SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a)
of the Securities Exchange Act of 1934
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[ ] Preliminary Proxy Statement
[ ] Confidential, for Use of the Commission only (as permitted by Rule
14a-6(e)(2))
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to ss. 240.14a-11(c) or ss. 240.14a-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:
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 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 31, 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, May 7,
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 MAY 7, 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, May 7, 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 Article IV of 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 shares 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 31, 1997
CARRIAGE SERVICES, INC.
1300 POST OAK BLVD., SUITE 1500
HOUSTON, TEXAS 77056
PROXY STATEMENT
FOR
ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD MAY 7, 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, May 7, 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 facsimile or by hand delivery.
This Proxy Statement and the accompanying proxy are being first mailed to
stockholders of the Company on or about March 31, 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) 4,484,495 shares of Class A Common
Stock, each of which is entitled to one vote, (ii) 5,356,650 shares of Class B
Common Stock, each of which is entitled to ten votes, (iii) 1,682,500 shares of
Series D Preferred Stock, each of which is entitled to .0034 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:
PERCENTAGE OF
CLASS OR SERIES OUTSTANDING SHARES NUMBER OF VOTES VOTING POWER
- ------------------------------------- ------------------- ---------------- --------------
Class A Common Stock................. 4,484,495 4,484,495 7.6%
Class B Common Stock................. 5,356,650 53,566,500 90.3%
Series D Preferred Stock............. 1,682,500 5,802 *
Series F Preferred Stock............. 19,999,992 1,272,450 2.1%
---------------- --------------
TOTAL........................... 59,329,247 100.0%
================ ==============
- ------------
* Less than one percent.
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
1
Meeting, the Meeting may be adjourned from time to time without notice other
than announcement at the Meeting until a quorum shall be formed.
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, all voting together as a single class, 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 10, 1997, the ownership of
Class A and B Common Stock (including Class A and B Common Stock into which the
Series D and F Preferred Stock are convertible) 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...................... 80,010 1,296,311(3)(10) 14.0 22.5
Melvin C. Payne...................... 0 629,769(4)(10) 6.4 10.8
Robert D. Larrabee................... 0 111,111(5) 1.0 *
Mark W. Duffey....................... 0 313,625(10) 3.2 5.4
Barry K. Fingerhut................... 85,100 520,924(6)(10) 6.2 9.1
Stuart W. Stedman.................... 82,563(7) 145,223(7)(10) 2.3 2.6
Ronald A. Erickson................... 10,400(8) 61,621(8) * 1.1
Mark F. Wilson....................... 498,397(9) 0 4.9 *
Russell W. Allen..................... 375 63,000 * 1.1
All Directors and Executive Officers
as a group (13 persons)............ 764,045 3,362,721 39.9 57.1
- ------------
* 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 .0034 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, (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, and (vii) 8,500 shares of
Class A Common Stock which are held by the Wesley West Flexible
Partnership, a partnership of which Mr. Stedman serves as the Managing
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) 5,000 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 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 TITLE
- ------------------------------------- ---- --------------------------------------------------
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 (now part of U.S. Bank of Idaho); founder, past Chairman of the Board
and past President of Purple Cross Insurance Company (now part of American
Memorial Life); and founder of Lewis-Clark Savings and Loan Association (now
part of 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.
6
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 Officer since the inception of the
Company in 1991 and became a director in 1995. 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
7
Chairman of the Texas Funeral Service Commission and as Chairman of the
Education and Legislation 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.
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
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% beneficial owners 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 corrected 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
initial public offering.
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
fifteen-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 $ 0(3) 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 $ 0(3) 0 150,000 $ 1,901
President 1995 $145,632 0 0 0 1,889
RUSSELL W. ALLEN ....................... 1996 $ 121,634 $ 0(3) 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.
(3) The bonus for 1996 for these Named Executive Officers has not yet been
determined. SEE "Compensation Committee Report on Executive
Compensation -- Bonuses for Executive Officers in 1996."
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 (the "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. Options issued under the
Directors' Plan are 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 the
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 Class A Common Stock holdings are dependent on the future
performance of the Class A Common Stock and overall stock market conditions.
There can be no assurance that the stock appreciation amounts reflected in
this table will be achieved; conversely, 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 Class A 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 non-qualified 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 non-qualified
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 executive
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 the executive is receiving compensation under his agreement,
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's bonus for 1996, if any, has not yet been determined. The Committee
believes the base salary 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 ARTICLE IV OF 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 4,484,495 7,753,534 2,761,971
Class B Common Stock.................... 15,000,000 5,356,650 193,034 9,450,316
Preferred Stock (all series)............ 50,000,000 21,682,492 0 28,317,508
- ------------
* 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 AMENDMENT
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
On January 7, 1997, the Board of Directors 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) effect certain
other changes to the 1995 Plan to address changes to Rule 16b-3 recently adopted
by the Securities and Exchange Commission, and (iii) qualify the 1995 Plan under
Section 162(m) of the Code. The Board of Directors' approval of the amendments
to the 1995 Plan was subject to stockholder approval. If the Company's
stockholders do not approve the amendments to the 1995 Plan by January 6, 1998,
then (a) any award made under the 1995 Plan on or after January 7, 1997 will be
void and canceled in its entirety and (b) the 1995 Plan will terminate with
respect to any shares for which awards were not granted prior to January 7,
1997.
Through March 14, 1997, approximately 353,400 stock options have been
granted under the 1995 Plan which have not expired, which leaves approximately
46,600 shares available for future grants of stock options and other awards
under the 1995 Plan. 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.
20
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 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.
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"
compensation under Section 162(m) of 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 officers 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
21
allow most compensation paid under the 1995 Plan to qualify under Code Section
162(m) as "performance-based."
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 of 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 AND INDIVIDUAL AWARD LIMITATION. 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. The maximum number of shares of Class A or B Common Stock that may
be the subject of awards granted under the 1995 Plan to any one employee
during any calendar year is 200,000 shares.
(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 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 or B Common Stock, or, at the discretion
of the Committee, in whole or in part with the surrender of another award
under the 1995 Plan, the withholding of shares issuable upon exercise of
the option, other property, or any combination thereof.
(5) RELOAD OPTIONS. The 1995 Plan provides that in the event a holder
pays all or a part of the exercise price or tax withholding requirement of
an incentive stock option or a non-statutory stock option in shares of
Class A or B 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.
22
(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.
(7) LIMITED RIGHTS AWARDS. In conjunction with options and alternate
appreciation rights, "limited rights" also may 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 any payment amount that may
be 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. The Committee may provide that the restrictions on the transfer
of bonus stock will lapse upon (i) the attainment of one or more
performance targets established by the Committee that are based on (a) the
price of a share of Class A or B Common Stock, (b) the Company's earnings
per share, (c) the Company's revenue, (d) the revenue of a business unit of
the Company designated by the Committee, (e) the return on stockholders'
equity achieved by the Company, or (f) 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 of the
foregoing.
(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 transferee 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, the
annual award limitation applicable to each employee, 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.
23
(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.
UNITED STATES FEDERAL INCOME TAX ASPECTS OF THE 1995 PLAN
NON-QUALIFIED STOCK OPTIONS, ALTERNATE APPRECIATION RIGHTS, AND LIMITED
RIGHTS. As a general rule, no federal income tax is imposed on the optionee upon
the grant of a non-qualified stock option (an option other than an incentive
stock option, which is described below), regardless of whether it includes an
alternate appreciation right or a limited right. In addition, the Company is not
entitled to a tax deduction by reason of such a grant. Generally, upon the
exercise of a non-qualified stock option, the optionee will be treated as
receiving compensation taxable as ordinary income in the year of exercise in an
amount equal to the excess of the fair market value of the shares on the date of
exercise over the option price paid for such shares. In the case of the exercise
of an alternate appreciation right or limited right, the optionee will be
treated as receiving compensation taxable as ordinary income in the year of
exercise in an amount equal to the fair market value of the shares distributed
to the optionee or the cash received by the optionee, as applicable.
Upon the exercise of a non-qualified stock option, an alternate
appreciation right, or a limited right, the Company may claim a deduction for
compensation paid at the same time and in the same amount as compensation income
is recognized to the optionee assuming any federal income tax withholding
requirements are satisfied. Upon a subsequent disposition of the shares received
upon exercise of a non-qualified stock option or an alternate appreciation
right, any appreciation after the date of exercise should qualify as capital
gain.
INCENTIVE STOCK OPTIONS. The incentive stock options under the 1995 Plan
are intended to constitute "incentive stock options" within the meaning of
Section 422 of the Code. Incentive stock options are subject to special federal
income tax treatment. No federal income tax is imposed on the optionee upon the
grant or the exercise of an incentive stock option if the optionee does not
dispose of shares acquired pursuant to the exercise within the two-year period
beginning on the date the option was granted or within the one-year period
beginning on the date the option was exercised (collectively, the "holding
period"). If these conditions are met and no tax is imposed on the optionee,
then the Company would not be entitled to any deduction for federal income tax
purposes in connection with the grant or exercise of the option or the
disposition of the underlying shares. With respect to an incentive stock option,
the difference between the fair market value of the stock on the date of
exercise and the exercise price generally must be included in the optionee's
alternative minimum taxable income.
Upon disposition of the shares received upon exercise of an incentive stock
option after the holding period, the difference between the amount realized and
the exercise price should constitute a long-term capital gain or loss. If an
optionee disposes of shares acquired pursuant to his or her exercise of an
incentive stock option prior to the end of the holding period, the optionee will
be treated as having received, at the time of disposition, compensation taxable
as ordinary income. In such event, the Company may claim a deduction for
compensation paid at the same time and in the same amount as compensation is
treated as received by the optionee. The amount treated as compensation is the
excess of the fair market value of the shares at the time of exercise (or in the
case of a sale in which a loss would be recognized, the amount realized on the
sale if less) over the exercise price, and any amount realized in excess of the
fair market value of the shares at the time of exercise would be treated as
short-term or long-term capital gain, depending on the holding period of the
shares.
BONUS STOCK. An individual who has been granted bonus stock under the 1995
Plan, which bonus stock is not subject to any forfeiture and transfer
restrictions, will realize ordinary income at the time of such grant in an
amount equal to the excess of the fair market value of the shares at such time
over the
24
amount, if any, paid for such shares, and, subject to the application of Section
162(m) of the Code as discussed below, the Company will be entitled to a
corresponding deduction.
An individual who has been granted bonus stock under the 1995 Plan, which
bonus stock is subject to forfeiture and transfer restrictions, will not realize
taxable income at the time of grant, and the Company will not be entitled to a
deduction at that time, assuming that the restrictions constitute a substantial
risk of forfeiture for federal income tax purposes. Upon expiration of the
forfeiture restrictions (I.E., as shares become vested), the holder will realize
ordinary income in an amount equal to the excess of the fair market value of the
shares at such time over the amount, if any, paid for such shares, and, subject
to the application of Section 162(m) of the Code, the Company will be entitled
to a corresponding deduction. Dividends paid to the holder during the period
that the forfeiture restrictions apply will also be treated as compensation
income to the holder and deductible as such by the Company. However, the
recipient of restricted bonus stock may elect to be taxed at the time of grant
of the bonus stock based upon the fair market value of the shares on the date of
the award. If the recipient makes this election, (i) the Company will be
entitled to a deduction at the same time and in the same amount (subject to the
limitations contained in Section 162(m) of the Code), (ii) dividends paid to the
recipient during the period the forfeiture restrictions apply will be taxable as
dividends and will not be deductible by the Company, and (iii) there will be no
further federal income tax consequences when the forfeiture restrictions lapse.
SECTION 162(M) OF THE INTERNAL REVENUE CODE. Section 162(m) of the Code
precludes a public corporation from taking a deduction 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. Based on Section 162(m) of the Code and the regulations issued
thereunder, the Company believes that the income generated in connection with
the exercise of stock options, alternate appreciation rights and limited rights
granted under the 1995 Plan should qualify as performance-based compensation
and, accordingly, the Company's deductions for such compensation should not be
limited by Section 162(m) of the Code. The 1995 Plan has been designed to
provide flexibility with respect to whether bonus stock awards will qualify as
performance-based compensation under Section 162(m) of the Code. The Company
believes that certain awards of bonus stock under the 1995 Plan will so qualify
and the Company's deductions with respect to such awards should not be limited
by Section 162(m) of the Code. However, certain awards of bonus stock may not
qualify as performance-based compensation and, therefore, the Company's
compensation expense deductions relating to such awards will be subject to the
deduction limitations of Section 162(m) of the Code.
The 1995 Plan is not qualified under Section 401(a) of the Code.
The comments set forth in the above paragraphs are only a summary of
certain of the United States federal income tax consequences relating to the
1995 Plan. No consideration has been given to the effects of state, local, or
other tax laws on the 1995 Plan or award recipients.
4. PROPOSAL TO AMEND THE 1996 STOCK OPTION PLAN
AMENDMENTS TO THE 1996 STOCK OPTION PLAN
On January 7, 1997, the Board of Directors 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 Board of Directors'
approval of the amendments to the 1996 Plan was subject to stockholder approval.
If the Company's stockholders do not approve the amendments to the 1996 Plan by
January 6, 1998, then (a) any award made under the 1996 Plan on or after January
7, 1997 will be void and canceled in its entirety and (b) the 1996 Plan will
terminate with respect to any shares for which awards were not granted prior to
January 7, 1997.
The proposed amendments to the 1996 Plan 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
25
Securities Exchange Act of 1934 with a requirement that the 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 of 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 under the 1996 Plan; determine the terms and
conditions upon which options under 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 options under the 1996 Plan, subject to approval of the Committee.
(3) AVAILABLE SHARES AND INDIVIDUAL AWARD LIMITATIONS. The maximum
number of shares of Class A Common Stock that may be issued under the 1996
Plan is 600,000 shares. The maximum number of shares of Class A Common
Stock that may be the subject of options granted under the 1996 Plan to any
one employee during any calendar year is 200,000 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 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 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, the
annual limitation on the number of shares that may be subject to options
26
awarded to each employee, 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.
(7) AMENDMENT. The Board of Directors 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
options under the 1996 Plan.
UNITED STATES FEDERAL INCOME TAX ASPECTS OF THE 1996 PLAN
The United States federal income tax consequences to the Company and
participants with respect to stock options and stock appreciation rights awarded
under the 1996 Plan are similar to the United States federal income tax
consequences associated with stock options and alternate appreciation rights
awarded under the Company's 1995 Stock Incentive Plan. For a summary of such tax
consequences, see "3. Proposal to Amend the 1995 Stock Incentive 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 under the
Directors' Plan 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 and 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
27
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.
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 of 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 (subject to adjustment upon a
reorganization, stock split, recapitalization, or other change in the
Company's capital structure). 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 January 1,
1997 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
28
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 Director's 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 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 Director's 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.
UNITED STATES FEDERAL INCOME TAX ASPECTS OF THE DIRECTORS' PLAN
The United States federal income tax consequences to the Company and
participants with respect to stock options awarded under the Directors' Plan are
similar to the United States federal income tax consequences associated with
non-qualified stock options awarded under the Company's 1995 Stock Incentive
Plan. For a summary of such tax consequences, see "3. Proposal to Amend the 1995
Stock Incentive Plan."
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.
29
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
Secretary of 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.
ADDITIONAL INFORMATION
ANNUAL REPORT
THE ANNUAL REPORT TO STOCKHOLDERS 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.
COPIES OF THE COMPANY'S ANNUAL REPORT ON FORM 10-K FOR THE YEAR ENDED DECEMBER
31, 1996, AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION, ARE AVAILABLE
WITHOUT CHARGE TO STOCKHOLDERS UPON REQUEST TO THOMAS C. LIVENGOOD, EXECUTIVE
VICE PRESIDENT AND SECRETARY, CARRIAGE SERVICES, INC., 1300 POST OAK BLVD.,
SUITE 1500, HOUSTON, TEXAS 77056.
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 31, 1997
30
CARRIAGE SERVICES, INC.
PROXY SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF
THE COMPANY FOR THE ANNUAL MEETING OF STOCKHOLDERS ON MAY 7, 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 May
7, 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
PLEASE MARK YOUR
VOTES AS IN THIS
[X] EXAMPLE.
- - - - - - - - - - - - - - - - - - - - - - - - - - - -
VOTE FOR all VOTE
nominees listed WITHHELD NOMINEES: Melvin C. Payne,
1. ELECTION OF C. Byron Snyder and
THREE CLASS I [ ] [ ] Robert D. Larrabee.
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):
- ---------------------------------
1. ELECTION OF
THREE CLASS I
DIRECTORS for
a three-year
term
ending at the
VOTE FOR all
- -------------- FOR AGAINST ABSTAIN
2. Proposal to amend Article IV of 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.
PLEASE MARK, SIGN, DATE AND RETURN THE PROXY CARD PROMPTLY BY USING THE
ENCLOSED ENVELOPE.
SIGNATURE:___________________ DATED:______________ , 1997
PRINT NAME:_______________________________________________
(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.)