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:
[X] Preliminary Proxy Statement
[ ] Confidential, for use of the Commission only (as permitted by Rule 14a-
6(e)(2))
[ ] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Section 240.14a-11(c) or Section 240.14a-12
STEWART & STEVENSON SERVICES, INC.
(Name of Registrant as Specified In Its Charter)
___________________________________
(Name of Person(s) Filing Proxy Statement if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] $125 per Exchange Act Rules 0-11(c)(1)(ii), 14a-6(i)(1), 14a-6(i)(2) or
Item 22(a)(2) of Schedule 14A.
[ ] $500 per each party to the controversy pursuant to Exchange Act Rule
14a-6(i)(3).
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
1) Title of each class of securities to which transaction applies:
_______________________________
2) Aggregate number of securities to which transaction applies:
_______________________________
3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the
filing fee is calculated and state how it was determined):
_______________________________________________________
4) Proposed maximum aggregate value of transaction:
______________________________________
5) Total fee paid:
______________________________________
[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
1) Amount Previously Paid:
______________________________________
2) Form, Schedule or Registration Statement No.:
______________________________________
3) Filing Party:
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4) Date Filed:
______________________________________
STEWART & STEVENSON SERVICES, INC.
2707 North Loop West
P. O. Box 1637
Houston, Texas 77251-1637
_______________
PROXY STATEMENT FOR ANNUAL MEETING OF SHAREHOLDERS
June 13, 1995, and Adjournments
_______________
Approximate date proxy material first sent to shareholders:
May 5, 1995
SOLICITATION, VOTING AND REVOCABILITY OF PROXIES
The proxy furnished herewith, for use only at the Annual Meeting of
Shareholders to be held June 13, 1995, and any and all adjournments thereof, is
solicited by the Board of Directors of Stewart & Stevenson Services, Inc. (the
"Company"). Such solicitation is being made by mail and may also be made in
person or by telephone by officers, directors and regular employees of the
Company, and arrangements may be made with brokerage houses or other custodians,
nominees and fiduciaries to send proxy material to their principals. In
addition, the Company has retained Morrow & Co., Inc., a professional proxy
solicitation firm, to assist in the solicitation of proxies. The Company has
agreed to reimburse Morrow & Co., Inc. for expenses incurred in connection with
the solicitation and to pay a solicitation fee of approximately $7500. All
expenses incurred in this solicitation of proxies will be paid by the Company.
As of the date of these proxy materials, the Board of Directors is aware of
the following matters that will be considered at the meeting:
1. The election of four directors to the Board of Directors of the
Company.
2. The approval of the 1994 Director Stock Option Plan.
3. The Amendment of the Second Restated Articles of Incorporation to
increase the authorized Common Stock of the Company from 50,000,000
shares to 100,000,000 shares, without par value.
4. The Amendment of the Second Restated Articles of Incorporation to
limit the personal liability of directors.
5. The ratification of Arthur Andersen LLP as the Company's independent
public accountants for the fiscal year ending January 31, 1996.
The presence of the holders of a majority of the issued and outstanding
shares of Common Stock entitled to vote, either in person or represented by
proxy, is necessary to constitute a quorum for the transaction of business at
the Annual Meeting. Proxies that withhold authority to vote for a nominee or
abstain from voting on any matter are counted for the purpose of determining
whether a quorum is present. Broker non-votes, which may occur when a broker or
nominee has not received timely voting instructions on certain proposals, are
not counted for the purpose of determining whether a quorum is present. If
there are not sufficient shares represented at the meeting to constitute a
quorum, the meeting may be adjourned until a specified future date to allow the
solicitation of additional proxies.
Directors are elected by a plurality of the votes cast at the meeting. The
four nominees that receive the greatest number of votes will be elected even
though the number of votes received may be less than a majority of the shares
represented in person or by proxy at the meeting. Proxies that withhold
authority to vote for a nominee and broker non-votes will not prevent the
election of such nominee if other shareholders vote for such nominee.
The approval of the 1994 Director Stock Option Plan (the "Plan") and the
ratification of Arthur Andersen LLP as the Company's independent public
accountants require the affirmative vote of a majority of the shares represented
in person or by proxy at the meeting. Proxies that abstain from voting on these
proposals have the same effect as a vote against these proposals. Broker non-
votes will not have any effect on these proposals.
The approval of amendments to the Company's Second Restated Articles of
Incorporation requires the affirmative vote of two-thirds of the Company's
issued and outstanding shares of Common Stock. Proxies that abstain from voting
and broker non-votes on these proposals have the same effect as a vote against
these proposals.
Any Shareholder executing a proxy retains the right to revoke it by signing
and delivering a proxy bearing a later date, by giving notice of revocation in
writing to the Secretary of the Company at any time prior to its use, or by
voting in person at the meeting. All properly executed proxies received by the
Company and not revoked will be voted at the meeting, or any adjournment
thereof, in accordance with the specifications of the shareholder. If no
instructions are specified on the proxy, shares represented thereby will be
voted FOR the election of the four nominees described herein and FOR each of the
other matters set forth above. Proxies also grant discretionary authority as to
matters presented at the meeting of which the Board of Directors had no notice
on the date hereof, approval of the minutes of the prior annual meeting and
matters incident to the conduct of the meeting.
VOTING SECURITIES AND OWNERSHIP THEREOF
BY CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
At the close of business on April 25, 1995, the record date for the Annual
Meeting, the Company had outstanding ...,...,... shares (not including treasury
shares) of Common Stock, without par value. Each outstanding share of Common
Stock is entitled to one vote with respect to each of the four director
positions and one vote with respect to each of the other matters considered at
the meeting. Cumulative voting is not permitted under the Company's Second
Restated Articles of Incorporation. Shareholders of record at the close of
business on April 25, 1995 are entitled to vote at or to execute proxies
relating to the Annual Meeting of Shareholders.
The following table lists the beneficial ownership of shares of the
Company's Common Stock by (i) all persons and groups known by the Company to own
beneficially more than 5% of the outstanding shares of the Company's Common
Stock (ii) each director and nominee, (iii) the Chief Executive Officer and four
highest compensated executive officers, and (iv) all directors and officers as a
group. None of the directors, nominees or officers of the Company owned any
equity security issued by the Company's subsidiaries other than director's
qualifying shares. Information with respect to officers, directors and their
families is as of February 28, 1995 and is based on the books and records of the
Company and information obtained from each individual. Information with respect
to institutional shareholders is based upon the Schedule 13G filed by such
shareholders with the Securities and Exchange Commission. Unless otherwise
stated, the business address of each individual or group is the same as the
address of the Company's principal executive office.
<TABLE>
<CAPTION>
Amount and Nature of
Beneficial Ownership
____________________________________________________________________________
Sole Shared Sole Shared Total
Name of Voting Voting Investment Investment Beneficial Percent of
Individual or Group Power Power Power Power Ownership Class
________________________________ __________ __________ __________ __________ ________________ __________
<S> <C> <C> <C> <C> <C> <C>
5% SHAREHOLDERS
American Express Financial
Advisors, Inc.
IDS Tower 10
Minneapolis, Minnesota 55440
and
American Express Company
American Express Tower
World Financial Center
New York, New York 10285 -0- 684,900 -0- 1,695,700 1,695,700 5.1
INDIVIDUAL DIRECTORS AND NOMINEES
C. Jim Stewart II 412,148 266,425 447,148 231,425 678,573 2.1
J. Carsey Manning 600 -0- 600 -0- 600 <F1>
Donald E. Stevenson 545,204 940 546,144 -0- 546,144 1.7
Robert H. Parsley 2,248 -0- 2,248 -0- 2,248 <F1>
Jack W. Lander, Jr. 6,000 -0- 6,000 -0- 6,000 <F1>
Robert L. Hargrave 40,463 -0- 40,463 -0- 57,963(1) <F1>
Bob H. O'Neal 34,184 -0- 34,184 -0- 61,684(2) <F1>
Jack T. Currie 6,000 -0- 6,000 -0- 6,000 <F1>
Robert S. Sullivan 100 -0- 100 -0- 100 <F1>
Richard R. Stewart 132,600 5,335 137,900 35 156,060(3) <F1>
Orson C Clay 3,000 -0- 3,000 -0- 3,000 <F1>
Brian H. Rowe -0- -0- -0- -0- -0- <F1>
NON-DIRECTOR EXECUTIVE OFFICERS
Garth C. Bates, Jr. 70,494 13,776 84,270 -0- 94,270(4) <F1>
C. LaRoy Hammer 31,500 -0- 31,500 -0- 39,000(5) <F1>
ALL DIRECTORS AND EXECUTIVE OFFICERS
(19 Persons) 2,460,283 291,811 2,525,999 231,495 2,876,619(6) 8.7
_______________
<FN>
<F1> Less than 1%.
(1) includes options to purchase 17,500 shares of Common Stock.
(2) includes options to purchase 27,500 shares of Common Stock.
(3) includes options to purchase 18,125 shares of Common Stock.
(4) includes options to purchase 10,000 shares of Common Stock.
(5) includes options to purchase 7,500 shares of Common Stock.
(6) includes options to purchase 119,125 shares of Common Stock.
</TABLE>
ELECTION OF DIRECTORS
The Board of Directors of the Company consists of twelve directors, divided
into three classes of four members. At each Annual Meeting of Shareholders, one
class is elected to hold office for a term of three years. Members of the other
classes continue to serve for the remainder of their respective terms. The
individuals set forth below have been nominated for election to the Board of
Directors at the meeting, to serve as directors until 1998. Each of the
nominees currently serves as a director of the Company and the Board of
Directors believes that each of the nominees will be willing and able to serve.
If any such person is unable to serve for good cause, or is unwilling to serve
for any reason, proxies will be voted for the election of another person
selected by the Nominating Committee of the Board of Directors. The Board of
Directors recommends that the nominees listed below be elected by the
shareholders. Unless otherwise specified, all properly executed proxies
received by the Company will be voted at the Annual Meeting or any adjournment
thereof for the election of the persons whose names are listed in the following
table as nominees for directors whose term will expire in 1998.
<TABLE>
<CAPTION>
NOMINEES FOR DIRECTORS WHOSE TERM WILL EXPIRE IN 1998
Director
Name and Principal Occupation Age Since
_______________________________________________________ ___ ________
<S> <C> <C>
J. CARSEY MANNING ..................................... 69 1973
Retired Senior Vice President of the Company.
DONALD E. STEVENSON ................................... 51 1975
Vice President of the Company.
ROBERT H. PARSLEY (1)(3)(4) ........................... 72 1976
Of Counsel to Butler & Binion, L.L.P.,
attorneys in Houston, Texas
ROBERT S. SULLIVAN (2) ................................ 51 1992
Dean, Graduate School of Industrial Administration,
Carnegie Mellon University, Pittsburgh, Pennsylvania.
Previously, Associate Dean for Research and Academic
Affairs, The University of Texas at Austin, Austin,
Texas.
</TABLE>
<TABLE>
<CAPTION>
DIRECTORS WHOSE TERM EXPIRES IN 1996
Director
Name and Principal Occupation Age Since
_______________________________________________________ ___ ________
<S> <C> <C>
ROBERT L. HARGRAVE (1) ................................ 54 1984
Group Vice President, Chief Financial Officer and
Treasurer of the Company.
RICHARD R. STEWART .................................... 45 1994
Group Vice President of the Company.
ORSON C CLAY .......................................... 64 1994
President, Chief Administrative Officer and director
of American National Insurance Co., a diversified
life insurance company in Galveston, Texas.
BRIAN H. ROWE ......................................... 63 1994
Retired Chairman of GE Aircraft Engines, General
Electric Company, a manufacturer of combustion
turbine engines for aircraft, marine and industrial
applications in Cincinnati, Ohio. Before 1993, served
as President and Chief Executive Officer and, before
1991, as Senior Vice President of GE Aircraft Engines,
General Electric Company. Serves as a director of
5th/3rd Bank Corp. of Cincinnati, Ohio and Aerostructures
of Hampshire, England.
</TABLE>
<TABLE>
<CAPTION>
DIRECTORS WHOSE TERM EXPIRES IN 1997
Director
Name and Principal Occupation Age Since
_______________________________________________________ ___ ________
<S> <C> <C>
C. JIM STEWART II (1)(4) .............................. 69 1955
Chairman of the Board of the Company. Retired
Chief Executive Officer of the Company.
JACK W. LANDER, JR. (1)(2)(4) ......................... 69 1982
Chairman of the Board of Merchants Bank-Houston and
Chairman of the Board and director for its holding
company, Gulf Southwest Bancorp, Inc., in Houston,
Texas.
BOB H. O'NEAL (1) ..................................... 60 1988
President and Chief Executive Officer of the Company.
Director of Lufkin Industries, Inc. and Devtek
Corporation.
JACK T. CURRIE (3)(4).................................. 66 1988
Personal investments. Retired Managing Director of
Mason Best Company, a merchant banking firm in Houston,
Texas and retired Vice Chairman of Rotan Mosle Financial
Corp., an investment banking firm in Houston, Texas.
Director for American Indemnity Financial Corp.;
American National Growth Fund, Inc.; American National
Income Fund Inc. and Triflex Fund Inc.
_______________
<FN>
<F1> Member of Executive Committee.
<F2> Member of Compensation and Management Development Committee.
<F3> Member of Audit Committee.
<F4> Member of Nominating Committee.
</TABLE>
All of the above nominees are presently serving as directors of the
Company. Each nominee and current director has been employed for more than five
years either as shown in the foregoing table or in various executive capacities
with the Company. All nominees were last elected as a director at the 1992
Annual Meeting.
Meetings and Committees of the Board of Directors
The Board of Directors held five meetings during the fiscal year ended
January 31, 1995 ("Fiscal 1994"). During Fiscal 1994 no director attended fewer
than 75% of the aggregate of (a) the total number of meetings of the Board of
Directors (held during the period for which he was a director) and (b) the total
number of meetings held by all committees of the Board of Directors on which he
served (during the periods that he served).
The Audit Committee of the Board of Directors reviews with the Company's
independent public accountants the plan, scope and results of the annual audit;
reviews with the Company's independent public accountants and internal auditors
the procedures for and results of internal auditing and controls; and reviews
with management the effectiveness of various operational policies and controls.
The Audit Committee recommends to the Board of Directors the employment of
independent public accountants and considers, in general, the audit services to
be performed by such public accountants and the possible effect on the
independence of the public accountants from the performance of non-audit
services. The Audit Committee held two meetings during Fiscal 1994.
The Compensation and Management Development Committee recommends the total
compensation payable by the Company to its Chief Executive Officer, subject to
approval by those members of the Board of Directors that are not and never have
been an officer of the Company or its subsidiaries, and approves the form and
amount of total compensation paid or payable by the Company to its other
executive officers; grants options pursuant to the option plans relating to
officers and employees; conducts such investigations and studies as it deems
necessary; and considers management succession and related matters. See the
Report of the Compensation and Management Development Committee elsewhere
herein. The Compensation and Management Development Committee held one meeting
during Fiscal 1994.
The Nominating Committee selects nominees for the Board of Directors of the
Company. The Nominating Committee considers nominees submitted by the members
of the Board of Directors, the officers of the Company and the Company's
shareholders. Nominees for the Board of Directors may be submitted to the
Chairman of the Nominating Committee at the Company's executive offices for
consideration by the Nominating Committee. The Nominating Committee held three
meetings during Fiscal 1994.
Compensation Committee Interlocks and Insider Participation
No person serving on the Compensation and Management Development Committee
during Fiscal 1994 is or has ever been an officer of the Company or any of its
subsidiaries, and no executive officer of the Company is serving or has ever
served on a board of directors or compensation committee of any entity, one of
whose executive officers now serves, or at any time in Fiscal 1994 served, on
the Board of Directors or Compensation and Management Development Committee of
the Company. The Company's Compensation and Management Development Committee
presently consists of Messrs. Jack W. Lander, Jr. and Robert S. Sullivan. Mr.
Donald J. Atwood, a former director of the Company, also served on the
Compensation and Management Development Committee during 1994.
Compensation of Directors
During Fiscal 1994, directors whose principal occupation is other than
employment with the Company were compensated at the rate of $16,000 per year
plus $1,000 for each meeting of the Board of Directors and each committee
meeting attended and $500 for each telephone meeting attended. The directors
were also reimbursed for any out-of-pocket expenses incurred to attend
meetings. Non-employee directors, including those directors that are retired
officers of the Company, with 60 months of continuous service on the Board of
Directors will receive $1,000 per month for a period equivalent to service on
the Board of Directors up to a maximum of 120 months, commencing on the month
following their 70th birthday or the date such director ceases to serve on the
Board, whichever is later.
1994 DIRECTOR STOCK OPTION PLAN
On December 13, 1994, the Board of Directors adopted the Stewart &
Stevenson Services, Inc. 1994 Director Stock Option Plan (the "1994 Plan"),
subject to the ratification thereof by the shareholders of the Company. The
1994 Plan is intended to encourage the ownership of the Company's Common Stock
by the independent directors of the Company and to provide an additional means
for the Company to attract and retain qualified persons to act as independent
directors of the Company. The Board of Directors recommends that the 1994 Plan
be approved by the shareholders. Unless otherwise indicated, all properly
executed proxies received by the Company will be voted for such approval at the
Annual Meeting or any adjournment thereof. The summary of the 1994 Plan set
forth below is qualified in its entirety by reference to the 1994 Plan, a copy
of which is included as Exhibit "A" to these proxy materials.
Grant of Options; Eligibility
The 1994 Plan provides for the grant of options to purchase an aggregate of
150,000 shares of the Company's Common Stock, without par value, subject to
adjustment for stock splits, stock dividends and other similar events. Under
the 1994 Plan, an option to purchase 1,000 shares of the Company's Common Stock
is automatically granted on the date of each Annual Meeting of Shareholders to
each eligible director who is elected to serve as a director at, or whose term
as director continues after, such meeting.
Each director that is not an officer or employee of the Company or one of
its subsidiaries on the day of grant is eligible to receive options pursuant to
the Plan. On the date hereof, there are eight persons eligible to receive
options under the 1994 Plan.
Description of Options
Options granted pursuant to the 1994 Plan have an exercise price equal to
the last transaction price reported by the National Association of Securities
Dealers Automated Quotation, National Market System on the date of grant, or if
there is no transaction on the date of grant, on the first preceding date on
which there is a transaction in the Company's Common Stock. Such options vest
and become exercisable in four equal annual installments commencing on the first
anniversary of the grant and become fully vested and immediately exercisable if
the recipient dies, fails to stand for re-election or be re-elected, or retires
after serving at least 60 consecutive calendar months as a director of the
Company. Options also become fully vested and immediately exercisable if the
Company merges, consolidates or combines with another company and the Company is
not the surviving entity. All options granted pursuant to the 1994 Plan
terminate on the tenth anniversary of the date of grant or one year after the
recipient ceases to be a director of the Company, whichever first occurs. The
exercise price under any option may be paid either in cash or by delivering
certificates representing shares of the Company's Common Stock having a market
value on the date of exercise equal to the exercise price.
Federal Income Tax Consequences
The options are not intended to qualify for any special tax treatment under
any provision of the Internal Revenue Code of 1986, as amended. The grant of
options under the 1994 Plan will not result in taxable income to the recipient
or a deduction to the Company on the date of grant. The recipient will be
deemed to have received taxable income, and the Company will be entitled to a
deduction equal to the difference between the market price and the exercise
price at the time an option is exercised.
Amendments
The Board of Directors may amend, suspend or terminate the 1994 Plan at any
time. No such amendment that materially increases the number of shares of
Common Stock that may be issued or other benefits under the 1994 Plan, or that
materially modifies the eligibility requirements under the 1994 Plan or makes
any other change with respect to which shareholder approval is required by
applicable law may be made without the approval of the Company's shareholders.
The following table sets forth the benefits that will be received by each
of the persons or groups set forth therein under the 1994 Plan if approved by
the shareholders.
<TABLE>
NEW PLAN BENEFITS
1994 DIRECTOR STOCK OPTION PLAN
Name and Position Number of Options
<S> <C>
Bob H. O'Neal
President & Chief Executive Officer ............... -0-
Robert L. Hargrave
Group Vice President, Chief Financial Officer
& Treasurer ....................................... -0-
Richard R. Stewart
Group Vice President (Engineered Power Systems) ... -0-
Garth C. Bates, Jr.
Group Vice President (Distribution) ............... -0-
C. LaRoy Hammer
Group Vice President (Tactical Vehicle Systems) ... -0-
All Executive Officers as a group ................... -0-
All Non-executive Directors as a group 8,000
All Non-executive Officer Employees as a group ...... -0-
</TABLE>
AMENDMENT TO SECOND RESTATED ARTICLES OF INCORPORATION
TO INCREASE AUTHORIZED CAPITAL
The Board of Directors has unanimously adopted an amendment to the
Company's Second Restated Articles of Incorporation increasing the authorized
capital of the Company from 50,000,000 shares to 100,000,000 shares of Common
Stock, without par value, subject to approval by the shareholders of the
Company. In the opinion of the Board of Directors the number of shares of
Common Stock presently authorized is not sufficient for general corporate
purposes. The Board of Directors recommends that the amendment to the Second
Restated Articles of Incorporation to increase the authorized capital of the
Company from 50,000,000 to 100,000,000 shares be approved by the shareholders.
Unless otherwise indicated, all properly executed proxies received by the
Company will be voted for such approval at the Annual Meeting or any adjournment
thereof.
Description and Purpose of Amendment
As of April 11, 1995, there were 33,017,635 shares of Common Stock issued
and outstanding and a total of 1,316,700 shares reserved for issuance pursuant
to various stock option plans and 500,000 shares reserved for issuance in future
acquisitions. In addition during Fiscal 1994, the Company announced an
agreement in principal to form a joint venture with General Electric Capital
Corporation which will be funded through the issuance of warrants to purchase
Common Stock. With only 15,165,665 authorized and unissued shares, the
Company's ability to raise equity capital through a public offering of the
Company's shares, increase the market liquidity of the Company's Common Stock by
declaring a significant stock dividend, or use the Company's Common Stock to
make a significant acquisition is limited. Approval of the amendment to the
Second Restated Articles of Incorporation is sought at this time to avoid the
expense and delay of a special shareholder meeting in the future.
The additional shares of Common Stock will have the same rights and
privileges as other shares of Common Stock of the Company. Unless required by a
securities exchange on which the Common Stock is hereafter listed, any
authorized and unissued shares of Common Stock may be issued without further
shareholder approval. Under the current rules of the NASDAQ National Market
System, acquisitions that involve the issuance of a number of shares equal to or
greater than 20% of the Company's outstanding shares of Common Stock would
require shareholder approval. The Company has no current plan or, except for
the shares subject to reserves described above, commitments to issue Common
Stock. The ability of the Board of Directors to issue shares of Common Stock in
a public or private transaction without prior shareholder approval could make
the acquisition of the Company without the approval of the Board of Directors
more difficult to complete.
AMENDMENT TO SECOND RESTATED ARTICLES OF INCORPORATION
TO LIMIT PERSONAL LIABILITY
The Board of Directors has unanimously approved and recommends to the
shareholders of the Company the adoption of an amendment adding the following
language as a new article in the Second Restated Articles of Incorporation of
the Company.
IX.
A director of the corporation shall not be liable to the corporation or its
shareholders for monetary damages for an act or omission in the director's
capacity as a director, except that this Article does not eliminate or limit the
liability of a director to the extent the director is found liable for (i) a
breach of the director's duty of loyalty to the corporation or its shareholders;
(ii) an act or omission not in good faith that constitutes a breach of duty of
the director to the corporation or an act or omission that involves intentional
misconduct or a knowing violation of the law; (iii) a transaction from which the
director received an improper benefit, whether or not the benefit resulted from
an action taken within the scope of the director's office; or (iv) an act or
omission for which the liability of a director is expressly provided by an
applicable statute. Any repeal or amendment of this Article by the shareholders
of the corporation shall be prospective only and shall not adversely affect any
limitation on the liability of a director of the corporation existing at the
time of such repeal or amendment. In addition to the circumstances in which the
director of the corporation is not liable as set forth in the preceding
sentence, the director shall not be liable to the fullest extent permitted by
any provisions of the statutes of Texas hereafter enacted that further limits
the liability of a director.
The Board of Directors believes that the proposed amendment is necessary to
avoid the creation of an adversary relationship between the Company and its
directors in the event a shareholder derivative suit is filed against one or
more directors, to maintain the availability and reasonable cost of liability
insurance for the directors of the Company and to assist in recruiting and
retaining responsible individuals to serve as directors of the Company. The
Board of Directors recommends that the amendment to the Second Restated Articles
of Incorporation of the Company limiting the personal liability of directors be
approved by the shareholders. Unless otherwise indicated, all properly executed
proxies received by the Company will be voted for such approval at the Annual
Meeting or any adjournment thereof.
Director Liability and Existing Indemnities
Under Texas common law, a director's fiduciary duties toward the
corporation or its shareholders include a duty of loyalty and a duty of care.
The duty of care requires that directors act on an informed basis with due care
and diligence. In appropriate cases, shareholders of a Texas corporation may
bring an action to recover monetary damages from directors for breach of such
fiduciary duties, including the duty of care, and a plaintiff shareholder may
also seek equitable relief enjoining or rescinding a transaction resulting from
such a breach. The liability of directors for breaches of their duty of care is
limited, however, by the business judgment rule. As long as a director acts in
good faith and without self-interest, and the transaction is not tainted by
fraud, the business judgment of the director will not be second guessed by the
courts.
The Company's Third Restated Bylaws, as presently in effect, require the
Company to indemnify its directors from certain expenses and liabilities arising
from legal actions brought or threatened against them as a result of serving on
the Board of Directors. The Company has also entered into a contract with each
of its directors under which the Company is obligated to indemnify such persons
from similar expenses and liabilities. Under both the Third Restated Bylaws and
the indemnity contracts, the directors have no indemnification rights in any
case in which they are found to be liable to the Company.
Effect of the Proposed Amendment
If the proposed new Article IX is adopted, it will not limit or eliminate
the right of the Company or any shareholder to pursue equitable remedies such as
an injunction or rescission of a transaction involving a breach of the
director's duty of care, and it does not affect director liability to parties
other than the Company or its shareholders. Also, directors would continue to
be liable to the Company or its shareholders for any (i) breach of their duty of
loyalty, (ii) acts or omissions not in good faith or which involve intentional
misconduct or a knowing violation of the law, (iii) transaction from which the
director received an improper benefit, and (iv) acts or omissions for which the
liability of a director is expressly provided by statute. In addition, the
amendment applies only to claims made against a director arising out of his role
as a director and does not apply to claims arising out of his position as an
officer of the Company or any other capacity. Neither does the amendment limit
a director's liability under Federal securities laws or the laws of any
jurisdiction other than the State of Texas or claims based on the actions of the
directors that occurred prior to the effective date of the amendment.
Interest of Directors
The present members of the Board of Directors will receive the benefit of
limitation of liability created by the proposed amendment and to that extent
have a personal interest in recommending its approval by the shareholders.
There are no pending or, to the knowledge of the Company, threatened claims
against the directors in their capacity as directors of the Company.
SELECTION OF INDEPENDENT PUBLIC ACCOUNTANTS
The Board of Directors, upon recommendation of the Audit Committee, has
appointed Arthur Andersen LLP as independent public accountants of the Company
for the year ending January 31, 1996. So far as is known to the Company,
neither such firm nor any of its associates has any relationship with the
Company or any affiliate of the Company other than the usual relationship that
exists between independent public accountants and clients. A representative of
Arthur Andersen LLP will be present at the meeting to make a statement if such
representative desires and to respond to appropriate questions. The Board of
Directors recommends that the appointment of Arthur Andersen LLP as independent
public accountants for the Company for the fiscal year ending January 31, 1996
be ratified by the shareholders. Unless otherwise indicated, all properly
executed proxies received by the Company will be voted for such ratification at
the Annual Meeting or any adjournment thereof. An adverse vote will be
considered a direction to the Audit Committee to select other independent public
accountants in the following year.
Notwithstanding any statement contained in a previous filing by the Company
under the Securities Act of 1933, as amended, or the Securities Exchange Act of
1934, as amended, neither the Performance Graph set forth below nor the Report
of the Compensation and Management Development Committee that follows is
incorporated by reference into any such filing.
PERFORMANCE OF STEWART & STEVENSON COMMON STOCK
The following graph compares the cumulative total shareholder return on the
Company's Common Stock to the cumulative total shareholder return of the
Standard & Poor's 500 Stock Index and the cumulative total shareholder return of
the Standard & Poor's Machinery-Diversified Index for the Company's last five
fiscal years. The graph assumes that the value of an investment in the
Company's Common Stock and each index was $100 on January 31, 1990 and that all
dividends were reinvested.
[PERFORMANCE GRAPH]
<TABLE>
<CAPTION>
Year Ended January 31,
_________________________________________________
1990 1991 1992 1993 1994 1995
____ ____ ____ ____ ____ ____
<S> <C> <C> <C> <C> <C> <C>
Stewart & Stevenson Services, Inc. 100 136 212 267 357 235
S&P 500 Stock Index 100 108 133 147 166 169
S&P Machinery - Diversified Index 100 96 105 113 162 151
</TABLE>
REPORT OF THE COMPENSATION AND MANAGEMENT DEVELOPMENT COMMITTEE
TO THE SHAREHOLDERS OF STEWART & STEVENSON SERVICES, INC.
The Compensation and Management Development Committee of the Board of
Directors (the "Committee") consists of two independent, non-employee directors
who have no "interlocking" relationships as defined by the Securities and
Exchange Commission. The Committee approves the design of executive
compensation programs, administers such programs and assesses their
effectiveness in supporting the Company's compensation policies. The Committee
also reviews and approves all salary arrangements and other executive
compensation, evaluates executive performance and considers management
succession and related matters. The Committee is authorized to, and does,
retain independent consultants to assist in the design of compensation programs
and assess their effectiveness.
The Committee is committed to implementing a compensation program that
encourages creation of shareholder value. To facilitate the achievement of the
Company's business strategies, the Committee adheres to the following
compensation policies:
To strengthen the relationship between pay and performance, executives'
annual and long-term compensation programs should include variable compensation
that is dependent upon the level of success in meeting specified corporate and
individual performance goals.
To focus management on the long-term interests of shareholders, a
significant portion of pay for executives should be comprised of long-term, "at-
risk" compensation.
To enable the Company to attract, retain and encourage the development of
the best available executive personnel, competitive compensation opportunities
should be offered. However, within the range of competitive compensation, total
compensation levels should be adjusted upward if Company performance exceeds
that of its peer group and adjusted downward if Company performance falls below
that of its peer group.
Total Compensation
In determining the total compensation levels and the levels of each
component of compensation for the Company's executives, the Committee refers to
levels of compensation paid to executives of a comparator group of companies.
This comparator group is comprised of companies with national business
operations and one or more lines of business similar to the major business
segments of the Company. Compensation information relating to the executive
officers of the comparator companies is obtained from independent sources and
adjusted for differences in the size of the comparator companies, as measured by
sales volumes, market capitalization and employment levels. The Committee uses
the adjusted information as a measurement of competitive compensation levels for
executive positions within the Company.
The selection of companies used for compensation comparison purposes is
reviewed and approved by the Committee each year. The companies comprising the
comparator group used for compensation purposes generally are not the same
companies comprising the published industry index used in the Performance Graph
included in this proxy statement. The Committee believes that the Company's
most direct competitors for executive talent are not necessarily the same
companies included in the Standard & Poor's Machinery-Diversified Index, which
is used for comparing shareholder returns.
The key elements of the Company's executive compensation program are base
salary, annual incentives and long-term incentives. These key elements are
addressed separately below. In determining each component of compensation, the
Committee considers all elements of an executive's total compensation package
and relationship of such executive's total compensation to the total
compensation paid to executives holding similar positions in the comparator
group of companies.
During the twelve months ended January 31, 1995, ("Fiscal 1994"), the total
compensation paid by the Company to Mr. O'Neal was slightly below the median
level of total compensation paid to the Chief Executive Officers of the
companies in the comparator group. Total compensation levels for other
executives of the Company were slightly above the median level of total
compensation paid by the comparator group for similar positions. Both the total
compensation paid to Mr. O'Neal and to the executives in general were considered
by the Committee to be within an acceptable competitive range for such
positions.
Base Salary
Base salary levels are targeted at or below the median levels of
compensation for the Company's comparator group. Each executive's base salary
is reviewed regularly by the Committee. Increases to base salaries are driven
primarily by individual performance, which is evaluated based on sustained
levels of individual contribution to the Company. The executive's experience
and past performance are also considered, as are historical individual base
salary levels, the individual executive's expected role for the upcoming fiscal
year and changes in the cost of living. In making its evaluation, the Committee
has assigned no particular weights to these factors.
Base salaries established by the Committee for Fiscal 1994 were at the
lower end of the range that the Committee considered to be competitive in
comparison to the base salaries paid by the companies in the comparator group.
In determining Mr. O'Neal's base salary in Fiscal 1994, the Committee considered
Mr. O'Neal's individual performance and his long-term contributions to the
success of the Company. In addition, a significant factor in the decision to
increase Mr. O'Neal's base salary in Fiscal 1994 was the comparison of his base
salary to base salaries of Chief Executive Officers in the comparator group.
Annual Incentives
To promote the Company's pay-for-performance philosophy and provide
executives with direct financial incentives to achieve annual corporate,
business unit and individual performance goals, the Company provides an annual
bonus opportunity to executives. Annual bonuses motivate executives to maximize
short-term performance as part of achieving long-term goals.
In establishing bonus payments made to each executive officer, the
Committee considers the following factors: (i) the aggregate total annual
compensation paid by the Company to such person compared to amounts paid by the
comparator group of companies for similar positions, (ii) the performance of the
Company in comparison to other companies in the same industry and in comparison
to the market as a whole and (iii) the performance of the cost or profit centers
for which an individual executive is responsible compared to goals established
for such cost or profit centers. The Committee has assigned no particular
weights to these factors in establishing bonus payments.
Bonus payments approved by the Committee for Fiscal 1994 were substantially
in excess of the median level of bonus payments made by the comparator group
because the performance of the Company, as measured by the return on capital,
return on sales and return on equity, was substantially better than the
performance of other companies in the same industry, and because the sales,
costs and profitability goals for individual cost and profit centers were met or
exceeded. Mr. O'Neal's bonus is above the median annual incentive compensation
paid to Chief Executive Officers by the comparator companies and reflects
Company performance above that reported by competitors.
Consistent with the Committee's goal of providing competitive compensation
levels, the sum of base salary and annual incentives paid to the executives of
the Company and to Mr. O'Neal was comparable to the median total annual
compensation paid to similar individuals by the comparator group.
Long-Term Incentives
In keeping with the Company's philosophy of providing a total compensation
package which favors at-risk components of pay, long-term incentives comprise a
significant portion of each executive's total compensation package. The
Committee has elected to grant stock options pursuant to the Stewart & Stevenson
1988 Nonstatutory Stock Option Plan as the Company's sole long-term incentive
vehicle at this time.
Stock options are granted at an option price not less than the fair market
value of the Common Stock on the date of grant. Accordingly, stock options have
value only if the stock price appreciates from the date the options are
granted. This design focuses executives on the creation of shareholder value
over the long term and encourages equity ownership in the Company.
The size of stock option grants is based on competitive practice and is
targeted to be at the median dollar value of options granted by the comparator
group. The size of the award is effected by individual performance, level of
responsibility, historical award data, other compensation and the number of
shares of common stock already owned by the recipient. Overall, the Committee
attempts to provide a competitive award opportunity based on the dollar value of
the options granted. As a result, the number of shares underlying stock option
awards varies and is dependent on the stock price on the date of grant.
The dollar value of the stock options granted to Mr. O'Neal during Fiscal
1994 was comparable to the median value of long-term incentives granted to the
Chief Executive Officers of the comparator group while the dollar value of the
stock options granted to the other executives during Fiscal 1994 exceed the
median value of long-term incentives granted by the comparator group. The
Committee believes the equity interest created by stock options provides an
appropriate link to the interests of shareholders and that the award of long-
term incentives in excess of the median value is warranted by the Company's
performance.
Policy with Respect to the $1 Million Deduction Limit
Section 162(m) of the Internal Revenue Code of 1986 generally limits the
corporate deduction for compensation paid to executive officers named in the
proxy to $1 million, unless certain requirements are met. The Committee has
carefully considered the impact of this provision on the Company's incentive
plans and has determined that Section 162(m) is currently inapplicable because
no named executive officer is expected to receive compensation, other than
performance-based compensation, in excess of $1 million in the foreseeable
future. The Committee believes it is in the Company's and shareholders' best
interests to retain the Committee's discretionary evaluation of individual and
Company performance when determining total compensation payable to the Company's
executive officers.
Conclusion
The Committee believes these executive compensation policies and programs
serve the interests of the shareholders and the Company effectively. The
various pay vehicles offered are appropriately balanced to provide increased
motivation for executives to contribute to the Company's overall future success,
thereby enhancing the value of the Company for the shareholders' benefit. We
will continue to monitor the effectiveness of the Company's total compensation
program to meet the current needs of the Company.
Respectfully submitted,
THE COMPENSATION AND MANAGEMENT
DEVELOPMENT COMMITTEE
Jack W. Lander, Jr. - Chairman
Robert S. Sullivan
EXECUTIVE OFFICERS
The names, ages and positions of all the executive officers of the Company
are listed below. Each officer was last elected as an executive officer at the
meeting of directors immediately following the 1994 Annual Meeting of
Shareholders. The term of office of each executive officer will expire at the
meeting of directors following the 1995 Annual Meeting of Shareholders. There
exist no arrangements or understandings between any officer and any other person
pursuant to which the officer was selected.
<TABLE>
<CAPTION>
Officer
Name Age Position Since
___________________ ___ _________________________________________________________ _______
<S> <C> <C> <C>
Bob H. O'Neal 60 President & Chief Executive Officer 1981
Robert L. Hargrave 54 Group Vice President, Chief Financial Officer & Treasurer 1980
Richard R. Stewart 45 Group Vice President (Engineered Power Systems) 1986
Garth C. Bates, Jr. 46 Group Vice President (Distribution) 1991
C. LaRoy Hammer 58 Group Vice President (Tactical Vehicle Systems) 1980
T. Michael Andrews 54 Vice President 1982
Donald E. Stevenson 51 Vice President 1984
Keith T. Stevenson 48 Vice President 1986
C. Jim Stewart III 46 Vice President 1988
Lawrence E. Wilson 42 Vice President & Secretary 1989
Bobby W. Brown 65 Vice President 1994
</TABLE>
Each of the officers listed above, except Messrs. Garth C. Bates, Jr. and
Bobby W. Brown have been employed by the Company in an executive capacity for
more than five years. Garth C. Bates, Jr. was appointed General Manager of the
Distribution Division in February 1991 and elected to his present position in
April 1991. Prior to February 1991, Mr. Bates served as President of Stewart &
Stevenson Power, Inc., the Company's wholly-owned subsidiary based in Denver,
Colorado, for more than five years. Bobby W. Brown was elected to his current
position in 1994. He previously served as the Company's Director of Human
Resources, Insurance and Risk Management for more than five years.
Richard R. Stewart and C. Jim Stewart III are sons of Mr. C. Jim Stewart
II, the Chairman of the Board of Directors of the Company. Garth C. Bates, Jr.
is a nephew of Mr. C. Jim Stewart II and a first cousin of Richard R. Stewart
and C. Jim Stewart III. Keith T. Stevenson is the brother, and T. Michael
Andrews is a first cousin, of Mr. Donald E. Stevenson, a director of the
Company. These persons and other members of the Stewart family and the
Stevenson family could be deemed "control persons" with respect to the Company
as such term is defined in the rules and regulations of the Securities and
Exchange Commission.
EXECUTIVE COMPENSATION
The following Summary Compensation Table shows the aggregate compensation
paid or accrued by the Company during each of the last three fiscal years to or
for the Company's current Chief Executive Officer and each of the four highest
compensated executive officers.
<TABLE>
<CAPTION>
SUMMARY OF COMPENSATION
Long-Term
Annual Compensation Compensation
______________________________________ __________________
Other All
Name and Year ended Annual Options LTIP Other
Principal Position January 31 Salary Bonus Compensation Granted Payout Compensation(2)
______________________ __________ ________ ________ ____________ _______ ______ ____________
<S> <C> <C> <C> <C> <C> <C> <C>
Bob H. O'Neal
President & Chief
Executive Officer 1995 $348,846 $320,000 <F1> 20,000 -0- $3,542(3)
1994 298,077 350,000 <F1> 15,000 -0- 1,440
1993 199,519 300,000 <F1> -0- -0- 960
Robert L. Hargrave
Group Vice President,
Chief Financial
Officer & Treasurer 1995 184,885 145,000 <F1> 10,000 -0- 832
1994 179,423 140,000 <F1> 10,000 -0- 864
1993 149,712 170,000 <F1> -0- -0- 720
Richard R. Stewart
Group Vice President
(Engineered Power
Systems) 1995 215,631 220,000 <F1> 12,500 -0- 955
1994 198,750 220,000 <F1> 10,000 -0- 960
1993 134,712 250,000 <F1> -0- -0- 648
Garth C. Bates, Jr.
Group Vice President
(Distribution) 1995 179,539 155,000 <F1> 10,000 -0- 3,020(4)
1994 159,231 160,000 <F1> 10,000 -0- 729
1993 119,615 130,000 <F1> -0- -0- 576
C. LaRoy Hammer
Group Vice President
(Tactical Vehicle
Systems) 1995 179,654 125,000 <F1> 10,000 -0- 792
1994 164,423 140,000 <F1> -0- -0- 792
1993 134,712 160,000 <F1> 10,000 -0- 648
_______________
<FN>
</TABLE>
(1) The total amount of all perquisites and other personal benefits,
securities or property paid or accrued by the Company is less than 10% of the
total of annual salary and bonus. There have been no amounts paid or accrued
with respect to above-market or preferential earnings on restricted stock,
options, SARs or deferred compensation or with respect to earnings on long-term
incentive plans or tax reimbursements. Except for purchases pursuant to the
Stewart & Stevenson Employee Stock Purchase Plan, participation in which is
available to all employees, there were no purchases of any security of the
Company for less than the fair market value thereof on the date of purchase.
(2) Unless otherwise indicated, All Other Compensation consists of the
dollar value of insurance premiums for term life insurance policies for the
benefit of the named executive.
(3) Other Compensation for Mr. O'Neal consists of term life insurance
premiums of $1,445 and contributions by the Company to a defined contribution
pension plan of $2,097.
(4) Other Compensation for Mr. Bates consists of term life insurance
premiums of $785 and contributions by the Company to a defined contribution
pension plan of $2,235.
Grants and Exercises of Stock Options and Stock Appreciation Rights
The Company has two stock option plans. The 1988 Nonstatutory Stock Option
Plan (the "1988 Plan") authorizes the grant of options to employees, including
officers, to purchase an aggregate of up to 1,800,000 shares of Common Stock and
provides that limited stock appreciation rights may be granted in connection
with such options. The 1993 Nonofficer Stock Option Plan (the "1993 Plan")
authorizes the grant of options to employees other than officers of the Company
to purchase an aggregate of up to 514,550 shares of Common Stock. Stock
appreciation rights may not be granted under the 1993 Plan. The recipients and
terms of options granted pursuant to the stock option plans are determined by
the Compensation and Management Development Committee of the Board of Directors,
none of whom are employees of the Company or eligible for any benefits under the
plans. During 1994, the Company granted options to purchase an aggregate of
80,500 shares of Common Stock under the 1988 Plan and options to purchase an
aggregate of 99,550 shares of Common Stock under the 1993 Plan. No limited
stock appreciation rights were granted under the 1988 Plan during 1994 or during
any previous fiscal year. The following tables set forth information as to
options under the Company's stock option plans granted to or exercised by the
individuals described in the Summary Compensation Table during 1994 and the
value of all outstanding options owned as of January 31, 1995 by the individuals
named in the Summary Compensation Table.
<TABLE>
<CAPTION>
OPTION/SAR GRANTS DURING FISCAL 1994
Potential Realizable Value at
Assumed Annual Rates of Stock Price
Individual Grants Appreciation for Option Term
_______________________________________________________ ___________________________________
% of Total Exercise
Options Price
Options Granted to per Expiration
Name Granted<F1> Employees share<F2> Date 5% 10%
_________________________________ ___________ __________ _________ __________ ____________ ______________
<S> <C> <C> <C> <C> <C> <C>
Bob H. O'Neal 20,000 11.1 $50.25 3/07/04 $ 632,039 $ 1,601,711
Robert L. Hargrave 10,000 5.6 50.25 3/07/04 316,020 800,856
Richard R. Stewart 12,500 6.9 50.25 3/07/04 395,024 1,001,069
Garth C. Bates, Jr. 10,000 5.6 50.25 3/07/04 316,020 800,856
C. LaRoy Hammer 10,000 5.6 50.25 3/07/04 316,020 800,856
All Employees, including officers 180,050 100.0 50.25 3/07/04 5,689,932 14,419,404
_______________
<FN>
</TABLE>
(1) All options become exercisable in four 25% cumulative annual
installments commencing on March 7, 1995.
(2) All options are exercisable at the closing market price on the date of
grant.
<TABLE>
<CAPTION>
OPTION/SAR EXERCISES DURING FISCAL 1994
AND YEAR-END VALUES
Number of Unexercised Value of Unexercised In-the-
Options at Money Options at
January 31, 1995 January 31, 1995
_____________________________ _____________________________
Shares
Acquired on Value
Name Exercise Realized Exercisable Unexercisable Exercisable Unexercisable
_________________________________ ___________ __________ ___________ _____________ ___________ _____________
<S> <C> <C> <C> <C> <C> <C>
Bob H. O'Neal -0- N/A 11,250 38,750 $ 91,875 $ 91,875
Robert L. Hargrave -0- N/A 7,500 22,500 61,250 61,250
Richard R. Stewart -0- N/A 7,500 25,000 61,250 61,250
Garth C. Bates, Jr. 12,500 $ 284,063 -0- 22,500 -0- 61,250
C. LaRoy Hammer 10,000 150,000 -0- 17,500 -0- 46,875
All Employees, including officers 60,750 1,300,112 175,050 410,125 2,630,025 2,189,325
</TABLE>
Retirement Plans
The Company has a defined benefit Pension Plan (the "Pension Plan") under
which benefits are determined primarily by average final base salary and years
of service. The Pension Plan covers substantially all of its full-time
employees, including officers, and, subject to certain limitations described
below, bases pension benefits on 1.5% of (a) the employee's highest five-year
average base salary out of the last ten years or (b) $235,840 ($150,000 in 1994
and thereafter subject to adjustment for increases in the cost of living),
whichever is lower, times the employee's years of credited service. The
Internal Revenue Code of 1986, as amended, limited benefits that may be paid
under the Pension Plan to $118,800 per year in 1994.
The Company has a Supplemental Executive Retirement Plan (the "SERP") under
which certain key executives will receive retirement benefits in addition to
those provided under the Pension Plan. The Compensation and Management
Development Committee determines which executive officers are eligible for
benefits under the SERP. Supplemental benefits are based upon the average final
compensation and years of service without regard to the limitations imposed by
the Internal Revenue Code of 1986, as amended, and using the total of base
salary and bonus to compute final average compensation. Benefits under the SERP
are limited to an amount such that the aggregate of all retirement benefits paid
under the Pension Plan and the SERP will not exceed 75% of the executive's final
average base salary not including bonus payments.
The following table sets forth the estimated annual benefits payable upon
retirement to persons in specified compensation and years-of-service
classification pursuant to the Stewart & Stevenson Employee Pension Plan and the
Stewart & Stevenson Supplemental Executive Retirement Plan.
<TABLE>
<CAPTION>
Estimated Annual Retirement Benefit <F1>
Years of Service
_______________________________________________________________________________
Final Average Compensation 20 25 30 35 40 45
__________________________ _________ _________ _________ _________ _________ _________
<S> <C> <C> <C> <C> <C> <C>
$ 100,000 $ 25,543 $ 31,928 $ 38,315 $ 45,072 $ 52,572 $ 60,072
200,000 55,543 69,429 43,315 97,572 112,572 127,572
300,000 85,543 106,929 128,315 150,072 172,572 195,072
400,000 115,543 144,429 173,315 202,572 232,572 262,572
500,000 145,543 181,929 218,315 255,072 292,572 303,072
600,000 175,543 219,429 263,315 307,572 352,572 397,572
700,000 205,543 256,929 308,315 360,072 412,572 465,072
800,000 265,543 331,929 398,315 465,072 532,572 600,060
_______________
<FN>
</TABLE>
(1) Computation of estimated annual retirement benefit based on a straight-
line annuity for the life of the employee, net of base Social Security benefits
under the Social Security law currently in effect, assuming the employee retires
in 2000 at age 65.
The five-year average compensation of each executive officer listed in the
Summary of Compensation Table differs from the present salary and bonus in such
table as a result of changes in the rate of pay during the average period. The
following table sets forth the years of credited service, five-year average
compensation and five-year average base salary for each of the individuals
listed in the Summary of Compensation Table.
<TABLE>
<CAPTION>
Years of Average Total Average
Name Service Compensation Base Salary
___________________ ________ _____________ ___________
<S> <C> <C> <C>
Bob H. O'Neal 30 $463,689 $235,622
Robert L. Hargrave 27 308,812 155,812
Richard R. Stewart 23 365,696 152,983
Garth C. Bates, Jr. 24 223,708 125,687
C. LaRoy Hammer 37 281,496 142,663
</TABLE>
TRANSACTIONS WITH MANAGEMENT AND CERTAIN BUSINESS RELATIONSHIPS
The Company leases certain land and buildings from associates of one of its
directors. Mr. J. Carsey Manning's brother, Joe Manning, Jr., leases land and a
building located in Amarillo, Texas to the Company for $2,500 per month under a
lease which will expire on December 31, 1995. Mr. Miles McInnis, a former
officer and director of the Company, and Mrs. Faye Manning Totsch, Mr. J. Carsey
Manning's mother, lease land and a building located in Beaumont, Texas to the
Company for $6,500 per month under a lease which will expire April 14, 1997.
The Board of Directors believes that the terms of each of these leases have been
at least as fair to the Company as could have been obtained from nonaffiliated
persons.
Director Robert H. Parsley is Of Counsel in the law firm of Butler &
Binion, L.L.P. in Houston, Texas, which the Company retained during the last
fiscal year and proposes to retain during the current fiscal year.
Director Brian H. Rowe was the Chairman of GE Aircraft Engines, General
Electric Company, to whom the Company paid $116,978,180.35 for the purchase of
gas turbine engines during Fiscal 1994. All purchases were made in the ordinary
course of business at normal commercial prices.
COMPLIANCE WITH SECURITIES LAWS
Each officer and each director of the Company is required by Section 16 of
the Securities Exchange Act of 1934 to report to the Securities and Exchange
Commission all transactions in the Company's Common Stock within a specified
time period. Based solely on a review of such reports filed by the officers and
directors of the Company, Mr. C. Jim Stewart II, a director, filed one report
that erroneously listed the number of shares involved in a transaction.
Although later amended to reflect the correct number of shares involved, the
error resulted in the late report of a gift of 6,055 shares.
FORM 10-K FOR FISCAL 1994
The Company will provide without charge to any shareholder entitled to vote at
the Annual Meeting a copy of its most recent Annual Report on Form 10-K upon
receipt of a request therefor. Such requests should be directed to:
Lawrence E. Wilson
Vice President & Secretary
P.O. Box 1637
Houston, Texas 77251-1637
(713) 868-7700
SHAREHOLDER PROPOSALS FOR THE 1996 ANNUAL MEETING
Shareholders may submit proposals for the 1996 Annual Meeting by sending
such proposals to the attention of the Corporate Secretary. In order to be
considered for inclusion in the proxy statement for the 1996 Annual Meeting,
such proposals should be received by the Company on or before January 7, 1996.
By Order of the Board of Directors,
LAWRENCE E. WILSON
Vice President, Secretary and
General Counsel
Dated: Houston, Texas
May 5, 1995
EXHIBIT A
STEWART & STEVENSON SERVICES, INC.
1994 DIRECTOR STOCK OPTION PLAN
ARTICLE I. PURPOSE
The purpose of this 1994 Director Stock Option Plan (the "Plan") of Stewart
& Stevenson Services, Inc. (the "Company") is to encourage ownership in the
Company by outside directors of the Company whose continued services are
considered essential to the Company's continued progress, and to provide them
with a further incentive to continue as directors of the Company, and to
increase the value of the Company.
ARTICLE II. ELIGIBILITY
Each director of the Company is eligible to participate in the Plan, unless
he or she is an officer or employee of the Company or any subsidiary of the
Company ("Eligible Director").
ARTICLE III. STOCK SUBJECT TO THE PLAN
Section 3.1. Common Stock. The shares that are the subject of options
granted under the Plan shall be the Company's authorized but unissued shares of
Common Stock, without par value ("Stock"). In connection with the issuance of
shares of Stock under the Plan, the Company may utilize shares repurchased in
the open market or otherwise.
Section 3.2. Aggregate Amount. The maximum number of shares of Stock
which may be issued under the Plan and as to which options may be granted shall
be 150,000 shares. Such maximum number of shares shall be subject to adjustment
under Article VIII. If any option shall expire or terminate for any reason
without having been exercised in full, the unpurchased shares subject thereto
shall (unless the Plan shall have terminated) become available for issuance
pursuant to other options under the Plan.
ARTICLE IV. TERMS, CONDITIONS AND FORM OF OPTIONS
Each option granted under this Plan shall be evidenced by a written
agreement which shall be subject to the following terms and conditions:
Section 4.1. Non-Statutory Stock Options. All options granted under the
Plan shall be nonstatutory options, not entitled to special tax treatment under
Section 422 of the Internal Revenue Code of 1986, as amended to date and as may
be further amended from time to time (the "Code").
Section 4.2. Option Grant Dates. Options shall be granted automatically
on the date of the annual meeting of the Company's shareholders ("Annual
Meeting") in 1995, subject to shareholder approval at such meeting, and on the
date of each Annual Meeting thereafter to each Eligible Director who is elected
to serve a term as a director at each such meeting and to each Eligible Director
who is serving as a director for a term that continues after such meeting.
Section 4.3. Number of Option Shares. An option granted to an Eligible
Director on the date of an Annual Meeting shall be an option to acquire 1,000
shares of Stock, subject to adjustment under Article VIII.
Section 4.4. Transferability. Each option granted under the Plan by its
terms shall not be transferable by the director otherwise than by will or by the
laws of descent and distribution or pursuant to a qualified domestic relations
order as defined by the Code or Title I of the Employee Retirement Income
Security Act, or the rules thereunder.
Section 4.5. Vesting and Term of Option. Options become exercisable with
respect to the first 25 percent of the total number of shares subject to the
option on the first anniversary date after the date upon which the options were
granted, and the options shall become exercisable with respect to the second,
third and fourth 25 percent of such shares on the second, third and fourth
anniversaries, respectively, of the date on which the options were granted.
When an option becomes exercisable with respect to any 25 percent installment of
shares, the shares may be purchased at any time, or from time to time, in whole
or in part, until the option term expires; provided, however, that any option
granted pursuant to the Plan shall become exercisable in full upon the death of
the director, the failure of such director to stand for re-election or be re-
elected, or the retirement of such director after serving at least sixty (60)
consecutive months on the Board of Directors. In no event, however, shall any
option become exercisable prior to shareholder approval of the Plan in the
manner prescribed by Reg. Section 16b-3 promulgated under the Securities
Exchange Act of 1934, as amended (the "1934 Act"). Unless terminated earlier in
accordance with the terms of the Plan, each option shall terminate upon the
expiration of ten years after such option was granted.
Section 4.6. Change of Control. In the case of any merger, consolidation
or combination of the Company (other than a merger, consolidation or combination
in which the Company is the continuing entity and which does not result in the
outstanding shares of Stock being converted into or exchanged for different
securities, cash or other property, or any combination thereof), all options
theretofore granted and not fully exercisable shall, subject to the penultimate
sentence of Section 4.5 above, become exercisable on the date that is thirty
(30) days prior to the record or effective date of such merger, consolidation or
combination.
If a tender offer or exchange offer for the Stock (other than such an offer
by the Company) is commenced or if the Company shall set a record date to
approve an agreement providing for a sale or other disposition of all or
substantially all of the assets of the Company, all options theretofore granted
and not fully exercisable shall, subject to the penultimate sentence of Section
4.5 above, become exercisable in full upon the commencement of such tender offer
or thirty (30) days prior to such record date and shall remain so exercisable
for a period of sixty (60) days following such date after which they shall
revert to being exercisable in accordance with their terms.
If any tender offer, exchange offer, or sale or other disposition of all or
substantially all of the assets of the Company results in any director ceasing
to be a director of the Company, then all options theretofore granted and not
fully exercisable shall, subject to the penultimate sentence of Section 4.5
above, automatically become exercisable in full upon the termination of such
person as a director.
Section 4.7. Manner of Exercise. Options may be exercised only by written
notice to the Company, which notice must specify the date of the stock option
and the number of shares of Stock covered by the exercise, accompanied by
payment of the full consideration for the shares as to which they are exercised
and payment of all amounts, if any, that the Company is required to collect and
remit to the Internal Revenue Service or any other taxing authority as a result
of such exercise. Such payment shall be made in one or a combination of the
following alternative forms:
(i) cash (including check, bank draft or money order);
(ii) certificates, duly endorsed or accompanied by appropriate transfer
instruments, representing shares of Stock previously acquired and standing in
the name of the director, with an aggregate fair market value on the date of
exercise that is equal to or less than the option price of the shares covered by
the options being exercised hereunder; or
(iii) by delivering a properly executed exercise notice together with
irrevocable instructions to a broker to deliver promptly to the Company the
total option price in cash.
If the director desires that the shares of Stock be registered in his or
her name and that of another as joint tenants with rights of survivorship, he or
she should so state in the notice. In no case may fewer than one hundred (100)
of such shares be purchased at any one time, except to purchase a residue of
fewer than one hundred (100) shares. An option may not be exercised for a
fractional share.
Section 4.8. Termination of Directorship. All rights of a director in an
option, to the extent that such rights have not been exercised, shall lapse and
be forfeited one (1) year after the termination of his or her services as a
director of the Company or, if earlier, on the original expiration date of the
option. In the case of retirement, whether by reason of disability or age, such
director's option may be exercised within the period set forth above by such
director or his or her legal representative. In the case of death, such
director's option may be exercised within the period set forth above by the
personal representative of the director's estate or by the person or persons to
whom the option is transferred pursuant to the director's will or in accordance
with the laws of descent and distribution.
ARTICLE V. OPTION PRICE
The option price per share for the shares covered by each option shall be
the fair market value (as determined in Article VI) of one (1) share of Stock as
of the date of grant of the option.
ARTICLE VI. VALUATION OF COMMON STOCK
For all valuation purposes under the Plan, the fair market value of a share
of Stock shall be the last reported sale price as of the close of trading
activity on the day for which such fair market value is to be determined, as
reported on the Nasdaq National Market system, or any similar system then in
use, or the principal securities exchange on which the Stock may be listed. If
there is no trade on such day, then the last trade price on the next preceding
day for which there does exist such a trade shall be determinative of fair
market value.
ARTICLE VII. NO RIGHT TO CONTINUE AS A DIRECTOR
Neither the Plan nor the granting of an option nor any other action taken
pursuant to the Plan shall constitute or be evidence of any agreement or
understanding, express or implied, that the Company will retain a director for
any period of time or at any particular rate of compensation.
ARTICLE VIII. ADJUSTMENT TO STOCK
In the event any change is made to the Stock subject to the Plan or subject
to any outstanding option granted under the Plan (whether by reason of merger,
consolidation, reorganization, recapitalization, stock dividend, stock split,
combination of shares, exchange of shares, change in corporate structure or
otherwise), then appropriate adjustments shall be made to the maximum number of
shares that may be the subject of options granted under the Plan and the number
of shares and option price per share of Stock subject to outstanding options.
The grant of options under the Plan shall not affect the right of the Company to
adjust, reclassify, reorganize or otherwise change its capital or business
structure or to merge, consolidate, dissolve, liquidate or sell or transfer all
or any part of its business or assets.
ARTICLE IX. EFFECTIVE DATE
The Plan shall take effect on the date of adoption by the Board of
Directors of the Company, but no shares of Stock shall be issued under the Plan
and no options granted under the Plan shall be exercisable before the Plan is
approved by the holders of at least a majority of the Company's voting stock
present or represented and voting at a duly held meeting at which a quorum is
present or represented. If such shareholder approval is not obtained, then any
options previously granted under the Plan shall terminate and no further options
shall be granted.
ARTICLE X. AMENDMENT OF THE PLAN
The Board of Directors of the Company may suspend or discontinue the Plan or
revise or amend it in any respect whatsoever; provided that the Board shall not,
without the approval of the Company's shareholders (i) materially increase the
number of shares of Stock which may be issued under the Plan (unless necessary
to effect the adjustments required under Article VIII) or other benefits
accruing to participants under the Plan, (ii) materially modify the eligibility
requirements for awards under the Plan, or (iii) make any other change with
respect to which the Board of Directors determines that shareholder approval is
required by applicable law or regulatory standards; nor shall any amendment
adversely affect a director's rights under any option previously granted without
the director's consent. The provisions of this Plan that state or set forth a
formula for determining the amount, price and timing of awards of options and/or
Stock shall not be amended more than once every six (6) months other than to
comport with changes in the Internal Revenue Code, the Employee Retirement
Income Security Act or the rules thereunder.
ARTICLE XI. USE OF PROCEEDS
The cash proceeds received by the Company from the issuance of shares
pursuant to options under the Plan shall be used for general corporate purposes.
ARTICLE XII. COMPLIANCE WITH APPLICABLE LAWS
All transactions pursuant to terms of the Plan, including, without
limitation, awards and vesting of shares of Stock, shall only be effective at
such time as counsel to the Company shall have determined that such transaction
will not violate federal or state securities or other laws or regulations.
ARTICLE XIII. GOVERNING LAW
The Plan and all determinations made and actions taken pursuant hereto
shall be governed by the laws of the State of Texas and construed accordingly.
ARTICLE XIV. SUCCESSORS
The Plan shall be binding upon the successors and assigns of the Company.
APPENDIX
STEWART & STEVENSON SERVICES, INC. NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
2707 North Loop West TO BE HELD JUNE 13, 1995
Houston, Texas 77251-1637
Dear Shareholder:
The Annual Meeting of Shareholders of STEWART & STEVENSON SERVICES, INC. will be
held at 10:00 a.m. on Tuesday, June 13, 1995, in the Texas Commerce Center
Auditorium, 601 Travis Street, Houston, Texas, for the following purposes:
1. Election of four directors to the Board of Directors.
2. Approval of the 1994 Director Stock Option Plan.
3. Amendment of the Second Restated Articles of Incorporation to
increase the authorized common stock of the Company from 50,000,000
shares to 100,000,000 shares, without par value.
4. Amendment of the Second Restated Articles of Incorporation to limit
the personal liability of directors.
5. Ratification of the selection of independent public accountants of
the Company.
Only holders of Common Stock of STEWART & STEVENSON SERVICES, INC. of record at
the close of business on April 25, 1995 will be entitled to vote at the meeting
or any adjournment thereof.
IT IS IMPORTANT THAT YOUR SHARES BE REPRESENTED AT THE MEETING. EVEN IF YOU
PLAN TO ATTEND, WE URGE YOU TO COMPLETE AND SIGN THE PROXY CARD BELOW, DETACH IT
FROM THIS LETTER AND RETURN IT IN THE POSTAGE PAID ENVELOPE ENCLOSED IN THIS
PACKAGE. The giving of such proxy does not affect your right to vote in person
if you attend the meeting. The prompt return of your signed proxy will aid the
Company in reducing the expense of additional proxy solicitation.
BY ORDER OF THE BOARD OF DIRECTORS
/s/ Lawrence E. Wilson
May 5, 1995 LAWRENCE E. WILSON
Vice President, General Counsel and Secretary
DETACH PROXY CARD HERE
STEWART & STEVENSON SERVICES, INC.
ANNUAL MEETING OF SHAREHOLDERS-JUNE 13, 1995
COMMON STOCK PROXY
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby appoints Lawrence E. Wilson and Rita M. Schaulat,
and each of them, the attorneys and proxies of the undersigned (each with power
to act without the other and with power of substitution) to vote, as designated
on the reverse side, all shares of Common Stock, without par value, of Stewart &
Stevenson Services, Inc. which the undersigned may be entitled to vote at the
Annual Meeting of Shareholders to be held at the Texas Commerce Center
Auditorium, 601 Travis Street, Houston, Texas at 10:00 a.m. on the 13th day of
June, 1995 and any adjournments thereof, upon all matters which may properly
come before said Annual Meeting.
THIS PROXY SHALL BE VOTED IN ACCORDANCE WITH THE INSTRUCTIONS MARKED ON THE
REVERSE SIDE HEREOF. IF NO CHOICE IS MARKED, THE UNDERSIGNED GRANTS THE PROXIES
DISCRETIONARY AUTHORITY WITH RESPECT TO THE ELECTION OF DIRECTORS AND PROPOSALS
2, 3, 4 AND 5. UNLESS OTHERWISE SPECIFIED, THIS PROXY WILL BE VOTED FOR THE
ELECTION OF ALL NOMINEES LISTED ON THE REVERSE SIDE AND FOR PROPOSALS 2, 3, 4
AND 5.
ANY PROXY HERETOFORE GIVEN BY THE UNDERSIGNED WITH RESPECT TO SUCH STOCK IS
HEREBY REVOKED. RECEIPT OF THE NOTICE OF THE ANNUAL MEETING, PROXY STATEMENT
AND ANNUAL REPORT TO SHAREHOLDERS IS HEREBY ACKNOWLEDGED.
(Please sign proxy on reverse side and return in enclosed envelope.)
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THE FOLLOWING NOMINEES AND "FOR"
ITEMS 2, 3, 4 AND 5.
<TABLE>
<S> <C> <C> <C>
Election of Directors [ ] FOR all nominees [ ] WITHHOLD AUTHORITY to vote [ ] * EXCEPTIONS
listed below for all nominees
listed below
Nominees: J. Carsey Manning, Donald E. Stevenson, Robert H. Parsley and Robert S. Sullivan
(INSTRUCTIONS: To withhold authority to vote for any individual nominee, mark the "Exceptions"
box and write that nominee's name in the space provided below.)
*EXCEPTIONS ________________________________________________________________________________
</TABLE>
2. Approval of the 1994 Director Stock Option Plan.
FOR [ ] AGAINST [ ] ABSTAIN [ ]
3. Adoption of an Amendment to the Second Restated Articles of Incorporation
authorizing additional Common Stock.
FOR [ ] AGAINST [ ] ABSTAIN [ ]
4. Adoption of an Amendment to the Second Restated Articles of Incorporation
limiting the personal liability of directors.
FOR [ ] AGAINST [ ] ABSTAIN [ ]
5. Approval of Arthur Andersen LLP as independent public accountants of the
Company.
FOR [ ] AGAINST [ ] ABSTAIN [ ]
In their discretion the Proxies are authorized to vote upon such other matters
as may properly come before the meeting or any adjournment or postponement
thereof.
Change of Address or
Comments Mark Here [ ]
The signature on this Proxy should
correspond exactly with shareholder's
name as printed to the left. In the
case of joint tenancies, co-executors,
or co-trustees, both should sign.
Persons signing as Attorney, Executor,
Administrator, Trustee or Guardian
should give their full title.
Dated:____________________, 1995
________________________________
Signature
________________________________
Signature
VOTES MUST BE INDICATED X
(X) IN BLACK OR BLUE INK
(PLEASE SIGN, DATE AND RETURN THIS PROXY IN THE ENCLOSED POSTAGE PAID ENVELOPE.)
