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.
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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 10, 2000
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 2401 East
Camelback Road, Phoenix, Arizona 85016, at 9:00 A.M.
Mountain time, on May 10, 2000, 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 15, 2000, 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 27, 2000
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 10, 2000
----------------------------------
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. ("Kaneb" or the "Company") on behalf of the
Board of Directors of Kaneb for use at the Annual Meeting of Stockholders to be
held on May 10, 2000, at 2401 East Camelback Road, Phoenix, Arizona 85016, at
9:00 A.M. Mountain 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
30, 2000.
A proxy that has been received by Kaneb management 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 Kaneb, 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.
Kaneb'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 Kaneb, 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 Kaneb stock and to request authority for execution of the proxies. The
Company will pay D.F. King & Co. a fee of $4,500, 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 Kaneb does not
know of any business to be presented by it 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 Kaneb has fixed the close of business on
March 15, 2000 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 31,205,382 shares of Kaneb Common Stock and the
holders 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.
As of March 15, 2000, all Directors and executive officers of the
Company as a group owned beneficially an aggregate of 2,459,359 shares,
representing approximately 7.88% of the outstanding shares of Kaneb Common
Stock. Such ownership amount includes 708,358 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 15, 2000.
The following table sets forth information with respect to the shares
of Kaneb's Common Stock owned of record or beneficially as of March 15, 2000, by
all persons other than Directors and executive officers of the Company who own
of record or are known by Kaneb 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 3,110,000 9.97%
777 Mariners Island Blvd
San Mateo, California 94404
David L. Babson and Beneficial 1,862,900 5.97%
Company Incorporated(2)
One Memorial Drive
Cambridge, Massachusetts 02142
(1) The information included herein was obtained from information
contained in Schedule 13G, dated January 19, 2000, filed by the
stockholder with the Securities and Exchange Commission ("SEC"),
pursuant to the Securities Exchange Act of 1934, as amended (the
"Exchange Act").
(2) The information included herein was obtained from information
contained in Schedule 13G, dated February 1, 2000, filed by the
stockholder with the SEC, pursuant to the Exchange Act.
ELECTION OF DIRECTORS
At the Annual Meeting of Stockholders of the Company, six Directors,
constituting the entire Board of Directors of Kaneb (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 Kaneb'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
Kaneb; and (iv) the number of shares of Common Stock beneficially owned by such
nominee as of March 15, 2000.
<TABLE>
<CAPTION>
Shares of Common Percent
Year First Stock Beneficially of Out-
Became a Owned at standing
Name Principal Occupation Director Age March 15, 2000(1) Shares
- ------------------- ------------------------------- ------------- --- ------------------- ---------
<S> <C> <C> <C> <C> <C>
John R. Barnes Chairman of the Board, 1986 55 1,418,080 4.54%
President and Chief Executive
Officer of Kaneb
Sangwoo Ahn General Partner of Morgan 1989 61 239,037 *
Lewis Githens & Ahn, an
investment banking firm (2)
Frank M. Burke, Jr. Chairman and Managing General 1997 60 104,676 *
Partner of Burke, Mayborn
Company, Ltd., a private
investment company (3)
Charles R. Cox Industrial Services Consultant 1995 57 123,037 *
(formerly Industrial Group
President of Fluor Daniel, Inc.,
an international services
company) (4)
Hans Kessler Chairman and Managing Director 1998 50 38,947 *
of KMB Kessler + Partner GmbH,
a private management consulting
company (5)
James R. Whatley Investments (6) 1956 73 134,933 *
*Less than one percent.
</TABLE>
(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 15, 2000.
(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 ITI Technologies, Inc., PAR Technology Corporation and Quaker
Fabric Corporation.
(3) Mr. Burke has held the described position for more than the past five
years and currently serves as a Director of MedicalControl, Inc. and
Miller Exploration Company. He was previously associated with Peat,
Marwick, Mitchell & Co. (now KPMG 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 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.
(6) Mr. Whatley served as Chairman of the Board of Directors of Kaneb from
February 1981 until April 1989.
Meetings and Committees of the Board of Directors
During 1999, the Board held seven meetings and each incumbent Director
attended at least 90% of such meetings and 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 three meetings during 1999, include the planning of, and fee estimate
approval for, the annual audit of Kaneb's consolidated financial statements, the
review of the results of the examination by Kaneb's independent accountants of
Kaneb's consolidated financial statements, and the approval of any non-audit
services performed by Kaneb's independent accountants, if any, 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 Hans Kessler. The function of the Compensation Committee, which held two
meetings during 1999, is to establish and review the compensation programs for
the executive officers of Kaneb 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 Kaneb 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 1999.
The Nominating Committee considers and recommends future nominees to the Board
and considers nominees recommended by stockholders of the Company.
Recommendations for nominees for election in 2001 must be submitted in writing
by December 1, 2000, to Howard C. Wadsworth, Vice President, Treasurer and
Secretary of Kaneb, 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 Kaneb if elected by the stockholders.
Executive Officers
The following table sets forth the names, ages, positions with Kaneb
and ownership of Kaneb's Common Stock for the executive officers of Kaneb.
<TABLE>
<CAPTION>
Shares of Common Percent
Years of Stock Beneficially of Out-
Service in Owned at standing
Name Office Office Age March 15, 2000(1) Shares
- ------------------- -------------------------- ----------- --- ------------------- ---------
<S> <C> <C> <C> <C> <C>
John R. Barnes Chairman of the Board, 13 55 1,418,080 4.54%
President and Chief
Executive Officer
Edward D. Doherty Senior Vice President 11 64 166,312 *
Joseph P. Lahey Senior Vice President (2) 4 52 115,615 *
Howard C. Wadsworth Vice President, Treasurer 9 55 83,584 *
and Secretary
William H. Kettler, Jr. Vice President (3) 3 46 31,851 *
Michael R. Bakke Controller (4) 2 40 3,287 *
*Less than one percent.
</TABLE>
(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 15, 2000.
(2) Mr. Lahey joined Kaneb in March 1996. From 1993 to 1996, Mr. Lahey was
Senior Vice President of Liberty Technologies, Inc.
(3) Mr. Kettler was elected Vice President in April 1997, prior to which
he served as Director of Human Resources for Kaneb from 1989.
(4) Mr. Bakke joined the Company in January 1998 and was elected
Controller in February 1998. From 1995 to 1997, Mr. Bakke served as
Director of Finance and Planning for Enserch Exploration, Inc., and
served as Manager of Financial Planning and Reporting and Assistant
Treasurer for DALEN Resources Corp. from 1991 to 1995.
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, 1999, 1998 and 1997 to the Chief Executive
Officer and the four other most highly compensated executive officers of Kaneb
(the "Named Executive Officers").
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Long-Term Compensation
--------------------------------------
DSUs Options
Related to Related to Other
Name and Annual Compensation(1) Deferred Deferred Stock All Other
Principal Position Year Salary Bonus Compensation Compensation Options Compensation(2)
- -------------------- ---- --------- --------- ------------ ------------- ------- ---------------
<S> <C> <C> <C> <C> <C> <C> <C>
John R. Barnes 1999 $ 433,721 $ -0- 6,853 -0- -0- $ 8,554
Chairman of the Board 1998 416,708 -0- 136,837 197,053 -0- 8,488
President and Chief 1997 400,667 -0- 6,252 -0- -0- 128,238(3)
Executive Officer
Edward D. Doherty 1999 225,375 -0- 1,632 -0- -0- 6,249
Senior Vice President 1998 216,758 -0- 5,787 4,556 -0- 6,402
1997 208,350 18,420 4,554 3,275 -0- 6,540
Joseph P. Lahey 1999 225,000 -0- 297 -0- -0- 3,413
Senior Vice President 1998 216,758 -0- 20,663 30,752 -0- 3,488
1997 208,350 98,800(4) 162 -0- 25,000 2,965
Howard C. Wadsworth 1999 195,333 -0- 879 -0- -0- 8,554
Vice President, 1998 187,525 -0- 6,506 8,867 -0- 8,488
Treasurer and 1997 180,300 42,500 255 -0- -0- 7,933
Secretary
Michael R. Bakke 1999 140,738 -0- -0- -0- -0- 3,620
Controller 1998 116,593(5) -0- 3,789 5,684 15,000 61
</TABLE>
(1) Amounts for 1999, 1998 and 1997, respectively, include compensation
voluntarily deferred for the purchase of Deferred Stock Units ("DSUs")
pursuant to Kaneb's Deferred Stock Unit Plan (the "DSU Plan") by Mr. Barnes
($208,000, $175,905 and $156,648); Mr. Doherty ($10,820, $10,308 and
$28,420); Mr. Lahey ($32,460, $30,923 and $30,000); Mr. Wadsworth ($9,360,
$14,760 and $18,000); and, Mr. Bakke ($6,000 for 1999 and $2,250 for 1998)
and/or for the purchase of DSUs pursuant to Kaneb's Supplemental Deferred
Compensation Plan (the "SDC Plan") by Mr. Barnes ($16,380, $14,960 and
$14,500); Mr. Doherty ($3,900, $3,384 and $2,980); and Mr. Wadsworth
($2,100, $1,632 and $360). See "Description of Other Programs."
(2) 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 exceeding $50,000. For 1999, the amounts were on behalf of
Mr. Barnes ($8,200 and $354); on behalf of Mr. Doherty ($5,700 and $549);
on behalf of Mr. Lahey ($3,200 and $213); on behalf of Mr. Wadsworth
($8,200 and $354); and, on behalf of Mr. Bakke ($3,539 and $81).
(3) Includes $120,000 for the appraised value determined by an independent
banking firm of 1,000 shares of the Company's Adjustable Rate Cumulative
Class A Preferred Stock, Series F ("Series F Preferred").
(4) Mr. Lahey purchased 12,500 shares of Kaneb's common stock from Kaneb at the
closing market price on February 19, 1998 with the net proceeds of an
incentive bonus. Contemporaneously with such purchase, Kaneb granted Mr.
Lahey fully vested stock options on 25,000 shares of Kaneb's common stock,
exercisable at that same market price.
(5) Represents salary earned by Mr. Bakke from the date he joined Kaneb
(January 28, 1998) through December 31, 1998.
Options/SAR's Granted During Last Fiscal Year
There were no options or SAR's granted to the Named Executive Officers
during 1999.
Aggregated Option/SAR Exercises in Last Fiscal Year
And Fiscal Year End Option Values
<TABLE>
<CAPTION>
Number of Unexercised Value of Unexercised
Shares Options Held In-the-Money Options
Acquired on Value at Fiscal Year End at Fiscal Year End
Name Exercise Realized Exercisable Unexercisable Exercisable Unexercisable
- ---------------------- ------------- ----------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
John R. Barnes -0- $ -0- 37,975 723,004 $ 61,709 $ 910,920
Edward D. Doherty 10,000 13,750 99,516 151,032 171,939 259,880
Joseph P. Lahey -0- -0- 102,273 75,297 134,319 76,136
Howard C. Wadsworth -0- -0- 70,466 37,933 148,956 65,163
Michael R. Bakke -0- -0- 3,000 17,684 -0- -0-
</TABLE>
Description of Other Programs
Deferred Stock Unit Plan
In 1996, Kaneb established its DSU Plan to allow executive officers and
other key employees to participate in Kaneb's growth at greater levels than
those afforded solely by the traditional method of awarding stock option grants
previously utilized by the Company. Under the DSU Plan, as modified in 1998, the
Named Executive Officers and other key employees of Kaneb have been given the
opportunity, from time to time, to defer a portion of their compensation toward
the purchase of DSUs, which are purchased at a value equal to the closing price
of Kaneb's Common Stock on the day by which the employee must elect to
participate in the Plan (the "Election Date"). During a vesting period of one to
three years after the Election Date (which typically coincides with a
participant's deferral period), a participant's DSUs vest only in an amount
equal to the lesser of the compensation deferred to date or the current market
value of the pro-rata portion of DSUs acquired. DSUs may only be distributed
through the issuance of a like number of shares of Kaneb'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 Kaneb's Common Stock equal to one half,
one, or one and one-half times the number of DSUs that they agree to purchase,
depending upon the length of such participant's deferral period. Stock 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 one to five
years as determined by the Compensation Committee.
Supplemental Deferred Compensation Plan
The Supplemental Deferred Compensation Plan (the "SDC Plan") was
established to allow executive officers and key employees of Kaneb 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 Kaneb'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 Kaneb'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 are not
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 will be made in the form of shares
of the Company's Common Stock. The value of an account at the time of
distribution will be equal to the value of the participant's vested DSUs, which
are equivalent in value to shares of Kaneb's Common Stock at that time.
Board Compensation Committee Report on Executive Compensation
The Compensation Committee of the Board of Directors (the "Committee")
is responsible for recommending the types and levels of compensation for
executive officers of Kaneb. The Committee is comprised of two independent,
non-employee Directors, though Mr. Whatley served as an officer of Kaneb 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 SEC, this report is not deemed to be filed with the
SEC nor incorporated by reference into any prior or future fillings under the
Securities Act of 1933, as amended, or the Exchange Act.
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
Kaneb. 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. The Committee believes
that such compensation policies and practices have allowed Kaneb to attract,
retain and motivate its key executives.
The compensation of Kaneb's executive officers 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 Kaneb's Common Stock. The Committee continues to believe that the
utilization of incentive programs that are linked to the performance of Kaneb's
Common Stock closely aligns the interests of the executive with those of Kaneb's
stockholders. Consistent with all other full-time Company employees, the Named
Executive Officers are also eligible to participate in Kaneb's 401(k) Plan. The
Committee believes that this plan encourages longer-term employment through
gradual service-based vesting of Company contributions. As with other plans
offered to Kaneb employees, the 401(k) Plan provides an incentive to Kaneb
employees, including the Named Executive Officers, who elect to tie their own
financial interests, in part, to those of Kaneb's stockholders by offering
larger employer-matching contributions with respect to employee contributions to
the 401(k) Plan that are invested in Kaneb's Common Stock than with respect to
employee contributions that are directed to other investment options offered
under the 401(k) Plan.
The base salaries of Kaneb'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 recognized surveys.
In December 1999, Messrs. Barnes, Doherty, Wadsworth and Bakke received base
salary increases of approximately 4%. The Committee believes that these salary
adjustments are appropriate to insure that Kaneb's executive officer
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 operational results
achieved, as compared to budget targets, in a given fiscal year by the
subsidiaries of the Company that are under their respective direct supervision.
Messrs. Wadsworth and Bakke are eligible to receive discretionary incentive
bonuses, based upon Kaneb'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 2000. 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 link 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 stock 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.
Compensation Committee
James R. Whatley, Chairman
Charles R. Cox
Hans Kessler
Termination Agreements
In order to attract and retain qualified employees, Kaneb has
periodically entered into termination agreements with key employees of Kaneb 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 Kaneb's outstanding Common Stock, 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.
Bakke and two other employees each have similar agreements pursuant to which
they would be paid 100% of their respective annual salaries prior to the
change-of-control. If such a change-of-control of the Company were to occur at
March 15, 2000, an aggregate of $3,537,326 would be payable to these
individuals.
Directors' Fees
In 1999, each non-employee member of the Kaneb Board of Directors was
paid an annual retainer of $20,000. Each non-employee Board member was also
eligible 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 1999, 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 of $4.125, which was 100% of the closing price
of the Company's Common Stock on July 2, 1999.
As of March 15, 2000, 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 379,178 shares of Common
Stock at an average price of $3.74 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 52,441 DSUs at an average price of $4.58 per DSU, under the
Directors DSU Plan. Except as stated above, all of such stock 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.
PERFORMANCE GRAPH
The following graph compares, for the period January 1, 1995 to
December 31, 1999, the cumulative total stockholder return on the Common Stock
of Kaneb with the New York Stock Exchange ("NYSE") 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 Kaneb, which consists of companies
that offer a diverse array of services. The graph assumes an initial investment
of $100 and the reinvestment of all dividends.
DATA POINTS:
Fiscal Year Ending
----------------------------------------------------------
12/30/94 12/29/95 12/31/96 12/31/97 12/31/98 12/31/99
-------- -------- -------- -------- -------- --------
Kaneb Services, Inc. 100.00 114.99 166.09 265.11 204.42 223.59
Engineering Services 100.00 125.32 147.83 178.84 168.11 185.96
NYSE Market Index 100.00 129.66 156.20 205.49 244.52 267.75
Market Price of Common Shares
The closing price of Kaneb's Common Stock on the NYSE on March 15, 2000
was $5.125 per share.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE STATEMENT
Section 16(a) of the Exchange Act ("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 SEC and the
NYSE. 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, 1999, its officers and directors
have complied with all applicable filing requirements with respect to the
Company's equity securities.
INDEPENDENT AUDITORS
PricewaterhouseCoopers LLP ("PricewaterhouseCoopers") served as the
Company's independent accountants to audit the consolidated financial statements
of the Company for the fiscal year ended December 31, 1997. In September 1998,
the Audit Committee of the Board of Directors of the Company sought proposals
from four accounting firms, including PricewaterhouseCoopers and KPMG LLP
("KPMG"), with respect to the audit of the Company's consolidated financial
statements for the year ending December 31, 1998. At its meeting on October 30,
1998, the Audit Committee reviewed such proposals, selected KPMG to audit such
financial statements and thereafter notified those four firms of its decision.
This change in accountants may be construed as a "dismissal" of
PricewaterhouseCoopers within the meaning of the rules and regulations of the
Securities and Exchange Commission (the "Commission"). By letter dated November
30, 1998, KPMG accepted the engagement to audit the consolidated financial
statements of the Company for the year ending December 31, 1998. The report of
PricewaterhouseCoopers on the financial statements of the Company for the year
ended December 31, 1997 does not contain an adverse opinion or a disclaimer of
opinion, and was not qualified or modified as to uncertainty, audit scope or
accounting principles. However, the Company believes that a disagreement existed
as of October 30, 1998, between the Company and PricewaterhouseCoopers involving
the timing of an adjustment to the financial statements of the Company to
increase the carrying value of its investment in units of limited partnership
interests of Kaneb Pipe Line Partners, L.P. (the "Partnership"), of which a
subsidiary of the Company serves as the general partner. On August 14, 1998,
pursuant to the terms of the partnership agreement of the Partnership, the
subordination provisions of the Partnership ended (effective July 1, 1998), and
all differences and distinctions between the three classes of limited
partnership interests in the Partnership then outstanding automatically ceased.
The Company believes that as of July 1, 1998, a difference of approximately $5.9
million exists between the capital attributable to the Company's limited
partnership interests at such date and the carrying value on the books of the
Company of its investment in such interests. Such difference arose during the
period when the Company's interests were subordinated to senior interests.
Pursuant to the allocation provisions of the partnership agreement of the
Partnership, such subordination resulted in a disproportionate allocation of
income and distributions to the senior interests and a disproportionate increase
in the capital accounts attributable to the senior interests. Prior to October
30, 1998, PricewaterhouseCoopers had advised the Company that, subject to
further discussion and analysis, it was of the view that the full amount of the
adjustment should be recorded in income as of the termination of the
subordination period. After considering appropriate alternatives, however, the
Company believed as of October 30, 1998, that it was appropriate to amortize the
differential using the straight-line method over a period of six years. Neither
the Audit Committee nor the Board of Directors of the Company discussed these
issues with PricewaterhouseCoopers. Had the entire differential been recorded in
the third quarter of 1998, in accordance with the advice of
PricewaterhouseCoopers, the Company's net income for such quarter would have
increased by approximately $5.7 million and its net income in each of the
subsequent twenty-three quarters would not include approximately $0.25 million
attributable to the adjustment. Other than as described above, during the
Company's year ended December 31, 1997 and the subsequent period through October
30, 1998, there were no disagreements with PricewaterhouseCoopers on any matter
of accounting principles or practices, financial statement disclosure, or
auditing scope or procedure as defined by the rules and regulations of the
Commission, nor did any of the reportable events listed in the rules and
regulations of the Commission occur between the Company and
PricewaterhouseCoopers. Prior to the selection of KPMG for the Company's 1998
audit, the Company discussed with KPMG certain significant accounting matters of
which the Company was aware, including the issue described herein. However,
prior to such selection, the Company did not seek the opinion or recommendation
of KPMG as to the issue described herein or any other accounting matters.
Although representatives of KPMG discussed these matters with the Company, they
did not express an opinion or recommendation on them or the application of
accounting principles to any specified transaction, either completed or
proposed, or the type of audit opinion that might be rendered on the Company's
financial statements. The matters previously described were reported in the
Company's Current Report on Form 8-K filed on November 6, 1998 with the
Commission. Subsequent to that filing, the Company had discussions with the
Staff of the Commission regarding the accounting issue discussed above. After
discussions with members of the Staff, the Company determined that the most
appropriate accounting method was to defer any adjustment of the differential in
the carrying value of its units of limited partnership interests in the
Partnership until such time that such investment is disposed of by the Company.
The resolution of the issue, which was reported on a Current Report on Form
8-K/A filed on March 9, 1999, had no material effect on the consolidated
financial statements of the Company or the Partnership.
PROPOSALS FOR NEXT ANNUAL MEETING
Any proposals of holders of Kaneb Common Stock intended to be presented
at Kaneb's Annual Meeting of Stockholders to be held in 2001 must be received by
the Company, addressed to Howard C. Wadsworth, Vice President, Treasurer and
Secretary of Kaneb, 2435 North Central Expressway, Richardson, Texas 75080, no
later than December 1, 2000 to be included in the Proxy Statement and form of
proxy relating to that meeting. If the date of the 2001 annual meeting is
advanced by more than 30 calendar days or delayed by more than 90 calendar days
from the date of the 2000 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. Additionally, proxies for Kaneb's
Annual Meeting of Stockholders to be held in the year 2001 may confer
discretionary power to vote on any matter that may come before the meeting
unless, with respect to a particular matter, (i) the Company received written
notice, addressed to Kaneb's Secretary, not later than December 1, 2000, that
the matter will be presented at such annual meeting and (ii) the Company fails
to include in its proxy statement for the 2001 annual meeting advice on the
nature of the matter and how the Company intends to exercise its discretion to
vote on the matter.
OTHER MATTERS
At the date of this Proxy Statement, the management of Kaneb does not
know of any business to be presented by it at the meeting, other than as set
forth in the Notice accompanying this Proxy Statement. If any other matters
properly come before the meeting, persons named in the accompanying form of
proxy intend to vote their proxies in accordance with their best judgment on
such matters. A copy of Kaneb's 1999 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 27, 2000
