SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE SECURITIES
EXCHANGE ACT OF 1934 (AMENDMENT NO. __)
Filed by the Registrant |X|
Filed by Party other than the Registrant |_|
Check the appropriate box:
|_| 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 Materials Pursuant to Rule 14a-11(c) or Rule 14a-12
CARRIAGE SERVICES, INC.
(Name of Registrant as Specified in Its Charter)
PAUL E. PRYZANT, SNELL & SMITH, P.C., 1000 LOUISIANA,
SUITE 1200, 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:
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2) Aggregate number of securities to which transaction applies:
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3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the
filing fee is calculated and state how it was determined):
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4) Proposed maximum aggregate value of transaction:
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5) Total fee paid:
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|_| Fee paid previously with preliminary materials.
|_| Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing fee for which the offsetting fee
was paid previously. Identify the previous filing by registration
statement number, or the Form or Schedule and the date of its filing.
1) Amount Previously Paid:
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2) Form, Schedule, or Registration Statement No.:
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3) Filing Party:
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4) Date Filed:
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[CARRIAGE SERVICES LOGO]
CARRIAGE SERVICES, INC.
1300 POST OAK BLVD., SUITE 1500
HOUSTON, TEXAS 77056
March 31, 1998
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 6, 1998, 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 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 6, 1998
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 6, 1998, at 10:00
a.m., Houston time, for the following purposes:
(1) To elect three Class II directors, each for a three-year term
expiring at the annual meeting of stockholders in 2001, and until
their respective successors are elected and qualified.
(2) To approve the 1997 Employee Stock Purchase Plan of the Company.
(3) To approve amendments to the Company's 1995 Stock Incentive Plan
to (i) increase the number of shares available thereunder from
700,000 shares to 950,000 shares, (ii) remove the requirement
that shares become exercisable no sooner than six months from the
date of grant and (iii) clarify the class of persons eligible to
participate in the Plan.
(4) To approve an amendment to the Company's 1996 Stock Option Plan
to increase the number of shares available thereunder from
600,000 shares to 800,000 shares.
(5) To ratify the selection of Arthur Andersen LLP as the independent
public accountants of the Company for 1998.
(6) To transact such other business as may properly come before the
meeting or any adjournments thereof.
The close of business on March 12, 1998 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
EXECUTIVE VICE PRESIDENT, CHIEF
FINANCIAL OFFICER AND SECRETARY
Houston, Texas
March 31, 1998
CARRIAGE SERVICES, INC.
1300 POST OAK BLVD., SUITE 1500
HOUSTON, TEXAS 77056
PROXY STATEMENT
FOR
ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD MAY 6, 1998
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 6, 1998, 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, 1998.
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 12, 1998, 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) 6,530,827 shares of Class
A Common Stock, each of which is entitled to one vote, (ii) 4,624,823 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 .0025 votes,
and (iv) 12,278,285 shares of Series F Preferred Stock, each of which is
entitled to .0588 votes. The voting power of each class or series, as of March
12, 1998, is summarized below:
OUTSTANDING NUMBER PERCENTAGE OF
CLASS OR SERIES SHARES OF VOTES VOTING POWER
--------------- ----------------- ----------- ------------
Class A Common Stock ............... 6,530,827 6,530,827 12.2%
Class B Common Stock ............... 4,624,823 46,248,230 86.4%
Series D Preferred Stock ........... 1,682,500 4,139 *
Series F Preferred Stock ........... 12,278,285 722,250 1.4%
---------- -----
TOTAL ...................... 53,505,446 100.0%
========== =====
- ------------------
*Less than 1%
-1-
The presence at the Meeting, in person or by proxy, of the holders of a
majority of the total voting power of the issued and outstanding shares of Class
A and B Common Stock and Series D and F Preferred Stock is necessary to
constitute a quorum to transact business. Abstentions and broker non-votes will
be counted for purposes of whether a quorum is present at the Meeting. In the
absence of a quorum at the Meeting, the Meeting may be adjourned from time to
time without notice other than announcement at the Meeting until a quorum shall
be formed.
If a quorum is present at the Meeting, the Class II directors will be
elected by a plurality of the votes cast at the Meeting, and each other matter
will need to be approved by 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.
SECURITY OWNERSHIP OF DIRECTORS, EXECUTIVE OFFICERS
AND CERTAIN BENEFICIAL OWNERS
The following table sets forth, as of March 12, 1998, 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
60 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.
-2-
AMOUNT AND NATURE OF BENEFICIAL OWNERSHIP
----------------------------------------- PERCENT OF
CLASS A CLASS B CLASS A AND B PERCENT OF
BENEFICIAL OWNER COMMON STOCK COMMON STOCK(1) COMMON STOCK VOTING CONTROL(2)
- ---------------- ------------ ------------ ------------ --------------
Mark W. Duffey .............. 92,375(3) 238,625(11) 3.0 4.6
Barry K. Fingerhut .......... 183,133(3)(4) 520,924(4)(11) 6.3 10.1
Greg M. Brudnicki ........... 210,494 0 1.9 *
Stuart W. Stedman ........... 137,388(3)(5) 145,223(5)(11) 2.5 3.0
Ronald A. Erickson .......... 13,650(3) 61,621(6) * 1.2
Mark F. Wilson .............. 489,388(3)(7) 0 4.3 *
Melvin C. Payne ............. 50,835(3) 629,769(8)(11) 6.1 11.8
C. Byron Snyder ............. 82,083(3) 1,296,311(9)(11) 12.3 24.4
Robert D. Larrabee .......... 1,250(3) 73,800(10) * *
Thomas C. Livengood ......... 11,980(3) 2,000 * *
Russell W. Allen ............ 10,916(3) 55,125 * 1.0
Gary O'Sullivan ............. 2,500(3) 0 * *
All Directors and
Executive Officers as a
group (13 persons) .......... 1,288,492 3,226,398 40.5 62.7
------
* Indicates less than 1%
(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
.0025 votes, and each share of Series F Preferred Stock is entitled to
.0588 votes.
(3) The ownership of shares of Class A Common Stock shown in the table
includes shares which may be acquired within 60 days upon exercise of
outstanding stock options granted under one of the Company's stock
option plans by each of the persons and group, as follows: Mr. Duffey -
12,500 shares; Mr. Fingerhut - 2,083 shares; Mr. Stedman - 1,250 shares;
Mr. Erickson - 1,250 shares; Mr. Wilson - 1,250 shares; Mr. Payne -
20,833 shares; Mr. Snyder - 2,083 shares; Mr. Larrabee - 1,250 shares;
Mr. Livengood - 4,166 shares; Mr. Allen - 4,166 shares; Mr. O'Sullivan -
2,500 shares; and directors and executive officers as a group - 55,831
shares.
-3-
(4) 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.
(5) 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, (vii) 32,850 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, (viii) 24,350 shares of
Class A Common Stock which are held by Wesley West Investment Company
L.L.C., of which Mr. Stedman is the sole Manager, and (ix) 7,120 shares
of Class A Common Stock and 5,218 shares of Class B Common Stock which
are owned jointly by Mr. Stedman and his spouse.
(6) 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) 7,000 shares of Class A
Common Stock held by Mr. Erickson's minor son, David S. Erickson.
(7) Mr. Wilson's holdings include 2,790,772 shares of Series F Preferred
Stock which are presently convertible into 164,163 shares of Class A
Common Stock and have the same number of votes. Of these shares of
Series F Preferred Stock which may be deemed 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.
(8) 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.
(9) 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-
(10) 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 73,800
shares of Class B Common Stock which are in turn convertible at any time
into 73,800 shares of Class A Common Stock. Also, such shares of Series
D Preferred Stock presently have 3,690 votes.
(11) C. Byron Snyder and certain of his affiliates, Melvin C. Payne and
certain of his affiliates, 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 354,716 shares of Class A Common Stock
and 3,198,386 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.
-5-
1. ELECTION OF DIRECTORS
GENERAL
The Board of Directors currently consists of nine 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 II directors expires at the
Meeting. The term of the Class I directors expires at the annual meeting of
stockholders in 2000 and the term of the Class III directors expires at the
annual meeting of stockholders in 1999.
Mark W. Duffey, Barry K. Fingerhut and Greg M. Brudnicki, the Class II
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 2001 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 II DIRECTORS. UNLESS OTHERWISE DIRECTED IN THE
ACCOMPANYING PROXY, THE PERSONS NAMED THEREIN WILL VOTE "FOR" THE ELECTION OF
THE NOMINEES LISTED ABOVE AS CLASS II 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 II directors, and the other
current directors and executive officers of the Company.
NAME AGE TITLE
---- --- -----
NOMINEES FOR CLASS II DIRECTORS
(TERM EXPIRING AT 2001 ANNUAL MEETING)
Mark W. Duffey(1) 41 President and Director
Barry K. Fingerhut(1)(2) 52 Director
Greg M. Brudnicki 42 Director
CONTINUING CLASS III DIRECTORS
(TERM EXPIRING AT 1999 ANNUAL MEETING)
Stuart W. Stedman(3) 40 Director
Ronald A. Erickson(3) 61 Director
Mark F. Wilson 51 Director
-6-
NAME AGE TITLE
---- --- -----
CONTINUING CLASS I DIRECTORS
(TERM EXPIRING AT 2000 ANNUAL MEETING)
Melvin C. Payne(1) 55 Chairman of the Board,
Chief Executive Officer
and Director
C. Byron Snyder(1)(2) 49 Director and Chairman of
the Executive Committee
Robert D. Larrabee 63 Director
EXECUTIVE OFFICERS WHO ARE NOT DIRECTORS
Thomas C. Livengood 42 Executive Vice President
Chief Financial Officer
and Secretary
Russell W. Allen 51 Executive Vice President
of Operations
Gary O'Sullivan 45 Senior Vice President -
Marketing
Reid A. Millard 38 Vice President,
Corporate Development
- -------------
(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 (LISTED IN SAME ORDER AS TABLE SET FORTH ABOVE)
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. 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. He serves on the Board of
Directors of Sovereign Business Forms, Inc., a private company 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 LLC, 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, 1997, GeoCapital managed accounts
having a market value of approximately $2.1 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.
-7-
GREG M. BRUDNICKI became a director of the Company in November 1997 when
Forest Lawn/Evergreen Management Corp. ("Forest Lawn") merged with a subsidiary
of the Company. Forest Lawn and its affiliate owned and operated three funeral
homes and three cemeteries in Panama City and Fort Walton Beach, Florida and
Dothan, Alabama. Mr. Brudnicki served as the President and Chief Executive
Officer of Forest Lawn from its inception in 1984 until the merger, when he
became the Co-Manager of the Forest Lawn cemeteries and funeral homes operated
by the Company. In connection with the merger, the Company agreed to increase
the Board of Directors by one member and appoint Mr. Brudnicki to fill the
resulting vacancy. Mr. Brudnicki serves as a Trustee for Bay Medical Center, a
non-profit hospital in Panama City, Florida. He also serves on the Board of
Directors of Peoples 1st Community Bank which has locations in 15 Florida
cities.
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 it 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 in January 1997 when CNM
merged with the Company. Mr. Wilson served as the President of CNM from 1988
until its merger with the Company in January 1997, when he became 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.
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. 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
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 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 to December 1996,
and is currently Chairman of the Executive Committee. Mr. Snyder is the
President of Sterling City Capital, LLC, a Houston-based investment company
specializing in consolidating privately owned businesses simultaneously with an
initial public offering. Mr. Snyder is the Chairman of the Board of Directors of
Integrated Electrical Services, Inc., a publicly traded national provider of
electrical contracting and maintenance services in the commercial, industrial,
and residential markets. Mr. Snyder was the owner and President of Relco
Refrigeration Company, a distributor of refrigeration equipment, which he
acquired in 1992. In February 1998, Relco Refrigeration was merged
-8-
into Hospitality Companies, Inc., which provides food equipment and heating/air
conditioning products to the hospitality industry. In connection with the
merger, Mr. Snyder became a member of the Board of Directors of Hospitality
Companies. Prior to 1992, 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.
Mr. Larrabee also is the co-founder and co-owner of Evergreen Estates, a
retirement community in Clarkston, Washington. He is the founding President and
past director of Valley Bank in Clarkston, Washington (now part of U.S. Bank of
Idaho); founding Chairman of the Board and 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 Directors of Sterling Financial Corporation and, until
1995, served on the Board of Directors of Laurentian Capital Corporation.
EXECUTIVE OFFICERS WHO ARE NOT DIRECTORS
THOMAS C. LIVENGOOD joined the Company in December 1996 as Executive
Vice President, Chief Financial Officer and Secretary of the Company. 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 33 years of operational experience
in the funeral home industry. Prior to joining the Company, he was affiliated
with Earthman Funeral Directors and Greenwood-Mount Olivet Funeral Homes and
Cemeteries in Fort Worth, Texas for one and 21 years, respectively, serving most
recently as Executive Vice President of Operations with each company. Mr. Allen
recently completed a term of six years as Vice Chairman of the Texas Funeral
Service Commission and as Chairman of the Education and Legislation Committees.
He is also a member of the Texas Cemetery Association and has served on the
Legislative Committee 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.
-9-
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.
ORGANIZATION AND COMMITTEES OF THE BOARD
During 1997, the Board met five times and acted by unanimous written
consent 16 times. Each of the directors attended at least 75% of the meetings of
the Board and the Committees on which he served. The functions of the Executive,
Audit and Compensation Committees of the Board, and the number of meetings held
during 1997, 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
held no meetings during 1997, but acted once by unanimous consent.
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 five times during
1997.
The members of the Compensation Committee are C. Byron Snyder and Barry
K. Fingerhut. 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 Plan.
During 1997, the Compensation Committee met one time and acted by unanimous
consent five times.
-10-
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 1997, except that Greg M. Brudnicki filed a late Form 3 after he became a
director of the Company.
CERTAIN TRANSACTIONS
In connection with the acquisition in January 1997 by the Company of
certain funeral homes and cemeteries in California, which were controlled by
Mark F. Wilson and others, (i) Mr. Wilson and a subsidiary of the Company
entered into a five-year employment agreement providing for, among other things,
the payment of a base salary to Mr. Wilson of $150,000 per year, (ii) Mr. Wilson
and such subsidiary entered into a five-year non-competition agreement providing
for, among other things, the payment to Mr. Wilson of $170,000 per year, and
(iii) the Company agreed to appoint Mr. Wilson to the Board of Directors of the
Company. In addition, Mr. Wilson and the other former shareholders of CNM who
acquired Carriage stock entered into a co-sale agreement with Messrs. Snyder,
Fingerhut, Payne, Duffey and certain affiliated stockholders, under which such
persons agreed not to sell a certain level of their stock holdings in a single
or related group of transactions unless the former CNM shareholders were given
the opportunity to participate in the sales transaction, and in which the
selling group could require the other parties to participate in a sales
transaction. This transaction was entered into immediately prior to Mr. Wilson
becoming a director of the Company, and the compensation detailed above does not
relate to any services provided by Mr. Wilson as a director of the Company.
Mr. Wilson also is a party to an arrangement with the Company whereby
Mr. Wilson may receive annual cash bonuses if acquisition candidates which he
develops and which are subsequently acquired by the Company attain cash flow in
excess of certain cash flow targets over a ten-year period. Pursuant to this
arrangement, Mr. Wilson may elect to sell back to the Company his share of
excess cash flow during the last three-year period at a predetermined cash flow
multiple. To date, no payments have been made by the Company under this
arrangement.
In connection with the acquisition in November 1997 by the Company of
certain funeral homes and cemeteries in Florida, which were controlled by Greg
M. Brudnicki and another person, (i) Mr. Brudnicki and a subsidiary of the
Company entered into a five year employment contract providing for, among other
things, the payment of a base salary to Mr. Brudnicki of $75,000 per year, (ii)
Mr. Brudnicki became a participant in an incentive compensation plan for certain
key employees of the Company's operations in Panama City, Florida, and (iii) the
Company agreed to appoint Mr. Brudnicki to the Board of Directors of the
Company. This transaction was entered into immediately prior to Mr. Brudnicki
becoming a director of the Company and the compensation detailed above does not
relate to any services provided by Mr.
Brudnicki as a director of the Company.
-11-
Mr. Brudnicki also is a party to a plan whereby Mr. Brudnicki may
receive compensation if acquisition candidates developed by him or other
participants in the plan are subsequently acquired by the Company and attain
cash flow in excess of certain cash flow targets. This plan covers Northern
Florida, Southern Georgia and Alabama. At the election of the participant, the
compensation is payable in cash or in shares of Class A Common Stock. To date,
no payments have been made by the Company to Mr.
Brudnicki under the plan.
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 approximately 39% of the Class B Common Stock purchased
by Mr. Allen. In order to pay the interest due March 31, 1997 on this note, Mr.
Allen executed a new promissory note for $16,156.75 with the same terms as the
other note. On July 30, 1997, the Company agreed to release 6,375 shares of
Class B Common Stock from this pledge.
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.
EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE. Set forth below is information regarding the
compensation for the years ended December 31, 1997, 1996 and 1995 for the
Company's Chief Executive Officer and the four other most highly compensated
executive officers of the Company during 1997 (collectively, the "Named
Executive Officers").
LONG TERM
SUMMARY COMPENSATION TABLE 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 .................. 1997 $225,000 0 0 20,000(3) $1,201
Chairman of the Board .......... 1996 $194,292 0 0 250,000 1,168
and Chief Executive Officer 1995 $171,576 0 0 0 1,174
MARK W. DUFFEY ................... 1997 $185,000 0 0 16,000(3) $1,957
President ...................... 1996 $162,231 0 0 150,000 1,901
1995 $145,632 0 0 0 1,889
RUSSELL W. ALLEN ................. 1997 $145,000 0 0 12,000(3) $ 0
Executive Vice President ....... 1996 $121,634 0 0 50,000 0
of Operations ................. 1995 $ 93,356 $20,000 0 0 193
THOMAS C. LIVENGOOD .............. 1997 $175,000 0 0 50,000(3) $2,188
Executive Vice President, ...... 1996 (4)
CFO and Secretary ..............
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LONG TERM
SUMMARY COMPENSATION TABLE COMPENSATION
ANNUAL COMPENSATION AWARDS
------------------------------------------ --------------
OTHER SECURITIES ALL OTHER
NAME AND ANNUAL UNDERLYING COMPEN-
PRINCIPAL POSITION YEAR SALARY BONUS COMPENSATION(1) OPTIONS SATION (2)
------------------ ---- ------ ----- --------------- ------- ----------
GARY O'SULLIVAN 1997 $190,496 0 0 42,000(3) $0
Senior Vice-President-Marketing 1996 (5)
- --------------------
(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) All of the options issued to Messrs. Payne, Duffey and Allen, and 12,000
of the options issued to each of Mr. Livengood and Mr. O'Sullivan, were
granted in February 1998 but are subject to stockholder approval of
Proposal 4 to increase the authorized shares issuable under the 1996
Stock Option Plan. SEE Proposal 4.
(4) Mr. Livengood joined the Company in December 1996 and his compensation
during such year did not exceed $100,000.
(5) Mr. O'Sullivan joined the Company in October 1996 and his compensation
during such year did not exceed $100,000.
STOCK OPTION GRANTS IN 1997
The Company has three stock option plans for its officers, directors and
employees: the 1995 Stock Incentive Plan (the "1995 Plan"), the 1996 Stock
Option Plan (the "1996 Plan") and the 1996 Directors' Stock Option Plan
("Directors' Plan"). 700,000 shares of Class A and B Common Stock are reserved
for issuance under the 1995 Plan, but the Board is proposing to increase the
shares available under the 1995 Plan to 950,000 shares. SEE Proposal 3 elsewhere
in this Proxy Statement. Options issued under the 1995 Plan prior to the
Company's initial public offering in August 1996 are satisfied with shares of
Class B Common Stock, but options issued after that date are satisfied with
shares of Class A Common Stock. 600,000 shares of Class A Common Stock are
reserved for issuance under the 1996 Plan , but the Board is proposing to
increase the shares available under the 1996 Plan to 800,000 shares. SEE
Proposal 4 elsewhere in this Proxy Statement. 200,000 shares of Class A Common
Stock are reserved for issuance under the Directors' Plan. Options issued under
the 1995 Plan and the 1996 Plan may be either "Incentive Stock Options" as
defined in Section 422 of the Internal Revenue Code of 1986, as amended (the
"Code"), or non-qualified stock options. Options issued under the Directors'
Plan are non-qualified stock options.
-13-
The following table sets forth information on the grants of options to
acquire shares of Class A Common Stock made during the year ended December 31,
1997 to the Named Executive Officers in the Summary Compensation Table.
OPTION GRANTS IN LAST FISCAL YEAR
POTENTIAL
INDIVIDUAL GRANTS REALIZABLE VALUE AT
------------------------------------------------- ASSUMED ANNUAL
NUMBER OF % OF TOTAL RATES OF STOCK PRICE
SECURITIES OPTIONS APPRECIATION
UNDERLYING GRANTED TO EXERCISE OR FOR OPTION TERM (2)
OPTIONS EMPLOYEES IN BASE PRICE EXPIRATION -------------------
GRANTED 1997 ($/SH) DATE 5% 10%
------- ---- ------ ---- -- ---
Melvin C. Payne -- -- -- -- -- --
Mark W. Duffey -- -- -- -- -- --
Russell W. Allen -- -- -- -- -- --
Thomas C. Livengood -- -- -- -- -- --
Gary O'Sullivan 30,000(1) 8.9% $18.00 2006 $858,300 $1,334,300
- ------------
(1) Options granted are for a term of nine and one-half years and vest 8.33%
per year on October 8 of 1997, 1998, 1999 and 2000 and 16.66% per year on
October 8 of 2001, 2002, 2003 and 2004; PROVIDED, HOWEVER, the options
scheduled to vest in 2001-2004 (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 exceeds $27.99 for 20 consecutive trading days 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 be
substantially in excess of those presented.
1997 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, 1997, and the year-end value
of unexercised options. This table sets forth options for Class A Common Stock.
-14-
AGGREGATE OPTION EXERCISES IN LAST FISCAL YEAR AND
FISCAL YEAR-END OPTION VALUES
NUMBER OF UNEXERCISED VALUE OF UNEXERCISED
OPTIONS HELD AT IN-THE-MONEY OPTIONS AT
SHARES DECEMBER 31, 1997 DECEMBER 31, 1997(1)
ACQUIRED VALUE ------------------------- ---------------------------
NAME ON EXERCISE REALIZED EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- ----------- -------- ----------- ------------- ------------ -------------
Melvin C. Payne ...... -- -- 20,833 229,167 $114,581 $1,260,419
Mark W. Duffey ....... -- -- 12,500 137,500 68,750 $ 756,250
Russell W. Allen ..... -- -- 4,166 45,834 22,913 $ 252,087
Thomas C. Livengood .. -- -- 4,166 45,834 521 $ 5,729
Gary O'Sullivan ...... -- -- 2,500 27,500 2,500 $ 27,500
- ----------------
(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 $19.00 on the Nasdaq National Market System on December 31, 1997
and any lesser exercise price.
COMPENSATION OF DIRECTORS
In lieu of cash compensation, each director of the Company who is not an
executive officer of the Company, but who may be an employee (a "qualified
director") is entitled to receive options under the 1996 Directors' Stock Option
Plan (the "Directors' Plan") provided that such director may not participate in
any other stock incentive plan of the Company. In addition, qualified 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 qualified 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 qualified 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.
When a new qualified director is appointed or elected to the Board, such
qualified director will receive an option grant to purchase 15,000 shares of
Class A Common Stock (or 25,000 shares if such director also becomes a member of
the Executive Committee).
Further, each qualified 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
-15-
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.
In January 1997, Mark F. Wilson became a director of the Company and the
President of a subsidiary of the Company in connection with the acquisition of
certain funeral homes and cemeteries in California. On such date, the Board
granted Mr. Wilson an option to purchase 15,000 shares of Class A Common Stock
under the Directors' Plan.
In November 1997, Greg M. Brudnicki became a director of the Company and
an employee of a subsidiary of the Company in connection with the acquisition of
certain funeral homes and cemeteries in Florida and Alabama. At that time, the
Board granted Mr. Brudnicki an option to purchase 15,000 shares of Class A
Common Stock under the Director's Plan.
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. Mr. Allen's employment agreement was amended
effective February 1, 1998 to increase his salary to $165,000. 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.
Effective December 13, 1996, the Company entered into an employment
agreement with Thomas C. Livengood for a five year term ending December 31,
2001. Pursuant to this agreement, Mr. Livengood is entitled to receive a salary
of not less than $175,000 and a bonus to be determined on an annual basis by the
Board of Directors. The other terms of Mr. Livengood's employment agreement are
substantially the same as those described above for Messrs. Payne, Duffey and
Allen.
Effective October 8, 1996, the Company entered into an employment
agreement with Gary O'Sullivan for a five year term. Pursuant to this agreement,
Mr. O'Sullivan is entitled to receive a salary of $190,000. Mr. O'Sullivan also
is entitled to receive an annual bonus of (i) $40,000 if the Company's
consolidated net revenues from cemetery activities for such year equals or
exceeds a budgeted amount set each year by the Chief Executive Officer of the
Company and (ii) $25,000 if the Company's consolidated
-16-
net revenues from funeral activities for such year equals or exceeds a budgeted
amount set each year by the Chief Executive Officer of the Company. The
agreement also provided for Mr. O'Sullivan to receive options under the 1996
Stock Option Plan for 30,000 shares at an exercise price of $18.00 per share,
subject to vesting requirements similar to other options granted under such
plan. If Mr. O'Sullivan is terminated without cause during the term of the
agreement, he will receive his base salary until the end of the term. In
addition, the agreement contains 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, making stock option
grants under the 1995 Stock Incentive Plan and the 1996 Stock Option Plan and
administering the 1997 Employee Stock Purchase Plan. Each member of the
Committee is a nonemployee director.
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 Committee seeks to achieve these policy goals through base salary and an
annual incentive and performance based compensation structure that, from year to
year, may consist of cash bonuses, stock options, or both. The Committee's basic
philosophy in the two years since the Company became public has been to maintain
relatively modest levels of cash compensation and emphasize stock options in
order to further 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 duties and
levels of responsibility of the individual, and compensation levels set by
industry competitors for comparable positions. The Committee believes that
maintaining a reasonable base salary structure is necessary to attract and
retain talented executives. However, the Committee has established a base salary
structure for the Company's executive officers that, for its first two years
since the Company became public, has been significantly below that of the other
four publicly traded death care companies. The Committee has instead focused the
compensation structure away from current cash
-17-
payments toward long-term compensation in the form of stock options. In 1997, no
Named Executive Officer received an increase in base salary. As the Company
matures, the Committee will continue to examine the base salary structure for
its executive management.
BONUSES/STOCK OPTION GRANTS FOR EXECUTIVE OFFICERS FOR 1997
The Committee, in consultation with management, reviews the performance
of the Company's executive officers in the context of the Company's overall
performance, on an annual basis, in determining whether and to what extent the
Company should award annual cash bonuses and stock options. This review process
is typically conducted following the Company's release of its year-end financial
information, and bonuses or options are typically awarded in March of that year.
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. The Committee believes that management's ownership of a
significant equity interest in the Company 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. In 1997, the Company started 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 Board also
approved the 1997 Employee Stock Purchase Plan, subject to stockholder approval
(SEE Proposal 2), which gives all employees an opportunity to purchase shares of
Class A Common Stock at a discount using payroll deductions. This Plan was made
available to even part-time employees who contribute to the success of the
Company's funeral homes and cemeteries. Employee stock ownership is one of the
guiding principles for the Company and is considered critical to the Company's
future success.
The decision to award a bonus or stock option grant 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. Upon recommendation of
management and concurrence with executive personnel, the Committee awarded no
cash bonuses in 1997 based upon the 1996 year. In 1997, 30,000 options were
granted to one executive officer, Gary O'Sullivan, who joined the management
team in October 1996. However, no other options were granted in 1997 to any of
the Company's executive officers based on the Committee's belief that the
options granted in 1996 were sufficient incentive.
After reviewing the 1997 financial results and the individual
performance of the Company's executive officers, the Committee concluded that
annual bonuses should be made to the executive officers for 1997. Consistent
with the Committee's philosophy, however, the Committee awarded stock options
rather than cash bonuses. Such stock options for shares of Class A Common Stock
were granted to the Named Executive Officers on February 4, 1998 under the 1996
Stock Option Plan, as follows:
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NO. OF
NAME STOCK OPTIONS
---- -------------
Melvin C. Payne 20,000
Mark W. Duffey 16,000
Russell W. Allen 12,000
Thomas C. Livengood 12,000
Gary O'Sullivan 12,000
All of such options were issued at the fair market value on the date of grant
($17-3/8 per share), have a term of ten years and are immediately vested in
full; provided, however, such options were issued subject to stockholder
approval of the increase in the number of authorized shares under the 1996 Stock
Option Plan. SEE Proposal 4.
In addition to the above, the Committee awarded Mr. Livengood options
for an additional 38,000 shares of Class A Common Stock, and Mr. O'Sullivan
options for an additional 18,000 shares, all at same fair market value on the
grant date of $17-3/8 per share. These additional options were granted in
special recognition of their efforts to strengthen the Company's financial,
administrative and marketing infrastructure as it has matured as a public
company, and also to provide some balance for them in proportion to the equity
ownership of Messrs. Payne, Duffey and Allen, each of whom received a
significant portion of their shares prior to the Company's initial public
offering. Unlike all of the annual options described above, but like the initial
option grants under the 1996 Stock Option Plan, these options on 38,000 and
18,000 shares vest (i) with respect to one-third of the option shares, in four
equal annual installments beginning on the first anniversary of the grant date,
and (ii) with respect to the remaining two-thirds of the option shares, in four
equal annual installments beginning on the fifth anniversary of the date grant,
provided that if within four years of the grant date the average of the fair
market value of the Class A Common Stock over twenty consecutive trading days is
greater than $27.99, then all of the two-thirds portion will become immediately
vested.
COMPENSATION POLICIES FOR THE CHIEF EXECUTIVE OFFICER
Melvin C. Payne has served as the Chief Executive Officer of the Company
since its founding in 1991. Mr. Payne's base salary has been $225,000 since the
Company's initial public offering in August 1996; his base salary was not
increased during 1997 and he did not receive a cash bonus for 1996 or 1997. At
the time of the initial public offering, Mr. Payne received a grant of options
under the 1996 Stock Option Plan for 250,000 shares. In lieu of a cash bonus for
1997, the Committee granted Mr. Payne stock options for 20,000 shares of Class A
Common Stock, as described above. The Committee set this level of options based
on its subjective evaluation of Mr. Payne's performance in 1997. As Chief
Executive Officer, Mr. Payne bears primary responsibility for the Company's
overall success, and the Company believes it appropriate to recognize Mr.
Payne's achievements by further emphasizing increased stock ownership. The
Committee continues to have strong confidence in Mr. Payne's leadership and
management skills to help the Company achieve its long-term goals for growth and
performance. As the Company continues to mature, the Committee will examine, on
a year-by-year basis, the most appropriate methods to continue to provide Mr.
Payne with incentives to further these goals.
COMPENSATION COMMITTEE
Barry K. Fingerhut, Chairman
C. Byron Snyder
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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 8, 1996
to December 31, 1997 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 an 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
------------------------------------------
8/9/96 12/31/96 12/31/97
------ -------- --------
Carriage Services, Inc. $100 $136 $115
S&P 500 Index $100 $112 $146
Peer Group $100 $111 $122
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. If the initial offering
price of $13.50 were used, the Company's stockholder returns in the table above
would have been $166 at December 31, 1996 and $141 at December 31, 1997.
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COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The members of the Compensation Committee are Barry K. Fingerhut and C.
Byron Snyder. 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, Mr. Larrabee was replaced by
C. Byron Snyder, who formerly 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 THE 1997 EMPLOYEE STOCK PURCHASE PLAN
GENERAL
The Board of Directors adopted the 1997 Employee Stock Purchase Plan
(the "Stock Purchase Plan") on December 31, 1997, subject to approval by the
stockholders of the Company at the Meeting. The purpose of the Stock Purchase
Plan is to provide employees of the Company and its subsidiaries with an
opportunity to purchase shares of Class A Common Stock at a discount from the
prevailing market price through a payroll deduction system. The Stock Purchase
Plan will provide an incentive for employees to acquire or increase their
ownership interest in the Company.
Management believes that employee stock ownership is one of the guiding
principles of the Company and is critical for the Company's success. The Stock
Purchase Plan will be open to all employees, including part-time employees who
are an important part of the success of most of the Company's funeral homes.
Management believes that the Stock Purchase Plan will encourage employees to
view their contribution to the Company from the perspective of an owner.
-21-
SUMMARY OF STOCK PURCHASE PLAN
SHARES AVAILABLE UNDER THE STOCK PURCHASE PLAN. Subject to adjustment as
provided in the Stock Purchase Plan, the maximum number of shares of Class A
Common Stock that may be sold under the Stock Purchase Plan is 1,000,000.
ELIGIBILITY. All employees, including part-time employees, of the
Company and those subsidiaries designated by the Board are eligible to
participate in the Stock Purchase Plan. An eligible employee, however, may not
participate (i) if the employee would own 5% or more of the total combined
voting power or value of all classes of stock of the Company, taking into
account any stock options and stock that may be purchased under the Stock
Purchase Plan or (ii) if such option would permit the employee to purchase,
under all stock purchase plans of the Company, Class A Common Stock with a fair
market value of more than $25,000 (determined at the time such options are
granted) in any calendar year. Approximately 1,300 employees of the Company and
its designated subsidiaries are currently eligible to participate in the Stock
Purchase Plan.
OFFERING PERIODS; PURCHASE PERIODS. The Stock Purchase Plan will be
implemented by a series of one-year offering periods ("Offering Periods")
starting on January 1 of each year. Each Offering Period will have four purchase
periods ("Purchase Periods) of three months each, starting on January 1, April
1, July 1 and October 1. Employees are allowed to begin participating in the
Stock Purchase Plan at the beginning of an Offering Period or at the beginning
of a Purchase Period within an Offering Period.
PARTICIPATION PROCEDURE. An eligible employee may become a participant
by completing a subscription agreement prior to the beginning of a Purchase
Period. A participant may elect to have payroll deductions of between 1% and 15%
of such participant's compensation on each payday, which is credited to the
participant's account under the Stock Purchase Plan. No participant, however,
may make payroll deductions during any year in excess of $21,250 nor may a
participant purchase more than 5,000 shares of Class A Common Stock during any
Offering Period. On the last day of each Purchase Period, the amount in each
participant's account is used to purchase shares of Class A Common Stock.
PURCHASE PRICE OF SHARES. The purchase price for the shares of Class A
Common Stock on any purchase date will be the lower of (i) 85% of the fair
market value of a share of Class A Common Stock on the beginning date of the
annual Offering Period (or the beginning date of the first Purchase Period if
the employee entered the Stock Purchase Plan after the beginning of the first
Offering Period), or (ii) 85% of the fair market value of a share of Class A
Common Stock on the purchase date (i.e. last date of the Purchase Period);
PROVIDED, HOWEVER, that for any employee who becomes a participant after the
beginning date of the Offering Period, the amount in clause (i) will be the
higher of 85% of the fair market value of a share of Class A Common Stock on the
beginning date of the Offering Period or the beginning date of the first
Purchase Period.
The fair market value of a share of Class A Common Stock on a given date
will be determined by the Board based on the closing price of the Class A Common
Stock on the Nasdaq National Market for such date as reported in THE WALL STREET
JOURNAL. If the Class A Common Stock is not traded on such date, the price will
be determined on the immediately preceding trading date on which there was a
closing price. If the closing price of the Class A Common Stock is not reported
on the Nasdaq National Market, the price will be determined based on the mean of
the bid and asked prices per share of the Class A Common Stock as reported by
the Nasdaq Stock Market or, in the event the Class A Common Stock is listed on a
stock
-22-
exchange, the price will be the closing price on such exchange on such date as
reported in THE WALL STREET JOURNAL.
DELIVERY OF SHARES TO PARTICIPANTS. Shares of Class A Common Stock
purchased with a participant's payroll deductions will issued to the participant
as promptly as practicable after each purchase date. Delivery may be made by
direct deposit into a book entry account or brokerage account in the name of the
participant.
TERMINATION OF EMPLOYMENT. Upon a participant's termination of
employment for any reason including death or disability, participation in the
Stock Purchase Plan ceases and all amounts credited to the participant's account
will be immediately distributed to the participant or in the event of the
participant's death, the participant's beneficiary.
VOLUNTARY WITHDRAWAL. A participant may voluntarily withdraw all
contributions credited to his or her account at any time prior to two business
days prior to the last day of a Purchase Period. Should a participant
voluntarily withdraw during an Offering Period, the participant will not be
eligible to participate in the Stock Purchase Plan until the next Offering
Period.
TRANSFERABILITY. No interest in the Stock Purchase Plan or in payroll
deductions credited to a participant's account may be transferred or assigned by
a participant except by will or the laws of descent and distribution.
ADJUSTMENTS. The maximum number of shares of Class A Common Stock that
may be issued under the Stock Purchase Plan are subject to adjustment in the
event of stock dividends, stock splits, combinations or reclassification of
shares, reverse stock splits, or any other increase or decrease in the number of
shares of Class A Common Stock effected without receipt of consideration,
provided that no adjustment will be made upon conversion of any convertible
securities of the Company. In the event of a merger of the Company with another
corporation, each option under the Stock Purchase Plan will be either assumed or
substituted by the successor corporation, provided that the Board of Directors
retains the sole discretion to shorten any Purchase Period in lieu of such
assumption or substitution.
AMENDMENTS. The Stock Purchase Plan may be amended or terminated at any
time by the Board, but no termination or amendment may adversely affects options
previously granted. To the extent necessary for any amendments to comply with
Rule 16b-3 under the Securities Exchange Act of 1934, or under Section 423 of
the Internal Revenue Code of 1986, the Company will obtain any shareholder
approval so required.
ADMINISTRATION. The Stock Purchase Plan may be administered by the Board
of Directors, or by a committee appointed by the Board. Currently, the
Compensation Committee administers the Stock Purchase Plan. The Compensation
Committee has the full power to adopt, amend and rescind any rules deemed
desirable and appropriate to administer the Stock Purchase Plan.
FEDERAL INCOME TAX CONSEQUENCES
The Stock Purchase Plan is intended to qualify as an "employee stock
purchase plan" under Section 423(a) of the Internal Revenue Code of 1986. This
section provides that participants do not realize any income at the date of
grant or at the time of receipt of the shares and that such income is postponed
until they dispose of the shares. The tax consequences to participants upon
disposition is dependent upon the variables determining the option price, the
sale price, and the holding period.
-23-
The Company is entitled to a deduction under Section 162 of the Internal
Revenue Code only to the extent that ordinary income is realized by the
participant as a result of disqualifying dispositions.
RECOMMENDATION OF THE BOARD
This proposal to approve the Stock Purchase Plan requires 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. The Board of
Directors believes that the approval of the Stock Purchase Plan is in the best
interests of the Company and its stockholders because the Stock Purchase Plan
will provide an incentive to employees of the Company to acquire or increase
their ownership interest in the Company.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR APPROVAL OF THE 1997
EMPLOYEE STOCK PURCHASE PLAN.
3. PROPOSAL TO AMEND THE 1995 STOCK INCENTIVE PLAN
AMENDMENTS TO THE 1995 STOCK INCENTIVE PLAN
Effective February 4, 1998, 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 700,000 to 950,000 shares, (ii)
remove the requirement that shares become exercisable no sooner than six months
from the date of grant, and (iii) clarify the class of persons eligible to
participate in the 1995 Plan. The Board of Directors' approval of these
amendments to the 1995 Plan was subject to stockholder approval. If the
Company's stockholders do not approve these amendments at the meeting, then any
award made under the 1995 Plan on or after February 4, 1998 will be void and
canceled in its entirety.
Prior to 1998, approximately 465,000 stock options were outstanding
under the 1995 Plan. In connection with the annual employee review process in
February 1998, the Company granted approximately 320,000 additional stock
options to employees and certain consultants, most of which are subject to
stockholder approval of this amendment to the 1995 Plan. Accordingly,
approximately 785,000 stock options are presently outstanding under the 1995
Plan which will leave approximately 165,000 shares available for future grants.
The Board of Directors believes that stock options are an integral part of the
Company's incentive compensation for its employees and that this increase in
authorized shares is necessary to provide adequate incentives to the Company's
employees. SEE "Executive Compensation - Compensation Committee Report."
Although officers, directors and employees of the Company, and former
owners of funeral homes and cemeteries acquired by the Company, are presently
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.
In 1997, the Company extended 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
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the Company among the Company's employees. The Company believes that this
philosophy will create added long-term incentives for the Company's employees to
help the Company meet its long-term performance goals and maximize stockholder
value.
Another important consideration to the Board in proposing this amendment
to the 1995 Plan has been the rapid growth of the Company through acquisitions
during the past year. This rapid growth has increased 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 Board also approved an amendment to the 1995 Plan to remove the
requirement that options granted are not exercisable for a minimum period of six
months after the grant date. When the 1995 Plan was adopted in July 1995, this
provision was required for the 1995 Plan to meet the requirements of Rule 16b-3
of the Securities and Exchange Commission ("SEC"). The SEC has since amended
Rule 16b-3 so that option plans no longer need to contain the six-month holding
requirement.
The 1995 Plan was adopted principally to grant incentive stock options
to employees who are not directors or executive officers of the Company. Almost
all options granted under the 1995 Plan since the Company's initial public
offering have contained four-year vesting requirements, pursuant to award
agreements approved by the Compensation Committee. However, the Compensation
Committee has issued options in 1998 to certain employees based upon their
performance in 1997, in lieu of cash bonuses they might otherwise have received.
In this situation, the Committee believes that these options granted should be
fully vested upon grant. The amendment to the 1995 Plan described above will
facilitate this approach.
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.
Finally, the Board approved an amendment to the 1995 Plan to clarify
that consultants who render personal services to the Company are eligible to be
granted options thereunder. The Board believes that it is in the Company's best
interest to closely align the interests of certain of such consultants with
those of the Company by issuing them options, and that therefore the 1995 Plan
should be amended to make clear that such persons are eligible to receive option
grants. The Compensation Committee shall retain the authority, as with other
options grants, to determine the number of shares, price and other conditions
applicable to each such option grant.
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, after giving effect to the amendments set
forth above, are summarized below:
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(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, consultants, 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
950,000 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 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 Compensation
Committee and cannot be less that the fair market value on the date of
grant. The fair market value of the Class A Common Stock on any date
means the average of the high and low sales prices on such trading date
as reported in THE WALL STREET JOURNAL. Unless a shorter period is
specified by the Committee or the terms of the 1995 Plan, a stock option
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.
(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.
-26-
(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
-27-
of a stock dividend or distribution, recapitalization, merger,
consolidation, split-up, combination, exchange of shares, or similar
transaction.
(11) AMENDMENT. The Committee may amend, modify or terminate the
1995 Plan at any time, but no amendment may be made without approval of
the stockholders of the Company which (i) increases the maximum
aggregate number of shares of Common Stock which may be issued under the
1995 Plan, or (ii) changes the class of individuals who are eligible to
receive awards under the 1995 Plan.
4. PROPOSAL TO AMEND THE 1996 STOCK OPTION PLAN
PROPOSED AMENDMENT TO INCREASE AUTHORIZED SHARES
The Board of Directors has approved a proposal to amend the Company's
1996 Stock Option Plan (the "1996 Plan") to increase the number of shares of
Class A Common Stock which are authorized to be issued thereunder from 600,000
to 800,000 shares. The Board of Directors' approval of this amendment to the
1996 Plan was subject to stockholder approval. If the Company's stockholders do
not approve this amendment to the 1996 Plan, then any award made under the 1996
Plan on or after February 4, 1998 will be void and canceled in its entirety.
The reasons for this proposed increase are substantially the same as the
reasons for the proposed increase in authorized shares for the 1995 Plan which
are discussed in Proposal 3. Therefore, these reasons will not be repeated
except for discussion specific to the 1996 Plan.
The Company has used the 1996 Plan primarily to grant options to the
Company's executive officers. Prior to 1998, approximately 560,000 stock options
were outstanding under the 1996 Plan. In connection with the annual employee
review process in February 1998, the Compensation Committee granted an aggregate
of 128,000 stock options to the Company's executive officers in lieu of cash
bonuses for 1997. SEE "Executive Compensation - Compensation Committee Report."
This grant was made subject to stockholder approval of this increase in the
authorized shares issuable under the 1996 Plan. Accordingly, approximately
688,000 stock options are presently outstanding under the 1996 Plan which will
leave approximately 112,000 shares available for future grants.
The affirmative vote of a majority of the voting power to the shares of
capital stock present or represented by Proxy at the Meeting will be required to
approve this proposal. THE BOARD OF DIRECTORS RECOMMENDS THAT STOCKHOLDERS VOTE
"FOR" THIS PROPOSAL TO AMEND THE 1996 STOCK OPTION PLAN.
SUMMARY DESCRIPTION OF THE 1996 PLAN
The terms of the 1996 Plan, after giving effect to the amendment
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
-28-
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, after giving effect to the amendment described
above, is 800,000 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 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 Committee may amend, modify or terminate the
1996 Plan at any time, but no amendment may be made without approval of
the stockholders of the Company which (i) increases the maximum
aggregate number of shares of Common Stock which may be issued under the
1996 Plan, or (ii) changes the class of individuals who are eligible to
receive awards under the 1996 Plan.
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5. 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, 1998, 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. If the Company's stockholders fail to ratify the
selection, the Board will reconsider whether to retain that firm. Even if the
selection is ratified, the Board, in its discretion may direct the appointment
of a different independent accounting firm at any time during the year if the
Board feels that such a change would be in the best interests of the Company and
its stockholders. The affirmative vote of the holders of a majority of the
voting power of the shares of capital stock present or represented by proxy at
the Meeting will be required to ratify the selection of Arthur Andersen LLP.
THE BOARD OF DIRECTORS RECOMMENDS THAT STOCKHOLDERS VOTE "FOR" THIS
PROPOSAL TO RATIFY THE SELECTION OF ARTHUR ANDERSEN LLP.
OTHER BUSINESS
Management does not intend to bring any other business before the
Meeting and has not been informed that any other matters are to be presented at
the meeting by others. If other matters properly come before the Meeting or any
adjournment thereof, 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, 1998 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, 1997
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, 1997, 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.
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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
EXECUTIVE VICE PRESIDENT, CHIEF
FINANCIAL OFFICER AND SECRETARY
Houston, Texas
March 31, 1998
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CARRIAGE SERVICES, INC.
PROXY SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF
THE COMPANY FOR THE ANNUAL MEETING OF STOCKHOLDERS ON MAY 7, 1998
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
6, 1998 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 ON THE REVERSE SIDE OF THIS PROXY CARD AND, UNLESS A CONTRARY
CHOICE IS SPECIFIED, THIS PROXY WILL BE VOTED FOR EACH OF SUCH PROPOSALS.
CONTINUED AND TO BE SIGNED ON REVERSE SIDE SEE REVERSE
SIDE
PLEASE DATE, SIGN AND MAIL YOUR
PROXY CARD BACK AS SOON AS POSSIBLE!
ANNUAL MEETING OF STOCKHOLDERS
CARRIAGE SERVICES, INC.
MAY 6, 1998
PLEASE DETACH AND MAIL IN THE ENVELOPE PROVIDED
- --------------------------------------------------------------------------------
PLEASE MARK YOUR
[X] VOTES AS IN THIS
EXAMPLE.
VOTE FOR all VOTE
nominees listed WITHHELD NOMINEES: Mark W. Duffey
1. ELECTION OF Greg M. Brudnicki
THREE CLASS II [ ] [ ] Barry K. Fingerhut
DIRECTORS for
a three-year term
ending at the 2001 Annual Meeting of Stockholders.
VOTE FOR all nominees listed, except vote withheld
from the following nominees(if any):
- ---------------------------------
FOR AGAINST ABSTAIN
2. To approve the 1997 Employee Stock Purchase Plan [ ] [ ] [ ]
of the Company
3. Proposal to amend the 1995 Stock Incentive Plan. [ ] [ ] [ ]
4. Proposal to amend the 1996 Stock Option Plan. [ ] [ ] [ ]
5. Proposal to ratify Arthur Andersen LLP as the [ ] [ ] [ ]
independent public accountants of the Company for
1998.
6. 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:______________ , 1998
PRINT NAME:_______________________________________________
NOTE: (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.)