<PAGE> 1
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE SECURITIES EXCHANGE ACT OF 1934
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[ ] Preliminary Proxy Statement
[ ] Confidential, for Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Section 240.1a-11(c) or Section
240.1a-12
KANEB SERVICES, INC.
----------------------------------------------
(Name of Registrant as Specified In Its Charter)
KANEB SERVICES, INC.
----------------------------------------
(Name of Person(s) Filing Proxy Statement)
Payment of Filing Fee (check the appropriate box):
[X] No filing 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: N/A
2) Aggregate number of securities to which transaction applies:
N/A
3) Per unit price or other underlying value of transaction
computed pursuant to Exchange Act Rule 0-11; (Set forth amount
on which the filing is calculated and state how it was
determined.): N/A
4) Proposed maximum aggregate value of transaction: N/A
5) Fee paid previously with preliminary materials: N/A
[ ] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee
was paid previously. Identify the previous filing by registration
statement number, or the Form or Schedule and the date of its filing.
1) Amount previously paid: N/A
2) Form, Schedule or Registration Statement No.: N/A
3) Filing Party: N/A
4) Date Filed: N/A
5) Total fee paid: N/A
<PAGE> 2
KANEB SERVICES, INC.
2435 North Central Expressway
Richardson, Texas 75080
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
To Be Held May 5, 1997
To the Stockholders of Kaneb Services, Inc.:
Notice is hereby given that the Annual Meeting of Stockholders of
Kaneb Services, Inc., a Delaware corporation (the "Company") will be held at
550 Light Street, Baltimore, Maryland 21202, at 9:00 A.M., Eastern Time, on May
5, 1997, for the following purposes:
(1) to elect a Board of Directors; and,
(2) to transact such other business as may properly come before
the meeting or any adjournment thereof.
Stockholders of record at the close of business on March 18, 1997,
will be entitled to notice of, and to vote at, the Annual Meeting or any
adjournment thereof.
Stockholders are cordially invited to attend the meeting in person.
Those who will not attend and who wish that their stock be voted are requested
to sign, date and promptly mail the enclosed proxy in the enclosed stamped
return envelope.
By Order of the Board of Directors
Howard C. Wadsworth
Vice President, Treasurer and Secretary
Richardson, Texas
March 24, 1997
WHETHER OR NOT YOU PLAN TO BE PRESENT AT THE MEETING, YOU ARE URGED TO SIGN,
DATE AND MAIL THE ENCLOSED PROXY CARD PROMPTLY. IF YOU ATTEND THE
MEETING, YOU CAN VOTE EITHER IN PERSON OR BY YOUR PROXY.
<PAGE> 3
KANEB SERVICES, INC.
PROXY STATEMENT
FOR
ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD MAY 5, 1997
SOLICITATION AND REVOCABILITY OF PROXIES
This Proxy Statement is furnished in connection with the solicitation
of proxies of the holders of the Common Stock, no par value (the "Common
Stock"), of Kaneb Services, Inc. (the "Company") on behalf of the Board of
Directors of the Company for use at the Annual Meeting of Stockholders to be
held on May 5, 1997, at 550 Light Street, Baltimore, Maryland 21202, at 9:00
A.M., Eastern Time, or at any adjournment of such meeting. Copies of the
accompanying Notice of Annual Meeting of Stockholders (the "Notice"), Proxy
Statement and form of proxy are being mailed to stockholders on or about March
26, 1997.
A proxy that has been received by management of the Company may be
revoked by the stockholder giving such proxy at any time before it is
exercised. However, mere attendance at the meeting by the stockholder will not
itself have the effect of revoking the proxy. A stockholder may revoke his
proxy by notification in writing (or in person if he attends the meeting) given
to Howard C. Wadsworth, Vice President, Treasurer and Secretary of the Company,
2435 North Central Expressway, Richardson, Texas 75080 or by proper execution
of a proxy bearing a later date. A proxy in the accompanying form, when
properly executed and returned, will be voted in accordance with the
instructions contained therein. A proxy received by management which does not
withhold authority to vote or on which no specification has been indicated will
be voted in favor of the proposals set forth in the proxy.
The Company's principal executive offices are located at 2435 North
Central Expressway, Richardson, Texas 75080, and its telephone number is (972)
699-4000.
The cost of preparing and mailing the proxy, Notice and Proxy
Statement will be paid by the Company. In addition to mailing copies of this
material to all stockholders of the Company, the Company has retained D.F. King
& Co. to request banks and brokers to forward copies of such material to
persons for whom they hold stock of the Company and to request authority for
execution of the proxies. The Company will pay D.F. King & Co. a fee of $4,000
excluding expenses, and will reimburse banks and brokers for their reasonable
out-of-pocket expenses incurred in connection with the distribution of proxy
materials.
At the date of this Proxy Statement, the management of the Company
does not know of any business to be presented at the meeting, other than as set
forth in the Notice accompanying this Proxy Statement. If any other business
should properly come before the meeting, it is intended that the shares
represented by proxies will be voted with respect to such business in
accordance with the judgment of the persons named in the proxy.
COMMON STOCK OUTSTANDING AND PRINCIPAL HOLDERS THEREOF
The Board of Directors of the Company has fixed the close of business
on March 18, 1997 as the record date for the determination of stockholders
entitled to notice of and to vote at the Annual Meeting (the "Record Date"). At
that date, there were outstanding 32,981,551 shares of Common Stock of the
Company, and the holders thereof of record on that date will be entitled to one
vote for each share held by them for each proposition to be presented at the
meeting.
1
<PAGE> 4
As of March 18, 1997, all Directors and executive officers of the
Company as a group owned beneficially an aggregate of 1,965,837 shares,
representing approximately 5.96% of the outstanding shares of Common Stock of
the Company. Such ownership amount includes 284,264 shares which can be
acquired by Directors and executive officers of the Company pursuant to the
exercise of outstanding stock options within 60 days of March 18, 1997.
The following table sets forth information with respect to the shares
of the Company's Common Stock owned of record or beneficially as of March 18,
1997, by all persons other than Directors and executive officers of the Company
who own of record or are known by the Company to own beneficially more than 5%
of such class of securities:
<TABLE>
<CAPTION>
Name and Address Type of Number Percent
of Stockholder Ownership of Shares of Class
------------------------------- --------- --------- --------
<S> <C> <C> <C>
State of Wisconsin Beneficial 3,171,000 9.61%
Investment Board (1)
121 East Wilson Street
Madison, Wisconsin 53703
</TABLE>
(1) The information included herein was obtained from information contained
in Amendment No. 8 to Schedule 13G, dated January 24, 1997, filed by the
stockholder with the Securities and Exchange Commission, pursuant to the
Securities Exchange Act of 1934.
ELECTION OF DIRECTORS
At the Annual Meeting of Stockholders of the Company, six Directors,
constituting the entire Board of Directors of the Company (the "Board"), are to
be elected by the holders of Common Stock to hold office until the next Annual
Meeting of Stockholders and thereafter until their respective successors are
elected and qualified. All six nominees proposed by the Board for election by
the holders of Common Stock are incumbent Directors. Although the Board does
not contemplate that any of the nominees will be unable to serve, if such
should occur prior to the meeting, proxies which do not withhold authority to
vote for Directors will be voted for a substitute in accordance with the best
judgment of the person or persons authorized by such proxies to vote.
The enclosed form of proxy provides a means for stockholders to vote for
all the nominees listed therein, to withhold authority to vote for one or more
of such nominees or to withhold authority to vote for all of such nominees.
Each properly executed proxy received in advance of the commencement of the
meeting will be voted as specified therein. If a stockholder does not specify
otherwise, the shares represented by their proxy will be voted for the nominees
listed therein or as noted above for other nominees selected by the Board.
Unless a stockholder who withholds authority votes in person at the meeting or
votes by means of another proxy, the withholding of authority will have no
effect upon the election of Directors because the Company's By-Laws provide
that Directors are elected by a plurality of the votes cast. Under applicable
Delaware law, a broker non-vote will have no effect on the outcome of the
election of Directors. However, the shares held by each stockholder who signs
and returns the enclosed form of proxy will be counted for purposes of
determining the presence of a quorum at the meeting.
2
<PAGE> 5
NOMINEES FOR DIRECTORS
The following table sets forth: (i) the name and age of each nominee
listed in the enclosed form of proxy; (ii) the principal occupation of such
nominee; (iii) the year during which such nominee first became a Director of
the Company; and (iv) the number of shares of Common Stock beneficially owned
by such nominee as of March 18, 1997. Each nominee has sole voting power and
sole investment power with respect to all or substantially all of the shares
attributed to him.
<TABLE>
<CAPTION>
Shares of Common Percent
Year First Stock Beneficially of Out-
Became a Owned at standing
Name Principal Occupation Director Age March 18, 1997(1) Shares
- ------------------ ------------------------------- ------------- --- ------------------- --------
<S> <C> <C> <C> <C> <C>
John R. Barnes Chairman of the Board, 1986 52 1,411,258 4.28%
President and Chief Executive
Officer of the Company
Sangwoo Ahn General Partner of Morgan 1989 58 165,545 *
Lewis Githens & Ahn, L.P.
an investment banking firm (2)
Frank M. Burke, Jr. Chairman and Managing General 1997 57 41,429 *
Partner of Burke, Mayborn
Company, Ltd., a private
investment company (3)
Charles R. Cox Industrial Group President of 1995 54 49,545 *
Fluor Daniel, Inc., an
international services
company (4)
Ralph A. Rehm President of NorthLake Consulting 1991 51 70,252 *
Company, a financial consulting
service firm (5)
James R. Whatley Investments (6) 1956 70 108,933 *
</TABLE>
- ------------------
*Less than one percent.
(1) Shares listed include those beneficially owned by the person indicated
or his spouse or children living at home, as well as those shares that
are subject to options exercisable by such person within 60 days of
March 18, 1997.
(2) Mr. Ahn has been a partner of Morgan Lewis Githens & Ahn, L.P. for
more than the past five years and currently serves as a director of
Gradall Industries, Inc., ITI Technologies, Inc., PAR Technology
Corporation, Quaker Fabric Corporation, and Stuart Entertainment, Inc.
(3) Mr. Burke was elected to the Board effective January 1, 1997 to fill a
vacancy. He has held the described position for more than the past
five years. He was previously associated with Peat, Marwick, Mitchell
& Co. (now KPMG Peat Marwick, LLP), an international firm of
certified public accountants, for twenty-four years.
(4) Mr. Cox has held senior executive level positions for more than the
past five years of his twenty-seven year career with Fluor Daniel,
Inc.
(5) Mr. Rehm has held the described position for more than the past 5
years (see "Certain Transactions").
(6) Mr. Whatley served as Chairman
of the Board of Directors of the Company from February 1981 until April
1989 and currently serves as Chairman of the Board of Directors of
First Heritage Bank N.A.
3
<PAGE> 6
MEETINGS AND COMMITTEES OF THE BOARD OF DIRECTORS
During 1996, the Board held five meetings and each incumbent Director
attended more than 75% of the aggregate of the total number of such meetings
and the total number of meetings held by all committees of the Board on which
he served during his term.
The Board has an Audit Committee which is currently composed of
Sangwoo Ahn and Frank M. Burke, Jr. (effective February 21, 1997). The
functions of the Audit Committee, which held two meetings during 1996, include
the planning of, and fee estimate approval for, the annual audit of the
Company's consolidated financial statements, review of the results of the
examination by the Company's independent accountants of the Company's
consolidated financial statements, and approval of any non-audit services
performed by the Company's independent accountants and consideration of the
effect of such non-audit services on the auditors' independence. The Board also
has a Compensation Committee composed of James R. Whatley, Charles R. Cox and
Ralph A. Rehm. The function of the Compensation Committee is to establish and
review the compensation programs for the executive officers of the Company and
its subsidiaries and to formulate, recommend and implement incentive, stock
option or other bonus plans or programs for the officers and key employees of
the Company and its subsidiaries. The Compensation Committee met five times in
1996 to thoroughly review, among other things, the option repricing program,
the DSU Plan and the SDC Plan, all of which are more fully described in this
Proxy Statement.
The Board also has a Nominating Committee, composed of all of the
non-employee Directors, which held two meetings during 1996. The Nominating
Committee has the duty and responsibility to consider and recommend future
nominees to the Board and considers nominees recommended by stockholders of the
Company. Such recommendations for 1998 nominees must be submitted in writing by
December 1, 1997, to Howard C. Wadsworth, Vice President, Treasurer and
Secretary of the Company, 2435 North Central Expressway, Richardson, Texas
75080. The submitted recommendations must be accompanied by a statement of
qualifications of the recommended nominee and a letter from the nominee
affirming that they will agree to serve as a Director of the Company if elected
by the stockholders.
4
<PAGE> 7
EXECUTIVE OFFICERS
The following table sets forth the names, ages, positions with the
Company and ownership of the Company's Common Stock for the executive officers
of the Company.
<TABLE>
<CAPTION>
Shares of Common Percent
Years of Stock Beneficially of Out-
Service in Owned at standing
Name Office Office Age March 18, 1997(1) Shares
- ------------------ -------------------------- ----------- --- ------------------- --------
<S> <C> <C> <C> <C> <C>
John R. Barnes Chairman of the Board, 10 52 1,411,258 4.28%
President and Chief
Executive Officer
Edward D. Doherty Senior Vice President 8 61 55,223 *
Joseph P. Lahey Senior Vice President (2) 1 49 20,000 *
Howard C. Wadsworth Vice President, Treasurer 6 52 34,137 *
and Secretary
Tony M. Regan Controller 6 36 9,515 *
</TABLE>
- -------------------------------
*Less than one percent.
(1) Shares listed include those beneficially owned by the person indicated
or his spouse or children living at home, as well as those shares that
are subject to options exercisable by such person within 60 days of
March 18, 1997.
(2) Mr. Lahey joined the Company in March 1996. From 1993 to 1996, Mr.
Lahey was Senior Vice President of Liberty Technologies, Inc. and from
1988 to 1993 he served as President and Chief Executive Officer of
Barnard and Burk Group Inc.
5
<PAGE> 8
EXECUTIVE COMPENSATION
EXECUTIVE OFFICERS
The following table sets forth information concerning the annual and
long-term compensation for services in all capacities to the Company paid for
the fiscal years ended December 31, 1996, 1995 and 1994 to the Chief Executive
Officer and the four most highly compensated executive officers of the Company
whose cash compensation in 1996 exceeded $100,000 (the "Named Executive
Officers").
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Long Term Compensation
-----------------------------------------------
DSUs Options
Annual Compensation Related to Related to Repriced Other
Name and --------------------------- Deferred Deferred Stock Stock All Other
Principal Position Year Salary (1) Bonus (2) Salary Salary Options Options Compensation(3)
- ------------------- ------ ------------ ---------- --------- -------- -------- ------- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
John R. Barnes 1996 $313,296 $ -0- 148,735 113,926 450,000 -0- $ 8,002
Chairman of the Board, 1995 313,296 -0- -0- -0- -0- -0- 7,788
President and Chief 1994 313,296 -0- -0- -0- -0- -0- 7,788
Executive Officer
Edward D. Doherty 1996 200,333 93,040 13,129 7,273 240,000 -0- 6,832
Senior Vice President 1995 190,833 133,100 -0- -0- -0- -0- 6,096
1994 180,417 40,000 -0- -0- -0- -0- 6,833
Joseph P. Lahey 1996 167,000(4) -0- 21,818 21,818 -0- 100,000 145
Senior Vice President
Howard C. Wadsworth 1996 180,000 10,000 14,548 13,399 65,000 -0- 6,746
Vice President, 1995 170,833 -0- -0- -0- -0- 30,000 3,288
Treasurer and Secretary 1994 150,833 25,000 -0- -0- -0- -0- 3,305
Tony M. Regan 1996 120,250 -0- 13,415 13,200 15,000 -0- 3,848
Controller 1995 101,667 -0- -0- -0- -0- 10,000 4,006
</TABLE>
- -------------------------------
(1) Amounts for 1996 include compensation voluntarily deferred by Messrs.
Barnes, Doherty, Lahey, Wadsworth and Regan, in the amounts of
$58,743, $3,750, $11,250, $7,750 and $6,806, respectively, for the
purchase of Deferred Stock Units ("DSUs") pursuant to the Company's
Deferred Stock Unit Plan (the "DSU Plan"). Additionally, $54,927,
$11,151, $1,800 and $387 in compensation was voluntarily deferred in
1996 by Messrs. Barnes, Doherty, Wadsworth and Regan, respectively,
for the purchase of Deferred Stock Units ("DSUs") pursuant to the
Company's Supplemental Deferred Compensation Plan (the "SDC Plan").
Both the DSU Plan and the SDC Plan are more fully described elsewhere
in this Proxy Statement.
(2) Represents annual incentive bonus amounts earned during the year
shown, which amounts were paid in the following year, unless otherwise
noted. Amounts for 1994 include a non-recurring bonus award to Mr.
Wadsworth of $25,000 that was earned during 1993 and 1994, and paid
during 1994, for his performance in connection with a special foreign
assignment. Amounts for 1996 include a non-recurring lump-sum bonus
payment to Mr. Wadsworth of $10,000, in lieu of a salary increase,
which was paid in 1996.
(3) Includes the amount of the Company's contribution to the Company's
Savings Investment Plan (the "401(k) Plan") and the imputed value of
Company-paid group term life insurance exceeding $50,000. The 401(k)
Plan covers all full-time domestic employees of the Company and its
subsidiaries and allows for employee contributions of up to 12% of
pay, which may be directed to a variety of investments. However, the
Named Executive Officers are limited by statute to contributions of
less than 12% of pay. Contributions to the 401(k) Plan of up to 6% of
pay are matched by the Company at a rate of 50% for employee-directed
Company Common Stock investments and 25% for other employee-directed
investments. The Company also contributes the equivalent of an
additional 2% of pay to the 401(k) Plan investment(s) of choice for
each participant. Mr. Lahey will first be eligible to participate in
the 401(k) Plan on April 1, 1997.
(4) Represents salary earned by Mr. Lahey from the date he joined the
Company (March 1, 1996) through December 31, 1996.
6
<PAGE> 9
BOARD COMPENSATION COMMITTEE REPORT ON REPRICING OF OPTIONS/SARS
The Committee has directed the preparation of this report and has
approved its contents and its submission to the stockholders. As provided by
the rules of the Securities and Exchange Commission (the "Commission"), this
report is not deemed to be filed with the Commission nor incorporated by
reference into any prior or future fillings under the Securities Act of 1933,
as amended, or the Securities Exchange Act of 1934, as amended. The Company's
compensation system for its executive officers provides additional incentive
for stock growth and total stockholder return through the use of plans whose
benefits depend upon the performance of the Company's Common Stock. Stock
options have been periodically granted to executive officers and other
employees of the Company pursuant to the 1984 Stock Option Plan (the "1984
Option Plan") and the 1994 Stock Incentive Plan (the "1994 SIP"), primarily
based upon the executive's or employee's ability to further the Company's
future business objectives. The 1994 SIP was adopted by the Company and
approved by the stockholders to replace the 1984 Option Plan, which expired in
1994. While options under the 1984 Option Plan remain outstanding, no new
options have been granted under that plan since 1994.
During 1996, the Committee recognized that many of the options granted
during prior years had lost all of the positive attributes for which they were
originally intended since their exercise prices were significantly above the
market price of the Company's Common Stock. In order to restore the linkage of
this important element of compensation with the goal of increasing stockholder
value, the Committee developed a repricing program which would accomplish this
objective, while continuing to recognize the initial pricing thresholds
established under the original option grants. Under the Compensation
Committee's repricing program, those persons who elected to participate,
voluntarily surrendered the vesting rights under their existing, substantially
vested options in consideration for the issuance of options under the 1994 SIP
or through amendments to such individual's original option agreements, as
appropriate. The repriced stock options cannot fully vest until the earlier
of: (i) the date, after April 21, 2001, on which the 30-consecutive day
average closing price of the Company's Common Stock is equal to or greater than
the original exercise price of the option immediately prior to the time such
option was repriced; or, (ii) April 21, 2006; or, (iii) the participant's
death, disability or a "change of control." The Committee believes that the
repricing program, with its revised vesting schedule, restores the motivational
aspects of these options, while once again providing incentive for stock growth
and increased shareholder return.
Compensation Committee
James R. Whatley, Chairman
Charles R. Cox
Ralph A. Rehm
TEN-YEAR OPTION/SAR REPRICINGS
During 1996, recognizing that many of the stock options issued in
prior years had lost their value to motivate and retain key executives, the
Compensation Committee approved the repricing program described in detail
above. The repriced stock options are reflected in the following table.
<TABLE>
<CAPTION>
Length of
Market Price Exercise Original
Number of of Stock at Price of New Option Term
Securities Time of Stock at Time Exercise Remaining at
Repriced Repricing of Repricing Price Reprice Date
Name Date (#) ($/Share) ($/Share) ($/Share) (Years)
- ------------------ ------- -------- ------- ------ ------- ------------
<S> <C> <C> <C> <C> <C> <C>
John R. Barnes 4/22/96 175,000 $2.625 $6.38 $2.625 6
John R. Barnes 4/22/96 275,000 2.625 8.50 2.625 6
Edward D. Doherty 4/22/96 240,000 2.625 4.63 2.625 3
Howard C. Wadsworth 4/22/96 50,000 2.625 4.00 2.625 4
Howard C. Wadsworth 4/22/96 15,000 2.625 4.75 2.625 6
Tony M. Regan 4/22/96 5,000 2.625 6.13 2.625 4
Tony M. Regan 4/22/96 10,000 2.625 4.75 2.625 6
</TABLE>
7
<PAGE> 10
OPTIONS/SAR'S GRANTED DURING LAST FISCAL YEAR
The following table includes the details of options granted or
repriced for the Named Executives during the last fiscal year. All stock
options were priced at 100% of the closing price of the Company's common stock
on the date of grant or repricing. For illustrative purposes only, the
Black-Scholes option pricing model has been used to estimate the value of stock
options issued by the Company. The assumptions used in the calculations under
such model include stock price variance or volatility based on weekly average
variances of the stock for the five-year period preceding issuance, a risk-free
rate of return based on the 30-year U.S. Treasury bill rate for the five-year
expected life of the options, and exercise of the options at the end of their
expected life. The actual option value realized, if such option is exercised,
will be based upon the excess of the market price of the Company's Common Stock
over the exercise price of the option on the date of exercise and there is no
relationship between the actual option value upon exercise and the illustration
below.
<TABLE>
<CAPTION>
Number of % of Total Computed Value
Options/SAR's Granted Using Black
Granted/ To Employees Exercise Price Expiration Scholes Option
Name Amended During Year ($/Share) Date Pricing Model
- ------------------- -------------- ----------- ------------- --------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
John R. Barnes (1) 450,000 39.2% $ 2.625 4/21/06 $ 472,500
John R. Barnes (2) 113,926 9.9% 2.750 8/15/06 127,597
Edward D. Doherty (1) 240,000 20.9% 2.625 4/21/06 252,000
Edward D. Doherty (2) 7,273 0.6% 2.750 8/15/06 8,146
Joseph P. Lahey (3) 100,000 8.7% 2.625 3/05/06 104,000
Joseph P. Lahey (2) 21,818 1.9% 2.750 8/15/06 24,436
Howard C. Wadsworth (1) 65,000 5.7% 2.625 4/21/06 68,900
Howard C. Wadsworth (2) 13,091 1.1% 2.750 8/15/06 14,662
Howard C. Wadsworth (2) 308 0.0% 3.250 12/10/06 407
Tony M. Regan (1) 15,000 1.3% 2.625 4/21/06 15,900
Tony M. Regan (2) 13,200 1.1% 2.750 8/15/06 14,784
</TABLE>
(1) Issued or amended on April 22, 1996 pursuant to a repricing agreement more
fully described in the Ten-Year Option/SAR Repricings table elsewhere in
this Proxy Statement.
(2) Issued in connection with such person's participation in the DSU Plan,
which plan is more fully described elsewhere in this Proxy Statement.
(3) Issued in connection with Mr. Lahey's employment with the Company, which
options vest ratably over the next five years.
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR END OPTION VALUES
There were no options or SAR's exercised by the Named Executive Officers
during 1996.
<TABLE>
<CAPTION>
Number of Unexercised Value of Unexercised
Options Held In-the-Money Options
Shares at Fiscal Year End at Fiscal Year End
Acquired on Value -------------------------- --------------------------
Name Exercise Realized Exercisable Unexercisable Exercisable Unexercisable
- ---------------- -------- -------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
John R. Barnes - 0 - $ - 0 - - 0 - 563,926 $ - 0 - $ 338,213
Edward D. Doherty - 0 - - 0 - 10,000 247,273 7,500 153,637
Joseph P. Lahey - 0 - - 0 - 10,000 111,818 6,250 67,159
Howard C. Wadsworth - 0 - - 0 - 15,000 93,399 22,500 69,671
Tony M. Regan - 0 - - 0 - 2,000 36,200 1,500 21,975
</TABLE>
8
<PAGE> 11
DESCRIPTION OF CERTAIN PROGRAMS ESTABLISHED IN 1996
Deferred Stock Unit Plan
Many executives desired to participate in the Company's growth at
greater levels than those afforded by the traditional stock option grants they
had received. In response to their request, the Compensation Committee
initiated the Deferred Stock Unit Plan during 1996. Under the Deferred Stock
Unit Plan (the "DSU Plan"), the Named Executive Officers and other key
employees of the Company were given the opportunity to defer between 5% and 50%
of their base salary, as of their initial date of participation, for two years
commencing August 16, 1996 toward the purchase of deferred stock units ("DSUs")
at a value equal to the closing price of the Company's Common Stock on the day
following the employee's election to participate in the DSU Plan; a date
pre-selected by the Compensation Committee, (the "Election Date"). During the
first two years following the Election Date, a participant's DSUs vest only in
an amount equal to the lesser of the salary actually deferred to date or the
value (based upon the then-current closing price of the Company's Common Stock)
of the pro-rata portion (as of such date) of the number of DSUs acquired.
After the second anniversary of the Election Date, the DSUs become fully
vested, but may only be distributed through the issuance of a like number of
shares of the Company's Common Stock on a pre-selected date, which was
irrevocably selected by the participant on the Election Date and which could be
no earlier than three years, and no later than ten years, after the Election
Date. DSU accounts are unfunded by the Company and such accounts do not bear
interest. Each person that elected to participate in the DSU Plan was also
awarded, under the Company's 1994 Stock Incentive Plan, an option to purchase a
number of shares of the Company's Common Stock equal to the number of DSUs
agreed to be purchased by such person at 100% of the closing price of the
Company's Common Stock on the day following the date of election to participate
in the DSU Plan. One-third of such options will become exercisable in each of
the third, fourth and fifth years after the grant.
Supplemental Deferred Compensation Plan
The Supplemental Deferred Compensation Plan (the "SDC Plan") was
established in order to allow executive officers and key employees of the
Company to defer a portion of their salary that, because of statutory
limitations, could not otherwise be set aside for retirement purposes in the
Company's 401(k) Plan. The non-qualified SDC Plan permits a participant to
defer a portion of their total base salary that is in excess of the amounts
elected by the participant to be deferred under the Company's 401(k) Plan, but
no greater than approximately 6% of their total base salary when such person's
SDC Plan deferral is combined with their 401(k) Plan deferral plus the amount
by which their 401(k) Plan deferral was reduced due to participation in the DSU
Plan. The Company makes contributions to the SDC Plan under the same formula
as those contributions made to the 401(k) Plan; however, such contributions and
participant deferrals are made to the SDC Plan in the form of DSUs, equivalent
in value to 100% of the price of the Company's Common Stock at the time of the
participant's deferral of salary to the SDC Plan. All amounts deferred under
the SDC Plan are memorandum bookkeeping accounts, and such accounts do not bear
interest. Vesting in SDC Plan accounts occurs ratably over the first five
years of the participant's employment, in the same manner as the 401(k) Plan.
SDC Plan accounts will not be distributed until the earlier of a date
predetermined by the participant, at the time of a "change of control" of the
Company, or a qualifying event substantially similar to qualifying distribution
events established under the 401(k) Plan. Distributions from the SDC Plan may
be made in the form of shares of the Company's Common Stock and/or cash, at the
discretion of the Compensation Committee. The value of an account at the time
of distribution will be equal to the value of the participants vested DSUs,
which are equivalent in value to shares of the Company's Common Stock at that
time. At the commencement of the Plan, participant deferrals were allowed and
Company contributions were credited to make up for previous shortfalls due to
statutory limitations from the inception of the Company's 401(k) Plan in 1991
to date for currently active participants.
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<PAGE> 12
BOARD COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
The Compensation Committee of the Board of Directors is responsible
for recommending the types and levels of compensation for executive officers of
the Company. The Compensation Committee (the "Committee") is composed of three
independent, non-employee Directors, though Messrs. Whatley and Rehm have
previously served as officers of the Company. Following thorough review and
approval by the Committee, decisions relating to executive compensation are
reported to and approved by the full Board of Directors. The Committee has
directed the preparation of this report and has approved its contents and its
submission to the stockholders. As provided by the rules of the Securities and
Exchange Commission (the "Commission"), this report is not deemed to be filed
with the Commission nor incorporated by reference into any prior or future
fillings under the Securities Act of 1933, as amended, or the Securities
Exchange Act of 1934, as amended.
In the Committee's opinion, levels of executive compensation should
generally be based upon the performance of the Company, the contributions of
individual officers to such performance and in comparison to persons with
comparable responsibilities in business enterprises similar in size or nature
to the Company. The Committee believes that compensation plans should align
executive compensation with returns to stockholders, giving due consideration
to the achievement of both long-term and short-term objectives. Such
compensation policies and practices have allowed the Company to attract, retain
and motivate its key executives.
The compensation of the executive officers of the Company consists
primarily of base salaries and the opportunity to participate in certain
incentive arrangements, including, among other programs established during
1996, as described herein, the 1994 Stock Incentive Plan (the "1994 SIP") and
the grant of contractual non-qualified stock options. Certain executive
officers have also previously participated in the Company's 1984 Stock Option
Plan (the "1984 Option Plan"), which expired by its own terms in March 1994.
The value of these plan benefits directly relates to the future performance of
the Company's Common Stock. Consistent with all other full-time Company
employees, the Named Executive Officers are also eligible to participate in the
Company's 401(k) Plan. The Committee believes that this plan encourages
longer-term employment through gradual service-based vesting of Company
contributions. The plan also provides an incentive to employees of the Company,
including the Named Executive Officers, who elect to tie their own financial
interests, in part, to those of the Company's stockholders by offering larger
employer-matching contributions to employee contributions to the plan that are
invested in the Company's Common Stock than employee contributions that are
directed to other investment options provided under the plan.
The base salaries of the Company's executive officers, including the
Chief Executive Officer, are based upon a subjective assessment of each
individual's performance, experience and other factors which are believed to be
relevant in comparison with compensation data contained in published and well
recognized surveys. The Committee believes that the salaries and total
compensation of the Company's executive officers ranks within close proximity
to the median level of most of the comparative data. In addition to the
foregoing, two of the Company's executive officers, Messrs. Doherty and Lahey,
are each eligible to receive, on a year to year basis, an incentive bonus based
upon the actual results achieved, as compared to budget, in a given fiscal year
by the subsidiaries of the Company that are under their respective direct
supervision. These incentive arrangements have been extended to such executive
officers for 1997. The Committee believes that an improvement in earnings from
the prior year and a comparison of actual performance versus budget are
appropriate standards for measuring subsidiary performance and directly links
the individual participant's total potential remuneration with the
accomplishment of established growth targets.
The Committee also believes that the utilization of incentive programs
that are linked to the performance of the Company's Common Stock closely aligns
the interests of the executive with those of the Company's stockholders.
Accordingly, during 1996, the Committee authorized the establishment of the
Company's Deferred Stock Unit Plan
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<PAGE> 13
(the "DSU Plan") and the Company's Supplemental Deferred Compensation Plan (the
"SDC Plan"). Each of these plans utilize the concept of a deferred stock unit
("DSU"), which is designed to have characteristics substantially similar to
those of the Company's Common Stock. The specific characteristics of DSUs, as
well as a description of each of these plans, are described in more detail
elsewhere in this Proxy Statement. The Committee believes that these plans are
an integral part of key employee's total compensation and are necessary in
order to maintain the Company's ability to recruit and retain senior executive
talent. The amount of salary deferrals and DSU's purchased and stock option
grants under the DSU Plan and the SDC Plan are set forth for each of the Named
Executive Officers in the Summary Compensation and Options/SARs Granted tables
contained in this Proxy Statement.
Eligibility for participation in the DSU Plan, the SDC Plan and the
awards granted under 1994 SIP were determined after the Committee had
thoroughly reviewed and taken into consideration the respective relative
accountability, anticipated performance requirements and contributions to the
Company by the prospective participants, including the Named Executive
Officers. All outstanding options that have been granted pursuant to these
plans and programs were granted at prices not less than 100% of the fair market
value of the Company's Common Stock on the dates such options were granted.
The Committee believes that stock options, deferred stock units, stock
appreciation rights and stock grants are a desirable form of long-term
compensation that closely connect the interests of management with stockholder
value.
Compensation Committee
James R. Whatley, Chairman
Charles R. Cox
Ralph A. Rehm
TERMINATION AGREEMENTS
In order to attract and retain qualified employees, the Company has
periodically entered into termination agreements with key employees of the
Company and its subsidiaries which provide that the Company will pay certain
amounts into an escrow account if a third party takes certain steps which could
result in a change-of-control. Under the agreements, a "change-of-control"
occurs if, under certain specified circumstances: (i) a third party becomes
the beneficial owner of 20% of the Company's outstanding common shares; or,
(ii) the incumbent directors do not constitute a majority of the Board of
Directors of the Company; or, (iii) a majority of the fair market value of the
assets of the Company is distributed to its stockholders. If a
change-of-control occurs and, among other things, the employment of the
employee terminates, voluntarily or involuntarily, for any reason, the escrowed
sum will be paid to the employee. Messrs. Barnes, Doherty, Lahey and Wadsworth
have termination agreements which provide that in the event that their
employment is terminated as a consequence of a change-of-control, the Company
will pay each individual an amount equal to 299% of their average annual base
salary for the five years prior to the change-of-control. Mr. Regan has a
similar agreement which would pay him 100% of his then current salary in such
event. If such a change-of-control of the Company were to occur at March 18,
1997, an aggregate of $2,788,788 would be payable to these individuals.
DIRECTORS' FEES
In 1996, each non-employee member of the Board of the Company was paid
an annual retainer of $20,000. Each non- employee Board member was also able to
participate in programs comparable to those that were established in 1996 by
the Compensation Committee for the Company's executive officers and other key
employees.
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<PAGE> 14
Similar to the DSU Plan adopted by the Compensation Committee for the
Company's executive officers and other key employees, as more fully described
elsewhere in this Proxy Statement, the Company's Non-Employee Directors
Deferred Stock Unit Plan (the "Directors DSU Plan") allowed each non-employee
director the opportunity to defer between 5% and 100% of their cash
compensation for each of the two years commencing August 16, 1996, toward the
purchase of DSUs. Directors electing to participate in the Directors DSU Plan
were also awarded options to purchase the same number of shares of the
Company's Common Stock equal to the number of DSUs issued to such person at
100% of the closing price of the Company's Common Stock on the date of election
to participate in the Directors DSU Plan. The characteristics of DSUs are more
specifically fully elsewhere in this Proxy Statement.
Additionally, consistent with the program established for the
Company's executive officers and other key employees, each non-employee
director was offered the opportunity to voluntarily surrender all vesting
rights relating to certain fully vested options to purchase shares of the
Company's Common Stock that had been previously issued to such director in
consideration for repricing the exercise price of such option to an amount
equal to 100% of the closing price of the Company's Common Stock on April 22,
1996. These repriced stock options fully vest at the earlier of: (i) the
date, after April 22, 1996, on which the 30-consecutive day average closing
price of the Company's Common Stock is equal to or greater than the original
exercise price of the option immediately prior to the time such option was
repriced; or, (ii) April 21, 2006.
During 1996, the Board also established the 1996 Directors Stock
Incentive Plan (the "1996 Directors SIP") and each incumbent director holding
office at that time was issued, under such plan, an option to purchase up to
10,000 shares of the Company's Common Stock at a price equal to 100% of the
closing price of the Company's Common Stock on June 10, 1996. During 1997,
each incumbent Director was granted an option to purchase up to 10,000 shares
of the Company's Common Stock at a price equal to 100% of the closing price of
the Company's Common Stock on February 20, 1997.
As of March 18, 1997, incumbent non-employee Directors had been
granted non-qualified options, under the 1996 Directors SIP and pursuant to
individual agreements, to purchase a cumulative total of 272,264 shares of
Common Stock at an average price of $2.95 per share (inclusive of the repriced
options), representing 100% of the fair market value of the Common Stock on the
respective dates of grant, and had purchased a total of 42,264 DSUs at an
average price of $2.94 per DSU, under the Directors DSU Plan. Except as stated
above, all of such options vest immediately and expire at the earlier of ten
years from the date of grant or within three months after such person ceases to
be a Director of the Company.
CERTAIN TRANSACTIONS
During 1996, Mr. Rehm, who is currently a Director of the Company and
is standing for reelection, performed special foreign and other assignments on
behalf of certain of the Company's subsidiaries. Mr. Rehm was paid a total of
$48,420 in 1996 as remuneration for such services and was reimbursed for
appropriate travel expenses.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Messrs. Whatley and Rehm are both former executive officers of the
Company.
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<PAGE> 15
PERFORMANCE GRAPH
The following graph compares, for the period January 1, 1992 to
December 31, 1996, the cumulative total stockholder return on the Common Stock
of the Company with the New York Stock Exchange Market Index and an industry-
based index prepared by Media General Financial Services, Inc. The
industry-based index is comprised of companies that share the same Standard
Industrial Classification ("SIC") code as the Company, which consists of
companies that offer a diverse array of services, and have comparable market
capitalization to the Company. The graph assumes an initial investment of $100
and the reinvestment of all dividends.
[GRAPH]
Kaneb Services, Inc. NYSE Market Index Industry Index
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100.00 100.00 100.00
1992 76.47 104.70 82.95
1993 67.65 118.88 78.69
1994 50.00 116.57 55.36
1995 57.49 151.15 69.37
1996 83.05 182.08 81.84
MARKET PRICE OF COMMON SHARES
The closing price of the Company's Common Stock on the New York Stock
Exchange on March 18, 1997 was $4.00 per share.
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<PAGE> 16
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE STATEMENT
Section 16(a) of the Securities and Exchange Act of 1934, as amended
("Section 16 (a)") requires the Company's officers and directors, among others,
to file reports of ownership and changes of ownership in the Company's equity
securities with the Securities and Exchange Commission and the New York Stock
Exchange. Such persons are also required by related regulations to furnish the
Company with copies of all Section 16 (a) forms that they file.
Based solely on its review of the copies of such forms received by it,
the Company believes that, since January 1, 1996, its officers and directors
have complied with all applicable filing requirements with respect to the
Company's equity securities.
INDEPENDENT AUDITORS
Price Waterhouse LLP, the Company's independent auditors for the
calendar year ended December 31, 1996, has advised the Company that it will
have in attendance at the Annual Meeting of Stockholders a representative who
will respond to appropriate questions presented at such meeting regarding the
Company's financial results and condition at the close of its most recent
fiscal year. Representatives of the firm will be afforded an opportunity to
make statements if they wish to do so. The Audit Committee of the Board of
Directors of the Company has not yet met to select the principal accountants to
audit the accounts of the Company for the calendar year ending December 31,
1997.
PROPOSALS FOR NEXT ANNUAL MEETING
Any proposals of holders of Common Stock of the Company intended to be
presented at the Annual Meeting of Stockholders of the Company to be held in
1998 must be received by the Company, addressed to Howard C. Wadsworth, Vice
President, Treasurer and Secretary of the Company, 2435 North Central
Expressway, Richardson, Texas 75080, no later than December 1, 1997 to be
included in the Proxy Statement and form of proxy relating to that meeting. If
the date of the 1998 annual meeting is advanced by more than 30 calendar days
or delayed by more than 90 calendar days from the date of the 1997 annual
meeting to which this Proxy Statement relates, the Company will inform
stockholders of such change and the date by which proposals of stockholders
must be received.
OTHER MATTERS
The Board of Directors knows of no other matters than those described
above which are likely to come before the meeting. If any other matters
properly come before the meeting, persons named in the accompanying form of
proxy intend to vote such proxy in accordance with their best judgment on such
matters. A copy of the Company's 1996 Annual Report is being mailed,
concurrently with the mailing of this Proxy Statement, to stockholders who have
not previously received a copy of the Annual Report.
By Order of the Board of Directors
John R. Barnes
Chairman of the Board, President
and Chief Executive Officer
Dated: March 24, 1997
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<PAGE> 17
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KANEB SERVICES, INC.
PROXY -- ANNUAL MEETING OF STOCKHOLDERS -- MAY 5, 1997
This Proxy is solicited on behalf of the Board of Directors
The undersigned hereby appoints JOHN R. BARNES and HOWARD C. WADSWORTH, and
any one or both of them, with power of substitution in each, as proxies for the
undersigned, to represent the undersigned and to vote all the Common Stock of
Kaneb Services, Inc. (the "Company") which the undersigned would be entitled to
vote, as fully as the undersigned could vote and act if personally present, at
the Annual Meeting of Stockholders to be held on May 5, 1997 at 9:00 a.m.,
Eastern Time, at 550 Light Street, Baltimore, Maryland 21202 or at any
adjournment thereof.
The Proxies are authorized to vote in their discretion upon all matters
properly brought before the meeting, including any matter of which Management
was not aware a reasonable time before the solicitation of this proxy.
1. Election of persons nominated to be elected as Directors of the
Company: Sangwoo Ahn, John R. Barnes, Frank M. Burke, Jr.,
Charles R. Cox, Ralph A. Rehm and James R. Whatley
[ ] FOR ALL NOMINEES LISTED [ ] WITHHOLD AUTHORITY TO
except as marked below VOTE FOR ALL NOMINEES LISTED
WITHHELD FOR THE FOLLOWING ONLY (WRITE THE NAME OF THE NOMINEE(S)
ON THE SPACE BELOW)
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2. To transact such other business as may properly come before the
meeting or any adjournment thereof; all as more particularly
described in the Proxy Statement of the Company, dated March 24,
1997, relating to such meeting, receipt of which is hereby
acknowledged.
The shares represented by this proxy will be voted as directed by the
stockholder. If no direction is made, this proxy will be voted FOR all Nominees.
---------------------------------
---------------------------------
Signature of Stockholder
Please mark, date and sign as
your name(s) appear(s) to the
left and return it in the
enclosed envelope. If acting as
an executor, administrator,
trustee, guardian, etc., you
should so indicate when signing.
If the stockholder is a
corporation, please sign the full
corporate name, by duly
authorized officer. If shares are
held jointly, each stockholder
named should sign.
Dated: , 1997
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