STEWART & STEVENSON SERVICES, INC.
2707 North Loop West
P.O. Box 1637
Houston, Texas 77251-1637
---------------
PROXY STATEMENT FOR ANNUAL MEETING OF SHAREHOLDERS
June 10, 1997, and Adjournments
---------------
Approximate date proxy material first sent to shareholders:
May 9, 1997
SOLICITATION, VOTING AND REVOCABILITY OF PROXIES
The proxy furnished herewith, for use only at the Annual Meeting of
Shareholders to be held June 10, 1997, 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. 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 1996 Director Stock Plan.
3. The approval of the amendment and restatement of the 1988 Nonstatutory
Stock Option Plan.
4. The ratification of Arthur Andersen LLP as the Company's independent
public accountants for the fiscal year ending January 31, 1998.
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 a nominee.
The approval of the 1996 Director Stock Plan, the approval of the
amendment and restatement of the 1988 Nonstatutory Stock Option 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.
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 23, 1997, the record date for the
Annual Meeting, the Company had outstanding 33,190,460 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 Third
Restated Articles of Incorporation. Shareholders of record at the close of
business on April 23, 1997 are entitled to vote at or 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, 1997 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 Percent
Name of Voting Voting Investment Investment Beneficial Of
Individual or Group Power Power Power Power Ownership Class
------------------- ----- ----- ----- ----- --------- -----
<S> <C> <C> <C> <C> <C> <C>
5% SHAREHOLDERS
FMR Corporation
82 Devonshire Street
Boston, MA 02109........................ 229,100 -0- 4,264,400 -0- 4,264,400 12.9
Pioneering Management Corporation
60 State Street
Boston, MA 02109........................ 2,164,000 -0- 200,000 1,964,000 2,164,000 6.6
INDIVIDUAL DIRECTORS AND NOMINEES
C. Jim Stewart II .................... 403,263 251,425 423,263 231,425 654,938 (1) 2.0
J.Carsey Manning............................ 600 -0- 600 -0- 850 (1) *
Donald E. Stevenson ........................ 545,204 940 546,144 -0- 549,694 (2) 1.7
Robert H. Parsley........................... 2,248 -0- 2,248 -0- 2,498 (1) *
Jack W. Lander, Jr.......................... 6,000 -0- 6,000 -0- 6,250 (1) *
Robert L. Hargrave.......................... 40,463 -0- 40,463 -0- 69,963 (3) *
Bob H. O'Neal............................... 34,569 -0- 34,569 -0- 79,569 (4) *
Jack T.Currie............................... 6,000 -0- 6,000 -0- 6,250 (1) *
Robert S. Sullivan.......................... 100 -0- 100 -0- 350 (1) *
Richard R. Stewart.......................... 133,166 5,335 138,466 35 171,626 (5) *
Orson C Clay................................ 3,000 -0- 3,000 -0- 3,250 (1) *
Brian H. Rowe............................... 2,900 -0- 2,900 -0- 3,150 (1) *
NON-DIRECTOR EXECUTIVE OFFICERS
Garth C. Bates, Jr.......................... 70,555 12,126 82,681 -0- 109,181 (6) *
C. LaRoy Hammer............................. 30,500 -0- 30,500 -0- 56,500 (7) *
ALL DIRECTORS AND EXECUTIVE
OFFICERS
(19 Persons)................................ 2,403,739 275,261 2,447,405 231,595 2,926,750 (8) 8.8
</TABLE>
*Less than 1%
(1) Includes options to purchase 250 shares of Common Stock.
(2) Includes options to purchase 3,550 shares of Common Stock.
(3) Includes options to purchase 29,500 shares of Common Stock.
(4) Includes options to purchase 45,000 shares of Common Stock.
(5) Includes options to purchase 33,125 shares of Common Stock.
(6) Includes options to purchase 26,500 shares of Common Stock.
(7) Includes options to purchase 26,000 shares of Common Stock.
(8) Includes options to purchase 246,000 shares of Common Stock.
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 Annual Meeting to serve as directors
until 2000. 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 2000.
<TABLE>
<CAPTION>
NOMINEES FOR DIRECTORS WHOSE TERM EXPIRES IN 2000
Director
Name and Principal Occupation Age Since
- ----------------------------------------------------------------------------------------- --- --------
<S> <C> <C>
C. JIM STEWART II(1)(4)......................................................... 71 1955
Chairman of the Board of the Company. Retired Chief Executive Officer
of the Company.
JACK W. LANDER, JR.(2)(3)(4).................................................... 71 1982
Chairman of the Board of Merchants Bancshares, Inc. and Chairman of the
Board and director for its holding company, Gulf Southwest Bancorp,
Inc., in Houston, Texas.
BOB H. O'NEAL................................................................... 62 1988
President* of the Company. Director of Lufkin Industries, Inc. of Lufkin,
Texas.
JACK T. CURRIE(3)(4)............................................................ 68 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 American National Triflex Fund, Inc.
*Administrative Leave. See Litigation Involving Directors.
</TABLE>
<TABLE>
<CAPTION>
DIRECTORS WHOSE TERM EXPIRES IN 1998
Director
Name and Principal Occupation Age Since
- ----------------------------------------------------------------------------------------- --- --------
<S> <C> <C>
J. CARSEY MANNING............................................................... 71 1973
Retired Senior Vice President of the Company.
DONALD E. STEVENSON(1)(4)....................................................... 53 1975
Vice President of the Company.
ROBERT H. PARSLEY(1)(3)(4)...................................................... 74 1976
Of Counsel to Butler & Binion, L.L.P., attorneys in Houston, Texas.
ROBERT S. SULLIVAN(2)(3)........................................................ 53 1992
Director, IC2 Institute, The University of Texas at Austin, Austin,
Texas. Previously, Dean of Graduate School of Industrial Administration,
Carnegie Mellon University, Pittsburgh, Pennsylvania.
</TABLE>
<TABLE>
<CAPTION>
DIRECTORS WHOSE TERM WILL EXPIRE IN 1999
Director
Name and Principal Occupation Age Since
- ----------------------------------------------------------------------------------------- --- --------
<S> <C> <C>
ROBERT L. HARGRAVE(1)........................................................... 56 1984
Chief Executive Officer, Chief Financial Officer and Treasurer of the
Company.
RICHARD R. STEWART(1)........................................................... 47 1994
Group Vice President of the Company.
ORSON C CLAY(2)................................................................. 66 1994
Retired President of American National Insurance Co., a diversified life
insurance company in Galveston, Texas.
BRIAN H. ROWE(2)................................................................ 65 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; Atlas Air, Inc. of
Golden, Colorado; B/E Aerospace, Inc. of Wellington, Florida; Textron, Inc.
of Providence, Rhode Island; Canadian Marconi Company of Montreal,
Quebec and Cincinnati Bell Inc. of Cincinnati, Ohio.
</TABLE>
- ---------------
(1) Member of Executive Committee.
(2) Member of Compensation and Management Development Committee.
(3) Member of Audit Committee.
(4) Member of Nominating Committee.
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 1994
Annual Meeting.
Meetings and Committees of the Board of Directors
The Board of Directors held eight meetings during the fiscal year ended
January 31, 1997 ("Fiscal 1996"). During Fiscal 1996, no director other than Mr.
Brian H. Rowe and Mr. Bob H. O'Neal 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). Mr. Bob H. O'Neal was placed on administrative leave by the
Company. See Litigation Involving Directors.
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, including the Company's Business Practices Program. 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 five meetings during Fiscal 1996.
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 four meetings
during Fiscal 1996.
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 one
meeting during Fiscal 1996.
Compensation Committee Interlocks and Insider Participation
No person serving on the Compensation and Management Development
Committee during Fiscal 1996 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 1996 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.
Orson C Clay, Jack W. Lander, Jr., Brian H. Rowe and Robert S. Sullivan.
Compensation of Directors
During Fiscal 1996, 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. Accrual of benefits under this retirement plan will terminate after
the 1997 Annual Meeting.
During Fiscal 1996, each director who was not an officer or employee of
the Company participated in the 1994 Director Stock Option Plan (the "1994
Plan"). Under the 1994 Plan, such directors received options to purchase 1,000
shares of the Company's Common Stock on the date of the Annual Meeting in 1996.
The options were granted at the closing price on the date of grant and will
become exercisable in four equal annual installments commencing on the first
anniversary of the grant. All options granted under the 1994 Plan expire on the
tenth anniversary of their grant. The Board of Directors amended the 1994 Plan
effective as of January 31, 1997, so that no future options may be granted
thereunder.
If approved by the shareholders of the Company, each director who is
not an officer or employee of the Company will participate in the 1996 Director
Stock Plan (the "1996 Plan"). Under the 1996 Plan, such directors will receive,
on the date of each Annual Meeting of Shareholders, (i) the number of shares of
the Company's Common Stock determined by dividing (A) the sum of $12,000 by (B)
the fair market value of a share of the Company's Common Stock, and (ii) options
to purchase 1,000 shares of the Company's Common Stock. The options will become
exercisable on the first anniversary of the grant and will expire on the tenth
anniversary of the grant.
Litigation Involving Directors
On May 3, 1995, an indictment was returned by a federal Grand Jury in
Houston, Texas, accusing the Company, Mr. Bob H. O'Neal and three other
employees of one count of major fraud against the United States, four counts of
false statements and one count of conspiracy to commit major fraud, make false
statements and interfere with the administration of a foreign military sale. All
of the counts arise from a 1987 subcontract to supply diesel generator sets for
installation at long-range radar sites in Saudi Arabia (the "Peace Shield"). The
indictment alleges that a former employee of the general contractor for the
Peace Shield program, who later became a consultant to the Company, conspired
with the Company and the other defendants to award the subcontract to the
Company. The indictment also alleges that the government was defrauded out of
approximately $5,000,000 in connection with cost savings from a change order
under the Peace Shield contract and that the Company made false statements
relating to cost estimates in connection with such change order. The Company,
Mr. O'Neal and each individual have denied all charges under the indictment and
the case is pending in the United States District Court, Southern District of
Texas, Houston Division.
On May 12, 1995, the U.S. Air Force suspended the Company and Mr.
O'Neal from contracting with any agency of the U.S. Government and from
receiving the benefit of federal assistance programs. The suspension with
respect to the Company was temporarily terminated on November 8, 1995, pending
the resolution of the charges covered by the indictment pursuant to an Interim
Administrative Agreement between the Company and the U.S. Air Force. The Interim
Administrative Agreement does not have any effect on the indictment or the
suspension of Mr. O'Neal.
Pending the resolution of the indictment, the Board of Directors of the
Company placed all of the indicted individuals, including Mr. O'Neal, on
administrative leave. Pursuant to the terms of the administrative leave, such
employees continue to receive their salaries and employment benefits but have no
communication with the Company regarding the Company's business.
1996 DIRECTOR STOCK PLAN
On August 27, 1996, the Board of Directors adopted the Stewart &
Stevenson Services, Inc. 1996 Director Stock Plan (the "1996 Plan"), subject to
the approval thereof by the shareholders of the Company. The 1996 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 1996 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 1996 Plan set forth below is
qualified in its entirety by reference to the 1996 Plan, a copy of which is
included as Exhibit "A" to these proxy materials.
Director Stock Awards; Grant of Options; Eligibility
On the date of each Annual Meeting of Shareholders, the 1996 Plan
provides for the award and issue to each eligible director who is elected to
serve as a director at, or whose term as director continues after, such meeting,
the number of shares of the Company's Common Stock determined by dividing (i)
the sum of $12,000 by (ii) the fair market value of a share of the Company's
Common Stock on the date of such meeting.
Also on the date of each Annual Meeting of Shareholders, the 1996 Plan
provides for the automatic grant of options to purchase 1,000 shares of the
Company's Common Stock 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 date of grant is eligible to participate in the 1996
Plan. On the date hereof, there are eight persons eligible to participate in the
1996 Plan.
Description of Options
Options granted pursuant to the 1996 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 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 1996 Plan terminate on the tenth anniversary of the date of
grant or one year after 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 1996 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 1996 Plan at
any time. However, no such amendment, suspension or termination will affect any
outstanding option without the holder's consent.
The following table sets forth the benefits that will be received by
each of the persons or groups set forth therein under the 1996 Plan if approved
by the shareholders.
<TABLE>
<CAPTION>
NEW PLAN BENEFITS
1996 DIRECTOR STOCK PLAN
- --------------------------------------------------------------------------------------------
Number of
Name and Position Dollar Value ($) Options
----------------- --------------- ---------
<S> <C> <C>
Robert L. Hargrave
Chief Executive Officer,
Chief Financial Officer & Treasurer . . . . . . . . . $ 0 -0-
Bob H. O'Neal
President * . . . . . . . . . . . . . . . . . . . . . 0 -0-
Richard R. Stewart
Group Vice President (Engineered Power Systems) . . . 0 -0-
Garth C. Bates, Jr.
Group Vice President (Distribution) . . . . . . . . . 0 -0-
C. LaRoy Hammer
Group Vice President (Tactical Vehicle Systems) . . . 0 -0-
All Executive Officers as a group . . . . . . . . . . . 0 -0-
All Non-executive Directors as a group . . . . . . . . 96,000 8,000
All Non-executive Officer Employees as a group . . . . 0 -0-
*Administrative Leave. See Litigation Involving
Directors.
</TABLE>
AMENDMENT AND RESTATEMENT OF 1988 NONSTATUTORY STOCK OPTION PLAN
On April 8, 1997, the Board of Directors approved the amendment and
restatement of the Stewart & Stevenson Services, Inc. 1988 Nonstatutory Stock
Option Plan (the "Existing 1988 Plan", and as amended and restated, the "Amended
and Restated 1988 Plan"), subject to the approval thereof by the shareholders of
the Company. The purpose of the Amended and Restated 1988 Plan is to increase
the aggregate number of shares available thereunder and to continue providing a
means by which the Company may, by granting options to purchase Common Stock,
attract and retain talented employees, including officers, and motivate such
employees to exert their best efforts on behalf of the Company. The Board of
Directors recommends that the Amended and Restated 1988 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 Amended and Restated 1988 Plan set forth
below is qualified in its entirety by reference to the 1988 Plan, a copy of
which is included as Exhibit "B" to these proxy materials.
Description of Options
The Existing 1988 Plan originally authorized the granting of options to
purchase an aggregate of up to 1,800,000 shares of Common Stock (taking into
account stock splits and stock dividends). However, only 91,600 shares remain
available for grant thereunder. The Amended and Restated 1988 Plan will
authorize the grant from time to time of options to purchase an aggregate of up
to 1,500,000 shares of Common Stock, subject to adjustment as set forth therein
for stock splits, stock dividends and other similar changes. The terms of such
options, including the option period, the option price and the exercise period,
are to be determined on the date of grant.
Administration of the Amended and Restated 1988 Plan
The Amended and Restated 1988 Plan will be administered by a committee
(the "Committee") appointed by the Board of Directors, and the Committee shall
be comprised solely of two or more directors who are (i) outside directors
(within the meaning of section 162(m) of the Internal Revenue Code of 1986, as
amended), and (ii) non-employee directors (within the meaning of Rule 16b-3
under the Securities Exchange Act of 1934). The Committee may interpret the
Amended and Restated 1988 Plan, determine and designate from time to time the
persons to whom options are to be granted and the number of shares of Common
Stock to be covered thereby (which shall not exceed 200,000 shares for any one
employee), and establish the date and manner in which any
option is exercisable. The exercise price shall be equal to the last
transaction price reported by the National Association of Securities Dealers
Automated Quotation, National Market System on the date of grant.
Limited Stock Appreciation Rights
The Committee may, but is not required to, grant limited stock
appreciation rights in conjunction with any option. Such limited stock
appreciation rights may be exercised only if the fair market value of the Common
Stock on the date of exercise is in excess of the option price contained in the
option to which it is attached and only if the holder is an officer, director or
the owner of 5% of the outstanding common Stock on the date of exercise.
Federal Income Tax Consequences
The options are not intended to qualify as "incentive stock options" as
defined by Section 422A of the Internal Revenue Code of 1986, as amended. The
grant of an option under the Amended and Restated 1988 Plan will not result in
taxable income to the recipient or a deduction to the Company on the date of
grant. The holder will be deemed to have received taxable income and the Company
will be entitled to a deduction in the amount of any difference between the
market price and the exercise price under the option at the time it is
exercised. The holder's tax obligation may be paid by additional withholding
from salary, direct payment to the Company of the tax obligation or a reduction
in the number of shares delivered.
Amendments
The Board of Directors may amend or terminate the Amended and Restated
1988 Plan at any time. However, no such amendment or termination will affect any
outstanding option without the holder's consent.
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, 1998. 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 Annual 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, 1998
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 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, 1992 and that all dividends
were reinvested.
[Performance Graph]
<TABLE>
<CAPTION>
Year Ended January 31,
<S> <C> <C> <C> <C> <C> <C>
1992 1993 1994 1995 1996 1997
---- ---- ---- ---- ---- ----
Stewart & Stevenson Services, Inc. 100 126 169 111 89 91
S&P Machinery - Diversified Index 100 108 155 144 190 226
S&P 500 Stock Index 100 111 125 125 174 220
</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 four independent, non-employee directors
who have no "interlocking" relationships as defined by the Securities and
Exchange Commission. The Committee reviews and recommends all salary
arrangements and other executive compensation for approval by the independent
members of the Board of Directors, approves the design of executive compensation
programs, administers such programs and assesses their effectiveness in
supporting the Company's compensation policies. The Committee also 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 contribution of each executive
to the Company's performance.
To focus management on the achievement of both short-term performance
goals and the long-term interests of shareholders, a significant
portion of each executive's total compensation should consist of
"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.
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 and market capitalization. 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, each of which is
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, 1997 ("Fiscal 1996"), Mr.
Bob H. O'Neal, the Company's President, was on administrative leave as a result
of an indictment in connection with a 1987 contract to supply diesel generators.
See Litigation Involving Directors. Mr. Robert L. Hargrave, the Company's Chief
Financial Officer, assumed the additional responsibilities of Chief Executive
Offer. Mr. O'Neal's total compensation was substantially below the median total
compensation of the Presidents within the comparator group because the Committee
deferred any action on salary increases, annual incentives, and long-term
incentives until such time as the charges under the indictment are resolved. The
total compensation paid by the Company to Mr. Hargrave reflects his assumption
of the additional duties of Chief Executive Officer but was below the median
level of the Chief Financial Officers in the comparator group primarily because
annual incentives were affected by the financial performance of the Company.
Total compensation paid to other executive officers was also below the median
compensation of similar positions as a result of reduced annual incentives. The
Committee considers the total compensation paid to Mr. O'Neal, Mr. Hargrave and
the other executives to be within the acceptable competitive range for each
position.
Base Salary
Base salary levels are generally 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 1996 were
generally 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. No change was made to Mr. O'Neal's base salary in Fiscal 1996
because of his status on administrative leave. In determining Mr. Hargrave's
base salary in Fiscal 1996, the Committee considered his long-term contributions
to the success of the Company and the comparison of his base salary to the base
salaries of the Chief Financial Officers within the comparator group. The
Committee did not consider the assumption of the additional duties of Chief
Executive Officer by Mr. Hargrave in establishing his base salary.
Annual Incentives
The Company provides an annual bonus opportunity to executives. Annual
bonuses motivate executives to maximize short-term performance as a part of
achieving long-term goals. In addition, bonus payments are used to compensate
executives for the lower than median base salaries and provide a competitive
total annual compensation.
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 1996 were
substantially less than payments approved in the prior year because the
performance of the Company, as measured by return on capital, return on sales
and return on equity, declined compared to the prior year and were below those
achieved by other companies in the same industries. The bonus payments to
certain officers were further affected, either positively or negatively, based
on whether sales, costs and profitability goals for individual profit and cost
centers were met. The Committee has deferred all action on the bonus, if any, to
be paid by the Company to Mr. O'Neal because of his status on administrative
leave. Mr. Hargrave's bonus reflects his assumption of the additional duties of
Chief Executive Officer but is substantially below the median bonus paid by the
comparator group to the Chief Financial Officers because of the performance of
the Company in comparison to other companies in the same industry.
Consistent with the Committee's goal of providing competitive
compensation levels with a significant level of "at-risk" compensation, the sum
of base salaries and annual incentives paid to the executives of the Company was
below the median annual compensation paid to similar positions by the comparator
group but was considered by the Committee to be within the acceptable
competitive range for each position.
Long-Term Incentives
In keeping with the Company's philosophy of providing a total
compensation package favoring "at-risk" components of pay, long-term incentives
comprise a significant portion of each executive's total compensation package.
Long-term incentives during Fiscal 1996 consisted exclusively of stock options
pursuant to the Stewart & Stevenson 1988 Nonstatutory Stock Option Plan. Stock
options under this plan 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. The design of these stock options focuses executives on the
creation of shareholder value over the long term and encourages equity ownership
in the Company.
The size of award to each executive 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 long-term benefit based
on the dollar value of the options granted. As a result, the number of shares
underlying stock option awards varies from year to year and is dependent on the
stock price on the date of grant.
No stock options were awarded to Mr. O'Neal during Fiscal 1996 because
of his status on administrative leave. The dollar value of the stock options
granted to Mr. Hargrave and the other officers of the Company during Fiscal 1996
was substantially below the median value of long-term incentives granted to
similar positions by the comparator group.
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
interest 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. The
Committee 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
Orson C Clay - Chairman
Jack W. Lander, Jr.
Robert S. Sullivan
Brian H. Rowe
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 1996 Annual Meeting of
Shareholders, except for Mr. Jay C. Manning who was elected as a Vice President
on December 10, 1996. The term of each executive officer will expire at the
meeting of directors following the 1997 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>
Robert L. Hargrave...................... 56 Chief Executive Officer, Chief Financial Officer & 1981
Treasurer
Bob H. O'Neal........................... 62 President* 1980
Richard R. Stewart ..................... 47 Group Vice President (Engineered Power Systems) 1986
Garth C. Bates, Jr...................... 48 Group Vice President (Distribution) 1991
C. LaRoy Hammer......................... 60 Group Vice President (Tactical Vehicle Systems) 1980
T. Michael Andrews...................... 56 Vice President 1982
Jay C. Manning.......................... 40 Vice President 1996
Donald E. Stevenson..................... 53 Vice President 1984
Keith T. Stevenson...................... 50 Vice President 1986
C. Jim Stewart III...................... 48 Vice President 1988
Lawrence E. Wilson...................... 44 Vice President and Secretary 1989
* Administrative Leave. See Litigation Involving Directors.
</TABLE>
Each of the officers listed above, except Mr. Jay C. Manning, has been
employed by the Company in an executive capacity for more than five years. Jay
C. Manning was elected as a Vice President of the Company in 1996. He previously
served as a Vice President of Stewart & Stevenson International, Inc., a
subsidiary of the Company, from 1994 to 1996, and as an International Sales
Manager from 1992 to 1994.
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. Jay C. Manning is the son of
Mr. J. Carsey Manning, a director of the Company.
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
Annual Other
Name and Year ended Compen- Options LTIP Compen-
Principal Position January 31 Salary Bonus sation Granted Payout sation(2)
------------------ ---------- ------ ----- -------- ------- ------ ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Robert L. Hargrave......... 1997 $ 234,169 $ 150,000 (1) 20,000 -0- $ 1,066
Chief Executive Officer, 1996 207,115 200,000 (1) 14,000 -0- 842
Chief Financial Officer & 1995 184,885 145,000 (1) 10,000 -0- 832
Treasurer
Bob H. O'Neal.............. 1997 368,000 -0- (1) -0- -0- 3,708 (3)
President* 1996 367,308 -0- (1) 30,000 -0- 3,589 (4)
1995 348,846 320,000 (1) 20,000 -0- 3,542 (5)
Richard R. Stewart......... 1997 259,353 85,000 (1) 20,000 -0- 3,663 (6)
Group Vice President 1996 238,115 170,000 (1) 17,500 -0- 976
(Engineered Power Systems) 1995 215,631 220,000 (1) 12,500 -0- 955
Garth C. Bates, Jr......... 1997 234,108 120,000 (1) 18,000 -0- 935
Group Vice President 1996 205,000 150,000 (1) 14,000 -0- 825
(Distribution) 1995 179,539 155,000 (1) 10,000 -0- 3,072 (7)
C. LaRoy Hammer............ 1997 224,169 70,000 (1) 16,000 -0- 896
Group Vice President 1996 197,308 130,000 (1) 14,000 -0- 811
(Tactical Vehicle Systems) 1995 179,654 125,000 (1) 10,000 -0- 792
* Administrative Leave. See Litigation Involving Directors.
- ---------------
</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 during the fiscal year ended January
31, 1997 consists of term life insurance premiums of $1,479 and
contributions by the Company to a defined contribution pension plan of
$2,229.
(4) Other Compensation for Mr. O'Neal during the fiscal year ended January
31, 1996 consists of term life insurance premiums of $1,550 and
contributions by the Company to a defined contribution pension plan of
$2,039.
(5) Other Compensation for Mr. O'Neal during the fiscal year ended January
31, 1995 consists of term life insurance premiums of $1,445 and
contributions by the Company to a defined contribution pension plan of
$2,079.
(6) Other Compensation for Mr. Stewart during the fiscal year ended January
31, 1997 consists of term life insurance premiums of $1,038 and
contributions by the Company to a defined contribution pension plan of
$2,625.
(7) Other Compensation for Mr. Bates during the fiscal year ended January
31, 1995 consists of term life insurance premiums of $785 and
contributions by the Company to a defined contribution pension plan of
$2,287.
Grants and Exercises of Stock Options and Stock Appreciation Rights
The Company has four stock option plans. The 1988 Nonstatutory Stock
Option Plan (the "1988 Plan") authorizes the grant of options to employees,
including officers, to purchase shares of Common Stock and provides that limited
stock appreciation rights may be granted in connection with such options. The
1988 Plan only has 91,600 shares remaining available for grant thereunder. If
the amendment and restatement of the 1988 Plan is approved by the shareholders
of the Company, it will authorize the grant of options to employees, including
officers, to purchase an aggregate of up to 1,500,000 shares of Common Stock and
will provide 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 984,950 shares of Common Stock. Stock
appreciation rights may not be granted under the 1993 Plan. The 1994 Director
Stock Option Plan (the "1994 Plan") authorizes the grant of options to directors
other than officers or employees of the Company to purchase an aggregate of up
to 150,000 shares of Common Stock, but the 1994 Plan has been amended by the
Board of Directors so that options may no longer be granted thereunder. If
approved by the shareholders of the Company, the 1996 Director Stock Plan (the
"1996 Plan") will authorize the grant of options to directors other than
officers or employees of the Company.
The recipients and terms of options granted pursuant to the 1988 Plan
and the 1993 Plan 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 such plans. Under the 1996 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 a director continues after,
such meeting.
During Fiscal 1996, the Company granted options to purchase an
aggregate of (i) 108,000 shares of Common Stock under the 1988 Plan, (ii)
227,800 shares of Common Stock under the 1993 Plan and (iii) 8,000 shares of
Common Stock under the 1994 Plan. No limited stock appreciation rights were
granted under the 1988 Plan during Fiscal 1996 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 1996 and the value of all
outstanding options owned as of January 31, 1997 by the individuals named in the
Summary Compensation Table.
<TABLE>
<CAPTION>
OPTION/SAR GRANTS DURING FISCAL 1996
Potential Realizable Value
at
Assumed Annual Rates of
Individual Grants Stock Price Appreciation
for Option Term
---------------------------------------------- ------------------------
% of Total Exercise
Options Price
Options Granted to per Expiration
Name Granted (1) Employees share (2) Date 5% 10%
----- ----------- --------- --------- ---- -- ---
<S> <C> <C> <C> <C> <C> <C>
Robert L. Hargrave....... 20,000 6.0 $ 24.25 03/11/06 $ 305,014 $ 772,965
Bob H. O'Neal............ -0- 0.0 N/A N/A N/A N/A
Richard R. Stewart....... 20,000 6.0 24.25 03/11/06 305,014 772,965
Garth C. Bates, Jr....... 18,000 5.4 24.25 03/11/06 274,513 695,669
C. LaRoy Hammer.......... 16,000 4.8 24.25 03/11/06 244,011 618,372
All Employees, including
officers................ 335,800 100.0 24.25 03/11/06 5,121,183 12,978,084
- ---------------
(1) All options become exercisable in four 25% cumulative annual
installments commencing on March 11, 1997.
(2) All options are exercisable at the closing market price on the date of
grant.
</TABLE>
<TABLE>
<CAPTION>
OPTION/SAR EXERCISES DURING FISCAL 1996
AND YEAR-END VALUES
Number of Unexercised Value of Unexercised In-the-
Options at Money Options at
January 31, 1997 January 31, 1997
----------------------- ------------------------
Shares
Acquired Value
Name on Exercise Realized Exercisable Unexercisable Exercisable Unexercisable
---- -------- -------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Robert L. Hargrave........ 10,000 $ 100,000 16,000 38,000 $ -0- $ 12,500
Bob H. O'Neal............. 15,000 150,000 28,750 36,250 -0- -0-
Richard R. Stewart........ 10,000 102,500 18,125 41,875 -0- 12,500
Garth C. Bates, Jr........ -0- N/A 13,500 36,000 -0- 11,250
C. LaRoy Hammer........... -0- N/A 16,000 31,500 15,313 10,000
All Employees, including
officers.................. 71,500 689,313 414,917 720,083 502,250 207,000
</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 consecutive
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 $125,000 per year in 1996.
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
highest consecutive five-year average 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 (1)
Years of Service
------------------------------------------------------------------------
Final Average Compensation 20 25 30 35 40 45
-------------------------- -- -- -- -- -- --
<S> <C> <C> <C> <C> <C> <C>
$100,000...................... $ 25,144 $ 31,430 $ 37,715 $ 44,407 $ 51,907 $ 59,407
200,000....................... 55,144 68,960 82,715 96,907 111,907 126,907
300,000....................... 85,144 106,430 127,715 149,407 171,907 194,407
400,000....................... 115,144 143,930 172,715 201,907 231,907 261,907
500,000....................... 145,144 181,430 217,715 254,407 291,907 329,407
600,000....................... 175,144 218,930 262,715 306,907 351,907 396,907
700,000....................... 205,144 256,430 307,715 359,407 411,907 464,407
800,000....................... 235,144 293,930 352,715 411,907 471,907 531,907
900,000....................... 265,144 331,430 397,715 464,407 531,907 599,407
1,000,000..................... 295,144 368,930 442,715 516,907 591,907 666,907
- ---------------
(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.
</TABLE>
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 consecutive 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>
Robert L. Hargrave............ 29 $ 353,561 $ 191,600
Bob H. O'Neal................. 32 545,727 317,200
Richard R. Stewart............ 25 423,882 210,000
Garth C. Bates, Jr............ 26 321,191 180,200
C. LaRoy Hammer............... 39 326,361 180,600
</TABLE>
TRANSACTIONS WITH MANAGEMENT AND CERTAIN BUSINESS RELATIONSHIPS
The Company continues to lease certain land and buildings from Mr.
Miles McInnis, a former officer and director of the Company, and Mrs. Faye
Manning Totsch, Mr. J. Carsey Manning's mother, for $6,500 per month under a
lease which will expire April 14, 2002. The Board of Directors believes that the
term of this lease has 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.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
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 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, Messrs. Jay C. Manning, Richard R. Stewart and C. Jim
Stewart II each failed to file a report with respect to one transaction on a
timely basis. Mr. C. Jim Stewart III failed to file a report with respect to two
transactions on a timely basis.
FORM 10-K FOR FISCAL 1996
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 1998 ANNUAL MEETING
Shareholders may submit proposals for the 1998 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 1998 Annual Meeting,
such proposals should be received by the Company on or before January 13, 1998.
By Order of the Board of Directors,
LAWRENCE E. WILSON
Vice President, Secretary and
General Counsel
Dated: Houston, Texas
May 9, 1997
EXHIBIT A
STEWART & STEVENSON SERVICES, INC.
1996 DIRECTOR STOCK PLAN
ARTICLE I. PURPOSE
The purpose of this 1996 Director Stock 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
The shares that are the subject of Director Stock Awards and 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.
ARTICLE IV. DIRECTOR STOCK AWARDS
On the date of each annual meeting of the Company's shareholders
("Annual Meeting") after the Effective Date of the Plan, the Company will,
without cost to the recipient and without the exercise of the discretion of any
person or persons, award and issue 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, that
number of shares of Stock (rounded down to the nearest whole share) determined
by dividing (i) the sum of $12,000 by (ii) the fair market value (as determined
in Article VII) of a share of Stock on the date of such meeting. With respect to
each Stock Award, the Eligible Director shall pay to the Company 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 award.
ARTICLE V. TERMS, CONDITIONS AND FORM OF OPTIONS
Section 5.1 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 5.2 Option Grant Dates. On the date of each Annual Meeting after
the Effective Date of the Plan, the Company will, without cost to the recipient
and without the exercise of the discretion of any person or persons, grant to
each Eligible Director who is elected to serve a term as a director at such
meeting and to each Eligible Director who is serving as a director for a term
that continues after such meeting, an option to acquire 1,000 shares of Stock at
an exercise price determined in accordance with Article VI and subject to
adjustment under Article IX.
Section 5.3 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 domestic relations order as
defined by the Code or Title I of the Employee Retirement Income Security Act,
or the rules thereunder.
Section 5.4 Vesting and Term of Option. Options become exercisable on the
first anniversary date after the date upon which the options were granted. When
an option becomes exercisable, 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 60 consecutive months on the Board of Directors. 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 5.5 Change of Control. In the case of any merger, exchange of
shares, consolidation or combination of the Company (other than a transaction in
which the holders of Stock in the Company immediately prior to the consummation
thereof own 50% or more of the voting securities eligible to vote for the
election of directors of the surviving entity immediately after the consummation
of such transaction) all options theretofore granted and not fully exercisable
shall become exercisable on the date that is 30 days prior to the record or
effective date of such merger, exchange of shares, 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 become exercisable in full upon the commencement
of such tender offer or 30 days prior to such record date and shall remain so
exercisable for a period of 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 automatically become exercisable in full upon the
termination of such person as a director.
Section 5.6 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 100 of such
shares be purchased at any one time, except to purchase a residue of fewer than
100 shares. An option may not be exercised for a fractional share.
Section 5.7 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 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 person to whom the
option is transferred pursuant to the director's will or in accordance with the
laws of descent and distribution.
ARTICLE VI. OPTION PRICE
The option price per share for the shares covered by each option shall be
the fair market value (as determined in Article VII) of one share of Stock as of
the date of grant of the option.
ARTICLE VII. VALUATION OF 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 is listed on such
date. 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 VIII. NO RIGHT TO CONTINUE AS A DIRECTOR
Neither the Plan nor the granting of Stock or 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 IX. 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,
exchange of shares, 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 number of shares and option price per share of Stock subject to outstanding
options. The grant of Stock or 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 X. EFFECTIVE DATE
The Plan shall take effect on the date of the first Annual Meeting after
the adoption of the Plan by the Board of Directors of the Company.
ARTICLE XI. 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 no such amendment
shall adversely affect a director's rights under any Stock previously issued or
option previously granted without the director's consent.
ARTICLE XII. 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 XIII. COMPLIANCE WITH APPLICABLE LAWS
All transactions pursuant to terms of the Plan, including, without
limitation, grants of Stock and grants and vesting of options, 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 XIV. 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 XV. SUCCESSORS
The Plan shall be binding upon the successors and assigns of the Company.
DIRECTOR NON-STATUTORY STOCK OPTION
This stock option ("Stock Option") has been granted this _____ day of
_______________, 199__, by STEWART & STEVENSON SERVICES, INC., a Texas
corporation, with its principal office in Houston, Texas ("Company"), to
_____________________________________ ("Optionee"), an Eligible Director under
the Company's 1996 Director Stock Plan ("Plan"). The Optionee is entitled to
purchase 1,000 shares of the Company's common stock, nor par value, at an option
price of $__________ per share, pursuant to the Plan as in effect on the date
hereof, the terms of which are incorporated herein by reference and are hereby
made a part of this Stock Option, and a copy of which has been given to
Optionee.
STEWART & STEVENSON SERVICES, INC.
By:________________________________
Name:__________________________
Title:_________________________
"Company"
Agreed and Accepted by:
________________________________
Name:___________________________
"Optionee"
EXHIBIT B
STEWART & STEVENSON SERVICES, INC.
1988 NONSTATUTORY STOCK OPTION PLAN
(as amended and restated effective as of June 10, 1997)
(the "Plan")
1. Purpose of the Plan. The purpose of this Plan is to provide a means
whereby Stewart & Stevenson Services, Inc., a Texas corporation (the "Company")
may, through the grant of nonstatutory stock options to Employees, (as defined
below) attract and retain persons of ability as employees and motivate such
employees to exert their best efforts on behalf of the Company. The term
"Employees" means employees (including officers and directors who are also
employees) of the Company or any of its subsidiaries. The term "option" as used
herein means the right to purchase Common Stock, without par value, of the
Company (the "Stock") under this Plan. The Plan as set forth herein constitutes
an amendment and restatement of the Plan as previously adopted by the Company,
and shall supersede and replace in its entirety such previously adopted plan.
This amendment and restatement of the Plan shall be effective as of June 10,
1997, provided this amendment and restatement of the Plan is approved by the
stockholders of the Company on such date at the Company's 1997 Annual Meeting of
Stockholders. If this amendment and restatement of the Plan is not so approved
by the stockholders, then no options shall be granted under the Plan on or after
June 10, 1997.
2. Number of shares available to the Plan. Options may be granted by
the Company from time to time to Employees to purchase an aggregate of up to
1,500,000 shares of Stock, and such amounts of shares shall be reserved for
options granted under the Plan, subject to adjustment as provided in subsection
5(i). The shares issued upon exercise of options granted under the Plan may be
authorized and unissued shares or shares held by the Company in its treasury.
Except as set forth in subsection 5(h), should any option expire or be canceled
prior to its exercise in full, the shares subject to such option may again be
made subject to an option under the Plan.
3. Administration of the Plan. The Plan shall be administered by a
committee (the "Committee") of, and appointed by, the Board of Directors of the
Company (the "Board"). The Committee shall be comprised solely of two or more
directors who are (a) outside directors (within the meaning of section 162(m) of
the Internal Revenue Code of 1986, as amended (the "Code") and applicable
interpretive authority thereunder), and (b) nonemployee directors (within the
meaning of Rule 16b-3, as currently in effect or as hereinafter modified or
amended ("Rule 16b-3"), promulgated under the Securities Exchange Act of 1934,
as amended (the "Exchange Act")). Any vacancy occurring in the membership of the
Committee shall be filled by appointment of the Board.
The Committee may interpret the Plan, prescribe, amend and rescind any
rules and regulations necessary or appropriate for the administration of the
Plan, and take such other action as it deems necessary or advisable, except as
otherwise expressly reserved to the Board or the stockholders in the Plan. All
decisions and selections made by the Committee pursuant to the provisions of the
Plan shall be made by a majority of its members. Any decision reduced to writing
and signed by a majority of the members shall be fully effective as if it had
been made by a majority at a meeting duly held. Any interpretation,
determination or other action made or taken by the Committee shall be final,
binding and conclusive.
4. Grant of Options. Subject to the provisions of the Plan, the
Committee shall (a) determine and designate from time to time those Employees to
whom options are to be granted and the number of shares of Stock to be optioned
to each Employee, taking into account the nature of the services rendered by
such Employees, their present and potential contributions to the Company's
success and such other factors as the Committee in its discretion shall deem
relevant; (b) determine the option price for each option, not to be less than
fair market value on the date it is granted; (c) determine the number of shares
subject to each option; and (d) determine the time or times when and the manner
in which each option shall be exercisable and the duration of the exercise
period. Notwithstanding any provision in the Plan to the contrary, the maximum
number of shares of Stock that may be subject to options granted under the Plan
to an Employee during any calendar year may not exceed 200,000, subject to
adjustment as provided in subsection 5(i). The limitation set forth in the
preceding sentence shall be applied in a manner which will permit compensation
generated under the Plan to constitute "performance-based" compensation for
purposes of section 162(m) of the Code, including, without limitation, counting
against such maximum number of shares, to the extent required under section
162(m) of the Code and applicable interpretive authority thereunder, any shares
subject to options that are canceled or repriced. The Committee shall grant
options in accordance with the determinations specified in this section as
evidenced by a written option agreement. For all purposes under the Plan, the
fair market value of a share of Stock on a particular date shall be equal to the
closing sales price of the Stock (i) reported by the National Market System of
NASDAQ on that date or (ii) if the Stock is listed on a national stock exchange,
reported on the stock exchange composite tape on that date, or, in either case,
if no prices are reported on that date, on the last preceding date on which
such prices of the Stock are so reported. If the Stock is traded over the
counter at the time a determination of its fair market value is required to be
made hereunder, its fair market value shall be deemed to be equal to the average
between the reported high and low or closing bid and asked prices of Stock on
the most recent date on which Stock was publicly traded. In the event Stock is
not publicly traded at the time a determination of its value is required to be
made hereunder, the determination of its fair market value shall be made by the
Committee in such manner as it deems appropriate.
5. Terms and Conditions. Each option granted under the Plan shall be
evidenced by an agreement, in a form approved by the Committee, which shall be
subject to the following express terms and conditions and to such other terms
and conditions as the Committee may deem appropriate.
a. Option Period. Each option agreement shall specify the period
for which the option thereunder is granted and shall provide that the option
shall expire at the end of such period.
b. Option Price. The purchase price of each share of Stock subject
to each option granted pursuant to the Plan shall be determined in accordance
with section 4.
c. Exercise Period. The Committee may provide in the option agreement
that an option may be exercised in whole immediately or is to be exercisable
in increments, immediately or after a designated holding period.
d. Payment of Purchase Price upon Exercise. Each option shall provide
that the purchase price of the shares of Stock as to which an option shall be
exercised shall be paid to the Company at the time of exercise either in cash or
in Stock already owned by the Employee for a period of not less than six (6)
months and having total fair market value, as determined by the Committee, equal
to the purchase price, or a combination of cash and previously owned Stock
having a total fair market value, as so determined, equal to the purchase price.
e. Effect of Termination. Except as set forth below, all rights
of any Employee shall cease and all options granted pursuant to the Plan shall
terminate upon the termination of an Employee's employment with the Company.
i. If an Employee's employment with the Company shall be
terminated for any reason other than death, disability, retirement or cause, the
Employee shall have the right, during the period ending thirty (30) days after
such termination, to exercise any option granted under the Plan to the extent
that it was exercisable at the date of termination of such employment and shall
not have been exercised, but in no event later than the date such option would
have expired had it not been for the termination of the Employee's employment.
ii. If an Employee's employment with the Company shall be
terminated by reason of death, disability or retirement, all options granted to
such Employee shall become immediately exercisable and the Employee (or the
Employee's estate, subject to the terms of clause iv. below) shall have the
right, during the period ending one (1) year after such termination, to exercise
such option but in no event later than the date the option would have expired
had it not been for the termination of the Employee's employment. The term
"disability" as used in this subsection means total and permanent disability.
The terms "disability" and "retirement" shall be determined in accordance with
applicable Company personnel policies as interpreted in the exercise of the
Committee's discretion.
iii. Upon the event of the Employee being terminated for
cause, all right to exercise any option shall terminate at the date of such
termination of employment. For this purpose, termination for cause shall mean
termination of the Employee's employment by written notice to the Employee
specifying the event relied upon for such termination, due to the Employee's
misconduct with respect to duties including but not limited to commission of a
felony or perpetration of a common law fraud which has resulted or is likely to
result in economic damage to the Company, all as the Committee, in its sole
discretion, may determine.
iv. No transfer of an option by an Employee by will or by the
laws of descent and distribution shall be effective to bind the Company unless
the Company shall have been furnished with written notice of the same and an
authenticated copy of the will and/or such other evidence as the Committee may
deem necessary to establish the validity of the transfer and the acceptance of
the transferee or transferees of the terms and conditions of such option.
g. Extraordinary Corporate Transactions. Notwithstanding any other
limitation or restriction in the Plan, each outstanding option granted under the
Plan will become exercisable for the aggregate number of shares covered thereby,
except to the extent that the acceleration of the exercisability of any such
option would result in an "excess parachute payment" within the meaning of
Section 280G of the Internal Revenue Code of 1986, as amended, in the event (i)
the Board or the stockholders of the Company approve (a) any consolidation or
merger of the Company in which the Company is not the surviving corporation,
other than a merger of the Company in which the holders of Stock immediately
prior to the merger have the same proportionate ownership of Stock of the
surviving corporation immediately after the merger, (b) any sale, lease,
exchange or other transfer of all, or substantially all, of the assets of the
Company or (c) the adoption of any plan or proposal for the liquidation or
dissolution of the Company; or (ii) any person acquired Stock pursuant to a
tender offer or exchange offer to acquire any Stock and after consummation of
such offer, the person owns thirty percent (30%) or more of the outstanding
Stock. Any of the transactions in clause (i) which has been approved by the
stockholders of the Company is hereinafter called an Approved Transaction, and
any tender offer or exchange offer satisfying the conditions of clause (ii) is
hereinafter called an Offer.
h. Limited Stock Appreciation Rights. The Committee may, but is not
required to, grant limited stock appreciation rights ("Limited SARs'") to the
holder of any option granted under the Plan (a "Related Option") with respect to
all of the shares subject to the Related Option. Limited SARs may only be
granted concurrently with the grant of a Related Option. Limited SARs may not be
exercised within a period of six (6) months after the date of grant. Limited
SARs will be exercisable only when the fair market value, determined as of the
date of exercise of the Limited SARs, of each share of Stock with respect to
which such Limited SARs are to be exercised exceeds the option price per share
of Stock subject to the Related Option. Upon exercise of Limited SARs, the
Related Option shall be canceled. Shares covered by a canceled Related Option
shall be charged against the shares reserved for the Plan as if exercised and
shall not be available for future option grants under the Plan. Limited SARs
will not be exercisable unless at the time of the exercise the holder of the
Related Option is then, directly or indirectly, subject to Section 16(b) of the
Exchange Act.
Limited SARs may be exercised only in the event an Approved
Transaction, which is accounted for as a purchase, or Offer occurs and then only
during the 30-day period following either the expiration of the Offer or the
approval by the Company's stockholders of an Approved Transaction.
Upon the exercise of Limited SARs, the holder thereof will receive for
each share of Stock for which the Limited SARs are exercised an amount in cash
equal to the excess of (a) the highest price per share paid or to be paid in any
Approved Transaction or Offer that is in effect at any time during the sixty
(60) days preceding the exercise of the Limited SARs or, if higher, the highest
reported closing sales price of a share of Stock at any time during the sixty
(60) days preceding the exercise of the Limited SARs over (b) the option price
per share of Stock subject to the Related Option.
i. Changes in Company's Capital Structure. The existence of outstanding
options shall not affect in any way the right or power of the Company or its
stockholders to make or authorize any or all adjustments, recapitalizations,
reorganizations or other changes in the Company's capital structure or its
business, or any merger or consolidation of the Company, or any issuance of
Stock or subscription rights thereto, or any issuance of bonds, debentures,
preferred or prior preference stock ahead of or affecting the Stock or the
rights thereof, or the dissolution or liquidation of the Company, or any sale or
transfer of all or any part of its assets or business, or any other corporate
act or proceeding, whether of a similar character or otherwise. Provided,
however, that if the outstanding shares of Stock of the Company shall at any
time be changed or exchanged by declaration of a stock dividend, stock split,
combination of shares or recapitalization, the number and kind of shares subject
to the Plan or subject to any options theretofore granted, and the option prices
shall be appropriately and equitably adjusted so as to maintain the
proportionate number of shares without changing the aggregate option price.
j. Assignability. Options and Limited SARs shall not be assignable or
otherwise transferable except by will or by the laws of descent and distribution
pursuant to a qualified domestic relations order as defined by the Code or Title
I of the Employee Retirement Income Security Act of 1974, as amended, or the
rules thereunder, or with the consent of the Board and no right or interest in
this Plan or in options or Limited SARs shall be subject to pledge,
hypothecation, encumbrance, garnishment, attachment, execution or levy of any
kind.
k. Investment Representation. Each option agreement shall contain an
agreement that, upon demand by the Committee for such representation, the
Employee, or any person acting under subsection 5(e) shall deliver to the
Committee at the time of any exercise of an option a written representation that
the shares to be acquired upon such exercise are to be acquired for investment
and not for resale or with a view to the distribution thereof. Upon such demand,
delivery of such representation prior to the delivery of any shares issued upon
exercise of an option and prior to the expiration of the option period shall be
a condition precedent to the right of the Employee or such other person to
purchase any shares.
6. Withholding of Taxes. The Company may directly or indirectly
withhold all federal, state, city or other taxes as a result of the Employee's
exercise of options or Limited SARs. In order to provide for the necessary
withholding part of his compensation under this Plan, the Company will deduct
the additional amount of withholding required from the Employee's salary unless
the Employee makes other provision in accordance with this Plan. The Employee
shall be entitled to provide the Company with the necessary funds for this
purpose or accept a reduction in the amount of Stock with a value equal to the
amount of withholding required.
The Company will advise the Employee the appropriate time when the
additional withholding funds are required so that the Employee can provide for
the necessary funds or advise the Company that he will accept a reduction in the
amount of Stock due.
If a reduction in Stock is requested, the Company may deliver only the
number of whole shares remaining after the withholding has been accomplished.
7. Compliance with Other Laws and Regulations. The Plan, the grant and
exercise of options and Limited SARs thereunder, the obligation of the Company
to sell and deliver shares under such options, and the obligation of the Company
pursuant to the Limited SARs shall be subject to all applicable federal and
state laws, rules and regulations and to such approvals by any government or
regulatory agency as may be required. The Company shall not be required to issue
or deliver any certificates for shares of Stock prior to (a) the listing of such
shares on any stock exchange on which the Stock may then be listed and (b) the
completion of any registration or qualification of such shares under any federal
or state law, or any ruling or regulation of any government body which the
Company shall, in its sole discretion, determine to be necessary or advisable.
8. Amendment or Termination. The Board of Directors may amend, alter or
discontinue the Plan, but no amendment or alteration shall be made which would
impair the rights of any participant under options or Limited SARs theretofore
granted without his consent.
9. Headings of No Effect. The section and subsection headings
contained in this Plan are included solely for convenience of reference and
shall not in any way affect the meaning or interpretation of any of the
provisions of the Plan.
10. Effective Date of the Plan. The Plan originally became
effective on April 12, 1988. This amendment and restatement of the Plan
shall be effective as provided in section 1.
11. Plan Name. The Plan shall be known as the "Stewart & Stevenson
Services, Inc. 1988 Nonstatutory Stock Option Plan (as amended and restated
effective as of June 10, 1997).
APPENDIX
STEWART & STEVENSON SERVICES, INC. ANNUAL MEETING OF SHAREHOLDERS
2707 NORTH LOOP WEST TO BE HELD JUNE 10, 1997
P.O. BOX 1637
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 10, 1997, 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 1996 Director Stock Plan.
3. Approval of the amendment and restatement of the 1988
Nonstatutory Stock Option Plan.
4. 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 23, 1997 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
LAWRENCE E. WILSON
Vice President, General Counsel and Secretary
May 9, 1997
DETACH PROXY CARD HERE
STEWART & STEVENSON SERVICES, INC.
ANNUAL MEETING OF SHAREHOLDERS - JUNE 10, 1997
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 10th
day of June, 1997 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 AND 4. UNLESS OTHERWISE SPECIFIED, THIS PROXY WILL BE VOTED FOR
THE ELECTION OF ALL NOMINEES LISTED ON THE REVERSE SIDE AND FOR PROPOSALS 2, 3
AND 4.
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 AND 4.
1. Election of Directors FOR all nominees WITHHOLD AUTHORITY to vote
listed below [ ] for all nominees listed below [ ]
EXCEPTIONS [ ]
Nominees: C. Jim Stewart II, Jack W. Lander, Jr., Bob H. O'Neal and
Jack T. Currie (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___________________________________________________________________
2. Approval of the 1996 Director Stock Plan.
FOR [ ] AGAINST [ ] ABSTAIN [ ]
3. Approval of the amendment and restatement of the 1988
Nonstatutory Stock Option Plan.
FOR [ ] AGAINST [ ] ABSTAIN [ ]
4. Approval of Arthur Andersen LLP as independent In their discretion the
public accountants of the Company. Proxies are authorized to
vote upon such other
matters as may properly
come before the meeting
or any adjournment or
postponement thereof.
FOR [ ] AGAINST [ ] ABSTAIN [ ]
Address Change and/or
Comments Mark Here [ ]
The signature on the 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: _____________, 1997
__________________________
Signature
__________________________
Signature
__________________________
VOTES MUST BE INDICATED (x)
IN BLACK OR BLUE INK. X
(Please sign, date and return this proxy in the enclosed postage paid envelope.)
