SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934 (Amendment No. __)
Filed by the Registrant [X]
Filed by Party other than the Registrant [ ]
Check the appropriate box:
[X] Preliminary Proxy Statement
[ ] Confidential, for Use of the
Commission Only (as permitted by
Rule 14a-6(e)(2))
[ ] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Materials Pursuant to Rule 14a-11(c) or Rule 14a-12
CARRIAGE SERVICES, INC.
(Name of Registrant as Specified in Its Charter)
Paul E. Pryzant, Snell & Smith, P.C.,
1000 Louisiana, Suite 3650, Houston, TX 77002
(Name of Person(s) Filing Proxy Statement)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
1) Title of each class of securities to which transaction applies:
_________________________________________________________________
2) Aggregate number of securities to which transaction applies:
_________________________________________________________________
3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the
filing fee is calculated and state how it was determined):
_________________________________________________________________
4) Proposed maximum aggregate value of transaction:
_________________________________________________________________
5) Total fee paid:
_________________________________________________________________
[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing fee for which the offsetting fee
was paid previously. Identify the previous filing by registration
statement number, or the Form or Schedule and the date of its filing.
1) Amount Previously Paid:
_____________________________________________
2) Form, Schedule, or Registration Statement No.:
_____________________________________________
3) Filing Party:
_____________________________________________
4) Date Filed:
_____________________________________________
[CARRIAGE SERVICES LOGO]
CARRIAGE SERVICES, INC.
1300 POST OAK BLVD., SUITE 1500
HOUSTON, TEXAS 77056
March , 1997
To our Stockholders:
You are cordially invited to attend the Annual Meeting of
Stockholders of Carriage Services, Inc. to be held at the
Doubletree Hotel, 2001 Post Oak Blvd., Houston, Texas 77056 on
Wednesday, April 16, 1997, at 10:00 a.m., Houston time. For
those of you who cannot be present at the Annual Meeting, we
urge that you participate by completing the enclosed proxy and
returning it at your earliest convenience.
We encourage you to read the enclosed Notice of the
Meeting and Proxy Statement, which contains information about
the Board of Directors and its committees and personal
information about each of the nominees for the Board. The
Proxy Statement also describes in detail other matters that
will be voted upon at the Annual Meeting.
It is important that your shares are represented at the
Annual Meeting, regardless of whether you are able to attend
personally. Accordingly, you are requested to sign, date and
mail promptly the enclosed proxy in the envelope provided.
Sincerely,
MELVIN C. PAYNE,
Chairman of the Board and
Chief Executive Officer
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
OF
CARRIAGE SERVICES, INC.
TO BE HELD APRIL 16, 1997
To the Stockholders of
Carriage Services, Inc.
Notice is hereby given that the Annual Meeting of Stockholders of Carriage
Services, Inc. (the "Company") will be held at the Doubletree Hotel, 2001 Post
Oak Blvd., Houston, Texas 77056 on Wednesday, April 16, 1997, at 10:00 a.m.,
Houston time, for the following purposes:
(1) To elect three Class I directors, each for a three-year term expiring
at the annual meeting of stockholders in 2000, and until their
respective successors are elected and qualified.
(2) To amend the Company's Certificate of Incorporation to (i) increase
the number of authorized shares of Class A Common Stock from
15,000,000 shares to 40,000,000 shares, (ii) reduce the number of
authorized shares of Class B Common Stock from 15,000,000 to
10,000,000 shares, and (iii) increase the number of authorized shares
of Preferred Stock from 50,000,000 shares to 70,000,000 shares.
(3) To amend the Company's 1995 Stock Incentive Plan to increase the
number of shares available thereunder from 400,000 shares to 700,000
shares and to make certain other amendments.
(4) To amend the Company's 1996 Stock Option Plan in certain respects.
(5) To amend the Company's 1996 Nonemployee Director's Stock Option Plan
to (i) permit directors who are employees but not executive officers
of the Company to participate, (ii) provide for an option grant of
15,000 shares of Class A Common Stock when a new director is appointed
or elected to the Board (or 25,000 shares if the new director becomes
a member of the Executive Committee), and (iii) make certain other
amendments.
(6) To ratify the selection of Arthur Andersen LLP as the independent
public accountants of the Company for 1997.
(7) To transact such other business as may properly come before the
meeting or any adjournments thereof.
The close of business on March 10, 1997 has been fixed as the record date for
determining stockholders entitled to notice of and to vote at the Annual Meeting
or any adjournments thereof.
You are cordially invited and urged to attend the Annual Meeting. If,
however, you are unable to attend the Annual Meeting, YOU ARE REQUESTED TO SIGN
AND DATE THE ACCOMPANYING PROXY AND RETURN IT PROMPTLY IN THE ENCLOSED ENVELOPE.
If you attend the Annual Meeting, and wish to do so, you may vote in person
regardless of whether you have given your proxy. In any event, a proxy may be
revoked at any time before it is exercised.
By Order of the Board of Directors
THOMAS C. LIVENGOOD,
Secretary
Houston, Texas
March , 1997
CARRIAGE SERVICES, INC.
1300 POST OAK BLVD., SUITE 1500
HOUSTON, TEXAS 77056
PROXY STATEMENT
FOR
ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD APRIL 16, 1997
SOLICITATION
The accompanying proxy is solicited on behalf of the Board of Directors of
Carriage Services, Inc., a Delaware corporation (the "Company"), by the Board
of Directors to solicit proxies (the "Proxies" ) for use at the Annual Meeting
of Stockholders (the "Meeting"). The Meeting will be held at the Doubletree
Hotel, 2001 Post Oak Blvd., Houston, Texas 77056 at 10:00 a.m., Houston time, on
Wednesday, April 16, 1997, or at such other time and place to which the Meeting
may be adjourned.
All expenses of this solicitation will be borne by the Company, including
the cost of preparing and mailing this Proxy Statement and the reimbursement of
brokerage firms, banks and other nominees for their reasonable expenses in
forwarding proxy material to beneficial owners of the Company's stock. The
Company has retained American Stock Transfer & Trust Company ("American") to
assist in the solicitation of proxies. No additional fee beyond the $500 monthly
fee paid to American to act as the Company's transfer agent, together with
American's out-of-pocket expenses, will be paid to American. In addition to
solicitation by mail, certain directors, officers and regular employees of the
Company and American may solicit proxies by telegram, facsimile or by hand
delivery.
This Proxy Statement and the accompanying proxy is being first mailed to
stockholders of the Company on or about March , 1997.
RECORD DATE AND VOTING SECURITIES
Only holders of record of the Class A and Class B Common Stock and Series D
and F Preferred Stock at the close of business on March 10, 1997, the record
date for the Meeting, are entitled to notice of and to vote at the Meeting. On
that date, the Company had outstanding (i) 4,137,679 shares of Class A Common
Stock, each of which is entitled to one vote, (ii) 4,502,169 shares of Class B
Common Stock, each of which is entitled to ten votes, (iii) 17,253,116 shares of
Series D Preferred Stock, each of which is entitled to.0037 votes, and (iv)
19,999,992 shares of Series F Preferred Stock, each of which is entitled to
either .0625 or .0667 votes, depending upon certain rights of the shares held.
The voting power of each class or series, as of March 10, 1997, is summarized
below:
OUTSTANDING PERCENTAGE OF
CLASS OR SERIES SHARES NUMBER OF VOTES VOTING POWER
- ---------------------------- ------------ --------------- --------------
Class A Common Stock........ 4,137,679 4,137,679 8.2%
Class B Common Stock........ 4,502,169 45,021,690 89.2%
Series D Preferred Stock.... 17,253,116 63,900 .1%
Series F Preferred Stock.... 19,999,992 1,272,450 2.5%
---------- --------------
TOTAL.................. 50,495,719 100.0%
========== ==============
The presence at the Meeting, in person or by proxy, of the holders of a
majority of the total voting power of the issued and outstanding shares of Class
A and B Common Stock and Series D and F Preferred Stock is necessary to
constitute a quorum to transact business. Abstentions and broker non-votes will
be counted for purposes of whether a quorum is present at the Meeting. In the
absence of a quorum at the Meeting, the Meeting may be adjourned from time to
time without notice other than announcement at the Meeting until a quorum shall
be formed.
1
If a quorum is present at the Meeting, (i) the Class I directors will be
elected by a plurality of the votes cast at the Meeting, (ii) approval of the
amendment to the Company's Certificate of Incorporation will require the
affirmative vote of the holders of a majority of the voting power of the
outstanding shares of Class A and B Common Stock and Series D and F Preferred
Stock, and (iii) approval of the amendments to the 1995 Stock Incentive Plan,
the 1996 Stock Option Plan and the 1996 Nonemployee Director's Stock Option
Plan, and the ratification of the selection of Arthur Andersen LLP as the
independent public accountants of the Company for 1997, each requires the
affirmative vote of the holders of a majority of the voting power present or
represented by proxy at the Meeting. Since directors are elected by a plurality
of the votes cast, shares that are withheld will have no effect on the outcome
of the election of directors. With respect to any matter other than the election
of directors, abstentions will have the effect of a vote against the proposal.
Broker non-votes will not be counted to determine the stockholders entitled to
vote on a proposal, and will not affect the outcome of the vote on such matter.
All duly executed Proxies received prior to the Meeting will be voted in
accordance with the choices specified thereon. As to any matter for which no
choice has been specified in a duly executed Proxy, the shares represented
thereby will be voted in favor of all proposals described herein and in the
discretion of the persons named in the Proxy in connection with any other
business that may properly come before the Meeting. A stockholder giving a Proxy
may revoke it at any time before it is voted at the Meeting by filing with the
Secretary of the Company an instrument revoking it, or by signing and delivering
to the Secretary of the Company a Proxy bearing a later date, or by voting in
person at the Meeting.
2
SECURITY OWNERSHIP OF DIRECTORS, EXECUTIVE OFFICERS
AND CERTAIN BENEFICIAL OWNERS
The following table sets forth, as of March , 1997, the ownership of
Class A and B Common Stock and Series D and F Preferred Stock of: (i) any person
or group known by the Company to be the beneficial owner of 5% or more of the
Class A and B Common Stock, (ii) each director and director nominee of the
Company, (iii) the Chief Executive Officer, (iv) the other executive officers
named in the Summary Compensation Table set forth under "Executive
Compensation" below, and (v) all executive officers and directors of the
Company as a group. Under the rules of the Securities and Exchange Commission, a
person is deemed to own beneficially all securities as to which that person owns
or shares voting or investment power, as well as all securities which such
person may acquire within sixty days through the exercise of currently available
conversion rights or options. Except as otherwise indicated, the stockholders
listed in the table below have sole voting and investment power with respect to
the shares indicated.
AMOUNT AND NATURE OF
BENEFICIAL OWNERSHIP
--------------------------------- PERCENT OF PERCENT OF
CLASS A CLASS B CLASS A AND B VOTING
BENEFICIAL OWNER COMMON STOCK COMMON STOCK(1) COMMON STOCK CONTROL(2)
- ------------------------------------- ------------- ---------------- ------------- ----------
C. Byron Snyder...................... 70,000 1,296,311(3)(10) 15.8 26.5
Melvin C. Payne...................... 0 629,769(4)(10) 7.3 12.8
Robert D. Larrabee................... 0 111,111(5) 1.3 *
Mark W. Duffey....................... 0 313,625(10) 3.6 6.4
Barry K. Fingerhut................... 85,100 520,924(6)(10) 7.0 10.8
Stuart W. Stedman.................... 72,963(7) 145,223(7)(10) 2.5 3.1
Ronald A. Erickson................... 9,400 61,621(8) * 1.3
Mark F. Wilson....................... 498,397(9) 0 5.5 1.0
Russell W. Allen..................... 375 63,000 * 1.3
All Directors and Executive Officers
as a group (13 persons)............ 743,435 3,370,384 45.0 67.8
- ------------
* Indicates less than one percent.
(1) Each share of Class B Common Stock has ten votes per share and is
convertible at any time into one share of Class A Common Stock. If not
converted earlier, any outstanding shares of Class B Common Stock will be
automatically converted into shares of Class A Common Stock on December 31,
2001.
(2) This column sets forth the percentage of voting power held by the person
based on the type of securities held. Each share of Class A Common Stock is
entitled to one vote, each share of Class B Common Stock is entitled to ten
votes, each share of Series D Preferred Stock is entitled to.0037 votes,
and each share of Series F Preferred Stock is entitled to either .0625 or
.0667 votes, depending upon certain rights of the shares held.
(3) Mr. Snyder's holdings include 367,550 shares of Class B Common Stock owned
by 1996 Snyder Family Partnership, Ltd., 9,005 shares of Class B Common
Stock owned by the C. Byron Snyder 1996 Trust, and 9,005 shares of Class B
Common Stock owned by the Martha Ann Snyder 1996 Trust.
(4) Mr. Payne's holdings include 119,161 shares of Class B Common Stock owned
by 1996 Payne Family Partnership, Ltd., 2,919 shares of Class B Common
Stock owned by the Melvin C. Payne 1996 Trust, 2,919 shares of Class B
Common Stock owned by the Karen P. Payne 1996 Trust, and 5,555 shares of
Class B Common Stock owned by the Melvin C. Payne, Jr. Pension Plan and
Trust.
(5) Mr. Larrabee and his spouse hold an aggregate of 1,500,000 shares of Series
D Preferred Stock, of which 252,410 shares are held by Larrabee Land
Company, Inc. which is owned by Mr. Larrabee and his spouse. Such shares of
Series D Preferred Stock are presently convertible into 111,111 shares of
Class B Common Stock which are in turn convertible at any time into 111,111
shares of Class A Common Stock. Also, such shares of Series D Preferred
Stock presently have 5,556 votes.
(FOOTNOTES CONTINUED ON FOLLOWING PAGE)
3
(6) Mr. Fingerhut's holdings include 422,222 shares of Class B Common Stock
held by Applewood Associates, L.P., a limited partnership of which Mr.
Fingerhut is a general partner; 6,111 shares of Class B Common Stock held
by Longboat Key Associates, a general partnership of which Mr. Fingerhut is
a general partner; and 8,333 shares of Class B Common Stock held by Mr.
Fingerhut jointly with Michael J. Marocco.
(7) Mr. Stedman's holdings include (i) 2,689 shares of Class A Common Stock and
31,309 shares of Class B Common Stock which are held by the Betty Ann
Stedman Trust, of which Mr. Stedman is a Trustee, (ii) 1,083 shares of
Class A Common Stock and 8,349 shares of Class B Common Stock which are
held by the Wesley West Descendant's Trust, of which Mr. Stedman is a
Trustee, (iii) 292 shares of Class A Common Stock and 3,130 shares of Class
B Common Stock which are held by the Courtney Lynn Meagher Trust, of which
Mr. Stedman is a Trustee, (iv) 239 shares of Class A Common Stock and 3,130
shares of Class B Common Stock which are held by the Evan Everett Meagher
1989 Trust, of which Mr. Stedman is a Trustee, (v) 19,902 shares of Class A
Common Stock and 35,000 shares of Class B Common Stock which are held by
the Wesley West Land Holding Company, of which Mr. Stedman is the President
and an indirect beneficial owner through a trust of which he is a
beneficiary, and (vi) 46,056 shares of Class A Common Stock which are held
by the Wesley West Long Term Partnership, a partnership of which Mr.
Stedman serves as the Manager of the General Partner.
(8) Mr. Erickson's holdings include (i) 4,000 shares of Class A Common Stock
and 44,015 shares of Class B Common Stock which are held by the Alfred and
Rose Erickson Trust f/b/o Ronald A. Erickson, (ii) 1,400 shares of Class A
Common Stock and 17,606 shares of Class B Common Stock which are held by
the Alfred and Rose Erickson Trust f/b/o Donovan A. Erickson, of which Mr.
Erickson is the Trustee, and (iii) 4,000 shares of Class A Common Stock
held by Mr. Erickson's minor son, David S. Erickson.
(9) Mr. Wilson's holdings include 6,096,030 shares of Series F Preferred Stock
which are presently convertible into 390,952 shares of Class A Common Stock
and have the same number of votes. Of these shares of Series F Preferred
Stock held by Mr. Wilson, 707,700 are held by the Wilson Trust B U/A/D
9/9/77 by Francis Wilson and 707,700 are held by the Wilson Trust C U/A/D
9/9/77 by Francis Wilson, both of which Mr. Wilson is a beneficiary of and
a Co-Trustee.
(10) C. Byron Snyder, Melvin C. Payne, Mark W. Duffey, Barry K. Fingerhut and
certain of his affiliates and business associates, Stuart W. Stedman and
certain of his affiliates, and Reid A. Millard have executed a Voting
Agreement dated effective as of August 8, 1996 relating to any shares of
capital stock of the Company held by any of them. These parties
beneficially hold an aggregate of 228,063 shares of Class A Common Stock
and 3,003,628 shares of Class B Common Stock. Under the Voting Agreement,
each party has agreed (i) not to sell or otherwise transfer any shares of
capital stock of the Company held or acquired by such party to any
"competitor" of the Company without the prior written consent of the
holders of at least 80% of the voting power of the shares of capital stock
subject to the Voting Agreement, (ii) unless the holders of at least 80% of
the voting power of the outstanding shares of capital stock of the Company
are in favor of such action, not to vote the shares of capital stock of the
Company held by such party in favor of (x) a merger, consolidation or
similar corporate action involving a "competitor," other than in
connection with an acquisition by the Company of funeral homes or
cemeteries in which the Company is the acquiring or controlling party, (y)
the sale of all or substantially all of the assets of the Company to a
"competitor," or (z) any amendment to Articles V, VI or VII of the
Company's Amended and Restated Certificate of Incorporation (which relate
to the classified Board of Directors, the relative rights and powers of the
Board of Directors and the stockholders and the ability of the stockholders
of the Company to act by written consent). A "competitor" is defined in
the Voting Agreement as any person or entity engaged in the funeral
service, cemetery, crematory or related lines of business.
4
I. ELECTION OF DIRECTORS
GENERAL
The Board of Directors currently consists of eight members. In accordance
with the Certificate of Incorporation of the Company, the members of the Board
of Directors are divided into three classes, designated Class I, Class II and
Class III, respectively, and are elected for a term of office expiring at the
third succeeding annual stockholders' meeting following their election to office
and until their successors are duly elected and qualified. The Certificate of
Incorporation also provides that such classes shall be as nearly equal in number
as possible. The term of office of the Class I directors expires at the Meeting.
The Class II and Class III directors are serving terms that expire at the annual
meeting of stockholders in 1998 and 1999, respectively.
Melvin C. Payne, C. Byron Snyder and Robert D. Larrabee, the Class I
directors whose terms are expiring at the Meeting, have been nominated by the
Board of Directors for re-election at the Meeting for a three-year term of
office expiring at the annual meeting of stockholders in 2000 and until their
successors are duly elected and qualified. Proxies may be voted for three
directors.
THE BOARD RECOMMENDS THAT STOCKHOLDERS VOTE "FOR" THE ELECTION OF THE
NOMINEES LISTED ABOVE AS CLASS I DIRECTORS. UNLESS OTHERWISE DIRECTED IN THE
ACCOMPANYING PROXY, THE PERSONS NAMED THEREIN WILL VOTE "FOR" THE ELECTION OF
THE NOMINEES LISTED ABOVE AS CLASS I DIRECTORS.
Stockholders may not cumulate their votes in the election of directors. The
three nominees receiving the highest number of affirmative votes will be elected
to the Board. Stockholders entitled to vote for the election of directors may
withhold authority to vote for any or all nominees for directors. If any nominee
becomes unavailable for any reason, then the shares represented by the proxy
will be voted FOR the remainder of the listed nominees and for such other
nominees as may be designated by the Board as replacements for those who become
unavailable. Discretionary authority to do so is included in the proxy.
The following table sets forth the names, ages and titles of the persons
who have been nominated for election as Class I directors, and the other current
directors and executive officers of the Company.
NAME AGE POSITION
- ------------------------------------- ---- --------------------------------------------------
NOMINEES FOR CLASS I DIRECTOR
(TERM EXPIRING AT 2000 ANNUAL MEETING)
Melvin C. Payne(1)................... 54 Chairman of the Board, Chief Executive Officer and
Director
C. Byron Snyder(1)(2)................ 48 Director and Chairman of the Executive Committee
Robert D. Larrabee................... 61 Director
CONTINUING CLASS II DIRECTORS
(TERM EXPIRING AT 1998 ANNUAL
MEETING)
Mark W. Duffey(1).................... 40 President and Director
Barry K. Fingerhut(1)(2)............. 51 Director
CONTINUING CLASS III DIRECTORS
(TERM EXPIRING AT 1999 ANNUAL
MEETING)
Stuart W. Stedman(3)................. 39 Director
Ronald A. Erickson(3)................ 60 Director
Mark F. Wilson....................... 49 Director
(TABLE CONTINUED ON FOLLOWING PAGE)
5
NAME AGE POSITION
- ------------------------------------- ---- --------------------------------------------------
EXECUTIVE OFFICERS WHO ARE NOT
DIRECTORS
Thomas C. Livengood.................. 41 Executive Vice President, Chief Financial Officer
and Secretary
Russell W. Allen..................... 49 Executive Vice President of Operations
Gary O' Sullivan..................... 44 Senior Vice President -- Marketing
Reid A. Millard...................... 37 Vice President, Corporate Development
Mary-Lees G. Payne................... 48 Vice President, Administration and Accounting
- ------------
(1) Member of Executive Committee.
(2) Member of Compensation Committee.
(3) Member of Audit Committee.
Set forth below is a brief description of the business experience of the
directors and executive officers of the Company.
DIRECTORS
MELVIN C. PAYNE, one of the three management founders of the Company, has
been Chairman of the Board and Chief Executive Officer of the Company since
December 1996. Prior to then, he had been the President, Chief Executive Officer
and a director of the Company since its inception in 1991. Prior to co-founding
the Company, Mr. Payne was a co-founder in 1990 of Sovereign Capital Partners,
Inc., an investment and management advisory firm which specialized in
restructuring, recapitalizing and acquiring or selling financially troubled
companies. From 1991 to 1993, Mr. Payne also served as a director and officer of
Sovereign Holdings, Inc., RTO Enterprises, Inc. and various subsidiaries of RTO
Enterprises, Inc. Mr. Payne has 25 years of broad investment, banking and
operating management experience, including positions as Executive Vice President
and director of Wedge Group, Inc., an investment holding company with
multi-industry operations, and with Texas Commerce Bank and Prudential Insurance
Company. Mr. Payne serves on the Board of Trustees of WNL Series Trust, a mutual
fund affiliated with Western National Life Insurance Company, and the Board of
Directors of Sovereign Business Forms, Inc., a private company seeking to
consolidate companies in the business forms manufacturing industry.
C. BYRON SNYDER has been a director of the Company since 1991, was Chairman
of the Board of Directors of the Company from 1991 until December 1996, and is
currently Chairman of the Executive Committee. Mr. Snyder is presently owner and
President of Relco Refrigeration Co., a distributor of refrigeration equipment,
which he acquired in 1992. Prior to co-founding the Company, Mr. Snyder was the
owner and Chief Executive Officer of Southwestern Graphics International, Inc.,
a diversified holding company which owned Brandt & Lawson Printing Co., a
Houston-based general printing business, and Acco Waste Paper Company, an
independent recycling business. Brandt & Lawson Printing Co. was sold to Hart
Graphics in 1989, and Acco Waste Paper Company was sold to Browning-Ferris
Industries in 1991.
ROBERT D. LARRABEE has been a director of the Company since it went public
in August 1996. Mr. Larrabee is the former owner of a group of four funeral
homes and two cemeteries in the states of Washington and Idaho that the Company
acquired in April 1996. In connection with that transaction, the Company agreed
to undertake to appoint Mr. Larrabee to the Board if the Company went public,
and Mr. Larrabee also became an employee of a subsidiary of the Company. He is
the founder, past-president and past-director of Valley Bank in Clarkston,
Washington; founder, past Chairman of the Board and past President of Purple
Cross Insurance Company (now American Memorial Life); and founder of Lewis-Clark
Savings and Loan Association (now Sterling Financial Corporation). He also
serves on the board of Sterling Financial Corporation and, until 1995, served on
the Board of Directors of Laurentian Capital Corporation.
MARK W. DUFFEY, one of the three management founders of the Company, has
been President of the Company since December 1996. Prior to then, he had been
Executive Vice President and Chief Financial
6
Officer since the inception of the Company in 1991 and in 1995 became a
director. Prior to co-founding the Company, Mr. Duffey was a co-founder of
Sovereign Capital Partners, Inc. with Mr. Payne. From 1991 to 1993, Mr. Duffey
served as a director and officer of Sovereign Holdings, Inc., RTO Enterprises,
Inc. and various subsidiaries of RTO Enterprises, Inc. Prior to 1989, he held
various positions with Mellon Bank over a ten-year period, both in Pittsburgh
and in Houston. He serves on the Board of Directors of Sovereign Business Forms,
Inc., a private company seeking to consolidate companies in the business forms
manufacturing industry.
BARRY K. FINGERHUT has been a director of the Company since 1995. Since
1981, Mr. Fingerhut has been associated with, and now serves as President of,
GeoCapital, a registered investment adviser located in New York City which
focuses its investment advice and management on securities of small
capitalization companies. As of December 31, 1996, GeoCapital managed accounts
having a market value of approximately $1.9 billion. Mr. Fingerhut also has
co-founded several investment partnerships that invest primarily in undervalued
publicly traded companies and high growth companies engaged in the
communications, media or entertainment industries. Mr. Fingerhut presently is a
director of Millbrook Press, Inc., a publisher of children's non-fiction books,
and UOL Publishing, Inc., an online publisher of academic and corporate texts.
He previously served as a director of La Quinta Inns, Inc., a nationwide lodging
chain, and Lakeshore National Bank, Inc., which was acquired by First Chicago
Corp. in 1994.
STUART W. STEDMAN has been a director of the Company since it went public
in August 1996. For the past ten years, Mr. Stedman has been President of Wesley
West Interests, Inc., a management company responsible for various family
holdings, including marketable securities, oil, gas and coal properties, ranch
lands and urban real estate. Mr. Stedman also serves as a Manager of Strand
Energy, L.L.C., a private exploration and production company.
RONALD A. ERICKSON has been a director of the Company since the Company
went public in August 1996. Mr. Erickson is Chief Executive Officer of Holiday
Companies, Minneapolis, Minnesota, a family business consisting primarily of
convenience stores, supermarkets, sporting goods stores and wholesale food
distribution.
MARK F. WILSON became a director of the Company on January 7, 1997 when CNM
merged with the Company. Mr. Wilson served as the President of CNM from 1988
until the merger with the Company, and continues as the President of Carriage
Funeral Services of California, Inc., a subsidiary of the Company. CNM owned and
operated nine Wilson & Kratzer Funeral Homes and the Rolling Hills Memorial Park
Cemetery in Alameda and Contra Costa Counties, California. In connection with
the CNM merger, the Company agreed to increase the Board of Directors to eight
members and appoint Mr. Wilson as a director. Mr. Wilson also serves on the
Board of Directors of Mechanics Bank, Richmond, California, and Hills
Newspapers, a publisher of weekly newspapers in Northern California.
EXECUTIVE OFFICERS WHO ARE NOT DIRECTORS
THOMAS C. LIVENGOOD joined the Company in December 1996 as Executive Vice
President, Chief Financial Officer and Corporate Secretary. Mr. Livengood, a
certified public accountant, has responsibility for the financial and
administrative functions of the Company. Prior to joining the Company, he served
as Vice President and Chief Financial Officer of Tenneco Energy, previously the
largest division of Tenneco Inc., a Fortune 100 company, prior to the
divestiture of its diversified businesses. Prior to joining Tenneco Energy in
1988, Mr. Livengood served in various financial management capacities with USX
Corp., Texas Oil & Gas Corp. and KPMG Peat Marwick, an international CPA firm.
RUSSELL W. ALLEN joined the Company in June 1993 as Executive Vice
President of Operations. Mr. Allen has over 32 years of operational experience
in the funeral home industry. Prior to joining the Company, he was affiliated
with Earthman Funeral Directors and Greenwood-Mount Olivet Funeral Homes and
Cemeteries in Fort Worth, Texas for one and 21 years, respectively, serving most
recently as Executive Vice President of operations with each company. Mr. Allen
recently completed a term of six years as Vice Chairman of the Texas Funeral
Service Commission and as Chairman of the Education and Legislation
7
Committees. He is also a member of the Texas Cemetery Association and has served
on the Legislative Committees with that organization.
GARY O'SULLIVAN joined the Company in October 1996 as Senior Vice
President -- Marketing. From March 1996 to September 1996, Mr. O'Sullivan was
the Regional Vice President of Sales (Florida) for Service Corporation
International. Prior to then, Mr. O'Sullivan was the Vice President of Sales and
Marketing for Woodlawn Memorial Park and Funeral Home from May 1993 to March
1996. He was the Director of Sales and Marketing for Earthman Funeral Home and
Cemeteries from August 1989 to May 1993.
REID A. MILLARD, one of the three management founders of the Company, has
served as the Vice President, Corporate Development of the Company since June
1996. From November 1993 until June 1996, Mr. Millard was active in various
positions with the Company in operations and corporate development. From the
Company's inception in 1991 until November 1993, Mr. Millard served as Executive
Vice President of the Company. Mr. Millard has 21 years of management experience
in the funeral service industry, including spending nine years at Service
Corporation International ("SCI"), where he obtained a wide range of
experience in operations, marketing, merchandising, real estate, preneed sales,
general management and independent funeral home ownership relations. He left SCI
in 1990 to pursue various entrepreneurial activities, including the ownership
and operation of a funeral home in Jefferson City, Missouri.
MARY-LEES PAYNE has served as the Vice President, Administration and
Accounting, of the Company since June 1995. Prior to then, she served as the
Controller of the Company from June 1993 to June 1995, and as a consultant to
the Company from January 1992 to June 1993. From 1984 to 1989, she served as
Vice President and Controller for three start-up companies, two in the death
care industry. Prior to 1984, Ms. Payne was an audit manager in the
international accounting firm of Ernst & Young. Ms. Payne is a certified public
accountant and is not related to Melvin C. Payne.
ORGANIZATION AND COMMITTEES OF THE BOARD
During 1996, the Board met two times and acted by unanimous written consent
approximately 40 times. Each of the directors attended at least 75% of the
meetings of the Board and the Committees on which he served.
The Board has three standing committees, the Executive Committee, the Audit
Committee and the Compensation Committee. The functions of these committees and
the number of meetings held during 1996 are described below.
The members of the Executive Committee are Melvin C. Payne, Mark W. Duffey,
C. Byron Snyder and Barry K. Fingerhut. Mr. Snyder is the Chairman of the
Committee. The primary function of the Executive Committee is to exercise many
of the powers of the Board in between regular Board meetings, including the
authorization of contracts, leases and loan documents. The Executive Committee
did not separately meet as a committee during 1996.
The members of the Audit Committee are Stuart W. Stedman and Ronald A.
Erickson. The Audit Committee recommends to the Board the appointment of the
Company's independent auditors, and reviews the plan, scope and results of the
audit with the auditors and the Company's officers. The Audit Committee also
reviews with the auditors the principal accounting policies and internal
accounting controls of the Company. The Audit Committee met one time during
1996.
The members of the Compensation Committee are C. Byron Snyder and Barry K.
Fingerhut. From August 1996 until January 30, 1997, Robert D. Larrabee served on
the Compensation Committee until he was replaced by Mr. Snyder. The Compensation
Committee reviews and makes recommendations to the Board concerning the
compensation of the Company's officers and employees, including stock option
plans incentive compensation programs and benefit plans. The Compensation
Committee also administers, and makes grants of stock options under, the
Company's 1995 Stock Incentive Plan and 1996 Stock Option
8
Plan. During 1996, the Compensation Committee met one time and acted by
unanimous consent three times.
COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT
Section 16(a) of the Securities Exchange Act of 1934 requires the Company's
directors and executive officers, and persons who own more than 10% of a
registered class of the Company's equity securities, to file with the Securities
and Exchange Commission reports of ownership and changes in ownership of Class A
Common Stock and other equity securities of the Company. Executive officers,
directors and greater than 10% stockholders are required by SEC regulations to
furnish the Company with copies of all Section 16(a) forms they file.
Based solely on a review of the copies of such reports furnished to the
Company or written representations that no other reports were required, the
Company believes that all filing requirements applicable to its executive
officers, directors and greater than 10% beneficial owners were complied with
during 1996, except that: (i) C. Byron Snyder, Barry K. Fingerhut, Russell W.
Allen and Mary-Lees Payne each timely filed his or her original Form 3, but
inadvertently did not include additional shares of Class A Common Stock that
were purchased in the Company's initial public offering in August 1996 (such
omission was subsequently corrected in an amended Form 3); (ii) Robert D.
Larrabee inadvertently did not report his holdings of Series D Preferred Stock
on his original Form 3, but subsequently corrected this omission on an amended
Form 3; (iii) Stuart W. Stedman inadvertently did not report securities held by
an affiliate on his Form 3, but this omission was subsequently reported on an
amended Form 3, (iv) Mr. Stedman also filed a late Form 4 to report a subsequent
purchase; (v) Ronald A. Erickson inadvertently did not report on his Form 3
holdings of Class A and B Common Stock which were held by a trust for which he
is the Trustee, but subsequently corrected this omission in an amended Form 3;
(vi) Mr. Erickson also filed a late Form 4 to report the purchase of shares of
Class A Common Stock for his minor son; and (vii) Mark F. Wilson and Gary
O'Sullivan each filed a late Form 3 after they became a director and executive
officer, respectively, of the Company.
CERTAIN TRANSACTIONS
In connection with the Company's formation in June 1991, C. Byron Snyder, a
director and, until December 1996, the Chairman of the Board of Directors, made
subordinated loans to the Company in the principal amount of $6,000,000. These
loans bore interest at a predetermined rate plus 3%, subject to adjustment in
certain circumstances, payable annually in the form of cash or additional
subordinated notes. On January 1, 1995, the Company issued additional
subordinated notes to Mr. Snyder totaling $648,215 for the interest accrued on
these loans during 1994. On January 1, 1996, the Company issued additional
subordinated notes to Mr. Snyder totaling $825,118 for the interest accrued on
these subordinated loans during 1995. In August 1996, all of the loans to Mr.
Snyder were repaid in full with a portion of the proceeds from the Company's
public offering in August 1996.
The Company has an agreement with ACCO Collection Company ("ACCO"), which
is owned by Mr. Snyder, under which the Company may transfer responsibility for
collection of past due accounts receivable to ACCO in return for a percentage of
the collection received. In 1996, the Company paid $1,597 in fees to ACCO under
this Agreement.
Prior to August, 1996, the Company paid Mr. Snyder a $25,000 annual fee in
return for certain services provided to the Company. Mr. Snyder was active in
determining the strategic direction of the Company as well as being involved in
reviewing major acquisitions. In addition, prior to August 1996, the Company
paid Mr. Snyder $40,000 per year as consideration for Mr. Snyder's indirect
guarantee of a portion of the Company's loan from Texas Commerce Bank. Mr.
Snyder's guarantee was released upon repayment of the loan in connection with
the Company's public offering in August 1996. These arrangements were terminated
in August 1996 and Mr. Snyder is now compensated in the same manner as the other
nonemployee directors. SEE "Executive Compensation -- Compensation of
Directors."
9
In connection with the acquisition in January 1997 by the Company of CNM,
which was controlled by Mark F. Wilson and others, (i) Mr. Wilson and a
subsidiary of the Company entered into a five-year employment agreement
providing for, among other things, the payment of a base salary to Mr. Wilson of
$150,000 per year, (ii) Mr. Wilson and such subsidiary entered into a five-year
non-competition agreement providing for, among other things, the payment to Mr.
Wilson of $170,000 per year, and (iii) the Company agreed to appoint Mr. Wilson
to the Board of Directors of the Company. In addition, Mr. Wilson and the other
former shareholders of CNM who acquired Carriage stock entered into a co-sale
agreement with Messrs. Snyder, Fingerhut, Payne, Duffey and certain affiliated
stockholders, under which such persons agreed not to sell a certain level of
their stock holdings in a single or related group of transactions unless the
former CNM shareholders were given the opportunity to participate in the sales
transaction, and in which the selling group could require the other parties to
participate in a sales transaction. This transaction was entered into
immediately prior to Mr. Wilson becoming a director of the Company, and the
compensation detailed above does not relate to any services provided by Mr.
Wilson as a director of the Company.
Mr. Wilson also is a party to an arrangement with the Company whereby Mr.
Wilson may receive annual cash bonuses if acquisition candidates which he
develops and which are subsequently acquired by the Company attain cash flow in
excess of certain cash flow targets over a ten-year period. Pursuant to this
arrangement, Mr. Wilson may elect to sell back to the Company his share of
excess cash flow during the last three-year period at a predetermined cash flow
multiple. To date, no payments have been made by the Company under this
arrangement.
In July 1996, the Company loaned Russell W. Allen, an executive officer of
the Company, $316,714 to allow Mr. Allen to exercise his options to purchase
shares of Class B Common Stock of the Company and to pay the federal income tax
liability incurred pursuant to such exercise. The loan matures on June 30, 1999,
bears interest at 7% per year payable annually on or before March 31 of each
year and is secured by 50% of the Class B Common Stock purchased by Mr. Allen.
Certain transactions involving Robert D. Larrabee, a director of the
Company, are described under "Compensation Committee Interlocks and Insider
Participation" elsewhere in this Proxy Statement.
10
EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE. Set forth below is information regarding the
compensation for the years ended December 31, 1996 and 1995 for the Company's
Chief Executive Officer and the two other most highly compensated executive
officers of the Company whose total annual salary and bonus during 1996 exceeded
$100,000 (collectively, the "Named Executive Officers").
SUMMARY COMPENSATION TABLE
LONG TERM
COMPENSATION
ANNUAL COMPENSATION AWARDS
----------------------------------------------- ------------
OTHER SECURITIES ALL OTHER
NAME AND ANNUAL UNDERLYING COMPEN-
PRINCIPAL POSITION YEAR SALARY BONUS COMPENSATION(1) OPTIONS SATION(2)
- ---------------------------------------- ----- ---------- --------- --------------- ------------ ---------
MELVIN C. PAYNE ........................ 1996 $ 194,292 $ 47,000 0 250,000 $ 1,168
Chairman of the Board and Chief 1995 $ 171,576 0 0 0 1,174
Executive Officer
MARK W. DUFFEY ......................... 1996 $ 162,231 $ 40,000 0 150,000 $ 1,901
President 1995 $ 145,632 0 0 0 1,889
RUSSELL W. ALLEN ....................... 1996 $ 121,634 $ 30,000 0 50,000 $ 0
Executive Vice President of Operations 1995 $ 93,356 $ 20,000 0 0 193
- ------------
(1) Excludes perquisites and other personal benefits unless the aggregate amount
of such compensation exceeded the lesser of $50,000 or 10% of the total of
annual salary and bonus reported for the Named Executive Officer.
(2) Each of the amounts in this column reflect contributions by the Company to
its 401(k) Plan for the executive's benefit.
11
STOCK OPTION GRANTS IN 1996
The Company has three stock option plans, the 1995 Stock Incentive Plan
(the "1995 Plan"), the 1996 Stock Option Plan (the "1996 Plan") and the 1996
Nonemployee Directors' Plan ("Directors' Plan"). 400,000 shares of Class A and
B Common Stock are reserved for issuance under the 1995 Plan, but the Board is
proposing to increase the shares available under the Plan to 700,000 shares. SEE
Proposal 3 elsewhere in this Proxy Statement. Options issued under the 1995 Plan
prior to the Company's initial public offering in August 1996 are satisfied with
shares of Class B Common Stock, but options issued after that date are satisfied
with shares of Class A Common Stock. 600,000 shares of Class A Common Stock are
reserved for issuance under the 1996 Plan and 200,000 shares of Class A Common
Stock are reserved for issuance under the Directors' Plan. Options issued under
the 1995 Plan and the 1996 Plan may be either "Incentive Stock Options" as
defined in Section 422 of the Internal Revenue Code of 1986, as amended (the
"Code"), or non-qualified stock options.
The following table sets forth information on the grants of options to
acquire shares of Class A Common Stock made during the year ended December 31,
1996 to the Named Executive Officers in the Summary Compensation Table.
OPTION GRANTS IN LAST FISCAL YEAR
POTENTIAL
INDIVIDUAL GRANTS REALIZABLE VALUE AT
----------------------------------------------------- ASSUMED ANNUAL
NUMBER OF % OF TOTAL RATES OF STOCK PRICE
SECURITIES OPTIONS APPRECIATION
UNDERLYING GRANTED TO EXERCISE OR FOR OPTION TERM(2)
OPTIONS EMPLOYEES BASE PRICE EXPIRATION --------------------------
GRANTED(1) IN 1996 ($/SH) DATE 5% 10%
---------- ---------- ----------- ---------- ------------ ------------
Melvin C. Payne...................... 250,000 30.6% $ 13.50 2006 $ 2,122,875 $ 5,379,750
Mark W. Duffey....................... 150,000 18.3% $ 13.50 2006 $ 1,273,725 $ 3,227,850
Russell W. Allen..................... 50,000 6.1% $ 13.50 2006 $ 424,575 $ 1,075,950
- ------------
(1) Options granted are for a term of ten years and vest 8.33% per year on the
first through fourth anniversary dates of the grant date and 16.66% per year
on the fifth through eighth anniversary dates of the grant date; PROVIDED,
HOWEVER, the options scheduled to vest in years 5-8 from the grant date
(i.e., 66 2/3 of the total grant) vest immediately if the average of the
daily high and low prices of the Class A Common Stock for 20 consecutive
trading days exceeds $27.99 prior to the fourth anniversary of the grant
date.
(2) These amounts represent certain assumed rates of appreciation based on
actual option term and annual compounding from the date of grant. Assumed
rates of appreciation are in accordance with guidelines established by the
Securities and Exchange Commission. Actual gains, if any, on stock option
exercises and Common Stock holdings are dependent on the future performance
of the Common Stock and overall stock market conditions. There can be no
assurance that the stock appreciation amounts reflected in this table will
be achieved, or that actual gains may prove to be substantially in excess of
those presented.
12
1996 OPTION EXERCISES AND YEAR-END OPTION HOLDINGS
The following table sets forth, with respect to the Named Executive
Officers in the Summary Compensation Table, information concerning the exercise
of stock options during the year ended December 31, 1996, and the year-end value
of unexercised options. This table sets forth options for Class A Common Stock.
AGGREGATE OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END OPTION VALUES
NUMBER OF UNEXERCISED VALUE OF UNEXERCISED
SHARES OPTIONS HELD AT IN-THE-MONEY OPTIONS AT
ACQUIRED DECEMBER 31, 1996 DECEMBER 31, 1996(1)
ON VALUE ---------------------------- ----------------------------
NAME EXERCISE REALIZED EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ------------------------------------- -------- -------- ----------- ------------- ----------- -------------
Melvin C. Payne...................... -- -- 0 250,000 0 $ 2,218,750
Mark W. Duffey....................... -- -- 0 150,000 0 $ 1,331,250
Russell W. Allen..................... -- -- 0 50,000 0 $ 443,750
- ------------
(1) An option is "in-the-money" if the market value of the Common Stock
exceeds the exercise price of the option. The values of the options set
forth in these columns are based upon the difference between the closing
price of $22.375 on the Nasdaq National Market System on December 31, 1996
and any lesser exercise price.
COMPENSATION OF DIRECTORS
In lieu of cash compensation, each director of the Company who is not an
officer or employee of the Company or any of its subsidiaries (a "nonemployee
director") is entitled to receive options under the 1996 Nonemployee Directors'
Stock Option Plan (the "Directors' Plan"). In addition, nonemployee directors
are reimbursed for expenses incurred in attending meetings of the Board of
Directors and Committees thereof.
Under the Directors' Plan, each individual who was a nonemployee director
as of the date of the Company's initial public offering in August 1996 received
a nonqualified stock option (an "Initial Option") to purchase 15,000 shares
(or 25,000 if the nonemployee director also served on the Executive Committee as
of such date) of Class A Common Stock at an exercise price per share equal to
the initial public offering price of $13.50 per share. C. Byron Snyder and Barry
K. Fingerhut were each serving on the Executive Committee on such date and
received options for 25,000 shares of Class A Common Stock. Each of the Initial
Options granted were for a term of ten years and vest 8.33% per year on the
first through fourth anniversary dates of the grant date and 16.66% per year on
the fifth through eighth anniversary dates of the grant date; PROVIDED, HOWEVER,
the options scheduled to vest in years 5-8 from the grant date (i.e. 66 2/3 of
the total grant) vest immediately if the average of the daily high and low
prices of the Class A Common Stock for 20 consecutive trading days exceeds
$27.99 prior to the fourth anniversary of the grant date.
Further, each nonemployee director is automatically granted a nonqualified
stock option (an "Annual Option") to purchase 6,000 shares of Class A Common
Stock on the date of each annual meeting of stockholders. Each Annual Option has
a term of ten years and an exercise price equal to the fair market value of the
Class A Common Stock on the date of grant. The aggregate number of shares of
Class A Common Stock reserved for issuance under the Directors' Plan is 200,000
shares.
Robert D. Larrabee became a director when the Company went public in August
1996. Since Mr. Larrabee was also an employee of the Company, he was ineligible
to receive an option grant under the Directors' Plan. In lieu of such grant, Mr.
Larrabee was granted an option under the 1995 Stock Incentive Plan to purchase
15,000 shares of Class A Common Stock with the same vesting schedule as the
Initial Options granted under the Directors' Plan.
Mark F. Wilson became a director of the Company and the President of a
subsidiary of the Company on January 7, 1997 in connection with the merger of
CNM with the Company. On such date, the Board granted Mr. Wilson an option to
purchase 15,000 shares of Class A Common Stock under the Directors' Plan subject
to stockholder approval of an amendment to the Directors' Plan described below.
13
The Company has proposed in Proposal 5 described elsewhere in this Proxy
Statement certain amendments to the Directors' Plan that, if approved by the
Company's stockholders, would allow a director who is an employee, but not an
executive officer of the Company (such as Mr. Larrabee and Mr. Wilson) to
participate in the Directors' Plan provided such director does not participate
in any other stock incentive plan of the Company. This proposal is described in
more detail beginning on page 25 of this Proxy Statement. If Proposal 5 is
approved by the stockholders at the Meeting, Mr. Larrabee and Mr. Wilson will
each be eligible to receive the Annual Option for 1997 that will be granted on
the date of the Meeting.
EMPLOYMENT AGREEMENTS
Effective July 1, 1996, the Company entered into separate employment
agreements with each of Melvin C. Payne, Mark W. Duffey and Russell W. Allen.
The employment agreements with Mr. Payne and Mr. Duffey have an initial term of
five years with an evergreen two-year extension continuing after the first three
years of the employment agreements unless either the Company or the employee
gives 90 days notice of termination. The employment agreement with Mr. Allen is
for an initial term of five years. Pursuant to these agreements, Messrs. Payne,
Duffey and Allen are entitled to receive a salary of not less than $225,000,
$185,000 and $145,000, respectively, and a bonus to be determined on an annual
basis by the Board of Directors. If the executive is terminated without cause
during the term of the agreement, the executive will receive a monthly severance
payment until the end of the term had the executive not been terminated plus a
proportionate amount of the bonus earned for the year of termination. Such
monthly severance payment would be equal to the average monthly amount
(including salary and bonus) earned by the executive during the three calendar
years prior to his termination. During the period that the executive receives
the monthly severance payments, the executive also would be entitled to
participate in any employee benefit plans or programs in which the executive was
participating at the time of his termination. In addition, each agreement
contains a covenant prohibiting the executive from competing with the Company
during the period they are receiving compensation under their agreements,
provided, however, that following termination of employment, the executive may
elect to forego certain severance payments which he would be entitled to under
the employment agreement and thereafter would not be prohibited from competing
with the Company. In addition, the agreements contain customary benefits and
perquisites.
COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
The Compensation Committee (the "Committee") is responsible for
recommending compensation arrangements for senior management, making
recommendations with respect to employee benefit plans, and making stock option
grants under the 1995 Stock Incentive Plan and the 1996 Stock Option Plan. Each
member of the Committee presently is a nonemployee director. Prior to January
30, 1997, Robert A. Larrabee, a director and an employee, was on the Committee,
but he was replaced on such date by C. Byron Snyder. Prior to December 1996, Mr.
Snyder was the Chairman of the Board of the Company.
The Committee seeks to improve the Company's performance and maximize
stockholder value through, among other things, establishing appropriate
executive compensation levels and incentives. The Committee believes that
compensation levels should be tied to performance on both an individual and
corporate level so that management will be properly motivated to achieve the
Company's annual and long term performance goals and to maximize stockholder
value. The Company's executive compensation policies are designed to:
o Allow the Company to attract and retain qualified executives with the
leadership and other skills needed by the Company at this stage in its
development;
o Provide strong incentives to achieve the Company's annual and long
term performance goals, with rewards for both individual and corporate
performance; and
o Solidly align the interests of management with those of the
stockholders.
The three components of executive compensation for the Company's executive
officers are (i) base salary, (ii) annual incentive cash bonuses, and (iii)
long-term incentive compensation in the form of stock options.
14
The Committee's overall philosophy is to maintain relatively modest levels
of base salary and yearly bonuses, but to emphasize stock options in its
incentive compensation program. The Committee feels this is the best way to
align the interests of management with those of the stockholders.
BASE SALARIES
The base salaries for each of the Company's executive officers are
determined on an individual basis, taking into consideration the performance of
the individual and his or her contributions to the Company's performance, the
duties and levels of responsibility of the individual, and compensation by
industry competitors for comparable positions. The Committee believes that
maintaining a reasonable base salary structure is necessary to attract and
retain talented executives.
BONUSES FOR EXECUTIVE OFFICERS IN 1996
At the end of each year, the Committee establishes a cash bonus fund based
on the Company's performance during the prior year. The Committee intends to
establish such a bonus fund for 1996 and pay bonuses in 1997 to its executive
officers, but the amount and allocation of the fund has not yet been
established. In establishing this fund, the Committee will consider, among other
things, the Company's growth trends through its acquisition program, the
Company's financial results in relation to performance in prior years and
expected performance for 1996, including operating margins and earnings per
share, the amount of any proposed bonus in relation to the officer's base
salary, the amount of bonuses being paid to executive officers of other public
companies of comparable size in this industry, and a subjective evaluation by
the Committee of each officer's individual performance.
STOCK OPTION GRANTS FOR 1996
The Company awards stock options to its executive officers under the 1996
Stock Option Plan and to its key employees under the 1995 Stock Incentive Plan.
The purpose of the stock options is to provide the executive officers and key
employees with an opportunity to build a meaningful equity ownership interest in
the Company. This Committee believes that management's ownership of a
significant equity interest in the Company is a major incentive in building
stockholder wealth and firmly aligns the interests of the executive officers and
key employees with those of the Company's stockholders.
The Committee and the Board strongly believe that stock options should be
the primary component of the Company's incentive compensation program for its
management and staff. One of the reasons for proposing an increase of the
available shares under the 1995 Stock Incentive Plan (see Proposal 3 herein) is
to start a new program to expand substantially the base of employees who receive
options, so that most full-time employees will have an ownership interest in the
Company.
The decision to award a stock option to an executive officer, as well as
the size of the award, is not specifically formula-driven nor based on any
specific corporate performance factors. The size of the grants in 1996 were
based on subjective factors such as individual performance, level of
responsibility and an officer's potential to contribute to the long-term success
of the Company. Stock options are granted at exercise prices not less than the
market value of the Common Stock on the date of grant and thus have no value
unless the Company's Common Stock appreciates in value.
In connection with the Company's initial public offering in August 1996,
the Committee granted an aggregate of 480,000 stock options to four of the
Company's executive officers. The Committee subsequently granted an additional
80,000 stock options to two additional executive officers who were hired in the
fourth quarter of 1996. These options, as well as the options granted to the
nonemployee directors under the 1996 Nonemployee Directors' Stock Option Plan,
have a vesting schedule with one-third vesting over time (25% on each
anniversary date over the first four years) and the remaining two-thirds vesting
based on a performance goal of a 20% annual compounded rate of return from the
initial public offering price of $13.50 per share. Accordingly, if the average
of the daily high and low prices of the Class A Common Stock for 20 consecutive
business days exceeds $27.99 prior to the fourth anniversary of the public
offering, two-thirds of the option grant will immediately vest. If the
performance goal is not met, the two-thirds portion of the option grant will
vest 25% per year on the fifth through eighth anniversary dates of the public
15
offering. The Committee believes that the performance goal provides a strong
incentive for the Company's management and directors and helps focus their
attention on stockholder return.
COMPENSATION POLICIES FOR THE CHIEF EXECUTIVE OFFICER
Melvin C. Payne has served as the Chief Executive Officer of the Company
since its inception in 1991. In connection with the Company's public offering in
August 1996, Mr. Payne's base salary was increased to $225,000 and he was
granted stock options to purchase 250,000 shares of Class A Common Stock. Mr.
Payne was granted a $47,000 bonus for 1996. The Committee believes the base
salary and bonus for Mr. Payne is reasonable given his duties and
responsibilities, his past performance and contributions to the Company's growth
and success, and competitive practices among comparable public companies. In
line with its general compensation policy, however, Mr. Payne's compensation
package emphasized stock options with the grant of 250,000 options when the
Company went public. In setting this level of options, in addition to evaluating
Mr. Payne's past performance, the Committee also took into consideration the
Company's future earnings prospects and the belief that Mr. Payne possesses the
leadership and management skills to help the Company achieve its long-term goals
for growth and performance.
Compensation Committee
Barry K. Fingerhut, Chairman
C. Byron Snyder
16
COMPARATIVE STOCKHOLDER RETURN
The following graph compares on a cumulative basis the percentage change
during the period from the Company's initial public offering on August 9, 1996
to December 31, 1996 in the total stockholder return on (i) the Class A Common
Stock of the Company, (ii) the Standard & Poor's 500 Stock Price Index, and
(iii) a peer group index of four other publicly traded companies in the death
care industry (Service Corporation International, The Loewen Group, Inc.,
Stewart Enterprises, Inc., and Equity Corporation International). This graph
assumes that the value of the investment in the Company's Class A Common Stock
and in each index was $100 on August 9, 1996 and that all dividends were
reinvested. The returns for each company in the Peer Group are weighted
according to its stock market capitalization at the beginning of each period for
which a return is indicated.
COMPARISON OF STOCKHOLDER TOTAL RETURN AMONG CARRIAGE SERVICES, INC.,
THE S&P 500 INDEX, AND AN INDUSTRY PEER GROUP
[LINEAR GRAPH PLOTTED FROM DATA IN TABLE BELOW]
COMPARISON OF STOCKHOLDER RETURNS
------------------------------------
AUGUST 9, 1996 DECEMBER 31, 1996
--------------- -----------------
Carriage Services, Inc............... $ 100 $ 136
S&P 500 Index........................ $ 100 $ 112
Peer Group........................... $ 100 $ 111
The above data is based upon the closing price of the Company's Class A
Common Stock on its first trading day, August 9, 1996, of $16.50 per share. The
initial public offering price for the Class A Common Stock, as shown in the
Company's registration statement, was $13.50 per share.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The members of the Compensation Committee are Barry K. Fingerhut and C.
Byron Snyder. The Compensation Committee was formed contemporaneously with the
Company's initial public offering in August 1996. From August 1996 to January
30, 1997, Robert D. Larrabee, a director and an employee of the Company (but not
an executive officer) served on the Compensation Committee. On January 30, 1997,
17
Mr. Larrabee was replaced by C. Byron Snyder, who served as the Chairman of the
Board of the Company until December 1996.
In connection with the acquisition by a subsidiary of the Company of three
corporations controlled by Robert D. Larrabee and his wife, which owned and
operated four funeral homes and two cemeteries in Washington and Idaho, (i) the
Company's subsidiary executed a note payable to Mr. Larrabee and his wife in the
original principal amount of $246,000, secured by the land and buildings of one
of the funeral home locations, as seller financing for that location, (ii) Mr.
Larrabee and such subsidiary entered into a five-year employment agreement
providing for, among other things, the payment of a base salary to Mr. Larrabee
of $25,000 per year, (iii) the Larrabees granted to such subsidiary an option to
purchase a five-acre parcel of land adjacent to one of the cemeteries included
in the acquisition for a purchase price of $300,000, and (iv) the Company agreed
to undertake to appoint Mr. Larrabee to the Company's Board of Directors if the
Company went public. This transaction was entered into prior to Mr. Larrabee
becoming a director of the Company, and the compensation outlined above does not
relate to any services provided by Mr. Larrabee as a director of the Company.
Mr. Larrabee also is a party to an arrangement with the Company whereby Mr.
Larrabee may receive annual cash bonuses if acquisition candidates which he
develops and which are subsequently acquired by the Company attain cash flow in
excess of certain cash flow targets over a ten-year period. Pursuant to the
arrangement, Mr. Larrabee may elect to sell back to the Company his share of
excess cash flow during the last three-year period at a predetermined cash flow
multiple. To date, no payments have been made by the Company under this
arrangement.
2. PROPOSAL TO APPROVE AN AMENDMENT TO THE CERTIFICATE OF
INCORPORATION TO CHANGE THE AUTHORIZED SHARES OF CAPITAL STOCK
THE PROPOSAL
The Board of Directors is seeking stockholder approval to amend Article IV
of the Company's Certificate of Incorporation to (i) increase the authorized
shares of Class A Common Stock from 15,000,000 to 40,000,000 shares, (ii) reduce
the authorized shares of Class B Common Stock from 15,000,000 to 10,000,000
shares, and (iii) increase the authorized shares of Preferred Stock from
50,000,000 to 70,000,000 shares. This proposal has been unanimously approved by
the Board of Directors subject to approval by the stockholders of the Company.
If the proposed amendment is authorized, the text of the first paragraph of
Article IV of the Certificate of Incorporation would be amended to read as
follows:
The total number of shares of stock that the Corporation shall have
authority to issue is 120,000,000 shares of capital stock, consisting of
(i) 70,000,000 shares of preferred stock, par value $.01 per share
("Preferred Stock"); (ii) 40,000,000 shares of Class A Common Stock, par
value $.01 per share ("Class A Common Stock"); and (iii) 10,000,000
shares of Class B Common Stock, par value $.01 per share ("Class B Common
Stock"); the Class A Common Stock and the Class B Common Stock are
collectively referred to as "Common Stock").
As of the record date of March 10, 1997, the number of shares of Class A
and B Common Stock and Preferred Stock that were authorized but not outstanding
or reserved for issuance are set forth in the table below:
AVAILABLE
FOR
AUTHORIZED OUTSTANDING RESERVED* ISSUANCE
---------- ----------- --------- ----------
Class A Common Stock.................... 15,000,000 4,137,679 7,940,127 2,922,194
Class B Common Stock.................... 15,000,000 4,502,169 1,266,120 9,231,711
Preferred Stock (all series)............ 50,000,000 37,253,108 0 12,746,892
- ------------
* Shares may be reserved for issuance either for conversion of outstanding
convertible securities or for issuance upon exercise of stock options granted
pursuant to the 1995 Stock Incentive Plan, the 1996 Stock Option Plan and the
1996 Nonemployee Directors' Stock Option Plan.
18
REASONS FOR THE PROPOSED AMENDMENT
The proposed increase in the number of authorized shares of Class A Common
Stock and Preferred Stock has been recommended by the Board to assure that an
adequate supply of authorized and unissued shares of Class A Common Stock and
Preferred Stock is available for general corporate needs, such as raising
additional equity capital, financing acquisitions with capital stock, declaring
stock splits or stock dividends, or using for future employee benefit plans.
Given the number of shares of Class A Common Stock and Preferred Stock currently
available for issuance, the Company believes it needs the ability to quickly
effect these types of these transactions without the delay involved to obtain
stockholder approval. Otherwise, the cost, prior notice requirements and delay
involved in obtaining stockholder approval when such corporate action may be
desirable could eliminate the opportunity to effect the transaction or reduce
the expected benefits.
The Board has proposed decreasing the number of authorized shares of Class
B Common Stock because it does not anticipate issuing additional shares of Class
B Common Stock except in very limited circumstances, such as for a stock split
or stock dividend, for exercising stock options that were granted under the 1995
Stock Incentive Plan prior to the Company's public offering in August 1996 and
for conversion of Series D Preferred Stock issued prior to the Company's public
offering. Therefore, the Board sees no need to have such a large number of
available shares of Class B Common Stock and feels it would be beneficial for
the Company to reduce the number of authorized shares of this class.
POSSIBLE EFFECTS OF THE PROPOSED AMENDMENTS
If approved by the stockholders, the additional authorized shares of Class
A Common Stock and Preferred Stock would be available for issuance at the
discretion of the Board of Directors without further stockholder approval
(subject to applicable rules of the National Association of Securities Dealers,
Inc. or any stock exchange on which the Company's securities may then be
listed), without the delay and expense incident to holding a special meeting of
stockholders to consider any specific issuance. However, the rules of the
National Association of Securities Dealers, Inc. (applicable to Nasdaq National
Market issuers) require stockholder approval in the following general
situations: (i) in connection with establishing a stock option or purchase plan
under which stock may be acquired by officers or directors, (ii) when the
issuance would result in a change of control of the Company, (iii) in connection
with the acquisition of stock or assets of another company if a director,
officer or substantial stockholder has a 5% or greater interest (or such persons
collectively have a 10% or greater interest) in the company or assets to be
acquired, and the stock issuable in such transaction could result in an increase
in the number of outstanding shares of Class A Common Stock or voting power of
the outstanding capital stock by 5% or more, or (iv) in connection with the
acquisition of stock or assets of another company or such other transaction
(except for a public offering of Class A Common Stock for cash) that would
result in an increase in the number of outstanding shares of Class A Common
Stock or the voting power of the outstanding capital stock by 20% or more.
The additional shares of Class A Common Stock for which authorization is
sought will have the same rights and privileges as the other shares of Class A
Common Stock presently outstanding. Current holders of Class A Common Stock have
no pre-emptive rights, which means that current stockholders do not have a prior
right to purchase any new issue of capital stock of the Company in order to
maintain their proportionate ownership thereof. Therefore, the effects of the
authorization of additional shares of Class A Common Stock and Preferred Stock
may also include dilution of the voting power of currently outstanding shares of
capital stock and reduction of the portion of dividends and of liquidation
proceeds payable to the holders of currently outstanding shares of capital
stock.
The additional shares of Preferred Stock for which authorization is sought
would become part of the existing authorized and unissued Preferred Stock of the
Company. The Company's Board of Directors may establish, without stockholder
approval, one or more classes or series of Preferred Stock having the number of
shares, designations, relative voting rights, dividend rates, conversion rights,
liquidation and other rights, preferences and limitations that the Board of
Directors may from time to time designate. The Company believes that this power
to issue Preferred Stock will provide flexibility in connection with possible
19
corporate transactions. The issuance of Preferred Stock, however, could
adversely dilute the voting power of holders of currently outstanding shares of
capital stock and restrict their rights to receive dividends or payments upon
liquidation of the Company.
In addition, the Board of Directors could use the additional authorized but
unissued shares of Class A Common Stock and Preferred Stock to create
impediments to a takeover or a change of control of the Company. Under certain
circumstances, such shares could be used to create voting impediments or to
frustrate persons seeking to effect a takeover or otherwise gain control of the
Company. For example, the Company might seek to frustrate a takeover attempt by
making a private sale of a large block of shares to a third party who was
opposed to such an attempt. The increase in authorized stock could also have the
effect of discouraging an attempt by a third party to acquire control of the
Company, through the acquisition of a substantial number of shares, since the
issuance of any shares could be used to dilute the stock ownership of shares of
the Company's voting stock held by such third party. The Board also could use a
portion of the additional shares of Class A Common Stock for a shareholder
rights plan that could make a change in control of the Company more difficult or
costly and therefore less likely. Accordingly, an effect of the increase in the
number of authorized shares of Class A Common Stock and Preferred Stock may be
to deter a future takeover attempt. The proposed amendment to the Certificate of
Incorporation, however, is not the result of any specific effort to obtain
control of the Company, and the Company has no present intention to use the
increased shares of authorized Class A Common Stock or Preferred Stock for a
shareholder rights plan or other anti-takeover purposes.
The affirmative vote of holders of a majority of the voting power of the
outstanding shares of Class A and B Common Stock and Series D and F Preferred
Stock is required to approve this proposal. THE BOARD OF DIRECTORS RECOMMENDS
THAT STOCKHOLDERS VOTE "FOR" THE PROPOSAL TO AMEND THE COMPANY'S CERTIFICATE
OF INCORPORATION.
3. PROPOSAL TO AMEND THE 1995 STOCK INCENTIVE PLAN
AMENDMENTS TO THE 1995 STOCK INCENTIVE PLAN
The Board of Directors has approved a proposal to amend the Company's 1995
Stock Incentive Plan (the "1995 Plan") to (i) increase the number of shares of
Class A and B Common Stock which are authorized to be issued pursuant to the
1995 Plan from 400,000 to 700,000 shares, (ii) to effect certain other changes
to the 1995 Plan to address changes to Rule 16b-3 recently adopted by the
Securities and Exchange Commission, and to qualify the 1995 Plan under Section
162(m) of the Code.
To date, 244,250 stock options have been granted under the 1995 Plan which
have not expired, which leaves 155,750 shares available for future grants of
stock options and other awards under the 1995 Plan. Since the Company
anticipates granting approximately 100,000 stock options to employees as part of
the Company's annual employee review process in the first quarter of this year,
only approximately 55,000 shares would then be available for future grants.
Therefore, the Board believes that it is prudent to authorize additional shares
so they will be available for future grants.
Although officers, directors and employees of the Company, and former
owners of funeral homes and cemeteries acquired by the Company, are eligible to
participate in the 1995 Plan, the Company has used the 1995 Plan almost
exclusively to grant options to local managers and assistant managers at the
Company's funeral homes and cemeteries and for the non-officer group of
employees at the Company's corporate office in Houston. The Company has used the
1996 Stock Option Plan for the executive officer group. If this proposal is
approved by the Company's stockholders, the Company intends to extend its stock
incentive program to almost all of the Company's full-time employees. This is in
line with the Company's compensation philosophy to create a sense of ownership
in the Company among the Company's employees. The Company believes that this
philosophy will create added long-term incentives for the Company's employees to
help the Company meet its long-term performance goals and maximize stockholder
value.
Another important consideration to the Board in proposing this amendment to
the 1995 Plan has been the rapid growth of the Company through acquisitions
during the past year. This rapid growth has increased
20
the number of additional employees eligible to participate in the 1995 Plan. The
Board believes that it is necessary to provide the Compensation Committee and
the Company's management with continued flexibility to use stock options under
the 1995 Plan as part of the Company's compensation program. The 700,000 shares
that would be authorized for issuance under the 1995 Plan, together with the
600,000 shares authorized under the 1996 Stock Option Plan and the 200,000
shares authorized under the Directors' Plan, constitute approximately 11.8% of
the issued and outstanding shares of Class A and B Common Stock of the Company
(on a fully diluted basis assuming conversion of all convertible securities and
issuance of all authorized stock options) which the Board feels is a reasonable
amount for the Company at this stage of the Company's development. SEE
"Executive Compensation -- Compensation Committee Report."
The Board also approved the following amendments to the 1995 Plan: (i)
replacement of the requirement that the 1995 Plan be administered by a committee
which qualifies the plan under Section 16b-3 of the Securities Exchange Act of
1934 with a requirement that the 1995 Plan be administered by a committee of
"outside directors" within the meaning of Section 162(m) of the Code; (ii)
imposing a limitation of a maximum of 200,000 shares of Common Stock that may be
subject to awards granted under the 1995 Plan to any one employee during a
calendar year; (iii) revision to the transfer restrictions on awards (other than
incentive stock options) which allows the Committee to approve proposed
transfers; (iv) elimination of the provisions which prevent the Committee from
(a) extending the period during which any award may be granted or exercised or
(b) extending the term of the 1995 Plan, without obtaining stockholder approval;
(v) adding a requirement that the Committee obtain stockholder approval in order
to change the class of employees eligible to receive awards under the 1995 Plan;
and (vi) clarification of the provisions relating to Stock Bonus Awards under
the 1995 Plan so that such Awards may qualify as "performance-based" under the
Code.
The purpose of these amendments is to conform the 1995 Plan to recent
amendments to Rule 16b-3 issued by the Securities and Exchange Commission that
became effective November 1, 1996, and to qualify the 1995 Plan under Section
162(m) of the Code. Under the revised Rule 16b-3, any acquisitions or
dispositions of the Company's securities between the Company's officers or
directors and the Company are generally exempted from short-swing profit
recovery under Section 16(b) of the Securities Exchange Act of 1934, subject to
certain limitations. Section 16(b) generally provides for the automatic recovery
of any profits made by an insider (director, executive officer or 10%
stockholder) on securities purchased and sold, or sold and purchased, within a
six-month period. The new amendments to Rule 16b-3 are based on the premise that
transactions between an issuer and its officer and directors are intended to
provide a benefit to reward service or to provide incentives for performance,
and do not generally provide opportunities for insiders to profit using
non-public information.
The new amendments to Rule 16b-3 provide a more flexible approach that
exempts from short-swing liability any grant or award that satisfies one of
three alternative conditions: (i) advance approval by the board of directors or
a board committee composed solely of two or more nonemployee directors; (ii)
advance approval or subsequent ratification by the stockholders; or (iii) if the
securities acquired are held by the insider for at least six months after
acquisition, or in the case of a stock option, at least six months elapse
between the grant date and the sale of the underlying security. The new
amendments to Rule16b-3 also eliminate many complex requirements under the prior
Rule 16b-3 that were incorporated in the 1995 Plan and are no longer required.
The Board desires to eliminate or amend the provisions of the 1995 Plan that
were required by the prior Rule 16b-3 to increase the flexibility of the
Compensation Committee to use stock options and other awards under the 1995 Plan
as part of the Company's compensation program for its key employees.
Section 162(m) of the Code precludes a public corporation from taking a
deduction in a taxable year for compensation in excess of $1 million paid to its
chief executive officer or any of its four other highest paid officers. However,
compensation that qualifies under Section 162(m) of the Code as "performance-
based" is specifically exempt from the deduction limit. The proposed amendment
to the 1995 Plan would allow the compensation paid under the 1995 Plan to
qualify under Code Section 162(m) as "performance-based."
21
The Board of Directors believes that the 1995 Plan serves as a valuable
employee incentive that allows its key employees an opportunity to build a
meaningful equity ownership interest in the Company. Stock options provide
long-term incentives for the participants to increase stockholder value and
directly align the interests of the Company's employees with the Company's
stockholders.
The affirmative vote of a majority of the voting power to the shares of
capital stock present or represented by Proxy at the Meeting will be required to
approve this proposal. THE BOARD OF DIRECTORS RECOMMENDS THAT STOCKHOLDERS VOTE
"FOR" THIS PROPOSAL TO AMEND THE 1995 STOCK INCENTIVE PLAN.
SUMMARY DESCRIPTION OF THE 1995 PLAN
The terms of the 1995 Plan, including the amendments described above, are
summarized below:
(1) ADMINISTRATION. The 1995 Plan is administered by the
Compensation Committee (the "Committee") of the Board of Directors, which
is constituted to permit the 1995 Plan to comply with Section 162(m) under
the Code. The Committee has sole and complete authority and discretion to
select participants and grant options or other awards provided for in the
1995 Plan; determine the terms and conditions upon which options or other
awards provided for in the 1995 Plan are granted including any vesting
schedule; determine whether an option is an incentive stock option or a
non-qualified stock option; and make all determinations deemed necessary or
advisable for the administration of the 1995 Plan.
(2) ELIGIBILITY. All officers, directors and employees of the
Company and its subsidiary and affiliate corporations, and former owners of
funeral homes or cemeteries that have been acquired by the Company, are
eligible to receive awards under the 1995 Plan, subject to approval of the
Committee.
(3) AVAILABLE SHARES. The maximum number of shares of Class A or B
Common Stock that may be issued under the 1995 Plan, after giving effect to
the amendment described above, is 700,000 shares. Awards under the 1995
Plan prior to the public offering in August 1996 were satisfied with shares
of Class B Common Stock, but awards after that time have been and will be
satisfied with shares of Class A Common Stock.
(4) STOCK OPTIONS. The 1995 Plan provides for the grant to eligible
employees of incentive stock options under Section 422 of the Code, and
non-qualified stock options to any eligible individual. The exercise price
for any stock options are determined by the Compensation Committee and
cannot be less than the fair market value on the date of grant. The fair
market value of the Class A Common Stock on any date means the average of
the high and low sales prices on such trading date as reported in THE WALL
STREET JOURNAL. A stock option shall not be exercisable prior to six months
from the date of grant and, unless a shorter period is specified by the
Committee or the terms of the 1995 Plan, shall have a term of ten years
from the date of grant. The exercise price of an option granted under the
1995 Plan may be paid in cash, in shares of Class A Common Stock (valued at
fair market value at the date of exercise) or by a combination of such
means of payment as may be determined by the Committee.
(5) RELOAD OPTIONS. The 1995 Plan provides that in the event a
holder pays all or a part of the exercise price of an incentive stock
option or a non-statutory stock option in shares of Class A Common Stock,
the Committee may grant a corresponding "reload option," which is not
qualified as an incentive stock option, for an equal number of shares of
Class A Common Stock. Reload options may be granted concurrently with the
award of a stock option or subsequent to the award of a stock option. Each
reload option is fully exercisable six months from the effective date of
grant.
(6) ALTERNATE APPRECIATION RIGHTS. Alternate appreciation rights may
be granted to eligible individuals in conjunction with options. Alternate
appreciation rights give the holder, among other things, the right to a
payment of Class A Common Stock in an amount equal to the difference
between the fair market value of the Class A Common Stock at the date of
exercise and the option exercise price.
22
(7) LIMITED RIGHTS AWARDS. In conjunction with options and alternate
appreciation rights, "limited rights" may also be granted to eligible
individuals. Limited rights give the holder, among other things, the right
to cash in an amount equal to the difference between the fair market value
of the Class A Common Stock at the date of exercise and the option exercise
price. Limited rights are exercisable for a period of seven months
following the date of a "Change of Control." The 1995 Plan provides that
a Change in Control occurs (i) if the Company is dissolved and liquidated,
(ii) if the Company is not the surviving entity in any merger,
consolidation, or reorganization, (iii) if the Company sells, leases or
exchanges, or agrees to sell, lease, or exchange, all or substantially all
of its assets, (iv) if any person, entity or group acquires or gains
ownership or control of more than 50% of the outstanding shares of the
Company's voting stock (based upon voting power), or (v) if, after a
contested election of directors, the persons who were directors before such
election cease to constitute a majority of the Board of Directors.
(8) BONUS STOCK AWARDS. The 1995 Plan also provides for the issuance
of shares of Class A Common Stock which may be subject to forfeiture under
circumstances specified by the Committee at the time of the award of such
shares ("bonus stock"). Pursuant to a bonus stock award, shares of Class
A Common Stock will be issued to the individual at the time the award is
made without any payment to the Company (other than for any payment amount
determined by the Committee in its discretion), but such shares may be, if
so specified by the Committee, subject to a vesting schedule, certain
restrictions on the disposition thereof and certain obligations to forfeit
such shares to the Company, as determined in the discretion of the
Committee.
(9) DEATH, RETIREMENT OR TERMINATION OF EMPLOYMENT. Unless otherwise
provided in an award agreement or otherwise agreed to by the Committee: (i)
Upon an optionee's death, the optionee's estate or transference by bequest
or inheritance may exercise such option within the lesser of one year after
the date of death or the remaining term of the stock option, but only to
the extent of any rights exercisable on the date of death; (ii) Upon an
optionee's termination of employment because of retirement or permanent
disability, the optionee may, up to a maximum of 36 months (or such shorter
time as reflected in the optionee's award agreement), exercise any stock
options to the extent such options are exercisable during such 36-month
period; and (iii) If an optionee's employment is terminated for any reason
other than death, retirement or permanent disability, any stock options
terminate three months after the date of termination.
(10) STOCK SPLITS AND CAPITAL READJUSTMENTS. The 1995 Plan provides
that the total number of shares covered by each award will be
proportionately adjusted in the event of a stock split, reverse stock
split, or other similar capital adjustment effected without the receipt of
consideration by the Company. Further, the total number of shares covered
by the 1995 Plan, the exercise price per share under each option, and any
other matters deemed appropriate by the Committee, may be appropriately
adjusted in event of a stock dividend or distribution, recapitalization,
merger, consolidation, split-up, combination, exchange of shares, or
similar transaction.
(11) AMENDMENT. The Committee may amend, modify or terminate the
1995 Plan at any time, but no amendment may be made without approval of the
stockholders of the Company which (i) increases the maximum aggregate
number of shares of Common Stock which may be issued under the 1995 Plan,
or (ii) changes the class of individuals who are eligible to receive awards
under the 1995 Plan.
4. PROPOSAL TO AMEND THE 1996 STOCK OPTION PLAN
AMENDMENTS TO THE 1996 STOCK OPTION PLAN
The Board of Directors has approved a proposal to amend the Company's 1996
Stock Option Plan (the "1996 Plan") to (i) address changes to Rule 16b-3 under
the Securities Exchange Act of 1934, as amended, and (ii) qualify the 1996 Plan
under Section 162(m) of the Code. The proposed amendments include the following:
(i) replacement of the requirement that the 1996 Plan be administered by a
committee which qualifies the plan under Section 16b-3 of the Securities
Exchange Act of 1934 with a requirement that the
23
1996 Plan be administered by a committee of "outside directors" within the
meaning of section 162(m) of the Code; (ii) imposing a limitation of a maximum
of 200,000 shares of Common Stock that may be subject to awards granted under
the 1996 Plan to any one employee during a calendar year; (iii) revision to the
transfer restrictions on awards (other than incentive stock options) which
allows the Committee to approve proposed transfers; (iv) elimination of the
provisions which prevent the Committee from (a) extending the period during
which any award may be granted or exercised or (b) extending the term of the
1996 Plan, without obtaining stockholder approval; and (v) adding a requirement
that the Committee obtain stockholder approval in order to change the class of
individuals eligible to receive awards under the 1996 Plan. A description of the
reasons for these proposed amendments is set forth in Proposal 3.
The affirmative vote of a majority of the voting power to the shares of
capital stock present or represented by Proxy at the Meeting will be required to
approve this proposal. THE BOARD OF DIRECTORS RECOMMENDS THAT STOCKHOLDERS VOTE
"FOR" THIS PROPOSAL TO AMEND THE 1996 STOCK OPTION PLAN.
SUMMARY DESCRIPTION OF THE 1996 PLAN
The terms of the 1996 Plan, including the amendments described above, are
summarized below:
(1) ADMINISTRATION. The 1996 Plan is administered by the
Compensation Committee (the "Committee") of the Board of Directors, which
is constituted to permit the 1996 Plan to comply with Section 162(m) under
the Code. The Committee has sole and complete authority and discretion to
select participants and grant options or other awards provided for in the
1996 Plan; determine the terms and conditions upon which options or other
awards provided for in the 1996 Plan are granted including any vesting
schedule; and make all determinations deemed necessary or advisable for the
administration of the 1996 Plan.
(2) ELIGIBILITY. All employees (including officers and directors who
are also employees) of the Company and its subsidiaries are eligible to
receive awards under the 1996 Plan, subject to approval of the Committee.
(3) AVAILABLE SHARES. The maximum number of shares of Class A Common
Stock that may be issued under the 1996 Plan is 600,000 shares.
(4) STOCK OPTIONS. The 1996 Plan provides for the grant to eligible
employees of incentive stock options under Section 422 of the Code and
non-qualified stock options. The exercise price for any stock options are
determined by the Compensation Committee and cannot be less that the fair
market value on the date of grant. The fair market value of the Class A
Common Stock on any date means the average of the high and low sales prices
on such trading date as reported by the Nasdaq National Market System. The
exercise price of an option granted under the 1996 Plan may be paid in
cash, in shares of Class A Common Stock (valued at fair market value at the
date of exercise) or by a combination of such means of payment as may be
determined by the Committee.
(5) STOCK APPRECIATION RIGHTS. The 1996 Plan provides that stock
appreciation rights may be granted to employees in conjunction with
options. Stock appreciation rights give the holder, among other things, the
right to a payment in an amount equal to the difference between the fair
market value of the Class A Common Stock at the date of exercise and the
option exercise price. Such payment may be made, at the election of the
holder (subject to the consent or disapproval of the Committee of any
election to receive cash), in cash, in shares of Class A Common Stock
(valued at fair market value at the date of exercise), or by a combination
thereof.
(6) STOCK SPLITS AND CAPITAL READJUSTMENTS. The 1996 Plan provides
that the total number of shares covered by each award will be
proportionately adjusted in the event of a stock split, reverse stock
split, or other similar capital adjustment effected without the receipt of
consideration by the Company. Further, the total number of shares covered
by the 1996 Plan, the exercise price per share under each option, and any
other matters deemed appropriate by the Committee, may be appropriately
adjusted in event of a stock dividend or distribution, recapitalization,
merger, consolidation, split-up, combination, exchange of shares, or
similar transaction.
24
(7) AMENDMENT. The Committee may amend, modify or terminate the 1996
Plan at any time, but no amendment may be made without approval of the
stockholders of the Company which (i) increases the maximum aggregate
number of shares of Common Stock which may be issued under the 1996 Plan,
or (ii) changes the class of individuals who are eligible to receive awards
under the 1996 Plan.
5. PROPOSAL TO AMEND THE 1996 NONEMPLOYEE DIRECTORS'
STOCK OPTION PLAN
AMENDMENTS TO THE 1996 NONEMPLOYEE DIRECTORS' STOCK OPTION PLAN
The Board of Directors has approved a proposal to amend the Company's 1996
Nonemployee Directors' Stock Option Plan (the "Directors' Plan") to: (i) make
eligible to participate in the Directors' Plan any director who is an employee
of the Company or any of its subsidiaries, but is not an executive officer of
the Company, provided such director does not participate in any other stock
incentive plan of the Company, (ii) provide for an option grant to purchase
15,000 shares of Class A Common Stock when a new director is appointed or
elected to the Board (or 25,000 shares if such new director becomes a member of
the Executive Committee), (iii) change the name of the Directors' Plan to "1996
Directors' Stock Option Plan," and (iv) make certain other changes to the
Directors' Plan to address changes to Rule 16b-3.
The reason for the amendment to expand the eligibility requirement of the
Directors' Plan is to allow two existing directors, Robert D. Larrabee and Mark
F. Wilson, who are employees but not executive officers of the Company, to
participate in the Directors' Plan provided they do not concurrently participate
in any other stock incentive plans of the Company. Both Mr. Larrabee and Mr.
Wilson are former principals of companies that have been acquired by the
Company. When the Company acquired their former companies, the Company desired
to keep both of them as employees so that the Company could avail itself of
their knowledge and expertise. Mr. Larrabee became a director in August 1996,
and Mr. Wilson became a director in January 1997. Since Mr. Larrabee was not
eligible to participate in the Directors' Plan, the Company in August 1996
granted Mr. Larrabee an option to purchase 15,000 shares of Class A Common Stock
under the 1995 Stock Incentive Plan. In January 1997, the Company granted Mr.
Wilson an option to purchase 15,000 shares of Class A Common Stock subject to
stockholder approval of this proposal.
The Board believes that it would be appropriate to compensate Mr. Larrabee
and Mr. Wilson for their services as directors under the Directors' Plan rather
than under either the 1995 Stock Incentive Plan or the 1996 Stock Option Plan.
The Company also anticipates that this type of situation could occur in the
future. Accordingly, the Board believes that it would be advisable to amend the
Directors' Plan to allow Mr. Larrabee, Mr. Wilson any future director in a
similar situation to participate in the Directors' Plan. If this proposal is
approved by the Company's stockholders, Mr. Larrabee and Mr. Wilson will each
receive an option grant to purchase 6,000 shares of Class A Common Stock
effective as of the date of the Meeting.
The Board also desires to amend the Directors' Plan to provide for an
option grant to purchase 15,000 shares of Class A Common Stock when a new
director is appointed or elected to the Board (or 25,000 shares if such new
director becomes a member of the Executive Committee). The Directors' Plan
provided for an initial option grant to each eligible director in office on the
date of the Company's initial public offering of 15,000 shares of Class A Common
Stock with an additional option grant to purchase 10,000 shares of Class A
Common Stock if such director also served on the Company's Executive Committee
as of such date. The Directors' Plan, however, did not provide for an initial
option grant of Class A Common Stock for subsequent directors appointed or
elected to the Board. The Board believes this change is appropriate to provide
for a meaningful initial equity stake in the Company for future eligible
directors. The Board believes this is especially important since the Company
does not pay cash compensation to its eligible directors. When Mark F. Wilson
was appointed to the Board on January 7, 1997, the Board, subject to stockholder
approval of this proposal, awarded Mr. Wilson an option to purchase 15,000
shares of Class A Common Stock under the Directors' Plan.
25
The Board has not decided how the options granted to a newly appointed or
elected director would vest. Instead, the Board would like to remain flexible
for setting an appropriate vesting schedule when any future director is elected
or appointed.
Finally, the Directors' Plan would be amended to change the name of the
Directors' Plan to "1996 Directors' Stock Option Plan" to eliminate the word
"Nonemployee." Since the Directors' Plan is being amended to allow an employee
director to participate, the Board feels that it would be appropriate to change
the name to more accurately describe the Directors' Plan.
The affirmative vote of a majority of the voting power to the shares of
capital stock present or represented by Proxy at the Meeting will be required to
approve this proposal. THE BOARD OF DIRECTORS RECOMMENDS THAT STOCKHOLDERS VOTE
"FOR" THIS PROPOSAL TO AMEND THE 1996 NONEMPLOYEE DIRECTORS' STOCK OPTION
PLAN.
SUMMARY DESCRIPTION OF THE DIRECTORS' PLAN
The terms of the Directors' Plan, including the amendments described above,
are summarized below:
(1) AUTHORIZED SHARES. The aggregate number of shares of Class A
Common Stock that may be issued pursuant to the exercise of options granted
under the Directors' Plan is 200,000 shares. Shares issuable pursuant to
the nonemployee Directors' Plan may be authorized but unissued shares or
reacquired shares, and the Company may purchase shares required for this
purpose.
(2) ELIGIBILITY. A director who is not an executive officer of the
Company and does not participate in any other stock incentive plans of the
Company shall be eligible to participate in the Directors' Plan
(hereinafter an "Eligible Director").
(3) INITIAL IPO OPTION GRANT. On the date of the Company's initial
public offering ("IPO") in August 1996, each nonemployee director at such
date, or who was elected to the Board at such date, received a stock option
to purchase 15,000 shares of Class A Common Stock at an exercise price per
share equal to the initial public offering price of $13.50 per share;
provided that any nonemployee director then serving on the Executive
Committee also received an additional stock option to purchase 10,000
shares of Class A Common Stock at the same price.
(4) INITIAL OPTION GRANT TO SUBSEQUENT DIRECTORS. Any new Eligible
Director who is appointed or elected to the Board subsequent to the
Company's IPO shall receive an initial option grant to purchase 15,000
shares of Class A Common Stock, or 25,000 shares if such new director also
becomes a member of the Executive Committee at such date. If an Eligible
Director is elected to the Board for the first time at an annual meeting of
stockholders, such Eligible Director shall receive both the initial option
grant and the annual option grant described in the next paragraph.
(5) ANNUAL OPTION GRANT. On the date of each annual meeting of
stockholders, each Eligible Director shall receive a stock option to
purchase 6,000 shares of Class A Common Stock.
(6) TERMS OF OPTION GRANTS. All stock options granted under the
Directors' Plan are non-qualified stock options not entitled to special tax
treatment under Section 422 of the Code, and have a term of ten years from
the date of grant. Except for the initial options granted contemporaneous
with the Company's IPO, the exercise price of all other stock options
granted under the Directors' Plan will be the "fair market value" of the
Class A Common Stock on the date of grant. Fair market value, as of any
date, means the average of the high and low prices of the Class A Common
Stock on such date, as reported on the Nasdaq National Market System or on
any exchange that the Class A Common Stock shall then be traded. The number
of shares covered by each option and the exercise price per share will be
proportionately adjusted in the event of a stock split, reverse stock
split, stock dividend, or similar capital adjustment effected without
receipt of consideration by the Company.
(7) TERMINATION AFTER DEATH, DISABILITY OR CHANGE OF CONTROL. All
options granted under the Directors' Plan will also become fully vested and
exercisable in full if an Eligible Directors' membership on the Board
terminates by reason of death or disability or upon the occurrence of a
"Change of Control" while a nonemployee director is a member of the Board
of Directors. The
26
Nonemployee Directors' Plan provides that a Change of Control occurs (i) if
the Company is dissolved and liquidated, (ii) if the Company is not the
surviving entity in any merger, consolidation, or reorganization, (iii) if
the Company sells, leases or exchanges, or agrees to sell, lease, or
exchange, all or substantially all of its assets, (iv) if any person,
entity or group acquires or gains ownership or control of more than 50% of
the outstanding shares of the Company's voting stock (based upon voting
power), or (v) if, after a contested election of directors, the person who
were directors before such election cease to constitute a majority of the
Board of Directors. Upon termination of an Eligible Directors' membership
on the Board of Directors, the Eligible Director will have three months (12
months if such termination is by reason of death or disability) to exercise
his or her options, but only to the extent such options are vested as of
the date of such termination.
6. RATIFICATION OF SELECTION OF INDEPENDENT PUBLIC ACCOUNTANTS
The Board has selected Arthur Andersen LLP as the Company's independent
public accountants for the year ending December 31, 1997, and has further
directed that management submit the selection of the independent accountants for
ratification by the stockholders at the Meeting. Arthur Andersen LLP has audited
the Company's financial statements since 1992. Representatives of Arthur
Andersen LLP are expected to be present at the Meeting and will have an
opportunity to make a statement if they so desire and will be available to
respond to appropriate questions.
Stockholder ratification of the selection of Arthur Andersen LLP as the
Company's independent public accountants is not required by the Company's
By-laws or otherwise. In the event the Company's stockholders fail to ratify the
selection, the Board will reconsider whether to retain that firm. Even if the
selection is ratified, the Board, in its discretion may direct the appointment
of a different independent accounting firm at any time during the year if the
Board feels that such a change would be in the best interests of the Company and
its stockholders. The affirmative vote of the holders of a majority of the
voting power of the shares of capital stock present or represented by proxy at
the Meeting will be required to ratify the selection of Arthur Andersen LLP.
THE BOARD OF DIRECTORS RECOMMENDS THAT STOCKHOLDERS VOTE "FOR" THIS
PROPOSAL TO RATIFY THE SELECTION OF ARTHUR ANDERSEN LLP.
OTHER BUSINESS
Management does not intend to bring any other business before the Meeting
and has not been informed that any other matters are to be presented at the
meeting by others. In the event that other matters properly come before the
Meeting or any adjournment thereof, it is intended that the persons named in the
accompanying proxy and acting thereunder will vote in accordance with their best
judgment.
Proposals of stockholders intended to be presented at the next Annual
Meeting of Stockholders, and otherwise eligible, must be received by the Company
(at the address indicated on the first page of this Proxy Statement) no later
than December 1, 1997 in order to be included in the Company's proxy material
and form of proxy relating to that meeting.
27
ADDITIONAL INFORMATION
ANNUAL REPORT
The Annual Report to Stockholders (including Form 10-K) for the year ended
December 31, 1996 is being mailed to all stockholders entitled to vote at the
Meeting. The Annual Report to Stockholders does not form any part of the proxy
soliciting materials.
REGARDLESS OF THE NUMBER OF SHARES OWNED, IT IS IMPORTANT THAT THEY BE
REPRESENTED AT THE MEETING, AND YOU ARE RESPECTFULLY REQUESTED TO SIGN, DATE AND
RETURN THE ACCOMPANYING PROXY AT YOUR EARLIEST CONVENIENCE.
By Order of the Board of Directors
THOMAS C. LIVENGOOD
SECRETARY
Houston, Texas
March , 1997
28
APPENDIX B TO PROXY STATEMENT
================================================================================
CARRIAGE SERVICES, INC.
1995 STOCK INCENTIVE PLAN
AS AMENDED AND RESTATED EFFECTIVE AS OF JANUARY 7, 1997
================================================================================
TABLE OF CONTENTS
PAGE
----
ARTICLE I. GENERAL...................... 1
Section 1.1. PURPOSE............... 1
Section 1.2. ADMINISTRATION........ 1
Section 1.3. ELIGIBILITY FOR
PARTICIPATION..................... 1
Section 1.4. TYPES OF AWARDS UNDER
PLAN.............................. 2
Section 1.5. AGGREGATE LIMITATION
ON AWARDS......................... 2
Section 1.6. EFFECTIVE DATE AND
TERM OF PLAN...................... 3
ARTICLE II. STOCK OPTIONS............... 3
Section 2.1. AWARD OF STOCK
OPTIONS........................... 3
Section 2.2. STOCK OPTION
AGREEMENTS........................ 3
Section 2.3. STOCK OPTION PRICE.... 3
Section 2.4. TERM AND EXERCISE..... 3
Section 2.5. MANNER OF PAYMENT..... 3
Section 2.6. DELIVERY OF SHARES.... 4
Section 2.7. DEATH, RETIREMENT AND
TERMINATION OF EMPLOYMENT OF
OPTIONEE.......................... 4
Section 2.8. TAX ELECTION.......... 4
Section 2.9. EFFECT OF EXERCISE.... 4
ARTICLE III. INCENTIVE STOCK OPTIONS.... 5
Section 3.1. AWARD OF INCENTIVE
STOCK OPTIONS..................... 5
Section 3.2. INCENTIVE STOCK OPTION
AGREEMENTS........................ 5
Section 3.3. INCENTIVE STOCK OPTION
PRICE............................. 5
Section 3.4. TERM AND EXERCISE..... 5
Section 3.5. MAXIMUM AMOUNT OF
INCENTIVE STOCK OPTION GRANT...... 5
Section 3.6. DEATH OF OPTIONEE..... 5
Section 3.7. RETIREMENT OR
DISABILITY........................ 5
Section 3.8. TERMINATION FOR OTHER
REASONS........................... 6
Section 3.9. APPLICABILITY OF STOCK
OPTIONS SECTIONS.................. 6
ARTICLE IV. RELOAD OPTIONS.............. 6
Section 4.1. AUTHORIZATION OF
RELOAD OPTIONS.................... 6
Section 4.2. RELOAD OPTION
AMENDMENT......................... 6
Section 4.3. RELOAD OPTION PRICE... 6
Section 4.4. TERM AND EXERCISE..... 6
Section 4.5. TERMINATION OF
EMPLOYMENT........................ 6
Section 4.6. APPLICABILITY OF STOCK
OPTIONS SECTIONS.................. 6
ARTICLE V. ALTERNATE APPRECIATION
RIGHTS................................ 6
Section 5.1. AWARD OF ALTERNATE
APPRECIATION RIGHTS............... 6
Section 5.2. ALTERNATE APPRECIATION
RIGHTS AGREEMENT.................. 7
Section 5.3. EXERCISE.............. 7
Section 5.4. AMOUNT OF PAYMENT..... 7
Section 5.5. FORM OF PAYMENT....... 7
Section 5.6. EFFECT OF EXERCISE.... 7
Section 5.7. TERMINATION OF
EMPLOYMENT, RETIREMENT, DEATH OR
DISABILITY........................ 7
ARTICLE VI. LIMITED RIGHTS.............. 7
Section 6.1. AWARD OF LIMITED
RIGHTS............................ 7
Section 6.2. LIMITED RIGHTS
AGREEMENT......................... 7
Section 6.3. EXERCISE PERIOD....... 8
Section 6.4. AMOUNT OF PAYMENT..... 8
(i)
PAGE
----
Section 6.5. FORM OF PAYMENT....... 8
Section 6.6. EFFECT OF EXERCISE.... 8
Section 6.7. RETIREMENT OR
DISABILITY........................ 8
Section 6.8. DEATH OF OPTIONEE OR
TERMINATION FOR OTHER REASONS..... 8
Section 6.9. TERMINATION RELATED TO
A CHANGE IN CONTROL............... 8
ARTICLE VII. BONUS STOCK AWARDS......... 9
Section 7.1. AWARD OF BONUS
STOCK............................. 9
Section 7.2. STOCK BONUS
AGREEMENTS........................ 9
Section 7.3. TRANSFER
RESTRICTION....................... 9
ARTICLE VIII. MISCELLANEOUS............. 9
Section 8.1. GENERAL RESTRICTION... 9
Section 8.2. NON-TRANSFERABILITY... 9
Section 8.3. WITHHOLDING TAXES..... 9
Section 8.4. RIGHT TO TERMINATE
EMPLOYMENT........................ 9
Section 8.5. NON-UNIFORM
DETERMINATIONS.................... 10
Section 8.6. RIGHTS AS A
SHAREHOLDER....................... 10
Section 8.7. DEFINITIONS........... 10
Section 8.8. LEAVES OF ABSENCE..... 10
Section 8.9. NEWLY ELIGIBLE
EMPLOYEES......................... 10
Section 8.10. ADJUSTMENTS.......... 10
Section 8.11. CHANGES IN THE
COMPANY'S CAPITAL STRUCTURE....... 11
Section 8.12. AMENDMENT OF THIS
PLAN.............................. 12
(ii)
CARRIAGE SERVICES, INC.
1995 STOCK INCENTIVE PLAN
AS AMENDED AND RESTATED EFFECTIVE AS OF JANUARY 7,1997
ARTICLE I. GENERAL
Section 1.1. PURPOSE. The purposes of this Stock Incentive Plan (the
"Plan") are to: (1) closely associate the interests of the management of
Carriage Services, Inc., a Delaware corporation (the "Company"), and its
subsidiaries and affiliates (the Company, together with its subsidiaries and
affiliates, being hereafter collectively referred to as "Carriage") with the
stockholders of the Company to generate an increased incentive to contribute to
the Company's future success and prosperity, thus enhancing the value of the
Company for the benefit of its stockholders; (2) provide management with a
proprietary ownership interest in the Company commensurate with Carriage's
performance, as reflected in increased shareholder value; (3) maintain
competitive compensation levels thereby attracting and retaining highly
competent and talented directors and employees; and (4) provide an incentive to
management for continuous employment with Carriage. The Plan as set forth herein
constitutes an amendment and restatement, effective as of the date of the
adoption of this amendment and restatement (the "Restatement Effective Date")
by the Board of Directors of the Company (the "Board"), of the Plan as
previously adopted and as subsequently amended by the Company, and shall
supersede and replace in its entirety such prior plan.
Section 1.2. ADMINISTRATION.
(a) This Plan shall be administered by a committee (the
"Committee") of, and appointed by, the Board, which shall be comprised
solely of two or more "outside directors" within the meaning of section
162(m) of the Internal Revenue Code of 1986, as amended (the "Code") and
applicable interpretive authority thereunder.
(b) The Committee shall have the authority, in its sole discretion
and from time to time to:
(i) designate the employees or classes of employees of Carriage
and other persons who are eligible to participate in this Plan;
(ii) grant awards ("Awards") provided in this Plan in such form
and amount as the Committee shall determine;
(iii) impose such limitations, restrictions, and conditions, not
inconsistent with this Plan, upon any such Award as the Committee shall
deem appropriate; and
(iv) interpret this Plan and any agreement, instrument, or other
document executed in connection with this Plan; adopt, amend, and
rescind rules and regulations relating to this Plan; and make all other
determinations and take all other action necessary or advisable for the
implementation and administration of this Plan.
(c) Decisions and determinations of the Committee on all matters
relating to this Plan shall be in its sole discretion and shall be final,
conclusive, and binding upon all persons, including the Company, any
participant, any shareholder of the Company, and any employee of Carriage.
A majority of the members of the Committee may determine its actions and
fix the time and place of its meetings. No member of the Committee shall be
liable for any action taken or decision made in good faith relating to this
Plan or any Award thereunder.
Section 1.3. ELIGIBILITY FOR PARTICIPATION Participants in this Plan
("Participants") shall be selected by the Committee from the directors,
executive officers and other employees of Carriage who are responsible for or
contribute to the management, growth, success and, profitability of Carriage,
and from persons (not otherwise specified above) who are former owners of
funeral homes or cemeteries that have been acquired by Carriage. In making this
selection and in determining the form and amount of Awards, the Committee shall
consider any factors deemed relevant, including the individual's functions,
responsibilities, value of services to Carriage, and past and potential
contributions to Carriage's profitability and growth.
B-1
Section 1.4. TYPES OF AWARDS UNDER PLAN. Awards under this Plan may be in
the form of any or more of the following:
(i) Stock Options, as described in Article II;
(ii) Incentive Stock Options, as described in Article III;
(iii) Reload Options, as described in Article IV;
(iv) Alternate Appreciation Rights, as described in Article V;
(v) Limited Rights, as described in Article VI; and/or
(vi) Stock Bonus Awards, as described in Article VII.
Awards under this Plan shall be evidenced by an Award Agreement between the
Company and the recipient of the Award ("Award Agreement"), in form and
substance satisfactory to the Committee, and not inconsistent with this Plan.
Section 1.5. AGGREGATE LIMITATION ON AWARDS.
(a) Shares of stock which may be issued under this Plan shall be
authorized and unissued or treasury shares of either (i) Class A Common Stock,
$.01 par value, of the Company ("Class A Common Stock") or (ii) Class B Common
Stock, $.01 par value, of the Company ("Class B Common Stock"). As used
herein, the term "Common Stock' shall mean both Class A Common Stock and Class B
Common Stock. The maximum number of shares of Common Stock that may be issued
under this Plan shall be 700,000. The number of shares that may be issued under
this Plan and as to which options may be granted shall be subject to adjustment
as provided in Sections 8.10 and 8.11. Notwithstanding any provision in this
Plan to the contrary, (1) Awards under this Plan that were granted prior to the
date of the initial public offering of shares of Class A Common Stock shall be
satisfied in shares of Class B Common Stock and (2) Awards under this Plan that
are granted on or after the date of the initial public offering of shares of
Class A Common Stock shall be satisfied in shares of Class A Common Stock.
Further, upon the exercise of an Award, any exercise payment which is made in
shares of Common Stock in accordance with Section 2.5 hereof shall be made (A)
only in shares of Class B Common Stock if such Award is to be satisfied in Class
B Common Stock or (B) only in shares of Class A Common Stock if such Award is to
be satisfied in shares of Class A Common Stock. Notwithstanding any provision in
the Plan to the contrary, the maximum number of shares of Common Stock that may
be subject to Awards granted to any one employee during a calendar year is
200,000 shares of Common Stock subject to adjustment as provided in Sections
8.10 and 8.11. The limitation set forth in the preceding sentence shall be
applied in a manner which will permit compensation generated under the Plan to
constitute "performance-based" compensation for purposes of section 162(m) of
the Code, including, without limitation, counting against such maximum number of
shares, to the extent required under section 162(m) of the Code and applicable
interpretive authority thereunder, any shares subject to Stock Options, Reload
Options, Alternative Appreciation Rights and, if applicable, Bonus Stock Awards,
that are canceled or repriced.
(b) For purposes of calculating the maximum number of shares of Common
Stock that may be issued under this Plan:
(i) all the shares issued (including the shares, if any, withheld
for tax withholding requirements) shall be counted when cash is used as
full payment for shares issued upon exercise of a Stock Option, Incentive
Stock Option, or Reload Option;
(ii) only the shares issued (including the shares, if any, withheld
for tax withholding requirements) as a result of an exercise of Alternate
Appreciation Rights shall be counted; and
(iii) only the net shares issued (including the shares, if any,
withheld for tax withholding requirements) shall be counted when shares of
Common Stock or another Award under this Plan are used or withheld as full
or partial payment for shares issued upon exercise of a Stock Option,
Incentive Stock Option, or Reload Option.
B-2
(c) In addition to shares of Common Stock actually issued pursuant to the
exercise of Stock Options, Incentive Stock Options, Reload Options, or Alternate
Appreciation Rights, there shall be deemed to have been issued a number of
shares equal to the number of shares of Common Stock in respect of which Limited
Rights (as described in Article VI) shall have been exercised.
(d) Shares tendered by a participant or withheld as payment for shares
issued upon exercise of a Stock Option, Incentive Stock Option, or Reload Option
shall be available for issuance under this Plan. Any shares of Common Stock
subject to a Stock Option, Incentive Stock Option, or Reload Option that for any
reason is terminated unexercised or expires shall again be available for
issuance under this Plan, but shares subject to a Stock Option, Incentive Stock
Option, or Reload Option that are not issued as a result of the exercise of
Limited Rights shall not again be available for issuance under this Plan.
Section 1.6. EFFECTIVE DATE AND TERM OF PLAN.
(a) The Plan originally became effective on July 1, 1995. This amendment
and restatement of the Plan shall become effective upon the Restatement
Effective Date, provided that this amendment and restatement of the plan is
approved by the stockholders of the Company within twelve (12) months
thereafter.
(b) No Awards shall be made under this Plan after July 1, 2005; provided,
however, that this Plan and all Awards made under this Plan prior to such date
shall remain in effect until such Awards have been satisfied or terminated in
accordance with this Plan and the terms of such Awards.
(c) Notwithstanding any provision herein to the contrary, if this
amendment and restatement of the Plan is not approved by the stockholders of the
Company within twelve (12) months after the Restatement Effective Date, then any
Award made on or after the Restatement Effective Date shall be void and canceled
in its entirety, and the Plan shall terminate with respect to any shares of
Common Stock for which Awards were not granted prior to the Restatement
Effective Date.
ARTICLE II. STOCK OPTIONS
Section 2.1. AWARD OF STOCK OPTIONS. The Committee may from time to time,
and subject to the provisions of this Plan and such other terms and conditions
as the Committee may prescribe, grant to any participant in this Plan one or
more options to purchase the number of shares of Common Stock ("Stock
Options") allotted by the Committee. The date a Stock Option is granted shall
mean the date selected by the Committee as of which the Committee allots a
specific number of shares to a participant pursuant to this Plan.
Section 2.2. STOCK OPTION AGREEMENTS. The grant of a Stock Option shall
be evidenced by a written Award Agreement, executed by the Company and the
holder of a Stock Option (the "Optionee"), stating the number of shares of
Common Stock subject to the Stock Option evidenced thereby, and in such form as
the Committee may from time to time determine.
Section 2.3. STOCK OPTION PRICE. The option price per share of Common
Stock deliverable upon the exercise of a Stock Option shall be an amount
selected by the Committee and shall not be less than 100% of the fair market
value of a share of Common Stock on the date the Stock Option is granted.
Section 2.4. TERM AND EXERCISE. A Stock Option shall not be exercisable
prior to six months from the date of its grant and unless a shorter period is
provided by the Committee or by another Section of this Plan, may be exercised
during a period of ten years from the date of grant thereof (the "Option
Term"). No Stock Option shall be exercisable after the expiration of its Option
Term.
Section 2.5. MANNER OF PAYMENT. Each Award Agreement providing for Stock
Options shall set forth the procedure governing the exercise of the Stock Option
granted thereunder, and shall provide that, upon such exercise in respect of any
shares of Common Stock subject thereto, the Optionee shall pay to the Company,
in full, the option price for such shares with cash, or with previously owned
Common Stock, or at the discretion of the Committee, in whole or in part with,
the surrender of another Award under this Plan, the withholding of shares of
Common Stock issuable upon exercise of such Stock Option, other property, or
B-3
any combination thereof (each based on the fair market value of such Common
Stock, Award or other property on the date the Stock Option is exercised as
determined by the Committee).
Section 2.6. DELIVERY OF SHARES. As soon as practicable after receipt of
payment, the Company shall deliver to the Optionee a certificate or certificates
for such shares of Common Stock. The Optionee shall become a shareholder of the
Company with respect to Common Stock represented by share certificates so issued
and as such shall be fully entitled to receive dividends, to vote and to
exercise all other rights of a shareholder.
Section 2.7. DEATH, RETIREMENT AND TERMINATION OF EMPLOYMENT OF
OPTIONEE. Unless otherwise provided in an Award Agreement or otherwise agreed
to by the Committee:
(a) Upon the death of the Optionee, any rights to the extent
exercisable on the date of death may be exercised by the Optionee's estate,
or by a person who acquires the right to exercise such Stock Option by
bequest or inheritance or by reason of the death of the Optionee, provided
that such exercise occurs within both the remaining effective term of the
Stock Option and one year after the Optionee's death. The provisions of
this Section shall apply notwithstanding the fact that the Optionee's
employment may have terminated prior to death, but only to the extent of
any rights exercisable on the date of death.
(b) Upon termination of the Optionee's employment by reason of
retirement or permanent disability (as each is determined by the
Committee), the Optionee may, within up to a maximum of 36 months from the
date of termination (or such shorter period of time as may be determined by
the Committee in any instance, as reflected in each Optionee's Award
Agreement), exercise any Stock Options to the extent such options are
exercisable during such 36-month period.
(c) Except as provided in Subsections (a) and (b) of this Section
2.7, or except as otherwise determined by the Committee, all Stock Options
shall terminate three months after the date of the termination of the
Optionee's employment (or such shorter period of time as may be determined
by the Committee in any instance, as reflected in each Optionee's Award
Agreement).
Section 2.8. TAX ELECTION. Provided that the Company is a "reporting
company" under the Securities Exchange Act of 1934, as amended, at the time of
exercise of a Stock Option, recipients of Stock Options who are directors or
executive officers of the Company or who own more than 10% of the Common Stock
of the Company ("Section 16(a) Option Holders") at the time of exercise of a
Stock Option may elect, in lieu of paying to the Company an amount required to
be withheld under applicable tax laws in connection with the exercise of a Stock
Option in whole or in part, to have the Company withhold shares of Common Stock
having a fair market value equal to the amount required to be withheld. Such
election may not be made prior to six months following the grant of the Stock
Option, except in the event of a Section 16(a) Option Holder's death or
disability. The election may be made at the time the Stock Option is exercised
by notifying the Company of the election, specifying the amount of such
withholding and the date on which the number of shares to be withheld is to be
determined ("Tax Date"), which shall be either (i) the date the Stock Option
is exercised or (ii) a date six months after the Stock Option was granted, if
later. The number of shares of Common Stock to be withheld to satisfy the tax
obligation shall be the amount of such tax liability divided by the fair market
value of the Common Stock on the Tax Date (or if not a business day, on the next
closest business day). If the Tax Date is not the exercise date, the Company may
issue the full number of shares of Common Stock to which the Section 16(a)
Option Holder is entitled, and such option holder shall be obligated to tender
to the Company on the Tax Date a number of such shares necessary to satisfy the
withholding obligation. Certificates representing such shares of Common Stock
shall bear a legend describing such Section 16(a) Option Holders obligation
hereunder.
Section 2.9. EFFECT OF EXERCISE. The exercise of any Stock Option shall
cancel that number of related Alternate Appreciation Rights and/or Limited
Rights, if any, that is equal to the number of shares of Common Stock purchased
pursuant to said option unless otherwise agreed by the Committee in an Award
Agreement or otherwise.
B-4
ARTICLE III. INCENTIVE STOCK OPTIONS
Section 3.1. AWARD OF INCENTIVE STOCK OPTIONS. The Committee may, from
time to time and subject to the provisions of this Plan and such other terms and
conditions as the Committee may prescribe, grant to any participant in this Plan
one or more "incentive stock options" (intended to qualify as such under the
provisions of Section 422 of the Code ("Incentive Stock Options") to purchase
the number of shares of Common Stock allotted by the Committee. The date an
Incentive Stock Option is granted shall mean the date selected by the Committee
as of which the Committee allots a specific number of shares to a participant
pursuant to this Plan.
Section 3.2. INCENTIVE STOCK OPTION AGREEMENTS. The grant of an Incentive
Stock Option shall be evidenced by a written Award Agreement, executed by the
Company and the holder of an Incentive Stock Option (the "Optionee"), stating
the number of shares of Common Stock subject to the Incentive Stock Option
evidenced thereby, and in such form as the Committee may from time to time
determine.
Section 3.3. INCENTIVE STOCK OPTION PRICE. The option price per share of
Common Stock deliverable upon the exercise of an Incentive Stock Option shall be
at least 100% of the fair market value of a share of Common Stock on the date
the Incentive Stock Option is granted; provided, however, the option price per
share of Common Stock deliverable upon the exercise of an Incentive Stock Option
granted to any owner of 10% or more of the total combined voting power of all
classes of stock of the Company and its subsidiaries shall be at least 110% of
the fair market value of a share of Common Stock on the date the Incentive Stock
Option is granted.
Section 3.4. TERM AND EXERCISE. Each Incentive Stock Option shall not be
exercisable prior to six months from the date of its grant and, unless a shorter
period is provided by the Committee or another Section of this Plan, may be
exercised during a period of ten years from the date of grant thereof (the
"Option Term"). No Incentive Stock Option shall be exercisable after the
expiration of its Option Term.
Section 3.5. MAXIMUM AMOUNT OF INCENTIVE STOCK OPTION GRANT. To the
extent that the aggregate fair market value (determined at the time the
respective Incentive Stock Option is granted) of stock with respect to which
Incentive Stock Options are exercisable for the first time by an individual
during any calendar year under all incentive stock option plans of the Company
and its parent and subsidiary corporations exceeds $100,000, such excess
Incentive Stock Options shall be treated as options which do not constitute
Incentive Stock Options. The Committee shall determine, in accordance with
applicable provisions of the Code, Treasury Regulations and other administrative
pronouncements, which of an Optionee's Incentive Stock Options will not
constitute Incentive Stock Options because of such limitation and shall notify
the Optionee of such determination as soon as practicable after such
determination.
Section 3.6. DEATH OF OPTIONEE.
(a) Upon the death of the Optionee, any Incentive Stock Option
exercisable on the date of death may be exercised by the Optionee's estate
or by a person who acquires the right to exercise such Incentive Stock
Option by bequest or inheritance or by reason of the death of the Optionee,
provided that such exercise occurs within both the remaining option term of
the Incentive Stock Option and one year after the Optionee's death.
(b) The provisions of this Section shall apply notwithstanding the
fact that the Optionee's employment may have terminated prior to death, but
only to the extent of any Incentive Stock Options exercisable on the date
of death.
Section 3.7. RETIREMENT OR DISABILITY. Upon the termination of the
Optionee's employment by reason of permanent disability or retirement (as each
is determined by the Committee), the Optionee may, within 36 months from the
date of such termination of employment (or such shorter period of time as may be
determined by the Committee in any instance, as reflected in each Optionee's
Award Agreement), exercise any Incentive Stock Options to the extent such
Incentive Stock Options were exercisable at the date of such termination of
employment. Notwithstanding the foregoing, the tax treatment available pursuant
to Section 422 of the Code upon the exercise of an Incentive Stock Option will
not be available to an Optionee who exercises any Incentive Stock Options more
than (i) 12 months after the date of termination of
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employment due to permanent disability or (ii) three months after the date of
termination of employment due to retirement.
Section 3.8. TERMINATION FOR OTHER REASONS. Except as provided in
Sections 3.6 and 3.7 or except as otherwise determined by the Committee, all
Incentive Stock Options shall terminate three months after the date of the
termination of the Optionee's employment (or such shorter period of time as may
be determined by the Committee in any instance, as reflected in each Optionee's
Award Agreement).
Section 3.9. APPLICABILITY OF STOCK OPTIONS SECTIONS. Sections 2.5,
Manner of Payment; 2.6, Delivery of Shares; 2.8, Tax Elections and 2.9, Effect
of Exercise, applicable to Stock Options, shall apply equally to Incentive Stock
Options. Such Sections are incorporated by reference in this Article III as
though fully set forth herein.
ARTICLE IV. RELOAD OPTIONS
Section 4.1. AUTHORIZATION OF RELOAD OPTIONS. Concurrently with or
subsequent to the award of Stock Options and/or the award of Incentive Stock
Options to any participant in this Plan, the Committee may authorize reload
options ("Reload Options") to purchase shares of Common Stock. The number of
Reload Options shall equal (i) the number of shares of Common Stock used to pay
the exercise price of the underlying Stock Options or Incentive Stock Options
and (ii) to the extent authorized by the Committee, the number of shares of
Common Stock withheld by the Company in payment of the exercise price underlying
the Stock Option or Incentive Stock Option or used to satisfy any tax
withholding requirement incident to the exercise of the underlying Stock Options
or Incentive Stock Options. The grant of a Reload Option will become effective
upon the exercise of underlying Stock Options, Incentive Stock Options, or
Reload Options through the use of shares of Common Stock held by the Optionee or
the withholding of shares by the Company in payment of the exercise price of the
underlying Stock Option or Incentive Stock Option held by the Optionee.
Notwithstanding the fact that the underlying option may be an Incentive Stock
Option, a Reload Option is not intended to qualify as an "incentive stock
option" under Section 422 of the Code.
Section 4.2. RELOAD OPTION AMENDMENT. Each Award Agreement shall state
whether the Committee has authorized Reload Options with respect to the Stock
Options and/or Incentive Stock Options covered by such Agreement. Upon the
exercise of an underlying Stock Option, Incentive Stock Option, or other Reload
Option, the Reload Option will be evidenced by an amendment to the underlying
Award Agreement in such form as the Committee shall approve.
Section 4.3. RELOAD OPTION PRICE. The option price per share of Common
Stock deliverable upon the exercise of a Reload Option shall be the fair market
value of a share of Common Stock on the date the grant of the Reload Option
becomes effective.
Section 4.4. TERM AND EXERCISE. Each Reload Option is fully exercisable
six months from the effective date of grant. The term of each Reload Option
shall be equal to the remaining option term of the underlying Stock Option
and/or Incentive Stock Option.
Section 4.5. TERMINATION OF EMPLOYMENT. Unless otherwise determined by
the Committee in an Award Agreement or otherwise, no additional Reload Options
shall be granted to Optionees when Stock Options, Incentive Stock Options,
and/or Reload Options are exercised pursuant to the terms of this Plan following
termination of the Optionee's employment.
Section 4.6. APPLICABILITY OF STOCK OPTIONS SECTIONS. Sections 2.5,
Manner of Payment; 2.6 Delivery of Shares; 2.7, Death, Retirement and
Termination of Employment of Optionee; 2.8, Tax Elections; and 2.9, Effect of
Exercise, applicable to Stock Options, shall apply equally to Reload Options.
Such Sections are incorporated by reference in this Article IV as though fully
set forth herein.
ARTICLE V. ALTERNATE APPRECIATION RIGHTS
Section 5.1. AWARD OF ALTERNATE APPRECIATION RIGHTS. Concurrently with or
subsequent to the award of any Stock Option, Incentive Stock Option, or Reload
Option to purchase one or more shares of Common
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Stock, the Committee may, subject to the provisions of this Plan and such other
terms and conditions as the Committee may prescribe, award to the Optionee with
respect to each share of Common Stock covered by an Option, a related alternate
appreciation right permitting the Optionee to be paid the appreciation on the
Option in lieu of exercising the Option ( "Alternate Appreciation Right").
Section 5.2. ALTERNATE APPRECIATION RIGHTS AGREEMENT. Alternate
Appreciation Rights shall be evidenced by written Award Agreements in such form
as the Committee may from time to time determine.
Section 5.3. EXERCISE. An Optionee who has been granted Alternate
Appreciation Rights may, from time to time, in lieu of the exercise of an equal
number of Options, elect to exercise one or more Alternate Appreciation Rights
and thereby become entitled to receive from the Company payment in Common Stock
of the number of shares determined pursuant to Sections 5.4 and 5.5. Alternate
Appreciation Rights shall be exercisable only to the same extent and subject to
the same conditions as the Options related thereto are exercisable, as provided
in this Plan. The Committee may, in its discretion, prescribe additional
conditions to the exercise of any Alternate Appreciation Rights.
Section 5.4. AMOUNT OF PAYMENT. The amount of payment to which an
Optionee shall be entitled upon the exercise of each Alternate Appreciation
Right shall be equal to 100% of the amount, if any, by which the fair market
value of a share of Common Stock on the exercise date exceeds the option price
per share on the Option related to such Alternate Appreciation Right. A Section
16(a) Option Holder may elect to withhold shares of Common Stock issued under
this Section to pay taxes as described in Section 2.8.
Section 5.5. FORM OF PAYMENT. The number of shares to be paid shall be
determined by dividing the amount of payment determined pursuant to Section 5.4
by the fair market value of a share of Common Stock on the exercise date of such
Alternate Appreciation Rights. As soon as practicable after exercise, the
Company shall deliver to the Optionee a certificate or certificates for such
shares of Common Stock.
Section 5.6. EFFECT OF EXERCISE. Unless otherwise provided in an Award
Agreement or agreed to by the Committee, the exercise of any Alternate
Appreciation Rights shall cancel an equal number of Stock Options, Incentive
Stock Options, Reload Options, and Limited Rights, if any, related to said
Alternate Appreciation Rights.
Section 5.7. TERMINATION OF EMPLOYMENT, RETIREMENT, DEATH OR
DISABILITY. Unless otherwise provided in an Award Agreement or agreed to by the
Committee:
(a) Upon termination of the Optionee's employment (including
employment as a director of the Company after an Optionee terminates
employment as an officer or key employee of the Company) by reason of
permanent disability or retirement (as each is determined by the
Committee), the Optionee may, within six months from the date of such
termination (or such shorter period of time as may be determined by the
Committee in any instance, as reflected in each Optionee's Award
Agreement), exercise any Alternate Appreciation Rights to the extent such
Alternate Appreciation Rights are exercisable during such period.
(b) Except as provided in Section 5.7(a), all Alternate Appreciation
Rights shall terminate three months after the date of the termination of
the Optionee's employment or upon the death of the Optionee.
ARTICLE VI. LIMITED RIGHTS
Section 6.1. AWARD OF LIMITED RIGHTS. Concurrently with or subsequent to
the award of any Stock Option, Incentive Stock Option, Reload Option, or
Alternate Appreciation Right, the Committee may, subject to the provisions of
this Plan and such other terms and conditions as the Committee may prescribe,
award to the Optionee with respect to each share of Common Stock covered by an
Option, a related limited right permitting the Optionee, during a specified
limited time period, to be paid the appreciation on the option in lieu of
exercising the option ("Limited Right").
Section 6.2. LIMITED RIGHTS AGREEMENT. Limited Rights granted under this
Plan shall be evidenced by written Award Agreements in such form as the
Committee may from time to time determine.
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Section 6.3. EXERCISE PERIOD. Limited Rights are exercisable in full for
a period of seven months following the date of a Change in Control of the
Company (the "Exercise Period"); provided, however, that Limited Rights may
not be exercised under any circumstances until the expiration of the six-month
period following the date of grant. As used in this Plan, a "Change in
Control" shall be deemed to have occurred if (a) the Company shall not be the
surviving entity in any merger, consolidation or other reorganization (or
survives only as a subsidiary of an entity), (b) the Company sells, leases or
exchanges, or agrees to sell, lease or exchange, all or substantially all of its
assets to any other person or entity, (c) the Company is to be dissolved and
liquidated, (d) any person or entity, including a "group" as contemplated by
Section 13(d)(3) of the Securities Exchange Act of 1934, as amended, acquires or
gains ownership or control (including, without limitation, power to vote) of
more than 50% of the outstanding shares of the Company's voting stock (based
upon voting power), or (e) as a result of or in connection with a contested
election of directors, the persons who were directors of the Company before such
election shall cease to constitute a majority of the Board.
Section 6.4. AMOUNT OF PAYMENT. The amount of payment to which an
Optionee shall be entitled upon the exercise of each Limited Right shall be
equal to 100% of the amount, if any, which is equal to the difference between
the option price per share of Common Stock covered by the related option and the
Market Price of a share of such Common Stock. "Market Price" is defined to be
the greater of (i) the highest price per share of the Company's Common Stock
paid in connection with any Change in Control and (ii) the fair market value per
share of the Company's Common Stock determined in accordance with Section
8.7(c).
Section 6.5. FORM OF PAYMENT. Payment of the amount to which an Optionee
is entitled upon the exercise of Limited Rights, as determined pursuant to
Section 6.4, shall be made solely in cash.
Section 6.6. EFFECT OF EXERCISE. If Limited Rights are exercised, the
Stock Options, Incentive Stock Options, Reload Options, and Alternate
Appreciation Rights, if any, related to such Limited Rights shall cease to be
exercisable to the extent of the number of shares with respect to which the
Limited Rights were exercised. Upon the exercise or termination of the Stock
Options, Incentive Stock Options, Reload Options, and Alternate Appreciation
Rights, if any, related to such Limited Rights, the Limited Rights granted with
respect thereto terminate to the extent of the number of shares as to which the
related options and Alternate Appreciation Rights were exercised or terminated.
Section 6.7. RETIREMENT OR DISABILITY. Upon termination of the Optionee's
employment (including employment as a director of the Company after an Optionee
terminates employment as an officer or key employee of the Company) by reason of
permanent disability or retirement (as each is determined by the Committee), the
Optionee may, within six months from the date of termination, exercise any
Limited Right to the extent such Limited Right is exercisable during such
six-month period.
Section 6.8. DEATH OF OPTIONEE OR TERMINATION FOR OTHER REASONS. Except
as provided in Sections 6.7 and 6.9, or except as otherwise determined by the
Committee, all Limited Rights granted under this Plan shall terminate upon the
termination of the Optionee's employment or upon the death of the Optionee.
Section 6.9. TERMINATION RELATED TO A CHANGE IN CONTROL. The requirement
that an Optionee be terminated by reason of retirement or permanent disability
or be employed by Carriage at the time of exercise pursuant to Sections 6.7 and
6.8 respectively, is waived during the Exercise Period as to an Optionee who (i)
was employed by Carriage at the time of the Change in Control and (ii) is
subsequently terminated by Carriage other than for just cause or who voluntarily
terminates if such termination was the result of a good faith determination by
the Optionee that as a result of the Change in Control he is unable to
effectively discharge his present duties or the duties of the position which he
occupied just prior to the Change in Control. As used herein "just cause"
shall mean willful misconduct or dishonesty or conviction of or failure to
contest prosecution for a felony, persistent failure or refusal to attend to
duties or follow Company policy, or excessive absenteeism unrelated to illness.
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ARTICLE VII. BONUS STOCK AWARDS
Section 7.1. AWARD OF BONUS STOCK. The Committee may from time to time,
and subject to the provisions of this Plan and such other terms and conditions
as the Committee may prescribe, grant to any participant in this Plan shares of
Common Stock ("Stock Bonus").
Section 7.2. STOCK BONUS AGREEMENTS. The grant of a Stock Bonus shall be
evidenced by a written Award Agreement, executed by the Company and the
recipient of a Stock Bonus, in such form as the Committee may from time to time
determine, providing for the terms of such grant, including any vesting
schedule, restrictions on the transfer of such Common Stock or other matters.
Specifically, the Committee may provide that the restrictions on the transfer of
such Common Stock shall lapse upon (i) the attainment of targets established by
the Committee that are based on (1) the price of a share of Stock, (2) the
Company's earnings per share, (3) the Company's revenue, (4) the revenue of a
business unit of the Company designated by the Committee, (5) the return on
stockholders' equity achieved by the Company, or (6) the Company's pre-tax cash
flow from operations (ii) the Participant's continued employment with the
Company for a specified period of time, or (iii) a combination of any two or
more of the factors listed in clauses (i) and (ii) of this sentence.
Section 7.3. TRANSFER RESTRICTION. Any Award Agreement providing for the
issuance of Bonus Stock to any person who, at the time of grant, is a person
described in Section 16(a) under the Securities Exchange Act of 1934 shall
provide that such Common Stock cannot be resold for a period of six months
following the grant of such Bonus Stock.
ARTICLE VIII. MISCELLANEOUS
Section 8.1. GENERAL RESTRICTION. Each Award under this Plan shall be
subject to the requirement that, if at any time the Committee shall determine
that (i) the listing, registration, or qualification of the shares of Common
Stock subject or related thereto upon any securities exchange or under any state
or Federal law, or (ii) the consent or approval of any government regulatory
body, or (iii) an agreement by the grantee of an Award with respect to the
disposition of shares of Common Stock, is necessary or desirable as a condition
of, or in connection with, the granting of such Award or the issue or purchase
of shares of Common Stock thereunder, such Award may not be consummated in whole
or in part unless such listing, registration, qualification, consent, approval
or agreement shall have been effected or obtained free of any conditions not
acceptable to the Committee.
Section 8.2. NON-TRANSFERABILITY. An Incentive Stock Option and all
rights granted thereunder shall not be transferable other than by will or the
laws of descent and distribution or pursuant to a qualified domestic relations
order as defined by the Code or Title I of the Employee Retirement Income
Security Act of 1974, as amended ("ERISA"), as amended, or the rules
thereunder, and shall be exercisable during the Optionee's lifetime only by the
Optionee or the Optionee's guardian or legal representative. An Award (other
than an Incentive Stock Option) shall not be transferable otherwise than (i) by
will or the laws of descent and distribution, (ii) pursuant to a qualified
domestic relations order as defined by the Code or Title I of ERISA or (iii)
with the consent of the Committee.
Section 8.3. WITHHOLDING TAXES. Whenever the Company proposes or is
required to issue or transfer shares of Common Stock under this Plan, the
Company shall have the right to require the grantee to remit to the Company an
amount sufficient to satisfy any Federal, state, and/or local withholding tax
requirements prior to the delivery of any certificate or certificates for such
shares. Alternatively, the Company may issue or transfer such shares of the
Company net of the number of shares sufficient to satisfy the withholding tax
requirements. For withholding tax purposes, the shares of Common Stock shall be
valued on the date the withholding obligation is incurred.
Section 8.4. RIGHT TO TERMINATE EMPLOYMENT. Nothing in this Plan or in
any agreement entered into pursuant to this Plan shall confer upon any
participant the right to continue in the employment of Carriage or affect any
right which Carriage may have to terminate the employment of such participant.
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Section 8.5. NON-UNIFORM DETERMINATIONS. The Committee's determinations
under this Plan (including without limitation determinations of the persons to
receive Awards, the form, amount and timing of such Awards, the terms and
provisions of such Awards and the agreements evidencing same) need not be
uniform and may be made by it selectively among persons who receive, or are
eligible to receive, awards under this Plan, whether or not such persons are
similarly situated.
Section 8.6. RIGHTS AS A SHAREHOLDER. The recipient of any Award under
this Plan shall have no rights as a shareholder with respect thereto unless and
until certificates for shares of Common Stock are issued to him or her.
Section 8.7. DEFINITIONS. In this Plan the following definitions shall
apply:
(a) "Subsidiary" means any corporation of which, at the time more
than 50% of the shares entitled to vote generally in an election of
directors are owned directly or indirectly by the Company or any subsidiary
thereof.
(b) "Affiliate" means any person or entity which directly, or
indirectly through one or more intermediaries, controls, is controlled by,
or is under common control with the Company.
(c) "Fair market value" as of any date and in respect or any share
of Common Stock means (i) until such time as the Common Stock is traded on
a national securities exchange or over-the-counter and reported on the
National Association of Securities Dealers Automated Quotations System
("NASDAQ"), then the price per share determined in good faith by the
Committee, taking into consideration all factors it deems relevant,
including liquidity, priority, minority interest discount, and the price
per share at which other securities of the Company have been issued; (ii)
if the Common Stock is traded on a national securities exchange, then the
closing price on such date or on the next business day, if such date is not
a business day, of a share of Common Stock reflected in the consolidated
trading tables of THE WALL STREET JOURNAL or any other publication selected
by the Committee; or (iii) if the Common Stock is traded over-the-counter
and reported on NASDAQ, then the average of the high and low sales prices
on such trading day as reported in such publication or, if not so
published, then as reported by NASDAQ, and if the Common Stock is not in
the NASDAQ National Market System on such trading day, then the
representative bid and asked prices at the end of such trading day in such
market as reported by NASDAQ. In no event shall the fair market value of
any share of Common Stock be less than its par value.
(d) "Option" means Stock Option, Incentive Stock Option, or Reload
Option.
(e) "Option price" means the purchase price per share of Common
Stock deliverable upon the exercise of a Stock Option, Incentive Stock
Option, or Reload Option.
Section 8.8. LEAVES OF ABSENCE. The Committee shall be entitled to make
such rules, regulations, and determinations as it deems appropriate under this
Plan in respect of any leave of absence taken by the recipient of any Award.
Without limiting the generality of the foregoing, the Committee shall be
entitled to determine (i) whether or not any such leave of absence shall
constitute a termination of employment within the meaning of this Plan and (ii)
the impact, if any, of any such leave of absence on Awards under this Plan
theretofore made to any recipient who takes such leave of absence.
Section 8.9. NEWLY ELIGIBLE EMPLOYEES. The Committee shall be entitled to
make such rules, regulations, determinations and awards as it deems appropriate
in respect of any employee who becomes eligible to participate in this Plan or
any portion thereof after the commencement of an award or incentive period.
Section 8.10. ADJUSTMENTS. In any event of any change in the outstanding
Common Stock by reason of a stock dividend or distribution, recapitalization,
merger, consolidation, split-up, combination, exchange of shares or the like,
the Committee may appropriately adjust the number of shares of Common Stock that
may be issued under this Plan, the number of shares of Common Stock subject to
Options theretofore granted under this Plan, and any and all other matters
deemed appropriate by the Committee.
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Section 8.11. CHANGES IN THE COMPANY'S CAPITAL STRUCTURE.
(a) The existence of outstanding Options, Alternate Appreciation
Rights, or Limited Rights shall not affect in any way the right or power of
the Company or its stockholders to make or authorize any or all
adjustments, recapitalizations, reorganizations, or other changes in the
Company's capital structure or its business, or any merger or consolidation
of the Company, or any issue of bonds, debentures, preferred or prior
preference stock ahead of or affecting the Common Stock or the rights
thereof, or the dissolution or liquidation of the Company, or any sale or
transfer of all or any part of its assets or business, or any other
corporate act or proceeding, whether of a similar character or otherwise.
(b) If, while there are outstanding Options, the Company shall effect
a subdivision or consolidation of shares or other increase or reduction of
the number of shares of the Common Stock outstanding without receiving
compensation therefor in money, services or property, then (a) in the event
of an increase in the number of such shares outstanding, the number of
shares of Common Stock then subject to Options hereunder shall be
proportionately increased; and (b) in the event of a decrease in the number
of such shares outstanding the number of shares then available for Option
hereunder shall be proportionately decreased.
(c) After a merger of one or more corporations into the Company, or
after a consolidation of the Company and one or more corporations in which
the Company shall be the surviving corporation, which transaction alters
the outstanding capital structure of the Company, then each holder of an
outstanding Option shall, at no additional cost, be entitled upon exercise
of such Option to receive (subject to any required action by stockholders)
in lieu of the number of shares as to which such Option shall then be so
exercisable, the number and class of shares of stock or other securities to
which such holder would have been entitled to receive pursuant to the terms
of the agreement of merger or consolidation if, immediately prior to such
merger or consolidation, such holder had been the holder of record of a
number of shares of the Company equal to the number of shares as to which
such Option had been exercisable.
(d) If the Company is merged into or consolidated with another
corporation or other entity under circumstances where the Company is not
the surviving corporation, or if the Company sells or otherwise disposes of
substantially all of its assets to another corporation or other entity
while unexercised Options remain outstanding, then the Committee may direct
that any of the following shall occur:
(i) If the successor entity is willing to assume the obligation
to deliver shares of stock or other securities after the effective date
of the merger, consolidation or sale of assets, as the case may be, each
holder of an outstanding Option shall be entitled to receive, upon the
exercise of such Option and payment of the option price, in lieu of
shares of Common Stock, such shares of stock or other securities as the
holder of such Option would have been entitled to receive had such
Option been exercised immediately prior to the consummation of such
merger, consolidation or sale, and any related Alternate Appreciation
Right and Limited Right associated with such Option shall apply as
nearly as practicable to the shares of stock or other securities
purchasable upon exercise of the Option following such merger,
consolidation or sale of assets.
(ii) The Committee may waive any limitations set forth in or
imposed pursuant to this Plan or any Award Agreement with respect to
such Option and any related Alternate Appreciation Right or Limited
Option such that such Option and related Alternate Appreciation Right
and Limited Right shall become exercisable prior to the record or
effective date of such merger, consolidation or sale of assets.
(iii) The Committee may cancel all outstanding Options and
Alternate Appreciation Rights (but not Limited Rights) as of the
effective date of any such merger, consolidation, or sale of assets
provided that prior notice of such cancellation shall be given to each
holder of an Option at least 30 days prior to the effective date of such
merger, consolidation, or sale of assets, and each
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holder of an Option shall have the right to exercise such Option and any
related Alternate Appreciation Right in full during a period of not less
than 30 days prior to the effective date of such merger, consolidation,
or sale of assets. No action taken by the Committee under this
subsection shall have the effect of terminating, and nothing in this
subsection shall permit the Committee to terminate, any Limited Right
held by an Optionee.
(e) Except as herein provided, the issuance by the Company of Common
Stock or any other shares of capital stock or securities convertible into
shares of capital stock, for cash property, labor done or other
consideration, shall not affect, and no adjustment by reason thereof shall
be made with respect to, the number or price of shares of Common Stock then
subject to outstanding Options.
Section 8.12. AMENDMENT OF THIS PLAN.
(a) The Committee may, without further action by the stockholders and
without receiving further consideration from the participants, amend this
Plan or condition or modify Awards under this Plan in response to changes
in securities or other laws or rules, regulations or regulatory
interpretations thereof applicable to this Plan or to comply with stock
exchange rules or requirements.
(b) The Committee may at any time and from time to time terminate or
modify or amend this Plan in any respect, except that without shareholder
approval the Committee may not (i) increase the maximum aggregate number of
shares of Common Stock which may be issued under this Plan (other than
increases pursuant to Sections 8.10 and 8.11) or (ii) change the class of
employees eligible to receive Awards under the Plan. The termination or any
modification or amendment of this Plan, except as provided in subsection
(a), shall not, without the consent of a participant, affect his or her
rights under an Award previously granted to him or her.
B-12
APPENDIX C TO PROXY STATEMENT
CARRIAGE SERVICES, INC.
1996 STOCK OPTION PLAN
AS AMENDED AND RESTATED EFFECTIVE AS OF JANUARY 7, 1997
I. PURPOSE OF THE PLAN
The CARRIAGE SERVICES, INC. 1996 STOCK OPTION PLAN (the "Plan") is
intended to provide a means whereby certain employees of CARRIAGE SERVICES,
INC., a Delaware corporation (the "Company"), and its subsidiaries may develop
a sense of proprietorship and personal involvement in the development and
financial success of the Company, and to encourage them to remain with and
devote their best efforts to the business of the Company, thereby advancing the
interests of the Company and its stockholders. Accordingly, the Company may
grant to certain employees ("Optionees") the option ("Option") to purchase
shares of the Class A common stock of the Company ("Stock"), as hereinafter
set forth. Options granted under the Plan may be either incentive stock options,
within the meaning of section 422(b) of the Internal Revenue Code of 1986, as
amended (the "Code"), ("Incentive Stock Options' ' ) or options which do not
constitute Incentive Stock Options.
The Plan as set forth herein constitutes an amendment and restatement,
effective as of the date of the adoption of this amendment and restatement (the
"Restatement Effective Date") by the Board of Directors of the Company (the
"Board"), of the Plan as previously adopted by the Company, and shall
supersede and replace in its entirety such prior plan.
II. ADMINISTRATION
The Plan shall be administered by a committee (the "Committee") of, and
appointed by, the Board, which shall be comprised solely of two or more
"outside directors" within the meaning of section 162(m) of the Code and
applicable interpretive authority thereunder. The Committee shall have sole
authority to select the Optionees from among those individuals eligible
hereunder and to establish the number of shares which may be issued under each
Option; provided, however, that, notwithstanding any provision in the Plan to
the contrary, the maximum number of shares that may be subject to Options
granted under the Plan to an individual Optionee during any calendar year may
not exceed 200,000 (subject to adjustment in the same manner as provided in
Paragraph VIII hereof with respect to shares of Stock subject to Options then
outstanding). The limitation set forth in the preceding sentence shall be
applied in a manner which will permit compensation generated under the Plan to
constitute "performance-based" compensation for purposes of section 162(m) of
the Code, including, without limitation, counting against such maximum number of
shares, to the extent required under section 162(m) of the Code and applicable
interpretive authority thereunder, any shares subject to Options that are
canceled or repriced. In selecting the Optionees from among individuals eligible
hereunder and in establishing the number of shares that may be issued under each
Option, the Committee may take into account the nature of the services rendered
by such individuals, their present and potential contributions to the Company's
success and such other factors as the Committee in its discretion shall deem
relevant. The Committee is authorized to interpret the Plan and may from time to
time adopt such rules and regulations, consistent with the provisions of the
Plan, as it may deem advisable to carry out the Plan. All decisions made by the
Committee in selecting the Optionees, in establishing the number of shares which
may be issued under each Option and in construing the provisions of the Plan
shall be final.
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III. OPTION AGREEMENTS
(a) Each Option shall be evidenced by a written agreement between the
Company and the Optionee ("Option Agreement") which shall contain such terms
and conditions as may be approved by the Committee. The terms and conditions of
the respective Option Agreements need not be identical. Specifically, an Option
Agreement may provide for the surrender of the right to purchase shares under
the Option in return for a payment in cash or shares of Stock or a combination
of cash and shares of Stock equal in value to the excess of the fair market
value of the shares with respect to which the right to purchase is surrendered
over the option price therefor ("Stock Appreciation Rights"), on such terms
and conditions as the Committee in its sole discretion may prescribe; provided,
that, except as provided in Subparagraph VIII(c) hereof, the Committee shall
retain final authority (i) to determine whether an Optionee shall be permitted,
or (ii) to approve an election by an Optionee, to receive cash in full or
partial settlement of Stock Appreciation Rights. Moreover, an Option Agreement
may provide for the payment of the option price, in whole or in part, by the
delivery of a number of shares of Stock (plus cash if necessary) having a fair
market value equal to such option price.
(b) For all purposes under the Plan, the fair market value of a share of
Stock on a particular date shall be equal to the mean of the high and low sales
prices of the Stock (i) reported by the National Market System of NASDAQ on that
date or (ii) if the Stock is listed on a national stock exchange, reported on
the stock exchange composite tape on that date; or, in either case, if no prices
are reported on that date, on the last preceding date on which such prices of
the Stock are so reported. If the Stock is traded over the counter at the time a
determination of its fair market value is required to be made hereunder, its
fair market value shall be deemed to be equal to the average between the
reported high and low or closing bid and asked prices of Stock on the most
recent date on which Stock was publicly traded. In the event Stock is not
publicly traded at the time a determination of its value is required to be made
hereunder, the determination of its fair market value shall be made by the
Committee in such manner as it deems appropriate. Notwithstanding the foregoing,
the fair market value of a share of Stock on the date of an initial public
offering of Stock shall be the offering price under such initial public
offering.
(c) Each Incentive Stock Option and all rights granted thereunder shall
not be transferable other than by will or the laws of descent and distribution
or pursuant to a qualified domestic relations order as defined by the Code or
Title I of the Employee Retirement Income Security Act of 1974, as amended (
"ERISA"), as amended, or the rules thereunder, and shall be exercisable during
the Optionee's lifetime only by the Optionee or the Optionee's guardian or legal
representative. Each Option that does not constitute an Incentive Stock Option
and all rights granted thereunder shall not be transferable otherwise than (i)
by will or the laws of descent and distribution, (ii) pursuant to a qualified
domestic relations order as defined by the Code or Title I of ERISA or (iii)
with the consent of the Committee.
IV. ELIGIBILITY OF OPTIONEE
Options may be granted only to individuals who are employees (including
officers and directors who are also employees) of the Company or any parent or
subsidiary corporation (as defined in section 424 of the Code) of the Company at
the time the Option is granted. Options may be granted to the same individual on
more than one occasion. No Incentive Stock Option shall be granted to an
individual if, at the time the Option is granted, such individual owns stock
possessing more than 10% of the total combined voting power of all classes of
stock of the Company or of its parent or subsidiary corporation, within the
meaning of section 422(b)(6) of the Code, unless (i) at the time such Option is
granted the option price is at least 110% of the fair market value of the Stock
subject to the Option and (ii) such Option by its terms is not exercisable after
the expiration of five years from the date of grant. To the extent that the
aggregate fair market value (determined at the time the respective Incentive
Stock Option is granted) of stock with respect to which Incentive Stock Options
are exercisable for the first time by an individual during any calendar year
under all incentive stock option plans of the Company and its parent and
subsidiary corporations exceeds $100,000, such excess Incentive Stock Options
shall be treated as Options which do not constitute Incentive Stock Options. The
Committee shall determine, in accordance with applicable provisions of the Code,
C-2
Treasury Regulations and other administrative pronouncements, which of an
Optionee's Incentive Stock Options will not constitute Incentive Stock Options
because of such limitation and shall notify the Optionee of such determination
as soon as practicable after such determination.
V. SHARES SUBJECT TO THE PLAN
The aggregate number of shares which may be issued under Options granted
under the Plan shall not exceed 600,000 shares of Stock. Such shares may consist
of authorized but unissued shares of Stock or previously issued shares of Stock
reacquired by the Company. Any of such shares which remain unissued and which
are not subject to outstanding Options at the termination of the Plan shall
cease to be subject to the Plan, but, until termination of the Plan, the Company
shall at all times make available a sufficient number of shares to meet the
requirements of the Plan. Should any Option hereunder expire or terminate prior
to its exercise in full, the shares theretofore subject to such Option may again
be subject to an Option granted under the Plan to the extent permitted under
Rule 16b-3. The aggregate number of shares which may be issued under the Plan
shall be subject to adjustment in the same manner as provided in Paragraph VIII
hereof with respect to shares of Stock subject to Options then outstanding.
Exercise of an Option in any manner, including an exercise involving a Stock
Appreciation Right, shall result in a decrease in the number of shares of Stock
which may thereafter be available, both for purposes of the Plan and for sale to
any one individual, by the number of shares as to which the Option is exercised.
Separate stock certificates shall be issued by the Company for those shares
acquired pursuant to the exercise of an Incentive Stock Option and for those
shares acquired pursuant to the exercise of any Option which does not constitute
an Incentive Stock Option.
VI. OPTION PRICE
The purchase price of Stock issued under each Option shall be determined by
the Committee, but such purchase price shall not be less than the fair market
value of Stock subject to the Option on the date the Option is granted.
VII. TERM OF PLAN
The Plan originally became effective on July 18, 1996. This amendment and
restatement of the Plan shall become effective upon the Restatement Effective
Date, provided that this amendment and restatement of the plan shall be
effective upon the date of its adoption by the Board, provided the Plan is
approved by the stockholders of the Company within twelve months thereafter.
Except with respect to Options then outstanding, if not sooner terminated under
the provisions of Paragraph IX, the Plan shall terminate upon and no further
Options shall be granted after July 18, 2006. Notwithstanding any provision
herein to the contrary, if this amendment and restatement of the Plan is not
approved by the stockholders of the Company within twelve months after the
Restatement Effective Date, then any Option granted on or after the Restatement
Effective Date shall be void and canceled in its entirety, and the Plan shall
terminate with respect to any shares of Stock for which Options were not granted
prior to the Restatement Effective Date.
VIII. RECAPITALIZATION OR REORGANIZATION
(a) The existence of the Plan and the Options granted hereunder shall not
affect in any way the right or power of the Board or the stockholders of the
Company to make or authorize any adjustment, recapitalization, reorganization or
other change in the Company's capital structure or its business, any merger or
consolidation of the Company, any issue of debt or equity securities, the
dissolution or liquidation of the Company or any sale, lease, exchange or other
disposition of all or any part of its assets or business or any other corporate
act or proceeding.
(b) The shares with respect to which Options may be granted are shares of
Stock as presently constituted, but if, and whenever, prior to the expiration of
an Option theretofore granted, the Company shall effect a subdivision or
consolidation of shares of Stock or the payment of a stock dividend on Stock
without receipt of consideration by the Company, the number of shares of Stock
with respect to which such
C-3
Option may thereafter be exercised (i) in the event of an increase in the number
of outstanding shares shall be proportionately increased, and the purchase price
per share shall be proportionately reduced, and (ii) in the event of a reduction
in the number of outstanding shares shall be proportionately reduced, and the
purchase price per share shall be proportionately increased.
(c) If the Company recapitalizes, reclassifies its capital stock, or
otherwise changes its capital structure (a "recapitalization"), the number and
class of shares of Stock covered by an Option theretofore granted shall be
adjusted so that such Option shall thereafter cover the number and class of
shares of stock and securities to which the Optionee would have been entitled
pursuant to the terms of the recapitalization if, immediately prior to the
recapitalization, the Optionee had been the holder of record of the number of
shares of Stock then covered by such Option. If (i) the Company shall not be the
surviving entity in any merger, consolidation or other reorganization (or
survives only as a subsidiary of an entity), (ii) the Company sells, leases or
exchanges, or agrees to sell, lease or exchange, all or substantially all of its
assets to any other person or entity, (iii) the Company is to be dissolved and
liquidated, (iv) any person or entity, including a "group" as contemplated by
Section 13(d)(3) of the Securities Exchange Act of 1934, as amended (the "1934
Act"), acquires or gains ownership or control (including, without limitation,
power to vote) of more than 50% of the outstanding shares of the Company's
voting stock (based upon voting power), or (v) as a result of or in connection
with a contested election of directors, the persons who were directors of the
Company before such election shall cease to constitute a majority of the Board
(each such event is referred to herein as a "Corporate Change"), no later than
(a) ten days after the approval by the stockholders of the Company of such
merger, consolidation, reorganization, sale, lease or exchange of assets or
dissolution or such election of directors or (b) thirty days after a change of
control of the type described in Clause (iv), the Committee, acting in its sole
discretion without the consent or approval of any Optionee, shall act to effect
one or more of the following alternatives, which may vary among individual
Optionees and which may vary among Options held by any individual Optionee: (1)
accelerate the time at which Options then outstanding may be exercised so that
such Options may be exercised in full for a limited period of time on or before
a specified date (before or after such Corporate Change) fixed by the Committee,
after which specified date all unexercised Options and all rights of Optionees
thereunder shall terminate, (2) require the mandatory surrender to the Company
by selected Optionees of some or all of the outstanding Options held by such
Optionees (irrespective of whether such Options are then exercisable under the
provisions of the Plan) as of a date, before or after such Corporate Change,
specified by the Committee, in which event the Committee shall thereupon cancel
such Options and the Company shall pay to each Optionee an amount of cash per
share equal to the excess, if any, of the amount calculated in Subparagraph (d)
below (the "Change of Control Value") of the shares subject to such Option
over the exercise price(s) under such Options for such shares, (3) make such
adjustments to Options then outstanding as the Committee deems appropriate to
reflect such Corporate Change (provided, however, that the Committee may
determine in its sole discretion that no adjustment is necessary to Options then
outstanding) or (4) provide that the number and class of shares of Stock covered
by an Option theretofore granted shall be adjusted so that such Option shall
thereafter cover the number and class of shares of stock or other securities or
property (including, without limitation, cash) to which the Optionee would have
been entitled pursuant to the terms of the agreement of merger, consolidation or
sale of assets and dissolution if, immediately prior to such merger,
consolidation or sale of assets and dissolution, the Optionee had been the
holder of record of the number of shares of Stock then covered by such Option.
(d) For the purposes of clause (2) in Subparagraph (c) above, the "Change
of Control Value" shall equal the amount determined in clause (i), (ii) or
(iii), whichever is applicable, as follows: (i) the per share price offered to
stockholders of the Company in any such merger, consolidation, reorganization,
sale of assets or dissolution transaction, (ii) the price per share offered to
stockholders of the Company in any tender offer or exchange offer whereby a
Corporate Change takes place, or (iii) if such Corporate Change occurs other
than pursuant to a tender or exchange offer, the fair market value per share of
the shares into which such Options being surrendered are exercisable, as
determined by the Committee as of the date determined by the Committee to be the
date of cancellation and surrender of such Options. In the event that the
consideration offered to stockholders of the Company in any transaction
described in this Subparagraph
C-4
(d) or Subparagraph (c) above consists of anything other than cash, the
Committee shall determine the fair cash equivalent of the portion of the
consideration offered which is other than cash.
(e) Any adjustment provided for in Subparagraphs (b) or (c) above shall be
subject to any required stockholder action.
(f) Except as hereinbefore expressly provided, the issuance by the Company
of shares of stock of any class or securities convertible into shares of stock
of any class, for cash, property, labor or services, upon direct sale, upon the
exercise of rights or warrants to subscribe therefor, or upon conversion of
shares or obligations of the Company convertible into such shares or other
securities, and in any case whether or not for fair value, shall not affect, and
no adjustment by reason thereof shall be made with respect to, the number of
shares of Stock subject to Options theretofore granted or the purchase price per
share.
IX. AMENDMENT OR TERMINATION OF THE PLAN
The Board in its discretion may terminate the Plan at any time with respect
to any shares for which Options have not theretofore been granted. The Board
shall have the right to alter or amend the Plan or any part thereof from time to
time; provided, that no change in any Option theretofore granted may be made
which would impair the rights of the Optionee without the consent of such
Optionee; and provided, further, that the Board may not make any alteration or
amendment which would increase the aggregate number of shares which may be
issued pursuant to the provisions of the Plan or change the class of individuals
eligible to receive Options under the Plan without the approval of the
stockholders of the Company.
X. SECURITIES LAWS
(a) The Company shall not be obligated to issue any Stock pursuant to any
Option granted under the Plan at any time when the offering of the shares
covered by such Option have not been registered under the Securities Act of 1933
and such other state and federal laws, rules or regulations as the Company or
the Committee deems applicable and, in the opinion of legal counsel for the
Company, there is no exemption from the registration requirements of such laws,
rules or regulations available for the offering and sale of such shares.
(b) It is intended that the Plan and any grant of an Option made to a
person subject to Section 16 of 1934 Act meet all of the requirements of Rule
16b-3 promulgated under the 1934 Act, as currently in effect or as hereinafter
modified or amended ("Rule 16b-3"). If any provision of the Plan or any such
Option would disqualify the Plan or such Option under, or would otherwise not
comply with, Rule 16b-3, such provision or Option shall be construed or deemed
amended to conform to Rule 16b-3.
C-5
APPENDIX D TO PROXY STATEMENT
CARRIAGE SERVICES, INC.
1996 DIRECTORS' STOCK OPTION PLAN
AS AMENDED AND RESTATED EFFECTIVE AS OF JANUARY 7, 1997
I. PURPOSE OF THE PLAN
The CARRIAGE SERVICES, INC. 1996 DIRECTORS' STOCK OPTION PLAN (the
"Plan") is intended to promote the interests of CARRIAGE SERVICES, INC., a
Delaware corporation (the "Company"), and its stockholders by helping to award
and retain highly-qualified independent directors, and allowing them to develop
a sense of proprietorship and personal involvement in the development and
financial success of the Company. Accordingly, the Company shall grant to
directors of the Company who are not executive officers of the Company (
"Eligible Directors") the option ("Option") to purchase shares of the Class
A common stock of the Company ("Stock"), as hereinafter set forth. Options
granted under the Plan shall be options which do not constitute incentive stock
options, within the meaning of section 422(b) of the Internal Revenue Code of
1986, as amended.
The Plan as set forth herein constitutes an amendment and restatement,
effective as of the date this amendment and restatement of the Plan is approved
by stockholders of the Company (the "Restatement Effective Date"), of the
Carriage Services, Inc. 1996 Nonemployee Directors' Stock Option Plan, as
previously approved by the stockholders of the Company, and shall supersede and
replace in its entirety such plan.
II. OPTION AGREEMENTS
Each Option shall be evidenced by a written agreement (an "Option
Agreement"). Options shall not be exercisable after the expiration of ten years
from the date of grant thereof unless otherwise specified in an Option
Agreement. Each Option Agreement shall provide that an Option and all rights
granted thereunder shall not be transferable otherwise than (i) by will or the
laws of descent and distribution, (ii) pursuant to a qualified domestic
relations order as defined by the Code or Title I of the Employee Retirement
Income Security Act of 1974, as amended or (iii) with the consent of the Board
of Directors of the Company (the "Board").
III. ELIGIBILITY OF OPTIONEE; OPTION AWARDS
A. Options may be granted only to individuals who are Eligible Directors
of the Company and who do not currently participate in any other stock incentive
plan of the Company. A director who had previously received options under
another stock incentive plan of the Company which are still outstanding, but who
does not receive options during the current calendar year under any other stock
incentive plan of the Company, shall be eligible to participate in the Plan
during the current calendar year.
B. Each Eligible Director who is elected or appointed to the Board for the
first time after the Restatement Effective Date of the Plan shall receive, as of
the date of his or her election or appointment and without the exercise of the
discretion of any person or persons, an Option exercisable for (i) 15,000 shares
of Stock (subject to adjustment in the same manner as provided in Paragraph VII
hereof with respect to shares of Stock subject to Options then outstanding) if
such Eligible Director is not also appointed to the Company's Executive
Committee on such date or (ii) 25,000 shares of Stock (subject to adjustment in
the same manner as provided in Paragraph VII hereof with respect to shares of
Stock subject to Options then outstanding) if such Eligible Director is also
appointed to the Company's Executive Committee on such date.
C. As of the date of the annual meeting of the stockholders of the Company
in each year that the Plan is in effect as provided in Paragraph VI hereof, each
Eligible Director then in office or elected to the Board on such date shall
receive, without the exercise of the discretion of any person or persons, an
Option
D-1
exercisable for 6,000 shares of Stock (subject to adjustment in the same manner
as provided in Paragraph VII hereof with respect to shares of Stock subject to
Options then outstanding).
D. If, as of any date that the Plan is in effect, there are not sufficient
shares of Stock available under the Plan to allow for the grant to each Eligible
Director of an Option for the number of shares provided herein, each Eligible
Director shall receive an Option for his or her pro rata share of the total
number of shares of Stock then available under the Plan. All Options granted
under the Plan shall be at the Option price set forth in Paragraph V hereof and
shall be subject to adjustment as provided in Paragraph VII hereof.
IV. SHARES SUBJECT TO THE PLAN
The aggregate number of shares which may be issued under Options granted
under the Plan shall not exceed 200,000 shares of Stock. Such shares may consist
of authorized but unissued shares of Stock or previously issued shares of Stock
reacquired by the Company. Any of such shares which remain unissued and which
are not subject to outstanding Options at the termination of the Plan shall
cease to be subject to the Plan, but, until termination of the Plan, the Company
shall at all times make available a sufficient number of shares to meet the
requirements of the Plan. Should any Option hereunder expire or terminate prior
to its exercise in full, the shares theretofore subject to such Option may again
be subject to an Option granted under the Plan. Exercise of an Option shall
result in a decrease in the number of shares of Stock which may thereafter be
available, both for purposes of the Plan and for sale to any one individual, by
the number of shares as to which the Option is exercised.
V. OPTION PRICE
The purchase price of Stock issued under each Option described in
Paragraphs IIIB and IIIC hereof after the Restatement Effective Date of the Plan
shall be the fair market value of the Stock subject to the Option as of the date
the Option is granted. For all purposes under the Plan, the fair market value of
a share of Stock on a particular date shall be equal to the mean of the high and
low sales prices of the Stock (i) reported by the National Market System of
NASDAQ on that date or (ii) if the Stock is listed on a national stock exchange,
reported on the stock exchange composite tape on that date; or, in either case,
if no prices are reported on that date, on the last preceding date on which such
prices of the Stock are so reported. If the Stock is traded over the counter at
the time a determination of its fair market value is required to be made
hereunder, its fair market value shall be deemed to be equal to the average
between the reported high and low or closing bid and asked prices of Stock on
the most recent date on which Stock was publicly traded. In the event Stock is
not publicly traded at the time a determination of its value is required to be
made hereunder, the determination of its fair market value shall be made by the
Board in such manner as it deems appropriate.
VI. TERM OF PLAN
The Plan originally became effective on July 18, 1996. This amendment and
restatement of the Plan shall be effective on the Restatement Effective Date.
Except with respect to Options then outstanding, if not sooner terminated under
the provisions of Paragraph VIII, the Plan shall terminate upon and no further
Options shall be granted after July 18, 2006.
VII. RECAPITALIZATION OR REORGANIZATION
A. The existence of the Plan and the Options granted hereunder shall not
affect in any way the right or power of the Board or the stockholders of the
Company to make or authorize any adjustment, recapitalization, reorganization or
other change in the Company's capital structure or its business, any merger or
consolidation of the Company, any issue of debt or equity securities, the
dissolution or liquidation of the Company or any sale, lease, exchange or other
disposition of all or any part of its assets or business or any other corporate
act or proceeding.
B. The shares with respect to which Options may be granted are shares of
Stock as presently constituted, but if, and whenever, prior to the expiration of
an Option theretofore granted, the Company
D-2
shall effect a subdivision or consolidation of shares of Stock or the payment of
a stock dividend on Stock without receipt of consideration by the Company, the
number of shares of Stock with respect to which such Option may thereafter be
exercised (i) in the event of an increase in the number of outstanding shares
shall be proportionately increased, and the purchase price per share shall be
proportionately reduced, and (ii) in the event of a reduction in the number of
outstanding shares shall be proportionately reduced, and the purchase price per
share shall be proportionately increased.
C. If the Company recapitalizes, reclassifies its capital stock, or
otherwise changes its capital structure (a "recapitalization"), the number and
class of shares of Stock covered by an Option theretofore granted shall be
adjusted so that such Option shall thereafter cover the number and class of
shares of stock and securities to which the optionee would have been entitled
pursuant to the terms of the recapitalization if, immediately prior to the
recapitalization, the optionee had been the holder of record of the number of
shares of Stock then covered by such Option.
D. Any adjustment provided for in Subparagraphs B or C above shall be
subject to any required stockholder action.
E. Except as hereinbefore expressly provided, the issuance by the Company
of shares of stock of any class or securities convertible into shares of stock
of any class, for cash, property, labor or services, upon direct sale, upon the
exercise of rights or warrants to subscribe therefor, or upon conversion of
shares or obligations of the Company convertible into such shares or other
securities, and in any case whether or not for fair value, shall not affect, and
no adjustment by reason thereof shall be made with respect to, the number of
shares of Stock subject to Options theretofore granted or the purchase price per
share.
F. For purposes of the Plan, a "Corporate Change" shall occur if (i) the
Company is to be dissolved or liquidated, (ii) the Company shall not be the
surviving entity in any merger, consolidation or other reorganization, (iii) the
Company sells, leases, or exchanges, or agrees to sell, lease, or exchange, all
or substantially all of its assets, (iv) any person or entity, including a
"group" as contemplated by Section 13(d)(3) of the Securities Exchange Act of
1934, as amended (the "1934 Act"), acquires or gains ownership or control
(including, without limitation, power to vote) of more than 50% of the
outstanding shares of the Company's voting stock (based upon voting power), or
(v) as a result of or in connection with a contested election of directors, the
persons who were directors of the Company before such election shall cease to
constitute a majority of the Board.
VIII. AMENDMENT OR TERMINATION OF THE PLAN
The Board in its discretion may terminate the Plan at any time with respect
to any shares for which Options have not theretofore been granted. The Board
shall have the right to alter or amend the Plan or any part thereof from time to
time; provided, that no change in any Option theretofore granted may be made
which would impair the rights of the optionee without the consent of such
optionee.
IX. SECURITIES LAWS
A. The Company shall not be obligated to issue any Stock pursuant to any
Option granted under the Plan at any time when the offering of the shares
covered by such Option have not been registered under the Securities Act of
1933, as amended, and such other state and federal laws, rules or regulations as
the Company deems applicable and, in the opinion of legal counsel for the
Company, there is no exemption from the registration requirements of such laws,
rules or regulations available for the offering and sale of such shares.
B. It is intended that the Plan and any grant of an Option made to a
person subject to Section 16 of the 1934 Act, meet all of the requirements of
Rule 16b-3, as currently in effect or as hereinafter modified or amended ("Rule
16b-3"), promulgated under the 1934 Act. If any provision of the Plan or any
such Option would disqualify the Plan or such Option under, or would otherwise
not comply with, Rule 16b-3, such provision or Option shall be construed or
deemed amended to conform to Rule 16b-3.
D-3
CARRIAGE SERVICES, INC.
PROXY SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF
THE COMPANY FOR THE ANNUAL MEETING OF STOCKHOLDERS ON APRIL 16, 1997
The undersigned, hereby revoking all prior proxies, hereby appoints
Mark W. Duffey and Thomas C. Livengood, and each of them, his true and
lawful proxies, with full and several power of substitution, to vote
all the shares of Class A or B Common Stock or Series D or F Preferred
Stock of CARRIAGE SERVICES, INC. standing in the name of the
undersigned, at the Annual Meeting of Stockholders of CARRIAGE
SERVICES, INC. to be held on April 16, 1997 and at any adjournment(s)
thereof, on all matters coming before said meeting.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR EACH OF THE PROPOSALS
AS STATED BELOW AND, UNLESS A CONTRARY CHOICE IS SPECIFIED, THIS PROXY
WILL BE VOTED FOR EACH OF SUCH PROPOSALS.
SEE REVERSE
SIDE
================================================================================
[X] PLEASE MARK YOUR
VOTES AS IN THIS
EXAMPLE.
VOTE FOR all VOTE NOMINEES: Melvin C. Payne,
nominees listed WITHHELD C. Byron Snyder and
Robert D. Larrabee.
1. ELECTION OF THREE
CLASS I DIRECTORS for [ ] [ ]
a three-year term
ending at the 2000
Annual Meeting of
Stockholders.
VOTE FOR all nominees listed,
except vote withheld from the
following nominees (if any):
- ---------------------------------
FOR AGAINST ABSTAIN
2. Proposal to amend the
Certificate of [ ] [ ] [ ]
Incorporation to change the
authorized shares of
capital stock.
3. Proposal to amend the 1995 [ ] [ ] [ ]
Stock Incentive Plan.
4. Proposal to amend the 1996 [ ] [ ] [ ]
Stock Option Plan.
5. Proposal to amend the 1996
Nonemployee Directors' [ ] [ ] [ ]
Stock Option Plan.
6. Proposal to ratify Arthur
Andersen LLP as the [ ] [ ] [ ]
independent public
accountants of the Company
for 1997.
7. In their discretion, the
Proxies are authorized to [ ] [ ] [ ]
vote upon any other
business as may properly
come before the meeting or
any adjournment(s) thereof.
SIGNATURE: DATED: , 1997 PLEASE MARK, SIGN, DATE AND
----------------- --------- RETURN THE PROXY CARD PROMPTLY
BY USING THE ENCLOSED
PRINT NAME: ENVELOPE.
-------------------------------------
(Please sign exactly as your name appears at
left. For joint accounts, each joint owner
should sign. Executors, administrators,
trustees, etc., should also so indicate when
signing.)