SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities Exchange Act of 1934
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[ ] Preliminary Proxy Statement
[ ] Confidential, for Use of the Commission Only (as permitted by
Rule 14a-6(e)(2))
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to ss.240.1a-11(c) or ss.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>
KANEB SERVICES, INC.
2435 North Central Expressway
Richardson, Texas 75080
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
To Be Held May 4, 1998
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 One St.
Louis Union Station, St. Louis, Missouri 63103, at 9:00 a.m. Central time, on
May 4, 1998, 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 16, 1998, 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 23, 1998
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>
KANEB SERVICES, INC.
PROXY STATEMENT
FOR
ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD MAY 4, 1998
----------------------------------
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 4, 1998, at One St. Louis Union Station, St. Louis, Missouri 63103,
at 9:00 am Central 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
23, 1998.
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 16, 1998 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 32,212,164 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.
<PAGE>
As of March 16, 1998, all Directors and executive officers of the
Company as a group owned beneficially an aggregate of 2,074,637 shares,
representing approximately 6.4% of the outstanding shares of Common Stock of the
Company. Such ownership amount includes 381,519 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 16, 1998.
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 16,
1998, 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:
Name and Address Type of Number Percent
of Stockholder Ownership of Shares of Class
--------------------------- ---------- --------- --------
Franklin Resources, Inc.(1) Beneficial 2,884,000 9.0%
777 Mariners Island Blvd.
San Mateo, California 94403-7777
(1) The information included herein was obtained from information contained
in Schedule 13G, dated February 4, 1998, 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.
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 16, 1998.
<PAGE>
<TABLE>
<CAPTION>
Shares of Common Percent
Year First Stock Beneficially of Out-
Became a Owned at standing
Name Principal Occupation Director Age March 16, 1998(1) Shares
- ------------------- ------------------------------- ------------- --- ------------------- -------
<S> <C> <C> <C> <C> <C>
John R. Barnes Chairman of the Board, 1986 53 1,423,743 4.4%
President and Chief Executive
Officer of the Company
Sangwoo Ahn General Partner of Morgan 1989 59 185,545 *
Lewis Githens & Ahn, an
investment banking firm (2)
Frank M. Burke, Jr. Chairman and Managing General 1997 58 41,429 *
Partner of Burke, Mayborn
Company, Ltd., a private
investment company (3)
Charles R. Cox Industrial Services Consultant 1995 55 49,545 *
(formerly Industrial Group
President of Fluor Daniel, Inc.,
an international services
company) (4)
Hans Kessler Chairman and Managing Director 1998 48 - (5) *
of KMB Kessler + Partners GmbH,
a private management consulting
company (5)
James R. Whatley Investments (6) 1956 71 126,933 *
*Less than one percent.
<FN>
(1) Shares listed include those beneficially owned by the person indicated,
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
16, 1998.
(2) Mr. Ahn has been a general partner of Morgan Lewis Githens & Ahn, an
investment banking firm, since 1982 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 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 been a private business consultant since retiring in
January 1998 from Fluor Daniel, Inc., an international services
company, where he served in senior executive level positions during a
27 year career with that organization.
(5) Mr. Kessler was elected to the Board on February 19, 1998 to fill a
vacancy. Mr. Kessler has served as Chairman and Managing Director of
KMB Kessler + Partner GmbH since 1992. He was previously a Managing
Director and Vice President of a European Division of Tyco
International Ltd., the largest contractor in the world for the design,
manufacturing and installation of fire detection, suppression and
sprinkler systems and manufacturer and distributor of flow control
products in North America, Europe and Asia-Pacific from 1990 to 1992.
He was Managing Director and Executive Vice President of a division of
ABB Asea Brown Boveri Ltd., a Zurich, Switzerland based company
involved in power generation, power transmission and distribution, and
industrial and building systems around the world prior to 1990.
(6) Mr. Whatley served as Chairman of the Board of Directors of the Company
from February 1981 until April 1989.
</FN>
</TABLE>
<PAGE>
Meetings and Committees of the Board of Directors
During 1997, 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 comprised of
Sangwoo Ahn and Frank M. Burke, Jr. The functions of the Audit Committee, which
held two meetings during 1997, include the planning of, and fee estimate
approval for, the annual audit of the Company's consolidated financial
statements, the review of the results of the examination by the Company's
independent accountants of the Company's consolidated financial statements, and
the 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 and Charles R. Cox. The function of the Compensation Committee,
which held four meetings during 1997, 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 Board also has a Nominating Committee, comprised of all of the
non-employee Directors. The Nominating Committee held one meeting during 1997.
The Nominating Committee considers and recommends future nominees to the Board
and considers nominees recommended by stockholders of the Company. Such
recommendations for 1999 nominees must be submitted in writing by December 1,
1998, 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.
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 16, 1998(1) Shares
- ------------------- -------------------------- ----------- --- ------------------- -------
<S> <C> <C> <C> <C> <C>
John R. Barnes Chairman of the Board, 11 53 1,423,743 4.4%
President and Chief
Executive Officer
Edward D. Doherty Senior Vice President 9 62 103,788 *
Joseph P. Lahey Senior Vice President (2) 2 50 77,763 *
Howard C. Wadsworth Vice President, Treasurer 7 53 49,183 *
and Secretary
William H. Kettler, Jr. Vice President (3) 1 44 16,708 *
*Less than one percent.
<FN>
(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 16, 1998.
(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.
(3) Mr. Kettler was elected Vice President in April 1997, prior to which he
served the Company as Director of Human Resources since 1989.
</FN>
</TABLE>
<PAGE>
EXECUTIVE COMPENSATION
Executive Officers
The following table sets forth information concerning the annual and
long-term compensation for services to the Company in all capacities paid for
the fiscal years ended December 31, 1997, 1996 and 1995 to the Chief Executive
Officer and the four other most highly compensated executive officers of the
Company (the "Named Executive Officers").
<TABLE>
<CAPTION>
SUMMARY COMPENSATION TABLE
Long Term Compensation
--------------------------------------
DSUs Options
Annual Compensation(1) Related to Related to Other
Name and ---------------------- Deferred Deferred Stock All Other
Principal Position Year Salary Bonus(2) Compensation Compensation Options Compensation(3)
- ------------------ ---- ------ -------- ------------ -------------- --------- ---------------
<S> <C> <C> <C> <C> <C> <C> <C>
John R. Barnes 1997 $400,667 $ -0- 6,252 -0- -0- $128,238(4)
Chairman of the Board 1996 313,296 -0- 148,735 113,926 450,000 8,002
President and Chief 1995 313,296 -0- -0- -0- -0- 7,788
Executive Officer
Edward D. Doherty 1997 208,350 18,420 4,554 3,275 -0- 6,540
Senior Vice President 1996 200,333 93,040 13,129 7,273 240,000 6,832
1995 190,833 133,100 -0- -0- -0- 6,096
Joseph P. Lahey 1997 208,350 98,800(5) 162 -0- 25,000 2,965
Senior Vice President 1996 167,000(6) -0- 21,818 21,818 100,000 145
Howard C. Wadsworth 1997 180,300 42,500 255 -0- -0- 7,933
Vice President, 1996 180,000 45,000 14,548 13,399 65,000 6,746
Treasurer 1995 170,833 -0- -0- -0- 30,000 3,288
and Secretary
William H. Kettler Jr 1997 105,456 22,500 1,237 1,067 10,000 4,763
Vice President
<FN>
(1) Amounts for 1997 and 1996, respectively, include compensation voluntarily
deferred for the purchase of Deferred Stock Units ("DSUs") pursuant to the
Company's Deferred Stock Unit Plan (the "DSU Plan") by Mr. Barnes ($156,648
and $58,743); Mr. Doherty ($28,420 and $3,750); Mr. Lahey ($30,000 and
$11,250); Mr. Wadsworth ($18,000 and $7,750); and, Mr. Kettler ($12,580 and
$2,468) and for the purchase of "DSUs" pursuant to the Company's
Supplemental Deferred Compensation Plan (the "SDC Plan") by Mr. Barnes
($14,500 and $54,927); Mr. Doherty ($2,980 and $11,151); Mr. Wadsworth
($360 and $1,800); and, Mr. Kettler ($395 and $140). See "Description of
Other Programs."
(2) Represents annual incentive bonus amounts earned during the year shown,
which amounts were paid in the following year, unless otherwise noted.
Amounts for 1996 include a non-recurring lump-sum 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 Savings Investment
Plan (the "401(k) Plan") and the imputed value of Company-paid group term
life insurance. For 1997, the amounts of such items were: on behalf of Mr.
Barnes ($7,950 and $288); on behalf of Mr. Doherty ($5,838 and $702); on
behalf of Mr. Lahey ($2,677 and $288); on behalf of Mr. Wadsworth ($7,645
and $288); and, on behalf of Mr. Kettler ($4,661 and $102).
(4) Includes $120,000 for the appraised value determined by an independent
investment banking firm of 1,000 shares of the Company's Adjustable Rate
Cumulative Class A Preferred Stock, Series F ("Series F Preferred").
(5) Mr. Lahey purchased 12,500 shares of the Company's common stock from the
Company at the closing market price on February 19, 1998 with the net
proceeds of his bonus. Contemporaneously with such purchase, the Company
granted Mr. Lahey fully vested stock options on 25,000 shares of the
Company's common stock, exercisable at that same market price.
(6) Represents salary earned by Mr. Lahey from the date he joined the Company
(March 1, 1996) through December 31, 1996.
</FN>
</TABLE>
<PAGE>
OPTIONS/SAR'S GRANTED DURING LAST FISCAL YEAR
The following table includes the details of options granted for the
Named Executives during the last fiscal year. All stock options were priced at
100% of the closing price of the Company's common stock on the date of grant.
For illustrative purposes only, the Black-Scholes option pricing model has been
used to estimate the value of stock options issued by the Company. The
assumptions used in the calculations under such model include stock price
variance or volatility based on weekly average variances of the stock for the
five-year period preceding issuance, a risk-free rate of return based on the
30-year U.S. Treasury bill rate for the five-year expected life of the options,
and exercise of the options at the end of their expected life. The actual option
value realized, if such option is exercised, will be based upon the excess of
the market price of the Company's Common Stock over the exercise price of the
option on the date of exercise, and there is no relationship between the actual
option value upon exercise and the illustration below.
<TABLE>
<CAPTION>
% of Total Computed Value
Number of Granted Using Black
Options/SAR's To Employees Exercise Price Expiration Scholes Option
Name Granted During Year ($/Share) Date Pricing Model
- ----------------------- -------------- ------------ -------------- ----------- ---------------
<S> <C> <C> <C> <C> <C>
William H. Kettler, Jr. 10,000 12.9% $5.00 12/10/07 $20,100
</TABLE>
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 1997.
<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 - $1,430,820
Edward D. Doherty - 0 - - 0 - 58,000 199,273 149,875 509,728
Joseph P. Lahey - 0 - - 0 - 30,000 91,818 76,875 232,556
Howard C. Wadsworth - 0 - - 0 - 43,000 65,399 136,438 165,756
William H. Kettler, Jr. - 0 - - 0 - 5,000 29,785 13,313 52,726
</TABLE>
<PAGE>
DESCRIPTION OF OTHER PROGRAMS
Deferred Stock Unit Plan
In 1996, the Company established its Deferred Stock Unit Plan (the "DSU
Plan") to allow executive officers and other key employees to participate in the
Company's growth at greater levels than those afforded by the traditional stock
option grants they had received. Under the DSU Plan, the Named Executive
Officers and other key employees of the Company have been given the opportunity
to defer a portion of their compensation toward the purchase of deferred stock
units ("DSUs"). DSUs are purchased at a value equal to the closing price of the
Company's Common Stock on the day after the deadline by which the employee must
elect to participate in the Plan, (the "Election Date"). During a vesting period
of one to two years after the Election Date, a participant's DSUs vest only in
an amount equal to the lesser of the compensation deferred to date or the value
of the pro-rata portion of DSUs acquired based upon the then-current closing
price of the Company's Common Stock. DSUs may only be distributed through the
issuance of a like number of shares of the Company's Common Stock on a
pre-selected date occurring after the end of the vesting period but no later
than ten years after the Election Date. Each participant in the DSU Plan is
awarded, under the Company's 1994 Stock Incentive Plan (the "1994 SIP"), an
option to purchase a number of shares of the Company's Common Stock equal to the
number of DSUs that they agree to purchase. Options issued with respect to the
DSU Plan are priced at 100% of the closing price on the date of grant and become
fully exercisable over a period of three to five years as determined by the
Compensation Committee.
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 credits 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 the 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.
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 comprised of two
independent, non-employee Directors, though Mr. Whatley served as an officer of
the Company prior to 1987. 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.
<PAGE>
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 the comparability to persons with
similar 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, the 1994 SIP, the
granting of contractual non-qualified stock options, the Company's DSU Plan and
the Company's SDC Plan. Certain executive officers have also previously
participated in the Company's 1984 Stock Option Plan (the "1984 Option Plan"),
which expired in March 1994. The value of these plan benefits directly relates
to the future performance of the Company's Common Stock. 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. 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 with respect to employee contributions to
the plan that are invested in the Company's Common Stock than with respect to
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. In January of 1997, Mr. Barnes' base salary was increased
for the first time since 1990 in recognition of his contribution to the
continued improvement in performance by the Company. In December 1997, all of
the Named Executive Officers, including the Chief Executive Officer, received
cost-of-living related base salary increases. The Committee believes that these
salary adjustments are appropriate to insure that the Company's executive
officers compensation remains close to the median level of most of the
comparative compensation 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.
Messrs. Wadsworth and Kettler are eligible to receive discretionary incentive
bonuses, based upon the Company's overall financial achievement and a subjective
review of their respective contributions to such achievement. These incentive
arrangements have been extended to such executive officers for 1998. 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 performance and directly links the individual participant's total
potential remuneration with the accomplishment of established growth targets.
Eligibility for participation in the various Company Plans 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 allow the
Company to recruit and retain senior executive talent and closely connect the
interests of management with stockholder value.
<PAGE>
In an additional effort to establish linkage between compensation and
stockholder interests, during 1997 the Company awarded to its Chief Executive
Officer shares of the Company's Adjustable Rate Cumulative Class A Preferred
Stock, Series F. The Series F Preferred shares, which are generally redeemable
by the Company after five years, will only have significant value if substantial
increases in earnings during the five year period have occurred. The Series F
Preferred shares also accrue dividends on a basis equal to a specified
percentage of the increase of the Company's net earnings over the previous year,
reduced by any prior year earnings shortfalls. The dividend and redemption
attributes of the Series F Preferred further solidify the link between this
award and stockholder value.
Compensation Committee
James R. Whatley, Chairman
Charles R. Cox
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. Additionally, Mr. Kettler and one other employee each have a
similar agreement pursuant to which they would be paid 100% of their annual
salary prior to the change-of-control. If such a change-of-control of the
Company were to occur at March 16, 1998, an aggregate of $3,095,013 would be
payable to these individuals.
Directors' Fees
In 1997, each non-employee member of the Board of Directors 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 the Company's DSU Plan,
such as the Company's Non-Employee Directors Deferred Stock Unit Plan (the
"Directors DSU Plan").
During 1997, each incumbent non-employee Director holding office at
that time was issued, under the Company's 1996 Directors Stock Incentive Plan
(the "1996 Directors SIP"), 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 16, 1998, incumbent non-employee Directors had been
granted, under the 1996 Directors SIP and pursuant to individual agreements,
non-qualified options to purchase a cumulative total of 210,519 shares of Common
Stock at an average price of $2.76 per share, representing 100% of the fair
market value of the Common Stock on the respective dates of grant, and had
purchased a total of 40,519 DSUs at an average price of $2.89 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.
Compensation Committee Interlocks and Insider Participation
Mr. Whatley was an executive officer of the Company prior to 1987 and
was a "non-employee" Chairman of the Board until 1990.
<PAGE>
PERFORMANCE GRAPH
The following graph compares, for the period January 1, 1993 to
December 31, 1997, 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
-------------------- ----------------- --------------
1992 100.00 100.00 100.00
1993 88.46 94.87 113.54
1994 65.38 66.74 111.33
1995 75.18 83.64 144.36
1996 108.60 98.66 173.90
1997 173.34 119.35 228.78
Market Price of Common Shares The closing price of the Company's Common
Stock on the New York Stock Exchange on March 16, 1998 was $5.50 per share.
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, 1997, its officers and directors
have complied with all applicable filing requirements with respect to the
Company's equity securities, except that rather than being reported on a timely
Form 4, the exercise of a stock option in a transaction that was exempt from the
provisions of Section 16(b) and a small gift of shares by Mr. Whatley were
reported on a Form 5, as amended.
INDEPENDENT AUDITORS
Price Waterhouse LLP, the Company's independent auditors for the
calendar year ended December 31, 1997, 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, 1998.
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
1999 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, 1998 to be
included in the Proxy Statement and form of proxy relating to that meeting. If
the date of the 1999 annual meeting is advanced by more than 30 calendar days or
delayed by more than 90 calendar days from the date of the 1998 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.
<PAGE>
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 1997 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 23, 1998
