so. The death care industries in countries where the Company has foreign operations are generally stable and have had predictable cash flows. In addition, those countries have not had highly inflationary economies. Approximately one-third of the Company's net assets and one-quarter of its operating income are denominated in foreign currencies. Due to the cross-currency hedges described above, only about 10% of the Company's net assets and operating earnings are subject to translation risk. At December 31, 1996 the increase in the "Foreign currency translation adjustment" of $20.6 million, is primarily the result of the U.S. dollar appreciation against the British pound. SOURCES AND USES OF CASH Cash Flows from Operating Activities: Net cash provided by operating activities was $209,857 for the year ended December 31, 1996, compared to $171,498 for the same period in 1995, an increase of $38,359. This increase was primarily due to improved operating results in 1996. Significant uses of operating cash include an increase in net receivables resulting from increased sales of funeral services and cemetery products and merchandise. Cash Flows from Investing Activities: Net cash used in investing activities was $480,126 for the year ended December 31, 1996, compared to $925,135 for the same period in 1995, a decrease of $445,009. This decrease was primarily due to a $414,307 decrease in cash used in acquisitions. The difference primarily relates to the significant French acquisition during 1995. Additionally the Company received approximately $126,000 in early principal payments on loans issued by Provident from two of its largest customers during 1996. These were partially offset by increased capital expenditures including new construction of facilities and major improvements to existing properties which continue to require significant amounts of cash. Cash used for capital expenditures was $193,152 during the year ended December 31, 1996. Additionally, cash used relating to prearranged funeral activities increased due to the timing of cash payments to and withdrawals from trusts as well as increased cash outlays on marketing efforts. Cash Flows from Financing Activities: Net cash provided by financing activities was $256,916 for the year ended December 31, 1996, compared to $592,780 for the same period in 1995, a decrease of $335,864. The decrease in 1996 compared to 1995 is mainly due to the significant French acquisition in 1995 for which the Company raised equity (approximately $313,000) as well as debt. The Company believes that debt service has no adverse effect on its operations or financing activities at the current levels of debt outstanding. As of December 31, 1996, the Company's debt to capitalization ratio was 47.3% compared to 46.1% at December 31, 1995. The interest rate coverage ratio for the year ended 16 18 December 31, 1996 was 3.62:1, compared to 3.11:1 for the same period in 1995. This interest rate coverage level has been relatively consistent, despite higher levels of debt outstanding, for several years. The Company believes that the acquisition of funeral and cemetery operations funded with debt or Company common stock is a prudent business strategy given the stable cash flow generated and the low failure rate exhibited by these types of businesses. The Company believes these acquired firms are capable of servicing the additional debt and providing a sufficient return on the Company's investment. The Company expects adequate sources of funds to be available to finance its future operations and acquisitions through internally generated funds, borrowings under credit facilities and the issuance of securities. At December 31, 1996, the Company had approximately $544,852 of available borrowings under its revolving credit facilities. In addition, as of December 31, 1996, the Company had the ability to issue $1,000,000 in securities registered with the SEC under a shelf registration as well as 19,338,000 shares of common stock and a total of $222,378 of guaranteed promissory notes and convertible debentures registered with the SEC under a separate shelf registration to be used exclusively for future acquisitions. PREARRANGED FUNERAL SERVICES The Company has a marketing program to sell prearranged funeral contracts and the funds collected are generally held in trust or are used to purchase a life insurance or annuity contract. The principal amount of these prearranged funeral contracts will be received in cash by a Company funeral service location at the time the funeral is performed. Earnings on trust funds and increasing benefits under insurance funded contracts also increase the amount of cash to be received upon performance of the funeral and are intended to cover future increases in the cost of providing a price guaranteed funeral service as well as any selling costs. The Company has recently completed a review of the prearranged trust investment process which included an asset/liability study. This has resulted in a new investment program which entails the consolidation of multiple trustees, the use of institutional managers with differing investing styles and consolidated performance monitoring and tracking. This new program targets a real return in excess of the amount necessary to cover future increases in the cost of providing a price guaranteed funeral service as well as any selling costs. This is accomplished by allocating the portfolio mix to the appropriate investments that more accurately match the anticipated maturity of the policies. This has resulted in a new asset allocation policy of approximately 65% equity and 35% fixed income which the Company intends to implement in the first half of 1997. Marketing costs incurred with the sale of prearranged funeral contracts are a current use of cash which is partially offset with cash retained, pursuant to state laws, from amounts trusted and certain commissions earned by the Company for sales of insurance products issued by third party insurers. The Company sells prearranged funerals in most of its service markets including its foreign markets. Auxia, the Company's French life insurance subsidiary, primarily sells insurance products used to fund prearranged funerals to be performed at the Company's French funeral service locations. Prearranged funeral service sales afford the Company the opportunity to both protect current market share and mix as well as expand market share in certain markets. The Company believes this adds stability to the funeral service industry and will stimulate future revenue growth. Prearranged funeral services fulfilled as a percent of the total North American funerals performed annually approximates 22% and is expected to grow, thereby making the total number of funerals performed more predictable. CREMATIONS In recent years there has been steady, gradual growth in the number of cremations that have been chosen as an alternative to traditional methods of disposal of human remains. In 1996, nearly 33% of all families served by the Company's North American funeral service locations selected the cremation alternative, substantially more than the 20% national average according to industry studies. The Company has a significant number of operating locations in Florida and the west coast of North America where the cremation alternative continues to gain acceptance. Based on industry studies, the Company believes that cremations account for approximately 60-70% of all dispositions of human remains in Australia and the United Kingdom. It is estimated that cremations account for approximately 12% of all dispositions of human remains in France. Though a cremation typically results in less sales dollars than a traditional funeral service, the Company 17 19 believes that funeral operations which are predominantly cremation businesses typically have higher gross profit margin percentages than those exhibited at traditional funeral operations. Cremation memorialization has long been a tradition in the Australian and United Kingdom markets. The Company has expanded its product alternatives in these markets which has resulted in higher average sales. The Company has also established markets in select areas within North America and believes that memorialization of cremated remains represents a source of revenue growth. OTHER MATTERS The Company will adopt Statement of Financial Accounting Standards No. 125 "Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities" ("FAS 125"), which was amended by FAS 127, in January 1997. The Company will adopt FAS 128 "Earnings Per Share" and FAS 129 "Disclosures of Information About Capital Structure" for the year ended December 31, 1997. The Company does not anticipate that the adoption of these standards will have a material impact on the consolidated financial statements. See note sixteen to the consolidated financial statements. 18 20 ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA. INDEX TO FINANCIAL STATEMENTS AND RELATED SCHEDULE
PAGE ---- Report of Independent Accountants........................... 20 Consolidated Statement of Income for the three years ended December 31, 1996......................................... 21 Consolidated Balance Sheet as of December 31, 1996 and 1995...................................................... 22 Consolidated Statement of Cash Flows for the three years ended December 31, 1996................................... 23 Consolidated Statement of Stockholders' Equity for the three years ended December 31, 1996............................. 24 Notes to Consolidated Financial Statements.................. 25 Financial Statement Schedule: II -- Valuation and Qualifying Accounts..................... 49
All other schedules have been omitted because the required information is not applicable or is not present in amounts sufficient to require submission or because the information required is included in the consolidated financial statements or the related notes thereto. 19 21 REPORT OF INDEPENDENT ACCOUNTANTS To the Stockholders and Board of Directors of Service Corporation International We have audited the accompanying consolidated balance sheet of Service Corporation International as of December 31, 1996 and 1995, and the related consolidated statements of income, stockholders' equity and cash flows for each of the three years in the period ended December 31, 1996. We have also audited the financial statement schedule for the three years ended December 31, 1996, listed in the index at item 8 of this Form 10-K. These financial statements and the financial statement schedule are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Service Corporation International as of December 31, 1996 and 1995, and the consolidated results of their operations and their cash flows for each of the three years in the period ended December 31, 1996, in conformity with generally accepted accounting principles. In addition, in our opinion, the financial statement schedule referred to above, when considered in relation to the basic financial statements taken as a whole, presents fairly, in all material respects, the information required to be included therein. COOPERS & LYBRAND L.L.P. Houston, Texas March 21, 1997 20 22 SERVICE CORPORATION INTERNATIONAL CONSOLIDATED STATEMENT OF INCOME
YEARS ENDED DECEMBER 31, ----------------------------------------- 1996 1995 1994 ----------- ----------- ----------- (DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) Revenues........................................... $ 2,294,194 $ 1,652,126 $ 1,117,175 Costs and expenses................................. (1,689,742) (1,186,905) (775,980) ----------- ----------- ----------- Gross profit....................................... 604,452 465,221 341,195 General and administrative expenses................ (63,215) (53,600) (51,700) ----------- ----------- ----------- Income from operations............................. 541,237 411,621 289,495 Interest expense................................... (138,557) (118,148) (80,123) Dividends on preferred securities of SCI Finance LLC.............................................. (10,781) (10,781) (539) Other income....................................... 21,982 11,519 10,188 ----------- ----------- ----------- (127,356) (117,410) (70,474) ----------- ----------- ----------- Income before income taxes......................... 413,881 294,211 219,021 Provision for income taxes......................... (148,583) (110,623) (87,976) ----------- ----------- ----------- Net income......................................... $ 265,298 $ 183,588 $ 131,045 =========== =========== =========== Earnings per share: Primary.......................................... $ 1.10 $ .90 $ .75 =========== =========== =========== Fully diluted.................................... $ 1.07 $ .85 $ .72 =========== =========== =========== Weighted average number of shares and equivalents...................................... 241,178 204,148 173,852 =========== =========== ===========
(All common stock and per share data has been restated for a two-for-one common stock split on August 30, 1996) (See notes to consolidated financial statements) 21 23 SERVICE CORPORATION INTERNATIONAL CONSOLIDATED BALANCE SHEET ASSETS
DECEMBER 31, ------------------------- 1996 1995 ---------- ---------- (DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) Current assets: Cash and cash equivalents................................. $ 44,131 $ 57,484 Receivables, net of allowances............................ 494,576 448,941 Inventories............................................... 139,019 120,805 Other..................................................... 36,314 32,371 ---------- ---------- Total current assets.............................. 714,040 659,601 ---------- ---------- Investments -- insurance subsidiary......................... 601,565 557,335 Prearranged funeral contracts............................... 2,159,348 1,811,597 Long-term receivables....................................... 809,287 762,891 Cemetery property, at cost.................................. 1,380,213 1,162,556 Property, plant and equipment, at cost (net)................ 1,457,075 1,273,722 Deferred charges and other assets........................... 371,608 292,470 Names and reputations (net)................................. 1,376,634 1,152,215 ---------- ---------- $8,869,770 $7,672,387 ========== ========== LIABILITIES & STOCKHOLDERS' EQUITY Current liabilities: Accounts payable and accrued liabilities.................. $ 440,797 $ 420,940 Current maturities of long-term debt...................... 113,876 122,237 Income taxes.............................................. 52,870 68,574 ---------- ---------- Total current liabilities......................... 607,543 611,751 ---------- ---------- Long-term debt.............................................. 2,048,737 1,712,464 Deferred income taxes....................................... 527,460 437,840 Other liabilities........................................... 552,443 400,434 Deferred prearranged funeral contract revenues.............. 2,725,770 2,362,053 Commitments and contingencies............................... -- -- Company obligated, mandatorily redeemable, convertible preferred securities of SCI Finance LLC, whose principal asset is a 6.25%, $216,315 note from the Company.......... 172,500 172,500 Stockholders' equity: Common stock, $1 per share par value, 500,000,000 shares authorized, 236,193,427 and 234,542,172, respectively, issued and outstanding................................. 236,193 234,542 Capital in excess of par value............................ 1,237,783 1,214,708 Retained earnings......................................... 728,108 518,562 Foreign currency translation adjustment................... 22,315 1,747 Unrealized gain on securities available for sale, net of tax.................................................... 10,918 5,786 ---------- ---------- Total stockholders' equity.................................. 2,235,317 1,975,345 ---------- ---------- $8,869,770 $7,672,387 ========== ==========
(All common stock data has been restated for a two-for-one common stock split on August 30, 1996) (See notes to consolidated financial statements) 22 24 SERVICE CORPORATION INTERNATIONAL CONSOLIDATED STATEMENT OF CASH FLOWS
YEARS ENDED DECEMBER 31, ----------------------------------------- 1996 1995 1994 ----------- ----------- ----------- (DOLLARS IN THOUSANDS) Cash flows from operating activities: Net income........................................ $ 265,298 $ 183,588 $ 131,045 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization.................. 129,819 92,541 68,993 Provision for deferred income taxes............ 56,902 45,164 27,490 Gains from dispositions (net).................. (9,930) (1,024) (2,143) Change in assets and liabilities net of effects from acquisitions: (Increase) in receivables.................... (167,338) (115,888) (103,935) (Increase) in other assets................... (36,781) (36,496) (35,983) Increase (decrease) in other liabilities..... (26,365) 7,473 27,606 Other........................................ (1,748) (3,860) (159) ----------- ----------- ----------- Net cash provided by operating activities........... 209,857 171,498 112,914 ----------- ----------- ----------- Cash flows from investing activities: Capital expenditures.............................. (193,152) (125,231) (81,090) Changes in prearranged funeral balances........... (86,291) (80,794) 49,530 Proceeds from sales of property and equipment..... 30,121 12,655 13,294 Acquisitions, net of cash acquired................ (279,320) (693,627) (711,357) Loans issued by finance subsidiary................ (86,858) (38,184) (48,320) Principal payments received on loans by finance subsidiary..................................... 156,064 24,312 76,288 Change in investments and other................... (20,690) (24,266) (5,042) ----------- ----------- ----------- Net cash used in investing activities............... (480,126) (925,135) (706,697) ----------- ----------- ----------- Cash flows from financing activities: Increase (decrease) in borrowings under revolving credit agreements.............................. 96,441 (453,959) 295,570 Long-term debt issued............................. 300,000 862,848 200,000 Payment of debt................................... (109,458) (135,960) (31,896) Convertible preferred shares of SCI Finance LLC issued......................................... -- -- 172,500 Common stock issued............................... -- 331,063 189,726 Dividends paid.................................... (55,262) (43,676) (36,013) Bank overdrafts and other......................... 25,195 32,464 1,415 ----------- ----------- ----------- Net cash provided by financing activities........... 256,916 592,780 791,302 ----------- ----------- ----------- Net increase (decrease) in cash and cash equivalents....................................... (13,353) (160,857) 197,519 Cash and cash equivalents at beginning of period.... 57,484 218,341 20,822 ----------- ----------- ----------- Cash and cash equivalents at end of period.......... $ 44,131 $ 57,484 $ 218,341 =========== =========== ===========
(See notes to consolidated financial statements) 23 25 SERVICE CORPORATION INTERNATIONAL CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
CAPITAL IN FOREIGN UNREALIZED COMMON EXCESS OF RETAINED CURRENCY GAIN ON STOCK PAR VALUE EARNINGS TRANSLATION SECURITIES ------------------ --------------- ------------ ------------ ------------- (DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) Balance at December 31, 1993......... $ 169,718 $ 433,043 $ 284,879 $ (3,127) $ -- Add (deduct): Net income......................... 131,045 Retirement of common stock......... (64) (741) Common stock issued: Common stock offering........... 15,400 174,326 Stock option exercises and stock grants........................ 452 3,449 Acquisitions.................... 4,066 5,425 2,729 Debenture conversion............ 142 1,151 Dividends on common stock ($.21 per share).......................... (37,144) Foreign currency translation....... 4,525 Gain on sale of subsidiary stock and other....................... 7,348 ---------- ---------- ---------- ---------- ---------- Balance at December 31, 1994......... 189,714 624,001 381,509 1,398 -- Add (deduct): Net income......................... 183,588 Common stock issued: Common stock offerings.......... 18,350 312,713 Stock option exercises and stock grants........................ 696 5,792 Acquisitions.................... 7,310 101,967 Debenture conversions........... 18,472 170,235 Dividends on common stock ($.22 per share).......................... (46,535) Foreign currency translation....... 349 Unrealized gain on securities...... 5,786 ---------- ---------- ---------- ---------- ---------- Balance at December 31, 1995......... 234,542 1,214,708 518,562 1,747 5,786 Add (deduct): Net income......................... 265,298 Common Stock issued: Stock option exercises and stock grants........................ 723 6,940 Acquisitions.................... 811 15,012 796 Debenture conversions........... 117 1,123 Dividends on common stock ($.24 per share).......................... (56,548) Foreign currency translation....... 20,568 Unrealized gain on securities...... 5,132 ---------- ---------- ---------- ---------- ---------- Balance at December 31, 1996......... $ 236,193 $1,237,783 $ 728,108 $ 22,315 $ 10,918 ========== ========== ========== ========== ==========
(All common stock and per share data has been restated for a two-for-one common stock split on August 30, 1996) (See notes to consolidated financial statements) 24 26 SERVICE CORPORATION INTERNATIONAL NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) NOTE ONE NATURE OF OPERATIONS The Company is the largest provider of death care services in the world. At December 31, 1996, the Company operated 2,882 funeral service locations, 345 cemeteries and 150 crematoria located in North America, Europe and the Pacific Rim. The funeral service locations and cemetery operations consist of the Company's funeral homes, cemeteries, crematoria and related businesses. Company personnel at the funeral service locations provide all professional services relating to funerals, including the use of funeral facilities and motor vehicles. Funeral related merchandise is sold at funeral service locations and certain funeral service locations contain crematoria. The Company sells prearranged funeral services whereby a customer contractually agrees to the terms of a funeral to be performed in the future. The Company's cemeteries provide cemetery interment rights (including mausoleum spaces and lawn crypts) and certain merchandise including stone and bronze memorials and burial vaults. These items are sold on an at need or preneed basis. Company personnel at cemeteries perform interment services and provide management and maintenance of cemetery grounds. Certain cemeteries also operate crematoria. The Company's financial services operations consist of a finance subsidiary, Provident Services, Inc. ("Provident"). Provident provides capital financing to independent funeral home and cemetery operators. NOTE TWO SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Principles of Consolidation: The consolidated financial statements include the accounts of Service Corporation International and all majority-owned subsidiaries (the "Company"). Intercompany balances and transactions have been eliminated in consolidation. Certain reclassifications have been made to prior years to conform to current period presentation. Cash Equivalents: The Company considers all highly liquid investments purchased with an original maturity of three months or less to be cash equivalents. Inventories and Cemetery Property: Funeral merchandise and cemetery property and merchandise, are stated at the lower of average cost or market. Depreciation and Amortization: Depreciation of property, plant and equipment is provided using the straight line method over the estimated useful lives of the various classes of assets. Property and plant are depreciated over a period ranging from seven to 50 years, while equipment is depreciated over a period from three to 20 years. For the three years ended December 31, 1996, depreciation expense was $74,854, $52,828 and $35,546, respectively. Maintenance and repairs are charged to expense whereas renewals and major replacements are capitalized. Prepaid management, consultative and non-competition agreements, primarily with former owners and key employees of businesses acquired are amortized on a straight-line basis over the lives of the respective contracts. Funeral Operations: Funeral revenue is recognized when the funeral service is performed. The Company's trade receivables consist primarily of funeral services already performed. An allowance for doubtful accounts has been provided based on historical experience. The Company sells price guaranteed prearranged funeral contracts through various programs providing for future funeral services at prices prevailing when the agreement is signed. Revenues associated with sales of prearranged funeral contracts (which include accumulated trust earnings and increasing insurance benefits) are deferred and later recognized when the funeral service is performed. The Company considers price 25 27 SERVICE CORPORATION INTERNATIONAL NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) guaranteed prearranged funeral contracts to be investments made to retain and expand future market share. Accordingly, cash flows related to price guaranteed prearranged funeral contracts that have not been performed have been reclassified from cash flows from operating activities to cash flows from investing activities. For comparative purposes, reclassification was made to the 1995 and 1994 consolidated statement of cash flows. Cemetery Operations: All cemetery interment right sales, together with associated merchandise, are recorded to income at the time contracts are signed. Costs related to the sales of interment rights include property and other costs related to cemetery development activities which are charged to operations using the specific identification method. Allowances for customer cancellations are provided at the date of sale based upon historical experience. Costs related to merchandise are based on actual costs incurred or estimates of future costs necessary to purchase the merchandise, including provisions for inflation when required. Pursuant to state law, all or a portion of the proceeds from the sale of cemetery merchandise may also be required to be paid into trust funds until such merchandise is purchased by the Company for the customer. Merchandise funds trusted at December 31, 1996 and 1995 were $390,534 and $330,470 (see note five). The Company recognizes realized trust income on these merchandise trusts in current cemetery revenues as trust earnings accrue to defray inflation costs recognized related to the unpurchased cemetery merchandise. Additionally, a portion of the proceeds from the sale of cemetery property is required by state law to be paid into perpetual care trust funds. Earnings from these trusts are recognized in current cemetery revenues and are intended to defray cemetery maintenance costs. Perpetual care funds trusted at December 31, 1996 and 1995 were $318,868 and $242,449, respectively, which approximates fair value. The principal of such perpetual care trust funds generally cannot be withdrawn by the Company and therefore is not included in the consolidated balance sheet. For the three years ended December 31, 1996, the earnings recognized from all cemetery trusts were $51,601, $33,795 and $24,456, respectively. Names and Reputations: The excess of purchase price over the fair value of identifiable net assets acquired in transactions accounted for as a purchase are included in "Names and reputations" and generally amortized on a straight line basis over 40 years which, in the opinion of management, is not necessarily the maximum period benefited. Fair values determined at the date of acquisition are determined by management or independent appraisals. Many of the Company's acquired funeral service locations have been providing high quality service to client families for many years. Such loyalty often forms the basic valuation of the funeral business. Additionally, the death care industry has historically exhibited stable cash flows as well as a low failure rate. The Company monitors the recoverability of names and reputations based on projections of future undiscounted cash flows of the acquired businesses. The amortization charged against income was $33,836, $25,226 and $15,495 for the three years ended December 31, 1996, respectively. Accumulated amortization of names and reputations as of December 31, 1996 and 1995 was $101,426 and $77,855, respectively. Evaluation of Long-Lived Assets: Effective January 1, 1996, the Company adopted Statement of Financial Accounting Standards No. 121 "Accounting for the Impairment of Long-Lived Assets and for Assets to be Disposed Of" (FAS 121). FAS 121 requires the Company to monitor the recoverability of its long-lived assets on an ongoing basis as events or circumstances indicate that carrying values may not be recoverable. Adoption of FAS 121 did not have a material effect on the Company's financial position or results of operations. In accordance with FAS 121, assets are primarily grouped at the cluster level. Derivatives: Amounts to be paid or received under interest rate swaps, including the interest rate provisions of the cross-currency swaps, are recorded on the accrual basis over the life of the swap agreements as an adjustment to interest expense. The related net amounts payable to, or receivable from, the counterparties are included in accrued liabilities or current receivables, respectively. Gains and losses resulting from currency movements on the cross-currency swaps that hedge the Company's net foreign investments are reflected in stockholders' equity, with the related net amounts due to, or from, the counterparties included in other liabilities, or other assets, respectively. Net deferred gains and losses on early termination of interest rate 26 28 SERVICE CORPORATION INTERNATIONAL NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) swaps are being amortized into interest expense over the remaining lives of the original agreements ($1,808 net unamortized loss at December 31, 1996). 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 those estimates. NOTE THREE ACQUISITIONS In August 1995, the Company acquired two French companies, Omnium de Gestion et de Financement S.A. and Pompes Funebres Generales S.A. ("OGF/PFG"), which when combined operated 1,099 funeral service locations, 28 crematoria and Auxia which primarily sells insurance policies in connection with OGF/PFG's prearranged funeral business throughout France and several other countries. The total purchase price for OGF/PFG was approximately $577,000. Permanent financing was provided by issuances of notes and Company common stock in October 1995 (see note twelve). OGF/PFG was accounted for as a purchase and the results of operations have been consolidated with the Company's since August 1995. In October 1995, the Company purchased Gibraltar Mausoleum Corporation which operated 23 funeral service locations and 54 cemeteries in the United States. The purchase price of approximately $267,000 was financed through the issuance of securities under the Company's acquisition shelf registration and borrowings under the Company's revolving credit facilities. In addition to the acquisitions disclosed above, the Company acquired certain other funeral and cemetery operations both domestically and internationally during the years ended December 31, 1996 and 1995. The operating results of all of these acquisitions have been included since their respective dates of acquisitions. The following table is a summary of the above acquisitions made during the two years ended December 31, 1996:
1996 1995 -------- ---------- Number acquired: Funeral service locations................................. 210 1,263 Cemeteries................................................ 35 99 Crematoria................................................ 9 30 Purchase price.............................................. $362,651 $1,145,777
The purchase price in both years consisted primarily of combinations of cash, Company common stock, issued and assumed debt and the retirement of loans receivable issued by Provident. In addition, on September 5, 1995, the Company acquired the shares of Service Corporation International (Canada) Limited ("SCIC") not already owned by the Company which made SCIC (formerly an approximate 70% owned subsidiary) a wholly owned subsidiary of the Company. The purchase price of approximately $62,578 was financed through the issuance of a 6.95% amortizing note in December 1995. 27 29 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:
1996 1995 -------- --------- Current assets.............................................. $ 30,542 $ 171,431 Investments-insurance subsidiary............................ -- 541,784 Prearranged funeral contracts............................... 61,994 132,158 Long-term receivables....................................... (10,559) 155,013 Cemetery property........................................... 210,507 423,852 Property, plant and equipment............................... 93,482 379,616 Deferred charges and other assets........................... (1,244) 42,949 Names and reputations....................................... 164,414 363,506 Current liabilities......................................... (62,817) (320,158) Long-term debt.............................................. (32,532) (89,724) Deferred income taxes and other liabilities................. (85,635) (341,070) Deferred prearranged funeral contract revenues.............. (72,213) (656,453) Stockholders' equity........................................ (16,619) (109,277) -------- --------- Cash used for acquisitions........................ $279,320 $ 693,627 ======== =========
The following unaudited pro forma information assumes that the acquisition by the Company of all operations acquired during the years ended December 31, 1996 and 1995 took place on January 1, 1995 (1,473 funeral service locations, 134 cemeteries and 39 crematoria acquired in 208 separate transactions). This information also assumes that the October 1995 public offerings of notes and Company common stock (disclosed in note twelve) were issued at the beginning of 1995. The net proceeds of the October 1995 public offerings were first applied toward the purchase price of OGF/PFG, with the excess net proceeds used to repay amounts outstanding under the Company's existing revolving credit facilities. This unaudited pro forma information may not be indicative of results that would have actually resulted if these transactions had occurred on the dates indicated or which may be obtained in the future.
YEARS ENDED DECEMBER 31, ------------------------ 1996 1995 ---------- ---------- (UNAUDITED) Revenues.................................................... $2,358,704 $2,263,992 ========== ========== Net income.................................................. $ 265,341 $ 204,713 ========== ========== Primary earnings per share.................................. $ 1.10 $ .90 ========== ========== Fully diluted earnings per share............................ $ 1.07 $ .85 ========== ==========
NOTE FOUR PREARRANGED FUNERAL ACCOUNTING The Company sells price guaranteed prearranged funeral contracts through various programs providing for future funeral services at prices prevailing when the agreement is signed. Payments under these contracts are generally placed in trust (pursuant to state law) or are used to pay premiums on life insurance policies issued by third party insurers in North America, the United Kingdom and Australia or the Company's French prearranged funeral service life insurance subsidiary ("Auxia") which was acquired in the 1995 French acquisition (see note three). Unperformed price guaranteed prearranged funeral contracts are included in the consolidated balance sheet as "prearranged funeral contracts" or, in the case of contracts funded by Auxia, "investments-insurance subsidiary." A corresponding credit is recorded to "deferred prearranged funeral 28 30 SERVICE CORPORATION INTERNATIONAL NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) contract revenues." Allowances for customer cancellations are provided at the date of sale based on historical experience. Amounts paid by the customer pursuant to the prearranged funeral contracts are recognized in funeral revenue at the time the funeral is performed. Trust earnings and increasing insurance benefits are accrued and deferred until the service is performed at which time these funds are also recognized in funeral revenues and are intended to cover future increases in the cost of providing a price guaranteed funeral service. Included in deferred prearranged funeral contract revenues are net obtaining costs, including sales commissions and certain other direct marketing costs, applicable to prearranged funeral contracts which are deferred and will be expensed over a period representing the actuarially determined average life of the prearranged contract. PREARRANGED FUNERAL CONTRACTS At December 31, 1996, $962,389 due from trust funded contracts (which includes $235,433 of amounts that have not yet been collected from customers) and $1,196,959 due from third party insurance funded contracts will be available to the Company at the time the funeral services are performed. These amounts are shown net of estimated customer cancellations. The allowance for cancellation is based on historical experience and is equivalent to approximately 8% of the total balance. Accumulated realized earnings from trust funds and increasing insurance benefits have been included to the extent that they have accrued through December 31, 1996. The cumulative total has been reduced by allowable cash withdrawals for realized trust earnings and amounts retained by the Company pursuant to various state laws. The cost and market value associated with the assets held in the trust funds underlying the Company's prearranged funeral contracts are as follows:
DECEMBER 31, 1996 DECEMBER 31, 1995 -------------------- -------------------- COST MARKET COST MARKET -------- -------- -------- -------- Debt securities: Government................................... $245,736 $259,910 $ 94,645 $106,927 Corporate.................................... 121,887 122,322 259,907 265,864 Equity securities.............................. 164,630 208,082 173,500 191,773 Money market/other............................. 274,949 275,581 190,448 190,813 -------- -------- -------- -------- $807,202 $865,895 $718,500 $755,377 ======== ======== ======== ========
Investments -- Insurance subsidiary As part of the Company's funding of prearranged funeral contracts, Auxia invests in securities which are considered as "available-for-sale" in accordance with the classification of investments defined in Statement of Financial Accounting Standards No. 115, "Accounting for Certain Investments in Debt and Equity Securities." These securities are reported at fair value, with unrealized gains and losses excluded from earnings and reported net of income taxes in stockholders' equity. 29 31 SERVICE CORPORATION INTERNATIONAL NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) The cost, market value and unrealized gains or losses related to Auxia's and certain other European debt and equity securities were as follows:
DECEMBER 31, 1996 DECEMBER 31, 1995 --------------------------------- --------------------------------- UNREALIZED UNREALIZED GAINS COST MARKET GAINS COST MARKET (LOSSES) -------- -------- ---------- -------- -------- ---------- Debt securities: Foreign government.... $220,256 $236,443 $16,187 $171,480 $179,840 $ 8,360 Corporate............. 210,235 210,428 193 123,156 123,564 408 Equity securities....... 96,157 96,735 578 69,734 67,695 (2,039) Mutual funds: Money market/other.... 27,749 27,942 193 113,743 115,947 2,204 Debt.................. 61,471 61,471 -- 41,800 42,003 203 -------- -------- ------- -------- -------- ------- $615,868 $633,019 $17,151 $519,913 $529,049 $ 9,136 ======== ======== ======= ======== ======== =======
At December 31, 1996, gross unrealized gains were $22,932 and gross unrealized losses were $5,781. The contractual maturities of Auxia's debt securities (at fair value) as of December 31, 1996, were as follows: Within one year............................................. $ 69,564 After one year through five years........................... 240,875 After five years through ten years.......................... 107,334 After ten years............................................. 29,098 -------- $446,871 ========
The following table summarizes the activity in prearranged funeral contracts and investments -- insurance subsidiary during the years ended December 31, 1996 and 1995:
1996 1995 ---------- ---------- Beginning balance.......................................... $2,368,932 $1,418,104 Net sales................................................ 513,882 358,103 Acquisitions............................................. 61,994 673,942 Realized earnings and increasing insurance benefits...... 111,950 60,502 Maturities............................................... (249,705) (148,241) Increase in cancellation reserve......................... (36,694) (38,132) Distributed earnings and other........................... (9,446) 44,654 ---------- ---------- Ending balance............................................. $2,760,913 $2,368,932 ========== ==========
Deferred Prearranged Funeral Contract Revenues "Deferred prearranged funeral contract revenues" on the consolidated balance sheet includes the contract amount of all price guaranteed prearranged funeral service contracts as well as the accrued trust earnings and increasing insurance benefits. Also included in deferred prearranged funeral contract revenues are net obtaining costs applicable to prearranged funeral contracts. The aggregate net costs deferred as of December 31, 1996 and 1995 were $151,008 and $96,595, respectively. The Company will continue to defer additional accruals of trust earnings and insurance benefits as they are earned until the performance of the funeral service. Upon performance of the funeral service, the Company will recognize the fixed contract price as well as total accumulated trust earnings and increasing insurance benefits as funeral revenues. 30 32 SERVICE CORPORATION INTERNATIONAL NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) The following table summarized the activity in deferred prearranged funeral contract revenues during the years ended December 31, 1996 and 1995:
1996 1995 ---------- ---------- Beginning balance.......................................... $2,362,053 $1,519,582 Net sales................................................ 523,229 366,835 Acquisitions............................................. 72,213 656,453 Realized earnings and increasing insurance benefits...... 111,950 60,502 Maturities............................................... (252,603) (150,382) Increase in cancellation reserve......................... (36,694) (38,132) Net deferred obtaining costs............................. (61,421) (43,663) Other.................................................... 7,043 (9,142) ---------- ---------- Ending balance............................................. $2,725,770 $2,362,053 ========== ==========
The recognition of future funeral revenues is estimated to occur in the following years based on actuarial assumptions as follows: 1997........................................................ $ 239,145 1998........................................................ 208,534 1999........................................................ 192,264 2000........................................................ 178,823 2001........................................................ 166,037 2002 through 2006........................................... 680,850 2007 and thereafter......................................... 1,060,117 ---------- $2,725,770 ==========
NOTE FIVE CEMETERY MERCHANDISE TRUST FUNDS The cost and market value associated with the assets held in the cemetery merchandise trust funds (included in current and long-term receivables, at cost) were as follows:
DECEMBER 31, 1996 DECEMBER 31, 1995 -------------------- -------------------- COST MARKET COST MARKET -------- -------- -------- -------- Debt securities: Government................................... $ 72,394 $ 72,101 $ 24,910 $ 25,244 Corporate.................................... 35,060 34,560 136,730 139,343 Equity securities.............................. 71,239 75,297 85,117 91,428 Money market/other............................. 211,841 211,896 83,713 83,800 -------- -------- -------- -------- $390,534 $393,854 $330,470 $339,815 ======== ======== ======== ========
31 33 SERVICE CORPORATION INTERNATIONAL NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) NOTE SIX INCOME TAXES The provision for income taxes includes United States income taxes, determined on a consolidated return basis, foreign and state and local income taxes. Income before income taxes:
YEARS ENDED DECEMBER 31, -------------------------------- 1996 1995 1994 -------- -------- -------- United States...................................... $309,431 $257,318 $198,961 Foreign............................................ 104,450 36,893 20,060 -------- -------- -------- $413,881 $294,211 $219,021 ======== ======== ======== Income tax expense (benefit) consisted of the following: Current: United States.................................... $ 65,709 $ 43,396 $ 43,290 Foreign.......................................... 14,158 12,949 9,443 State and local.................................. 11,814 9,114 7,753 -------- -------- -------- 91,681 65,459 60,486 -------- -------- -------- Deferred: United States.................................... 45,330 39,767 25,282 Foreign.......................................... 3,238 (1,498) (219) State and local.................................. 8,334 6,895 2,427 -------- -------- -------- 56,902 45,164 27,490 -------- -------- -------- Total provision.................................... $148,583 $110,623 $ 87,976 ======== ======== ========
The Company made income tax payments of approximately $99,377, $65,859 and $69,555, in 1996, 1995, and 1994, respectively. The differences between the U.S. federal statutory tax rate and the Company's effective rate were as follows:
YEARS ENDED DECEMBER 31, ------------------------------- 1996 1995 1994 -------- -------- ------- Computed tax provision at the applicable U.S. federal statutory income tax rate................. $144,858 $102,974 $76,658 State and local taxes, net of federal income tax benefits.......................................... 13,097 10,406 6,617 Dividends received deduction and tax exempt interest.......................................... (2,108) (1,939) (1,425) Amortization of names and reputations............... 4,765 4,554 3,807 Foreign jurisdiction tax rate difference............ (11,849) (5,309) 2,144 Other............................................... (180) (63) 175 -------- -------- ------- Provision for income taxes........................ $148,583 $110,623 $87,976 ======== ======== ======= Total effective tax rate............................ 35.9% 37.6% 40.2% ======== ======== =======
32 34 SERVICE CORPORATION INTERNATIONAL NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) The tax effects of temporary differences and carry-forwards that give rise to significant portions of deferred tax assets and liabilities consisted of the following:
1996 1995 -------- -------- Receivables, principally due to sales of cemetery interment rights and related products............................... $152,069 $128,755 Inventories and cemetery property, principally due to purchase accounting adjustments........................... 383,687 317,937 Property, plant and equipment, principally due to depreciation and to purchase accounting adjustments....... 110,907 110,755 Other....................................................... -- 5,519 -------- -------- Deferred tax liabilities.................................. 646,663 562,966 -------- -------- Deferred revenue on prearranged funeral contracts, principally due to earnings from trust funds.............. (34,092) (49,889) Accrued liabilities......................................... (38,337) (20,273) Carry-forwards and foreign tax credits...................... (7,484) (10,888) Other....................................................... (4,367) -- -------- -------- Deferred tax assets....................................... (84,280) (81,050) -------- -------- Valuation allowance....................................... 6,128 8,729 -------- -------- Net deferred income taxes................................. $568,511 $490,645 ======== ========
During the three years ended December 31, 1996, tax expense resulting from allocating certain tax benefits directly to capital in excess of par totaled $2,410, $1,165 and $1,223, respectively. Current refundable income taxes and foreign current deferred tax assets are included in other current assets, with current taxes payable and current deferred taxes being reflected as "Income taxes" on the consolidated balance sheet. United States income taxes have not been provided on $153,598 of undistributed earnings of foreign subsidiaries since it is the Company's intention to reinvest such earnings indefinitely. As of December 31, 1996 the Company has United States foreign tax credit carry-forwards of $556 which will expire in the years 1999 through 2001. Various subsidiaries have state operating loss carry-forwards of $45,442 with expiration dates through 2011. The Company believes that some uncertainty exists with respect to future realization of these tax credits and loss carry-forwards, therefore a valuation allowance has been established for the carry-forwards not expected to be realized. The decrease in the valuation allowance is primarily attributable to loss carry-forwards and foreign tax credits that were realized in the current year. 33 35 SERVICE CORPORATION INTERNATIONAL NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) NOTE SEVEN DEBT Debt at December 31, was as follows:
1996 1995 ---------- ---------- Bank revolving credit agreements and commercial paper...... $ 325,875 $ 226,611 6.375% notes due in 2000................................... 150,000 150,000 6.75% notes due in 2001.................................... 150,000 -- 8.72% amortizing notes due in 2002......................... 165,761 178,866 8.375% notes due in 2004................................... 200,000 200,000 7.2% notes due in 2006..................................... 150,000 -- 6.875% notes due in 2007................................... 150,000 150,000 6.95% amortizing notes due in 2010......................... 61,576 63,837 7.875% debentures due in 2013.............................. 150,000 150,000 7.0% notes due in 2015 (putable in 2000)................... 300,000 300,000 Medium term notes, maturities through 2019, fixed average interest rate of 9.6%.................................... 186,040 186,040 Convertible debentures, interest rates range from 5% -- 5.5%, due through 2006, conversion price ranges from $11.25 -- $36.72.................................... 44,140 27,090 Mortgage and other notes payable with maturities through 2013, average interest rate of 7.64%..................... 151,836 221,840 Deferred loan costs........................................ (22,615) (19,583) ---------- ---------- Total debt................................................. 2,162,613 1,834,701 Less current maturities.................................... (113,876) (122,237) ---------- ---------- Total long-term debt............................. $2,048,737 $1,712,464 ========== ==========
The Company's primary revolving credit agreement provides for borrowings up to $800,000. The 364-day portion allows for borrowings up to $450,000, and is used primarily to support commercial paper. The agreement expires June 27, 1997, but has provisions to be extended for 364-day terms. At the end of any term, the outstanding balance may be converted into a two year term loan at the Company's option. Interest rates are based on various indices as determined by the Company. In addition, a facility fee ranging from .06% to .15% is paid quarterly on the total commitment amount. At December 31, 1996, there was $202,571 of commercial paper outstanding backed by this agreement at a weighted average interest rate of 5.57%. These commercial paper borrowings and revolving notes generally have maturities ranging from one to 90 days. In addition, the Company has a multi-currency revolving credit agreement which allows for borrowings of up to $350,000, including up to $75,000 each in United Kingdom Pound Sterling, Canadian Dollar and Australian Dollar. This agreement expires June 30, 2000, but has provisions to extend the termination date each year for 364-day periods. Interest rates are based on various indices as determined by the Company. In addition, a facility fee ranging from .085% to .15% is paid quarterly on the total commitment amount. At December 31, 1996, there was $85,234 outstanding under this agreement at a weighted average interest rate of 5.43%. These credit agreements disclosed above contain financial compliance provisions that contain certain restrictions on levels of net worth, debt, equity, liens, letters of credit and guarantees. The Company's outstanding commercial paper and other borrowings under its various credit facilities at December 31, 1996 are classified as long-term debt. The Company uses these revolving credit agreements primarily to finance the Company's ongoing acquisition programs. From time to time, the Company raises debt and/or equity in the public markets to reduce its revolving credit facility balances. The timing of these public debt or equity offerings is dependent on numerous factors including market conditions, long and short term interest rates, the Company's capitalization ratios and the outstanding balances under the revolving credit facilities. Therefore, the Company has classified these borrowings as long-term debt. Additionally, the 34 36 SERVICE CORPORATION INTERNATIONAL NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) Company has excluded these borrowings from the five-year maturity of long-term debt disclosure due to the uncertainty of the eventual term of the related debt. It is the Company's intent to refinance such borrowings through the use of its credit agreements or other long-term notes issued under the Company's $1,000,000 shelf registration. The Company's French revolving credit agreement allows for borrowings, in French francs, up to $50,000 and expires in August 1997. Interest rates are based on various indices as determined by the Company. In addition, a facility fee of .075% is paid quarterly on the total commitment amount. At December 31, 1996, $17,343 was outstanding under this agreement at a weighted average interest rate of 3.55%. The Company also has a bank line of credit for $100,000 (no borrowings outstanding at December 31, 1996) at rates similar to the primary revolving credit agreements. This line may be withdrawn at any time at the option of the bank. Additionally, the Company has approximately $88,933 in lines of credit with several international banks and at December 31, 1996, $21,454 was outstanding under these international lines of credit. In May 1996, the Company issued $300,000 of notes which were sold through an underwritten public offering. These notes were issued in two tranches of $150,000 each with maturities in June 2001 and 2006 and interest rates of 6.75% and 7.2%, respectively. The proceeds of this offering were primarily used to repay existing debt outstanding under the Company's revolving credit agreements. During the first quarter of 1997, the Company initiated the repurchase of three issues of its outstanding notes and intends to refinance such repurchased notes in a manner that should reduce future interest expense. (See note eighteen to the consolidated financial statements). Approximately $80,000 of the Company's facilities and cemetery properties are pledged as collateral for the mortgage notes at December 31, 1996. Additionally, at December 31, 1996, the Company had $41,738 in letters of credit outstanding primarily to guarantee funding of certain insurance claims. The aggregate principal payments on debt for the five years subsequent to December 31, 1996, excluding amounts due to banks under revolving credit loan agreements are: 1997-$113,876; 1998-$55,217; 1999-$53,243; 2000-$191,843 and 2001-$204,747. Cash interest payments for the three years ended December 31, 1996 totaled $150,961, $111,609 and $77,334, respectively. Approximately $1,386,000 of total debt has essentially been converted to foreign currencies as a result of cross-currency swaps. Similarly, the stated coupons described above have substantially been modified through the use of interest rate and cross-currency interest rate swaps used in the management of interest rates within defined targets for fixed and floating interest rate exposure. See note eight below. During the three months ended December 31, 1996, pursuant to a shelf registration filed with the SEC to be used exclusively for future acquisitions, the Company guaranteed the following promissory notes issued through subsidiaries in connection with various acquisitions of operations:
SUBSIDIARY AMOUNT ---------- -------- SCI Funeral Services of New York, Inc. ..................... $ 60 Hubbard Funeral Home, Inc. ................................. 1,500 SCI Arizona Funeral Services, Inc. ......................... 4,061 SCI Texas Funeral Services, Inc. ........................... 1,150 SCI Iowa Funeral Services, Inc. ............................ 825 Affiliated Family Funeral Services, Inc. ................... 1,846
35 37 SERVICE CORPORATION INTERNATIONAL NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) NOTE EIGHT DERIVATIVES The Company enters into derivatives primarily in the form of interest rate swaps and cross-currency interest rate swaps in order to manage its mix of fixed and floating rate debt and to substantially hedge the Company's net investments in foreign assets. The Company has procedures in place to monitor and control the use of derivatives and enters into transactions only with a limited group of creditworthy financial institutions. The Company does not engage in derivative transactions for speculative or trading purposes, nor is it a party to leveraged derivatives. In general, cross-currency swaps are entered into concurrently with significant foreign acquisitions and convert US dollar debt into the respective foreign currency of the acquisitions. Such cross-currency swaps are used in combination with local currency borrowings to substantially hedge the Company's net investment in foreign operations. The cross-currency swaps generally include interest rate provisions to enable the Company to additionally hedge a portion of the earnings of its foreign operations. Accordingly, movements in currency rates that impact the swap are generally offset by a corresponding movement in the value of the underlying assets being hedged. Similarly, currency movements that impact foreign expense due under the cross-currency interest rate swaps are generally offset by a corresponding movement in the earnings of the foreign operation.
CARRYING WEIGHTED AVERAGE AMOUNT INTEREST RATE NOTIONAL ASSET ----------------- DECEMBER 31, 1996 AMOUNT (LIABILITY) MATURITY RECEIVE PAY ----------------- ---------- ----------- --------- --------- ----- Interest Rate Swaps: US dollar fixed to US dollar floating........ $ 575,000 $ -- 1999-2006 6.37% 5.56% Canadian dollar floating to Canadian dollar fixed..................................... 40,134 -- 1999 2.94 7.57 French franc floating to German mark floating.................................. 94,808 -- 2006 3.50 3.47 Cross-Currency Interest Rate Swaps: US dollar fixed to French franc fixed........ 500,000 24,123 2000-2007 6.20 5.94 US dollar fixed to French franc floating..... 100,000 (599) 2006 7.20 3.74 US dollar fixed to British pound fixed....... 405,109 (40,394) 2002-2004 8.47 7.98 US dollar fixed to British pound floating.... 33,152 (3,477) 2002 8.72 6.56 US dollar floating to British pound floating.................................. 76,375 (4,113) 1997 5.50 6.30 US dollar floating to Australian dollar fixed..................................... 67,568 (10,881) 1999-2000 5.63 7.02 US dollar floating to Australian dollar floating.................................. 29,436 (5,531) 2000 5.63 5.93 US dollar fixed to Canadian dollar fixed..... 75,000 133 1999 6.66 6.64 US dollar fixed to Canadian dollar floating.................................. 100,000 1,089 2010 6.95 3.54 ---------- -------- $2,096,582 $(39,650) ========== ========
CARRYING WEIGHTED AVERAGE AMOUNT INTEREST RATE NOTIONAL ASSET ----------------- DECEMBER 31, 1995 AMOUNT (LIABILITY) MATURITY RECEIVE PAY ----------------- ---------- ----------- --------- --------- ----- Interest Rate Swaps: US dollar fixed to US dollar floating....... $ 75,000 $ -- 1999 5.36% 5.88% Canadian dollar floating to Canadian dollar fixed.................................... 40,310 -- 1999 5.98 7.57 Cross-Currency Interest Rate Swaps: US dollar fixed to French franc fixed....... 300,000 (2,221) 2000-2007 6.75 6.96 US dollar fixed to British pound fixed...... 252,170 753 2002-2004 8.63 9.22 US dollar fixed to British pound floating... 208,728 916 2002-2004 8.35 6.85 US dollar floating to Australian dollar fixed.................................... 67,568 (5,827) 1999-2000 5.56 7.03 US dollar floating to Australian dollar floating................................. 29,436 (3,278) 2000 5.56 7.35 US dollar fixed to Canadian dollar floating................................. 100,000 655 2010 6.95 6.58 ---------- -------- $1,073,212 $ (9,002) ========== ========
36 38 SERVICE CORPORATION INTERNATIONAL NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) During 1996, the Company entered into $200,000 of French Franc and $75,000 of Canadian dollar cross-currency interest rate swaps to further hedge its net investment in related foreign assets on an after-tax basis. In May 1996, a $100,000 French Franc cross-currency swap was executed to maintain the Company's existing hedge of net assets in French operations upon repayment of balances outstanding under the French bridge facility. In March 1996, the Company converted $94,808 of floating French rates to floating German rates and in December 1996, the Company entered into US dollar fixed to floating interest rate swaps on $500,000 notional in connection with its ongoing management of interest rates. Interest rate swap settlements are generally semiannual and match the coupons of the underlying debt or related intercompany loan payments on the foreign operations being hedged. In the cross-currency swaps, the notional amounts are exchangeable in accordance with the terms of the swaps: at maturity for nonamortizing swaps or according to defined amortization tables. Maturities of derivative financial instruments held on December 31, 1996, are as follows: 1997 -- $76,375; 1998 -- $0; 1999 -- $213,548; 2000 -- $323,590; 2001 -- $150,000; and thereafter -- $1,333,069. NOTE NINE CREDIT RISK AND FAIR VALUE OF FINANCIAL INSTRUMENTS The following disclosure of the estimated fair value of financial instruments has been determined by the Company using available market information and appropriate valuation methodologies. The carrying amounts of cash and cash equivalents, trade receivables and accounts payable approximate fair values due to the short-term maturities of these instruments. The carrying value of Provident's receivables approximates fair value as the majority of the loan portfolio carries market rates of interest. It is not practicable to estimate the fair value of receivables due on cemetery contracts or prearranged funeral contracts (other than cemetery merchandise trust funds and prearranged funeral trust funds, see notes four and five) without incurring excessive costs because of the large number of individual contracts with varying terms. The investments of the Company's insurance subsidiary are reported at fair value in the consolidated balance sheet.
1996 1995 ------------------------ ------------------------ CARRYING FAIR CARRYING FAIR AMOUNT VALUE AMOUNT VALUE ---------- ---------- ---------- ---------- Interest rate and cross currency swap agreements.............................. $ 39,650 $ 50,102 $ 9,002 $ (34,905) Long-term debt (including current maturities)............................. 2,162,613 2,220,377 1,834,701 1,980,599 6.25% convertible preferred securities of SCI Finance LLC......................... 172,500 323,438 172,500 252,243
The Company has entered into various derivative financial instruments with major financial institutions to hedge fluctuation exposures in interest and foreign exchange rates (swap agreements). The net fair value of the Company's various swap agreements at December 31, 1996 is a payable of $50,102. Fair values were obtained from counterparties to the agreements and represent their estimate of the amount the Company would pay to terminate the swap agreements based upon the existing terms and current market conditions. At December 31, 1995, the net fair value was a receivable owed to the Company of $34,905. The fair value of the Company's swap agreements may vary substantially with changes in interest and currency rates. The Company's credit exposure is limited to the sum of the fair value of positions that have become favorable to the Company and any accrued interest receivable due from counterparties. Potential credit exposure is dependent upon the maximum adverse impact of interest and currency movement. Such potential credit exposure is minimized by selection of counterparties from a limited group of high quality institutions and inclusion of certain contract provisions. Management believes that any credit exposure with respect to its favorable positions at December 31, 1996 is remote (see note eight). 37 39 SERVICE CORPORATION INTERNATIONAL NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) The fair value of the fixed rate long-term borrowings was estimated by discounting the future cash flows, including interest payments, using rates currently available for debt of similar terms and maturity, based on the Company's credit standing and other market factors. The carrying value of convertible securities has been estimated based on the respective shares of SCI stock into which such securities may be converted. The carrying value of the Company's revolving credit agreements approximate fair value because the rates on such agreements are variable, based on current market conditions. Provident is a party to financial instruments with potential credit risk. The financial instruments result from loans made in the normal course of business to meet the financing needs of borrowers who are principally independent funeral home and cemetery operators. These financial instruments also include loan commitments of $55,017 at December 31, 1996 ($28,319 at December 31, 1995) to extend credit. Provident's total loans outstanding at December 31, 1996 were approximately $146,000. Provident evaluates each borrower's credit-worthiness and the amount loaned and collateral obtained, if any, is determined by this evaluation. The Company grants credit in the normal course of business and the credit risk with respect to these trade, cemetery and prearranged funeral receivables due from customers is generally considered minimal because of the wide dispersion of the customers served. Procedures are in effect to monitor the credit-worthiness of customers and bad debts have not been significant in relation to the volume of revenues. Customer payments on prearranged funeral contracts that are placed in state regulated trusts or used to pay premiums on life insurance contracts generally do not subject the Company to collection risk. Insurance funded contracts are subject to supervision by state insurance departments and are protected in the majority of states by insurance guaranty acts. NOTE TEN COMMITMENTS The annual payments for operating leases (primarily for funeral home facilities and transportation equipment) are as follows: 1997....................................................... $67,717 1998....................................................... 55,840 1999....................................................... 41,561 2000....................................................... 25,042 2001....................................................... 15,485 Thereafter................................................. 80,776
The majority of these operating leases contain one of the following options: (a) purchase the property at the fair value at date of exercise, (b) purchase the property for a value determined at the inception of the lease or (c) renew for the fair rental value at the end of the primary term of the lease. Some of the equipment leases contain residual value exposures. For the three years ended December 31, 1996, rental expense was $64,073, $47,848 and $36,244, respectively. The Company has entered into management, consultative and noncompetition agreements (generally for five to 10 years) with certain officers of the Company and former owners and key employees of businesses acquired. During the three years ended December 31, 1996, $55,688, $55,419 and $48,053, respectively, were charged to expense. At December 31, 1996, the maximum estimated future expense under all agreements with a remaining term in excess of one year is $249,654, including $14,985 with certain officers of the Company. The Company has entered into a minimum purchase agreement with a major casket manufacturer for its North American operations. The agreement contains provisions to increase the minimum annual purchases for normal price increases and for the maintenance of product quality. The agreement expires in 1998 and 38 40 SERVICE CORPORATION INTERNATIONAL NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) contains a remaining purchase commitment of $108,834. During the three years ended December 31, 1996, the Company purchased caskets for $54,431, $48,828 and $47,098, respectively, under this agreement. Included in the Company's acquisition of OGF/PFG was an eight year (beginning in January 1996) casket purchase agreement with a French casket manufacturer. The total value of merchandise to be purchased under the contract is $26,513. During the year ended December 31, 1996, the Company purchased caskets for $5,432 under this agreement. NOTE ELEVEN CONVERTIBLE PREFERRED SECURITIES OF SCI FINANCE LLC In December 1994 SCI Finance LLC, a subsidiary of the Company, issued, through an underwritten public offering, 3,450,000 shares of cumulative 6.25% convertible preferred shares. These shares are non-voting, carry a liquidation value of $50 per share plus accumulated and unpaid dividends and are convertible into Company common stock at a conversion price of $15.05 per share at any time unless previously redeemed. Liquidation may occur after December 5, 1999 unless earlier redemption (beginning in June 1997) is permitted based on Company common stock price performance (20 trading days above $18.81 per share within a period of 30 consecutive trading days immediately prior to notice of redemption). The proceeds from this offering were used in 1995 to repay bank debt incurred in connection with the United Kingdom acquisitions. NOTE TWELVE STOCKHOLDERS' EQUITY The Company is authorized to issue 1,000,000 shares of preferred stock, $1 per share par value. No shares were issued as of December 31, 1996. At December 31, 1996, 500,000,000 common shares of $1 par value were authorized, 236,193,427 shares were issued and outstanding (234,542,172 at December 31, 1995), net of 9,813 shares held, at cost, in treasury (40,226 at December 31, 1995). On June 13, 1996, the Company's Board of Directors approved a two-for-one split of its common stock to be effected as a stock dividend. On August 8, 1996, the Company's shareholders approved an amendment to the Company's Articles of Incorporation to increase the number of authorized shares of common stock from 200,000,000 to 500,000,000 shares. The stock dividend was paid on August 30, 1996, to shareholders of record as of August 16, 1996. The par value of the new shares issued totaled $117,838, which was transferred from capital in excess of par value to the common stock account. All share and per share data for prior periods presented have been restated to reflect this stock dividend. In October 1995, the Company issued 16,790,000 shares of common stock at a net price of $18.65 per share through an underwritten public offering. The net proceeds of approximately $313,000 from the offering were used primarily to finance the Company's worldwide acquisition program including OGF/PFG. In addition, on October 11, 1995, the Company completed the purchase of Gibraltar and issued 6,573,518 shares of Company common stock as part of the purchase price. During the fourth quarter of 1995, the Company redeemed the remaining outstanding 6.5% convertible subordinated debentures due in 2001. This redemption resulted in the issuance of 16,634,522 shares of Company common stock. In December 1994 and January 1995 the Company sold, through an underwritten public offering, 16,960,000 common shares at a net $12.35 per share. The net proceeds of approximately $209,000 were used to repay existing bank debt. The fully diluted earnings per share calculation assumes full conversion into common stock of the Company's various convertible securities. 39 41 SERVICE CORPORATION INTERNATIONAL NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) The Company has benefit plans whereby shares of the Company's common stock may be issued pursuant to the exercise of stock options granted to officers and key employees. The plans allow for options to be granted as either non-qualified or incentive stock options. The options are granted with an exercise price equal to the then current market price of the Company's common stock. The options are generally exercisable at a rate of 33 1/3% each year unless, at the discretion of the Company's Compensation Committee of the Board of Directors, alternative vesting methods are allowed. At December 31, 1996, 9,965,000 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 and for certain of these options an additional earnings per share growth increase is required. If the pre-determined stock prices and earnings per share growth are not met in the required time period, the options will fully vest in periods ranging from eight to thirteen years from date of grant. At December 31, 1996 and 1995, 14,802,500 and 3,428,656 shares, respectively, were reserved for future option grants under all stock option plans. The following sets forth certain stock option information:
WEIGHTED-AVERAGE OPTIONS EXERCISE PRICE ---------- ---------------- Outstanding at December 31, 1993............................ 2,212,910 $ 7.73 Granted................................................... 8,571,500 12.89 Exercised................................................. (342,404) 7.21 Canceled.................................................. (67,954) 8.41 ---------- ------- Outstanding at December 31, 1994............................ 10,374,052 12.01 ---------- ------- Granted................................................... 2,854,000 16.35 Exercised................................................. (668,552) 7.53 Canceled.................................................. (977,668) 12.81 ---------- ------- Outstanding at December 31, 1995............................ 11,581,832 13.27 ---------- ------- Granted................................................... 2,239,200 22.63 Exercised................................................. (724,425) 8.82 Canceled.................................................. (47,338) 20.45 ---------- ------- Outstanding at December 31, 1996............................ 13,049,269 $15.09 ========== ======= Exercisable at December 31, 1996............................ 1,055,435 $11.01 ========== =======
At December 31, 1995 and 1994, 1,206,762 and 1,467,696 options were exercisable, respectively. For the two years ended December 31, 1996, 2,239,200 and 2,854,000 options were awarded to average fair values of $9.18 and $7.24, respectively.
OPTIONS OUTSTANDING OPTIONS EXERCISABLE ------------------------------------------------- ------------------------------ NUMBER WEIGHTED-AVERAGE NUMBER RANGE OF OUTSTANDING REMAINING WEIGHTED-AVERAGE EXERCISABLE WEIGHTED-AVERAGE EXERCISE PRICES AT 12/31/96 CONTRACTUAL LIFE EXERCISE PRICE AT 12/31/96 EXERCISE PRICE - --------------- ----------- ---------------- ---------------- ----------- ---------------- $ 5.04 -- 7.25 142,810 1.0 $ 6.50 142,810 $ 6.50 8.33 -- 9.41 405,854 2.6 8.96 405,854 8.96 12.88 -- 18.38 10,274,905 9.8 13.83 496,771 13.80 20.09 -- 29.59 2,225,700 6.8 22.59 10,000 20.09 - --------------- ---------- --- ------- --------- ------- $ 5.04 -- 29.59 13,049,269 9.0 $15.09 1,055,435 $11.01 =============== ========== === ======= ========= =======
40 42 SERVICE CORPORATION INTERNATIONAL NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) In May 1996, shareholders approved the 1996 Incentive Plan. This plan reserves 12,000,000 shares of common stock for future awards of stock options, restricted stock and other stock based awards to officers and key employees of the Company and replaced all shares of common stock available for future grant under previously existing stock option and restricted stock plans. In November 1996, the Company approved the 1996 Nonqualified Incentive Plan. This plan reserves 4,000,000 shares of common stock for 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. For the two years ended December 31, 1996, 49,600 and 128,600 shares of restricted stock were awarded at average fair values of $25.76 and $14.60, respectively. The Board of Directors has adopted a preferred share purchase rights plan and has declared a dividend of one preferred share purchase right for each share of common stock outstanding. The rights become exercisable in the event of certain attempts to acquire 20% or more of the common stock of the Company and entitle the rights holders to purchase certain securities of the Company or the acquiring company. The rights, which are redeemable by the Company for $.01 per right, expire in July 1998 unless extended. The Company has adopted the disclosure-only provisions of FAS 123, "Accounting for Stock-Based Compensation," but applies Accounting Principles Board Opinion No. 25 and related interpretations in accounting for its plans. If the Company had elected to recognize compensation cost for its option plans based on the fair value at the grant dates for awards under those plans, consistent with the method prescribed by FAS 123, net income and earnings per share would have been changed to the pro forma amounts indicated below:
YEARS ENDED DECEMBER 31, ------------------------ 1996 1995 ---------- ---------- Net income: As reported............................................... $265,298 $183,588 Pro forma................................................. 252,929 181,285 Primary earnings per share: As reported............................................... $ 1.10 $ .90 Pro forma................................................. 1.05 .89 Fully diluted earnings per share: As reported............................................... $ 1.07 $ .85 Pro forma................................................. 1.02 .84
The fair value of the Company's stock options used to compute pro forma net income and earnings per share disclosures is the estimated present value at grant date using the Black-Scholes option-pricing model with the following weighted average assumptions for 1996 and 1995, respectively: dividend yield of 1.0% and 1.0%; expected volatility of 25.3% and 25.3%; a risk free interest rate of 6.8% and 5.8%; and an expected holding period of 9 and 7 years. FAS 123 only applies to options granted in 1995 and 1996. Accordingly, as most of the options vest over three years, the full impact of the pro forma disclosure will not be reflected until 1997. 41 43 SERVICE CORPORATION INTERNATIONAL NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) NOTE THIRTEEN RETIREMENT PLANS The Company has a noncontributory defined benefit pension plan covering substantially all United States employees, a supplemental retirement plan for certain current and former key employees (SERP), a supplemental retirement plan for officers and certain key employees (Senior SERP), and a retirement plan for non-employee directors (Directors' Plan). For the pension plan, retirement benefits are generally based on years of service and compensation. The Company annually contributes to the pension plan an actuarially determined amount consistent with the funding requirements of the Employee Retirement Income Security Act of 1974. Assets of the pension plan consist primarily of bank money market funds, fixed income investments, marketable equity securities and mortgage notes. The marketable equity securities include shares of Company common stock with a value of $9,250 at December 31, 1996. Most foreign employees are covered by various foreign government mandated or defined contribution plans which are adequately funded and are not considered material to the financial condition or results of operations of the Company. The plans' liabilities and their related costs are computed in accordance with the laws of the individual countries and appropriate actuarial practices. Retirement benefits under the SERP are based on years of service and average monthly compensation, reduced by benefits under the pension plan and Social Security. The Senior SERP provides retirement benefits based on years of service and position. The Directors' Plan will provide an annual benefit to directors following their retirement, based on a vesting schedule. The Company purchased various life insurance policies on the participants in the SERP, Senior SERP and Directors' Plan with the intent to use the proceeds or any cash value buildup from such policies to assist in funding, at least to the extent of such assets, the plans' funding requirements. The net cost for the four defined plans described above were as follows:
YEARS ENDED DECEMBER 31, ----------------------------- 1996 1995 1994 ------- ------- ------- Service cost--benefits earned during the period............. $ 8,550 $ 6,996 $ 6,179 Interest cost on projected benefit obligation............... 9,400 9,114 7,686 Return on plan assets....................................... (13,341) (15,752) (5,252) Net amortization and deferral of gain....................... 9,747 12,189 2,056 ------- ------- ------- $14,356 $12,547 $10,669 ======= ======= =======
The plans' funded status at December 31, was as follows:
1996 1995 ---------------------- --------------------- FUNDED NON-FUNDED FUNDED NON-FUNDED PLAN PLANS PLAN PLANS -------- ---------- ------- ---------- Vested benefit obligation...................... $ 76,701 $ 40,130 $75,586 $ 38,205 -------- -------- ------- -------- Accumulated benefit obligation................. $ 80,228 $ 40,245 $80,897 $ 38,308 ======== ======== ======= ======== Projected benefit obligation................... $ 88,080 $ 40,280 $89,363 $ 38,341 Plans' assets at fair value.................... 103,603 -- 91,058 -- -------- -------- ------- -------- Plans' assets in excess (deficit) of projected benefit obligation........................... 15,523 (40,280) 1,695 (38,341) Unrecognized net loss from past experience and effects of changes in assumptions............ 1,634 7,484 14,005 8,121 Prior service cost not yet recognized in net periodic pension cost........................ (2,035) 10,749 (2,395) 12,345 -------- -------- ------- -------- Accrued pension cost........................... 15,122 (22,047) 13,305 (17,875) Adjustment for additional minimum liability.... -- (18,198) -- (20,433) -------- -------- ------- -------- Retirement plan asset (liability).............. $ 15,122 $(40,245) $13,305 $(38,308) ======== ======== ======= ========
42 44 SERVICE CORPORATION INTERNATIONAL NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) The following assumed rates were used in the determination of the plans' funded status:
1996 1995 -------------------- -------------------- FUNDED NON-FUNDED FUNDED NON-FUNDED PLAN PLANS PLAN PLANS ------ ---------- ------ ---------- Discount rate used to determine obligations................................ 7.5% 7.5% 7.25% 7.25% Assumed rate of compensation increase........ 5.5 5.5 5.5 5.5 Assumed rate of return on plan assets........ 8.5 -- 8.0 --
NOTE FOURTEEN MAJOR SEGMENTS OF BUSINESS The Company conducts funeral and cemetery operations principally in North America, Europe and the Pacific Rim and offers financial services in the United States.
FINANCIAL FUNERAL CEMETERY SERVICES CORPORATE CONSOLIDATED ---------- ---------- --------- --------- ------------ Revenues: 1996....................... $1,663,387 $ 612,421 $ 18,386 $ -- $2,294,194 1995....................... 1,166,247 463,754 22,125 -- 1,652,126 1994....................... 754,408 343,521 19,246 -- 1,117,175 Income from operations: 1996....................... $ 380,841 $ 214,721 $ 8,890 $(63,215) $ 541,237 1995....................... 295,151 160,442 9,628 (53,600) 411,621 1994....................... 222,605 110,226 8,364 (51,700) 289,495 Identifiable assets: 1996....................... $5,905,246 $2,638,775 $148,193 $177,556 $8,869,770 1995....................... 5,110,145 2,157,906 218,963 185,373 7,672,387 1994....................... 3,115,053 1,417,081 213,257 416,497 5,161,888 Depreciation and amortization: 1996....................... $ 103,696 $ 18,601 $ 9 $ 7,513 $ 129,819 1995....................... 72,477 11,772 33 8,259 92,541 1994....................... 46,944 9,969 120 11,960 68,993 Capital expenditures:(1) 1996....................... $ 234,673 $ 268,039 $ -- $ 11,582 $ 514,294 1995....................... 442,227 480,372 10 6,090 928,699 1994....................... 212,660 384,402 -- 2,950 600,012 Number of operating locations at year end: 1996....................... 2,882 495 -- -- 3,377 1995....................... 2,836 360 -- -- 3,196 1994....................... 1,534 259 -- -- 1,793
- --------------- (1) Includes $321,142, $803,468 and $518,922 for the three years ended December 31, 1996, respectively, for purchases of property, plant, and equipment and cemetery property of acquired businesses. 43 45 SERVICE CORPORATION INTERNATIONAL NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) Geographic segment information was as follows:
UNITED OTHER OTHER STATES FRANCE* EUROPEAN** FOREIGN*** CONSOLIDATED ---------- ---------- -------- -------- ---------- Revenues: 1996....................... $1,409,409 $ 537,079 $184,943 $162,763 $2,294,194 1995....................... 1,178,407 190,091 151,225 132,403 1,652,126 1994....................... 975,971 -- 42,613 98,591 1,117,175 Income from operations: 1996....................... $400,622 $ 52,204 $ 37,376 $ 51,035 $ 541,237 1995....................... 314,698 18,743 34,214 43,966 411,621 1994....................... 245,230 -- 10,266 33,999 289,495 Identifiable assets: 1996....................... $6,135,950 $1,252,738 $923,692 $557,390 $8,869,770 1995....................... 5,256,876 1,169,484 777,247 468,780 7,672,387 1994....................... 4,168,636 -- 683,612 309,640 5,161,888 Number of operating locations at year end: 1996....................... 1,441 1,056 631 249 3,377 1995....................... 1,274 1,067 618 237 3,196 1994....................... 1,043 -- 549 201 1,793
- --------------- * French operations from August 1995. ** Includes United Kingdom operations from September 1994, and other European operations from August 1995. *** Includes Canadian and Australian operations. 44 46 SERVICE CORPORATION INTERNATIONAL NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) NOTE FIFTEEN SUPPLEMENTARY INFORMATION The detail of certain balance sheet accounts at December 31, was as follows:
1996 1995 -------- -------- Cash and cash equivalents: Cash...................................................... $ 41,344 $ 46,999 Commercial paper and temporary investments................ 2,787 10,485 -------- -------- $ 44,131 $ 57,484 ======== ======== Receivables and allowances: Current: Trade accounts......................................... $273,696 $242,268 Cemetery contracts..................................... 236,578 196,091 Loans and other........................................ 69,174 82,151 -------- -------- 579,448 520,510 Less: Allowance for contract cancellations and doubtful accounts.............................................. 45,155 34,147 Unearned finance charges and valuation discounts....... 39,717 37,422 -------- -------- 84,872 71,569 -------- -------- $494,576 $448,941 ======== ======== Long-term: Cemetery contracts..................................... $311,847 $258,253 Loans and other notes.................................. 206,897 257,415 Trusted cemetery merchandise sales..................... 371,400 314,400 -------- -------- 890,144 830,068 Less: Allowance for contract cancellations and doubtful accounts.............................................. 29,951 23,298 Unearned finance charges and valuation discounts....... 50,906 43,879 -------- -------- 80,857 67,177 -------- -------- $809,287 $762,891 ======== ========
Interest rates on cemetery contracts and loans and other notes receivable range from 1.5% to 18.0% at December 31, 1996. Included in loans and other notes receivable are $18,228 in notes with officers and employees of the Company, the majority of which are collateralized by real estate, and $19,523 in notes with other related parties. 45 47 SERVICE CORPORATION INTERNATIONAL NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, ------------------------ 1996 1995 ---------- ---------- Cemetery property: Undeveloped land......................................... $1,003,961 $ 839,797 Developed land, lawn crypts and mausoleums............... 376,252 322,759 ---------- ---------- $1,380,213 $1,162,556 ========== ========== Property, plant and equipment: Land..................................................... $ 355,017 $ 314,185 Buildings and improvements............................... 1,017,334 884,178 Operating equipment...................................... 358,577 279,560 Leasehold improvements................................... 45,606 42,844 ---------- ---------- 1,776,534 1,520,767 Less: accumulated depreciation........................... (319,459) (247,045) ---------- ---------- $1,457,075 $1,273,722 ========== ========== Accounts payable and accrued liabilities: Trade payables........................................... $ 68,912 $ 98,984 Dividends................................................ 14,189 12,902 Payroll.................................................. 78,233 93,375 Unpaid acquisition cost.................................. -- 19,493 Interest................................................. 28,984 24,633 Insurance................................................ 33,263 44,848 Bank overdraft........................................... 48,312 27,749 Other.................................................... 168,904 98,956 ---------- ---------- $ 440,797 $ 420,940 ========== ==========
NON-CASH TRANSACTIONS
YEARS ENDED DECEMBER 31, ------------------------------ 1996 1995 1994 ------- -------- ------- Common stock issued under restricted stock plans............ $ 1,278 $ 1,868 $ 1,724 Minimum liability under retirement plans.................... (2,235) 4,213 (382) Debenture conversions to common stock....................... 1,240 188,707 1,293 Property distributed from prearranged funeral trust......... -- -- 9,920 Common stock issued in acquisitions......................... 15,823 109,277 9,491 Debt issued in acquisitions................................. 26,467 114,609 36,567
NOTE SIXTEEN PROSPECTIVE ACCOUNTING CHANGES The Company will adopt Statement of Financial Accounting Standards No. 125 "Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities" ("FAS 125"), which was amended by FAS 127, in January 1997. FAS 125 provides standards for transfers and servicing of financial assets and extinguishments of liabilities that are based on a financial components approach that focuses on control. The Company does not anticipate that FAS 125 will have a material impact on the Company's consolidated financial statements. The Company will adopt FAS 128 "Earnings Per Share" and FAS 129 "Disclosures of Information About Capital Structure" for the year ended December 31, 1997. FAS 128 46 48 SERVICE CORPORATION INTERNATIONAL NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) simplifies the computation of earnings per share by replacing primary and fully diluted presentations with the new basic and diluted disclosures. FAS 129 contains new capital structure disclosure requirements. NOTE SEVENTEEN RELATED PARTY TRANSACTIONS As of February 12, 1997, subsidiaries of J. P. Morgan & Co. Incorporated ("Morgan") beneficially own approximately 1.7% of the Company's common stock. Morgan and the Company have entered into various foreign currency and/or interest rate swap agreements during the three years ended December 31, 1996. During 1996 and 1995, Morgan participated as lead underwriter on public offerings in 1995 and acted as an advisor in a private offering of debt. Morgan also acted as an advisor in the 1995 acquisition of OGF/PFG. During 1994, Morgan participated as lead underwriter in public offerings. Additionally in the 1994 acquisition of a United Kingdom company. Morgan acted as an advisor as well as provided a loan used by the Company (repaid in 1995) in the acquisitions of two United Kingdom companies. For the three years ended December 31, 1996, Morgan received $3,000, $14,062 and $10,747, respectively in fees from the Company. NOTE EIGHTEEN SUBSEQUENT EVENTS In January 1997, the Company sold its interest in Equity Corporation International (approximately 7,994,000 shares) and received sale proceeds of approximately $148,000 producing a gain of approximately $68,000 ($42,000 after-tax), which will be included in the financial results for the quarter ended March 31, 1997. Additionally, in the first quarter of 1997, the Company initiated the repurchase of the 8.375% notes due 2004, the 7.875% debentures due 2013 and the Company's medium term notes. This will result in an after-tax loss which will be recorded as an extraordinary item in the financial results for the quarter ended March 31, 1997. It is the Company's intention to refinance these notes to reduce future interest expense. 47 49 SERVICE CORPORATION INTERNATIONAL NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) NOTE NINETEEN QUARTERLY FINANCIAL DATA (UNAUDITED)
FIRST SECOND THIRD FOURTH YEAR -------- -------- -------- -------- ---------- Revenues: 1996................................ $575,453 $564,749 $544,500 $609,492 $2,294,194 1995................................ 348,113 353,649 403,491 546,873 1,652,126 Gross profit: 1996................................ 160,168 144,063 131,378 168,843 604,452 1995................................ 116,675 105,982 105,724 136,840 465,221 Net income: 1996................................ 71,897 62,250 57,395 73,756 265,298 1995................................ 47,380 40,640 39,136 56,432 183,588 Primary earnings per share: 1996................................ .30 .26 .24 .30 1.10 1995................................ .24 .21 .20 .25 .90 Fully diluted earnings per share: 1996................................ .29 .25 .23 .30 1.07 1995................................ .23 .20 .18 .24 .85
48 50 SERVICE CORPORATION INTERNATIONAL SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS THREE YEARS ENDED DECEMBER 31, 1996
BALANCE AT CHARGED TO CHARGED TO BALANCE BEGINNING COSTS AND OTHER AT END DESCRIPTION OF PERIOD EXPENSES ACCOUNTS(2) DEDUCTIONS(1) OF PERIOD ----------- ---------- ---------- ----------- ------------- --------- (THOUSANDS) Current -- Allowance for contract cancellations and doubtful accounts: Year ended December 31, 1996....... $34,147 $14,187 $ 6,638 $(9,817) $45,155 Year ended December 31, 1995....... 20,156 8,853 10,904 (5,766) 34,147 Year ended December 31, 1994....... 14,786 7,658 4,155 (6,443) 20,156 Due After One Year -- Allowance for contract cancellations and doubtful accounts: Year ended December 31, 1996....... $23,298 $ 3,072 $ 3,581 $ -- $29,951 Year ended December 31, 1995....... 16,086 2,999 4,689 (476) 23,298 Year ended December 31, 1994....... 14,054 1,969 1,830 (1,767) 16,086
- --------------- (1) Uncollected receivables written off, net of recoveries. (2) Primarily acquisitions and dispositions of operations. 49 51 ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE. None. PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY. ITEM 11. EXECUTIVE COMPENSATION. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS. Information called for by PART III (Items 10, 11, 12 and 13) has been omitted as the Company intends to file with the Commission not later than 120 days after the close of its fiscal year a definitive Proxy Statement pursuant to Regulation 14A. Such information is set forth in such Proxy Statement (i) with respect to Item 10 under the captions "Election of Directors" and "Section 16(a) Beneficial Ownership Reporting Compliance", (ii) with respect to Items 11 and 13 under the captions "Certain Information with Respect to Officers and Directors", "Compensation Committee Interlocks and Insider Participation" and "Certain Transactions" and (iii) with respect to Item 12 under the caption "Voting Securities and Principal Holders." The information as specified in the preceding sentence is incorporated herein by reference. Notwithstanding anything set forth in this Form 10-K, the information under the caption "Compensation Committee Report on Executive Compensation" and under the captions "Overview of Executive Compensation" and "Performance Graphs" 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 schedules are listed in the accompanying Index to Financial Statements and Related Schedule on page 19 of this report. (3) Exhibits: The exhibits listed on the accompanying Exhibit Index on pages 52-54 are filed as part of this report. (b) Reports on Form 8-K: During the quarter ended December 31, 1996, the Company filed a Form 8-K dated October 9, 1996 reporting under "Item 5. Other Events" a press release announcing a proposed exchange offer by the Company to acquire the outstanding shares of The Loewen Group, Inc. (c) Included in (a) above. (d) Included in (a) above. 50 52 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant, Service Corporation International, has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. SERVICE CORPORATION INTERNATIONAL Dated: March 28, 1997 By: JAMES M. SHELGER ---------------------------------- (James M. Shelger, Senior Vice President, General Counsel and Secretary) Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the date indicated.
SIGNATURE TITLE DATE --------- ----- ---- R. L. WALTRIP* Chairman of the Board and Chief (R. L. Waltrip) Executive Officer GEORGE R. CHAMPAGNE* Senior Vice President Chief Financial (George R. Champagne) Officer (Principal Financial Officer) WESLEY T. McRAE Corporate Controller of SCI - ----------------------------------------------------- Management Corporation, a (Wesley T. McRae) subsidiary of the Registrant (Principal Accounting Officer) ANTHONY L. COELHO* Directors (Anthony L. Coelho) DOUGLAS M. CONWAY* (Douglas M. Conway) JACK FINKELSTEIN* (Jack Finkelstein) A. J. FOYT, JR.* (A. J. Foyt, Jr.) JAMES J. GAVIN, JR.* (James J. Gavin, Jr.) JAMES H. GREER* (James H. Greer) L. WILLIAM HEILIGBRODT* (L. William Heiligbrodt) B. D. HUNTER* (B. D. Hunter) JOHN W. MECOM, JR.* (John W. Mecom, Jr.) CLIFTON H. MORRIS, JR.* (Clifton H. Morris, Jr.) E. H. THORNTON, JR.* (E. H. Thornton, Jr.) W. BLAIR WALTRIP* (W. Blair Waltrip) EDWARD E. WILLIAMS* (Edward E. Williams) *By JAMES M. SHELGER ------------------------------------------------- (James M. Shelger, as Attorney-In-Fact for each of the Persons indicated)
March 28, 1997 51 53 EXHIBIT INDEX PURSUANT TO ITEM 601 OF REG. S-K
EXHIBIT NO. DESCRIPTION ----------- ----------- 3.1 -- Restated Articles of Incorporation (Incorporated by reference to Exhibit 3.1 to Registration Statement No. 333-10867 on Form S-4). 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, 1997). 3.3 -- Statement of Resolution Establishing Series of Shares of Series C Junior Participating Preferred Stock, dated August 5, 1988. (Incorporated by reference to Exhibit 3.1 to Form 10-Q for the fiscal quarter ended July 31, 1988). 3.4 -- Bylaws, as amended. (Incorporated by reference to Exhibit 3.7 to Form 10-K for the fiscal year ended December 31, 1991). 4.1 -- Rights Agreement dated as of July 18, 1988 between the Company and Texas Commerce Bank National Association. (Incorporated by reference to Exhibit 1 to Form 8-K dated July 18, 1988). 4.2 -- Amendment, dated as of May 10, 1990, to the Rights Agreement, dated as of July 18, 1988, between the Company and Texas Commerce Bank National Association. (Incorporated by reference to Exhibit 1 to Form 8-K dated May 10, 1990). 4.3 -- Agreement Appointing a Successor Rights Agent under Rights Agreement, dated as of June 1, 1990, by the Company and Ameritrust Company National Association. (Incorporated by reference to Exhibit 4.1 to Form 10-Q for the fiscal quarter ended June 30, 1990). 4.4 -- Undertaking to furnish instruments related to long-term debt. 10.1 -- Retirement Plan For Non-Employee Directors. (Incorporated by reference to Exhibit 10.1 to Form 10-K for the fiscal year ended December 31, 1991). 10.2 -- Agreement dated May 14, 1992 between the Company, R. L. Waltrip and related parties relating to life insurance. (Incorporated by reference to Exhibit 10.4 to Form 10-K for the fiscal year ended December 31, 1992). 10.3 -- Employment Agreement, dated November 11, 1991, as amended and restated as of August 12, 1992, further amended and restated as of May 12, 1993, and further amended and restated as of January 1, 1997, between SCI Executive Services, Inc. and R. L. Waltrip. 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 November 11, 1991, as amended and restated as of August 12, 1992, further amended and restated as of May 12, 1993, and further amended and restated as of January 1, 1997, between SCI Executive Services, Inc. and L. William Heiligbrodt. 10.6 -- Employment Agreement, dated November 11, 1991, as amended and restated as of August 12, 1992, further amended and restated as of May 12, 1993, and further amended and restated as of January 1, 1997, between SCI Executive Services, Inc. and W. Blair Waltrip.
52 54
EXHIBIT NO. DESCRIPTION ----------- ----------- 10.7 -- Employment Agreement, dated November 11, 1991, as amended and restated as of August 12, 1992, further amended and restated as of May 12, 1993, and further amended and restated as of January 1, 1997, between SCI Executive Services, Inc. and John W. Morrow, Jr. 10.8 -- Employment Agreement, dated November 11, 1991, as amended and restated as of August 12, 1992, further amended and restated as of May 12, 1993, further amended and restated as of January 1, 1995, and further amended and restated as of January 1, 1997, between SCI Executive Services, Inc. and Jerald L. Pullins. 10.9 -- Form of Employment Agreement pertaining to officers (other than the officers identified in the preceding exhibits). 10.10 -- Form of 1986 Stock Option Plan. (Incorporated by reference to Exhibit 10.21 to Form 10-K for the fiscal year ended December 31, 1991). 10.11 -- Amendment to 1986 Stock Option Plan. 10.12 -- Amended 1987 Stock Plan. (Incorporated by reference to Appendix A to Proxy Statement dated April 1, 1991). 10.13 -- 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). 10.14 -- 1993 Long-Term Incentive Stock Option Plan. (Incorporated by reference to Exhibit 4.12 to Registration Statement No. 333-00179 on Form S-8). 10.15 -- Amendment to 1993 Long-Term Incentive Stock Option Plan. 10.16 -- Service Corporation International ECI Stock Option Plan. (Incorporated by reference to Exhibit 10.1 to Form 10-Q for the fiscal quarter ended September 30, 1994). 10.17 -- 1995 Incentive Equity Plan. (Incorporated by reference to Annex B to Proxy Statement dated April 17, 1995). 10.18 -- Amendment to 1995 Incentive Equity Plan. 10.19 -- 1995 Stock Plan for Non-Employee Directors. (Incorporated by reference to Annex A to Proxy Statement dated April 17, 1995). 10.20 -- Summary of 1995 Long Term Cash Performance Plan. (Incorporated by reference to Exhibit 10.22 to Form 10-K for the fiscal year ended December 31, 1994). 10.21 -- 1996 Incentive Plan. (Incorporated by reference to Annex A to Proxy Statement dated April 15, 1996). 10.22 -- Amendment to 1996 Incentive Plan. 10.23 -- Split Dollar Life Insurance Plan. (Incorporated by reference to Exhibit 10.36 to Form 10-K for the fiscal year ended December 31, 1995). 10.24 -- Agreement for Reorganization, dated August 15, 1989 among Morrow Partners, Inc., J.W. Morrow Investment Company, John W. Morrow, Jr., Billy Dee Davis and the Company; Agreement-Not-To-Compete, dated August 15, 1989, between John W. Morrow, Jr., Morrow Partners, Inc. and the Company, and; Lease dated August 15, 1989, by John W. Morrow, Jr. and Crawford-A. Crim Funeral Home, Inc. (Incorporated by reference to Exhibit 10.27 to Form 10-K for the fiscal year ended December 31, 1989). 10.25 -- Casket Supply and Requirements Agreement, dated October 31, 1990, between York Acquisition Corp. and SCI Funeral Services, Inc., and; First Amendment to Casket Supply and Requirements Agreement, dated December 30, 1992. (Incorporated by reference to Exhibit 10.27 to Form 10-K for the fiscal year ended December 31, 1992).
53 55
EXHIBIT NO. DESCRIPTION ----------- ----------- 10.26 -- Supplemental Executive Retirement Plan for Senior Officers (as Amended and Restated Effective as of December 31, 1993). (Incorporated by reference to Exhibit 10.21 to Form 10-K for the fiscal year ended December 31, 1993). 10.27 -- First Amendment to Supplemental Executive Retirement Plan for Senior Officers. (Incorporated by reference to Exhibit 10.26 to Form 10-K for the fiscal year ended December 31, 1994). 10.28 -- ISDA Master Agreement dated February 4, 1993; Amendment to the Master Agreement dated August 12, 1993; Confirmation dated August 13, 1993; Confirmation dated November 1, 1993 and Notice of Exercise; all of which are between Morgan Guaranty Trust Company of New York ("Morgan") and the Company. (Incorporated by reference to Exhibit 10.22 to Form 10-K for the fiscal year ended December 31, 1993). 10.29 -- Letter, dated December 2, 1994 amending the ISDA Master Agreement (filed in Exhibit 10.31 above) and a note agreement and guaranty, between the Company and Morgan; Letter dated December 13, 1994 regarding the ISDA Master Agreement (filed in Exhibit 10.31 above). (Incorporated by reference to Exhibit 10.29 to Form 10-K for the fiscal year ended December 31, 1994). 10.30 -- Confirmation dated May 18, 1995; Confirmation dated January 18, 1995; Confirmation dated January 18, 1995; Confirmation dated January 18, 1995; all of which are between Morgan and the Company. (Incorporated by reference to Exhibit 10.30 to Form 10-K for the fiscal year ended December 31, 1994). 10.31 -- Confirmation dated September 14, 1995; and Confirmation dated January 12, 1996, between Morgan and the Company; Confirmation dated January 18, 1996 between J P Morgan Canada and Service Corporation International (Canada) Limited. (Incorporated by reference to Exhibit 10.35 to Form 10-K for the fiscal year ended December 31, 1995). 10.32 -- Confirmation dated March 15, 1996; Confirmation dated May 23, 1996; Confirmation dated May 30, 1996; all of which are between Morgan and the Company. 11.1 -- Computation of Earnings Per Share. 12.1 -- Ratio of Earnings to Fixed Charges. 21.1 -- Subsidiaries of the Company. 23.1 -- Consent of Independent Accountants (Coopers & Lybrand L.L.P.). 24.1 -- Powers of Attorney. 27.1 -- Financial Data Schedule.
In the above list, the management contracts or compensatory plans or arrangements are set forth in Exhibits 10.1 through 10.23, 10.26 and 10.27. 54 EX-4.4 2 UNDERTAKING TO FURNISH INSTRUMENTS/LONG-TERM DEBT 1 EXHIBIT 4.4 AGREEMENT TO FURNISH INSTRUMENTS WITH RESPECT TO LONG-TERM DEBT Pursuant to Item 601(b)(4) of Regulation S-K, there is not filed with this report certain instruments with respect to Long-term debt under which the total amount of securities authorized thereunder does not exceed 10 per cent of the total assets of Registrant and its subsidiaries on a consolidated basis. Registrant agrees to furnish a copy of any such instrument to the Commission upon request. SERVICE CORPORATION INTERNATIONAL By: /s/ James M. Shelger ------------------------------ James M. Shelger Senior Vice President Date: March 28, 1997 EX-10.3 3 EMPLOYMENT AGREEMENT - R.L. WALTRIP 1 EXHIBIT 10.3 EMPLOYMENT AGREEMENT EMPLOYMENT AGREEMENT (the "Agreement") made and entered into as of this 11th day of November, 1991, amended and restated as of August 12, 1992, further amended and restated as of May 12, 1993 and further amended and restated as of January 1, 1997 by and between SCI EXECUTIVE SERVICES, INC., a Delaware corporation (the "Company") wholly owned by and successor by assignment to all of the rights, duties and obligations under this Agreement of SERVICE CORPORATION INTERNATIONAL, a Texas corporation (the "Parent"), and R. L. Waltrip (the"Employee"); WHEREAS, in order to achieve certain administrative efficiencies in providing professional management services to its affiliated companies, the Parent has transferred the Employee to the employ of the Company effective January 1, 1997; WHEREAS, the Company, the Parent and the Employee desire to join in the execution of this amended and restated Agreement to (i) provide for the transfer of the employment of the Employee and (ii) set out more fully the rights, duties and obligations of the parties hereto; WHEREAS, Employee is employed by the Company in a management capacity, has extraordinary access to the Company's confidential business information, and has significant duties and responsibilities in connection with the conduct of the Company's business which places Employee in a special and uncommon classification of employees; WHEREAS, attendant to Employee's employment by the Company, the Company and Employee wish for there to be a complete understanding and agreement between the Company and Employee with respect to the fiduciary duties owed by Employee to the Company; Employee's obligation to avoid conflicts of interest, disclose pertinent information to the Company, and refrain from using or disclosing the Company's information; the term of employment and conditions for or upon termination thereof; the compensation and benefits owed to Employee; and the post-employment obligations Employee owes to the Company; and WHEREAS, but for Employee's agreement to the covenants and conditions of this Agreement, particularly the conflict of interest provisions, the provisions with respect to confidentiality of information and the ownership of intellectual property, and the post-employment obligations of Employee, the Company would not have entered into this Agreement; NOW, THEREFORE, in consideration of Employee's employment by the Company and the mutual promises and covenants contained herein, the receipt and sufficiency of such consideration being hereby acknowledged, the Company and Employee agree as follows: 2 1. Employment and Term. The Company agrees to employ the Employee and the Employee agrees to remain in the employ of the Company, in accordance with the terms and provisions of this Agreement, for the period beginning on the date of this Agreement (i.e. November 11, 1991) and ending as of the close of business on the fifth (5th) anniversary of the date hereof (such period together with all extensions thereof, including any Change of Control Period (as defined in Section 16(b) below), are referred to hereinafter as the "Employment Period"); provided, however, that commencing on the date one year after the date hereof, and on each annual anniversary of such date (such date and each annual anniversary thereof shall be hereinafter referred to as a "Renewal Date") the Employment Period shall be automatically extended so as to terminate five (5) years from such Renewal Date, unless at least 60 days prior to the Renewal Date either the Company or the Employee gives the other written notice that the Employment Period shall not be so extended. 2. Duties and Powers of Employee. (a) Position; Location. During the Employment Period, the Employee shall perform such duties and have such powers as designated by the Board of Directors of the Company (the "Board") or any duly authorized committee thereof in connection with the execution of this Agreement. The Employee's services shall be performed at the location where the Employee is currently employed or any office which is the headquarters of the Company and is less than 50 miles from such location. During the Change of Control Period, the Employee's position (including status, offices, titles and reporting requirements), authority, duties and responsibilities shall be at least commensurate in all material respects with the most significant of those held, exercised and assigned with or by the Company or the Parent at any time during the 90-day period immediately preceding the Change of Control Date (as defined in Section 16(a) below). (b) Duties. During the Employment Period, and excluding any periods of vacation and sick leave to which the Employee is entitled, the Employee agrees to devote his attention and time during normal business hours to the business and affairs of the Company and to use the Employee's best efforts to perform faithfully and efficiently such responsibilities. During the Employment Period it shall not be a violation of this Agreement for the Employee to (i) serve on corporate, civic or charitable boards or committees, (ii) deliver lectures, fulfill speaking engagements or teach at educational institutions and (iii) manage personal investments, so long as such activities do not significantly interfere with the performance of the Employee's responsibilities as an employee of the Company in accordance with this Agreement. It is expressly understood and agreed that to the extent that any such activities have been conducted by the Employee prior to the date of this Agreement or subsequent thereto consistent with this Section 2(b), the continued conduct of such activities (or the conduct of activities similar in nature and scope thereto) shall not thereafter be deemed to interfere with the performance of the Employee's responsibilities to the Company. (c) Employee agrees and acknowledges that he owes, and will comply with, a fiduciary duty of loyalty, fidelity or allegiance to act at all times in the best interests of the Company and to take no action or fail to take action if such action or failure to act would injure the Company's business, its interests or its reputation. 2 3 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 $798,000.00 per year, in substantially equal bi-weekly installments, and subject to any and all required withholdings and deductions for Social Security, income taxes and the like. The Board may from time to time direct such upward adjustments to Annual Base Salary as the Board deems to be appropriate or desirable; provided, however, that during the Change of Control Period, the Annual Base Salary shall be reviewed at least annually and shall be increased at any time and from time to time as shall be substantially consistent with increases in base salary generally awarded in the ordinary course of business to other employees of comparable rank with the Company and its affiliated companies (as defined in Section 16(d) below). Annual Base Salary shall not be reduced after any increase thereof pursuant to this Section 3(a). Any increase in Annual Base Salary shall not serve to limit or reduce any other obligation of the Company under this Agreement. (b) Incentive Cash Compensation. During the Employment Period, he shall be eligible annually for a cash bonus at the discretion of the Board (such aggregate awards for each year are hereinafter referred to as the "Annual Bonus") and at the discretion of the Board to receive awards from any plan of the Company or any of its affiliated companies providing for the payment of bonuses in cash to employees of the Company or its affiliated companies having rank comparable to that of the Employee (such plans being referred to herein collectively as the "Cash Bonus Plans") in accordance with the terms thereof; provided, however, that, during the Change of Control Period, the Employee shall be awarded, for each fiscal year ending during the Change of Control Period, an Annual Bonus at least equal to the Highest Recent Bonus (as defined in Section 16(e) below). Each Annual Bonus shall be paid no later than the end of the third month of the fiscal year next following the fiscal year for which the Annual Bonus is awarded, unless the Employee shall elect to defer the receipt of such Annual Bonus. (c) Incentive and Savings and Retirement Plans. During the Employment Period, the Employee shall be entitled to participate in all incentive and savings (in addition to the Cash Bonus Plans) and retirement plans, practices, policies and programs applicable generally to other employees of comparable rank with the Company and its affiliated companies. (d) Welfare Benefit Plans. During the Employment Period, the Employee and/or the Employee's family, as the case may be, shall be eligible for participation in all welfare benefit plans, practices, policies and programs provided by the Company and its affiliated companies (including, without limitation, medical, prescription, dental, disability, salary continuance, employee life, group life, accidental death and travel accident insurance plans and programs) to the extent applicable generally to other employees of comparable rank with the Company and its affiliated companies. (e) Expenses. During the Employment Period and for so long as the Employee is employed by the Company, he shall be entitled to receive prompt reimbursement 3 4 for all reasonable expenses incurred by the Employee in accordance with the policies, practices and procedures of the Company and its affiliated companies from time to time in effect. (f) Fringe Benefits. During the Employment Period, the Employee shall be entitled to fringe benefits in accordance with the plans, practices, programs and policies of the Company and its affiliated companies from time to time in effect, commensurate with his position and on a basis at least comparable to those received by other employees of comparable rank with the Company and its affiliated companies. (g) Office and Support Staff. During the Employment Period, the Employee shall be entitled to an office or offices of a size and with furnishings and other appointments, and to exclusive personal secretarial and other assistance, commensurate with his position and on a basis at least comparable to those received by other employees of comparable rank with the Company and its affiliated companies. (h) Vacation and Other Absences. During the Employment Period, the Employee shall be entitled to paid vacation and such other paid absences whether for holidays, illness, personal time or any similar purposes, in accordance with the plans, policies, programs and practices of the Company and its affiliated companies in effect from time to time, commensurate with his position and on a basis at least comparable to those received by other employees of comparable rank with the Company and its affiliated companies. (i) During the Change of Control Period, the Employee's benefits listed under Sections 3(c), 3(d), 3(e), 3(f), 3(g) and 3(h) above shall be at least commensurate in all material respects with the most valuable and favorable of those received by the Employee at any time during the 90-day period immediately preceding the Change of Control Date. 4. Termination of Employment. (a) Death or Disability. The Employment Period shall terminate automatically upon the Employee's death during the Employment Period. If the Company determines in good faith that the Disability of the Employee has occurred during the Employment Period (pursuant to the definition of Disability set forth below), it may give to the Employee written notice in accordance with Section 17(b) of its intention to terminate the Employment Period. In such event, the Employment Period shall terminate effective on the 30th day after receipt of such notice by the Employee (the "Disability Effective Date"), provided that, within the 30 days after such receipt, the Employee shall not have returned to full-time performance of the Employee's duties. For purposes of this Agreement, "Disability" shall mean the inability of the Employee to perform the Employee's duties with the Company on a full-time basis as a result of incapacity due to mental or physical illness which continues for more than one year after the commencement of such incapacity, such incapacity to be determined by a physician selected by the Company or its insurers and acceptable to the Employee or the Employee's legal representative (such agreement as to acceptability not to be withheld unreasonably). (b) Cause. The Company may terminate the Employment Period for Cause. For purposes of this Agreement, "Cause" shall mean (i) a material breach by the Employee of 4 5 Section 9 which is willful on the Employee's part or which is committed in bad faith or without reasonable belief that such breach is in the best interests of the Company and its affiliated companies, or (ii) a material breach by the Employee of the Employee's obligations under Section 2 (other than a breach of the Employee's obligations under Section 2 arising from the failure of the Employee to work as a result of incapacity due to physical or mental illness) or any material breach by the Employee of Section 10, 11 or 12 of this Agreement which in either case is willful on the Employee's part, which is committed in bad faith or without reasonable belief that such breach is in the best interests of the Company and its affiliated companies and which is not remedied in a reasonable period of time after receipt of written notice from the Company specifying such breach, or (iii) the conviction of the Employee of a felony involving malice which conviction has been affirmed on appeal or as to which the period in which an appeal can be taken has lapsed. (c) Good Reason; Window Period. The Employee's employment may be terminated (i) by the Employee for Good Reason (as defined below) or (ii) during the Window Period (as defined below) by the Employee without any reason. For purposes of this Agreement, the "Window Period" shall mean the 30-day period immediately following the first anniversary of the Change of Control Date. For purposes of this Agreement, "Good Reason" shall mean (i) the assignment to the Employee of any duties inconsistent in any respect with the Employee's position (including status, offices, titles and reporting requirements), authority, duties or responsibilities 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 15(c), provided that the successor referred to in Section 15(c) has received at least ten days prior written notice from the Company or the Employee of the requirements of Section 15(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. 5 6 (d) Notice of Termination. Any termination by the Company for Cause or by the Employee without any reason during the Window Period or for Good Reason shall be communicated by Notice of Termination to the other party hereto given in accordance with Section 17(b). For purposes of this Agreement, a "Notice of Termination" means a written notice which (i) indicates the specific termination provision in this Agreement relied upon, (ii) to the extent applicable, sets forth in reasonable detail the facts and circumstances claimed to provide a basis for termination of the Employment Period under the provision so indicated and (iii) if the Date of Termination (as defined below) is other than the date of receipt of such notice, specifies the termination date (which date shall be not more than 15 days after the giving of such notice). The failure by the Employee or the Company to set forth in the Notice of Termination any fact or circumstance which contributes to a showing of Good Reason or Cause shall not waive any right of the Employee or the Company hereunder or preclude the Employee or the Company from asserting such fact or circumstance in enforcing the Employee's or the Company's rights hereunder. (e) Date of Termination. "Date of Termination" means (i) if the Employee's employment is terminated by the Company for Cause, or by the Employee during the Window Period or for Good Reason, the date of receipt of the Notice of Termination or any later date specified therein, as the case may be, (ii) if the Employee's employment is terminated by the Company other than for Cause or Disability, or by the Employee other than for Good Reason or during the Window Period, the Date of Termination shall be the date on which the Company or the Employee, as the case may be, notifies the other of such termination and (iii) if the Employee's employment is terminated by reason of death or Disability, the Date of Termination shall be the date of death of the Employee or the Disability Effective Date, as the case may be. 5. Obligations of the Company Upon Termination. (a) Certain Terminations Prior to Change of Control Date. If, during the Employment Period prior to any Change of Control Date, the employment of the Employee with the Company shall be terminated (i) by the Company other than for Cause, death or Disability or (ii) by the Employee for Good Reason, then, in lieu of the obligations of the Company under Section 3, (i) the Company shall pay to the Employee in a lump sum in cash within 30 days after the Date of Termination all Unpaid Agreement Amounts (as defined in Section 5(b)(i)(A) below) and (ii) notwithstanding any other provision hereunder, for the longer of (A) the remainder of the Employment Period or (B) to the extent compensation and/or benefits are provided under any plan, program, practice or policy, such longer period, if any, as such plan, program, practice or policy may provide, the Company shall continue to provide to the Employee the compensation and benefits provided in Sections 3(a), 3(c) and 3(d). (b) Certain Terminations After Change of Control Date. If, during the Change of Control Period, the employment of the Employee with the Company shall be terminated (i) by the Company other than for Cause, death or Disability or (ii) by the Employee either for Good Reason or without any reason during the Window Period, then, in lieu of the obligations of the Company under Section 3 and notwithstanding any other provision hereunder: 6 7 (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) Five (5) multiplied by the Employee's Annual Base Salary, plus (2) Five (5) multiplied by the Employee's Highest Recent Bonus; (ii) for the longer of (A) the remainder of the Employment Period or (B) to the extent benefits are provided under any plan, program, practice or policy, such longer period as such plan, program, practice or policy may provide, the Company shall continue benefits to the Employee and/or the Employee's family at least equal to those which would have been provided to them in accordance with the plans, programs, practices and policies described in Section 3(d) if the Employee's employment had not been terminated, in accordance with the most favorable plans, practices, programs or policies of the Company and its affiliated companies as in effect and applicable generally to other employees of comparable rank and their families during the 90-day period immediately preceding the Change of Control Date or, if more favorable to the Employee, as in effect generally at any time thereafter with respect to other employees of comparable rank with the Company and its affiliated companies and their families; provided, however, that if the Employee becomes reemployed with another employer and is eligible to receive medical or other welfare benefits under another employer provided plan, the medical and other welfare benefits described herein shall be required only to the extent not provided under such other plan during such applicable period of eligibility. For purposes of determining eligibility of the Employee for retiree benefits pursuant to such plans, practices, programs and policies, the Employee shall be considered to have remained employed until the end of the Employment Period and to have retired on the last day of such period; and 7 8 (iii) to the extent not theretofore paid or provided, the Company shall timely pay or provide to the Employee and/or the Employee's family for the remainder of the Employment Period any other amounts or benefits required to be paid or provided or which the Employee and/or the Employee's family is eligible to receive pursuant to this Agreement and under any plan, program, policy or practice or contract or agreement of the Company and its affiliated companies as in effect and applicable generally to other employees of comparable rank with the Company and its affiliated companies and their families during the 90- day period immediately preceding the Change of Control Date or, if more favorable to the Employee, as in effect generally thereafter with respect to other employees of comparable rank with the Company and its affiliated companies and their families. Such amounts received under this Section 5(b) shall be in lieu of any other amount of severance relating to salary or bonus continuation to be received by the Employee upon termination of employment of the Employee under any severance plan, policy or arrangement of the Company. (c) Termination as a Result of Death. If the Employee's employment is terminated by reason of the Employee's death during the Employment Period, in lieu of the obligations of the Company under Section 3, the Company shall pay or provide to the Employee's estate (i) all Accrued Obligations (which shall be paid in a lump sum in cash within 30 days after the Date of Termination) and the timely payment or provision of the Welfare Benefit Continuation (as defined below) and the Other Benefits (as defined below) and (ii) any cash amount to be received by the Employee or the Employee's family as a death benefit pursuant to the terms of any plan, policy or arrangement of the Company and its affiliated companies. "Welfare Benefit Continuation" shall mean the continuation of benefits to the Employee and/or the Employee's family for the longer of (i) five (5) years from the Date of Termination or (ii) the period provided by the plans, programs, policies or practices described in Section 3(d) in which the Employee participates as of the Date of Termination, such benefits to be at least equal to those which would have been provided to them in accordance with the plans, programs, practices and policies described in Section 3(d) if the Employee's employment had not been terminated, in accordance with the most favorable plans, practices, programs or policies of the Company and its affiliated companies as in effect and applicable generally to other 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, 8 9 if more favorable to the Employee, as in effect generally thereafter with respect to other employees of comparable rank with the Company and its affiliated companies and their families. (d) Termination as a Result of Disability. If the Employee's employment is terminated by reason of the Employee's Disability during the Employment Period, in lieu of the obligations of the Company under Section 3, the Company shall pay or provide to the Employee (i) all Accrued Obligations which shall be paid in a lump sum in cash within 30 days after the Date of Termination and the timely payment or provision of the Welfare Benefit Continuation and the Other Benefits, provided, however, that if the Employee becomes reemployed with another employer and is eligible to receive medical or other welfare benefits under another employer provided plan, the Welfare Benefit Continuation shall be required only to the extent not provided under such other plan during such applicable period of eligibility, and (ii) any cash amount to be received by the Employee as a disability benefit pursuant to the terms of any plan, policy or arrangement of the Company and its affiliated companies. (e) Cause; Other than for Good Reason. If the Employee's employment shall be terminated during the Employment Period by the Company for Cause or by the Employee other than during the Window Period and other than for Good Reason, in lieu of the obligations of the Company under Section 3, the Company shall pay to the Employee in a lump sum in cash within 30 days after the Date of Termination all Unpaid Agreement Amounts. 6. Non-exclusivity of Rights. Except as provided in Sections 5(a), 5(b)(i)(B), 5(b)(ii), 5(c) and 5(d), nothing in this Agreement shall prevent or limit the Employee's continuing or future participation in any plan, program, policy or practice provided by the Company or any of its affiliated companies and for which the Employee may qualify, nor shall anything herein limit or otherwise affect such rights as the Employee may have under any contract or agreement with the Company or any of its affiliated companies. Amounts which are vested benefits or which the Employee is otherwise entitled to receive under any plan, policy, practice or program of or any contract or agreement with the Company or any of its affiliated companies at or subsequent to the Date of Termination shall be payable in accordance with such plan, policy, practice or program or contract or agreement except as explicitly modified by this Agreement. 7. Full Settlement; Resolution of Disputes. (a) The Company's obligation to make the payments provided for in this Agreement and otherwise to perform its obligations hereunder shall not be affected by any set-off, counterclaim, recoupment, defense or other claim, right or action which the Company may have against the Employee or others. In no event shall the Employee be obligated to seek other employment or take any other action by way of mitigation of the amounts payable to the Employee under any of the provisions of this Agreement and, except as provided in 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 9 10 of any contest by the Employee about the amount of any payment pursuant to this Agreement), plus in each case interest on any payment required to be made under this Agreement but not timely paid at the rate provided for in Section 280G(d)(4) of the Internal Revenue Code of 1986, as amended (the "Code"). (b) If there shall be any dispute between the Company and the Employee (i) in the event of any termination of the Employee's employment by the Company, whether such termination was for Cause, or (ii) in the event of any termination of employment by the Employee, whether Good Reason existed, then, unless and until there is a final, nonappealable judgment by a court of competent jurisdiction declaring that such termination was for Cause or that the determination by the Employee of the existence of Good Reason was not made in good faith, the Company shall pay all amounts, and provide all benefits, to the Employee and/or the Employee's family or other beneficiaries, as the case may be, that the Company would be required to pay or provide pursuant to Section 5(a) or 5(b) as though such termination were by the Company without Cause or by the Employee with Good Reason. The Employee hereby undertakes to repay to the Company all such amounts to which the Employee is ultimately adjudged by such court not to be entitled. 8. Certain Additional Payments by the Company. (a) Anything in this Agreement to the contrary notwithstanding, in the event it shall be determined that any payment or distribution by the Company to or for the benefit of the Employee (whether paid or payable or distributed or distributable pursuant to the terms of this Agreement or otherwise, but determined without regard to any additional payments required under this Section 8) (a "Payment") would be subject to the excise tax imposed by Section 4999 of the Code or any interest or penalties are incurred by the Employee with respect to such excise tax (such excise tax, together with any such interest and penalties, are hereinafter collectively referred to as the "Excise Tax"), then the Employee shall be entitled to receive an additional payment (a "Gross-Up Payment") in an amount such that after payment by the Employee of all taxes (including any interest or penalties imposed with respect to such taxes), including, without limitation, any income taxes (and any interest and penalties imposed with respect thereto) and Excise Tax imposed upon the Gross-Up Payment, the Employee retains an amount of the Gross-Up Payment equal to the Excise Tax imposed upon the Payments. (b) Subject to the provisions of Section 8(c), all determinations required to be made under this Section 8, including whether and when a Gross-Up Payment is required and the amount of such Gross-Up Payment and the assumptions to be utilized in arriving at such determination, shall be made by the Company's outside independent auditor (the "Accounting Firm"), which shall provide detailed supporting calculations both to the Company and the Employee within 15 business days of the receipt of notice from the Employee that there has been a Payment, or such earlier time as is requested by the Company. In the event that the Accounting Firm is serving (or has served within the three years preceding the Change of Control Date) as accountant or auditor for the individual, entity or group effecting the Change of Control, or is unwilling or unable to perform its obligations pursuant to this Section 8, the Employee shall appoint another nationally recognized accounting firm to make the determinations required hereunder (which accounting firm shall then be referred to as the Accounting Firm 10 11 hereunder). All fees and expenses of the Accounting Firm shall be borne solely by the Company. Any Gross-Up Payment, as determined pursuant to this Section 8, shall be paid by the Company to the Employee within five days of the receipt of the Accounting Firm's determination. If the Accounting Firm determines that no Excise Tax is payable by the Employee, it shall furnish the Employee with a written opinion that failure to report the Excise Tax on the Employee's applicable federal income tax return would not result in the imposition of a negligence or similar penalty. Any determination by the Accounting Firm shall be binding upon the Company and the Employee. As a result of the uncertainty in the application of Section 4999 of the Code at the time of the initial determination by the Accounting Firm hereunder, it is possible that Gross-Up Payments which will not have been made by the Company should have been made ("Underpayment"), consistent with the calculations required to be made hereunder. In the event that the Company exhausts its remedies pursuant to Section 8(c) and the Employee thereafter is required to make a payment of any Excise Tax, the Accounting Firm shall determine the amount of the Underpayment that has occurred and any such Underpayment shall be promptly paid by the Company to or for the benefit of the Employee. (c) The Employee shall notify the Company in writing of any claim by the Internal Revenue Service that, if successful, would require the payment by the Company of the Gross-Up Payment. Such notification shall be given as soon as practicable but no later than ten business days after the Employee is informed in writing of such claim and shall apprise the Company of the nature of such claim and the date on which such claim is requested to be paid. The Employee shall not pay such claim prior to the expiration of the 30-day period following the date on which the Employee gives such notice to the Company (or such shorter period ending on the date that any payment of taxes with respect to such claim is due). If the Company notifies the Employee in writing prior to the expiration of such period that it desires to contest such claim, the Company, subject to the provisions of this Section 8(c), shall control all proceedings taken in connection with such contest and, at its sole option, may pursue or forgo any and all administrative appeals, proceedings, hearings and conferences with the taxing authority in respect of such claim and may, at its sole option, either direct the Employee to pay the tax claimed and sue for a refund or contest the claim in any permissible manner. In this connection, the Employee agrees, subject to the provisions of this Section 8(c), to (i) prosecute such contest to a determination before any administrative tribunal, in a court of initial jurisdiction and in one or more appellate courts, as the Company shall determine, (ii) give the Company any information reasonably requested by the Company relating to such claim, (iii) take such action in connection with contesting such claim as the Company shall reasonably request in writing from time to time, including, without limitation, accepting legal representation with respect to such claim by an attorney reasonably selected by the Company, (iv) cooperate with the Company in good faith in order effectively to contest such claim and (v) permit the Company to participate in any proceedings relating to such claim. The foregoing is subject, however, to the following: (A) the Company shall bear and pay directly all costs and expenses (including additional interest and penalties) incurred in connection with such contest and shall indemnify and hold the Employee harmless, on an after-tax basis, for any Excise Tax or income tax (including interest and penalties with respect thereto) imposed in connection therewith and the payment of costs and expenses in such connection, (B) if the Company directs the Employee to pay such claim and sue for a refund, the Company shall advance the amount of such payment 11 12 to the Employee, on an interest-free basis, and shall indemnify and hold the Employee harmless, on an after-tax basis, from any Excise Tax or income tax (including interest or penalties with respect thereto) imposed with respect to such advance or with respect to any imputed income with respect to such advance, (C) any extension of the statute of limitations relating to payment of taxes for the taxable year of the Employee with respect to which such contested amount is claimed to be due shall be limited solely to such contested amount and (D) the Company's control of the contest shall be limited to issues with respect to which a Gross-Up Payment would be payable hereunder and the Employee shall be entitled to settle or contest, as the case may be, any other issue raised by the Internal Revenue Service or any other taxing authority. (d) If, after the receipt by the Employee of an amount advanced by the Company pursuant to Section 8(c), the Employee becomes entitled to receive any refund with respect to such claim, the Employee shall (subject to the Company's complying with the requirements of Section 8(c)) promptly pay to the Company the amount of such refund (together with any interest paid or credited thereon after taxes applicable thereto). If, after the receipt by the Employee of an amount advanced by the Company pursuant to Section 8(c), a determination is made that the Employee shall not be entitled to any refund with respect to such claim and the Company does not notify the Employee in writing of its intent to contest such denial of refund prior to the expiration of 30 days after such determination, then such advance shall be forgiven and shall not be required to be repaid and the amount of such advance shall offset, to the extent thereof, the amount of Gross-Up Payment required to be paid. 9. Confidential Information. The Employee shall hold in a fiduciary capacity for the benefit of the Company all secret or confidential information, knowledge or data relating to the Company or any of its affiliated companies, and their respective businesses, which shall have been obtained by the Employee during the Employee's employment by the Company or any of its affiliated companies and which shall not be or become public knowledge (other than by acts by the Employee or representatives of the Employee in violation of this Agreement). After termination of the Employee's employment with the Company or any of its affiliated companies, the Employee shall not, without the prior written consent of the Company or as may otherwise be required by law or legal process, communicate or divulge any such information, knowledge or data to anyone other than the Company and those designated by it. In no event shall an asserted violation of the provisions of this Section 9 constitute a basis for deferring or withholding any amounts otherwise payable to the Employee under this Agreement. Subject to the previous sentence, nothing herein shall be construed as prohibiting the Company from pursuing any other remedies available to it for such breach or threatened breach, including the recovery of damages from the Employee. 10. Employee's Obligation to Avoid Conflicts of Interest. (a) In keeping with Employee's fiduciary duties to the Company, Employee agrees that he shall not knowingly become involved in circumstances constituting a conflict of interest with such duties, or upon discovery thereof, allow such a conflict to continue. Moreover, Employee agrees that he shall disclose to the Secretary of the Company any facts which might involve a conflict of interest that has not been approved by the Company. The Board hereby acknowledges and agrees that the 12 13 activities of Employee listed on Schedule A hereto do not, and the continuation of such activities will not, constitute a conflict of interest for purposes of this Section 10. (b) In this connection, it is agreed that any direct interest in, connection with, or benefit from any outside activities, particularly commercial activities, which might in any way adversely affect the Company or any of its affiliated companies, involves a possible conflict of interest. Circumstances in which a conflict of interest on the part of Employee would or might arise, and which should be reported immediately to the Company, include, but are not limited to, the following: (i) Ownership of a material interest in any lender, supplier, contractor, customer or other entity with which the Company or any of its affiliated companies does business; (ii) Acting in any capacity, including director, officer, partner, consultant, employee, distributor, agent or the like, for lenders, suppliers, contractors, subcontractors, customers or other entities with which the Company or any of its affiliated companies does business; (iii) Acceptance, directly or indirectly, of payments, services or loans from a lender, supplier, contractor, subcontractor, customer or other entity with which the Company or any of its affiliated companies does business, including but not limited to, gifts, trips, entertainment, or other favors of more than a nominal value, but excluding loans from publicly held insurance companies and commercial or savings banks at normal rates of interest; (iv) Misuse of information or facilities to which Employee has access in a manner which will be detrimental to the Company's or any of its affiliated companies' interest, such as utilization for Employee's own benefit of know-how or information developed through the Company's or any of its affiliated companies' business activities; (v) Disclosure or other misuse of information of any kind obtained through Employee's connection with the Company or any of its affiliated companies; or (vi) Acquiring or trading in, directly or indirectly, other properties or interests connected with the design or marketing of products or services designed or marketed by the Company or any of its affiliated companies. (c) In the event that the Company determines, in the exercise of its reasonable judgment, that a conflict of interest exists between the Employee and the Company or any of its affiliated companies, the Company shall notify the Employee in writing in accordance with Section 17(b) hereof, providing reasonably detailed information identifying the source of the 13 14 conflict of interest. Within the 60-day period following receipt of such notice, the Employee shall take action satisfactory to the Company to eliminate the conflict of interest. Failure of the Employee to take such action within such 60-day period shall constitute "Cause" under Section 4(b) hereof. 11. Disclosure of Information, Ideas, Concepts, Improvements, Discoveries and Inventions. As part of Employee's fiduciary duties to the Company, Employee agrees that during the Employment Period, and for a period of six (6) months after the Date of Termination, Employee shall promptly disclose in writing to the Company all information, ideas, concepts, improvements, discoveries and inventions, whether patentable or not, and whether or not reduced to practice, which are conceived, developed, made or acquired by Employee, either individually or jointly with others, and which relate to the business, products or services of the Company or any of its affiliated companies, irrespective of whether Employee utilized the Company's or any of its affiliated companies' time or facilities and irrespective of whether such information, idea, concept, improvement, discovery or invention was conceived, developed, discovered or acquired by Employee on the job, at home, or elsewhere. This obligation extends to all types of information, ideas and concepts, including information, ideas and concepts relating to new types of services, corporate opportunities, acquisition prospects, the identity of key representatives within acquisition prospect organizations, prospective names or service marks for the Company's or any of its affiliated companies' business activities, and the like. 12. Ownership of Information, Ideas, Concepts, Improvements, Discoveries and Inventions and all Original Works of Authorship. (a) All information, ideas, concepts, improvements, discoveries and inventions, whether patentable or not, which are conceived, made, developed or acquired by Employee or which are disclosed or made known to Employee, individually or in conjunction with others, during Employee's employment by the Company or any of its affiliated companies and which relate to the Company's or any of its affiliated companies' business, products or services (including all such information relating to corporate opportunities, research, financial and sales data, pricing and trading terms, evaluations, opinions, interpretations, acquisition prospects, the identity of customers or their requirements, the identity of key contacts within the customer's organizations or within the organization of acquisition prospects, or marketing and merchandising techniques, prospective names and marks) are and shall be the sole and exclusive property of the Company. Moreover, all drawings, memoranda, notes, records, files, correspondence, manuals, models, specifications, computer programs, maps and all other writings or materials of any type embodying any of such information, ideas, concepts, improvements, discoveries and inventions are and shall be the sole and exclusive property of the Company. (b) In particular, Employee hereby specifically sells, assigns and transfers to the Company all of his worldwide right, title and interest in and to all such information, ideas, concepts, improvements, discoveries or inventions, and any United States or foreign applications for patents, inventor's certificates or other industrial rights that may be filed thereon, including divisions, continuations, continuations-in-part, reissues and/or extensions thereof, and applications for registration of such names and marks. Both during the period of Employee's employment by the Company or any of its affiliated companies and thereafter, Employee shall 14 15 assist the Company and its nominee at all times in the protection of such information, ideas, concepts, improvements, discoveries or inventions, both in the United States and all foreign countries, including but not limited to, the execution of all lawful oaths and all assignment documents requested by the Company or its nominee in connection with the preparation, prosecution, issuance or enforcement of any applications for United States or foreign letters patent, including divisions, continuations, continuations-in-part, reissues, and/or extensions thereof, and any application for the registration of such names and marks. (c) Moreover, if during Employee's employment by the Company or any of its affiliated companies, Employee creates any original work of authorship fixed in any tangible medium of expression which is the subject matter of copyright (such as videotapes, written presentations on acquisitions, computer programs, drawings, maps, architectural renditions, models, manuals, brochures or the like) relating to the Company's or any of its affiliated companies' business, products, or services, whether such work is created solely by Employee or jointly with others, the Company shall be deemed the author of such work if the work is prepared by Employee in the scope of his or her employment; or, if the work is not prepared by Employee within the scope of his or her employment but is specially ordered by the Company as a contribution to a collective work, as a part of a motion picture or other audiovisual work, as a translation, as a supplementary work, as a compilation or as an instrumental text, then the work shall be considered to be work made for hire and the Company shall be the author of the work. In the event such work is neither prepared by the Employee within the scope of his or her employment or is not a work specially ordered and deemed to be a work made for hire, then Employee hereby agrees to assign, and by these presents does assign, to the Company all of Employee's worldwide right, title and interest in and to such work and all rights of copyright therein. Both during the period of Employee's employment by the Company or any of its affiliated companies and thereafter, Employee agrees to assist the Company and its nominee, at any time, in the protection of the Company's worldwide right, title and interest in and to the work and all rights of copyright therein, including but not limited to, the execution of all formal assignment documents requested by the Company or its nominee and the execution of all lawful oaths and applications for registration of copyright in the United States and foreign countries. 13. Employee's Post-Employment Non-Competition Obligations: In Certain Situations such Obligations Apply only if the Company Opts to Continue Employee's Salary Payment. (a) During the Employment Period and, subject to the conditions of Sections 13(b) and 13(c), for a period of five (5) years thereafter (the "Non-Competition Period") provided, however, that the Non-Competition Period shall not exceed five (5) years from the Date of Termination, Employee shall not, acting alone or in conjunction with others, directly or indirectly, in any of the business territories in which the Company or any of its affiliated companies is presently or at the time of termination of employment conducting business, engage in any business in competition with the business conducted by the Company or any of its affiliated companies at the time of the termination of the employment relationship, whether for his own account or by soliciting, canvassing or accepting any business or transaction for or from any other company or business in competition with such business of the Company or any of its affiliated companies. 15 16 (b) If Employee has been terminated for Cause (Section 4(b)) or if Employee terminates his employment for any reason other than for Good Reason or other than during the Window Period (Section 4(c)), Employee shall be bound by the obligations of Section 13(a) and the Company shall have no obligation to make the Non-Competition Payments (as defined in Section 13(c) below). However, if the employment relationship is terminated by any other circumstance or for any other reason, Employee's post-employment non-competition obligations required by Section 13(a) shall be subject to the Company's obligation to make the Non-Competition Payments specified in Section 13(c). (c) Notwithstanding the provisions of Section 4 of this Agreement, whenever the employment relationship is terminated due to the expiration of its term because the Company or Employee timely gave written notice of termination (Section 1), or due to Employee's Disability (Section 4(a)), or by the Company without Cause (Section 4(b)), unless the Company exercises its option as hereinafter provided, Employee shall be entitled to continue to receive payments (the "Non-Competition Payments") equal to his then current Annual Base Salary (as of the Date of Termination) during the Non-Competition Period. During the Non-Competition Period, the Employee shall not, however, be deemed to be an employee of the Company or be entitled to continue to receive any other employee benefits other than as set forth in Section 5 or Section 8. Moreover, the Non-Competition Payments shall be reduced to the extent Employee has already received lump-sum payments in lieu of salary and bonus pursuant to Section 5. The Company shall have the option, exercisable at any time within one (1) month after Employee's Date of Termination, to cancel Employee's post-employment non-competition obligations under Section 13(a) and the Company's corresponding obligation to make the Non-Competition Payments. Such option shall be exercised by the Company mailing a written notice thereof to Employee in accordance with Section 17(b); if the Company does not send such notice within the prescribed one-month time, the Company shall remain obligated to make the Non-Competition Payments and Employee shall remain obligated to comply with the provisions of Section 13(a). The purpose of this paragraph is to make the non-competition obligations of Employee more reasonable from the Employee's point of view. The amounts to be paid by the Company are not intended to be liquidated damages or an estimate of the actual damages that would be sustained by the Company if Employee breaches his post-employment non-competition obligations. If Employee breaches his post-employment non-competition obligations, the Company shall be entitled to cease making the Non-Competition Payments and shall be entitled to all of its remedies at law or in equity for damages and injunctive relief. 14. Obligations to Refrain From Competing Unfairly. In addition to the other obligations agreed to by Employee in this Agreement, Employee agrees that during the Employment Period and for five (5) years following the Date of Termination, he shall not at any time, directly or indirectly for the benefit of any other party than the Company or any of its affiliated companies, (a) induce, entice, or solicit any employee of the Company or any of its affiliated companies to leave his employment, or (b) contact, communicate or solicit any customer of the Company or any of its affiliated companies derived from any customer list, customer lead, mail, printed matter or other information secured from the Company or any of its affiliated companies or their present or past employees, or (c) in any other manner use any 16 17 customer lists or customer leads, mail, telephone numbers, printed material or material of the Company or any of its affiliated companies relating thereto. 15. Successors. (a) This Agreement is personal to the Employee and without the prior written consent of the Company shall not be assignable by the Employee otherwise than by will or the laws of descent and distribution. This Agreement shall inure to the benefit of and be enforceable by the Employee's legal representatives. (b) This Agreement shall inure to the benefit of and be binding upon the Company and its successors and assigns. (c) The Company will require any successor (whether direct or indirect, by purchase, merger, consolidation or otherwise) to all or substantially all of the business and/or assets of the Company or the Company to assume expressly and agree to perform this Agreement in the same manner and to the same extent that the Company would be required to perform it if no such succession had taken place. As used in this Agreement, "Company" shall mean the Company as hereinbefore defined and any successor to its business and/or assets as aforesaid which assumes and agrees to perform this Agreement by operation of law, or otherwise. The Parent will require any successor (whether direct or indirect, by purchase, merger, consolidation or otherwise) to all or substantially all of the business and/or assets of the Parent or the Parent to assume expressly and agree to perform the Parent's obligations hereunder in the same manner and to the same extent that the Parent would be required to perform them if no such succession had taken place. As used in this Agreement, "Parent" shall mean the Parent as hereinbefore defined and any successor to its business and/or assets as aforesaid which assumes and agrees to perform the Parent's obligations hereunder by operation of law, or otherwise. 16. Certain Definitions. The following defined terms used in this Agreement shall have the meanings indicated: (a) The "Change of Control Date" shall mean the first date on which a Change of Control occurs. Anything in this Agreement to the contrary notwithstanding, if a Change of Control occurs and if the Employee's employment with the Company is terminated or the Employee ceases to have the position with the Company or the Parent which the Employee had prior to the date on which the Change of Control occurs, and if it is reasonably demonstrated by the Employee that such termination or cessation (i) was at the request of a third party who has taken steps reasonably calculated to effect the Change of Control or (ii) otherwise arose in connection with or anticipation of the Change of Control, then, for all purposes of this Agreement, the "Change of Control Date" shall mean the date immediately prior to the date of such termination or cessation. (b) The "Change of Control Period" shall mean the period commencing on the Change of Control Date and ending on the last day of the Employment Period. (c) "Change of Control" shall mean: 17 18 (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 comprising 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 was comprised of at least five members and all members of such committee were either members of the Incumbent Board or considered as being members of the Incumbent Board pursuant to clause (A) of this subsection (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 18 19 to such reorganization, merger or consolidation, of the Outstanding Parent Common Stock and Outstanding Parent Voting Securities, as the case may be, (B) no Person (excluding the Parent, any employee benefit plan or related trust of the Parent or such corporation resulting from such reorganization, merger or consolidation and any Person beneficially owning, immediately prior to such reorganization, merger or consolidation, directly or indirectly, 20% or more of the Outstanding Parent Common Stock or Outstanding Parent Voting Securities, as the case may be) beneficially owns, directly or indirectly, 20% or more of, respectively, the then outstanding shares of common stock of the corporation resulting from such reorganization, merger or consolidation or the combined voting power of the then outstanding voting securities of such corporation entitled to vote generally in the election of directors and (C) at least a majority of the members of the board of directors of the corporation resulting from such reorganization, merger or consolidation were members of the Incumbent Board at the time of the execution of the initial agreement providing for such reorganization, merger or consolidation; or (iv) Approval by the shareholders of the Parent of (A) a complete liquidation or dissolution of the Parent or (B) the sale or other disposition of all or substantially all of the assets of the Parent, other than to a corporation, with respect to which following such sale or other disposition, (A) more than 60% of, respectively, the then outstanding shares of common stock of such corporation and the combined voting power of the then outstanding voting securities of such corporation entitled to vote generally in the election of directors is then beneficially owned, directly or indirectly, by all or substantially all of the individuals and entities who were the beneficial owners, respectively, of the Outstanding Parent Common Stock and Outstanding Parent Voting Securities immediately prior to such sale or other disposition in substantially the same proportion as their ownership, immediately prior to such sale or other disposition, of the Outstanding Parent Common Stock and Outstanding Parent Voting Securities, as the case may be, (B) no Person (excluding the Parent and any employee benefit plan or related trust of the Parent or such corporation and any Person beneficially owning, immediately prior to such sale or other disposition, directly or indirectly, 20% or more of the Outstanding Parent Common Stock or Outstanding Parent Voting Securities, as the case may be) beneficially owns, directly or indirectly, 20% or more of, respectively, the then outstanding shares of common stock of such corporation and the combined voting power of the then outstanding voting securities of such corporation entitled to vote generally in the election of directors and (C) at least a majority of the members of the Board of Directors of such corporation were members of the Incumbent Board at the time of the execution of the initial agreement or action of the Board of Directors of the Parent providing for such sale or other disposition of assets of the Parent. (d) The term "affiliated company" shall mean any company controlled by, controlling or under common control with the Company. (e) The term "Highest Recent Bonus" shall mean the highest Annual Bonus (annualized for any fiscal year consisting of less than twelve full months) paid or payable, 19 20 including by reason of any deferral, to the Employee by the Company and its affiliated companies in respect of the three most recent full fiscal years ending on or prior to, (i) if prior to a Change of Control, the Date of Termination, or (ii) if after a Change of Control, the Change of Control Date. 17. Miscellaneous. (a) This Agreement replaces and merges all previous agreements and discussions relating to the same or similar subject matters between Employee and the Company and shall be governed by and construed in accordance with the laws of the State of Texas, without reference to principles of conflict of laws. The captions of this Agreement are not part of the provisions hereof and shall have no force or effect. This Agreement may not be amended, modified, repealed, waived, extended or discharged except by an agreement in writing signed by the party against whom enforcement of such amendment, modification, repeal, waiver, extension or discharge is sought. No person, other than pursuant to a resolution of the Board or a duly authorized committee thereof, shall have authority on behalf of the Company to agree to amend, modify, repeal, waive, extend or discharge any provision of this Agreement or anything in reference thereto. (b) All notices and other communications hereunder shall be in writing and shall be given by hand delivery to the other party or by registered or certified mail, return receipt requested, postage prepaid, addressed as follows: If to the Employee: R. L. Waltrip 1929 Allen Parkway Houston, TX 77019 If to the Company: SCI Executive Services, Inc. 1929 Allen Parkway Houston, Texas 77019 Attention: Corporate Secretary or to such other address as either party shall have furnished to the other in writing in accordance herewith. Notice and communications shall be effective when actually received by the addressee. (c) The invalidity or unenforceability of any provision of this Agreement shall not affect the validity or enforceability of any other provision of this Agreement. (d) The Company may withhold from any amounts payable under this Agreement such federal, state or local taxes as shall be required to be withheld pursuant to any applicable law or regulation. 20 21 (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 of Directors of the Company, the Company have caused this Agreement to be executed this 1st day of January, 1997, effective as of the day and year first above written. R. L. WALTRIP /s/ R. L. WALTRIP --------------------------------- "EMPLOYEE" SCI EXECUTIVE SERVICES, INC. By: /s/ CURTIS G. BRIGGS ------------------------------ Curtis G. Briggs Vice President "COMPANY" 21 22 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 ------------------------------ James M. Shelger Senior Vice President General Counsel & Secretary "PARENT" 22 EX-10.5 4 EMPLOYMENT AGREEMENT - L. WILLIAM HEILIGBRODT 1 EXHIBIT 10.5 EMPLOYMENT AGREEMENT EMPLOYMENT AGREEMENT (the "Agreement") made and entered into as of this 11th day of November, 1991, amended and restated as of August 12, 1992, further amended and restated May 12, 1993, and further amended and restated as of January 1, 1997 by and between SCI EXECUTIVE SERVICES, INC., a Delaware corporation (the "Company") wholly owned by and successor by assignment to all of the rights, duties and obligations under this Agreement of SERVICE CORPORATION INTERNATIONAL, a Texas corporation (the "Parent"), and L. William Heiligbrodt (the"Employee"); WHEREAS, in order to achieve certain administrative efficiencies in providing professional management services to its affiliated companies, the Parent has transferred the Employee to the employ of the Company effective January 1, 1997; WHEREAS, the Company, the Parent and the Employee desire to join in the execution of this amended and restated Agreement to (i) provide for the transfer of the employment of the Employee and (ii) set out more fully the rights, duties and obligations of the parties hereto; WHEREAS, Employee is employed by the Company in a management capacity, has extraordinary access to the Company's confidential business information, and has significant duties and responsibilities in connection with the conduct of the Company's business which places Employee in a special and uncommon classification of employees; WHEREAS, attendant to Employee's employment by the Company, the Company and Employee wish for there to be a complete understanding and agreement between the Company and Employee with respect to the fiduciary duties owed by Employee to the Company; Employee's obligation to avoid conflicts of interest, disclose pertinent information to the Company, and refrain from using or disclosing the Company's information; the term of employment and conditions for or upon termination thereof; the compensation and benefits owed to Employee; and the post-employment obligations Employee owes to the Company; and WHEREAS, but for Employee's agreement to the covenants and conditions of this Agreement, particularly the conflict of interest provisions, the provisions with respect to confidentiality of information and the ownership of intellectual property, and the post-employment obligations of Employee, the Company would not have entered into this Agreement; NOW, THEREFORE, in consideration of Employee's employment by the Company and the mutual promises and covenants contained herein, the receipt and sufficiency of such consideration being hereby acknowledged, the Company and Employee agree as follows: 2 1. Employment and Term. The Company agrees to employ the Employee and the Employee agrees to remain in the employ of the Company, in accordance with the terms and provisions of this Agreement, for the period beginning on the date of this Agreement (i.e. November 11, 1991) and ending as of the close of business on the fourth (4th) anniversary of the date hereof (such period together with all extensions thereof, including any Change of Control Period (as defined in Section 16(b) below), are referred to hereinafter as the "Employment Period"); provided, however, that commencing on the date one year after the date hereof, and on each annual anniversary of such date (such date and each annual anniversary thereof shall be hereinafter referred to as a "Renewal Date") the Employment Period shall be automatically extended so as to terminate four (4) years from such Renewal Date, unless at least 60 days prior to the Renewal Date either the Company or the Employee gives the other written notice that the Employment Period shall not be so extended. 2. Duties and Powers of Employee. (a) Position; Location. During the Employment Period, the Employee shall perform such duties and have such powers as designated by the Board of Directors of the Company (the "Board") or any duly authorized committee thereof in connection with the execution of this Agreement. The Employee's services shall be performed at the location where the Employee is currently employed or any office which is the headquarters of the Company and is less than 50 miles from such location. During the Change of Control Period, the Employee's position (including status, offices, titles and reporting requirements), authority, duties and responsibilities shall be at least commensurate in all material respects with the most significant of those held, exercised and assigned with or by the Company or the Parent at any time during the 90-day period immediately preceding the Change of Control Date (as defined in Section 16(a) below). (b) Duties. During the Employment Period, and excluding any periods of vacation and sick leave to which the Employee is entitled, the Employee agrees to devote his attention and time during normal business hours to the business and affairs of the Company and to use the Employee's best efforts to perform faithfully and efficiently such responsibilities. During the Employment Period it shall not be a violation of this Agreement for the Employee to (i) serve on corporate, civic or charitable boards or committees, (ii) deliver lectures, fulfill speaking engagements or teach at educational institutions and (iii) manage personal investments, so long as such activities do not significantly interfere with the performance of the Employee's responsibilities as an employee of the Company in accordance with this Agreement. It is expressly understood and agreed that to the extent that any such activities have been conducted by the Employee prior to the date of this Agreement or subsequent thereto consistent with this Section 2(b), the continued conduct of such activities (or the conduct of activities similar in nature and scope thereto) shall not thereafter be deemed to interfere with the performance of the Employee's responsibilities to the Company. (c) Employee agrees and acknowledges that he owes, and will comply with, a fiduciary duty of loyalty, fidelity or allegiance to act at all times in the best interests of the Company and to take no action or fail to take action if such action or failure to act would injure the Company's business, its interests or its reputation. 2 3 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 $516,000.00 per year, in substantially equal bi-weekly installments, and subject to any and all required withholdings and deductions for Social Security, income taxes and the like. The Board may from time to time direct such upward adjustments to Annual Base Salary as the Board deems to be appropriate or desirable; provided, however, that during the Change of Control Period, the Annual Base Salary shall be reviewed at least annually and shall be increased at any time and from time to time as shall be substantially consistent with increases in base salary generally awarded in the ordinary course of business to other employees of comparable rank with the Company and its affiliated companies (as defined in Section 16(d) below). Annual Base Salary shall not be reduced after any increase thereof pursuant to this Section 3(a). Any increase in Annual Base Salary shall not serve to limit or reduce any other obligation of the Company under this Agreement. (b) Incentive Cash Compensation. During the Employment Period, he shall be eligible annually for a cash bonus at the discretion of the Board (such aggregate awards for each year are hereinafter referred to as the "Annual Bonus") and at the discretion of the Board to receive awards from any plan of the Company or any of its affiliated companies providing for the payment of bonuses in cash to employees of the Company or its affiliated companies having rank comparable to that of the Employee (such plans being referred to herein collectively as the "Cash Bonus Plans") in accordance with the terms thereof; provided, however, that, during the Change of Control Period, the Employee shall be awarded, for each fiscal year ending during the Change of Control Period, an Annual Bonus at least equal to the Highest Recent Bonus (as defined in Section 16(e) below). Each Annual Bonus shall be paid no later than the end of the third month of the fiscal year next following the fiscal year for which the Annual Bonus is awarded, unless the Employee shall elect to defer the receipt of such Annual Bonus. (c) Incentive and Savings and Retirement Plans. During the Employment Period, the Employee shall be entitled to participate in all incentive and savings (in addition to the Cash Bonus Plans) and retirement plans, practices, policies and programs applicable generally to other employees of comparable rank with the Company and its affiliated companies. (d) Welfare Benefit Plans. During the Employment Period, the Employee and/or the Employee's family, as the case may be, shall be eligible for participation in all welfare benefit plans, practices, policies and programs provided by the Company and its affiliated companies (including, without limitation, medical, prescription, dental, disability, salary continuance, employee life, group life, accidental death and travel accident insurance plans and programs) to the extent applicable generally to other employees of comparable rank with the Company and its affiliated companies. (e) Expenses. During the Employment Period and for so long as the Employee is employed by the Company, he shall be entitled to receive prompt reimbursement 3 4 for all reasonable expenses incurred by the Employee in accordance with the policies, practices and procedures of the Company and its affiliated companies from time to time in effect. (f) Fringe Benefits. During the Employment Period, the Employee shall be entitled to fringe benefits in accordance with the plans, practices, programs and policies of the Company and its affiliated companies from time to time in effect, commensurate with his position and on a basis at least comparable to those received by other employees of comparable rank with the Company and its affiliated companies. (g) Office and Support Staff. During the Employment Period, the Employee shall be entitled to an office or offices of a size and with furnishings and other appointments, and to exclusive personal secretarial and other assistance, commensurate with his position and on a basis at least comparable to those received by other employees of comparable rank with the Company and its affiliated companies. (h) Vacation and Other Absences. During the Employment Period, the Employee shall be entitled to paid vacation and such other paid absences whether for holidays, illness, personal time or any similar purposes, in accordance with the plans, policies, programs and practices of the Company and its affiliated companies in effect from time to time, commensurate with his position and on a basis at least comparable to those received by other employees of comparable rank with the Company and its affiliated companies. (i) During the Change of Control Period, the Employee's benefits listed under Sections 3(c), 3(d), 3(e), 3(f), 3(g) and 3(h) above shall be at least commensurate in all material respects with the most valuable and favorable of those received by the Employee at any time during the 90-day period immediately preceding the Change of Control Date. 4. Termination of Employment. (a) Death or Disability. The Employment Period shall terminate automatically upon the Employee's death during the Employment Period. If the Company determines in good faith that the Disability of the Employee has occurred during the Employment Period (pursuant to the definition of Disability set forth below), it may give to the Employee written notice in accordance with Section 17(b) of its intention to terminate the Employment Period. In such event, the Employment Period shall terminate effective on the 30th day after receipt of such notice by the Employee (the "Disability Effective Date"), provided that, within the 30 days after such receipt, the Employee shall not have returned to full-time performance of the Employee's duties. For purposes of this Agreement, "Disability" shall mean the inability of the Employee to perform the Employee's duties with the Company on a full-time basis as a result of incapacity due to mental or physical illness which continues for more than one year after the commencement of such incapacity, such incapacity to be determined by a physician selected by the Company or its insurers and acceptable to the Employee or the Employee's legal representative (such agreement as to acceptability not to be withheld unreasonably). (b) Cause. The Company may terminate the Employment Period for Cause. For purposes of this Agreement, "Cause" shall mean (i) a material breach by the Employee of 4 5 Section 9 which is willful on the Employee's part or which is committed in bad faith or without reasonable belief that such breach is in the best interests of the Company and its affiliated companies, or (ii) a material breach by the Employee of the Employee's obligations under Section 2 (other than a breach of the Employee's obligations under Section 2 arising from the failure of the Employee to work as a result of incapacity due to physical or mental illness) or any material breach by the Employee of Section 10, 11 or 12 of this Agreement which in either case is willful on the Employee's part, which is committed in bad faith or without reasonable belief that such breach is in the best interests of the Company and its affiliated companies and which is not remedied in a reasonable period of time after receipt of written notice from the Company specifying such breach, or (iii) the conviction of the Employee of a felony involving malice which conviction has been affirmed on appeal or as to which the period in which an appeal can be taken has lapsed. (c) Good Reason; Window Period. The Employee's employment may be terminated (i) by the Employee for Good Reason (as defined below) or (ii) during the Window Period (as defined below) by the Employee without any reason. For purposes of this Agreement, the "Window Period" shall mean the 30-day period immediately following the first anniversary of the Change of Control Date. For purposes of this Agreement, "Good Reason" shall mean (i) the assignment to the Employee of any duties inconsistent in any respect with the Employee's position (including status, offices, titles and reporting requirements), authority, duties or responsibilities 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 15(c), provided that the successor referred to in Section 15(c) has received at least ten days prior written notice from the Company or the Employee of the requirements of Section 15(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. 5 6 (d) Notice of Termination. Any termination by the Company for Cause or by the Employee without any reason during the Window Period or for Good Reason shall be communicated by Notice of Termination to the other party hereto given in accordance with Section 17(b). For purposes of this Agreement, a "Notice of Termination" means a written notice which (i) indicates the specific termination provision in this Agreement relied upon, (ii) to the extent applicable, sets forth in reasonable detail the facts and circumstances claimed to provide a basis for termination of the Employment Period under the provision so indicated and (iii) if the Date of Termination (as defined below) is other than the date of receipt of such notice, specifies the termination date (which date shall be not more than 15 days after the giving of such notice). The failure by the Employee or the Company to set forth in the Notice of Termination any fact or circumstance which contributes to a showing of Good Reason or Cause shall not waive any right of the Employee or the Company hereunder or preclude the Employee or the Company from asserting such fact or circumstance in enforcing the Employee's or the Company's rights hereunder. (e) Date of Termination. "Date of Termination" means (i) if the Employee's employment is terminated by the Company for Cause, or by the Employee during the Window Period or for Good Reason, the date of receipt of the Notice of Termination or any later date specified therein, as the case may be, (ii) if the Employee's employment is terminated by the Company other than for Cause or Disability, or by the Employee other than for Good Reason or during the Window Period, the Date of Termination shall be the date on which the Company or the Employee, as the case may be, notifies the other of such termination and (iii) if the Employee's employment is terminated by reason of death or Disability, the Date of Termination shall be the date of death of the Employee or the Disability Effective Date, as the case may be. 5. Obligations of the Company Upon Termination. (a) Certain Terminations Prior to Change of Control Date. If, during the Employment Period prior to any Change of Control Date, the employment of the Employee with the Company shall be terminated (i) by the Company other than for Cause, death or Disability or (ii) by the Employee for Good Reason, then, in lieu of the obligations of the Company under Section 3, (i) the Company shall pay to the Employee in a lump sum in cash within 30 days after the Date of Termination all Unpaid Agreement Amounts (as defined in Section 5(b)(i)(A) below) and (ii) notwithstanding any other provision hereunder, for the longer of (A) the remainder of the Employment Period or (B) to the extent compensation and/or benefits are provided under any plan, program, practice or policy, such longer period, if any, as such plan, program, practice or policy may provide, the Company shall continue to provide to the Employee the compensation and benefits provided in Sections 3(a), 3(c) and 3(d). (b) Certain Terminations After Change of Control Date. If, during the Change of Control Period, the employment of the Employee with the Company shall be terminated (i) by the Company other than for Cause, death or Disability or (ii) by the Employee either for Good Reason or without any reason during the Window Period, then, in lieu of the obligations of the Company under Section 3 and notwithstanding any other provision hereunder: 6 7 (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) Four (4) multiplied by the Employee's Annual Base Salary, plus (2) Four (4) multiplied by the Employee's Highest Recent Bonus; (ii) for the longer of (A) the remainder of the Employment Period or (B) to the extent benefits are provided under any plan, program, practice or policy, such longer period as such plan, program, practice or policy may provide, the Company shall continue benefits to the Employee and/or the Employee's family at least equal to those which would have been provided to them in accordance with the plans, programs, practices and policies described in Section 3(d) if the Employee's employment had not been terminated, in accordance with the most favorable plans, practices, programs or policies of the Company and its affiliated companies as in effect and applicable generally to other employees of comparable rank and their families during the 90-day period immediately preceding the Change of Control Date or, if more favorable to the Employee, as in effect generally at any time thereafter with respect to other employees of comparable rank with the Company and its affiliated companies and their families; provided, however, that if the Employee becomes reemployed with another employer and is eligible to receive medical or other welfare benefits under another employer provided plan, the medical and other welfare benefits described herein shall be required only to the extent not provided under such other plan during such applicable period of eligibility. For purposes of determining eligibility of the Employee for retiree benefits pursuant to such plans, practices, programs and policies, the Employee shall be considered to have remained employed until the end of the Employment Period and to have retired on the last day of such period; and 7 8 (iii) to the extent not theretofore paid or provided, the Company shall timely pay or provide to the Employee and/or the Employee's family for the remainder of the Employment Period any other amounts or benefits required to be paid or provided or which the Employee and/or the Employee's family is eligible to receive pursuant to this Agreement and under any plan, program, policy or practice or contract or agreement of the Company and its affiliated companies as in effect and applicable generally to other employees of comparable rank with the Company and its affiliated companies and their families during the 90- day period immediately preceding the Change of Control Date or, if more favorable to the Employee, as in effect generally thereafter with respect to other employees of comparable rank with the Company and its affiliated companies and their families. Such amounts received under this Section 5(b) shall be in lieu of any other amount of severance relating to salary or bonus continuation to be received by the Employee upon termination of employment of the Employee under any severance plan, policy or arrangement of the Company. (c) Termination as a Result of Death. If the Employee's employment is terminated by reason of the Employee's death during the Employment Period, in lieu of the obligations of the Company under Section 3, the Company shall pay or provide to the Employee's estate (i) all Accrued Obligations (which shall be paid in a lump sum in cash within 30 days after the Date of Termination) and the timely payment or provision of the Welfare Benefit Continuation (as defined below) and the Other Benefits (as defined below) and (ii) any cash amount to be received by the Employee or the Employee's family as a death benefit pursuant to the terms of any plan, policy or arrangement of the Company and its affiliated companies. "Welfare Benefit Continuation" shall mean the continuation of benefits to the Employee and/or the Employee's family for the longer of (i) four (4) years from the Date of Termination or (ii) the period provided by the plans, programs, policies or practices described in Section 3(d) in which the Employee participates as of the Date of Termination, such benefits to be at least equal to those which would have been provided to them in accordance with the plans, programs, practices and policies described in Section 3(d) if the Employee's employment had not been terminated, in accordance with the most favorable plans, practices, programs or policies of the Company and its affiliated companies as in effect and applicable generally to other 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, 8 9 if more favorable to the Employee, as in effect generally thereafter with respect to other employees of comparable rank with the Company and its affiliated companies and their families. (d) Termination as a Result of Disability. If the Employee's employment is terminated by reason of the Employee's Disability during the Employment Period, in lieu of the obligations of the Company under Section 3, the Company shall pay or provide to the Employee (i) all Accrued Obligations which shall be paid in a lump sum in cash within 30 days after the Date of Termination and the timely payment or provision of the Welfare Benefit Continuation and the Other Benefits, provided, however, that if the Employee becomes reemployed with another employer and is eligible to receive medical or other welfare benefits under another employer provided plan, the Welfare Benefit Continuation shall be required only to the extent not provided under such other plan during such applicable period of eligibility, and (ii) any cash amount to be received by the Employee as a disability benefit pursuant to the terms of any plan, policy or arrangement of the Company and its affiliated companies. (e) Cause; Other than for Good Reason. If the Employee's employment shall be terminated during the Employment Period by the Company for Cause or by the Employee other than during the Window Period and other than for Good Reason, in lieu of the obligations of the Company under Section 3, the Company shall pay to the Employee in a lump sum in cash within 30 days after the Date of Termination all Unpaid Agreement Amounts. 6. Non-exclusivity of Rights. Except as provided in Sections 5(a), 5(b)(i)(B), 5(b)(ii), 5(c) and 5(d), nothing in this Agreement shall prevent or limit the Employee's continuing or future participation in any plan, program, policy or practice provided by the Company or any of its affiliated companies and for which the Employee may qualify, nor shall anything herein limit or otherwise affect such rights as the Employee may have under any contract or agreement with the Company or any of its affiliated companies. Amounts which are vested benefits or which the Employee is otherwise entitled to receive under any plan, policy, practice or program of or any contract or agreement with the Company or any of its affiliated companies at or subsequent to the Date of Termination shall be payable in accordance with such plan, policy, practice or program or contract or agreement except as explicitly modified by this Agreement. 7. Full Settlement; Resolution of Disputes. (a) The Company's obligation to make the payments provided for in this Agreement and otherwise to perform its obligations hereunder shall not be affected by any set-off, counterclaim, recoupment, defense or other claim, right or action which the Company may have against the Employee or others. In no event shall the Employee be obligated to seek other employment or take any other action by way of mitigation of the amounts payable to the Employee under any of the provisions of this Agreement and, except as provided in 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 9 10 of any contest by the Employee about the amount of any payment pursuant to this Agreement), plus in each case interest on any payment required to be made under this Agreement but not timely paid at the rate provided for in Section 280G(d)(4) of the Internal Revenue Code of 1986, as amended (the "Code"). (b) If there shall be any dispute between the Company and the Employee (i) in the event of any termination of the Employee's employment by the Company, whether such termination was for Cause, or (ii) in the event of any termination of employment by the Employee, whether Good Reason existed, then, unless and until there is a final, nonappealable judgment by a court of competent jurisdiction declaring that such termination was for Cause or that the determination by the Employee of the existence of Good Reason was not made in good faith, the Company shall pay all amounts, and provide all benefits, to the Employee and/or the Employee's family or other beneficiaries, as the case may be, that the Company would be required to pay or provide pursuant to Section 5(a) or 5(b) as though such termination were by the Company without Cause or by the Employee with Good Reason. The Employee hereby undertakes to repay to the Company all such amounts to which the Employee is ultimately adjudged by such court not to be entitled. 8. Certain Additional Payments by the Company. (a) Anything in this Agreement to the contrary notwithstanding, in the event it shall be determined that any payment or distribution by the Company to or for the benefit of the Employee (whether paid or payable or distributed or distributable pursuant to the terms of this Agreement or otherwise, but determined without regard to any additional payments required under this Section 8) (a "Payment") would be subject to the excise tax imposed by Section 4999 of the Code or any interest or penalties are incurred by the Employee with respect to such excise tax (such excise tax, together with any such interest and penalties, are hereinafter collectively referred to as the "Excise Tax"), then the Employee shall be entitled to receive an additional payment (a "Gross-Up Payment") in an amount such that after payment by the Employee of all taxes (including any interest or penalties imposed with respect to such taxes), including, without limitation, any income taxes (and any interest and penalties imposed with respect thereto) and Excise Tax imposed upon the Gross-Up Payment, the Employee retains an amount of the Gross-Up Payment equal to the Excise Tax imposed upon the Payments. (b) Subject to the provisions of Section 8(c), all determinations required to be made under this Section 8, including whether and when a Gross-Up Payment is required and the amount of such Gross-Up Payment and the assumptions to be utilized in arriving at such determination, shall be made by the Company's outside independent auditor (the "Accounting Firm"), which shall provide detailed supporting calculations both to the Company and the Employee within 15 business days of the receipt of notice from the Employee that there has been a Payment, or such earlier time as is requested by the Company. In the event that the Accounting Firm is serving (or has served within the three years preceding the Change of Control Date) as accountant or auditor for the individual, entity or group effecting the Change of Control, or is unwilling or unable to perform its obligations pursuant to this Section 8, the Employee shall appoint another nationally recognized accounting firm to make the determinations required hereunder (which accounting firm shall then be referred to as the Accounting Firm 10 11 hereunder). All fees and expenses of the Accounting Firm shall be borne solely by the Company. Any Gross-Up Payment, as determined pursuant to this Section 8, shall be paid by the Company to the Employee within five days of the receipt of the Accounting Firm's determination. If the Accounting Firm determines that no Excise Tax is payable by the Employee, it shall furnish the Employee with a written opinion that failure to report the Excise Tax on the Employee's applicable federal income tax return would not result in the imposition of a negligence or similar penalty. Any determination by the Accounting Firm shall be binding upon the Company and the Employee. As a result of the uncertainty in the application of Section 4999 of the Code at the time of the initial determination by the Accounting Firm hereunder, it is possible that Gross-Up Payments which will not have been made by the Company should have been made ("Underpayment"), consistent with the calculations required to be made hereunder. In the event that the Company exhausts its remedies pursuant to Section 8(c) and the Employee thereafter is required to make a payment of any Excise Tax, the Accounting Firm shall determine the amount of the Underpayment that has occurred and any such Underpayment shall be promptly paid by the Company to or for the benefit of the Employee. (c) The Employee shall notify the Company in writing of any claim by the Internal Revenue Service that, if successful, would require the payment by the Company of the Gross-Up Payment. Such notification shall be given as soon as practicable but no later than ten business days after the Employee is informed in writing of such claim and shall apprise the Company of the nature of such claim and the date on which such claim is requested to be paid. The Employee shall not pay such claim prior to the expiration of the 30-day period following the date on which the Employee gives such notice to the Company (or such shorter period ending on the date that any payment of taxes with respect to such claim is due). If the Company notifies the Employee in writing prior to the expiration of such period that it desires to contest such claim, the Company, subject to the provisions of this Section 8(c), shall control all proceedings taken in connection with such contest and, at its sole option, may pursue or forgo any and all administrative appeals, proceedings, hearings and conferences with the taxing authority in respect of such claim and may, at its sole option, either direct the Employee to pay the tax claimed and sue for a refund or contest the claim in any permissible manner. In this connection, the Employee agrees, subject to the provisions of this Section 8(c), to (i) prosecute such contest to a determination before any administrative tribunal, in a court of initial jurisdiction and in one or more appellate courts, as the Company shall determine, (ii) give the Company any information reasonably requested by the Company relating to such claim, (iii) take such action in connection with contesting such claim as the Company shall reasonably request in writing from time to time, including, without limitation, accepting legal representation with respect to such claim by an attorney reasonably selected by the Company, (iv) cooperate with the Company in good faith in order effectively to contest such claim and (v) permit the Company to participate in any proceedings relating to such claim. The foregoing is subject, however, to the following: (A) the Company shall bear and pay directly all costs and expenses (including additional interest and penalties) incurred in connection with such contest and shall indemnify and hold the Employee harmless, on an after-tax basis, for any Excise Tax or income tax (including interest and penalties with respect thereto) imposed in connection therewith and the payment of costs and expenses in such connection, (B) if the Company directs the Employee to pay such claim and sue for a refund, the Company shall advance the amount of such payment 11 12 to the Employee, on an interest-free basis, and shall indemnify and hold the Employee harmless, on an after-tax basis, from any Excise Tax or income tax (including interest or penalties with respect thereto) imposed with respect to such advance or with respect to any imputed income with respect to such advance, (C) any extension of the statute of limitations relating to payment of taxes for the taxable year of the Employee with respect to which such contested amount is claimed to be due shall be limited solely to such contested amount and (D) the Company's control of the contest shall be limited to issues with respect to which a Gross-Up Payment would be payable hereunder and the Employee shall be entitled to settle or contest, as the case may be, any other issue raised by the Internal Revenue Service or any other taxing authority. (d) If, after the receipt by the Employee of an amount advanced by the Company pursuant to Section 8(c), the Employee becomes entitled to receive any refund with respect to such claim, the Employee shall (subject to the Company's complying with the requirements of Section 8(c)) promptly pay to the Company the amount of such refund (together with any interest paid or credited thereon after taxes applicable thereto). If, after the receipt by the Employee of an amount advanced by the Company pursuant to Section 8(c), a determination is made that the Employee shall not be entitled to any refund with respect to such claim and the Company does not notify the Employee in writing of its intent to contest such denial of refund prior to the expiration of 30 days after such determination, then such advance shall be forgiven and shall not be required to be repaid and the amount of such advance shall offset, to the extent thereof, the amount of Gross-Up Payment required to be paid. 9. Confidential Information. The Employee shall hold in a fiduciary capacity for the benefit of the Company all secret or confidential information, knowledge or data relating to the Company or any of its affiliated companies, and their respective businesses, which shall have been obtained by the Employee during the Employee's employment by the Company or any of its affiliated companies and which shall not be or become public knowledge (other than by acts by the Employee or representatives of the Employee in violation of this Agreement). After termination of the Employee's employment with the Company or any of its affiliated companies, the Employee shall not, without the prior written consent of the Company or as may otherwise be required by law or legal process, communicate or divulge any such information, knowledge or data to anyone other than the Company and those designated by it. In no event shall an asserted violation of the provisions of this Section 9 constitute a basis for deferring or withholding any amounts otherwise payable to the Employee under this Agreement. Subject to the previous sentence, nothing herein shall be construed as prohibiting the Company from pursuing any other remedies available to it for such breach or threatened breach, including the recovery of damages from the Employee. 10. Employee's Obligation to Avoid Conflicts of Interest. (a) In keeping with Employee's fiduciary duties to the Company, Employee agrees that he shall not knowingly become involved in circumstances constituting a conflict of interest with such duties, or upon discovery thereof, allow such a conflict to continue. Moreover, Employee agrees that he shall disclose to the Secretary of the Company any facts which might involve a conflict of interest that has not been approved by the Company. The Board hereby acknowledges and agrees that the 12 13 activities of Employee listed on Schedule A hereto do not, and the continuation of such activities will not, constitute a conflict of interest for purposes of this Section 10. (b) In this connection, it is agreed that any direct interest in, connection with, or benefit from any outside activities, particularly commercial activities, which might in any way adversely affect the Company or any of its affiliated companies, involves a possible conflict of interest. Circumstances in which a conflict of interest on the part of Employee would or might arise, and which should be reported immediately to the Company, include, but are not limited to, the following: (i) Ownership of a material interest in any lender, supplier, contractor, customer or other entity with which the Company or any of its affiliated companies does business; (ii) Acting in any capacity, including director, officer, partner, consultant, employee, distributor, agent or the like, for lenders, suppliers, contractors, subcontractors, customers or other entities with which the Company or any of its affiliated companies does business; (iii) Acceptance, directly or indirectly, of payments, services or loans from a lender, supplier, contractor, subcontractor, customer or other entity with which the Company or any of its affiliated companies does business, including but not limited to, gifts, trips, entertainment, or other favors of more than a nominal value, but excluding loans from publicly held insurance companies and commercial or savings banks at normal rates of interest; (iv) Misuse of information or facilities to which Employee has access in a manner which will be detrimental to the Company's or any of its affiliated companies' interest, such as utilization for Employee's own benefit of know-how or information developed through the Company's or any of its affiliated companies' business activities; (v) Disclosure or other misuse of information of any kind obtained through Employee's connection with the Company or any of its affiliated companies; or (vi) Acquiring or trading in, directly or indirectly, other properties or interests connected with the design or marketing of products or services designed or marketed by the Company or any of its affiliated companies. (c) In the event that the Company determines, in the exercise of its reasonable judgment, that a conflict of interest exists between the Employee and the Company or any of its affiliated companies, the Company shall notify the Employee in writing in accordance with Section 17(b) hereof, providing reasonably detailed information identifying the source of the 13 14 conflict of interest. Within the 60-day period following receipt of such notice, the Employee shall take action satisfactory to the Company to eliminate the conflict of interest. Failure of the Employee to take such action within such 60-day period shall constitute "Cause" under Section 4(b) hereof. 11. Disclosure of Information, Ideas, Concepts, Improvements, Discoveries and Inventions. As part of Employee's fiduciary duties to the Company, Employee agrees that during the Employment Period, and for a period of six (6) months after the Date of Termination, Employee shall promptly disclose in writing to the Company all information, ideas, concepts, improvements, discoveries and inventions, whether patentable or not, and whether or not reduced to practice, which are conceived, developed, made or acquired by Employee, either individually or jointly with others, and which relate to the business, products or services of the Company or any of its affiliated companies, irrespective of whether Employee utilized the Company's or any of its affiliated companies' time or facilities and irrespective of whether such information, idea, concept, improvement, discovery or invention was conceived, developed, discovered or acquired by Employee on the job, at home, or elsewhere. This obligation extends to all types of information, ideas and concepts, including information, ideas and concepts relating to new types of services, corporate opportunities, acquisition prospects, the identity of key representatives within acquisition prospect organizations, prospective names or service marks for the Company's or any of its affiliated companies' business activities, and the like. 12. Ownership of Information, Ideas, Concepts, Improvements, Discoveries and Inventions and all Original Works of Authorship. (a) All information, ideas, concepts, improvements, discoveries and inventions, whether patentable or not, which are conceived, made, developed or acquired by Employee or which are disclosed or made known to Employee, individually or in conjunction with others, during Employee's employment by the Company or any of its affiliated companies and which relate to the Company's or any of its affiliated companies' business, products or services (including all such information relating to corporate opportunities, research, financial and sales data, pricing and trading terms, evaluations, opinions, interpretations, acquisition prospects, the identity of customers or their requirements, the identity of key contacts within the customer's organizations or within the organization of acquisition prospects, or marketing and merchandising techniques, prospective names and marks) are and shall be the sole and exclusive property of the Company. Moreover, all drawings, memoranda, notes, records, files, correspondence, manuals, models, specifications, computer programs, maps and all other writings or materials of any type embodying any of such information, ideas, concepts, improvements, discoveries and inventions are and shall be the sole and exclusive property of the Company. (b) In particular, Employee hereby specifically sells, assigns and transfers to the Company all of his worldwide right, title and interest in and to all such information, ideas, concepts, improvements, discoveries or inventions, and any United States or foreign applications for patents, inventor's certificates or other industrial rights that may be filed thereon, including divisions, continuations, continuations-in-part, reissues and/or extensions thereof, and applications for registration of such names and marks. Both during the period of Employee's employment by the Company or any of its affiliated companies and thereafter, Employee shall 14 15 assist the Company and its nominee at all times in the protection of such information, ideas, concepts, improvements, discoveries or inventions, both in the United States and all foreign countries, including but not limited to, the execution of all lawful oaths and all assignment documents requested by the Company or its nominee in connection with the preparation, prosecution, issuance or enforcement of any applications for United States or foreign letters patent, including divisions, continuations, continuations-in-part, reissues, and/or extensions thereof, and any application for the registration of such names and marks. (c) Moreover, if during Employee's employment by the Company or any of its affiliated companies, Employee creates any original work of authorship fixed in any tangible medium of expression which is the subject matter of copyright (such as videotapes, written presentations on acquisitions, computer programs, drawings, maps, architectural renditions, models, manuals, brochures or the like) relating to the Company's or any of its affiliated companies' business, products, or services, whether such work is created solely by Employee or jointly with others, the Company shall be deemed the author of such work if the work is prepared by Employee in the scope of his or her employment; or, if the work is not prepared by Employee within the scope of his or her employment but is specially ordered by the Company as a contribution to a collective work, as a part of a motion picture or other audiovisual work, as a translation, as a supplementary work, as a compilation or as an instrumental text, then the work shall be considered to be work made for hire and the Company shall be the author of the work. In the event such work is neither prepared by the Employee within the scope of his or her employment or is not a work specially ordered and deemed to be a work made for hire, then Employee hereby agrees to assign, and by these presents does assign, to the Company all of Employee's worldwide right, title and interest in and to such work and all rights of copyright therein. Both during the period of Employee's employment by the Company or any of its affiliated companies and thereafter, Employee agrees to assist the Company and its nominee, at any time, in the protection of the Company's worldwide right, title and interest in and to the work and all rights of copyright therein, including but not limited to, the execution of all formal assignment documents requested by the Company or its nominee and the execution of all lawful oaths and applications for registration of copyright in the United States and foreign countries. 13. Employee's Post-Employment Non-Competition Obligations: In Certain Situations such Obligations Apply only if the Company Opts to Continue Employee's Salary Payment. (a) During the Employment Period and, subject to the conditions of Sections 13(b) and 13(c), for a period of four (4) years thereafter (the "Non-Competition Period") provided, however, that the Non-Competition Period shall not exceed four (4) years from the Date of Termination, Employee shall not, acting alone or in conjunction with others, directly or indirectly, in any of the business territories in which the Company or any of its affiliated companies is presently or at the time of termination of employment conducting business, engage in any business in competition with the business conducted by the Company or any of its affiliated companies at the time of the termination of the employment relationship, whether for his own account or by soliciting, canvassing or accepting any business or transaction for or from any other company or business in competition with such business of the Company or any of its affiliated companies. 15 16 (b) If Employee has been terminated for Cause (Section 4(b)) or if Employee terminates his employment for any reason other than for Good Reason or other than during the Window Period (Section 4(c)), Employee shall be bound by the obligations of Section 13(a) and the Company shall have no obligation to make the Non-Competition Payments (as defined in Section 13(c) below). However, if the employment relationship is terminated by any other circumstance or for any other reason, Employee's post-employment non-competition obligations required by Section 13(a) shall be subject to the Company's obligation to make the Non-Competition Payments specified in Section 13(c). (c) Notwithstanding the provisions of Section 4 of this Agreement, whenever the employment relationship is terminated due to the expiration of its term because the Company or Employee timely gave written notice of termination (Section 1), or due to Employee's Disability (Section 4(a)), or by the Company without Cause (Section 4(b)), unless the Company exercises its option as hereinafter provided, Employee shall be entitled to continue to receive payments (the "Non-Competition Payments") equal to his then current Annual Base Salary (as of the Date of Termination) during the Non-Competition Period. During the Non-Competition Period, the Employee shall not, however, be deemed to be an employee of the Company or be entitled to continue to receive any other employee benefits other than as set forth in Section 5 or Section 8. Moreover, the Non-Competition Payments shall be reduced to the extent Employee has already received lump-sum payments in lieu of salary and bonus pursuant to Section 5. The Company shall have the option, exercisable at any time within one (1) month after Employee's Date of Termination, to cancel Employee's post-employment non-competition obligations under Section 13(a) and the Company's corresponding obligation to make the Non-Competition Payments. Such option shall be exercised by the Company mailing a written notice thereof to Employee in accordance with Section 17(b); if the Company does not send such notice within the prescribed one-month time, the Company shall remain obligated to make the Non-Competition Payments and Employee shall remain obligated to comply with the provisions of Section 13(a). The purpose of this paragraph is to make the non-competition obligations of Employee more reasonable from the Employee's point of view. The amounts to be paid by the Company are not intended to be liquidated damages or an estimate of the actual damages that would be sustained by the Company if Employee breaches his post-employment non-competition obligations. If Employee breaches his post-employment non-competition obligations, the Company shall be entitled to cease making the Non-Competition Payments and shall be entitled to all of its remedies at law or in equity for damages and injunctive relief. 14. Obligations to Refrain From Competing Unfairly. In addition to the other obligations agreed to by Employee in this Agreement, Employee agrees that during the Employment Period and for four (4) years following the Date of Termination, he shall not at any time, directly or indirectly for the benefit of any other party than the Company or any of its affiliated companies, (a) induce, entice, or solicit any employee of the Company or any of its affiliated companies to leave his employment, or (b) contact, communicate or solicit any customer of the Company or any of its affiliated companies derived from any customer list, customer lead, mail, printed matter or other information secured from the Company or any of its affiliated companies or their present or past employees, or (c) in any other manner use any 16 17 customer lists or customer leads, mail, telephone numbers, printed material or material of the Company or any of its affiliated companies relating thereto. 15. Successors. (a) This Agreement is personal to the Employee and without the prior written consent of the Company shall not be assignable by the Employee otherwise than by will or the laws of descent and distribution. This Agreement shall inure to the benefit of and be enforceable by the Employee's legal representatives. (b) This Agreement shall inure to the benefit of and be binding upon the Company and its successors and assigns. (c) The Company will require any successor (whether direct or indirect, by purchase, merger, consolidation or otherwise) to all or substantially all of the business and/or assets of the Company or the Company to assume expressly and agree to perform this Agreement in the same manner and to the same extent that the Company would be required to perform it if no such succession had taken place. As used in this Agreement, "Company" shall mean the Company as hereinbefore defined and any successor to its business and/or assets as aforesaid which assumes and agrees to perform this Agreement by operation of law, or otherwise. The Parent will require any successor (whether direct or indirect, by purchase, merger, consolidation or otherwise) to all or substantially all of the business and/or assets of the Parent or the Parent to assume expressly and agree to perform the Parent's obligations hereunder in the same manner and to the same extent that the Parent would be required to perform them if no such succession had taken place. As used in this Agreement, "Parent" shall mean the Parent as hereinbefore defined and any successor to its business and/or assets as aforesaid which assumes and agrees to perform the Parent's obligations hereunder by operation of law, or otherwise. 16. Certain Definitions. The following defined terms used in this Agreement shall have the meanings indicated: (a) The "Change of Control Date" shall mean the first date on which a Change of Control occurs. Anything in this Agreement to the contrary notwithstanding, if a Change of Control occurs and if the Employee's employment with the Company is terminated or the Employee ceases to have the position with the Company or the Parent which the Employee had prior to the date on which the Change of Control occurs, and if it is reasonably demonstrated by the Employee that such termination or cessation (i) was at the request of a third party who has taken steps reasonably calculated to effect the Change of Control or (ii) otherwise arose in connection with or anticipation of the Change of Control, then, for all purposes of this Agreement, the "Change of Control Date" shall mean the date immediately prior to the date of such termination or cessation. (b) The "Change of Control Period" shall mean the period commencing on the Change of Control Date and ending on the last day of the Employment Period. (c) "Change of Control" shall mean: 17 18 (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 comprising 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 was comprised of at least five members and all members of such committee were either members of the Incumbent Board or considered as being members of the Incumbent Board pursuant to clause (A) of this subsection (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 18 19 to such reorganization, merger or consolidation, of the Outstanding Parent Common Stock and Outstanding Parent Voting Securities, as the case may be, (B) no Person (excluding the Parent, any employee benefit plan or related trust of the Parent or such corporation resulting from such reorganization, merger or consolidation and any Person beneficially owning, immediately prior to such reorganization, merger or consolidation, directly or indirectly, 20% or more of the Outstanding Parent Common Stock or Outstanding Parent Voting Securities, as the case may be) beneficially owns, directly or indirectly, 20% or more of, respectively, the then outstanding shares of common stock of the corporation resulting from such reorganization, merger or consolidation or the combined voting power of the then outstanding voting securities of such corporation entitled to vote generally in the election of directors and (C) at least a majority of the members of the board of directors of the corporation resulting from such reorganization, merger or consolidation were members of the Incumbent Board at the time of the execution of the initial agreement providing for such reorganization, merger or consolidation; or (iv) Approval by the shareholders of the Parent of (A) a complete liquidation or dissolution of the Parent or (B) the sale or other disposition of all or substantially all of the assets of the Parent, other than to a corporation, with respect to which following such sale or other disposition, (A) more than 60% of, respectively, the then outstanding shares of common stock of such corporation and the combined voting power of the then outstanding voting securities of such corporation entitled to vote generally in the election of directors is then beneficially owned, directly or indirectly, by all or substantially all of the individuals and entities who were the beneficial owners, respectively, of the Outstanding Parent Common Stock and Outstanding Parent Voting Securities immediately prior to such sale or other disposition in substantially the same proportion as their ownership, immediately prior to such sale or other disposition, of the Outstanding Parent Common Stock and Outstanding Parent Voting Securities, as the case may be, (B) no Person (excluding the Parent and any employee benefit plan or related trust of the Parent or such corporation and any Person beneficially owning, immediately prior to such sale or other disposition, directly or indirectly, 20% or more of the Outstanding Parent Common Stock or Outstanding Parent Voting Securities, as the case may be) beneficially owns, directly or indirectly, 20% or more of, respectively, the then outstanding shares of common stock of such corporation and the combined voting power of the then outstanding voting securities of such corporation entitled to vote generally in the election of directors and (C) at least a majority of the members of the Board of Directors of such corporation were members of the Incumbent Board at the time of the execution of the initial agreement or action of the Board of Directors of the Parent providing for such sale or other disposition of assets of the Parent. (d) The term "affiliated company" shall mean any company controlled by, controlling or under common control with the Company. (e) The term "Highest Recent Bonus" shall mean the highest Annual Bonus (annualized for any fiscal year consisting of less than twelve full months) paid or payable, 19 20 including by reason of any deferral, to the Employee by the Company and its affiliated companies in respect of the three most recent full fiscal years ending on or prior to, (i) if prior to a Change of Control, the Date of Termination, or (ii) if after a Change of Control, the Change of Control Date. 17. Miscellaneous. (a) This Agreement replaces and merges all previous agreements and discussions relating to the same or similar subject matters between Employee and the Company and shall be governed by and construed in accordance with the laws of the State of Texas, without reference to principles of conflict of laws. The captions of this Agreement are not part of the provisions hereof and shall have no force or effect. This Agreement may not be amended, modified, repealed, waived, extended or discharged except by an agreement in writing signed by the party against whom enforcement of such amendment, modification, repeal, waiver, extension or discharge is sought. No person, other than pursuant to a resolution of the Board or a duly authorized committee thereof, shall have authority on behalf of the Company to agree to amend, modify, repeal, waive, extend or discharge any provision of this Agreement or anything in reference thereto. (b) All notices and other communications hereunder shall be in writing and shall be given by hand delivery to the other party or by registered or certified mail, return receipt requested, postage prepaid, addressed as follows: If to the Employee: L. William Heiligbrodt 11015 Landon Lane Houston, TX 77024 If to the Company: SCI Executive Services, Inc. 1929 Allen Parkway Houston, Texas 77019 Attention: Corporate Secretary 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. 20 21 (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 of Directors of the Company, the Company have caused this Agreement to be executed this 1st day of January, 1997, effective as of the day and year first above written. L. WILLIAM HEILIGBRODT /s/ L. WILLIAM HEILIGBRODT ---------------------------------------- "EMPLOYEE" SCI EXECUTIVE SERVICES, INC. By: /s/ CURTIS G. BRIGGS ------------------------------------- Curtis G. Briggs Vice President "COMPANY" 21 22 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 ------------------------------------- James M. Shelger Senior Vice President General Counsel & Secretary "PARENT" 22 EX-10.6 5 EMPLOYMENT AGREEMENT - W. BLAIR WALTRIP 1 EXHIBIT 10.6 EMPLOYMENT AGREEMENT EMPLOYMENT AGREEMENT (the "Agreement") made and entered into as of this 11th day of November, 1991, amended and restated as of August 12, 1992, further amended and restated May 12, 1993, and further amended and restated as of January 1, 1997 by and between SCI EXECUTIVE SERVICES, INC., a Delaware corporation (the "Company") wholly owned by and successor by assignment to all of the rights, duties and obligations under this Agreement of SERVICE CORPORATION INTERNATIONAL, a Texas corporation (the "Parent"), and W. Blair Waltrip (the"Employee"); WHEREAS, in order to achieve certain administrative efficiencies in providing professional management services to its affiliated companies, the Parent has transferred the Employee to the employ of the Company effective January 1, 1997; WHEREAS, the Company, the Parent and the Employee desire to join in the execution of this amended and restated Agreement to (i) provide for the transfer of the employment of the Employee and (ii) set out more fully the rights, duties and obligations of the parties hereto; WHEREAS, Employee is employed by the Company in a management capacity, has extraordinary access to the Company's confidential business information, and has significant duties and responsibilities in connection with the conduct of the Company's business which places Employee in a special and uncommon classification of employees; WHEREAS, attendant to Employee's employment by the Company, the Company and Employee wish for there to be a complete understanding and agreement between the Company and Employee with respect to the fiduciary duties owed by Employee to the Company; Employee's obligation to avoid conflicts of interest, disclose pertinent information to the Company, and refrain from using or disclosing the Company's information; the term of employment and conditions for or upon termination thereof; the compensation and benefits owed to Employee; and the post-employment obligations Employee owes to the Company; and WHEREAS, but for Employee's agreement to the covenants and conditions of this Agreement, particularly the conflict of interest provisions, the provisions with respect to confidentiality of information and the ownership of intellectual property, and the post-employment obligations of Employee, the Company would not have entered into this Agreement; NOW, THEREFORE, in consideration of Employee's employment by the Company and the mutual promises and covenants contained herein, the receipt and sufficiency of such consideration being hereby acknowledged, the Company and Employee agree as follows: 2 1. Employment and Term. The Company agrees to employ the Employee and the Employee agrees to remain in the employ of the Company, in accordance with the terms and provisions of this Agreement, for the period beginning on the date of this Agreement (i.e. November 11, 1991) and ending as of the close of business on the third (3rd) anniversary of the date hereof (such period together with all extensions thereof, including any Change of Control Period (as defined in Section 16(b) below), are referred to hereinafter as the "Employment Period"); provided, however, that commencing on the date one year after the date hereof, and on each annual anniversary of such date (such date and each annual anniversary thereof shall be hereinafter referred to as a "Renewal Date") the Employment Period shall be automatically extended so as to terminate three (3) years from such Renewal Date, unless at least 60 days prior to the Renewal Date either the Company or the Employee gives the other written notice that the Employment Period shall not be so extended. 2. Duties and Powers of Employee. (a) Position; Location. During the Employment Period, the Employee shall perform such duties and have such powers as designated by the Board of Directors of the Company (the "Board") or any duly authorized committee thereof in connection with the execution of this Agreement. The Employee's services shall be performed at the location where the Employee is currently employed or any office which is the headquarters of the Company and is less than 50 miles from such location. During the Change of Control Period, the Employee's position (including status, offices, titles and reporting requirements), authority, duties and responsibilities shall be at least commensurate in all material respects with the most significant of those held, exercised and assigned with or by the Company or the Parent at any time during the 90-day period immediately preceding the Change of Control Date (as defined in Section 16(a) below). (b) Duties. During the Employment Period, and excluding any periods of vacation and sick leave to which the Employee is entitled, the Employee agrees to devote his attention and time during normal business hours to the business and affairs of the Company and to use the Employee's best efforts to perform faithfully and efficiently such responsibilities. During the Employment Period it shall not be a violation of this Agreement for the Employee to (i) serve on corporate, civic or charitable boards or committees, (ii) deliver lectures, fulfill speaking engagements or teach at educational institutions and (iii) manage personal investments, so long as such activities do not significantly interfere with the performance of the Employee's responsibilities as an employee of the Company in accordance with this Agreement. It is expressly understood and agreed that to the extent that any such activities have been conducted by the Employee prior to the date of this Agreement or subsequent thereto consistent with this Section 2(b), the continued conduct of such activities (or the conduct of activities similar in nature and scope thereto) shall not thereafter be deemed to interfere with the performance of the Employee's responsibilities to the Company. (c) Employee agrees and acknowledges that he owes, and will comply with, a fiduciary duty of loyalty, fidelity or allegiance to act at all times in the best interests of the Company and to take no action or fail to take action if such action or failure to act would injure the Company's business, its interests or its reputation. 2 3 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 $385,000.00 per year, in substantially equal bi-weekly installments, and subject to any and all required withholdings and deductions for Social Security, income taxes and the like. The Board may from time to time direct such upward adjustments to Annual Base Salary as the Board deems to be appropriate or desirable; provided, however, that during the Change of Control Period, the Annual Base Salary shall be reviewed at least annually and shall be increased at any time and from time to time as shall be substantially consistent with increases in base salary generally awarded in the ordinary course of business to other employees of comparable rank with the Company and its affiliated companies (as defined in Section 16(d) below). Annual Base Salary shall not be reduced after any increase thereof pursuant to this Section 3(a). Any increase in Annual Base Salary shall not serve to limit or reduce any other obligation of the Company under this Agreement. (b) Incentive Cash Compensation. During the Employment Period, he shall be eligible annually for a cash bonus at the discretion of the Board (such aggregate awards for each year are hereinafter referred to as the "Annual Bonus") and at the discretion of the Board to receive awards from any plan of the Company or any of its affiliated companies providing for the payment of bonuses in cash to employees of the Company or its affiliated companies having rank comparable to that of the Employee (such plans being referred to herein collectively as the "Cash Bonus Plans") in accordance with the terms thereof; provided, however, that, during the Change of Control Period, the Employee shall be awarded, for each fiscal year ending during the Change of Control Period, an Annual Bonus at least equal to the Highest Recent Bonus (as defined in Section 16(e) below). Each Annual Bonus shall be paid no later than the end of the third month of the fiscal year next following the fiscal year for which the Annual Bonus is awarded, unless the Employee shall elect to defer the receipt of such Annual Bonus. (c) Incentive and Savings and Retirement Plans. During the Employment Period, the Employee shall be entitled to participate in all incentive and savings (in addition to the Cash Bonus Plans) and retirement plans, practices, policies and programs applicable generally to other employees of comparable rank with the Company and its affiliated companies. (d) Welfare Benefit Plans. During the Employment Period, the Employee and/or the Employee's family, as the case may be, shall be eligible for participation in all welfare benefit plans, practices, policies and programs provided by the Company and its affiliated companies (including, without limitation, medical, prescription, dental, disability, salary continuance, employee life, group life, accidental death and travel accident insurance plans and programs) to the extent applicable generally to other employees of comparable rank with the Company and its affiliated companies. (e) Expenses. During the Employment Period and for so long as the Employee is employed by the Company, he shall be entitled to receive prompt reimbursement 3 4 for all reasonable expenses incurred by the Employee in accordance with the policies, practices and procedures of the Company and its affiliated companies from time to time in effect. (f) Fringe Benefits. During the Employment Period, the Employee shall be entitled to fringe benefits in accordance with the plans, practices, programs and policies of the Company and its affiliated companies from time to time in effect, commensurate with his position and on a basis at least comparable to those received by other employees of comparable rank with the Company and its affiliated companies. (g) Office and Support Staff. During the Employment Period, the Employee shall be entitled to an office or offices of a size and with furnishings and other appointments, and to exclusive personal secretarial and other assistance, commensurate with his position and on a basis at least comparable to those received by other employees of comparable rank with the Company and its affiliated companies. (h) Vacation and Other Absences. During the Employment Period, the Employee shall be entitled to paid vacation and such other paid absences whether for holidays, illness, personal time or any similar purposes, in accordance with the plans, policies, programs and practices of the Company and its affiliated companies in effect from time to time, commensurate with his position and on a basis at least comparable to those received by other employees of comparable rank with the Company and its affiliated companies. (i) During the Change of Control Period, the Employee's benefits listed under Sections 3(c), 3(d), 3(e), 3(f), 3(g) and 3(h) above shall be at least commensurate in all material respects with the most valuable and favorable of those received by the Employee at any time during the 90-day period immediately preceding the Change of Control Date. 4. Termination of Employment. (a) Death or Disability. The Employment Period shall terminate automatically upon the Employee's death during the Employment Period. If the Company determines in good faith that the Disability of the Employee has occurred during the Employment Period (pursuant to the definition of Disability set forth below), it may give to the Employee written notice in accordance with Section 17(b) of its intention to terminate the Employment Period. In such event, the Employment Period shall terminate effective on the 30th day after receipt of such notice by the Employee (the "Disability Effective Date"), provided that, within the 30 days after such receipt, the Employee shall not have returned to full-time performance of the Employee's duties. For purposes of this Agreement, "Disability" shall mean the inability of the Employee to perform the Employee's duties with the Company on a full-time basis as a result of incapacity due to mental or physical illness which continues for more than one year after the commencement of such incapacity, such incapacity to be determined by a physician selected by the Company or its insurers and acceptable to the Employee or the Employee's legal representative (such agreement as to acceptability not to be withheld unreasonably). (b) Cause. The Company may terminate the Employment Period for Cause. For purposes of this Agreement, "Cause" shall mean (i) a material breach by the Employee of 4 5 Section 9 which is willful on the Employee's part or which is committed in bad faith or without reasonable belief that such breach is in the best interests of the Company and its affiliated companies, or (ii) a material breach by the Employee of the Employee's obligations under Section 2 (other than a breach of the Employee's obligations under Section 2 arising from the failure of the Employee to work as a result of incapacity due to physical or mental illness) or any material breach by the Employee of Section 10, 11 or 12 of this Agreement which in either case is willful on the Employee's part, which is committed in bad faith or without reasonable belief that such breach is in the best interests of the Company and its affiliated companies and which is not remedied in a reasonable period of time after receipt of written notice from the Company specifying such breach, or (iii) the conviction of the Employee of a felony involving malice which conviction has been affirmed on appeal or as to which the period in which an appeal can be taken has lapsed. (c) Good Reason; Window Period. The Employee's employment may be terminated (i) by the Employee for Good Reason (as defined below) or (ii) during the Window Period (as defined below) by the Employee without any reason. For purposes of this Agreement, the "Window Period" shall mean the 30-day period immediately following the first anniversary of the Change of Control Date. For purposes of this Agreement, "Good Reason" shall mean (i) the assignment to the Employee of any duties inconsistent in any respect with the Employee's position (including status, offices, titles and reporting requirements), authority, duties or responsibilities 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 15(c), provided that the successor referred to in Section 15(c) has received at least ten days prior written notice from the Company or the Employee of the requirements of Section 15(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. 5 6 (d) Notice of Termination. Any termination by the Company for Cause or by the Employee without any reason during the Window Period or for Good Reason shall be communicated by Notice of Termination to the other party hereto given in accordance with Section 17(b). For purposes of this Agreement, a "Notice of Termination" means a written notice which (i) indicates the specific termination provision in this Agreement relied upon, (ii) to the extent applicable, sets forth in reasonable detail the facts and circumstances claimed to provide a basis for termination of the Employment Period under the provision so indicated and (iii) if the Date of Termination (as defined below) is other than the date of receipt of such notice, specifies the termination date (which date shall be not more than 15 days after the giving of such notice). The failure by the Employee or the Company to set forth in the Notice of Termination any fact or circumstance which contributes to a showing of Good Reason or Cause shall not waive any right of the Employee or the Company hereunder or preclude the Employee or the Company from asserting such fact or circumstance in enforcing the Employee's or the Company's rights hereunder. (e) Date of Termination. "Date of Termination" means (i) if the Employee's employment is terminated by the Company for Cause, or by the Employee during the Window Period or for Good Reason, the date of receipt of the Notice of Termination or any later date specified therein, as the case may be, (ii) if the Employee's employment is terminated by the Company other than for Cause or Disability, or by the Employee other than for Good Reason or during the Window Period, the Date of Termination shall be the date on which the Company or the Employee, as the case may be, notifies the other of such termination and (iii) if the Employee's employment is terminated by reason of death or Disability, the Date of Termination shall be the date of death of the Employee or the Disability Effective Date, as the case may be. 5. Obligations of the Company Upon Termination. (a) Certain Terminations Prior to Change of Control Date. If, during the Employment Period prior to any Change of Control Date, the employment of the Employee with the Company shall be terminated (i) by the Company other than for Cause, death or Disability or (ii) by the Employee for Good Reason, then, in lieu of the obligations of the Company under Section 3, (i) the Company shall pay to the Employee in a lump sum in cash within 30 days after the Date of Termination all Unpaid Agreement Amounts (as defined in Section 5(b)(i)(A) below) and (ii) notwithstanding any other provision hereunder, for the longer of (A) the remainder of the Employment Period or (B) to the extent compensation and/or benefits are provided under any plan, program, practice or policy, such longer period, if any, as such plan, program, practice or policy may provide, the Company shall continue to provide to the Employee the compensation and benefits provided in Sections 3(a), 3(c) and 3(d). (b) Certain Terminations After Change of Control Date. If, during the Change of Control Period, the employment of the Employee with the Company shall be terminated (i) by the Company other than for Cause, death or Disability or (ii) by the Employee either for Good Reason or without any reason during the Window Period, then, in lieu of the obligations of the Company under Section 3 and notwithstanding any other provision hereunder: 6 7 (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 8 sum of the amounts described in clauses (1), (2) and (3) shall be here in after 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"); an d (B) the amount (such amount shall be hereinafter referred to as the "Severance Amount") equal to the sum of (1) Three (3) multiplied by the Employee's Annual Base Salary, plus (2) Three (3) multiplied by the Employee's Highest Recent Bonus; (ii) for the longer of (A) the remainder of the Employment Period or (B) to the extent benefits are provided under any plan, program, practice or policy, such longer period as such plan, program, practice or policy may provide, the Company shall continue benefits to the Employee and/or the Employee's family at least equal to those which would have been provided to them in accordance with the plans, programs, practices and policies described in Section 3(d) if the Employee's employment had not been terminated, in accordance with the most favorable plans, practices, programs or policies of the Company and its affiliated companies as in effect and applicable generally to other employees of comparable rank and their families during the 90-day period immediately preceding the Change of Control Date or, if more favorable to the Employee, as in effect generally at any time thereafter with respect to other employees of comparable rank with the Company and its affiliated companies and their families; provided, however, that if the Employee becomes reemployed with another employer and is eligible to receive medical or other welfare benefits under another employer provided plan, the medical and other welfare benefits described herein shall be required only to the extent not provided under such other plan during such applicable period of eligibility. For purposes of determining eligibility of the Employee for retiree benefits pursuant to such plans, practices, programs and policies, the Employee shall be considered to have remained employed until the end of the Employment Period and to have retired on the last day of such period; and 7 8 (iii) to the extent not theretofore paid or provided, the Company shall timely pay or provide to the Employee and/or the Employee's family for the remainder of the Employment Period any other amounts or benefits required to be paid or provided or which the Employee and/or the Employee's family is eligible to receive pursuant to this Agreement and under any plan, program, policy or practice or contract or agreement of the Company and its affiliated companies as in effect and applicable generally to other employees of comparable rank with the Company and its affiliated companies and their families during the 90- day period immediately preceding the Change of Control Date or, if more favorable to the Employee, as in effect generally thereafter with respect to other employees of comparable rank with the Company and its affiliated companies and their families. Such amounts received under this Section 5(b) shall be in lieu of any other amount of severance relating to salary or bonus continuation to be received by the Employee upon termination of employment of the Employee under any severance plan, policy or arrangement of the Company. (c) Termination as a Result of Death. If the Employee's employment is terminated by reason of the Employee's death during the Employment Period, in lieu of the obligations of the Company under Section 3, the Company shall pay or provide to the Employee's estate (i) all Accrued Obligations (which shall be paid in a lump sum in cash within 30 days after the Date of Termination) and the timely payment or provision of the Welfare Benefit Continuation (as defined below) and the Other Benefits (as defined below) and (ii) any cash amount to be received by the Employee or the Employee's family as a death benefit pursuant to the terms of any plan, policy or arrangement of the Company and its affiliated companies. "Welfare Benefit Continuation" shall mean the continuation of benefits to the Employee and/or the Employee's family for the longer of (i) three (3) years from the Date of Termination or (ii) the period provided by the plans, programs, policies or practices described in Section 3(d) in which the Employee participates as of the Date of Termination, such benefits to be at least equal to those which would have been provided to them in accordance with the plans, programs, practices and policies described in Section 3(d) if the Employee's employment had not been terminated, in accordance with the most favorable plans, practices, programs or policies of the Company and its affiliated companies as in effect and applicable generally to other 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, 8 9 if more favorable to the Employee, as in effect generally thereafter with respect to other employees of comparable rank with the Company and its affiliated companies and their families. (d) Termination as a Result of Disability. If the Employee's employment is terminated by reason of the Employee's Disability during the Employment Period, in lieu of the obligations of the Company under Section 3, the Company shall pay or provide to the Employee (i) all Accrued Obligations which shall be paid in a lump sum in cash within 30 days after the Date of Termination and the timely payment or provision of the Welfare Benefit Continuation and the Other Benefits, provided, however, that if the Employee becomes reemployed with another employer and is eligible to receive medical or other welfare benefits under another employer provided plan, the Welfare Benefit Continuation shall be required only to the extent not provided under such other plan during such applicable period of eligibility, and (ii) any cash amount to be received by the Employee as a disability benefit pursuant to the terms of any plan, policy or arrangement of the Company and its affiliated companies. (e) Cause; Other than for Good Reason. If the Employee's employment shall be terminated during the Employment Period by the Company for Cause or by the Employee other than during the Window Period and other than for Good Reason, in lieu of the obligations of the Company under Section 3, the Company shall pay to the Employee in a lump sum in cash within 30 days after the Date of Termination all Unpaid Agreement Amounts. 6. Non-exclusivity of Rights. Except as provided in Sections 5(a), 5(b)(i)(B), 5(b)(ii), 5(c) and 5(d), nothing in this Agreement shall prevent or limit the Employee's continuing or future participation in any plan, program, policy or practice provided by the Company or any of its affiliated companies and for which the Employee may qualify, nor shall anything herein limit or otherwise affect such rights as the Employee may have under any contract or agreement with the Company or any of its affiliated companies. Amounts which are vested benefits or which the Employee is otherwise entitled to receive under any plan, policy, practice or program of or any contract or agreement with the Company or any of its affiliated companies at or subsequent to the Date of Termination shall be payable in accordance with such plan, policy, practice or program or contract or agreement except as explicitly modified by this Agreement. 7. Full Settlement; Resolution of Disputes. (a) The Company's obligation to make the payments provided for in this Agreement and otherwise to perform its obligations hereunder shall not be affected by any set-off, counterclaim, recoupment, defense or other claim, right or action which the Company may have against the Employee or others. In no event shall the Employee be obligated to seek other employment or take any other action by way of mitigation of the amounts payable to the Employee under any of the provisions of this Agreement and, except as provided in 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 9 10 of any contest by the Employee about the amount of any payment pursuant to this Agreement), plus in each case interest on any payment required to be made under this Agreement but not timely paid at the rate provided for in Section 280G(d)(4) of the Internal Revenue Code of 1986, as amended (the "Code"). (b) If there shall be any dispute between the Company and the Employee (i) in the event of any termination of the Employee's employment by the Company, whether such termination was for Cause, or (ii) in the event of any termination of employment by the Employee, whether Good Reason existed, then, unless and until there is a final, nonappealable judgment by a court of competent jurisdiction declaring that such termination was for Cause or that the determination by the Employee of the existence of Good Reason was not made in good faith, the Company shall pay all amounts, and provide all benefits, to the Employee and/or the Employee's family or other beneficiaries, as the case may be, that the Company would be required to pay or provide pursuant to Section 5(a) or 5(b) as though such termination were by the Company without Cause or by the Employee with Good Reason. The Employee hereby undertakes to repay to the Company all such amounts to which the Employee is ultimately adjudged by such court not to be entitled. 8. Certain Additional Payments by the Company. (a) Anything in this Agreement to the contrary notwithstanding, in the event it shall be determined that any payment or distribution by the Company to or for the benefit of the Employee (whether paid or payable or distributed or distributable pursuant to the terms of this Agreement or otherwise, but determined without regard to any additional payments required under this Section 8) (a "Payment") would be subject to the excise tax imposed by Section 4999 of the Code or any interest or penalties are incurred by the Employee with respect to such excise tax (such excise tax, together with any such interest and penalties, are hereinafter collectively referred to as the "Excise Tax"), then the Employee shall be entitled to receive an additional payment (a "Gross-Up Payment") in an amount such that after payment by the Employee of all taxes (including any interest or penalties imposed with respect to such taxes), including, without limitation, any income taxes (and any interest and penalties imposed with respect thereto) and Excise Tax imposed upon the Gross-Up Payment, the Employee retains an amount of the Gross-Up Payment equal to the Excise Tax imposed upon the Payments. (b) Subject to the provisions of Section 8(c), all determinations required to be made under this Section 8, including whether and when a Gross-Up Payment is required and the amount of such Gross-Up Payment and the assumptions to be utilized in arriving at such determination, shall be made by the Company's outside independent auditor (the "Accounting Firm"), which shall provide detailed supporting calculations both to the Company and the Employee within 15 business days of the receipt of notice from the Employee that there has been a Payment, or such earlier time as is requested by the Company. In the event that the Accounting Firm is serving (or has served within the three years preceding the Change of Control Date) as accountant or auditor for the individual, entity or group effecting the Change of Control, or is unwilling or unable to perform its obligations pursuant to this Section 8, the Employee shall appoint another nationally recognized accounting firm to make the determinations required hereunder (which accounting firm shall then be referred to as the Accounting Firm 10 11 hereunder). All fees and expenses of the Accounting Firm shall be borne solely by the Company. Any Gross-Up Payment, as determined pursuant to this Section 8, shall be paid by the Company to the Employee within five days of the receipt of the Accounting Firm's determination. If the Accounting Firm determines that no Excise Tax is payable by the Employee, it shall furnish the Employee with a written opinion that failure to report the Excise Tax on the Employee's applicable federal income tax return would not result in the imposition of a negligence or similar penalty. Any determination by the Accounting Firm shall be binding upon the Company and the Employee. As a result of the uncertainty in the application of Section 4999 of the Code at the time of the initial determination by the Accounting Firm hereunder, it is possible that Gross-Up Payments which will not have been made by the Company should have been made ("Underpayment"), consistent with the calculations required to be made hereunder. In the event that the Company exhausts its remedies pursuant to Section 8(c) and the Employee thereafter is required to make a payment of any Excise Tax, the Accounting Firm shall determine the amount of the Underpayment that has occurred and any such Underpayment shall be promptly paid by the Company to or for the benefit of the Employee. (c) The Employee shall notify the Company in writing of any claim by the Internal Revenue Service that, if successful, would require the payment by the Company of the Gross-Up Payment. Such notification shall be given as soon as practicable but no later than ten business days after the Employee is informed in writing of such claim and shall apprise the Company of the nature of such claim and the date on which such claim is requested to be paid. The Employee shall not pay such claim prior to the expiration of the 30-day period following the date on which the Employee gives such notice to the Company (or such shorter period ending on the date that any payment of taxes with respect to such claim is due). If the Company notifies the Employee in writing prior to the expiration of such period that it desires to contest such claim, the Company, subject to the provisions of this Section 8(c), shall control all proceedings taken in connection with such contest and, at its sole option, may pursue or forgo any and all administrative appeals, proceedings, hearings and conferences with the taxing authority in respect of such claim and may, at its sole option, either direct the Employee to pay the tax claimed and sue for a refund or contest the claim in any permissible manner. In this connection, the Employee agrees, subject to the provisions of this Section 8(c), to (i) prosecute such contest to a determination before any administrative tribunal, in a court of initial jurisdiction and in one or more appellate courts, as the Company shall determine, (ii) give the Company any information reasonably requested by the Company relating to such claim, (iii) take such action in connection with contesting such claim as the Company shall reasonably request in writing from time to time, including, without limitation, accepting legal representation with respect to such claim by an attorney reasonably selected by the Company, (iv) cooperate with the Company in good faith in order effectively to contest such claim and (v) permit the Company to participate in any proceedings relating to such claim. The foregoing is subject, however, to the following: (A) the Company shall bear and pay directly all costs and expenses (including additional interest and penalties) incurred in connection with such contest and shall indemnify and hold the Employee harmless, on an after-tax basis, for any Excise Tax or income tax (including interest and penalties with respect thereto) imposed in connection therewith and the payment of costs and expenses in such connection, (B) if the Company directs the Employee to pay such claim and sue for a refund, the Company shall advance the amount of such payment 11 12 to the Employee, on an interest-free basis, and shall indemnify and hold the Employee harmless, on an after-tax basis, from any Excise Tax or income tax (including interest or penalties with respect thereto) imposed with respect to such advance or with respect to any imputed income with respect to such advance, (C) any extension of the statute of limitations relating to payment of taxes for the taxable year of the Employee with respect to which such contested amount is claimed to be due shall be limited solely to such contested amount and (D) the Company's control of the contest shall be limited to issues with respect to which a Gross-Up Payment would be payable hereunder and the Employee shall be entitled to settle or contest, as the case may be, any other issue raised by the Internal Revenue Service or any other taxing authority. (d) If, after the receipt by the Employee of an amount advanced by the Company pursuant to Section 8(c), the Employee becomes entitled to receive any refund with respect to such claim, the Employee shall (subject to the Company's complying with the requirements of Section 8(c)) promptly pay to the Company the amount of such refund (together with any interest paid or credited thereon after taxes applicable thereto). If, after the receipt by the Employee of an amount advanced by the Company pursuant to Section 8(c), a determination is made that the Employee shall not be entitled to any refund with respect to such claim and the Company does not notify the Employee in writing of its intent to contest such denial of refund prior to the expiration of 30 days after such determination, then such advance shall be forgiven and shall not be required to be repaid and the amount of such advance shall offset, to the extent thereof, the amount of Gross-Up Payment required to be paid. 9. Confidential Information. The Employee shall hold in a fiduciary capacity for the benefit of the Company all secret or confidential information, knowledge or data relating to the Company or any of its affiliated companies, and their respective businesses, which shall have been obtained by the Employee during the Employee's employment by the Company or any of its affiliated companies and which shall not be or become public knowledge (other than by acts by the Employee or representatives of the Employee in violation of this Agreement). After termination of the Employee's employment with the Company or any of its affiliated companies, the Employee shall not, without the prior written consent of the Company or as may otherwise be required by law or legal process, communicate or divulge any such information, knowledge or data to anyone other than the Company and those designated by it. In no event shall an asserted violation of the provisions of this Section 9 constitute a basis for deferring or withholding any amounts otherwise payable to the Employee under this Agreement. Subject to the previous sentence, nothing herein shall be construed as prohibiting the Company from pursuing any other remedies available to it for such breach or threatened breach, including the recovery of damages from the Employee. 10. Employee's Obligation to Avoid Conflicts of Interest. (a) In keeping with Employee's fiduciary duties to the Company, Employee agrees that he shall not knowingly become involved in circumstances constituting a conflict of interest with such duties, or upon discovery thereof, allow such a conflict to continue. Moreover, Employee agrees that he shall disclose to the Secretary of the Company any facts which might involve a conflict of interest that has not been approved by the Company. The Board hereby acknowledges and agrees that the 12 13 activities of Employee listed on Schedule A hereto do not, and the continuation of such activities will not, constitute a conflict of interest for purposes of this Section 10. (b) In this connection, it is agreed that any direct interest in, connection with, or benefit from any outside activities, particularly commercial activities, which might in any way adversely affect the Company or any of its affiliated companies, involves a possible conflict of interest. Circumstances in which a conflict of interest on the part of Employee would or might arise, and which should be reported immediately to the Company, include, but are not limited to, the following: (i) Ownership of a material interest in any lender, supplier, contractor, customer or other entity with which the Company or any of its affiliated companies does business; (ii) Acting in any capacity, including director, officer, partner, consultant, employee, distributor, agent or the like, for lenders, suppliers, contractors, subcontractors, customers or other entities with which the Company or any of its affiliated companies does business; (iii) Acceptance, directly or indirectly, of payments, services or loans from a lender, supplier, contractor, subcontractor, customer or other entity with which the Company or any of its affiliated companies does business, including but not limited to, gifts, trips, entertainment, or other favors of more than a nominal value, but excluding loans from publicly held insurance companies and commercial or savings banks at normal rates of interest; (iv) Misuse of information or facilities to which Employee has access in a manner which will be detrimental to the Company's or any of its affiliated companies' interest, such as utilization for Employee's own benefit of know-how or information developed through the Company's or any of its affiliated companies' business activities; (v) Disclosure or other misuse of information of any kind obtained through Employee's connection with the Company or any of its affiliated companies; or (vi) Acquiring or trading in, directly or indirectly, other properties or interests connected with the design or marketing of products or services designed or marketed by the Company or any of its affiliated companies. (c) In the event that the Company determines, in the exercise of its reasonable judgment, that a conflict of interest exists between the Employee and the Company or any of its affiliated companies, the Company shall notify the Employee in writing in accordance with Section 17(b) hereof, providing reasonably detailed information identifying the source of the 13 14 conflict of interest. Within the 60-day period following receipt of such notice, the Employee shall take action satisfactory to the Company to eliminate the conflict of interest. Failure of the Employee to take such action within such 60-day period shall constitute "Cause" under Section 4(b) hereof. 11. Disclosure of Information, Ideas, Concepts, Improvements, Discoveries and Inventions. As part of Employee's fiduciary duties to the Company, Employee agrees that during the Employment Period, and for a period of six (6) months after the Date of Termination, Employee shall promptly disclose in writing to the Company all information, ideas, concepts, improvements, discoveries and inventions, whether patentable or not, and whether or not reduced to practice, which are conceived, developed, made or acquired by Employee, either individually or jointly with others, and which relate to the business, products or services of the Company or any of its affiliated companies, irrespective of whether Employee utilized the Company's or any of its affiliated companies' time or facilities and irrespective of whether such information, idea, concept, improvement, discovery or invention was conceived, developed, discovered or acquired by Employee on the job, at home, or elsewhere. This obligation extends to all types of information, ideas and concepts, including information, ideas and concepts relating to new types of services, corporate opportunities, acquisition prospects, the identity of key representatives within acquisition prospect organizations, prospective names or service marks for the Company's or any of its affiliated companies' business activities, and the like. 12. Ownership of Information, Ideas, Concepts, Improvements, Discoveries and Inventions and all Original Works of Authorship. (a) All information, ideas, concepts, improvements, discoveries and inventions, whether patentable or not, which are conceived, made, developed or acquired by Employee or which are disclosed or made known to Employee, individually or in conjunction with others, during Employee's employment by the Company or any of its affiliated companies and which relate to the Company's or any of its affiliated companies' business, products or services (including all such information relating to corporate opportunities, research, financial and sales data, pricing and trading terms, evaluations, opinions, interpretations, acquisition prospects, the identity of customers or their requirements, the identity of key contacts within the customer's organizations or within the organization of acquisition prospects, or marketing and merchandising techniques, prospective names and marks) are and shall be the sole and exclusive property of the Company. Moreover, all drawings, memoranda, notes, records, files, correspondence, manuals, models, specifications, computer programs, maps and all other writings or materials of any type embodying any of such information, ideas, concepts, improvements, discoveries and inventions are and shall be the sole and exclusive property of the Company. (b) In particular, Employee hereby specifically sells, assigns and transfers to the Company all of his worldwide right, title and interest in and to all such information, ideas, concepts, improvements, discoveries or inventions, and any United States or foreign applications for patents, inventor's certificates or other industrial rights that may be filed thereon, including divisions, continuations, continuations-in-part, reissues and/or extensions thereof, and applications for registration of such names and marks. Both during the period of Employee's employment by the Company or any of its affiliated companies and thereafter, Employee shall 14 15 assist the Company and its nominee at all times in the protection of such information, ideas, concepts, improvements, discoveries or inventions, both in the United States and all foreign countries, including but not limited to, the execution of all lawful oaths and all assignment documents requested by the Company or its nominee in connection with the preparation, prosecution, issuance or enforcement of any applications for United States or foreign letters patent, including divisions, continuations, continuations-in-part, reissues, and/or extensions thereof, and any application for the registration of such names and marks. (c) Moreover, if during Employee's employment by the Company or any of its affiliated companies, Employee creates any original work of authorship fixed in any tangible medium of expression which is the subject matter of copyright (such as videotapes, written presentations on acquisitions, computer programs, drawings, maps, architectural renditions, models, manuals, brochures or the like) relating to the Company's or any of its affiliated companies' business, products, or services, whether such work is created solely by Employee or jointly with others, the Company shall be deemed the author of such work if the work is prepared by Employee in the scope of his or her employment; or, if the work is not prepared by Employee within the scope of his or her employment but is specially ordered by the Company as a contribution to a collective work, as a part of a motion picture or other audiovisual work, as a translation, as a supplementary work, as a compilation or as an instrumental text, then the work shall be considered to be work made for hire and the Company shall be the author of the work. In the event such work is neither prepared by the Employee within the scope of his or her employment or is not a work specially ordered and deemed to be a work made for hire, then Employee hereby agrees to assign, and by these presents does assign, to the Company all of Employee's worldwide right, title and interest in and to such work and all rights of copyright therein. Both during the period of Employee's employment by the Company or any of its affiliated companies and thereafter, Employee agrees to assist the Company and its nominee, at any time, in the protection of the Company's worldwide right, title and interest in and to the work and all rights of copyright therein, including but not limited to, the execution of all formal assignment documents requested by the Company or its nominee and the execution of all lawful oaths and applications for registration of copyright in the United States and foreign countries. 13. Employee's Post-Employment Non-Competition Obligations: In Certain Situations such Obligations Apply only if the Company Opts to Continue Employee's Salary Payment. (a) During the Employment Period and, subject to the conditions of Sections 13(b) and 13(c), for a period of three (3) years thereafter (the "Non-Competition Period") provided, however, that the Non-Competition Period shall not exceed three (3) years from the Date of Termination, Employee shall not, acting alone or in 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. 15 16 (b) If Employee has been terminated for Cause (Section 4(b)) or if Employee terminates his employment for any reason other than for Good Reason or other than during the Window Period (Section 4(c)), Employee shall be bound by the obligations of Section 13(a) and the Company shall have no obligation to make the Non-Competition Payments (as defined in Section 13(c) below). However, if the employment relationship is terminated by any other circumstance or for any other reason, Employee's post-employment non-competition obligations required by Section 13(a) shall be subject to the Company's obligation to make the Non-Competition Payments specified in Section 13(c). (c) Notwithstanding the provisions of Section 4 of this Agreement, whenever the employment relationship is terminated due to the expiration of its term because the Company or Employee timely gave written notice of termination (Section 1), or due to Employee's Disability (Section 4(a)), or by the Company without Cause (Section 4(b)), unless the Company exercises its option as hereinafter provided, Employee shall be entitled to continue to receive payments (the "Non-Competition Payments") equal to his then current Annual Base Salary (as of the Date of Termination) during the Non-Competition Period. During the Non-Competition Period, the Employee shall not, however, be deemed to be an employee of the Company or be entitled to continue to receive any other employee benefits other than as set forth in Section 5 or Section 8. Moreover, the Non-Competition Payments shall be reduced to the extent Employee has already received lump-sum payments in lieu of salary and bonus pursuant to Section 5. The Company shall have the option, exercisable at any time within one (1) month after Employee's Date of Termination, to cancel Employee's post-employment non-competition obligations under Section 13(a) and the Company's corresponding obligation to make the Non-Competition Payments. Such option shall be exercised by the Company mailing a written notice thereof to Employee in accordance with Section 17(b); if the Company does not send such notice within the prescribed one-month time, the Company shall remain obligated to make the Non-Competition Payments and Employee shall remain obligated to comply with the provisions of Section 13(a). The purpose of this paragraph is to make the non-competition obligations of Employee more reasonable from the Employee's point of view. The amounts to be paid by the Company are not intended to be liquidated damages or an estimate of the actual damages that would be sustained by the Company if Employee breaches his post-employment non-competition obligations. If Employee breaches his post-employment non-competition obligations, the Company shall be entitled to cease making the Non-Competition Payments and shall be entitled to all of its remedies at law or in equity for damages and injunctive relief. 14. Obligations to Refrain From Competing Unfairly. In addition to the other obligations agreed to by Employee in this Agreement, Employee agrees that during the Employment Period and for three (3) years following the Date of Termination, he shall not at any time, directly or indirectly for the benefit of any other party than the Company or any of its affiliated companies, (a) induce, entice, or solicit any employee of the Company or any of its affiliated companies to leave his employment, or (b) contact, communicate or solicit any customer of the Company or any of its affiliated companies derived from any customer list, customer lead, mail, printed matter or other information secured from the Company or any of its affiliated companies or their present or past employees, or (c) in any other manner use any 16 17 customer lists or customer leads, mail, telephone numbers, printed material or material of the Company or any of its affiliated companies relating thereto. 15. Successors. (a) This Agreement is personal to the Employee and without the prior written consent of the Company shall not be assignable by the Employee otherwise than by will or the laws of descent and distribution. This Agreement shall inure to the benefit of and be enforceable by the Employee's legal representatives. (b) This Agreement shall inure to the benefit of and be binding upon the Company and its successors and assigns. (c) The Company will require any successor (whether direct or indirect, by purchase, merger, consolidation or otherwise) to all or substantially all of the business and/or assets of the Company or the Company to assume expressly and agree to perform this Agreement in the same manner and to the same extent that the Company would be required to perform it if no such succession had taken place. As used in this Agreement, "Company" shall mean the Company as hereinbefore defined and any successor to its business and/or assets as aforesaid which assumes and agrees to perform this Agreement by operation of law, or otherwise. The Parent will require any successor (whether direct or indirect, by purchase, merger, consolidation or otherwise) to all or substantially all of the business and/or assets of the Parent or the Parent to assume expressly and agree to perform the Parent's obligations hereunder in the same manner and to the same extent that the Parent would be required to perform them if no such succession had taken place. As used in this Agreement, "Parent" shall mean the Parent as hereinbefore defined and any successor to its business and/or assets as aforesaid which assumes and agrees to perform the Parent's obligations hereunder by operation of law, or otherwise. 16. Certain Definitions. The following defined terms used in this Agreement shall have the meanings indicated: (a) The "Change of Control Date" shall mean the first date on which a Change of Control occurs. Anything in this Agreement to the contrary notwithstanding, if a Change of Control occurs and if the Employee's employment with the Company is terminated or the Employee ceases to have the position with the Company or the Parent which the Employee had prior to the date on which the Change of Control occurs, and if it is reasonably demonstrated by the Employee that such termination or cessation (i) was at the request of a third party who has taken steps reasonably calculated to effect the Change of Control or (ii) otherwise arose in connection with or anticipation of the Change of Control, then, for all purposes of this Agreement, the "Change of Control Date" shall mean the date immediately prior to the date of such termination or cessation. (b) The "Change of Control Period" shall mean the period commencing on the Change of Control Date and ending on the last day of the Employment Period. (c) "Change of Control" shall mean: 17 18 (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 comprising 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 was comprised of at least five members and all members of such committee were either members of the Incumbent Board or considered as being members of the Incumbent Board pursuant to clause (A) of this subsection (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 18 19 to such reorganization, merger or consolidation, of the Outstanding Parent Common Stock and Outstanding Parent Voting Securities, as the case may be, (B) no Person (excluding the Parent, any employee benefit plan or related trust of the Parent or such corporation resulting from such reorganization, merger or consolidation and any Person beneficially owning, immediately prior to such reorganization, merger or consolidation, directly or indirectly, 20% or more of the Outstanding Parent Common Stock or Outstanding Parent Voting Securities, as the case may be) beneficially owns, directly or indirectly, 20% or more of, respectively, the then outstanding shares of common stock of the corporation resulting from such reorganization, merger or consolidation or the combined voting power of the then outstanding voting securities of such corporation entitled to vote generally in the election of directors and (C) at least a majority of the members of the board of directors of the corporation resulting from such reorganization, merger or consolidation were members of the Incumbent Board at the time of the execution of the initial agreement providing for such reorganization, merger or consolidation; or (iv) Approval by the shareholders of the Parent of (A) a complete liquidation or dissolution of the Parent or (B) the sale or other disposition of all or substantially all of the assets of the Parent, other than to a corporation, with respect to which following such sale or other disposition, (A) more than 60% of, respectively, the then outstanding shares of common stock of such corporation and the combined voting power of the then outstanding voting securities of such corporation entitled to vote generally in the election of directors is then beneficially owned, directly or indirectly, by all or substantially all of the individuals and entities who were the beneficial owners, respectively, of the Outstanding Parent Common Stock and Outstanding Parent Voting Securities immediately prior to such sale or other disposition in substantially the same proportion as their ownership, immediately prior to such sale or other disposition, of the Outstanding Parent Common Stock and Outstanding Parent Voting Securities, as the case may be, (B) no Person (excluding the Parent and any employee benefit plan or related trust of the Parent or such corporation and any Person beneficially owning, immediately prior to such sale or other disposition, directly or indirectly, 20% or more of the Outstanding Parent Common Stock or Outstanding Parent Voting Securities, as the case may be) beneficially owns, directly or indirectly, 20% or more of, respectively, the then outstanding shares of common stock of such corporation and the combined voting power of the then outstanding voting securities of such corporation entitled to vote generally in the election of directors and (C) at least a majority of the members of the Board of Directors of such corporation were members of the Incumbent Board at the time of the execution of the initial agreement or action of the Board of Directors of the Parent providing for such sale or other disposition of assets of the Parent. (d) The term "affiliated company" shall mean any company controlled by, controlling or under common control with the Company. (e) The term "Highest Recent Bonus" shall mean the highest Annual Bonus (annualized for any fiscal year consisting of less than twelve full months) paid or payable, 19 20 including by reason of any deferral, to the Employee by the Company and its affiliated companies in respect of the three most recent full fiscal years ending on or prior to, (i) if prior to a Change of Control, the Date of Termination, or (ii) if after a Change of Control, the Change of Control Date. 17. Miscellaneous. (a) This Agreement replaces and merges all previous agreements and discussions relating to the same or similar subject matters between Employee and the Company and shall be governed by and construed in accordance with the laws of the State of Texas, without reference to principles of conflict of laws. The captions of this Agreement are not part of the provisions hereof and shall have no force or effect. This Agreement may not be amended, modified, repealed, waived, extended or discharged except by an agreement in writing signed by the party against whom enforcement of such amendment, modification, repeal, waiver, extension or discharge is sought. No person, other than pursuant to a resolution of the Board or a duly authorized committee thereof, shall have authority on behalf of the Company to agree to amend, modify, repeal, waive, extend or discharge any provision of this Agreement or anything in reference thereto. (b) All notices and other communications hereunder shall be in writing and shall be given by hand delivery to the other party or by registered or certified mail, return receipt requested, postage prepaid, addressed as follows: If to the Employee: W. Blair Waltrip 1929 Allen Parkway Houston, TX 77019 If to the Company: SCI Executive Services, Inc. 1929 Allen Parkway Houston, Texas 77019 Attention: Corporate Secretary 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. 20 21 (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 of Directors of the Company, the Company have caused this Agreement to be executed this 1st day of January, 1997, effective as of the day and year first above written. W. BLAIR WALTRIP /s/ W. BLAIR WALTRIP -------------------------------------- "EMPLOYEE" SCI EXECUTIVE SERVICES, INC. By: /s/ CURTIS G. BRIGGS ------------------------------------ Curtis G. Briggs Vice President "COMPANY" 21 22 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 ---------------------------------- James M. Shelger Senior Vice President General Counsel & Secretary "PARENT" 22 EX-10.7 6 EMPLOYMENT AGREEMENT - JOHN W. MORROW, JR. 1 EXHIBIT 10.7 EMPLOYMENT AGREEMENT EMPLOYMENT AGREEMENT (the "Agreement") made and entered into as of this 11th day of November, 1991, amended and restated as of August 12, 1992, further amended and restated May 12, 1993, and further amended and restated as of January 1, 1997 by and between SCI EXECUTIVE SERVICES, INC., a Delaware corporation (the "Company") wholly owned by and successor by assignment to all of the rights, duties and obligations under this Agreement of SERVICE CORPORATION INTERNATIONAL, a Texas corporation (the "Parent"), and John W. Morrow, Jr. (the"Employee"); WHEREAS, in order to achieve certain administrative efficiencies in providing professional management services to its affiliated companies, the Parent has transferred the Employee to the employ of the Company effective January 1, 1997; WHEREAS, the Company, the Parent and the Employee desire to join in the execution of this amended and restated Agreement to (i) provide for the transfer of the employment of the Employee and (ii) set out more fully the rights, duties and obligations of the parties hereto; WHEREAS, Employee is employed by the Company in a management capacity, has extraordinary access to the Company's confidential business information, and has significant duties and responsibilities in connection with the conduct of the Company's business which places Employee in a special and uncommon classification of employees; WHEREAS, attendant to Employee's employment by the Company, the Company and Employee wish for there to be a complete understanding and agreement between the Company and Employee with respect to the fiduciary duties owed by Employee to the Company; Employee's obligation to avoid conflicts of interest, disclose pertinent information to the Company, and refrain from using or disclosing the Company's information; the term of employment and conditions for or upon termination thereof; the compensation and benefits owed to Employee; and the post-employment obligations Employee owes to the Company; and WHEREAS, but for Employee's agreement to the covenants and conditions of this Agreement, particularly the conflict of interest provisions, the provisions with respect to confidentiality of information and the ownership of intellectual property, and the post-employment obligations of Employee, the Company would not have entered into this Agreement; NOW, THEREFORE, in consideration of Employee's employment by the Company and the mutual promises and covenants contained herein, the receipt and sufficiency of such consideration being hereby acknowledged, the Company and Employee agree as follows: 2 1. Employment and Term. The Company agrees to employ the Employee and the Employee agrees to remain in the employ of the Company, in accordance with the terms and provisions of this Agreement, for the period beginning on the date of this Agreement (i.e. November 11, 1991) and ending as of the close of business on the third (3rd) anniversary of the date hereof (such period together with all extensions thereof, including any Change of Control Period (as defined in Section 16(b) below), are referred to hereinafter as the "Employment Period"); provided, however, that commencing on the date one year after the date hereof, and on each annual anniversary of such date (such date and each annual anniversary thereof shall be hereinafter referred to as a "Renewal Date") the Employment Period shall be automatically extended so as to terminate three (3) years from such Renewal Date, unless at least 60 days prior to the Renewal Date either the Company or the Employee gives the other written notice that the Employment Period shall not be so extended. 2. Duties and Powers of Employee. (a) Position; Location. During the Employment Period, the Employee shall perform such duties and have such powers as designated by the Board of Directors of the Company (the "Board") or any duly authorized committee thereof in connection with the execution of this Agreement. The Employee's services shall be performed at the location where the Employee is currently employed or any office which is the headquarters of the Company and is less than 50 miles from such location. During the Change of Control Period, the Employee's position (including status, offices, titles and reporting requirements), authority, duties and responsibilities shall be at least commensurate in all material respects with the most significant of those held, exercised and assigned with or by the Company or the Parent at any time during the 90-day period immediately preceding the Change of Control Date (as defined in Section 16(a) below). (b) Duties. During the Employment Period, and excluding any periods of vacation and sick leave to which the Employee is entitled, the Employee agrees to devote his attention and time during normal business hours to the business and affairs of the Company and to use the Employee's best efforts to perform faithfully and efficiently such responsibilities. During the Employment Period it shall not be a violation of this Agreement for the Employee to (i) serve on corporate, civic or charitable boards or committees, (ii) deliver lectures, fulfill speaking engagements or teach at educational institutions and (iii) manage personal investments, so long as such activities do not significantly interfere with the performance of the Employee's responsibilities as an employee of the Company in accordance with this Agreement. It is expressly understood and agreed that to the extent that any such activities have been conducted by the Employee prior to the date of this Agreement or subsequent thereto consistent with this Section 2(b), the continued conduct of such activities (or the conduct of activities similar in nature and scope thereto) shall not thereafter be deemed to interfere with the performance of the Employee's responsibilities to the Company. (c) Employee agrees and acknowledges that he owes, and will comply with, a fiduciary duty of loyalty, fidelity or allegiance to act at all times in the best interests of the Company and to take no action or fail to take action if such action or failure to act would injure the Company's business, its interests or its reputation. 2 3 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 $330,000.00 per year, in substantially equal bi-weekly installments, and subject to any and all required withholdings and deductions for Social Security, income taxes and the like. The Board may from time to time direct such upward adjustments to Annual Base Salary as the Board deems to be appropriate or desirable; provided, however, that during the Change of Control Period, the Annual Base Salary shall be reviewed at least annually and shall be increased at any time and from time to time as shall be substantially consistent with increases in base salary generally awarded in the ordinary course of business to other employees of comparable rank with the Company and its affiliated companies (as defined in Section 16(d) below). Annual Base Salary shall not be reduced after any increase thereof pursuant to this Section 3(a). Any increase in Annual Base Salary shall not serve to limit or reduce any other obligation of the Company under this Agreement. (b) Incentive Cash Compensation. During the Employment Period, he shall be eligible annually for a cash bonus at the discretion of the Board (such aggregate awards for each year are hereinafter referred to as the "Annual Bonus") and at the discretion of the Board to receive awards from any plan of the Company or any of its affiliated companies providing for the payment of bonuses in cash to employees of the Company or its affiliated companies having rank comparable to that of the Employee (such plans being referred to herein collectively as the "Cash Bonus Plans") in accordance with the terms thereof; provided, however, that, during the Change of Control Period, the Employee shall be awarded, for each fiscal year ending during the Change of Control Period, an Annual Bonus at least equal to the Highest Recent Bonus (as defined in Section 16(e) below). Each Annual Bonus shall be paid no later than the end of the third month of the fiscal year next following the fiscal year for which the Annual Bonus is awarded, unless the Employee shall elect to defer the receipt of such Annual Bonus. (c) Incentive and Savings and Retirement Plans. During the Employment Period, the Employee shall be entitled to participate in all incentive and savings (in addition to the Cash Bonus Plans) and retirement plans, practices, policies and programs applicable generally to other employees of comparable rank with the Company and its affiliated companies. (d) Welfare Benefit Plans. During the Employment Period, the Employee and/or the Employee's family, as the case may be, shall be eligible for participation in all welfare benefit plans, practices, policies and programs provided by the Company and its affiliated companies (including, without limitation, medical, prescription, dental, disability, salary continuance, employee life, group life, accidental death and travel accident insurance plans and programs) to the extent applicable generally to other employees of comparable rank with the Company and its affiliated companies. (e) Expenses. During the Employment Period and for so long as the Employee is employed by the Company, he shall be entitled to receive prompt reimbursement 3 4 for all reasonable expenses incurred by the Employee in accordance with the policies, practices and procedures of the Company and its affiliated companies from time to time in effect. (f) Fringe Benefits. During the Employment Period, the Employee shall be entitled to fringe benefits in accordance with the plans, practices, programs and policies of the Company and its affiliated companies from time to time in effect, commensurate with his position and on a basis at least comparable to those received by other employees of comparable rank with the Company and its affiliated companies. (g) Office and Support Staff. During the Employment Period, the Employee shall be entitled to an office or offices of a size and with furnishings and other appointments, and to exclusive personal secretarial and other assistance, commensurate with his position and on a basis at least comparable to those received by other employees of comparable rank with the Company and its affiliated companies. (h) Vacation and Other Absences. During the Employment Period, the Employee shall be entitled to paid vacation and such other paid absences whether for holidays, illness, personal time or any similar purposes, in accordance with the plans, policies, programs and practices of the Company and its affiliated companies in effect from time to time, commensurate with his position and on a basis at least comparable to those received by other employees of comparable rank with the Company and its affiliated companies. (i) During the Change of Control Period, the Employee's benefits listed under Sections 3(c), 3(d), 3(e), 3(f), 3(g) and 3(h) above shall be at least commensurate in all material respects with the most valuable and favorable of those received by the Employee at any time during the 90-day period immediately preceding the Change of Control Date. 4. Termination of Employment. (a) Death or Disability. The Employment Period shall terminate automatically upon the Employee's death during the Employment Period. If the Company determines in good faith that the Disability of the Employee has occurred during the Employment Period (pursuant to the definition of Disability set forth below), it may give to the Employee written notice in accordance with Section 17(b) of its intention to terminate the Employment Period. In such event, the Employment Period shall terminate effective on the 30th day after receipt of such notice by the Employee (the "Disability Effective Date"), provided that, within the 30 days after such receipt, the Employee shall not have returned to full-time performance of the Employee's duties. For purposes of this Agreement, "Disability" shall mean the inability of the Employee to perform the Employee's duties with the Company on a full-time basis as a result of incapacity due to mental or physical illness which continues for more than one year after the commencement of such incapacity, such incapacity to be determined by a physician selected by the Company or its insurers and acceptable to the Employee or the Employee's legal representative (such agreement as to acceptability not to be withheld unreasonably). (b) Cause. The Company may terminate the Employment Period for Cause. For purposes of this Agreement, "Cause" shall mean (i) a material breach by the Employee of 4 5 Section 9 which is willful on the Employee's part or which is committed in bad faith or without reasonable belief that such breach is in the best interests of the Company and its affiliated companies, or (ii) a material breach by the Employee of the Employee's obligations under Section 2 (other than a breach of the Employee's obligations under Section 2 arising from the failure of the Employee to work as a result of incapacity due to physical or mental illness) or any material breach by the Employee of Section 10, 11 or 12 of this Agreement which in either case is willful on the Employee's part, which is committed in bad faith or without reasonable belief that such breach is in the best interests of the Company and its affiliated companies and which is not remedied in a reasonable period of time after receipt of written notice from the Company specifying such breach, or (iii) the conviction of the Employee of a felony involving malice which conviction has been affirmed on appeal or as to which the period in which an appeal can be taken has lapsed. (c) Good Reason; Window Period. The Employee's employment may be terminated (i) by the Employee for Good Reason (as defined below) or (ii) during the Window Period (as defined below) by the Employee without any reason. For purposes of this Agreement, the "Window Period" shall mean the 30-day period immediately following the first anniversary of the Change of Control Date. For purposes of this Agreement, "Good Reason" shall mean (i) the assignment to the Employee of any duties inconsistent in any respect with the Employee's position (including status, offices, titles and reporting requirements), authority, duties or responsibilities 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 15(c), provided that the successor referred to in Section 15(c) has received at least ten days prior written notice from the Company or the Employee of the requirements of Section 15(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. 5 6 (d) Notice of Termination. Any termination by the Company for Cause or by the Employee without any reason during the Window Period or for Good Reason shall be communicated by Notice of Termination to the other party hereto given in accordance with Section 17(b). For purposes of this Agreement, a "Notice of Termination" means a written notice which (i) indicates the specific termination provision in this Agreement relied upon, (ii) to the extent applicable, sets forth in reasonable detail the facts and circumstances claimed to provide a basis for termination of the Employment Period under the provision so indicated and (iii) if the Date of Termination (as defined below) is other than the date of receipt of such notice, specifies the termination date (which date shall be not more than 15 days after the giving of such notice). The failure by the Employee or the Company to set forth in the Notice of Termination any fact or circumstance which contributes to a showing of Good Reason or Cause shall not waive any right of the Employee or the Company hereunder or preclude the Employee or the Company from asserting such fact or circumstance in enforcing the Employee's or the Company's rights hereunder. (e) Date of Termination. "Date of Termination" means (i) if the Employee's employment is terminated by the Company for Cause, or by the Employee during the Window Period or for Good Reason, the date of receipt of the Notice of Termination or any later date specified therein, as the case may be, (ii) if the Employee's employment is terminated by the Company other than for Cause or Disability, or by the Employee other than for Good Reason or during the Window Period, the Date of Termination shall be the date on which the Company or the Employee, as the case may be, notifies the other of such termination and (iii) if the Employee's employment is terminated by reason of death or Disability, the Date of Termination shall be the date of death of the Employee or the Disability Effective Date, as the case may be. 5. Obligations of the Company Upon Termination. (a) Certain Terminations Prior to Change of Control Date. If, during the Employment Period prior to any Change of Control Date, the employment of the Employee with the Company shall be terminated (i) by the Company other than for Cause, death or Disability or (ii) by the Employee for Good Reason, then, in lieu of the obligations of the Company under Section 3, (i) the Company shall pay to the Employee in a lump sum in cash within 30 days after the Date of Termination all Unpaid Agreement Amounts (as defined in Section 5(b)(i)(A) below) and (ii) notwithstanding any other provision hereunder, for the longer of (A) the remainder of the Employment Period or (B) to the extent compensation and/or benefits are provided under any plan, program, practice or policy, such longer period, if any, as such plan, program, practice or policy may provide, the Company shall continue to provide to the Employee the compensation and benefits provided in Sections 3(a), 3(c) and 3(d). (b) Certain Terminations After Change of Control Date. If, during the Change of Control Period, the employment of the Employee with the Company shall be terminated (i) by the Company other than for Cause, death or Disability or (ii) by the Employee either for Good Reason or without any reason during the Window Period, then, in lieu of the obligations of the Company under Section 3 and notwithstanding any other provision hereunder: 6 7 (i) the Company shall pay to the Employee in a lump sum in cash within 30 days after the Date of Termination the aggregate of the following amounts: (A) the sum of (1) all unpaid amounts due to the Employee under Section 3 through the Date of Termination, including without limitation, the Employee's Annual Base Salary and any accrued vacation pay, (2) the product of (x) the Highest Recent Bonus and (y) a fraction, the numerator of which is the number of days in the current fiscal year through the Date of Termination, and the denominator of which is 365 and (3) any compensation previously deferred by the Employee (together with any accrued interest or earnings thereon) to the extent not theretofore paid (the sum of the amounts described in clauses (1), (2) and (3) shall be hereinafter referred to as the "Accrued Obligations" and the sum of the amounts described in clauses (1) and (3) shall be hereinafter referred to as the "Unpaid Agreement Amounts"); and (B) the amount (such amount shall be hereinafter referred to as the "Severance Amount") equal to the sum of (1) Three (3) multiplied by the Employee's Annual Base Salary, plus (2) Three (3) multiplied by the Employee's Highest Recent Bonus; (ii) for the longer of (A) the remainder of the Employment Period or (B) to the extent benefits are provided under any plan, program, practice or policy, such longer period as such plan, program, practice or policy may provide, the Company shall continue benefits to the Employee and/or the Employee's family at least equal to those which would have been provided to them in accordance with the plans, programs, practices and policies described in Section 3(d) if the Employee's employment had not been terminated, in accordance with the most favorable plans, practices, programs or policies of the Company and its affiliated companies as in effect and applicable generally to other employees of comparable rank and their families during the 90-day period immediately preceding the Change of Control Date or, if more favorable to the Employee, as in effect generally at any time thereafter with respect to other employees of comparable rank with the Company and its affiliated companies and their families; provided, however, that if the Employee becomes reemployed with another employer and is eligible to receive medical or other welfare benefits under another employer provided plan, the medical and other welfare benefits described herein shall be required only to the extent not provided under such other plan during such applicable period of eligibility. For purposes of determining eligibility of the Employee for retiree benefits pursuant to such plans, practices, programs and policies, the Employee shall be considered to have remained employed until the end of the Employment Period and to have retired on the last day of such period; and 7 8 (iii) to the extent not theretofore paid or provided, the Company shall timely pay or provide to the Employee and/or the Employee's family for the remainder of the Employment Period any other amounts or benefits required to be paid or provided or which the Employee and/or the Employee's family is eligible to receive pursuant to this Agreement and under any plan, program, policy or practice or contract or agreement of the Company and its affiliated companies as in effect and applicable generally to other employees of comparable rank with the Company and its affiliated companies and their families during the 90- day period immediately preceding the Change of Control Date or, if more favorable to the Employee, as in effect generally thereafter with respect to other employees of comparable rank with the Company and its affiliated companies and their families. Such amounts received under this Section 5(b) shall be in lieu of any other amount of severance relating to salary or bonus continuation to be received by the Employee upon termination of employment of the Employee under any severance plan, policy or arrangement of the Company. (c) Termination as a Result of Death. If the Employee's employment is terminated by reason of the Employee's death during the Employment Period, in lieu of the obligations of the Company under Section 3, the Company shall pay or provide to the Employee's estate (i) all Accrued Obligations (which shall be paid in a lump sum in cash within 30 days after the Date of Termination) and the timely payment or provision of the Welfare Benefit Continuation (as defined below) and the Other Benefits (as defined below) and (ii) any cash amount to be received by the Employee or the Employee's family as a death benefit pursuant to the terms of any plan, policy or arrangement of the Company and its affiliated companies. "Welfare Benefit Continuation" shall mean the continuation of benefits to the Employee and/or the Employee's family for the longer of (i) three (3) years from the Date of Termination or (ii) the period provided by the plans, programs, policies or practices described in Section 3(d) in which the Employee participates as of the Date of Termination, such benefits to be at least equal to those which would have been provided to them in accordance with the plans, programs, practices and policies described in Section 3(d) if the Employee's employment had not been terminated, in accordance with the most favorable plans, practices, programs or policies of the Company and its affiliated companies as in effect and applicable generally to other 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, 8 9 if more favorable to the Employee, as in effect generally thereafter with respect to other employees of comparable rank with the Company and its affiliated companies and their families. (d) Termination as a Result of Disability. If the Employee's employment is terminated by reason of the Employee's Disability during the Employment Period, in lieu of the obligations of the Company under Section 3, the Company shall pay or provide to the Employee (i) all Accrued Obligations which shall be paid in a lump sum in cash within 30 days after the Date of Termination and the timely payment or provision of the Welfare Benefit Continuation and the Other Benefits, provided, however, that if the Employee becomes reemployed with another employer and is eligible to receive medical or other welfare benefits under another employer provided plan, the Welfare Benefit Continuation shall be required only to the extent not provided under such other plan during such applicable period of eligibility, and (ii) any cash amount to be received by the Employee as a disability benefit pursuant to the terms of any plan, policy or arrangement of the Company and its affiliated companies. (e) Cause; Other than for Good Reason. If the Employee's employment shall be terminated during the Employment Period by the Company for Cause or by the Employee other than during the Window Period and other than for Good Reason, in lieu of the obligations of the Company under Section 3, the Company shall pay to the Employee in a lump sum in cash within 30 days after the Date of Termination all Unpaid Agreement Amounts. 6. Non-exclusivity of Rights. Except as provided in Sections 5(a), 5(b)(i)(B), 5(b)(ii), 5(c) and 5(d), nothing in this Agreement shall prevent or limit the Employee's continuing or future participation in any plan, program, policy or practice provided by the Company or any of its affiliated companies and for which the Employee may qualify, nor shall anything herein limit or otherwise affect such rights as the Employee may have under any contract or agreement with the Company or any of its affiliated companies. Amounts which are vested benefits or which the Employee is otherwise entitled to receive under any plan, policy, practice or program of or any contract or agreement with the Company or any of its affiliated companies at or subsequent to the Date of Termination shall be payable in accordance with such plan, policy, practice or program or contract or agreement except as explicitly modified by this Agreement. 7. Full Settlement; Resolution of Disputes. (a) The Company's obligation to make the payments provided for in this Agreement and otherwise to perform its obligations hereunder shall not be affected by any set-off, counterclaim, recoupment, defense or other claim, right or action which the Company may have against the Employee or others. In no event shall the Employee be obligated to seek other employment or take any other action by way of mitigation of the amounts payable to the Employee under any of the provisions of this Agreement and, except as provided in 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 9 10 of any contest by the Employee about the amount of any payment pursuant to this Agreement), plus in each case interest on any payment required to be made under this Agreement but not timely paid at the rate provided for in Section 280G(d)(4) of the Internal Revenue Code of 1986, as amended (the "Code"). (b) If there shall be any dispute between the Company and the Employee (i) in the event of any termination of the Employee's employment by the Company, whether such termination was for Cause, or (ii) in the event of any termination of employment by the Employee, whether Good Reason existed, then, unless and until there is a final, nonappealable judgment by a court of competent jurisdiction declaring that such termination was for Cause or that the determination by the Employee of the existence of Good Reason was not made in good faith, the Company shall pay all amounts, and provide all benefits, to the Employee and/or the Employee's family or other beneficiaries, as the case may be, that the Company would be required to pay or provide pursuant to Section 5(a) or 5(b) as though such termination were by the Company without Cause or by the Employee with Good Reason. The Employee hereby undertakes to repay to the Company all such amounts to which the Employee is ultimately adjudged by such court not to be entitled. 8. Certain Additional Payments by the Company. (a) Anything in this Agreement to the contrary notwithstanding, in the event it shall be determined that any payment or distribution by the Company to or for the benefit of the Employee (whether paid or payable or distributed or distributable pursuant to the terms of this Agreement or otherwise, but determined without regard to any additional payments required under this Section 8) (a "Payment") would be subject to the excise tax imposed by Section 4999 of the Code or any interest or penalties are incurred by the Employee with respect to such excise tax (such excise tax, together with any such interest and penalties, are hereinafter collectively referred to as the "Excise Tax"), then the Employee shall be entitled to receive an additional payment (a "Gross-Up Payment") in an amount such that after payment by the Employee of all taxes (including any interest or penalties imposed with respect to such taxes), including, without limitation, any income taxes (and any interest and penalties imposed with respect thereto) and Excise Tax imposed upon the Gross-Up Payment, the Employee retains an amount of the Gross-Up Payment equal to the Excise Tax imposed upon the Payments. (b) Subject to the provisions of Section 8(c), all determinations required to be made under this Section 8, including whether and when a Gross-Up Payment is required and the amount of such Gross-Up Payment and the assumptions to be utilized in arriving at such determination, shall be made by the Company's outside independent auditor (the "Accounting Firm"), which shall provide detailed supporting calculations both to the Company and the Employee within 15 business days of the receipt of notice from the Employee that there has been a Payment, or such earlier time as is requested by the Company. In the event that the Accounting Firm is serving (or has served within the three years preceding the Change of Control Date) as accountant or auditor for the individual, entity or group effecting the Change of Control, or is unwilling or unable to perform its obligations pursuant to this Section 8, the Employee shall appoint another nationally recognized accounting firm to make the determinations required hereunder (which accounting firm shall then be referred to as the Accounting Firm 10 11 hereunder). All fees and expenses of the Accounting Firm shall be borne solely by the Company. Any Gross-Up Payment, as determined pursuant to this Section 8, shall be paid by the Company to the Employee within five days of the receipt of the Accounting Firm's determination. If the Accounting Firm determines that no Excise Tax is payable by the Employee, it shall furnish the Employee with a written opinion that failure to report the Excise Tax on the Employee's applicable federal income tax return would not result in the imposition of a negligence or similar penalty. Any determination by the Accounting Firm shall be binding upon the Company and the Employee. As a result of the uncertainty in the application of Section 4999 of the Code at the time of the initial determination by the Accounting Firm hereunder, it is possible that Gross-Up Payments which will not have been made by the Company should have been made ("Underpayment"), consistent with the calculations required to be made hereunder. In the event that the Company exhausts its remedies pursuant to Section 8(c) and the Employee thereafter is required to make a payment of any Excise Tax, the Accounting Firm shall determine the amount of the Underpayment that has occurred and any such Underpayment shall be promptly paid by the Company to or for the benefit of the Employee. (c) The Employee shall notify the Company in writing of any claim by the Internal Revenue Service that, if successful, would require the payment by the Company of the Gross-Up Payment. Such notification shall be given as soon as practicable but no later than ten business days after the Employee is informed in writing of such claim and shall apprise the Company of the nature of such claim and the date on which such claim is requested to be paid. The Employee shall not pay such claim prior to the expiration of the 30-day period following the date on which the Employee gives such notice to the Company (or such shorter period ending on the date that any payment of taxes with respect to such claim is due). If the Company notifies the Employee in writing prior to the expiration of such period that it desires to contest such claim, the Company, subject to the provisions of this Section 8(c), shall control all proceedings taken in connection with such contest and, at its sole option, may pursue or forgo any and all administrative appeals, proceedings, hearings and conferences with the taxing authority in respect of such claim and may, at its sole option, either direct the Employee to pay the tax claimed and sue for a refund or contest the claim in any permissible manner. In this connection, the Employee agrees, subject to the provisions of this Section 8(c), to (i) prosecute such contest to a determination before any administrative tribunal, in a court of initial jurisdiction and in one or more appellate courts, as the Company shall determine, (ii) give the Company any information reasonably requested by the Company relating to such claim, (iii) take such action in connection with contesting such claim as the Company shall reasonably request in writing from time to time, including, without limitation, accepting legal representation with respect to such claim by an attorney reasonably selected by the Company, (iv) cooperate with the Company in good faith in order effectively to contest such claim and (v) permit the Company to participate in any proceedings relating to such claim. The foregoing is subject, however, to the following: (A) the Company shall bear and pay directly all costs and expenses (including additional interest and penalties) incurred in connection with such contest and shall indemnify and hold the Employee harmless, on an after-tax basis, for any Excise Tax or income tax (including interest and penalties with respect thereto) imposed in connection therewith and the payment of costs and expenses in such connection, (B) if the Company directs the Employee to pay such claim and sue for a refund, the Company shall advance the amount of such payment 11 12 to the Employee, on an interest-free basis, and shall indemnify and hold the Employee harmless, on an after-tax basis, from any Excise Tax or income tax (including interest or penalties with respect thereto) imposed with respect to such advance or with respect to any imputed income with respect to such advance, (C) any extension of the statute of limitations relating to payment of taxes for the taxable year of the Employee with respect to which such contested amount is claimed to be due shall be limited solely to such contested amount and (D) the Company's control of the contest shall be limited to issues with respect to which a Gross-Up Payment would be payable hereunder and the Employee shall be entitled to settle or contest, as the case may be, any other issue raised by the Internal Revenue Service or any other taxing authority. (d) If, after the receipt by the Employee of an amount advanced by the Company pursuant to Section 8(c), the Employee becomes entitled to receive any refund with respect to such claim, the Employee shall (subject to the Company's complying with the requirements of Section 8(c)) promptly pay to the Company the amount of such refund (together with any interest paid or credited thereon after taxes applicable thereto). If, after the receipt by the Employee of an amount advanced by the Company pursuant to Section 8(c), a determination is made that the Employee shall not be entitled to any refund with respect to such claim and the Company does not notify the Employee in writing of its intent to contest such denial of refund prior to the expiration of 30 days after such determination, then such advance shall be forgiven and shall not be required to be repaid and the amount of such advance shall offset, to the extent thereof, the amount of Gross-Up Payment required to be paid. 9. Confidential Information. The Employee shall hold in a fiduciary capacity for the benefit of the Company all secret or confidential information, knowledge or data relating to the Company or any of its affiliated companies, and their respective businesses, which shall have been obtained by the Employee during the Employee's employment by the Company or any of its affiliated companies and which shall not be or become public knowledge (other than by acts by the Employee or representatives of the Employee in violation of this Agreement). After termination of the Employee's employment with the Company or any of its affiliated companies, the Employee shall not, without the prior written consent of the Company or as may otherwise be required by law or legal process, communicate or divulge any such information, knowledge or data to anyone other than the Company and those designated by it. In no event shall an asserted violation of the provisions of this Section 9 constitute a basis for deferring or withholding any amounts otherwise payable to the Employee under this Agreement. Subject to the previous sentence, nothing herein shall be construed as prohibiting the Company from pursuing any other remedies available to it for such breach or threatened breach, including the recovery of damages from the Employee. 10. Employee's Obligation to Avoid Conflicts of Interest. (a) In keeping with Employee's fiduciary duties to the Company, Employee agrees that he shall not knowingly become involved in circumstances constituting a conflict of interest with such duties, or upon discovery thereof, allow such a conflict to continue. Moreover, Employee agrees that he shall disclose to the Secretary of the Company any facts which might involve a conflict of interest that has not been approved by the Company. The Board hereby acknowledges and agrees that the 12 13 activities of Employee listed on Schedule A hereto do not, and the continuation of such activities will not, constitute a conflict of interest for purposes of this Section 10. (b) In this connection, it is agreed that any direct interest in, connection with, or benefit from any outside activities, particularly commercial activities, which might in any way adversely affect the Company or any of its affiliated companies, involves a possible conflict of interest. Circumstances in which a conflict of interest on the part of Employee would or might arise, and which should be reported immediately to the Company, include, but are not limited to, the following: (i) Ownership of a material interest in any lender, supplier, contractor, customer or other entity with which the Company or any of its affiliated companies does business; (ii) Acting in any capacity, including director, officer, partner, consultant, employee, distributor, agent or the like, for lenders, suppliers, contractors, subcontractors, customers or other entities with which the Company or any of its affiliated companies does business; (iii) Acceptance, directly or indirectly, of payments, services or loans from a lender, supplier, contractor, subcontractor, customer or other entity with which the Company or any of its affiliated companies does business, including but not limited to, gifts, trips, entertainment, or other favors of more than a nominal value, but excluding loans from publicly held insurance companies and commercial or savings banks at normal rates of interest; (iv) Misuse of information or facilities to which Employee has access in a manner which will be detrimental to the Company's or any of its affiliated companies' interest, such as utilization for Employee's own benefit of know-how or information developed through the Company's or any of its affiliated companies' business activities; (v) Disclosure or other misuse of information of any kind obtained through Employee's connection with the Company or any of its affiliated companies; or (vi) Acquiring or trading in, directly or indirectly, other properties or interests connected with the design or marketing of products or services designed or marketed by the Company or any of its affiliated companies. (c) In the event that the Company determines, in the exercise of its reasonable judgment, that a conflict of interest exists between the Employee and the Company or any of its affiliated companies, the Company shall notify the Employee in writing in accordance with Section 17(b) hereof, providing reasonably detailed information identifying the source of the 13 14 conflict of interest. Within the 60-day period following receipt of such notice, the Employee shall take action satisfactory to the Company to eliminate the conflict of interest. Failure of the Employee to take such action within such 60-day period shall constitute "Cause" under Section 4(b) hereof. 11. Disclosure of Information, Ideas, Concepts, Improvements, Discoveries and Inventions. As part of Employee's fiduciary duties to the Company, Employee agrees that during the Employment Period, and for a period of six (6) months after the Date of Termination, Employee shall promptly disclose in writing to the Company all information, ideas, concepts, improvements, discoveries and inventions, whether patentable or not, and whether or not reduced to practice, which are conceived, developed, made or acquired by Employee, either individually or jointly with others, and which relate to the business, products or services of the Company or any of its affiliated companies, irrespective of whether Employee utilized the Company's or any of its affiliated companies' time or facilities and irrespective of whether such information, idea, concept, improvement, discovery or invention was conceived, developed, discovered or acquired by Employee on the job, at home, or elsewhere. This obligation extends to all types of information, ideas and concepts, including information, ideas and concepts relating to new types of services, corporate opportunities, acquisition prospects, the identity of key representatives within acquisition prospect organizations, prospective names or service marks for the Company's or any of its affiliated companies' business activities, and the like. 12. Ownership of Information, Ideas, Concepts, Improvements, Discoveries and Inventions and all Original Works of Authorship. (a) All information, ideas, concepts, improvements, discoveries and inventions, whether patentable or not, which are conceived, made, developed or acquired by Employee or which are disclosed or made known to Employee, individually or in conjunction with others, during Employee's employment by the Company or any of its affiliated companies and which relate to the Company's or any of its affiliated companies' business, products or services (including all such information relating to corporate opportunities, research, financial and sales data, pricing and trading terms, evaluations, opinions, interpretations, acquisition prospects, the identity of customers or their requirements, the identity of key contacts within the customer's organizations or within the organization of acquisition prospects, or marketing and merchandising techniques, prospective names and marks) are and shall be the sole and exclusive property of the Company. Moreover, all drawings, memoranda, notes, records, files, correspondence, manuals, models, specifications, computer programs, maps and all other writings or materials of any type embodying any of such information, ideas, concepts, improvements, discoveries and inventions are and shall be the sole and exclusive property of the Company. (b) In particular, Employee hereby specifically sells, assigns and transfers to the Company all of his worldwide right, title and interest in and to all such information, ideas, concepts, improvements, discoveries or inventions, and any United States or foreign applications for patents, inventor's certificates or other industrial rights that may be filed thereon, including divisions, continuations, continuations-in-part, reissues and/or extensions thereof, and applications for registration of such names and marks. Both during the period of Employee's employment by the Company or any of its affiliated companies and thereafter, Employee shall 14 15 assist the Company and its nominee at all times in the protection of such information, ideas, concepts, improvements, discoveries or inventions, both in the United States and all foreign countries, including but not limited to, the execution of all lawful oaths and all assignment documents requested by the Company or its nominee in connection with the preparation, prosecution, issuance or enforcement of any applications for United States or foreign letters patent, including divisions, continuations, continuations-in-part, reissues, and/or extensions thereof, and any application for the registration of such names and marks. (c) Moreover, if during Employee's employment by the Company or any of its affiliated companies, Employee creates any original work of authorship fixed in any tangible medium of expression which is the subject matter of copyright (such as videotapes, written presentations on acquisitions, computer programs, drawings, maps, architectural renditions, models, manuals, brochures or the like) relating to the Company's or any of its affiliated companies' business, products, or services, whether such work is created solely by Employee or jointly with others, the Company shall be deemed the author of such work if the work is prepared by Employee in the scope of his or her employment; or, if the work is not prepared by Employee within the scope of his or her employment but is specially ordered by the Company as a contribution to a collective work, as a part of a motion picture or other audiovisual work, as a translation, as a supplementary work, as a compilation or as an instrumental text, then the work shall be considered to be work made for hire and the Company shall be the author of the work. In the event such work is neither prepared by the Employee within the scope of his or her employment or is not a work specially ordered and deemed to be a work made for hire, then Employee hereby agrees to assign, and by these presents does assign, to the Company all of Employee's worldwide right, title and interest in and to such work and all rights of copyright therein. Both during the period of Employee's employment by the Company or any of its affiliated companies and thereafter, Employee agrees to assist the Company and its nominee, at any time, in the protection of the Company's worldwide right, title and interest in and to the work and all rights of copyright therein, including but not limited to, the execution of all formal assignment documents requested by the Company or its nominee and the execution of all lawful oaths and applications for registration of copyright in the United States and foreign countries. 13. Employee's Post-Employment Non-Competition Obligations: In Certain Situations such Obligations Apply only if the Company Opts to Continue Employee's Salary Payment. (a) During the Employment Period and, subject to the conditions of Sections 13(b) and 13(c), for a period of three (3) years thereafter (the "Non-Competition Period") provided, however, that the Non-Competition Period shall not exceed three (3) years from the Date of Termination, Employee shall not, acting alone or in 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. 15 16 (b) If Employee has been terminated for Cause (Section 4(b)) or if Employee terminates his employment for any reason other than for Good Reason or other than during the Window Period (Section 4(c)), Employee shall be bound by the obligations of Section 13(a) and the Company shall have no obligation to make the Non-Competition Payments (as defined in Section 13(c) below). However, if the employment relationship is terminated by any other circumstance or for any other reason, Employee's post-employment non-competition obligations required by Section 13(a) shall be subject to the Company's obligation to make the Non-Competition Payments specified in Section 13(c). (c) Notwithstanding the provisions of Section 4 of this Agreement, whenever the employment relationship is terminated due to the expiration of its term because the Company or Employee timely gave written notice of termination (Section 1), or due to Employee's Disability (Section 4(a)), or by the Company without Cause (Section 4(b)), unless the Company exercises its option as hereinafter provided, Employee shall be entitled to continue to receive payments (the "Non-Competition Payments") equal to his then current Annual Base Salary (as of the Date of Termination) during the Non-Competition Period. During the Non-Competition Period, the Employee shall not, however, be deemed to be an employee of the Company or be entitled to continue to receive any other employee benefits other than as set forth in Section 5 or Section 8. Moreover, the Non-Competition Payments shall be reduced to the extent Employee has already received lump-sum payments in lieu of salary and bonus pursuant to Section 5. The Company shall have the option, exercisable at any time within one (1) month after Employee's Date of Termination, to cancel Employee's post-employment non-competition obligations under Section 13(a) and the Company's corresponding obligation to make the Non-Competition Payments. Such option shall be exercised by the Company mailing a written notice thereof to Employee in accordance with Section 17(b); if the Company does not send such notice within the prescribed one-month time, the Company shall remain obligated to make the Non-Competition Payments and Employee shall remain obligated to comply with the provisions of Section 13(a). The purpose of this paragraph is to make the non-competition obligations of Employee more reasonable from the Employee's point of view. The amounts to be paid by the Company are not intended to be liquidated damages or an estimate of the actual damages that would be sustained by the Company if Employee breaches his post-employment non-competition obligations. If Employee breaches his post-employment non-competition obligations, the Company shall be entitled to cease making the Non-Competition Payments and shall be entitled to all of its remedies at law or in equity for damages and injunctive relief. 14. Obligations to Refrain From Competing Unfairly. In addition to the other obligations agreed to by Employee in this Agreement, Employee agrees that during the Employment Period and for three (3) years following the Date of Termination, he shall not at any time, directly or indirectly for the benefit of any other party than the Company or any of its affiliated companies, (a) induce, entice, or solicit any employee of the Company or any of its affiliated companies to leave his employment, or (b) contact, communicate or solicit any customer of the Company or any of its affiliated companies derived from any customer list, customer lead, mail, printed matter or other information secured from the Company or any of its affiliated companies or their present or past employees, or (c) in any other manner use any 16 17 customer lists or customer leads, mail, telephone numbers, printed material or material of the Company or any of its affiliated companies relating thereto. 15. Successors. (a) This Agreement is personal to the Employee and without the prior written consent of the Company shall not be assignable by the Employee otherwise than by will or the laws of descent and distribution. This Agreement shall inure to the benefit of and be enforceable by the Employee's legal representatives. (b) This Agreement shall inure to the benefit of and be binding upon the Company and its successors and assigns. (c) The Company will require any successor (whether direct or indirect, by purchase, merger, consolidation or otherwise) to all or substantially all of the business and/or assets of the Company or the Company to assume expressly and agree to perform this Agreement in the same manner and to the same extent that the Company would be required to perform it if no such succession had taken place. As used in this Agreement, "Company" shall mean the Company as hereinbefore defined and any successor to its business and/or assets as aforesaid which assumes and agrees to perform this Agreement by operation of law, or otherwise. The Parent will require any successor (whether direct or indirect, by purchase, merger, consolidation or otherwise) to all or substantially all of the business and/or assets of the Parent or the Parent to assume expressly and agree to perform the Parent's obligations hereunder in the same manner and to the same extent that the Parent would be required to perform them if no such succession had taken place. As used in this Agreement, "Parent" shall mean the Parent as hereinbefore defined and any successor to its business and/or assets as aforesaid which assumes and agrees to perform the Parent's obligations hereunder by operation of law, or otherwise. 16. Certain Definitions. The following defined terms used in this Agreement shall have the meanings indicated: (a) The "Change of Control Date" shall mean the first date on which a Change of Control occurs. Anything in this Agreement to the contrary notwithstanding, if a Change of Control occurs and if the Employee's employment with the Company is terminated or the Employee ceases to have the position with the Company or the Parent which the Employee had prior to the date on which the Change of Control occurs, and if it is reasonably demonstrated by the Employee that such termination or cessation (i) was at the request of a third party who has taken steps reasonably calculated to effect the Change of Control or (ii) otherwise arose in connection with or anticipation of the Change of Control, then, for all purposes of this Agreement, the "Change of Control Date" shall mean the date immediately prior to the date of such termination or cessation. (b) The "Change of Control Period" shall mean the period commencing on the Change of Control Date and ending on the last day of the Employment Period. (c) "Change of Control" shall mean: 17 18 (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 comprising 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 was comprised of at least five members and all members of such committee were either members of the Incumbent Board or considered as being members of the Incumbent Board pursuant to clause (A) of this subsection (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 18 19 to such reorganization, merger or consolidation, of the Outstanding Parent Common Stock and Outstanding Parent Voting Securities, as the case may be, (B) no Person (excluding the Parent, any employee benefit plan or related trust of the Parent or such corporation resulting from such reorganization, merger or consolidation and any Person beneficially owning, immediately prior to such reorganization, merger or consolidation, directly or indirectly, 20% or more of the Outstanding Parent Common Stock or Outstanding Parent Voting Securities, as the case may be) beneficially owns, directly or indirectly, 20% or more of, respectively, the then outstanding shares of common stock of the corporation resulting from such reorganization, merger or consolidation or the combined voting power of the then outstanding voting securities of such corporation entitled to vote generally in the election of directors and (C) at least a majority of the members of the board of directors of the corporation resulting from such reorganization, merger or consolidation were members of the Incumbent Board at the time of the execution of the initial agreement providing for such reorganization, merger or consolidation; or (iv) Approval by the shareholders of the Parent of (A) a complete liquidation or dissolution of the Parent or (B) the sale or other disposition of all or substantially all of the assets of the Parent, other than to a corporation, with respect to which following such sale or other disposition, (A) more than 60% of, respectively, the then outstanding shares of common stock of such corporation and the combined voting power of the then outstanding voting securities of such corporation entitled to vote generally in the election of directors is then beneficially owned, directly or indirectly, by all or substantially all of the individuals and entities who were the beneficial owners, respectively, of the Outstanding Parent Common Stock and Outstanding Parent Voting Securities immediately prior to such sale or other disposition in substantially the same proportion as their ownership, immediately prior to such sale or other disposition, of the Outstanding Parent Common Stock and Outstanding Parent Voting Securities, as the case may be, (B) no Person (excluding the Parent and any employee benefit plan or related trust of the Parent or such corporation and any Person beneficially owning, immediately prior to such sale or other disposition, directly or indirectly, 20% or more of the Outstanding Parent Common Stock or Outstanding Parent Voting Securities, as the case may be) beneficially owns, directly or indirectly, 20% or more of, respectively, the then outstanding shares of common stock of such corporation and the combined voting power of the then outstanding voting securities of such corporation entitled to vote generally in the election of directors and (C) at least a majority of the members of the Board of Directors of such corporation were members of the Incumbent Board at the time of the execution of the initial agreement or action of the Board of Directors of the Parent providing for such sale or other disposition of assets of the Parent. (d) The term "affiliated company" shall mean any company controlled by, controlling or under common control with the Company. (e) The term "Highest Recent Bonus" shall mean the highest Annual Bonus (annualized for any fiscal year consisting of less than twelve full months) paid or payable, 19 20 including by reason of any deferral, to the Employee by the Company and its affiliated companies in respect of the three most recent full fiscal years ending on or prior to, (i) if prior to a Change of Control, the Date of Termination, or (ii) if after a Change of Control, the Change of Control Date. 17. Miscellaneous. (a) This Agreement replaces and merges all previous agreements and discussions relating to the same or similar subject matters between Employee and the Company and shall be governed by and construed in accordance with the laws of the State of Texas, without reference to principles of conflict of laws. The captions of this Agreement are not part of the provisions hereof and shall have no force or effect. This Agreement may not be amended, modified, repealed, waived, extended or discharged except by an agreement in writing signed by the party against whom enforcement of such amendment, modification, repeal, waiver, extension or discharge is sought. No person, other than pursuant to a resolution of the Board or a duly authorized committee thereof, shall have authority on behalf of the Company to agree to amend, modify, repeal, waive, extend or discharge any provision of this Agreement or anything in reference thereto. (b) All notices and other communications hereunder shall be in writing and shall be given by hand delivery to the other party or by registered or certified mail, return receipt requested, postage prepaid, addressed as follows: If to the Employee: John W. Morrow, Jr. 8615 Stable Crest Blvd. Houston, TX 77024 If to the Company: SCI Executive Services, Inc. 1929 Allen Parkway Houston, Texas 77019 Attention: Corporate Secretary 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. 20 21 (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 of Directors of the Company, the Company have caused this Agreement to be executed this 1st day of January, 1997, effective as of the day and year first above written. JOHN W. MORROW, JR. /s/ JOHN W. MORROW, JR. ------------------------------------- "EMPLOYEE" SCI EXECUTIVE SERVICES, INC. By: /s/ CURTIS G. BRIGGS ---------------------------------- Curtis G. Briggs Vice President "COMPANY" 21 22 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 -------------------------------- James M. Shelger Senior Vice President General Counsel & Secretary "PARENT" 22 EX-10.8 7 EMPLOYMENT AGREEMENT - JERALD L. PULLINS 1 EXHIBIT 10.8 EMPLOYMENT AGREEMENT EMPLOYMENT AGREEMENT (the "Agreement") made and entered into as of this 11th day of November, 1991, amended and restated as of August 12, 1992, further amended and restated May 12, 1993, further amended and restated as of January 1, 1995 and further amended and restated as of January 1, 1997 by and between SCI MANAGEMENT CORPORATION, a Delaware corporation (the "Company") wholly owned by and successor by assignment to all of the rights, duties and obligations under this Agreement of SERVICE CORPORATION INTERNATIONAL, a Texas corporation (the "Parent"), and Jerald L. Pullins (the"Employee"); WHEREAS, in order to achieve certain administrative efficiencies in providing professional management services to its affiliated companies, the Parent has transferred the Employee to the employ of the Company effective January 1, 1997; WHEREAS, the Company, the Parent and the Employee desire to join in the execution of this amended and restated Agreement to (i) provide for the transfer of the employment of the Employee and (ii) set out more fully the rights, duties and obligations of the parties hereto; WHEREAS, Employee is employed by the Company in a management capacity, has extraordinary access to the Company's confidential business information, and has significant duties and responsibilities in connection with the conduct of the Company's business which places Employee in a special and uncommon classification of employees; WHEREAS, attendant to Employee's employment by the Company, the Company and Employee wish for there to be a complete understanding and agreement between the Company and Employee with respect to the fiduciary duties owed by Employee to the Company; Employee's obligation to avoid conflicts of interest, disclose pertinent information to the Company, and refrain from using or disclosing the Company's information; the term of employment and conditions for or upon termination thereof; the compensation and benefits owed to Employee; and the post-employment obligations Employee owes to the Company; and WHEREAS, but for Employee's agreement to the covenants and conditions of this Agreement, particularly the conflict of interest provisions, the provisions with respect to confidentiality of information and the ownership of intellectual property, and the post-employment obligations of Employee, the Company would not have entered into this Agreement; NOW, THEREFORE, in consideration of Employee's employment by the Company and the mutual promises and covenants contained herein, the receipt and sufficiency of such consideration being hereby acknowledged, the Company and Employee agree as follows: 2 1. Employment and Term. The Company agrees to employ the Employee and the Employee agrees to remain in the employ of the Company, in accordance with the terms and provisions of this Agreement, for the period beginning on the date of this Agreement (i.e. December 1, 1991) and ending as of the close of business on the third (3rd) anniversary of the date hereof (such period together with all extensions thereof, including any Change of Control Period (as defined in Section 16(b) below), are referred to hereinafter as the "Employment Period"); provided, however, that commencing on the date one year after the date hereof, and on each annual anniversary of such date (such date and each annual anniversary thereof shall be hereinafter referred to as a "Renewal Date") the Employment Period shall be automatically extended so as to terminate three (3) years from such Renewal Date, unless at least 60 days prior to the Renewal Date either the Company or the Employee gives the other written notice that the Employment Period shall not be so extended. 2. Duties and Powers of Employee. (a) Position; Location. During the Employment Period, the Employee shall perform such duties and have such powers as designated by the Board of Directors of the Company (the "Board") or any duly authorized committee thereof in connection with the execution of this Agreement. The Employee's services shall be performed at the location where the Employee is currently employed or any office which is the headquarters of the Company and is less than 50 miles from such location. During the Change of Control Period, the Employee's position (including status, offices, titles and reporting requirements), authority, duties and responsibilities shall be at least commensurate in all material respects with the most significant of those held, exercised and assigned with or by the Company or the Parent at any time during the 90-day period immediately preceding the Change of Control Date (as defined in Section 16(a) below). (b) Duties. During the Employment Period, and excluding any periods of vacation and sick leave to which the Employee is entitled, the Employee agrees to devote his attention and time during normal business hours to the business and affairs of the Company and to use the Employee's best efforts to perform faithfully and efficiently such responsibilities. During the Employment Period it shall not be a violation of this Agreement for the Employee to (i) serve on corporate, civic or charitable boards or committees, (ii) deliver lectures, fulfill speaking engagements or teach at educational institutions and (iii) manage personal investments, so long as such activities do not significantly interfere with the performance of the Employee's responsibilities as an employee of the Company in accordance with this Agreement. It is expressly understood and agreed that to the extent that any such activities have been conducted by the Employee prior to the date of this Agreement or subsequent thereto consistent with this Section 2(b), the continued conduct of such activities (or the conduct of activities similar in nature and scope thereto) shall not thereafter be deemed to interfere with the performance of the Employee's responsibilities to the Company. (c) Employee agrees and acknowledges that he owes, and will comply with, a fiduciary duty of loyalty, fidelity or allegiance to act at all times in the best interests of the Company and to take no action or fail to take action if such action or failure to act would injure the Company's business, its interests or its reputation. 2 3 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 $340,000.00 per year, in substantially equal bi-weekly installments, and subject to any and all required withholdings and deductions for Social Security, income taxes and the like. The Board may from time to time direct such upward adjustments to Annual Base Salary as the Board deems to be appropriate or desirable; provided, however, that during the Change of Control Period, the Annual Base Salary shall be reviewed at least annually and shall be increased at any time and from time to time as shall be substantially consistent with increases in base salary generally awarded in the ordinary course of business to other employees of comparable rank with the Company and its affiliated companies (as defined in Section 16(d) below). Annual Base Salary shall not be reduced after any increase thereof pursuant to this Section 3(a). Any increase in Annual Base Salary shall not serve to limit or reduce any other obligation of the Company under this Agreement. (b) Incentive Cash Compensation. During the Employment Period, he shall be eligible annually for a cash bonus at the discretion of the Board (such aggregate awards for each year are hereinafter referred to as the "Annual Bonus") and at the discretion of the Board to receive awards from any plan of the Company or any of its affiliated companies providing for the payment of bonuses in cash to employees of the Company or its affiliated companies having rank comparable to that of the Employee (such plans being referred to herein collectively as the "Cash Bonus Plans") in accordance with the terms thereof; provided, however, that, during the Change of Control Period, the Employee shall be awarded, for each fiscal year ending during the Change of Control Period, an Annual Bonus at least equal to the Highest Recent Bonus (as defined in Section 16(e) below). Each Annual Bonus shall be paid no later than the end of the third month of the fiscal year next following the fiscal year for which the Annual Bonus is awarded, unless the Employee shall elect to defer the receipt of such Annual Bonus. (c) Incentive and Savings and Retirement Plans. During the Employment Period, the Employee shall be entitled to participate in all incentive and savings (in addition to the Cash Bonus Plans) and retirement plans, practices, policies and programs applicable generally to other employees of comparable rank with the Company and its affiliated companies. (d) Welfare Benefit Plans. During the Employment Period, the Employee and/or the Employee's family, as the case may be, shall be eligible for participation in all welfare benefit plans, practices, policies and programs provided by the Company and its affiliated companies (including, without limitation, medical, prescription, dental, disability, salary continuance, employee life, group life, accidental death and travel accident insurance plans and programs) to the extent applicable generally to other employees of comparable rank with the Company and its affiliated companies. (e) Expenses. During the Employment Period and for so long as the Employee is employed by the Company, he shall be entitled to receive prompt reimbursement 3 4 for all reasonable expenses incurred by the Employee in accordance with the policies, practices and procedures of the Company and its affiliated companies from time to time in effect. (f) Fringe Benefits. During the Employment Period, the Employee shall be entitled to fringe benefits in accordance with the plans, practices, programs and policies of the Company and its affiliated companies from time to time in effect, commensurate with his position and on a basis at least comparable to those received by other employees of comparable rank with the Company and its affiliated companies. (g) Office and Support Staff. During the Employment Period, the Employee shall be entitled to an office or offices of a size and with furnishings and other appointments, and to exclusive personal secretarial and other assistance, commensurate with his position and on a basis at least comparable to those received by other employees of comparable rank with the Company and its affiliated companies. (h) Vacation and Other Absences. During the Employment Period, the Employee shall be entitled to paid vacation and such other paid absences whether for holidays, illness, personal time or any similar purposes, in accordance with the plans, policies, programs and practices of the Company and its affiliated companies in effect from time to time, commensurate with his position and on a basis at least comparable to those received by other employees of comparable rank with the Company and its affiliated companies. (i) During the Change of Control Period, the Employee's benefits listed under Sections 3(c), 3(d), 3(e), 3(f), 3(g) and 3(h) above shall be at least commensurate in all material respects with the most valuable and favorable of those received by the Employee at any time during the 90-day period immediately preceding the Change of Control Date. 4. Termination of Employment. (a) Death or Disability. The Employment Period shall terminate automatically upon the Employee's death during the Employment Period. If the Company determines in good faith that the Disability of the Employee has occurred during the Employment Period (pursuant to the definition of Disability set forth below), it may give to the Employee written notice in accordance with Section 17(b) of its intention to terminate the Employment Period. In such event, the Employment Period shall terminate effective on the 30th day after receipt of such notice by the Employee (the "Disability Effective Date"), provided that, within the 30 days after such receipt, the Employee shall not have returned to full-time performance of the Employee's duties. For purposes of this Agreement, "Disability" shall mean the inability of the Employee to perform the Employee's duties with the Company on a full-time basis as a result of incapacity due to mental or physical illness which continues for more than one year after the commencement of such incapacity, such incapacity to be determined by a physician selected by the Company or its insurers and acceptable to the Employee or the Employee's legal representative (such agreement as to acceptability not to be withheld unreasonably). (b) Cause. The Company may terminate the Employment Period for Cause. For purposes of this Agreement, "Cause" shall mean (i) a material breach by the Employee of 4 5 Section 9 which is willful on the Employee's part or which is committed in bad faith or without reasonable belief that such breach is in the best interests of the Company and its affiliated companies, or (ii) a material breach by the Employee of the Employee's obligations under Section 2 (other than a breach of the Employee's obligations under Section 2 arising from the failure of the Employee to work as a result of incapacity due to physical or mental illness) or any material breach by the Employee of Section 10, 11 or 12 of this Agreement which in either case is willful on the Employee's part, which is committed in bad faith or without reasonable belief that such breach is in the best interests of the Company and its affiliated companies and which is not remedied in a reasonable period of time after receipt of written notice from the Company specifying such breach, or (iii) the conviction of the Employee of a felony involving malice which conviction has been affirmed on appeal or as to which the period in which an appeal can be taken has lapsed. (c) Good Reason; Window Period. The Employee's employment may be terminated (i) by the Employee for Good Reason (as defined below) or (ii) during the Window Period (as defined below) by the Employee without any reason. For purposes of this Agreement, the "Window Period" shall mean the 30-day period immediately following the first anniversary of the Change of Control Date. For purposes of this Agreement, "Good Reason" shall mean (i) the assignment to the Employee of any duties inconsistent in any respect with the Employee's position (including status, offices, titles and reporting requirements), authority, duties or responsibilities 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 15(c), provided that the successor referred to in Section 15(c) has received at least ten days prior written notice from the Company or the Employee of the requirements of Section 15(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. 5 6 (d) Notice of Termination. Any termination by the Company for Cause or by the Employee without any reason during the Window Period or for Good Reason shall be communicated by Notice of Termination to the other party hereto given in accordance with Section 17(b). For purposes of this Agreement, a "Notice of Termination" means a written notice which (i) indicates the specific termination provision in this Agreement relied upon, (ii) to the extent applicable, sets forth in reasonable detail the facts and circumstances claimed to provide a basis for termination of the Employment Period under the provision so indicated and (iii) if the Date of Termination (as defined below) is other than the date of receipt of such notice, specifies the termination date (which date shall be not more than 15 days after the giving of such notice). The failure by the Employee or the Company to set forth in the Notice of Termination any fact or circumstance which contributes to a showing of Good Reason or Cause shall not waive any right of the Employee or the Company hereunder or preclude the Employee or the Company from asserting such fact or circumstance in enforcing the Employee's or the Company's rights hereunder. (e) Date of Termination. "Date of Termination" means (i) if the Employee's employment is terminated by the Company for Cause, or by the Employee during the Window Period or for Good Reason, the date of receipt of the Notice of Termination or any later date specified therein, as the case may be, (ii) if the Employee's employment is terminated by the Company other than for Cause or Disability, or by the Employee other than for Good Reason or during the Window Period, the Date of Termination shall be the date on which the Company or the Employee, as the case may be, notifies the other of such termination and (iii) if the Employee's employment is terminated by reason of death or Disability, the Date of Termination shall be the date of death of the Employee or the Disability Effective Date, as the case may be. 5. Obligations of the Company Upon Termination. (a) Certain Terminations Prior to Change of Control Date. If, during the Employment Period prior to any Change of Control Date, the employment of the Employee with the Company shall be terminated (i) by the Company other than for Cause, death or Disability or (ii) by the Employee for Good Reason, then, in lieu of the obligations of the Company under Section 3, (i) the Company shall pay to the Employee in a lump sum in cash within 30 days after the Date of Termination all Unpaid Agreement Amounts (as defined in Section 5(b)(i)(A) below) and (ii) notwithstanding any other provision hereunder, for the longer of (A) the remainder of the Employment Period or (B) to the extent compensation and/or benefits are provided under any plan, program, practice or policy, such longer period, if any, as such plan, program, practice or policy may provide, the Company shall continue to provide to the Employee the compensation and benefits provided in Sections 3(a), 3(c) and 3(d). (b) Certain Terminations After Change of Control Date. If, during the Change of Control Period, the employment of the Employee with the Company shall be terminated (i) by the Company other than for Cause, death or Disability or (ii) by the Employee either for Good Reason or without any reason during the Window Period, then, in lieu of the obligations of the Company under Section 3 and notwithstanding any other provision hereunder: 6 7 (i) the Company shall pay to the Employee in a lump sum in cash within 30 days after the Date of Termination the aggregate of the following amounts: (A) the sum of (1) all unpaid amounts due to the Employee under Section 3 through the Date of Termination, including without limitation, the Employee's Annual Base Salary and any accrued vacation pay, (2) the product of (x) the Highest Recent Bonus and (y) a fraction, the numerator of which is the number of days in the current fiscal year through the Date of Termination, and the denominator of which is 365 and (3) any compensation previously deferred by the Employee (together with any accrued interest or earnings thereon) to the extent not theretofore paid (the sum of the amounts described in clauses (1), (2) and (3) shall be hereinafter referred to as the "Accrued Obligations" and the sum of the amounts described in clauses (1) and (3) shall be hereinafter referred to as the "Unpaid Agreement Amounts"); and (B) the amount (such amount shall be hereinafter referred to as the "Severance Amount") equal to the sum of (1) Three (3) multiplied by the Employee's Annual Base Salary, plus (2) Three (3) multiplied by the Employee's Highest Recent Bonus; (ii) for the longer of (A) the remainder of the Employment Period or (B) to the extent benefits are provided under any plan, program, practice or policy, such longer period as such plan, program, practice or policy may provide, the Company shall continue benefits to the Employee and/or the Employee's family at least equal to those which would have been provided to them in accordance with the plans, programs, practices and policies described in Section 3(d) if the Employee's employment had not been terminated, in accordance with the most favorable plans, practices, programs or policies of the Company and its affiliated companies as in effect and applicable generally to other employees of comparable rank and their families during the 90-day period immediately preceding the Change of Control Date or, if more favorable to the Employee, as in effect generally at any time thereafter with respect to other employees of comparable rank with the Company and its affiliated companies and their families; provided, however, that if the Employee becomes reemployed with another employer and is eligible to receive medical or other welfare benefits under another employer provided plan, the medical and other welfare benefits described herein shall be required only to the extent not provided under such other plan during such applicable period of eligibility. For purposes of determining eligibility of the Employee for retiree benefits pursuant to such plans, practices, programs and policies, the Employee shall be considered to have remained employed until the end of the Employment Period and to have retired on the last day of such period; and 7 8 (iii) to the extent not theretofore paid or provided, the Company shall timely pay or provide to the Employee and/or the Employee's family for the remainder of the Employment Period any other amounts or benefits required to be paid or provided or which the Employee and/or the Employee's family is eligible to receive pursuant to this Agreement and under any plan, program, policy or practice or contract or agreement of the Company and its affiliated companies as in effect and applicable generally to other employees of comparable rank with the Company and its affiliated companies and their families during the 90- day period immediately preceding the Change of Control Date or, if more favorable to the Employee, as in effect generally thereafter with respect to other employees of comparable rank with the Company and its affiliated companies and their families. Such amounts received under this Section 5(b) shall be in lieu of any other amount of severance relating to salary or bonus continuation to be received by the Employee upon termination of employment of the Employee under any severance plan, policy or arrangement of the Company. (c) Termination as a Result of Death. If the Employee's employment is terminated by reason of the Employee's death during the Employment Period, in lieu of the obligations of the Company under Section 3, the Company shall pay or provide to the Employee's estate (i) all Accrued Obligations (which shall be paid in a lump sum in cash within 30 days after the Date of Termination) and the timely payment or provision of the Welfare Benefit Continuation (as defined below) and the Other Benefits (as defined below) and (ii) any cash amount to be received by the Employee or the Employee's family as a death benefit pursuant to the terms of any plan, policy or arrangement of the Company and its affiliated companies. "Welfare Benefit Continuation" shall mean the continuation of benefits to the Employee and/or the Employee's family for the longer of (i) three (3) years from the Date of Termination or (ii) the period provided by the plans, programs, policies or practices described in Section 3(d) in which the Employee participates as of the Date of Termination, such benefits to be at least equal to those which would have been provided to them in accordance with the plans, programs, practices and policies described in Section 3(d) if the Employee's employment had not been terminated, in accordance with the most favorable plans, practices, programs or policies of the Company and its affiliated companies as in effect and applicable generally to other 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, 8 9 if more favorable to the Employee, as in effect generally thereafter with respect to other employees of comparable rank with the Company and its affiliated companies and their families. (d) Termination as a Result of Disability. If the Employee's employment is terminated by reason of the Employee's Disability during the Employment Period, in lieu of the obligations of the Company under Section 3, the Company shall pay or provide to the Employee (i) all Accrued Obligations which shall be paid in a lump sum in cash within 30 days after the Date of Termination and the timely payment or provision of the Welfare Benefit Continuation and the Other Benefits, provided, however, that if the Employee becomes reemployed with another employer and is eligible to receive medical or other welfare benefits under another employer provided plan, the Welfare Benefit Continuation shall be required only to the extent not provided under such other plan during such applicable period of eligibility, and (ii) any cash amount to be received by the Employee as a disability benefit pursuant to the terms of any plan, policy or arrangement of the Company and its affiliated companies. (e) Cause; Other than for Good Reason. If the Employee's employment shall be terminated during the Employment Period by the Company for Cause or by the Employee other than during the Window Period and other than for Good Reason, in lieu of the obligations of the Company under Section 3, the Company shall pay to the Employee in a lump sum in cash within 30 days after the Date of Termination all Unpaid Agreement Amounts. 6. Non-exclusivity of Rights. Except as provided in Sections 5(a), 5(b)(i)(B), 5(b)(ii), 5(c) and 5(d), nothing in this Agreement shall prevent or limit the Employee's continuing or future participation in any plan, program, policy or practice provided by the Company or any of its affiliated companies and for which the Employee may qualify, nor shall anything herein limit or otherwise affect such rights as the Employee may have under any contract or agreement with the Company or any of its affiliated companies. Amounts which are vested benefits or which the Employee is otherwise entitled to receive under any plan, policy, practice or program of or any contract or agreement with the Company or any of its affiliated companies at or subsequent to the Date of Termination shall be payable in accordance with such plan, policy, practice or program or contract or agreement except as explicitly modified by this Agreement. 7. Full Settlement; Resolution of Disputes. (a) The Company's obligation to make the payments provided for in this Agreement and otherwise to perform its obligations hereunder shall not be affected by any set-off, counterclaim, recoupment, defense or other claim, right or action which the Company may have against the Employee or others. In no event shall the Employee be obligated to seek other employment or take any other action by way of mitigation of the amounts payable to the Employee under any of the provisions of this Agreement and, except as provided in 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 9 10 of any contest by the Employee about the amount of any payment pursuant to this Agreement), plus in each case interest on any payment required to be made under this Agreement but not timely paid at the rate provided for in Section 280G(d)(4) of the Internal Revenue Code of 1986, as amended (the "Code"). (b) If there shall be any dispute between the Company and the Employee (i) in the event of any termination of the Employee's employment by the Company, whether such termination was for Cause, or (ii) in the event of any termination of employment by the Employee, whether Good Reason existed, then, unless and until there is a final, nonappealable judgment by a court of competent jurisdiction declaring that such termination was for Cause or that the determination by the Employee of the existence of Good Reason was not made in good faith, the Company shall pay all amounts, and provide all benefits, to the Employee and/or the Employee's family or other beneficiaries, as the case may be, that the Company would be required to pay or provide pursuant to Section 5(a) or 5(b) as though such termination were by the Company without Cause or by the Employee with Good Reason. The Employee hereby undertakes to repay to the Company all such amounts to which the Employee is ultimately adjudged by such court not to be entitled. 8. Certain Additional Payments by the Company. (a) Anything in this Agreement to the contrary notwithstanding, in the event it shall be determined that any payment or distribution by the Company to or for the benefit of the Employee (whether paid or payable or distributed or distributable pursuant to the terms of this Agreement or otherwise, but determined without regard to any additional payments required under this Section 8) (a "Payment") would be subject to the excise tax imposed by Section 4999 of the Code or any interest or penalties are incurred by the Employee with respect to such excise tax (such excise tax, together with any such interest and penalties, are hereinafter collectively referred to as the "Excise Tax"), then the Employee shall be entitled to receive an additional payment (a "Gross-Up Payment") in an amount such that after payment by the Employee of all taxes (including any interest or penalties imposed with respect to such taxes), including, without limitation, any income taxes (and any interest and penalties imposed with respect thereto) and Excise Tax imposed upon the Gross-Up Payment, the Employee retains an amount of the Gross-Up Payment equal to the Excise Tax imposed upon the Payments. (b) Subject to the provisions of Section 8(c), all determinations required to be made under this Section 8, including whether and when a Gross-Up Payment is required and the amount of such Gross-Up Payment and the assumptions to be utilized in arriving at such determination, shall be made by the Company's outside independent auditor (the "Accounting Firm"), which shall provide detailed supporting calculations both to the Company and the Employee within 15 business days of the receipt of notice from the Employee that there has been a Payment, or such earlier time as is requested by the Company. In the event that the Accounting Firm is serving (or has served within the three years preceding the Change of Control Date) as accountant or auditor for the individual, entity or group effecting the Change of Control, or is unwilling or unable to perform its obligations pursuant to this Section 8, the Employee shall appoint another nationally recognized accounting firm to make the determinations required hereunder (which accounting firm shall then be referred to as the Accounting Firm 10 11 hereunder). All fees and expenses of the Accounting Firm shall be borne solely by the Company. Any Gross-Up Payment, as determined pursuant to this Section 8, shall be paid by the Company to the Employee within five days of the receipt of the Accounting Firm's determination. If the Accounting Firm determines that no Excise Tax is payable by the Employee, it shall furnish the Employee with a written opinion that failure to report the Excise Tax on the Employee's applicable federal income tax return would not result in the imposition of a negligence or similar penalty. Any determination by the Accounting Firm shall be binding upon the Company and the Employee. As a result of the uncertainty in the application of Section 4999 of the Code at the time of the initial determination by the Accounting Firm hereunder, it is possible that Gross-Up Payments which will not have been made by the Company should have been made ("Underpayment"), consistent with the calculations required to be made hereunder. In the event that the Company exhausts its remedies pursuant to Section 8(c) and the Employee thereafter is required to make a payment of any Excise Tax, the Accounting Firm shall determine the amount of the Underpayment that has occurred and any such Underpayment shall be promptly paid by the Company to or for the benefit of the Employee. (c) The Employee shall notify the Company in writing of any claim by the Internal Revenue Service that, if successful, would require the payment by the Company of the Gross-Up Payment. Such notification shall be given as soon as practicable but no later than ten business days after the Employee is informed in writing of such claim and shall apprise the Company of the nature of such claim and the date on which such claim is requested to be paid. The Employee shall not pay such claim prior to the expiration of the 30-day period following the date on which the Employee gives such notice to the Company (or such shorter period ending on the date that any payment of taxes with respect to such claim is due). If the Company notifies the Employee in writing prior to the expiration of such period that it desires to contest such claim, the Company, subject to the provisions of this Section 8(c), shall control all proceedings taken in connection with such contest and, at its sole option, may pursue or forgo any and all administrative appeals, proceedings, hearings and conferences with the taxing authority in respect of such claim and may, at its sole option, either direct the Employee to pay the tax claimed and sue for a refund or contest the claim in any permissible manner. In this connection, the Employee agrees, subject to the provisions of this Section 8(c), to (i) prosecute such contest to a determination before any administrative tribunal, in a court of initial jurisdiction and in one or more appellate courts, as the Company shall determine, (ii) give the Company any information reasonably requested by the Company relating to such claim, (iii) take such action in connection with contesting such claim as the Company shall reasonably request in writing from time to time, including, without limitation, accepting legal representation with respect to such claim by an attorney reasonably selected by the Company, (iv) cooperate with the Company in good faith in order effectively to contest such claim and (v) permit the Company to participate in any proceedings relating to such claim. The foregoing is subject, however, to the following: (A) the Company shall bear and pay directly all costs and expenses (including additional interest and penalties) incurred in connection with such contest and shall indemnify and hold the Employee harmless, on an after-tax basis, for any Excise Tax or income tax (including interest and penalties with respect thereto) imposed in connection therewith and the payment of costs and expenses in such connection, (B) if the Company directs the Employee to pay such claim and sue for a refund, the Company shall advance the amount of such payment 11 12 to the Employee, on an interest-free basis, and shall indemnify and hold the Employee harmless, on an after-tax basis, from any Excise Tax or income tax (including interest or penalties with respect thereto) imposed with respect to such advance or with respect to any imputed income with respect to such advance, (C) any extension of the statute of limitations relating to payment of taxes for the taxable year of the Employee with respect to which such contested amount is claimed to be due shall be limited solely to such contested amount and (D) the Company's control of the contest shall be limited to issues with respect to which a Gross-Up Payment would be payable hereunder and the Employee shall be entitled to settle or contest, as the case may be, any other issue raised by the Internal Revenue Service or any other taxing authority. (d) If, after the receipt by the Employee of an amount advanced by the Company pursuant to Section 8(c), the Employee becomes entitled to receive any refund with respect to such claim, the Employee shall (subject to the Company's complying with the requirements of Section 8(c)) promptly pay to the Company the amount of such refund (together with any interest paid or credited thereon after taxes applicable thereto). If, after the receipt by the Employee of an amount advanced by the Company pursuant to Section 8(c), a determination is made that the Employee shall not be entitled to any refund with respect to such claim and the Company does not notify the Employee in writing of its intent to contest such denial of refund prior to the expiration of 30 days after such determination, then such advance shall be forgiven and shall not be required to be repaid and the amount of such advance shall offset, to the extent thereof, the amount of Gross-Up Payment required to be paid. 9. Confidential Information. The Employee shall hold in a fiduciary capacity for the benefit of the Company all secret or confidential information, knowledge or data relating to the Company or any of its affiliated companies, and their respective businesses, which shall have been obtained by the Employee during the Employee's employment by the Company or any of its affiliated companies and which shall not be or become public knowledge (other than by acts by the Employee or representatives of the Employee in violation of this Agreement). After termination of the Employee's employment with the Company or any of its affiliated companies, the Employee shall not, without the prior written consent of the Company or as may otherwise be required by law or legal process, communicate or divulge any such information, knowledge or data to anyone other than the Company and those designated by it. In no event shall an asserted violation of the provisions of this Section 9 constitute a basis for deferring or withholding any amounts otherwise payable to the Employee under this Agreement. Subject to the previous sentence, nothing herein shall be construed as prohibiting the Company from pursuing any other remedies available to it for such breach or threatened breach, including the recovery of damages from the Employee. 10. Employee's Obligation to Avoid Conflicts of Interest. (a) In keeping with Employee's fiduciary duties to the Company, Employee agrees that he shall not knowingly become involved in circumstances constituting a conflict of interest with such duties, or upon discovery thereof, allow such a conflict to continue. Moreover, Employee agrees that he shall disclose to the Secretary of the Company any facts which might involve a conflict of interest that has not been approved by the Company. The Board hereby acknowledges and agrees that the 12 13 activities of Employee listed on Schedule A hereto do not, and the continuation of such activities will not, constitute a conflict of interest for purposes of this Section 10. (b) In this connection, it is agreed that any direct interest in, connection with, or benefit from any outside activities, particularly commercial activities, which might in any way adversely affect the Company or any of its affiliated companies, involves a possible conflict of interest. Circumstances in which a conflict of interest on the part of Employee would or might arise, and which should be reported immediately to the Company, include, but are not limited to, the following: (i) Ownership of a material interest in any lender, supplier, contractor, customer or other entity with which the Company or any of its affiliated companies does business; (ii) Acting in any capacity, including director, officer, partner, consultant, employee, distributor, agent or the like, for lenders, suppliers, contractors, subcontractors, customers or other entities with which the Company or any of its affiliated companies does business; (iii) Acceptance, directly or indirectly, of payments, services or loans from a lender, supplier, contractor, subcontractor, customer or other entity with which the Company or any of its affiliated companies does business, including but not limited to, gifts, trips, entertainment, or other favors of more than a nominal value, but excluding loans from publicly held insurance companies and commercial or savings banks at normal rates of interest; (iv) Misuse of information or facilities to which Employee has access in a manner which will be detrimental to the Company's or any of its affiliated companies' interest, such as utilization for Employee's own benefit of know-how or information developed through the Company's or any of its affiliated companies' business activities; (v) Disclosure or other misuse of information of any kind obtained through Employee's connection with the Company or any of its affiliated companies; or (vi) Acquiring or trading in, directly or indirectly, other properties or interests connected with the design or marketing of products or services designed or marketed by the Company or any of its affiliated companies. (c) In the event that the Company determines, in the exercise of its reasonable judgment, that a conflict of interest exists between the Employee and the Company or any of its affiliated companies, the Company shall notify the Employee in writing in accordance with Section 17(b) hereof, providing reasonably detailed information identifying the source of the 13 14 conflict of interest. Within the 60-day period following receipt of such notice, the Employee shall take action satisfactory to the Company to eliminate the conflict of interest. Failure of the Employee to take such action within such 60-day period shall constitute "Cause" under Section 4(b) hereof. 11. Disclosure of Information, Ideas, Concepts, Improvements, Discoveries and Inventions. As part of Employee's fiduciary duties to the Company, Employee agrees that during the Employment Period, and for a period of six (6) months after the Date of Termination, Employee shall promptly disclose in writing to the Company all information, ideas, concepts, improvements, discoveries and inventions, whether patentable or not, and whether or not reduced to practice, which are conceived, developed, made or acquired by Employee, either individually or jointly with others, and which relate to the business, products or services of the Company or any of its affiliated companies, irrespective of whether Employee utilized the Company's or any of its affiliated companies' time or facilities and irrespective of whether such information, idea, concept, improvement, discovery or invention was conceived, developed, discovered or acquired by Employee on the job, at home, or elsewhere. This obligation extends to all types of information, ideas and concepts, including information, ideas and concepts relating to new types of services, corporate opportunities, acquisition prospects, the identity of key representatives within acquisition prospect organizations, prospective names or service marks for the Company's or any of its affiliated companies' business activities, and the like. 12. Ownership of Information, Ideas, Concepts, Improvements, Discoveries and Inventions and all Original Works of Authorship. (a) All information, ideas, concepts, improvements, discoveries and inventions, whether patentable or not, which are conceived, made, developed or acquired by Employee or which are disclosed or made known to Employee, individually or in conjunction with others, during Employee's employment by the Company or any of its affiliated companies and which relate to the Company's or any of its affiliated companies' business, products or services (including all such information relating to corporate opportunities, research, financial and sales data, pricing and trading terms, evaluations, opinions, interpretations, acquisition prospects, the identity of customers or their requirements, the identity of key contacts within the customer's organizations or within the organization of acquisition prospects, or marketing and merchandising techniques, prospective names and marks) are and shall be the sole and exclusive property of the Company. Moreover, all drawings, memoranda, notes, records, files, correspondence, manuals, models, specifications, computer programs, maps and all other writings or materials of any type embodying any of such information, ideas, concepts, improvements, discoveries and inventions are and shall be the sole and exclusive property of the Company. (b) In particular, Employee hereby specifically sells, assigns and transfers to the Company all of his worldwide right, title and interest in and to all such information, ideas, concepts, improvements, discoveries or inventions, and any United States or foreign applications for patents, inventor's certificates or other industrial rights that may be filed thereon, including divisions, continuations, continuations-in-part, reissues and/or extensions thereof, and applications for registration of such names and marks. Both during the period of Employee's employment by the Company or any of its affiliated companies and thereafter, Employee shall 14 15 assist the Company and its nominee at all times in the protection of such information, ideas, concepts, improvements, discoveries or inventions, both in the United States and all foreign countries, including but not limited to, the execution of all lawful oaths and all assignment documents requested by the Company or its nominee in connection with the preparation, prosecution, issuance or enforcement of any applications for United States or foreign letters patent, including divisions, continuations, continuations-in-part, reissues, and/or extensions thereof, and any application for the registration of such names and marks. (c) Moreover, if during Employee's employment by the Company or any of its affiliated companies, Employee creates any original work of authorship fixed in any tangible medium of expression which is the subject matter of copyright (such as videotapes, written presentations on acquisitions, computer programs, drawings, maps, architectural renditions, models, manuals, brochures or the like) relating to the Company's or any of its affiliated companies' business, products, or services, whether such work is created solely by Employee or jointly with others, the Company shall be deemed the author of such work if the work is prepared by Employee in the scope of his or her employment; or, if the work is not prepared by Employee within the scope of his or her employment but is specially ordered by the Company as a contribution to a collective work, as a part of a motion picture or other audiovisual work, as a translation, as a supplementary work, as a compilation or as an instrumental text, then the work shall be considered to be work made for hire and the Company shall be the author of the work. In the event such work is neither prepared by the Employee within the scope of his or her employment or is not a work specially ordered and deemed to be a work made for hire, then Employee hereby agrees to assign, and by these presents does assign, to the Company all of Employee's worldwide right, title and interest in and to such work and all rights of copyright therein. Both during the period of Employee's employment by the Company or any of its affiliated companies and thereafter, Employee agrees to assist the Company and its nominee, at any time, in the protection of the Company's worldwide right, title and interest in and to the work and all rights of copyright therein, including but not limited to, the execution of all formal assignment documents requested by the Company or its nominee and the execution of all lawful oaths and applications for registration of copyright in the United States and foreign countries. 13. Employee's Post-Employment Non-Competition Obligations: In Certain Situations such Obligations Apply only if the Company Opts to Continue Employee's Salary Payment. (a) During the Employment Period and, subject to the conditions of Sections 13(b) and 13(c), for a period of three (3) years thereafter (the "Non-Competition Period") provided, however, that the Non-Competition Period shall not exceed three (3) years from the Date of Termination, Employee shall not, acting alone or in 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. 15 16 (b) If Employee has been terminated for Cause (Section 4(b)) or if Employee terminates his employment for any reason other than for Good Reason or other than during the Window Period (Section 4(c)), Employee shall be bound by the obligations of Section 13(a) and the Company shall have no obligation to make the Non-Competition Payments (as defined in Section 13(c) below). However, if the employment relationship is terminated by any other circumstance or for any other reason, Employee's post-employment non-competition obligations required by Section 13(a) shall be subject to the Company's obligation to make the Non-Competition Payments specified in Section 13(c). (c) Notwithstanding the provisions of Section 4 of this Agreement, whenever the employment relationship is terminated due to the expiration of its term because the Company or Employee timely gave written notice of termination (Section 1), or due to Employee's Disability (Section 4(a)), or by the Company without Cause (Section 4(b)), unless the Company exercises its option as hereinafter provided, Employee shall be entitled to continue to receive payments (the "Non-Competition Payments") equal to his then current Annual Base Salary (as of the Date of Termination) during the Non-Competition Period. During the Non-Competition Period, the Employee shall not, however, be deemed to be an employee of the Company or be entitled to continue to receive any other employee benefits other than as set forth in Section 5 or Section 8. Moreover, the Non-Competition Payments shall be reduced to the extent Employee has already received lump-sum payments in lieu of salary and bonus pursuant to Section 5. The Company shall have the option, exercisable at any time within one (1) month after Employee's Date of Termination, to cancel Employee's post-employment non-competition obligations under Section 13(a) and the Company's corresponding obligation to make the Non-Competition Payments. Such option shall be exercised by the Company mailing a written notice thereof to Employee in accordance with Section 17(b); if the Company does not send such notice within the prescribed one-month time, the Company shall remain obligated to make the Non-Competition Payments and Employee shall remain obligated to comply with the provisions of Section 13(a). The purpose of this paragraph is to make the non-competition obligations of Employee more reasonable from the Employee's point of view. The amounts to be paid by the Company are not intended to be liquidated damages or an estimate of the actual damages that would be sustained by the Company if Employee breaches his post-employment non-competition obligations. If Employee breaches his post-employment non-competition obligations, the Company shall be entitled to cease making the Non-Competition Payments and shall be entitled to all of its remedies at law or in equity for damages and injunctive relief. 14. Obligations to Refrain From Competing Unfairly. In addition to the other obligations agreed to by Employee in this Agreement, Employee agrees that during the Employment Period and for three (3) years following the Date of Termination, he shall not at any time, directly or indirectly for the benefit of any other party than the Company or any of its affiliated companies, (a) induce, entice, or solicit any employee of the Company or any of its affiliated companies to leave his employment, or (b) contact, communicate or solicit any customer of the Company or any of its affiliated companies derived from any customer list, customer lead, mail, printed matter or other information secured from the Company or any of its affiliated companies or their present or past employees, or (c) in any other manner use any 16 17 customer lists or customer leads, mail, telephone numbers, printed material or material of the Company or any of its affiliated companies relating thereto. 15. Successors. (a) This Agreement is personal to the Employee and without the prior written consent of the Company shall not be assignable by the Employee otherwise than by will or the laws of descent and distribution. This Agreement shall inure to the benefit of and be enforceable by the Employee's legal representatives. (b) This Agreement shall inure to the benefit of and be binding upon the Company and its successors and assigns. (c) The Company will require any successor (whether direct or indirect, by purchase, merger, consolidation or otherwise) to all or substantially all of the business and/or assets of the Company or the Company to assume expressly and agree to perform this Agreement in the same manner and to the same extent that the Company would be required to perform it if no such succession had taken place. As used in this Agreement, "Company" shall mean the Company as hereinbefore defined and any successor to its business and/or assets as aforesaid which assumes and agrees to perform this Agreement by operation of law, or otherwise. The Parent will require any successor (whether direct or indirect, by purchase, merger, consolidation or otherwise) to all or substantially all of the business and/or assets of the Parent or the Parent to assume expressly and agree to perform the Parent's obligations hereunder in the same manner and to the same extent that the Parent would be required to perform them if no such succession had taken place. As used in this Agreement, "Parent" shall mean the Parent as hereinbefore defined and any successor to its business and/or assets as aforesaid which assumes and agrees to perform the Parent's obligations hereunder by operation of law, or otherwise. 16. Certain Definitions. The following defined terms used in this Agreement shall have the meanings indicated: (a) The "Change of Control Date" shall mean the first date on which a Change of Control occurs. Anything in this Agreement to the contrary notwithstanding, if a Change of Control occurs and if the Employee's employment with the Company is terminated or the Employee ceases to have the position with the Company or the Parent which the Employee had prior to the date on which the Change of Control occurs, and if it is reasonably demonstrated by the Employee that such termination or cessation (i) was at the request of a third party who has taken steps reasonably calculated to effect the Change of Control or (ii) otherwise arose in connection with or anticipation of the Change of Control, then, for all purposes of this Agreement, the "Change of Control Date" shall mean the date immediately prior to the date of such termination or cessation. (b) The "Change of Control Period" shall mean the period commencing on the Change of Control Date and ending on the last day of the Employment Period. (c) "Change of Control" shall mean: 17 18 (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 comprising 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 was comprised of at least five members and all members of such committee were either members of the Incumbent Board or considered as being members of the Incumbent Board pursuant to clause (A) of this subsection (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 18 19 to such reorganization, merger or consolidation, of the Outstanding Parent Common Stock and Outstanding Parent Voting Securities, as the case may be, (B) no Person (excluding the Parent, any employee benefit plan or related trust of the Parent or such corporation resulting from such reorganization, merger or consolidation and any Person beneficially owning, immediately prior to such reorganization, merger or consolidation, directly or indirectly, 20% or more of the Outstanding Parent Common Stock or Outstanding Parent Voting Securities, as the case may be) beneficially owns, directly or indirectly, 20% or more of, respectively, the then outstanding shares of common stock of the corporation resulting from such reorganization, merger or consolidation or the combined voting power of the then outstanding voting securities of such corporation entitled to vote generally in the election of directors and (C) at least a majority of the members of the board of directors of the corporation resulting from such reorganization, merger or consolidation were members of the Incumbent Board at the time of the execution of the initial agreement providing for such reorganization, merger or consolidation; or (iv) Approval by the shareholders of the Parent of (A) a complete liquidation or dissolution of the Parent or (B) the sale or other disposition of all or substantially all of the assets of the Parent, other than to a corporation, with respect to which following such sale or other disposition, (A) more than 60% of, respectively, the then outstanding shares of common stock of such corporation and the combined voting power of the then outstanding voting securities of such corporation entitled to vote generally in the election of directors is then beneficially owned, directly or indirectly, by all or substantially all of the individuals and entities who were the beneficial owners, respectively, of the Outstanding Parent Common Stock and Outstanding Parent Voting Securities immediately prior to such sale or other disposition in substantially the same proportion as their ownership, immediately prior to such sale or other disposition, of the Outstanding Parent Common Stock and Outstanding Parent Voting Securities, as the case may be, (B) no Person (excluding the Parent and any employee benefit plan or related trust of the Parent or such corporation and any Person beneficially owning, immediately prior to such sale or other disposition, directly or indirectly, 20% or more of the Outstanding Parent Common Stock or Outstanding Parent Voting Securities, as the case may be) beneficially owns, directly or indirectly, 20% or more of, respectively, the then outstanding shares of common stock of such corporation and the combined voting power of the then outstanding voting securities of such corporation entitled to vote generally in the election of directors and (C) at least a majority of the members of the Board of Directors of such corporation were members of the Incumbent Board at the time of the execution of the initial agreement or action of the Board of Directors of the Parent providing for such sale or other disposition of assets of the Parent. (d) The term "affiliated company" shall mean any company controlled by, controlling or under common control with the Company. (e) The term "Highest Recent Bonus" shall mean the highest Annual Bonus (annualized for any fiscal year consisting of less than twelve full months) paid or payable, 19 20 including by reason of any deferral, to the Employee by the Company and its affiliated companies in respect of the three most recent full fiscal years ending on or prior to, (i) if prior to a Change of Control, the Date of Termination, or (ii) if after a Change of Control, the Change of Control Date. 17. Miscellaneous. (a) This Agreement replaces and merges all previous agreements and discussions relating to the same or similar subject matters between Employee and the Company and shall be governed by and construed in accordance with the laws of the State of Texas, without reference to principles of conflict of laws. The captions of this Agreement are not part of the provisions hereof and shall have no force or effect. This Agreement may not be amended, modified, repealed, waived, extended or discharged except by an agreement in writing signed by the party against whom enforcement of such amendment, modification, repeal, waiver, extension or discharge is sought. No person, other than pursuant to a resolution of the Board or a duly authorized committee thereof, shall have authority on behalf of the Company to agree to amend, modify, repeal, waive, extend or discharge any provision of this Agreement or anything in reference thereto. (b) All notices and other communications hereunder shall be in writing and shall be given by hand delivery to the other party or by registered or certified mail, return receipt requested, postage prepaid, addressed as follows: If to the Employee: Jerald L. Pullins 99 Brookwood Lane New Canaan, CT 06840 If to the Company: SCI Executive Services, Inc. 1929 Allen Parkway Houston, Texas 77019 Attention: Corporate Secretary or to such other address as either party shall have furnished to the other in writing in accordance herewith. Notice and communications shall be effective when actually received by the addressee. (c) The invalidity or unenforceability of any provision of this Agreement shall not affect the validity or enforceability of any other provision of this Agreement. (d) The Company may withhold from any amounts payable under this Agreement such federal, state or local taxes as shall be required to be withheld pursuant to any applicable law or regulation. 20 21 (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 of Directors of the Company, the Company have caused this Agreement to be executed this 1st day of January, 1997, effective as of the day and year first above written. JERALD L. PULLINS /s/ JERALD L. PULLINS ----------------------------- "EMPLOYEE" SCI EXECUTIVE SERVICES, INC. By: /s/ CURTIS G. BRIGGS ------------------------- Curtis G. Briggs Vice President "COMPANY" 21 22 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 ------------------------------ James M. Shelger Senior Vice President General Counsel & Secretary "PARENT" 22 EX-10.9 8 FORM OF EMPLOYMENT AGREEMENT PERTAINING TO OFFICER 1 EXHIBIT 10.9 EMPLOYMENT AGREEMENT EMPLOYMENT AGREEMENT (the "Agreement") made and entered into as of this 11th day of November, 1991, amended and restated as of August 12, 1992, and further amended and restated as of January 1, 1997 by and between SCI EXECUTIVE SERVICES, INC., a Delaware corporation (the "Company") wholly owned by and successor by assignment to all of the rights, duties and obligations under this Agreement of SERVICE CORPORATION INTERNATIONAL, a Texas corporation (the "Parent"), and _____________________________ (the"Employee"); WHEREAS, in order to achieve certain administrative efficiencies in providing professional management services to its affiliated companies, the Parent has transferred the Employee to the employ of the Company effective January 1, 1997; WHEREAS, the Company, the Parent and the Employee desire to join in the execution of this amended and restated Agreement to (i) provide for the transfer of the employment of the Employee and (ii) set out more fully the rights, duties and obligations of the parties hereto; WHEREAS, Employee is employed by the Company in a management capacity, has extraordinary access to the Company's confidential business information, and has significant duties and responsibilities in connection with the conduct of the Company's business which places Employee in a special and uncommon classification of employees; WHEREAS, attendant to Employee's employment by the Company, the Company and Employee wish for there to be a complete understanding and agreement between the Company and Employee with respect to the fiduciary duties owed by Employee to the Company; Employee's obligation to avoid conflicts of interest, disclose pertinent information to the Company, and refrain from using or disclosing the Company's information; the term of employment and conditions for or upon termination thereof; the compensation and benefits owed to Employee; and the post-employment obligations Employee owes to the Company; and WHEREAS, but for Employee's agreement to the covenants and conditions of this Agreement, particularly the conflict of interest provisions, the provisions with respect to confidentiality of information and the ownership of intellectual property, and the post-employment obligations of Employee, the Company would not have entered into this Agreement; NOW, THEREFORE, in consideration of Employee's employment by the Company and the mutual promises and covenants contained herein, the receipt and sufficiency of such consideration being hereby acknowledged, the Company and Employee agree as follows: 2 1. Employment and Term. The Company agrees to employ the Employee and the Employee agrees to remain in the employ of the Company, in accordance with the terms and provisions of this Agreement, for the period beginning on the date of this Agreement (i.e. November 11, 1991) and ending as of the close of business on the __________ (___) anniversary of the date hereof (such period together with all extensions thereof, including any Change of Control Period (as defined in Section 16(b) below), are referred to hereinafter as the "Employment Period"); provided, however, that commencing on the date one year after the date hereof, and on each annual anniversary of such date (such date and each annual anniversary thereof shall be hereinafter referred to as a "Renewal Date") the Employment Period shall be automatically extended so as to terminate ________ (___) years from such Renewal Date, unless at least 60 days prior to the Renewal Date either the Company or the Employee gives the other written notice that the Employment Period shall not be so extended. 2. Duties and Powers of Employee. (a) Position; Location. During the Employment Period, the Employee shall perform such duties and have such powers as designated by the Board of Directors of the Company (the "Board") or any duly authorized committee thereof in connection with the execution of this Agreement. The Employee's services shall be performed at the location where the Employee is currently employed or any office which is the headquarters of the Company and is less than 50 miles from such location. During the Change of Control Period, the Employee's position (including status, offices, titles and reporting requirements), authority, duties and responsibilities shall be at least commensurate in all material respects with the most significant of those held, exercised and assigned with or by the Company or the Parent at any time during the 90-day period immediately preceding the Change of Control Date (as defined in Section 16(a) below). (b) Duties. During the Employment Period, and excluding any periods of vacation and sick leave to which the Employee is entitled, the Employee agrees to devote his attention and time during normal business hours to the business and affairs of the Company and to use the Employee's best efforts to perform faithfully and efficiently such responsibilities. During the Employment Period it shall not be a violation of this Agreement for the Employee to (i) serve on corporate, civic or charitable boards or committees, (ii) deliver lectures, fulfill speaking engagements or teach at educational institutions and (iii) manage personal investments, so long as such activities do not significantly interfere with the performance of the Employee's responsibilities as an employee of the Company in accordance with this Agreement. It is expressly understood and agreed that to the extent that any such activities have been conducted by the Employee prior to the date of this Agreement or subsequent thereto consistent with this Section 2(b), the continued conduct of such activities (or the conduct of activities similar in nature and scope thereto) shall not thereafter be deemed to interfere with the performance of the Employee's responsibilities to the Company. (c) Employee agrees and acknowledges that he owes, and will comply with, a fiduciary duty of loyalty, fidelity or allegiance to act at all times in the best interests of the Company and to take no action or fail to take action if such action or failure to act would injure the Company's business, its interests or its reputation. 2 3 3. Compensation. The Employee shall receive the following compensation for his services: (a) Salary. During the Employment Period, he shall be paid an annual base salary ("Annual Base Salary") at the rate of not less than $ _________________ per year, in substantially equal bi-weekly installments, and subject to any and all required withholdings and deductions for Social Security, income taxes and the like. The Board may from time to time direct such upward adjustments to Annual Base Salary as the Board deems to be appropriate or desirable; provided, however, that during the Change of Control Period, the Annual Base Salary shall be reviewed at least annually and shall be increased at any time and from time to time as shall be substantially consistent with increases in base salary generally awarded in the ordinary course of business to other employees of comparable rank with the Company and its affiliated companies (as defined in Section 16(d) below). Annual Base Salary shall not be reduced after any increase thereof pursuant to this Section 3(a). Any increase in Annual Base Salary shall not serve to limit or reduce any other obligation of the Company under this Agreement. (b) Incentive Cash Compensation. During the Employment Period, he shall be eligible annually for a cash bonus at the discretion of the Board (such aggregate awards for each year are hereinafter referred to as the "Annual Bonus") and at the discretion of the Board to receive awards from any plan of the Company or any of its affiliated companies providing for the payment of bonuses in cash to employees of the Company or its affiliated companies having rank comparable to that of the Employee (such plans being referred to herein collectively as the "Cash Bonus Plans") in accordance with the terms thereof; provided, however, that, during the Change of Control Period, the Employee shall be awarded, for each fiscal year ending during the Change of Control Period, an Annual Bonus at least equal to the Highest Recent Bonus (as defined in Section 16(e) below). Each Annual Bonus shall be paid no later than the end of the third month of the fiscal year next following the fiscal year for which the Annual Bonus is awarded, unless the Employee shall elect to defer the receipt of such Annual Bonus. (c) Incentive and Savings and Retirement Plans. During the Employment Period, the Employee shall be entitled to participate in all incentive and savings (in addition to the Cash Bonus Plans) and retirement plans, practices, policies and programs applicable generally to other employees of comparable rank with the Company and its affiliated companies. (d) Welfare Benefit Plans. During the Employment Period, the Employee and/or the Employee's family, as the case may be, shall be eligible for participation in all welfare benefit plans, practices, policies and programs provided by the Company and its affiliated companies (including, without limitation, medical, prescription, dental, disability, salary continuance, employee life, group life, accidental death and travel accident insurance plans and programs) to the extent applicable generally to other employees of comparable rank with the Company and its affiliated companies. (e) Expenses. During the Employment Period and for so long as the Employee is employed by the Company, he shall be entitled to receive prompt reimbursement 3 4 for all reasonable expenses incurred by the Employee in accordance with the policies, practices and procedures of the Company and its affiliated companies from time to time in effect. (f) Fringe Benefits. During the Employment Period, the Employee shall be entitled to fringe benefits in accordance with the plans, practices, programs and policies of the Company and its affiliated companies from time to time in effect, commensurate with his position and on a basis at least comparable to those received by other employees of comparable rank with the Company and its affiliated companies. (g) Office and Support Staff. During the Employment Period, the Employee shall be entitled to an office or offices of a size and with furnishings and other appointments, and to exclusive personal secretarial and other assistance, commensurate with his position and on a basis at least comparable to those received by other employees of comparable rank with the Company and its affiliated companies. (h) Vacation and Other Absences. During the Employment Period, the Employee shall be entitled to paid vacation and such other paid absences whether for holidays, illness, personal time or any similar purposes, in accordance with the plans, policies, programs and practices of the Company and its affiliated companies in effect from time to time, commensurate with his position and on a basis at least comparable to those received by other employees of comparable rank with the Company and its affiliated companies. (i) During the Change of Control Period, the Employee's benefits listed under Sections 3(c), 3(d), 3(e), 3(f), 3(g) and 3(h) above shall be at least commensurate in all material respects with the most valuable and favorable of those received by the Employee at any time during the 90-day period immediately preceding the Change of Control Date. 4. Termination of Employment. (a) Death or Disability. The Employment Period shall terminate automatically upon the Employee's death during the Employment Period. If the Company determines in good faith that the Disability of the Employee has occurred during the Employment Period (pursuant to the definition of Disability set forth below), it may give to the Employee written notice in accordance with Section 17(b) of its intention to terminate the Employment Period. In such event, the Employment Period shall terminate effective on the 30th day after receipt of such notice by the Employee (the "Disability Effective Date"), provided that, within the 30 days after such receipt, the Employee shall not have returned to full-time performance of the Employee's duties. For purposes of this Agreement, "Disability" shall mean the inability of the Employee to perform the Employee's duties with the Company on a full-time basis as a result of incapacity due to mental or physical illness which continues for more than one year after the commencement of such incapacity, such incapacity to be determined by a physician selected by the Company or its insurers and acceptable to the Employee or the Employee's legal representative (such agreement as to acceptability not to be withheld unreasonably). (b) Cause. The Company may terminate the Employment Period for Cause. For purposes of this Agreement, "Cause" shall mean (i) a material breach by the Employee of 4 5 Section 9 which is willful on the Employee's part or which is committed in bad faith or without reasonable belief that such breach is in the best interests of the Company and its affiliated companies, or (ii) a material breach by the Employee of the Employee's obligations under Section 2 (other than a breach of the Employee's obligations under Section 2 arising from the failure of the Employee to work as a result of incapacity due to physical or mental illness) or any material breach by the Employee of Section 10, 11 or 12 of this Agreement which in either case is willful on the Employee's part, which is committed in bad faith or without reasonable belief that such breach is in the best interests of the Company and its affiliated companies and which is not remedied in a reasonable period of time after receipt of written notice from the Company specifying such breach, or (iii) the conviction of the Employee of a felony involving malice which conviction has been affirmed on appeal or as to which the period in which an appeal can be taken has lapsed. (c) Good Reason; Window Period. The Employee's employment may be terminated (i) by the Employee for Good Reason (as defined below) or (ii) during the Window Period (as defined below) by the Employee without any reason. For purposes of this Agreement, the "Window Period" shall mean the 30-day period immediately following the first anniversary of the Change of Control Date. For purposes of this Agreement, "Good Reason" shall mean (i) the assignment to the Employee of any duties inconsistent in any respect with the Employee's position (including status, offices, titles and reporting requirements), authority, duties or responsibilities 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 15(c), provided that the successor referred to in Section 15(c) has received at least ten days prior written notice from the Company or the Employee of the requirements of Section 15(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. 5 6 (d) Notice of Termination. Any termination by the Company for Cause or by the Employee without any reason during the Window Period or for Good Reason shall be communicated by Notice of Termination to the other party hereto given in accordance with Section 17(b). For purposes of this Agreement, a "Notice of Termination" means a written notice which (i) indicates the specific termination provision in this Agreement relied upon, (ii) to the extent applicable, sets forth in reasonable detail the facts and circumstances claimed to provide a basis for termination of the Employment Period under the provision so indicated and (iii) if the Date of Termination (as defined below) is other than the date of receipt of such notice, specifies the termination date (which date shall be not more than 15 days after the giving of such notice). The failure by the Employee or the Company to set forth in the Notice of Termination any fact or circumstance which contributes to a showing of Good Reason or Cause shall not waive any right of the Employee or the Company hereunder or preclude the Employee or the Company from asserting such fact or circumstance in enforcing the Employee's or the Company's rights hereunder. (e) Date of Termination. "Date of Termination" means (i) if the Employee's employment is terminated by the Company for Cause, or by the Employee during the Window Period or for Good Reason, the date of receipt of the Notice of Termination or any later date specified therein, as the case may be, (ii) if the Employee's employment is terminated by the Company other than for Cause or Disability, or by the Employee other than for Good Reason or during the Window Period, the Date of Termination shall be the date on which the Company or the Employee, as the case may be, notifies the other of such termination and (iii) if the Employee's employment is terminated by reason of death or Disability, the Date of Termination shall be the date of death of the Employee or the Disability Effective Date, as the case may be. 5. Obligations of the Company Upon Termination. (a) Certain Terminations Prior to Change of Control Date. If, during the Employment Period prior to any Change of Control Date, the employment of the Employee with the Company shall be terminated (i) by the Company other than for Cause, death or Disability or (ii) by the Employee for Good Reason, then, in lieu of the obligations of the Company under Section 3, (i) the Company shall pay to the Employee in a lump sum in cash within 30 days after the Date of Termination all Unpaid Agreement Amounts (as defined in Section 5(b)(i)(A) below) and (ii) notwithstanding any other provision hereunder, for the longer of (A) the remainder of the Employment Period or (B) to the extent compensation and/or benefits are provided under any plan, program, practice or policy, such longer period, if any, as such plan, program, practice or policy may provide, the Company shall continue to provide to the Employee the compensation and benefits provided in Sections 3(a), 3(c) and 3(d). (b) Certain Terminations After Change of Control Date. If, during the Change of Control Period, the employment of the Employee with the Company shall be terminated (i) by the Company other than for Cause, death or Disability or (ii) by the Employee either for Good Reason or without any reason during the Window Period, then, in lieu of the obligations of the Company under Section 3 and notwithstanding any other provision hereunder: 6 7 (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) ______________ (___) multiplied by the Employee's Annual Base Salary, plus (2) ______________ (___) multiplied by the Employee's Highest Recent Bonus; (ii) for the longer of (A) the remainder of the Employment Period or (B) to the extent benefits are provided under any plan, program, practice or policy, such longer period as such plan, program, practice or policy may provide, the Company shall continue benefits to the Employee and/or the Employee's family at least equal to those which would have been provided to them in accordance with the plans, programs, practices and policies described in Section 3(d) if the Employee's employment had not been terminated, in accordance with the most favorable plans, practices, programs or policies of the Company and its affiliated companies as in effect and applicable generally to other employees of comparable rank and their families during the 90-day period immediately preceding the Change of Control Date or, if more favorable to the Employee, as in effect generally at any time thereafter with respect to other employees of comparable rank with the Company and its affiliated companies and their families; provided, however, that if the Employee becomes reemployed with another employer and is eligible to receive medical or other welfare benefits under another employer provided plan, the medical and other welfare benefits described herein shall be required only to the extent not provided under such other plan during such applicable period of eligibility. For purposes of determining eligibility of the Employee for retiree benefits pursuant to such plans, practices, programs and policies, the Employee shall be considered to have remained employed until the end of the Employment Period and to have retired on the last day of such period; and 7 8 (iii) to the extent not theretofore paid or provided, the Company shall timely pay or provide to the Employee and/or the Employee's family for the remainder of the Employment Period any other amounts or benefits required to be paid or provided or which the Employee and/or the Employee's family is eligible to receive pursuant to this Agreement and under any plan, program, policy or practice or contract or agreement of the Company and its affiliated companies as in effect and applicable generally to other employees of comparable rank with the Company and its affiliated companies and their families during the 90- day period immediately preceding the Change of Control Date or, if more favorable to the Employee, as in effect generally thereafter with respect to other employees of comparable rank with the Company and its affiliated companies and their families. Such amounts received under this Section 5(b) shall be in lieu of any other amount of severance relating to salary or bonus continuation to be received by the Employee upon termination of employment of the Employee under any severance plan, policy or arrangement of the Company. (c) Termination as a Result of Death. If the Employee's employment is terminated by reason of the Employee's death during the Employment Period, in lieu of the obligations of the Company under Section 3, the Company shall pay or provide to the Employee's estate (i) all Accrued Obligations (which shall be paid in a lump sum in cash within 30 days after the Date of Termination) and the timely payment or provision of the Welfare Benefit Continuation (as defined below) and the Other Benefits (as defined below) and (ii) any cash amount to be received by the Employee or the Employee's family as a death benefit pursuant to the terms of any plan, policy or arrangement of the Company and its affiliated companies. "Welfare Benefit Continuation" shall mean the continuation of benefits to the Employee and/or the Employee's family for the longer of (i) ______ (___) years from the Date of Termination or (ii) the period provided by the plans, programs, policies or practices described in Section 3(d) in which the Employee participates as of the Date of Termination, such benefits to be at least equal to those which would have been provided to them in accordance with the plans, programs, practices and policies described in Section 3(d) if the Employee's employment had not been terminated, in accordance with the most favorable plans, practices, programs or policies of the Company and its affiliated companies as in effect and applicable generally to other 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, 8 9 if more favorable to the Employee, as in effect generally thereafter with respect to other employees of comparable rank with the Company and its affiliated companies and their families. (d) Termination as a Result of Disability. If the Employee's employment is terminated by reason of the Employee's Disability during the Employment Period, in lieu of the obligations of the Company under Section 3, the Company shall pay or provide to the Employee (i) all Accrued Obligations which shall be paid in a lump sum in cash within 30 days after the Date of Termination and the timely payment or provision of the Welfare Benefit Continuation and the Other Benefits, provided, however, that if the Employee becomes reemployed with another employer and is eligible to receive medical or other welfare benefits under another employer provided plan, the Welfare Benefit Continuation shall be required only to the extent not provided under such other plan during such applicable period of eligibility, and (ii) any cash amount to be received by the Employee as a disability benefit pursuant to the terms of any plan, policy or arrangement of the Company and its affiliated companies. (e) Cause; Other than for Good Reason. If the Employee's employment shall be terminated during the Employment Period by the Company for Cause or by the Employee other than during the Window Period and other than for Good Reason, in lieu of the obligations of the Company under Section 3, the Company shall pay to the Employee in a lump sum in cash within 30 days after the Date of Termination all Unpaid Agreement Amounts. 6. Non-exclusivity of Rights. Except as provided in Sections 5(a), 5(b)(i)(B), 5(b)(ii), 5(c) and 5(d), nothing in this Agreement shall prevent or limit the Employee's continuing or future participation in any plan, program, policy or practice provided by the Company or any of its affiliated companies and for which the Employee may qualify, nor shall anything herein limit or otherwise affect such rights as the Employee may have under any contract or agreement with the Company or any of its affiliated companies. Amounts which are vested benefits or which the Employee is otherwise entitled to receive under any plan, policy, practice or program of or any contract or agreement with the Company or any of its affiliated companies at or subsequent to the Date of Termination shall be payable in accordance with such plan, policy, practice or program or contract or agreement except as explicitly modified by this Agreement. 7. Full Settlement; Resolution of Disputes. (a) The Company's obligation to make the payments provided for in this Agreement and otherwise to perform its obligations hereunder shall not be affected by any set-off, counterclaim, recoupment, defense or other claim, right or action which the Company may have against the Employee or others. In no event shall the Employee be obligated to seek other employment or take any other action by way of mitigation of the amounts payable to the Employee under any of the provisions of this Agreement and, except as provided in 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 9 10 of any contest by the Employee about the amount of any payment pursuant to this Agreement), plus in each case interest on any payment required to be made under this Agreement but not timely paid at the rate provided for in Section 280G(d)(4) of the Internal Revenue Code of 1986, as amended (the "Code"). (b) If there shall be any dispute between the Company and the Employee (i) in the event of any termination of the Employee's employment by the Company, whether such termination was for Cause, or (ii) in the event of any termination of employment by the Employee, whether Good Reason existed, then, unless and until there is a final, nonappealable judgment by a court of competent jurisdiction declaring that such termination was for Cause or that the determination by the Employee of the existence of Good Reason was not made in good faith, the Company shall pay all amounts, and provide all benefits, to the Employee and/or the Employee's family or other beneficiaries, as the case may be, that the Company would be required to pay or provide pursuant to Section 5(a) or 5(b) as though such termination were by the Company without Cause or by the Employee with Good Reason. The Employee hereby undertakes to repay to the Company all such amounts to which the Employee is ultimately adjudged by such court not to be entitled. 8. Certain Additional Payments by the Company. (a) Anything in this Agreement to the contrary notwithstanding, in the event it shall be determined that any payment or distribution by the Company to or for the benefit of the Employee (whether paid or payable or distributed or distributable pursuant to the terms of this Agreement or otherwise, but determined without regard to any additional payments required under this Section 8) (a "Payment") would be subject to the excise tax imposed by Section 4999 of the Code or any interest or penalties are incurred by the Employee with respect to such excise tax (such excise tax, together with any such interest and penalties, are hereinafter collectively referred to as the "Excise Tax"), then the Employee shall be entitled to receive an additional payment (a "Gross-Up Payment") in an amount such that after payment by the Employee of all taxes (including any interest or penalties imposed with respect to such taxes), including, without limitation, any income taxes (and any interest and penalties imposed with respect thereto) and Excise Tax imposed upon the Gross-Up Payment, the Employee retains an amount of the Gross-Up Payment equal to the Excise Tax imposed upon the Payments. (b) Subject to the provisions of Section 8(c), all determinations required to be made under this Section 8, including whether and when a Gross-Up Payment is required and the amount of such Gross-Up Payment and the assumptions to be utilized in arriving at such determination, shall be made by the Company's outside independent auditor (the "Accounting Firm"), which shall provide detailed supporting calculations both to the Company and the Employee within 15 business days of the receipt of notice from the Employee that there has been a Payment, or such earlier time as is requested by the Company. In the event that the Accounting Firm is serving (or has served within the three years preceding the Change of Control Date) as accountant or auditor for the individual, entity or group effecting the Change of Control, or is unwilling or unable to perform its obligations pursuant to this Section 8, the Employee shall appoint another nationally recognized accounting firm to make the determinations required hereunder (which accounting firm shall then be referred to as the Accounting Firm 10 11 hereunder). All fees and expenses of the Accounting Firm shall be borne solely by the Company. Any Gross-Up Payment, as determined pursuant to this Section 8, shall be paid by the Company to the Employee within five days of the receipt of the Accounting Firm's determination. If the Accounting Firm determines that no Excise Tax is payable by the Employee, it shall furnish the Employee with a written opinion that failure to report the Excise Tax on the Employee's applicable federal income tax return would not result in the imposition of a negligence or similar penalty. Any determination by the Accounting Firm shall be binding upon the Company and the Employee. As a result of the uncertainty in the application of Section 4999 of the Code at the time of the initial determination by the Accounting Firm hereunder, it is possible that Gross-Up Payments which will not have been made by the Company should have been made ("Underpayment"), consistent with the calculations required to be made hereunder. In the event that the Company exhausts its remedies pursuant to Section 8(c) and the Employee thereafter is required to make a payment of any Excise Tax, the Accounting Firm shall determine the amount of the Underpayment that has occurred and any such Underpayment shall be promptly paid by the Company to or for the benefit of the Employee. (c) The Employee shall notify the Company in writing of any claim by the Internal Revenue Service that, if successful, would require the payment by the Company of the Gross-Up Payment. Such notification shall be given as soon as practicable but no later than ten business days after the Employee is informed in writing of such claim and shall apprise the Company of the nature of such claim and the date on which such claim is requested to be paid. The Employee shall not pay such claim prior to the expiration of the 30-day period following the date on which the Employee gives such notice to the Company (or such shorter period ending on the date that any payment of taxes with respect to such claim is due). If the Company notifies the Employee in writing prior to the expiration of such period that it desires to contest such claim, the Company, subject to the provisions of this Section 8(c), shall control all proceedings taken in connection with such contest and, at its sole option, may pursue or forgo any and all administrative appeals, proceedings, hearings and conferences with the taxing authority in respect of such claim and may, at its sole option, either direct the Employee to pay the tax claimed and sue for a refund or contest the claim in any permissible manner. In this connection, the Employee agrees, subject to the provisions of this Section 8(c), to (i) prosecute such contest to a determination before any administrative tribunal, in a court of initial jurisdiction and in one or more appellate courts, as the Company shall determine, (ii) give the Company any information reasonably requested by the Company relating to such claim, (iii) take such action in connection with contesting such claim as the Company shall reasonably request in writing from time to time, including, without limitation, accepting legal representation with respect to such claim by an attorney reasonably selected by the Company, (iv) cooperate with the Company in good faith in order effectively to contest such claim and (v) permit the Company to participate in any proceedings relating to such claim. The foregoing is subject, however, to the following: (A) the Company shall bear and pay directly all costs and expenses (including additional interest and penalties) incurred in connection with such contest and shall indemnify and hold the Employee harmless, on an after-tax basis, for any Excise Tax or income tax (including interest and penalties with respect thereto) imposed in connection therewith and the payment of costs and expenses in such connection, (B) if the Company directs the Employee to pay such claim and sue for a refund, the Company shall advance the amount of such payment 11 12 to the Employee, on an interest-free basis, and shall indemnify and hold the Employee harmless, on an after-tax basis, from any Excise Tax or income tax (including interest or penalties with respect thereto) imposed with respect to such advance or with respect to any imputed income with respect to such advance, (C) any extension of the statute of limitations relating to payment of taxes for the taxable year of the Employee with respect to which such contested amount is claimed to be due shall be limited solely to such contested amount and (D) the Company's control of the contest shall be limited to issues with respect to which a Gross-Up Payment would be payable hereunder and the Employee shall be entitled to settle or contest, as the case may be, any other issue raised by the Internal Revenue Service or any other taxing authority. (d) If, after the receipt by the Employee of an amount advanced by the Company pursuant to Section 8(c), the Employee becomes entitled to receive any refund with respect to such claim, the Employee shall (subject to the Company's complying with the requirements of Section 8(c)) promptly pay to the Company the amount of such refund (together with any interest paid or credited thereon after taxes applicable thereto). If, after the receipt by the Employee of an amount advanced by the Company pursuant to Section 8(c), a determination is made that the Employee shall not be entitled to any refund with respect to such claim and the Company does not notify the Employee in writing of its intent to contest such denial of refund prior to the expiration of 30 days after such determination, then such advance shall be forgiven and shall not be required to be repaid and the amount of such advance shall offset, to the extent thereof, the amount of Gross-Up Payment required to be paid. 9. Confidential Information. The Employee shall hold in a fiduciary capacity for the benefit of the Company all secret or confidential information, knowledge or data relating to the Company or any of its affiliated companies, and their respective businesses, which shall have been obtained by the Employee during the Employee's employment by the Company or any of its affiliated companies and which shall not be or become public knowledge (other than by acts by the Employee or representatives of the Employee in violation of this Agreement). After termination of the Employee's employment with the Company or any of its affiliated companies, the Employee shall not, without the prior written consent of the Company or as may otherwise be required by law or legal process, communicate or divulge any such information, knowledge or data to anyone other than the Company and those designated by it. In no event shall an asserted violation of the provisions of this Section 9 constitute a basis for deferring or withholding any amounts otherwise payable to the Employee under this Agreement. Subject to the previous sentence, nothing herein shall be construed as prohibiting the Company from pursuing any other remedies available to it for such breach or threatened breach, including the recovery of damages from the Employee. 10. Employee's Obligation to Avoid Conflicts of Interest. (a) In keeping with Employee's fiduciary duties to the Company, Employee agrees that he shall not knowingly become involved in circumstances constituting a conflict of interest with such duties, or upon discovery thereof, allow such a conflict to continue. Moreover, Employee agrees that he shall disclose to the Secretary of the Company any facts which might involve a conflict of interest that has not been approved by the Company. The Board hereby acknowledges and agrees that the 12 13 activities of Employee listed on Schedule A hereto do not, and the continuation of such activities will not, constitute a conflict of interest for purposes of this Section 10. (b) In this connection, it is agreed that any direct interest in, connection with, or benefit from any outside activities, particularly commercial activities, which might in any way adversely affect the Company or any of its affiliated companies, involves a possible conflict of interest. Circumstances in which a conflict of interest on the part of Employee would or might arise, and which should be reported immediately to the Company, include, but are not limited to, the following: (i) Ownership of a material interest in any lender, supplier, contractor, customer or other entity with which the Company or any of its affiliated companies does business; (ii) Acting in any capacity, including director, officer, partner, consultant, employee, distributor, agent or the like, for lenders, suppliers, contractors, subcontractors, customers or other entities with which the Company or any of its affiliated companies does business; (iii) Acceptance, directly or indirectly, of payments, services or loans from a lender, supplier, contractor, subcontractor, customer or other entity with which the Company or any of its affiliated companies does business, including but not limited to, gifts, trips, entertainment, or other favors of more than a nominal value, but excluding loans from publicly held insurance companies and commercial or savings banks at normal rates of interest; (iv) Misuse of information or facilities to which Employee has access in a manner which will be detrimental to the Company's or any of its affiliated companies' interest, such as utilization for Employee's own benefit of know-how or information developed through the Company's or any of its affiliated companies' business activities; (v) Disclosure or other misuse of information of any kind obtained through Employee's connection with the Company or any of its affiliated companies; or (vi) Acquiring or trading in, directly or indirectly, other properties or interests connected with the design or marketing of products or services designed or marketed by the Company or any of its affiliated companies. (c) In the event that the Company determines, in the exercise of its reasonable judgment, that a conflict of interest exists between the Employee and the Company or any of its affiliated companies, the Company shall notify the Employee in writing in accordance with Section 17(b) hereof, providing reasonably detailed information identifying the source of the 13 14 conflict of interest. Within the 60-day period following receipt of such notice, the Employee shall take action satisfactory to the Company to eliminate the conflict of interest. Failure of the Employee to take such action within such 60-day period shall constitute "Cause" under Section 4(b) hereof. 11. Disclosure of Information, Ideas, Concepts, Improvements, Discoveries and Inventions. As part of Employee's fiduciary duties to the Company, Employee agrees that during the Employment Period, and for a period of six (6) months after the Date of Termination, Employee shall promptly disclose in writing to the Company all information, ideas, concepts, improvements, discoveries and inventions, whether patentable or not, and whether or not reduced to practice, which are conceived, developed, made or acquired by Employee, either individually or jointly with others, and which relate to the business, products or services of the Company or any of its affiliated companies, irrespective of whether Employee utilized the Company's or any of its affiliated companies' time or facilities and irrespective of whether such information, idea, concept, improvement, discovery or invention was conceived, developed, discovered or acquired by Employee on the job, at home, or elsewhere. This obligation extends to all types of information, ideas and concepts, including information, ideas and concepts relating to new types of services, corporate opportunities, acquisition prospects, the identity of key representatives within acquisition prospect organizations, prospective names or service marks for the Company's or any of its affiliated companies' business activities, and the like. 12. Ownership of Information, Ideas, Concepts, Improvements, Discoveries and Inventions and all Original Works of Authorship. (a) All information, ideas, concepts, improvements, discoveries and inventions, whether patentable or not, which are conceived, made, developed or acquired by Employee or which are disclosed or made known to Employee, individually or in conjunction with others, during Employee's employment by the Company or any of its affiliated companies and which relate to the Company's or any of its affiliated companies' business, products or services (including all such information relating to corporate opportunities, research, financial and sales data, pricing and trading terms, evaluations, opinions, interpretations, acquisition prospects, the identity of customers or their requirements, the identity of key contacts within the customer's organizations or within the organization of acquisition prospects, or marketing and merchandising techniques, prospective names and marks) are and shall be the sole and exclusive property of the Company. Moreover, all drawings, memoranda, notes, records, files, correspondence, manuals, models, specifications, computer programs, maps and all other writings or materials of any type embodying any of such information, ideas, concepts, improvements, discoveries and inventions are and shall be the sole and exclusive property of the Company. (b) In particular, Employee hereby specifically sells, assigns and transfers to the Company all of his worldwide right, title and interest in and to all such information, ideas, concepts, improvements, discoveries or inventions, and any United States or foreign applications for patents, inventor's certificates or other industrial rights that may be filed thereon, including divisions, continuations, continuations-in-part, reissues and/or extensions thereof, and applications for registration of such names and marks. Both during the period of Employee's employment by the Company or any of its affiliated companies and thereafter, Employee shall 14 15 assist the Company and its nominee at all times in the protection of such information, ideas, concepts, improvements, discoveries or inventions, both in the United States and all foreign countries, including but not limited to, the execution of all lawful oaths and all assignment documents requested by the Company or its nominee in connection with the preparation, prosecution, issuance or enforcement of any applications for United States or foreign letters patent, including divisions, continuations, continuations-in-part, reissues, and/or extensions thereof, and any application for the registration of such names and marks. (c) Moreover, if during Employee's employment by the Company or any of its affiliated companies, Employee creates any original work of authorship fixed in any tangible medium of expression which is the subject matter of copyright (such as videotapes, written presentations on acquisitions, computer programs, drawings, maps, architectural renditions, models, manuals, brochures or the like) relating to the Company's or any of its affiliated companies' business, products, or services, whether such work is created solely by Employee or jointly with others, the Company shall be deemed the author of such work if the work is prepared by Employee in the scope of his or her employment; or, if the work is not prepared by Employee within the scope of his or her employment but is specially ordered by the Company as a contribution to a collective work, as a part of a motion picture or other audiovisual work, as a translation, as a supplementary work, as a compilation or as an instrumental text, then the work shall be considered to be work made for hire and the Company shall be the author of the work. In the event such work is neither prepared by the Employee within the scope of his or her employment or is not a work specially ordered and deemed to be a work made for hire, then Employee hereby agrees to assign, and by these presents does assign, to the Company all of Employee's worldwide right, title and interest in and to such work and all rights of copyright therein. Both during the period of Employee's employment by the Company or any of its affiliated companies and thereafter, Employee agrees to assist the Company and its nominee, at any time, in the protection of the Company's worldwide right, title and interest in and to the work and all rights of copyright therein, including but not limited to, the execution of all formal assignment documents requested by the Company or its nominee and the execution of all lawful oaths and applications for registration of copyright in the United States and foreign countries. 13. Employee's Post-Employment Non-Competition Obligations: In Certain Situations such Obligations Apply only if the Company Opts to Continue Employee's Salary Payment. (a) During the Employment Period and, subject to the conditions of Sections 13(b) and 13(c), for a period of _____ (___) years thereafter (the "Non-Competition Period") provided, however, that the Non-Competition Period shall not exceed _______ (___) years from the Date of Termination, Employee shall not, acting alone or in conjunction with others, directly or indirectly, in any of the business territories in which the Company or any of its affiliated companies is presently or at the time of termination of employment conducting business, engage in any business in competition with the business conducted by the Company or any of its affiliated companies at the time of the termination of the employment relationship, whether for his own account or by soliciting, canvassing or accepting any business or transaction for or from any other company or business in competition with such business of the Company or any of its affiliated companies. 15 16 (b) If Employee has been terminated for Cause (Section 4(b)) or if Employee terminates his employment for any reason other than for Good Reason or other than during the Window Period (Section 4(c)), Employee shall be bound by the obligations of Section 13(a) and the Company shall have no obligation to make the Non-Competition Payments (as defined in Section 13(c) below). However, if the employment relationship is terminated by any other circumstance or for any other reason, Employee's post-employment non-competition obligations required by Section 13(a) shall be subject to the Company's obligation to make the Non-Competition Payments specified in Section 13(c). (c) Notwithstanding the provisions of Section 4 of this Agreement, whenever the employment relationship is terminated due to the expiration of its term because the Company or Employee timely gave written notice of termination (Section 1), or due to Employee's Disability (Section 4(a)), or by the Company without Cause (Section 4(b)), unless the Company exercises its option as hereinafter provided, Employee shall be entitled to continue to receive payments (the "Non-Competition Payments") equal to his then current Annual Base Salary (as of the Date of Termination) during the Non-Competition Period. During the Non-Competition Period, the Employee shall not, however, be deemed to be an employee of the Company or be entitled to continue to receive any other employee benefits other than as set forth in Section 5 or Section 8. Moreover, the Non-Competition Payments shall be reduced to the extent Employee has already received lump-sum payments in lieu of salary and bonus pursuant to Section 5. The Company shall have the option, exercisable at any time within one (1) month after Employee's Date of Termination, to cancel Employee's post-employment non-competition obligations under Section 13(a) and the Company's corresponding obligation to make the Non-Competition Payments. Such option shall be exercised by the Company mailing a written notice thereof to Employee in accordance with Section 17(b); if the Company does not send such notice within the prescribed one-month time, the Company shall remain obligated to make the Non-Competition Payments and Employee shall remain obligated to comply with the provisions of Section 13(a). The purpose of this paragraph is to make the non-competition obligations of Employee more reasonable from the Employee's point of view. The amounts to be paid by the Company are not intended to be liquidated damages or an estimate of the actual damages that would be sustained by the Company if Employee breaches his post-employment non-competition obligations. If Employee breaches his post-employment non-competition obligations, the Company shall be entitled to cease making the Non-Competition Payments and shall be entitled to all of its remedies at law or in equity for damages and injunctive relief. 14. Obligations to Refrain From Competing Unfairly. In addition to the other obligations agreed to by Employee in this Agreement, Employee agrees that during the Employment Period and for ________ (____) years following the Date of Termination, he shall not at any time, directly or indirectly for the benefit of any other party than the Company or any of its affiliated companies, (a) induce, entice, or solicit any employee of the Company or any of its affiliated companies to leave his employment, or (b) contact, communicate or solicit any customer of the Company or any of its affiliated companies derived from any customer list, customer lead, mail, printed matter or other information secured from the Company or any of its affiliated companies or their present or past employees, or (c) in any other manner use any 16 17 customer lists or customer leads, mail, telephone numbers, printed material or material of the Company or any of its affiliated companies relating thereto. 15. Successors. (a) This Agreement is personal to the Employee and without the prior written consent of the Company shall not be assignable by the Employee otherwise than by will or the laws of descent and distribution. This Agreement shall inure to the benefit of and be enforceable by the Employee's legal representatives. (b) This Agreement shall inure to the benefit of and be binding upon the Company and its successors and assigns. (c) The Company will require any successor (whether direct or indirect, by purchase, merger, consolidation or otherwise) to all or substantially all of the business and/or assets of the Company or the Company to assume expressly and agree to perform this Agreement in the same manner and to the same extent that the Company would be required to perform it if no such succession had taken place. As used in this Agreement, "Company" shall mean the Company as hereinbefore defined and any successor to its business and/or assets as aforesaid which assumes and agrees to perform this Agreement by operation of law, or otherwise. The Parent will require any successor (whether direct or indirect, by purchase, merger, consolidation or otherwise) to all or substantially all of the business and/or assets of the Parent or the Parent to assume expressly and agree to perform the Parent's obligations hereunder in the same manner and to the same extent that the Parent would be required to perform them if no such succession had taken place. As used in this Agreement, "Parent" shall mean the Parent as hereinbefore defined and any successor to its business and/or assets as aforesaid which assumes and agrees to perform the Parent's obligations hereunder by operation of law, or otherwise. 16. Certain Definitions. The following defined terms used in this Agreement shall have the meanings indicated: (a) The "Change of Control Date" shall mean the first date on which a Change of Control occurs. Anything in this Agreement to the contrary notwithstanding, if a Change of Control occurs and if the Employee's employment with the Company is terminated or the Employee ceases to have the position with the Company or the Parent which the Employee had prior to the date on which the Change of Control occurs, and if it is reasonably demonstrated by the Employee that such termination or cessation (i) was at the request of a third party who has taken steps reasonably calculated to effect the Change of Control or (ii) otherwise arose in connection with or anticipation of the Change of Control, then, for all purposes of this Agreement, the "Change of Control Date" shall mean the date immediately prior to the date of such termination or cessation. (b) The "Change of Control Period" shall mean the period commencing on the Change of Control Date and ending on the last day of the Employment Period. (c) "Change of Control" shall mean: 17 18 (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 comprising 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 was comprised of at least five members and all members of such committee were either members of the Incumbent Board or considered as being members of the Incumbent Board pursuant to clause (A) of this subsection (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 18 19 to such reorganization, merger or consolidation, of the Outstanding Parent Common Stock and Outstanding Parent Voting Securities, as the case may be, (B) no Person (excluding the Parent, any employee benefit plan or related trust of the Parent or such corporation resulting from such reorganization, merger or consolidation and any Person beneficially owning, immediately prior to such reorganization, merger or consolidation, directly or indirectly, 20% or more of the Outstanding Parent Common Stock or Outstanding Parent Voting Securities, as the case may be) beneficially owns, directly or indirectly, 20% or more of, respectively, the then outstanding shares of common stock of the corporation resulting from such reorganization, merger or consolidation or the combined voting power of the then outstanding voting securities of such corporation entitled to vote generally in the election of directors and (C) at least a majority of the members of the board of directors of the corporation resulting from such reorganization, merger or consolidation were members of the Incumbent Board at the time of the execution of the initial agreement providing for such reorganization, merger or consolidation; or (iv) Approval by the shareholders of the Parent of (A) a complete liquidation or dissolution of the Parent or (B) the sale or other disposition of all or substantially all of the assets of the Parent, other than to a corporation, with respect to which following such sale or other disposition, (A) more than 60% of, respectively, the then outstanding shares of common stock of such corporation and the combined voting power of the then outstanding voting securities of such corporation entitled to vote generally in the election of directors is then beneficially owned, directly or indirectly, by all or substantially all of the individuals and entities who were the beneficial owners, respectively, of the Outstanding Parent Common Stock and Outstanding Parent Voting Securities immediately prior to such sale or other disposition in substantially the same proportion as their ownership, immediately prior to such sale or other disposition, of the Outstanding Parent Common Stock and Outstanding Parent Voting Securities, as the case may be, (B) no Person (excluding the Parent and any employee benefit plan or related trust of the Parent or such corporation and any Person beneficially owning, immediately prior to such sale or other disposition, directly or indirectly, 20% or more of the Outstanding Parent Common Stock or Outstanding Parent Voting Securities, as the case may be) beneficially owns, directly or indirectly, 20% or more of, respectively, the then outstanding shares of common stock of such corporation and the combined voting power of the then outstanding voting securities of such corporation entitled to vote generally in the election of directors and (C) at least a majority of the members of the Board of Directors of such corporation were members of the Incumbent Board at the time of the execution of the initial agreement or action of the Board of Directors of the Parent providing for such sale or other disposition of assets of the Parent. (d) The term "affiliated company" shall mean any company controlled by, controlling or under common control with the Company. (e) The term "Highest Recent Bonus" shall mean the highest Annual Bonus (annualized for any fiscal year consisting of less than twelve full months) paid or payable, 19 20 including by reason of any deferral, to the Employee by the Company and its affiliated companies in respect of the three most recent full fiscal years ending on or prior to, (i) if prior to a Change of Control, the Date of Termination, or (ii) if after a Change of Control, the Change of Control Date. 17. Miscellaneous. (a) This Agreement replaces and merges all previous agreements and discussions relating to the same or similar subject matters between Employee and the Company and shall be governed by and construed in accordance with the laws of the State of Texas, without reference to principles of conflict of laws. The captions of this Agreement are not part of the provisions hereof and shall have no force or effect. This Agreement may not be amended, modified, repealed, waived, extended or discharged except by an agreement in writing signed by the party against whom enforcement of such amendment, modification, repeal, waiver, extension or discharge is sought. No person, other than pursuant to a resolution of the Board or a duly authorized committee thereof, shall have authority on behalf of the Company to agree to amend, modify, repeal, waive, extend or discharge any provision of this Agreement or anything in reference thereto. (b) All notices and other communications hereunder shall be in writing and shall be given by hand delivery to the other party or by registered or certified mail, return receipt requested, postage prepaid, addressed as follows: If to the Employee: ADDRESS ADDRESS ADDRESS If to the Company: SCI Executive Services, Inc. 1929 Allen Parkway Houston, Texas 77019 Attention: Corporate Secretary or to such other address as either party shall have furnished to the other in writing in accordance herewith. Notice and communications shall be effective when actually received by the addressee. (c) The invalidity or unenforceability of any provision of this Agreement shall not affect the validity or enforceability of any other provision of this Agreement. (d) The Company may withhold from any amounts payable under this Agreement such federal, state or local taxes as shall be required to be withheld pursuant to any applicable law or regulation. 20 21 (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 of Directors of the Company, the Company have caused this Agreement to be executed this 1st day of January, 1997, effective as of the day and year first above written. NAME -------------------------------- "EMPLOYEE" SCI EXECUTIVE SERVICES, INC. By: ----------------------------- Name: --------------------------- Title: -------------------------- "COMPANY" 21 22 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: -------------------------------- James M. Shelger Senior Vice President General Counsel & Secretary "PARENT" 22 EX-10.11 9 AMENDMENT TO 1986 STOCK OPTION PLAN 1 EXHIBIT 10.11 SERVICE CORPORATION INTERNATIONAL AMENDMENT TO 1986 STOCK OPTION PLAN AMENDMENT, dated as of February 12, 1997, to the Service Corporation International 1986 Stock Option Plan, as Amended and Restated on November 12, 1991 (the "1986 Plan"). 1. The 1986 Plan is hereby amended effective as of the date hereof, as follows: Article III is hereby amended by adding the following at the end thereof: The Committee may amend outstanding Non-qualified Stock Options to make such Non-qualified Stock Options transferable, without payment of consideration, to immediate family members of the grantee or to trusts or partnerships established for the exclusive benefit of one or more members of such person's immediately family (collectively, "Transferees"). A transfer of a Non-qualified Stock Option pursuant to this Section may only be effected by the Company at the written request of a grantee and shall become effective only when recorded in the Company's record of outstanding Non-qualified Stock Options. In the event a Non-qualified Stock Option is transferred as contemplated hereby, such Non-qualified Stock Option may not be subsequently transferred by the transferee except by will or the laws of descent and distribution. In the event a Non-qualified Stock Option is transferred as contemplated hereby, such Non-qualified Stock Option will continue to be governed by and subject to the terms of this Plan and the relevant grant, and the transferee shall be entitled to the same rights as the grantee hereunder, as if no transfer had taken place. As used herein, "immediate family" shall mean, with respect to any person, such person's child, stepchild, grandchild, parent, stepparent, grandparent, spouse, sibling, mother-in-law, father-in-law, son-in-law, daughter-in-law, brother-in- law, or sister-in-law, and shall include adoptive relationships. 2 2. Article II is hereby amended by deleting the second sentence thereof and replacing it with the following: All members of the Committee shall be "Disinterested Persons", as such term is defined in Rule 16b-3 under the Securities Exchange Act of 1934, who are also persons eligible to be "outside directors" for purposes of the Internal Revenue Code and the regulations promulgated thereunder. EX-10.15 10 AMNDMNT. TO 1993 LONG-TERM INCENTIVE STOCK OPTION 1 EXHIBIT 10.15 SERVICE CORPORATION INTERNATIONAL AMENDMENT TO 1993 LONG-TERM INCENTIVE STOCK OPTION PLAN AMENDMENT, dated as of February 12, 1997, to the Service Corporation International 1993 Long-Term Incentive Stock Option Plan (the "1993 Plan"). 1. The 1993 Plan is hereby amended effective as of the date hereof, as follows: Section 5(f) is hereby amended by adding the following at the end thereof: The Committee may amend outstanding Stock Options to make such Stock Options transferable, without payment of consideration, to immediate family members of the grantee or to trusts or partnerships established for the exclusive benefit of one or more members of such person's immediate family (collectively, "Transferees"). A transfer of a Stock Option pursuant to this Section may only be effected by the Company at the written request of a grantee and shall become effective only when recorded in the Company's record of outstanding Stock Options. In the event a Stock Option is transferred as contemplated hereby, such Stock Option may not be subsequently transferred by the transferee except by will or the laws of descent and distribution. In the event a Stock Option is transferred as contemplated hereby, such Stock Option will continue to be governed by and subject to the terms of this Plan and the relevant grant, and the transferee shall be entitled to the same rights as the grantee hereunder, as if no transfer had taken place. As used herein, "immediate family" shall mean, with respect to any person, such person's child, stepchild, grandchild, parent, stepparent, grandparent, spouse, sibling, mother-in-law, father-in-law, son-in-law, daughter-in-law, brother-in- law, or sister-in-law, and shall include adoptive relationships. 2 2. Subsection j of Section 1 is hereby amended to read in its entirety as follows: j. "Disinterested Person" means a "Non-Employee Director" as that term is defined in Rule 16b-3 under the Exchange Act, or any successor definition adopted by the Commission, who also qualifies as an "outside director" for purposes of Section 162(m) of the Code and the regulations promulgated thereunder. EX-10.18 11 AMENDMENT TO 1995 INCENTIVE EQUITY PLAN 1 EXHIBIT 10.18 SERVICE CORPORATION INTERNATIONAL AMENDMENT TO 1995 INCENTIVE EQUITY PLAN AMENDMENT, dated as of February 12, 1997, to the Service Corporation International 1995 Incentive Equity Plan (the "1995 Plan"). The 1995 Plan is hereby amended effective as of the date hereof, as follows: 1. Section 4.3 is hereby amended by adding the following at the end thereof: The Committee may amend outstanding Nonqualified Options to make such Nonqualified Options transferable, without payment of consideration, to immediate family members of the Employee or to trusts or partnerships established for the exclusive benefit of one or more members of such person's immediate family (collectively, "Transferees"). A transfer of a Nonqualified Option pursuant to this Section may only be effected by the Company at the written request of an Employee and shall become effective only when recorded in the Company's record of outstanding Nonqualified Options. In the event a Nonqualified Option is transferred as contemplated hereby, such Nonqualified Option may not be subsequently transferred by the transferee except by will or the laws of descent and distribution. In the event a Nonqualified Option is transferred as contemplated hereby, such Nonqualified Option will continue to be governed by and subject to the terms of this Plan and the relevant grant, and the transferee shall be entitled to the same rights as the Employee hereunder, as if no transfer had taken place. As used herein, "immediate family" shall mean, with respect to any person, such person's child, stepchild, grandchild, parent, stepparent, grandparent, spouse, sibling, mother-in-law, father-in-law, son-in-law, daughter-in-law, brother-in-law, or sister-in-law, and shall include adoptive relationships. 1 2 2. Section 2.8 is hereby deleted; a new Section 2.12 is added as set forth below; existing Sections 2.9 through 2.12 are renumbered as 2.8 through 2.11; and the table of contents is revised to reflect the foregoing. 3. A new Section 2.12 is added as follows: Section 2.12. "Non-Employee Director" means a "Non-Employee Director" as that term is defined in Rule 16b-3 under the Securities Exchange Act of 1934. 4. All references in the 1995 Plan to the term "Disinterested Person" shall be deleted and replaced with the term "Non-Employee Director". 2 EX-10.22 12 AMENDMENT TO 1996 INCENTIVE PLAN 1 EXHIBIT 10.22 SERVICE CORPORATION INTERNATIONAL AMENDMENT TO 1996 INCENTIVE PLAN AMENDMENT, dated as of February 12, 1997, to the Service Corporation International 1996 Incentive Plan (the "1996 Plan"). The 1996 Plan is hereby amended effective as of the date hereof, as follows: 1. Section 4.3 of the 1996 Plan is hereby amended by adding the following at the end thereof: A trust or partnership will be deemed to be for the benefit of immediate family members if it is established for the exclusive benefit of one or more members of such person's immediate family. A transfer of a Nonqualified Option pursuant to this Section may only be effected by the Company at the written request of an Employee and shall become effective only when recorded in the Company's record of outstanding Nonqualified Options. In the event a Nonqualified Option is transferred as contemplated hereby, such Nonqualified Option may not be subsequently transferred by the transferee except by will or the laws of descent and distribution. In the event a Nonqualified Option is transferred as contemplated hereby, such Nonqualified Option will continue to be governed by and subject to the terms of this Plan and the relevant grant, and the transferee shall be entitled to the same rights as the Employee hereunder, as if no transfer had taken place. As used herein, "immediate family" shall mean, with respect to any person, such person's child, stepchild, grandchild, parent, stepparent, grandparent, spouse, sibling, mother-in-law, father-in-law, son-in-law, daughter-in-law, brother-in-law, or sister-in-law, and shall include adoptive relationships. 2. Section 2.11 is hereby deleted; a new Section 2.15 is added as set forth below; existing Sections 2.12 through 2.15 are renumbered as 2.11 through 2.14; and the table of contents is revised to reflect the foregoing. 2 3. A new Section 2.15 is added as follows: Section 2.15. "Non-Employee Director" means a "non-Employee Director" as that term is defined in Rule 16b-3 under the Securities Exchange Act of 1934. 4. All references in the 1996 Plan to the term "Disinterested Person" shall be deleted and replaced with the term "Non-Employee Director". EX-10.32 13 CONFIRMATIONS BETWEEN MORGAN AND THE COMPANY 1 EXHIBIT 10.32 JP MORGAN TRANSACTION Date: 15 March 1996 The purpose of this letter agreement is to confirm the terms and conditions of the Transaction entered into between: MORGAN GUARANTY TRUST COMPANY OF NEW YORK and SERVICE CORPORATION INTERNATIONAL on the Trade Date and identified by the Morgan Deal Number specified below (the "Transaction"). This letter agreement constitutes a "Confirmation" as referred to in the ISDA Master Agreement specified below. The definitions and provisions contained in the 1991 ISDA Definitions (as published by the International Swap Dealers Association, Inc.) are incorporated into this Confirmation. In the event of any inconsistency between those definitions and provisions and this Confirmation, this Confirmation will govern. Morgan Guaranty Trust Company of New York is, together with other United Kingdom listed institutions, subject to the Bank of England's Code of Conduct. In connection therewith, this and certain future wholesale money market transactions will be outside the Financial Services Act, but you will have the benefit of the Code of Conduct. 1. This Confirmation supplements, forms part of, and is subject to, the ISDA Master Agreement dated as of 4 February 1993, as amended and supplemented from time to time (the "Agreement"), between MORGAN GUARANTY TRUST COMPANY OF NEW YORK ("MORGAN") and SERVICE CORPORATION INTERNATIONAL (the "Counterparty"). All provisions contained in the Agreement govern this Confirmation except as expressly modified below: 2. The terms of the particular Transaction to which this Confirmation relates are as follows: Morgan Deal Number: 151442 Trade Date: 15 March 1996 Effective Date: 19 March 1996 Termination Date: 1 April 1998, subject to adjustment in accordance with the Modified Following Business Day Convention FIXED AMOUNTS: Fixed Rate Payer: Counterparty - ------------------------------------------------------------------------------- 2 JP MORGAN Notional Amount: 494,000,000.00 FRF Fixed Rate Payer Payment Dates: Each 1 April starting with 1 April 1996 up to, and including, the Termination Date, subject to adjustment in accordance with the Modified Following Business Day Convention and there will be an adjustment to the Calculation Period. Fixed Rate: 6.20000 percent Fixed Rate Day Count Fraction: 30/360 First Full Coupon: From: 18 March 1996 To: 1 April 1996 (subject to adjustment in accordance with the Modified Following Business Day Convention) Morgan Fixed Rate: 6.20000 percent FLOATING AMOUNTS: Floating Rate Payer: Morgan Notional Amount: 494,000,000.00 FRF Floating Rate Payer Payment Dates: Each 1 April starting with 1 April 1996 up to, and including, the Termination Date, subject to adjustment in accordance with the Modified Following Business Day Convention and there will be an adjustment to the Calculation Period. Floating Rate Option: DEM-LIBOR-BBA Designated Maturity: 3 Month Spread: Plus 1.97000 percent Floating Rate Day Count Fraction: Actual/360 Reset Dates: Each 1 April, 1 July, 1 October, 1 January Compounding: Applicable Method of Compounding: Flat at 3 month FRF-PIBOR-AFB Compounding Dates: Each 1 July, 1 October, 1 January, 1 April - ------------------------------------------------------------------------------- 3 JP MORGAN First Full Coupon: From: 18 March 1996 To: 1 April 1996 (subject to adjustment in accordance with the Modified Following Business Day Convention) Counterparty Floating Rate Option: 3.34766 percent *Currency protected swap - DEM-LIBOR-BBA - sets TWO business day prior & compounds flat at 3 month FRF-PIBOR-AFB. Business Day Locations for Morgan: Paris, New York Business Day Locations for Counterparty: Paris, New York Payments will be: Net 3. Account Details PAYMENTS TO MORGAN: Account for payments in FRF: Morgan Bank Paris 14 Place Vendome 75001 Paris France Favour: Morgan Guaranty Trust Co of New York - London Office ABA/Bank No.: Account No.: 43504300G0090 Reference: Further Credit to Swaps Group Account: 10004942 Please send MT100 cover cable to MGT London PAYMENTS TO COUNTERPARTY: Account for payments in FRF: Favour: SERVICE CORPORATION INTERNATIONAL ABA/Bank No.: Societe Generale, Paris Account No.: Code De Banque 30003 Reference: Code De Guichet 03630 F/C: Service Corporation International Account #09920023632 RIB 52 - -------------------------------------------------------------------------------- 4 JP MORGAN 4. Offices (a) The Office of Morgan for the Swap Transaction is LONDON; and (b) The Office of the Counterparty for the Swap Transaction is HOUSTON All enquiries regarding payments and/or rate resettings only should be sent to: Morgan Guaranty Trust Company of New York 60 Victoria Embankment London. EC4Y 0JP Attention: Joanne Case Telephone: 44 1 71 325 3783 Facsimile: 44 1 71 325 3862/3863 Telex: 896631 MGT G Cable: Morganbank Please quote the Morgan Deal Number indicated above. All enquiries regarding confirmations should be sent to: Morgan Guaranty Trust Company of New York 60 Wall Street New York, New York 10260 Attention: Wendy Webbe Documentation Control Group Telephone: 1-212-648-2991 Facsimile: 1-212-648-5117 Please quote the Morgan Deal Number indicated above. J P MORGAN SECURITIES INCORPORATED is acting solely as agent for Morgan and will have no obligations under this Transaction. Each party represents that (i) it is entering into the transaction evidenced hereby as principal (and not as agent or in any other capacity); (ii) the other party is not acting as a fiduciary for it; (iii) it is not relying upon any representations except those expressly set forth in the Agreement or this Confirmation; (iv) it has consulted with its own legal, regulatory, tax, business, investment, financial, and accounting advisors to the extent it has deemed necessary, and it has made its own investment, hedging, and trading decisions based upon its own judgment and upon any advice from such advisors as it has deemed necessary and not upon any view expressed by the other party; and (v) it is entering into this transaction with a full understanding of the terms, conditions and risks thereof and is capable of and willing to assume those risks. 5 JP MORGAN Please confirm that the foregoing correctly sets forth the terms of our agreement by executing a copy of this confirmation and returning it to us or by sending to us a letter, telex or facsimile substantially similar to this letter, which letter, telex or facsimile sets forth the material terms of the Transaction to which this confirmation relates and indicates agreement to those terms. When referring to this confirmation, please indicate: Morgan Deal Number: 151442. Yours sincerely, JP MORGAN SECURITIES INCORPORATED, as Agent for and signing on behalf of: MORGAN GUARANTY TRUST COMPANY OF NEW YORK By: /s/ RAJAN KUNDRA ------------------- Name: RAJAN KUNDRA Title: Associate Confirmed as of the date first above written: SERVICE CORPORATION INTERNATIONAL By: /s/ GREGORY L. CAUTHEN ----------------------------- Name: Gregory L. Cauthen Title: Vice President/Treasurer 6 JP MORGAN TRANSACTION Date: 23 May 1996 The purpose of this letter agreement is to confirm the terms and conditions of the Transaction entered into between: MORGAN GUARANTY TRUST COMPANY OF NEW YORK and SERVICE CORPORATION INTERNATIONAL on the Trade Date and identified by the Morgan Deal Number specified below (the "Transaction"). This letter agreement constitutes a "Confirmation" as referred to in the ISDA Master Agreement specified below. The definitions and provisions contained in the 1991 ISDA Definitions (as published by the International Swap Dealers Association, Inc.) are incorporated into this Confirmation. In the event of any inconsistency between those definitions and provisions and this Confirmation, this Confirmation will govern. THIS CONFIRMATION REPRESENTS AN AMENDMENT AND RESTATEMENT OF ANY PRIOR DOCUMENTS OR OTHER CONFIRMING COMMUNICATIONS BETWEEN THE PARTIES WITH RESPECT TO THE TRANSACTION. Morgan Guaranty Trust Company of New York is, together with other United Kingdom listed institutions, subject to the Bank of England's Code of Conduct. In connection therewith, this and certain future wholesale money market transactions will be outside the Financial Services Act, but you will have the benefit of the Code of Conduct. 1. This Confirmation supplements, forms part of, and is subject to, the ISDA Master Agreement dated as of 4 February 1993, as amended and supplemented from time to time (the "Agreement"), between MORGAN GUARANTY TRUST COMPANY OF NEW YORK ("Morgan") and SERVICE CORPORATION INTERNATIONAL (the "Counterparty"). All provisions contained in the Agreement govern this Confirmation except as expressly modified below. 2. The terms of the particular Transaction to which this Confirmation relates are as follows: Morgan Deal Number: 151337 Trade Date: 23 May 1996 Effective Date: 26 April 1996 Termination Date: 1 June 2006 - ------------------------------------------------------------------------------ 7 JP MORGAN FLOATING AMOUNTS: Floating Rate Payer: Counterparty Notional Amount: 492,000,000.00 FRF Floating Rate Payment Dates: 26 July 1996, subject to adjustment in accordance with the Modified Following Business Day Convention and there will be an adjustment to the Calculation Period. Floating Rate Option: DEM-LIBOR-BBA Designated Maturity: 3 Month Spread: Plus 0.23000 percent Floating Rate Day Count Fraction: Actual/360 Reset Dates: Two Business days prior to each calculation period. Compounding: Inapplicable FLOATING AMOUNTS: Floating Rate Payer: Morgan Notional Amount: 492,000,000.00 FRF Floating Rate Payer Payment Dates: 26 July 1996, subject to adjustment in accordance with the Modified Following Business Day Convention and there will be an adjustment to the Calculation Period. Floating Rate Option: FRF-PIBOR-AFB Designated Maturity: 3 Month Spread: None Floating Rate Day Count Fraction: Actual/360 Reset Dates: Two Business days prior to each Calculation Period. Compounding: Inapplicable - -------------------------------------------------------------------------------- 8 JPMORGAN FLOATING AMOUNTS: Floating Rage Payer: Counterparty Notional Amount: 492,000,000.00 FRF Floating Rage Payer Payment Dates: Each 1 December, 1 June starting with 1 December 1996 up to, and including, the Termination Date, subject to adjustment in accordance with the Modified Following Business Day Convention and there will be an adjustment to the Calculation Period. Floating Rate Option: DEM-LIBOR-BBA Designated Maturity: 3 Month Spread: Plus 0.23000 percent Floating Rate Day Count Fraction: Actual/360 Reset Dates: Each 1 December, 1 March, 1 June, 1 September Compounding: Applicable Method of Compounding: Flat Compounding Dates: Each 1 March, 1 June, 1 September, 1 December Additional Rate Formula: Currency Protected Swap: Compounds at 3M FRF-PIBOR-AFB set Two Business days prior to each Calculation Period. Initial Stub Period: From: 26 July 1996 To: 1 December 1996 (subject to adjustment in accordance with the Modified Following Business Day Convention) Counterparty Floating Rate Option: DEM-LIBOR-BBA Designated Maturity from 26 July 1995 to 1 September 1996: Interpolated between 1 Month and 2 Month. Designated Maturity from 1 September Compounded at FRF-PIBOR-AFB 1996 to 1 December 1996: 3 Month - ------------------------------------------------------------------------------- 9 JP MORGAN FLOATING AMOUNTS: Floating Rate Payer: Morgan Notional Amount: 492,000,000.00 FRF Floating Rate Payer Payment Dates: Each 1 December, 1 June starting with 1 December 1996 up to, and including, the Termination Date, subject to adjustment in accordance with the Modified Following Business Day Convention and there will be an adjustment to the Calculation Period. Floating Rate Option: FRF-PIBOR-AFB Designated Maturity: 3 Month Spread: None Floating Rate Day Count Fraction: Actual/360 Reset Dates: Each 1 December, 1 March, 1 June, 1 September Compounding: Applicable Method of Compounding: Flat Compounding Dates: Each 1 March, 1 September Initial Stub Period: From: 26 July 1996 To: 1 December 1996 (subject to adjustment in accordance with the Modified Following Business Day Convention) Morgan Floating Rate Option: FRF-PIBOR-AFB Designated maturity from 26 July 1996 to 1 September 1996: Interpolated between 1 Month and 2 Month Designated Maturity from 1 September 1996 to 1 December 1996 3 Month Business Day Locations for Counterparty: New York, Paris Business Day Locations for Morgan: New York, Paris Payments will be: Net - -------------------------------------------------------------------------------- 10 JP MORGAN 3. Account Details PAYMENTS TO MORGAN: Account for payments in FRF: Morgan Bank Paris 14 Place Vendome 75001 Paris France Favour: Morgan Guaranty Trust Co of New York - London Office Account No.: 43504300G0090 Reference: Further Credit to Swaps Group Account: 10004942 Please send MT100 cover cable to MGT London PAYMENTS TO COUNTERPARTY: Account for payments in FRF: Favour: SERVICE CORPORATION INTERNATIONAL Account No.: Societe Generale, Paris Reference: Code De Banque 30003 Code De Guichet 03630 4. Offices F/C: Service Corporation International Account #09920023632 RIB 52 (a) The Office of Morgan for the Swap Transaction is LONDON; and (b) The Office of the Counterparty for the Swap Transaction is HOUSTON. All enquiries regarding payments and/or rate resettings only should be sent to: Morgan Guaranty Trust Company of New York 60 Victoria Embankment London. EC4Y 0JP Attention: Joanne Case Telephone: 44 1 71 325 3783 Facsimile: 44 1 71 325 3862/3863 Telex: 896631 MGT G Cable: Morganbank Please quote the Morgan Deal Number indicated above. All enquiries regarding confirmations should be sent to: Morgan Guaranty Trust Company of New York 60 Wall Street New York, New York 10260 - ------------------------------------------------------------------------------- 11 JP MORGAN ATTENTION: WENDY WEBBE DOCUMENTATION CONTROL GROUP TELEPHONE: 1-212-648-6493 FACSIMILE: 1-212-648-5117 PLEASE QUOTE THE MORGAN DEAL NUMBER INDICATED ABOVE. J P MORGAN SECURITIES INCORPORATED is acting solely as agent for Morgan and will have no obligations under this Transaction. Each party represents that (i) it is entering into the transaction evidenced hereby as principal (and not as agent or in any other capacity); (ii) the other party is not acting as a fiduciary for it; (iii) it is not relying upon any representations except those expressly set forth in the Agreement or this Confirmation; (iv) it has consulted with its own legal, regulatory, tax, business, investment, financial, and accounting advisors to the extent it has deemed necessary,and it has made its own investment, hedging,and trading decisions based upon its own judgment and upon any advice from such advisors as it has deemed necessary and not upon any view expressed by the other party; and (v) it is entering into this transaction with a full understanding of the terms, conditions and risks thereof and it is capable of and willing to assume those risks. Please confirm that the foregoing correctly sets forth the terms of our agreement by executing a copy of this Confirmation and returning it to us or by sending to us a letter, telex or facsimile substantially similar to this letter, which letter, telex or facsimile sets forth the material terms of the Transaction to which this Confirmation relates and indicates agreement to those terms. When referring to this Confirmation, please indicate: Morgan Deal Number: 151337. Yours sincerely, J P MORGAN SECURITIES INCORPORATED, as Agent for and signing on behalf of: MORGAN GUARANTY TRUST COMPANY OF NEW YORK By: /s/ RAJAN KUNDRA ------------------------------ Name: Rajan Kundra Title: Associate Confirmed as of the date first above written: SERVICE CORPORATION INTERNATIONAL By: /s/ GREGORY L. CAUTHEN -------------------------------- Name: Gregory L. Cauthen Title: Vice President/Treasurer - ----------------------------------------------------------------------------- 12 JP MORGAN Transaction Date: 30 May 1996 The purpose of this letter agreement is to confirm the terms and conditions of the Transactions entered into between: MORGAN GUARANTY TRUST COMPANY OF NEW YORK and SERVICE CORPORATION INTERNATIONAL on the Trade Date and identified by the Morgan Deal Number specified below (the "Transaction"). This letter agreement constitutes a "Confirmation" as referred to in the ISDA Master Agreement specified below. The definitions and provisions contained in the 1991 ISDA Definitions (as published by the International Swap Dealers Association, Inc.) are incorporated into this Confirmation. In the event of any inconsistency between those definitions and provisions and this Confirmation, this Confirmation will govern. Morgan Guaranty Trust Company of New York is, together with other United Kingdom listed institutions, subject to the Bank of England's Code of Conduct. In connection therewith, this and certain future wholesale money market transactions will be outside the Financial Services Act, but you will have the benefit of the Code of Conduct. 1. This Confirmation supplements, forms part of, and is subject to, the ISDA Master Agreement dated as of 4 February 1993, as amended and supplemented from time to time (the "Agreement"), between MORGAN GUARANTY TRUST COMPANY OF NEW YORK ("Morgan") and SERVICE CORPORATION INTERNATIONAL (the "Counterparty"). All provisions contained in the Agreement govern this Confirmation except as expressly modified below. 2. The terms of the particular Transaction to which this Confirmation relates are as follows: Morgan Deal Number: 151341 Trade Date: 14 March 1996 Effective Date: 19 March 1996 Termination Date: 1 April 2006, subject to adjustment in accordance with the Modified Following Business Day Convention FIXED AMOUNTS: Fixed Rate Payer: Morgan - ------------------------------------------------------------------------------- 13 Notional Amount: 494,000,000.00 FRF Fixed Rate Payer Payment Dates: Each 1 April starting with 1 April 1996 up to, and including, 1 April 1998, subject to adjustment in accordance with the Modified Following Business Day Convention and there will be an adjustment to the Calculation Period. Fixed Rate: 6.80000 percent Fixed Rate Day Count Fraction: 30/360 Initial Stub Period: From: 18 March 1996 To: 1 April 1996 (subject to adjustment in accordance with the Modified Following Business Day Convention) Morgan Fixed Rate: 6.80000 percent FLOATING AMOUNTS: Floating Rate Payer: Counterparty Notional Amount: 494,000,000.00 FRF Floating Rate Payer Payment Dates: Each 1 April starting with 1 April 1996 up to, and including, the Termination Date, subject to adjustment in accordance with the Modified Following Business Day Convention and there will be an adjustment to the Calculation Period. Floating Rate Option: DEM-LIBOR-BBA Designated Maturity: 3 Month Spread: Plus 1.97000 percent from 18 March 1996 to 1 April 1998. Plus .23000 percent from 1 April 1998 to 1 April 2006. Floating Rate Day Count Fraction: Actual/360 Reset Dates: Each 1 April, 1 July, 1 October, 1 January 14 Compounding: Applicable Method of Compounding: Flat at 3 month FRF-PIBOR-AFB Compounding Dates: Each 1 July, 1 October, 1 January, 1 April Initial Stub Period: From: 18 March 1996 To: 1 April 1996 (subject to adjustment in accordance with the Modified Following Business Day Convention) Floating Rate for Initial 3.34766 percent (Excluding Spread Calculation Period: where applicable) Currency protected swap - DEM-LIBOR-BBA - sets TWO business day prior & compounds flat at 3 month FRF-PIBOR-AFB. FLOATING AMOUNTS: Floating Rate Payer: Morgan Notional Amount: 494,000,000.00 FRF Floating Rate Payer Payment Dates: Each 1 April starting with 1 April 1999 up to, and including, the Termination Date, subject to adjustment in accordance with the Modified Following Business Day Convention and there will be an adjustment to the Calculation Period. Floating Rate Option: FRF-PIBOR-AFB Designated Maturity: 3 Month Spread: None Floating Rate Day Count Fraction: Actual/360 Reset Dates: Each 1 April, 1 July, 1 October, 1 January Compounding: Applicable Method of Compounding Flat Compounding Dates: Each 1 July, 1 October, 1 January, 1 April 15 JP MORGAN Business Day Locations for Counterparty: Paris, New York Business Day Locations for Morgan: Paris, New York Payments will be: Net 3. Account Details PAYMENTS TO MORGAN: Account for payments in FRF: Morgan Bank Paris 14 Place Vendome 75001 Paris France Favour: Morgan Guaranty Trust Co of New York - London Office ABA/Bank No.: Account No.: 43504300G0090 Reference: Further Credit to Swaps Group Account: 10004942 Please send MT100 cover cable to MGT London PAYMENTS TO COUNTERPARTY: Account for payments in FRF: Favour: SERVICE CORPORATION INTERNATIONAL ABA/Bank No.: Societe Generale, Paris Account No.: Code De Banque 30003 Reference: Code De Guichet 03630 F/C: Service Corporation International Account #09920023632 RIB 52 4. Offices (a) The Office of Morgan for the Swap Transaction is LONDON; and (b) The Office of the Counterparty for the Swap Transaction is HOUSTON. ALL ENQUIRIES REGARDING PAYMENTS AND/OR RATE RESETTINGS ONLY SHOULD BE SENT TO: MORGAN GUARANTY TRUST COMPANY OF NEW YORK 60 VICTORIA EMBANKMENT LONDON EC4Y 0JP ATTENTION: JOANNE CASE TELEPHONE: 44 1 71 325 3783 FACSIMILE: 44 1 71 325 3862/3863 TELEX: 896631 MGT G CABLE: MORGANBANK PLEASE QUOTE THE MORGAN DEAL NUMBER INDICATED ABOVE. - -------------------------------------------------------------------------------- 16 JP MORGAN ALL ENQUIRIES REGARDING CONFIRMATIONS SHOULD BE SENT TO: MORGAN GUARANTY TRUST COMPANY OF NEW YORK 60 WALL STREET NEW YORK, NEW YORK 10260 ATTENTION: WENDY WEBBE DOCUMENTATION CONTROL GROUP TELEPHONE: 1-212-648-2991 FACSIMILE: 1-212-648-5117 PLEASE QUOTE THE MORGAN DEAL NUMBER INDICATED ABOVE. JP MORGAN SECURITIES INCORPORATED is acting solely as agent for Morgan and will have no obligations under this Transaction. Each party represents that (i) it is entering into the transaction evidenced hereby as principal (and not as agent or in any other capacity); (ii) the other party is not acting as a fiduciary for it; (iii) it is not relying upon any representations except those expressly set forth in the Agreement or this Confirmation; (iv) it has consulted with its own legal, regulatory, tax, business, investment, financial, and accounting advisors to the extent it has deemed necessary, and it has made its own investment, hedging, and trading decisions based upon its own judgment and upon any advice from such advisors as it has deemed necessary and not upon any view expressed by the other party; and (v) it is entering into this transaction with a full understanding of the terms, conditions and risks thereof and it is capable of and willing to assume those risks. - ------------------------------------------------------------------------------ 17 JP MORGAN Please confirm that the foregoing correctly sets forth the terms of our agreement by executing a copy of this Confirmation and returning it to us or by sending to us a letter, telex or facsimile substantially similar to this letter, which letter, telex or facsimile sets forth the material terms of the Transaction to which this Confirmation relates and indicates agreement to those terms. When referring to this Confirmation, please indicate: Morgan Deal Number: 151341. Yours sincerely, JP MORGAN SECURITIES INCORPORATED, as Agent for and signing on behalf of: MORGAN GUARANTY TRUST COMPANY OF NEW YORK By: /s/ RAJAN KUNDRA ------------------ Name: Rajan Kundra Title: Associate Confirmed as of the date first above written: SERVICE CORPORATION INTERNATIONAL By: /s/ GREGORY L. CAUTHEN ------------------------ Name: Gregory L. Cauthen Title: Vice President/Treasurer - ------------------------------------------------------------------------------ EX-11.1 14 COMPUTATION OF EARNINGS PER SHARE 1 EXHIBIT 11.1 SERVICE CORPORATION INTERNATIONAL COMPUTATION OF EARNINGS PER SHARE
Years Ended December 31, -------------------------------------- 1996 1995 1994 -------- -------- -------- (Thousands, except per share amounts) PRIMARY: Net income........................... $265,298 $183,588 $131,045 ======== ======== ======== Average number of common shares outstanding......................... 235,432 201,597 173,018 Common stock equivalents applicable to options outstanding resulting from application of the "treasury stock method" using average stock price............................... 5,746 2,550 834 -------- -------- -------- Average common and common equivalent shares used in earnings per share... 241,178 204,147 173,852 ======== ======== ======== Primary Earnings Per Common Share: Net income.......................... $ 1.10 $ .90 $ .75 ======== ======== ======== FULLY DILUTED: Net income........................... $265,298 $183,588 $131,045 Add after tax interest expense applicable to convertible debentures.......................... 8,077 13,548 8,501 -------- -------- -------- $273,375 $197,136 $139,546 ======== ======== ======== Average number of common shares outstanding......................... 235,432 201,597 173,018 Common stock equivalents applicable to options outstanding resulting from application of the "treasury stock method" using end of period stock price (if greater than average stock price for period)............. 6,091 3,038 984 Assuming conversion of convertible debentures.......................... 13,662 26,670 20,814 -------- -------- -------- Average shares used in fully diluted earnings per share................. 255,185 231,305 194,816 ======== ======== ======== Fully Diluted Earnings Per Common Share: Net income........................ $ 1.07 $ .85 $ .72 ======== ======== ========
EX-12.1 15 RATIO OF EARNINGS TO FIXED CHARGES 1 EXHIBIT 12.1 SERVICE CORPORATION INTERNATIONAL RATIO OF EARNINGS TO FIXED CHARGES (Thousands, except ratio amounts)
YEARS ENDED DECEMBER 31, ------------------------------------------------------------ 1996 1995 1994 1993 1992 -------- -------- -------- -------- -------- Pretax income .......................... $413,881 $294,211 $219,021 $173,492 $139,336 Undistributed income of less than 50% owned equity investees............ (6,173) (3,847) (1,019) (325) (718) Minority interest in income of majority owned subsidiaries with fixed charges.................... 933 1,878 2,234 1,938 1,798 Add fixed charges as adjusted (from below).......................... 178,291 155,552 102,370 78,841 68,584 -------- -------- -------- -------- -------- $586,932 $447,794 $322,606 $253,946 $209,000 -------- -------- -------- -------- -------- Fixed charges: Interest expense: Corporate........................... $136,008 $118,148 $ 80,123 $ 59,631 $ 53,902 Financial services.................. 8,913 10,782 9,912 7,725 5,826 Capitalized......................... 3,099 1,865 584 705 481 Amortization of debt costs............ 2,549 1,093 311 288 328 1/3 of rental expense................. 20,040 14,748 11,485 11,197 8,528 Dividends on preferred securities of SCI Finance LLC.................. 10,781 10,781 539 -- -- -------- -------- -------- -------- -------- Fixed charges........................... 181,390 157,417 102,954 79,546 69,065 Less: Capitalized interest............ (3,099) (1,865) (584) (705) (481) -------- -------- -------- -------- -------- Fixed charges as adjusted............... $178,291 $155,552 $102,370 $ 78,841 $ 68,584 -------- -------- -------- -------- -------- Ratio (earnings divided by fixed charges).............................. 3.24 2.84 3.13 3.19 3.03
EX-21.1 16 SUBSIDIARIES OF THE COMPANY 1 EXHIBIT 21.1 March 10, 1997 ALABAMA - ------- SCI Funeral Services, Inc. (Iowa Corp) Alabama subsidiary SCI Alabama Funeral Services, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 100% Cedar Oak Memorial Park, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 100% EC Land Company, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 100% Heritage Services, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 100% Memory Chapel Funeral Homes, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 100% Memory Hill Gardens, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 100% Pineland Memorial Park . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 100% Walker Memory Gardens, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 100% ALASKA - ------ SCI Funeral Services, Inc. (Iowa Corp.) Alaska subsidiary SCI Alaska Funeral Services, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 100% ARIZONA - ------- MMI Acquisition Corp. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 100% SCI Funeral Services, Inc. (Iowa Corp.) National Cremation Society, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 100% SCI Arizona Funeral Services, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 100% Melcher Mortuaries, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 100% Sunland Memorial Park, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 100% ARKANSAS - -------- SCI Funeral Services, Inc. (Iowa Corp) SCI Arkansas Funeral Services, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 100% The East Funeral Benefit Assurance Company . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 100% CALIFORNIA - ---------- SCI Funeral Services, Inc. (Iowa Corp.) California subsidiaries Eternal Hills Cemetery Association . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 100% Fremont Cemetery Corporation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 100% Greenwood Memorial Park, Inc . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 100% Hong Kong Funeral Homes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 100% International Funeral Parlours . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 100% Lima-Salmon-Erickson, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 100% Maridon, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 100% Mish Acquisition Corporation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 100% Mt. View Cemetery of San Bernardino . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 100% Green Acres Memorial Park and Mortuary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 100% Oak Hill Improvement Company . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 100% Ocean View Cemetery . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 100% Redding Memorial Park . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 100% Pierce Brothers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 100% Pierce Brothers Crematorium . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 100% Pierce Holdings (California), Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 100% Ted M. Mayr Funeral Home, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 100% SCI California Funeral Services, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 100% Acheson & Graham Mortuary, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 100% CWFD, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 100% Ellis-Olson Mortuary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 100% J. B. Draper Co. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 100% Joshua Memorial Park . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 100% LaFamCo, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 100% La Verne Cemetery Corporation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 100% Mac Dougall Mortuaries, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 100% Malinow & Silverman, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 100% Miller Enterprises, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 100% Mount Vernon Memorial Park . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 100% Oakdale Memorial Park . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 100% Oakdale Mortuary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 100% SCI Southern California Region, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 100% World Funeral Home . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 100% Turner & Stevens Company . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 100% COLORADO - -------- SCI Funeral Services, Inc. (Iowa Corp.) Colorado subsidiary SCI Colorado Funeral Services, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 100% SCI Western Division, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 100% CONNECTICUT - ----------- SCI Funeral Services, Inc. (Iowa Corp.) Connecticut subsidiary SCI Connecticut Funeral Services, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 100% DELAWARE - -------- New Service Corporation International . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 100% Provident Services, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 100% Franklin Funeral Services, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 100%
1 2 Provident Credit Corp. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 100% SCI Aviation, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 100% SCI Executive Services, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 100% SCI Finance Management Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 100% SCI Funeral Services, Inc. (Iowa Corp.) Delaware subsidiaries First Memorial Funeral Services, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 100% Gibraltar Mausoleum Corporation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 100% Gibraltar Mausoleum Construction Company, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 100% Rose Hill Securities Company . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 100% IFC-Boyertown, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 100% Memorial Guardian Plans, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 100% SCI Alabama Funeral Services, Inc. (Alabama Corp.) Delaware subsidiary Jules, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 100% SCI Funeral Services, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 100% SCI Funeral Services of New York, Inc. (New York Corp.) Delaware subsidiary Community Funeral Management Corporation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 100% SCI Georgia Funeral Services, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 100% SCI International Services, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 100% Kenyon International Emergency Services, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 100% SCI Missouri Funeral Services, Inc. (Missouri Corp.) Delaware subsidiary IFC-York, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 100% SCIT Holdings, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 100% SCI Texas Funeral Services, Inc. (TX Corp.) Delaware subsidiary SCI Iowa Finance Company . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 100% SCI International Limited . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 100% SCI Capital Holdings, Inc . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 70% SCI Financing Corporation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 100% SCI Special, Inc . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 100% SCI Capital Corporation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 100% Investment Capital Corporation (Texas Corp.) Delaware subsidiary IFC-YP, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 100% SCI Management Corporation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 100% International Funeral Services, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 100% SCI Management Finance Company . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 100% DISTRICT OF COLUMBIA - -------------------- SCI Funeral Services, Inc. (Iowa Corp.) DC subsidiary Witzke Funeral Homes, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 100% FLORIDA - ------- SCI Funeral Services, Inc. (Iowa Corp) Florida subsidiaries Gibraltar Mausoleum Corporation (DE Corp.) Florida subsidiaries Fountainhead Memorial Park, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 100% Gibraltar Mausoleum of Florida, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 100% Hillsboro Memorial Gardens, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 100% Lakeview Memorial Gardens, Inc . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 100% SCI Funeral Services of Florida, Inc . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 100% Dorsey Funeral Home, Inc . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 100% FM Cemetery, Inc . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 100% Memorial Plans, Inc . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 100% Wallace & White Funeral Home & Crematory, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 100% Woodlawn Memorial Park, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 100% GEORGIA - ------- SCI Funeral Services, Inc. (Iowa corp.) Georgia subsidiaries SCI Georgia Funeral Services, Inc. (Delaware Corp.) Georgia subsidiary H.M. Patterson & Son, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 100% SCI Georgia Land, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 100% SCI Southern Division, Inc . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 100% Striffler-Hamby Mortuary, Inc . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 100% HAWAII - ------ SCI Funeral Services, Inc. (Iowa Corp.) Hawaii subsidiaries SCI Hawaii Funeral Services, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 100% Garden Life Plan, Ltd . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50% Hawaiian Memorial Life Plan, Ltd . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 100% IDAHO - ----- NO SUBSIDIARIES
2 3 ILLINOIS - -------- Gaerdner Acquisition Corp. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 100% SCI Funeral Services, Inc. (Iowa Corp.) Illinois subsidiaries Rosehill Memorials, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 100% SCI Illinois Services, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 100% Central Cemetery Co. of Illinois . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 80% IFS Illinois, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 100% Kolbus Funeral Home, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 100% Leo V. Hennessy Funeral Homes, Ltd . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 100% M&SFH, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 100% NFS Services, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 100% SCI Great Lakes Region, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 100% Vault Company of Illinois, Inc . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 100% INDIANA - ------- SCI Funeral Services, Inc. (Iowa Corp.) Indiana subsidiaries Gibraltar Mausoleum Corporation (DE Corp.) Indiana subsidiaries Alpha Services Corporation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 100% Evergreen Sales Corp . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 100% Gibraltar Mausoleum of Indiana, Inc . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 100% Gibraltar Services, Inc . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 100% Gold Crusader Insurance Agency, Inc . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 100% Pioneer Insurance Agency, Inc . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 100% SCI Indiana Funeral Services, Inc . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 100% Greenlawn Memorial Park, Inc . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 100% Roselawn Memorial Association, Inc . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 100% SCI Central Region, Inc . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 100% Stilinovich & Wiatrolick, Inc . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 100% Thomas Funeral Home, Inc . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 100% IOWA - ---- SCI Funeral Services, Inc . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 100% Bunker's Eden Vale, Inc . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 100% SCI Iowa Funeral Services, Inc . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 100% Rose Hill Memorial Gardens Association, Inc . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 100% Iowa Memorial Gardens Association, 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 Gibraltar Mausoleum Corporation (DE Corp.) Kentucky subsidiaries Kentucky Funeral Services, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 100% SCI Kentucky Funeral Services, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 99% Resthaven Memorial Cemetery Inc . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 100% Rose Hill Burial Park . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 100% LOUISIANA - --------- SCI Funeral Services, Inc. (Iowa Corp) Louisiana subsidiary SCI Louisiana Funeral Services, Inc . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 100% MAINE - ----- SCI Funeral Services, Inc. (Iowa Corp) Maine subsidiary SCI Maine Funeral Services, Inc . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 100% MARYLAND - -------- LB Acquisition Corp . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 100% SCI Funeral Services, Inc. (Iowa Corp.) Maryland subsidiaries Gibraltar Mausoleum Corporation (DE Corp.) Maryland subsidiaries Holly Hill Memorial Gardens, Inc . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 100% Witzke Funeral Home of Catonsville, Inc . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 100% Witzke, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 100% Hubbard Funeral Home, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 100% Bradley-Ashton Funeral Home, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 100% Danzansky-Goldberg Memorial Chapels, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 100% Edward Sagel Funeral Direction, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 100% Gary L. Kaufman Funeral Home at Meadowridge Memorial Park, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 100% Gary L. Kaufman Funeral Home of Elkridge, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 100% Gary L. Kaufman Funeral Home Southwest, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 100% John C. Miller, Incorporated . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 100% Lemmon Funeral Home of Dulaney Valley, Inc . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 100% Loring Byers Funeral Directors, Inc . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 100% Moran-Ashton Funeral Home, Inc . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 100% Sterling-Ashton Funeral Home, Inc . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 100%
3 4 MASSACHUSETTS - ------------- Provident Services, Inc. (Delaware Corp.) Massachusetts subsidiary PSI Massachusetts, Inc . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 100% SCI Funeral Services, Inc. (Iowa Corp.) Massachusetts subsidiary 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% MFS Holding Company, Inc . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 100% Messier Funeral Home, Inc . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40% Perlman Funeral Home, Inc . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40% Stanetsky Memorial Chapels, Inc . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40% Waring Acquisition Corp . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 100% MICHIGAN - -------- SCI Funeral Services, Inc. (Iowa Corp) Michigan subsidiaries Gibraltar Mausoleum Corporation (DE Corp.) Michigan subsidiaries Memorial Land Company, Inc . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 100% SCI Michigan Funeral Services, Inc . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 100% MINNESOTA - --------- SCI Funeral Services, Inc. (Iowa Corp.) Minnesota subsidiary SCI Minnesota Funeral Services, Inc . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 100% Crystal Lake Cemetery Association . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 100% Crystal Lake Partners . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 100% Hodroff & Sons Funeral Chapel, Inc . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 100% The Crawford Mortuary, Inc . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 100% MISSISSIPPI - ----------- SCI Funeral Services, Inc. (Iowa Corp.) Mississippi subsidiary SCI Mississippi Funeral Services, Inc . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 100% MISSOURI - -------- SCI Funeral Services, Inc. (Iowa Corp) Missouri subsidiary SCI Missouri Funeral Services, Inc . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 100% C. H. Blackman & Son, Inc . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 100% Life Appreciation Funeral Service, Inc . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 100% Memorial Guardian Plans, Inc . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 100% MONTANA - ------- NO SUBSIDIARIES NEBRASKA - -------- SCI Funeral Services, Inc. (Iowa Corp) Nebraska subsidiary SCI Nebraska Funeral Services, Inc . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 100% NEVADA - ------ SCI Funeral Services, Inc. (Iowa Corp) Nevada subsidiary Ross, Burke & Knobel Mortuary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 100% SCIT Holdings, Inc. (Delaware Corp.) Texas subsidiary SCI Texas Funeral Services, Inc. (Texas Corp) Nevada subsidiary SCI Texas Finance Company . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 100% NEW HAMPSHIRE - ------------- NO SUBSIDIARIES NEW JERSEY - ---------- Goble Acquisition Corp . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 100% SCI Funeral Services, Inc. (Iowa Corp) New Jersey subsidiary SCIT Holdings, Inc. (Delaware Corp.) New Jersey subsidiaries SCI New Jersey Funeral Services, Inc . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 100% Biondi Funeral Home, Inc . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 100% Bloomfield-Cooper Jewish Chapels, Inc . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 100% Funeral Livery Co., Inc . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 100% Garden State Crematory, Inc . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 100% Gutterman-Musicant Funeral Directors, Inc . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 100% Quinn Funeral Service . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 100% Goble Funeral Home, Inc . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 100% Wien & Wien, Inc . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 100% NEW MEXICO - ---------- SCI Funeral Services, Inc. (Iowa Corp) New Mexico subsidiaries Memorial Guardian Plans, Inc. (Delaware Corp) New Mexico subsidiary Ensure Agency of New Mexico, Inc . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 100% SCI New Mexico Funeral Services, Inc . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 100% Alameda Funeral Services, Inc . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 100% Lawn Haven Memorial Gardens, Inc . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 100%
4 5 NEW YORK - -------- SCI Funeral Services, Inc. (Iowa Corp) New York subsidiary SCI Funeral Services of New York, Inc . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 100% Chas. Peter Nagel Inc . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 100% Community Funeral Management Corporation (Delaware Corp.) New York subsidiaries Regan & Denny Funeral Service, Inc . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 100% The Urban Funeral Homes of Greater Buffalo, Inc . . . . . . . . . . . . . . . . . . . . . . . . . . 100% David Funeral Home, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 100% I. J. Morris, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 100% Kirschenbaum Bros. Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 100% Michael J. Higgins Funeral Service, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 100% New York Funeral Chapels, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 100% Pirro & Sons Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 100% SCI Eastern Division, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 100% Singleton-Healy Funeral Home, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 100% Thomas M. Quinn & Sons, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 80% George Werst, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 100% Werst Realty Co. Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 100% SCI Services of New York, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 100% *The Acacia Park Cemetery Association, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 100% NORTH CAROLINA - -------------- SCI Funeral Services, Inc. (Iowa Corp) North Carolina subsidiary SCI North Carolina Funeral Services, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 100% Oaklawn Memorial Gardens, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 100% Ridge Funeral Home, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 100% The P.E. Moody Funeral Home, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 100% NORTH DAKOTA - ------------ SCI Funeral Services, Inc. (Iowa Corp) North Dakota subsidiary Memorial Guardian Plans, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 100% OHIO - ---- SCI Funeral Services, Inc. (Iowa Corp.) Ohio subsidiaries Gibraltar Mausoleum Corporation (DE Corp.) Ohio subsidiaries Burton Funeral Home-Greenlawn Chapel, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 90% Ciriello Funeral Home - Rose Hill Chapel, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 90% Pioneer of Ohio Insurance Agency, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 100% Selby-Cole Funeral Home, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 85% The Knollwood Cemetery Company . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 100% Memorial Guardian Plans, Inc. (Delaware Corp.) Ohio subsidiary Ensure Agency of Ohio, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 100% SCI Ohio Funeral Services, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 90% BKB Funeral Home, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 90% M-D Memorial Chapel, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 90% JLIW Funeral Homes, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 90% Karlo & Sons Funeral Home, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 100% K & S Funeral Home, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 90% Ohio Cemetery Services, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 100% STE Acquisition Corp . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 100% Sunset Trust Estate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 100% Walter-Schoedinger Funeral Home, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 100% W-K Funeral Homes, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 90% OKLAHOMA - -------- SCI Funeral Services, Inc. (Iowa Corp.) Oklahoma subsidiaries AED, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 100% Memorial Gardens Association . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 100% RMG Trust . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 100% Resthaven Memory Gardens of Oklahoma City Trust . . . . . . . . . . . . . . . . . . . . . . . . . . 100% Rose Hill Burial Park, a Trust . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 90% Gibraltar Mausoleum Corporation (DE Corp.) Oklahoma subsidiaries Rose Hill Memorial Park Trust . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 100% IFC-YP, Inc. (Delaware Corp) Oklahoma subsidiary IFC-Amedco, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 100% SCI Oklahoma Funeral Services, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 100% Bahner-Fox Funeral Home, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 100% Clagg Funeral Home, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 100% Hillcrest Memorial Park Trust . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 100% Jim Epperson Funeral Service, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 100% Kelley Funeral Homes, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 100% Memory Gardens, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 100% SSP Limited Liability Company . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50% SSP Insurance Agency, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 100% Sunset Memorial Park Cemetery Trust . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 100% Woodland Memorial Company . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 100%
5 6 Sentinel Security Plans, Inc.(Virginia Corp.) Oklahoma Subsidiary SSP Limited Liability Company . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50% OREGON - ------ SCI Funeral Services, Inc. (Iowa Corp) Oregon subsidiaries Lincoln Memorial Park, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 100% SCI Oregon Funeral Services, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 100% All Coast Cremation Incorporated . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 100% Hughes Ransom Mortuary, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 100% South Coast Funeral Directors, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 100% Uniservice Corporation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 100% PENNSYLVANIA - ------------ Cedar Hill Acquisition Corp. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 100% SCI Funeral Services, Inc. (Iowa Corp) Pennsylvania subsidiaries Gibraltar Mausoleum Corporation (DE Corp.) Pennsylvania subsidiaries Forest Lawn Gardens, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50% Speer-Anthony Kaprive Funeral Home, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50% Grandview Cemetery Association . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 100% Harold B. Mulligan Co., Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 100% Harold B. Mulligan, Incorporated . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 100% Remembrance Services, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 100% Memorial Guardian Plans, Inc.( Delaware Corp) Pennsylvania subsidiary Ensure Agency of Pennsylvania, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 100% SCI Pennsylvania Funeral Services, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 100% Auman Funeral Home, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 100% Berks County Memorial Gardens, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 100% Cemetery Sales System, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 100% Ed Melenyzer Co. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 100% Funeral Corporation Pennsylvania . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 100% Linwood W. Ott Funeral Home, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 100% Rohland Funeral Home . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 100% Hamilton World Crypts, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 100% Lawn-Garden Corporation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 100% Noah's Garden Limited . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 100% Theo. C. Auman, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 100% Auman's, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 100% Forest Hills Memorial Park, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 100% Francis F. Seidel, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 100% Memorial Services Planning Corporation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 100% RHODE ISLAND - ------------ NO SUBSIDIARIES SOUTH CAROLINA - -------------- SCI Funeral Services, Inc. (Iowa corp.) South Carolina subsidiary SCI South Carolina Funeral Services, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 100% Greenville Vault Co., Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 100% SOUTH DAKOTA - ------------ NO SUBSIDIARIES TENNESSEE - --------- SCI Funeral Services, Inc. (Iowa Corp) Tennessee subsidiaries SCI Tennessee Funeral Services, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 100% Hamilton Memorial Gardens, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 100% Lily of the Valley, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 100% Lynnhurst Cemetery, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 100% Memorial Guardian Plans, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 100% Memphis Memory Gardens, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 100% Sherwood Memorial Gardens, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 100% Woodlawn East, Incorporated . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 100% Woodlawn Memorial Park, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 100% TEXAS - ----- SCI Funeral Services, Inc. (Iowa Corp) Texas subsidiaries Gibraltar Mausoleum Corporation (DE Corp.) Texas subsidiary Gibraltar Mausoleum of Texas, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 100% SCIT Holdings, Inc. (Delaware Corp.) Texas subsidiaries Moore & Sons Funeral Home and Cemetery, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 100% SCI Texas Funeral Services, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 100% Alonzo Funeral Home Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 100% Brookside Funeral Home, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 100% Brookside Funeral Home West, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 100% Brookside Memorial Park . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 100% Carroll-Wallace Funeral Directors, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 100% EFH, Inc . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 100% Grand Prairie Funeral Home, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 100%
6 7 Restwood Memorial Park, Incorporated . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 100% SCI Central Division, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 100% SCI Holdings of Texas, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 100% The New Rose Hill Memorial Park, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 100% Valley Memorial Gardens, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 100% Stillbrooke Corporation of Tennessee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 100% SCI International Limited (Delaware Corp.) Service Corporation International PLC (UK Corp.) SCI Capital LLC - (TX limited liability company) . . . . . . . . . . . . . . . . . . . . . . . . . . . 100% SCI Special, Inc. (Delaware Corp.) SCI Capital Corporation (Delaware Corp.) Texas subsidiaries Great Lakes, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 100% Investment Capital Corporation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 100% UTAH - ---- SCI Funeral Services, Inc. (Iowa Corp.) Utah subsidiary SCI Utah Funeral Services, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 100% VERMONT - ------- NO SUBSIDIARIES VIRGINIA - -------- SCI Funeral Services, Inc. (Iowa Corp.) Virginia subsidiaries Gibraltar Mausoleum Corporation (DE Corp.) Virginia subsidiary Kellum Funeral Home, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 100% Memorial Guardian Plans, Inc. (Delaware Corp) Sentinel Security Plans, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 100% SCI Virginia Funeral Services, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 100% Hampton Memorial Gardens, Incorporated . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 100% National Mausoleum Corporation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 100% Parklawn Memorial Park, Incorporated . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 100% Reid Funeral Home, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 100% Superior Vault Manufacturing Company . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 100% WASHINGTON - ---------- SCI Funeral Services, Inc. (Iowa Corp.) Washington subsidiary SCI Washington Funeral Services, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 100% Sunset Hills Funeral Home, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 100% Sunset Hills Memorial Park, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 100% Cedar Lawns Memorial Park, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 100% WEST VIRGINIA - ------------- SCI Funeral Services, Inc. (Iowa Corp.) West Virginia subsidiary Gibraltar Mausoleum Corporation (DE Corp.) WV subsidiary Gibraltar Mausoleum of West Virginia, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 100% SCI West Virginia Funeral Services, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 100% WISCONSIN - --------- SCI Funeral Services, Inc. (Iowa Corp.) Wisconsin subsidiaries Cemetery Services, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 100% SCI Wisconsin Funeral Services, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 100% ATK Corporation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 100% WYOMING - ------- SCI Funeral Services, Inc. (Iowa Corp.) Wyoming subsidiary Memorial Guardian Plans, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 100%
7 8 AUSTRALIA - --------- SCI International Limited (Delaware Corp.) Australia subsidiary Service Corporation International Australia Pty., Ltd. . . . . . . . . . . . . . . . . . . . . . . . . . . 100% Australian Cremation Society Pty Limited . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 100% John Hansen Pty Limited . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 100% Hansen Funeral Services Pty Limited . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 100% Lakeside Memorial Park & Crematorium. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 006% Lakeside Memorial Park & Crematorium . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49.997% Kitleaf Pty Limited . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 100% Labor Funerals Contribution Fund Pty Limited . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 100% Lakeside Memorial Park & Crematorium . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49.997% LePine Holdings Pty. Limited . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 100% E Taylor & Sons Pty Limited . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 100% Garnar & Son Pty Limited . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 100% J Ferguson & Son Pty Limited . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 100% LePine Funeral Services Pty Limited . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 100% LePine Timbercraft Pty Limited . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 100% LPH Pty Limited . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 100% Mulqueen Pty Limited . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 100% W.G. Apps & Sons Pty Limited . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 100% Memorial Guardian Plan Pty Limited . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 100% Metro. Burial & Cremation Society Funeral Cont. Fund . . . . . . . . . . . . . . . . . . . . . . . . . 100% New South Wales Cremation Company Pty., Ltd. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 100% Peter Woodward Funeral Services Pty Limited . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 100% Pine Grove Forest Lawn Funeral Benefit Co. Pty Limited . . . . . . . . . . . . . . . . . . . . . . . . 100% Purslowe Funeral Homes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 100% Mareena Purslowe & Associates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 100% Tweed Crematorium Pty Ltd . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 100% CANADA - ------ New Service Corporation International (DE Corp.) Canada subsidiary SCI Canada Holdings, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 100% SCI International Limited (Delaware Corp.) Canada subsidiary Service Corporation International (Canada) Limited . . . . . . . . . . . . . . . . . . . . . . . . . . . . 100% 3103-1586 Quebec Inc. - (PQ) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 100% Services Funeraires Cowansville Inc. - (PQ) . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50% Barthel Funeral Home Ltd. - (Ontario) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 100% Can Ensure Group, Inc. - (Federal) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 100% Christensen Salmon Funeral Homes Ltd. - (Alberta) . . . . . . . . . . . . . . . . . . . . . . . . . . . 100% Developpement Woodson Inc. - (PQ) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 100% Services Funeraires Cowansville Inc. - (PQ) . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12.5% Gestion Destin Inc. - (PQ) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 100% Services Funeraires Cowansville Inc. - (PQ) . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12.5% Gestion K. Morris Inc. - (PQ) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 100% Services Funeraires Cowansville Inc. - (PQ) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12.5% Gestion Laquin Inc. - (PQ) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 100% Services Funeraires Cowansville Inc. - (PQ) . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12.5% Harmony Funeral Services, Inc. - (AB) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 100% Hetherington and Deans Limited - (Ontario) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 100% Hong Kong Funeral Homes B.C. Ltd - (British Columbia) . . . . . . . . . . . . . . . . . . . . . . . . . 100% Ingram Funeral Home Ltd. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 100% International Funeral Parlours B.C. Ltd - (B.C.) . . . . . . . . . . . . . . . . . . . . . . . . . . . 100% Jewell Funeral Home Limited - (ON) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 100% Kaye Funeral Home Limited - (Ontario) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 100% Laurent Theriault Inc. - (PQ) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 100% Les Salons Funeraires J.F. Fortin & Fils Ltee - (PQ) . . . . . . . . . . . . . . . . . . . . . . . . . . 100% McEvoyShields Funeral Homes Ltd. - (Ontario) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 100% Placements Darche, Inc. - (Quebec) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 100% Ed Darche Et Fils, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 100% RosarMorrison Funeral Home Limited - (Ontario) . . . . . . . . . . . . . . . . . . . . . . . . . . . . 100% Rose Garden Chapels Ltd. - (Alberta) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 100% Salmon Funeral Home Ltd. - (Alberta) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 100% S.C.I.C. (Quebec) Holdings Limited - (Quebec) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 100% SCI Northwest Division, Inc. - (B.C.) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 100% Sylvio Marceau Inc. - (Quebec) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 100% The Markey Family Funeral Homes Limited - (Ontario) . . . . . . . . . . . . . . . . . . . . . . . . . . 100% The Thorpe Brothers Funeral Home Co. Limited - (Ontario) . . . . . . . . . . . . . . . . . . . . . . . 100% WilliamLeeIngram Funeral Home, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 100% World Funeral Home B.C. Ltd. - (British Columbia) . . . . . . . . . . . . . . . . . . . . . . . . . . 100% 611102 Saskatchewan Ltd. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 100%
8 9 FRANCE - ------ SCI International Limited (Delaware Corp.) French subsidiary Service Corporation International France (France) . . . . . . . . . . . . . . . . . . . . . . . . . . . . 100% Omnium De Gestion Et De Financement (France) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 100% Groupe Auxia (France) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 99% Funeral International Services (Netherlands) . . . . . . . . . . . . . . . . . . . . . . . . . . 4.9% FUBUS Handelsund Verwaltungsgesellschaft mbH (Germany) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 100% FUNERAL SA (Belgium) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 100% Pompes Funebres Generales (France) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 97% Compania General de Servicios Funerarios (Spain) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26% Funeral International Services (Netherlands) . . . . . . . . . . . . . . . . . . . . . . . . . . 90.2% Bahau Funeral Services SDN BHD (Malaysia) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33.33% Bahau Memorial Park SDN BHD (Malaysia) . . . . . . . . . . . . . . . . . . . . . . . . . . . 16.7% Compagnia Internazionale Partecipazioni (Italy) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 100% Organizzazione Funeraria Italiana (Italy) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 98.76% Onoranze Funebri Toscane Srl (Italy) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 72.47% Agenzia Funebre Lucchese Franceschini srl (Italy) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 91.72% Organizzazione Funeraria Italiana (Italy) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.24% Societa Imprese Funebri Empolesi srl (Italy) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 72.75% Pompes Funebres Michel SA (Belgium) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5% OSEFI Holding SA (Switzerland) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 100% PAX (Czech Republic) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 57.97% PFG Lausanne SA (Switzerland) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 100% Funeral International Services (Netherlands) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4.9% Pompes Funebres Reunies (Belgium) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 100% Malibran SA (Belgium) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 100% Societe D'Etude Et De Service Pour La Cremation (Belgium) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35% Societe De Cremation De Charleroi (Belgium) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 90% Pompes Funebres Michel SA (Belgium) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5% Singapore Casket Company PLC (Singapore) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 67.57% Bahau Funeral Services SDN BHD (Malaysia) . . . . . . . . . . . . . . . . . . . . . . . . . . . 33.33% Bahau Memorial Park SDN BHD (Malaysia) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16.7% Bahau Funeral Services SDN BHD (Malaysia) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33.33% Casket Palace Company PLC (Singapore) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 100%
9 10 UNITED KINGDOM - -------------- SCI International Limited (Delaware Corp.) United Kingdom subsidiary Service Corporation International PLC . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 100% Carrwood (Funeral Supplies) Limited . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 100% Chosen Heritage Ltd . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50% Cooksley & Son Limited . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 100% Demetriou and English Ltd . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 100% Dignity Limited . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 95% Down's Crematorium . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 100% Great Southern Group PLC . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 100% The Crematorium Company Limited . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 100% TJ Davies & Sons Limited . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 100% White Lady Funerals Limited . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 100% Family Funeral Directors Limited . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 100% Funeral Services London . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 100% Grimmett & Timms Limited . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 100% Kenyon Air Transport . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 100% JD Fields & Sons . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 100% Monumental Masons Ltd . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 100% Plantsbrook Group PLC . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 100% Hodgson Holdings PLC . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 100% Kenyon Securities PLC . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 100% Pitcher and LeQuesne Limited . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 100% SCI Capital LLC(TX limited liability company) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 100%
10 EX-23.1 17 CONSENT OF INDEPENDENT ACCOUNTANTS 1 EXHIBIT 23.1 CONSENT OF INDEPENDENT ACCOUNTANTS We consent to the incorporation by reference in the registration statements of Service Corporation International on Form S-3 (File No. 333-10867), Form S-4 (File Nos. 333-01857 and 33-54996) and Form S-8 (File Nos. 333-00177, 333-00179, 33-9790, 33-17982, 333-02665, 333-19863 and 33-50987) of our report dated March 21, 1997, on our audits of the consolidated financial statements and financial statement schedule of Service Corporation International as of December 31, 1996 and 1995, and for each of the three years in the period ended December 31, 1996, which report is included in this Annual Report on Form 10-K. COOPERS & LYBRAND L.L.P. Houston, Texas March 28, 1997 EX-24.1 18 POWERS OF ATTORNEY 1 EXHIBIT 24.1 POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS, that the undersigned, an officer or director or both, of Service Corporation International, a Texas corporation (the "Company"), does hereby constitute and appoint George R. Champagne and James M. Shelger his true and lawful attorneys and agents (each with authority to act alone), with power and authority to sign for and on behalf of the undersigned the name of the undersigned as officer or director, or both, of the Company to the Company's Annual Report to the Securities and Exchange Commission on Form 10-K for the fiscal year of the Company ending December 31, 1996 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 13th day of February, 1997. /s/ R. L. Waltrip ---------------------------- R. L. WALTRIP 2 POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS, that the undersigned, an officer or director or both, of Service Corporation International, a Texas corporation (the "Company"), does hereby constitute and appoint George R. Champagne and James M. Shelger his true and lawful attorneys and agents (each with authority to act alone), with power and authority to sign for and on behalf of the undersigned the name of the undersigned as officer or director, or both, of the Company to the Company's Annual Report to the Securities and Exchange Commission on Form 10-K for the fiscal year of the Company ending December 31, 1996 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 13th day of February, 1997. /s/ ANTHONY L. COELHO ---------------------------- ANTHONY L. COELHO 3 POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS, that the undersigned, an officer or director or both, of Service Corporation International, a Texas corporation (the "Company"), does hereby constitute and appoint George R. Champagne and James M. Shelger his true and lawful attorneys and agents (each with authority to act alone), with power and authority to sign for and on behalf of the undersigned the name of the undersigned as officer or director, or both, of the Company to the Company's Annual Report to the Securities and Exchange Commission on Form 10-K for the fiscal year of the Company ending December 31, 1996 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 13th day of February, 1997. /s/ Douglas M. Conway ---------------------------- DOUGLAS M. CONWAY 4 POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS, that the undersigned, an officer or director or both, of Service Corporation International, a Texas corporation (the "Company"), does hereby constitute and appoint George R. Champagne and James M. Shelger his true and lawful attorneys and agents (each with authority to act alone), with power and authority to sign for and on behalf of the undersigned the name of the undersigned as officer or director, or both, of the Company to the Company's Annual Report to the Securities and Exchange Commission on Form 10-K for the fiscal year of the Company ending December 31, 1996 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 13th day of February, 1997. /s/ Jack Finkelstein ---------------------------- JACK FINKELSTEIN 5 POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS, that the undersigned, an officer or director or both, of Service Corporation International, a Texas corporation (the "Company"), does hereby constitute and appoint George R. Champagne and James M. Shelger his true and lawful attorneys and agents (each with authority to act alone), with power and authority to sign for and on behalf of the undersigned the name of the undersigned as officer or director, or both, of the Company to the Company's Annual Report to the Securities and Exchange Commission on Form 10-K for the fiscal year of the Company ending December 31, 1996 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 13th day of February, 1997. /s/ A. J. Foyt, Jr. ---------------------------- A. J. FOYT, JR. 6 POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS, that the undersigned, an officer or director or both, of Service Corporation International, a Texas corporation (the "Company"), does hereby constitute and appoint George R. Champagne and James M. Shelger his true and lawful attorneys and agents (each with authority to act alone), with power and authority to sign for and on behalf of the undersigned the name of the undersigned as officer or director, or both, of the Company to the Company's Annual Report to the Securities and Exchange Commission on Form 10-K for the fiscal year of the Company ending December 31, 1996 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 13th day of February, 1997. /s/ James J. Gavin, Jr. ---------------------------- JAMES J. GAVIN, JR. 7 POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS, that the undersigned, an officer or director or both, of Service Corporation International, a Texas corporation (the "Company"), does hereby constitute and appoint George R. Champagne and James M. Shelger his true and lawful attorneys and agents (each with authority to act alone), with power and authority to sign for and on behalf of the undersigned the name of the undersigned as officer or director, or both, of the Company to the Company's Annual Report to the Securities and Exchange Commission on Form 10-K for the fiscal year of the Company ending December 31, 1996 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 13th day of February, 1997. /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 George R. Champagne and James M. Shelger his true and lawful attorneys and agents (each with authority to act alone), with power and authority to sign for and on behalf of the undersigned the name of the undersigned as officer or director, or both, of the Company to the Company's Annual Report to the Securities and Exchange Commission on Form 10-K for the fiscal year of the Company ending December 31, 1996 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 13th day of February, 1997. /s/ L. William Heiligbrodt ---------------------------- L. WILLIAM HEILIGBRODT 9 POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS, that the undersigned, an officer or director or both, of Service Corporation International, a Texas corporation (the "Company"), does hereby constitute and appoint George R. Champagne and James M. Shelger his true and lawful attorneys and agents (each with authority to act alone), with power and authority to sign for and on behalf of the undersigned the name of the undersigned as officer or director, or both, of the Company to the Company's Annual Report to the Securities and Exchange Commission on Form 10-K for the fiscal year of the Company ending December 31, 1996 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 13th day of February, 1997. /s/ B. D. Hunter ---------------------------- B. D. HUNTER 10 POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS, that the undersigned, an officer or director or both, of Service Corporation International, a Texas corporation (the "Company"), does hereby constitute and appoint George R. Champagne and James M. Shelger his true and lawful attorneys and agents (each with authority to act alone), with power and authority to sign for and on behalf of the undersigned the name of the undersigned as officer or director, or both, of the Company to the Company's Annual Report to the Securities and Exchange Commission on Form 10-K for the fiscal year of the Company ending December 31, 1996 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 13th day of February, 1997. /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 George R. Champagne and James M. Shelger his true and lawful attorneys and agents (each with authority to act alone), with power and authority to sign for and on behalf of the undersigned the name of the undersigned as officer or director, or both, of the Company to the Company's Annual Report to the Securities and Exchange Commission on Form 10-K for the fiscal year of the Company ending December 31, 1996 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 13th day of February, 1997. /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 George R. Champagne and James M. Shelger his true and lawful attorneys and agents (each with authority to act alone), with power and authority to sign for and on behalf of the undersigned the name of the undersigned as officer or director, or both, of the Company to the Company's Annual Report to the Securities and Exchange Commission on Form 10-K for the fiscal year of the Company ending December 31, 1996 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 13th day of February, 1997. /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 George R. Champagne and James M. Shelger his true and lawful attorneys and agents (each with authority to act alone), with power and authority to sign for and on behalf of the undersigned the name of the undersigned as officer or director, or both, of the Company to the Company's Annual Report to the Securities and Exchange Commission on Form 10-K for the fiscal year of the Company ending December 31, 1996 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 13th day of February, 1997. /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 George R. Champagne and James M. Shelger his true and lawful attorneys and agents (each with authority to act alone), with power and authority to sign for and on behalf of the undersigned the name of the undersigned as officer or director, or both, of the Company to the Company's Annual Report to the Securities and Exchange Commission on Form 10-K for the fiscal year of the Company ending December 31, 1996 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 13th day of February, 1997. /s/ Edward E. Williams ---------------------------- EDWARD E. WILLIAMS 15 POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS, that the undersigned, an officer or director or both, of Service Corporation International, a Texas corporation (the "Company"), does hereby constitute and appoint 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, 1996 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 21st day of March, 1997. /s/ George R. Champagne ---------------------------- GEORGE R. CHAMPAGNE EX-27 19 FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS FINANCIAL INFORMATION EXTRACTED FROM THE CONSOLIDATED BALANCE SHEET OF SERVICE CORPORATION INTERNATIONAL AS OF DECEMBER 31, 1996 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 YEAR DEC-31-1996 DEC-31-1996 44,131 565,145 997,736 75,102 139,019 714,040 1,776,534 319,459 8,869,770 607,543 2,048,737 0 0 236,193 1,999,124 8,869,770 2,171,496 2,294,194 1,680,246 1,689,742 63,798 12,147 147,470 413,881 148,583 265,298 0 0 0 265,298 1.10 1.07
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