SECURITES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities Exchange Act of 1934
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[ ] Prelimiary Proxy Statement
[ ] Confidential, for use of the Commission only (as permitted by Rule
14a-6(e) (2))
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Section 240.14a-11(c) or Section 240.14a-12
STEWART & STEVENSON SERVICES, INC.
(Name of Registrant as Specified in Its Charter)
--------------------------------------------
(Name of Person(s) Filing Proxy Statement if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
1) Title of each class of securities to which transaction applies:
_______________________________
2) Aggregate number of securities to which transaction applies:
_______________________________
3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which
the filing fee is calculated and state how it was determined):
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4) Proposed maximum aggregate value of transaction:
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5) Total fee paid:_________________________________________________
[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by
Exchange Act Rule 0-11(a) (2) and identify the filing for which
the offsetting fee was paid previously. Identify the previous
filing by registration statement number, or the Form or Schedule
and the date of its filing.
1) Amount Previously Paid:_________________________________________
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4) Date Filed:_____________________________________________________
STEWART & STEVENSON SERVICES, INC.
2707 NORTH LOOP WEST
P.O. BOX 1637
HOUSTON, TEXAS 77251-1637
---------------
PROXY STATEMENT FOR ANNUAL MEETING OF SHAREHOLDERS
JUNE 8, 1999, AND ADJOURNMENTS
---------------
APPROXIMATE DATE PROXY MATERIAL FIRST SENT TO SHAREHOLDERS:
MAY 7, 1999
SOLICITATION, VOTING AND REVOCABILITY OF PROXIES
The proxy furnished herewith, for use only at the Annual Meeting of
Shareholders to be held at 10:00 a.m. on June 8, 1999, in the Chase Auditorium,
601 Travis Street, Houston, Texas, and any and all adjournments thereof, is
solicited by the Board of Directors of Stewart & Stevenson Services, Inc. (the
"Company"). Such solicitation is being made by mail and may also be made in
person or by telephone by officers, directors and regular employees of the
Company, and arrangements may be made with brokerage houses or other custodians,
nominees and fiduciaries to send proxy material to their principals. In
addition, the Company has retained Morrow & Co., Inc., a professional proxy
solicitation firm, to assist in the solicitation of proxies. The Company has
agreed to reimburse Morrow & Co., Inc. for expenses incurred in connection with
the solicitation and to pay a solicitation fee of approximately $7,500. 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 ratification of Arthur Andersen LLP as the Company's independent
public accountants for the fiscal year ending January 31, 2000.
3. The consideration of a shareholder proposal to reorganize the Board of
Directors of the Company into one class.
4. The consideration of a shareholder proposal to maximize the value of the
Company.
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 ratification of Arthur Andersen LLP as the Company's independent
public accountants and the approval of the shareholder proposals 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, FOR
RATIFICATION OF ARTHUR ANDERSEN LLP AS THE COMPANY'S INDEPENDENT PUBLIC
ACCOUNTANTS FOR THE CURRENT FISCAL YEAR AND AGAINST THE SHAREHOLDER PROPOSALS.
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 21, 1999, the record date for the
Annual Meeting, the Company had outstanding 27,984,035 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 21, 1999
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) each person who held the office of
Chief Executive Officer and the four highest compensated executive officers who
were serving as executive officers on January 31, 1999, 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, 1999 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.
AMOUNT AND NATURE OF
BENEFICIAL OWNERSHIP
----------------------------------------------------------
<TABLE>
<CAPTION>
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> <C>
5% SHAREHOLDERS
Stevenson Voting Group (1)
c/o Donald E. Stevenson
P.O. Box 1637
Houston, TX 77251................. -0- 2,321,655 -0- 2,321,655 2,362,855 (2) 8.4%
Stein Roe & Farnham Incorporated
One South Wacker Drive
Chicago, IL 60606................ 138,600 -0- -0- 1,863,000 1,863,000 (2) 6.7%
INDIVIDUAL DIRECTORS AND NOMINEES
C. Jim Stewart II.................. 391,902 246,425 406,902 231,425 640,577 (5) 2.3
J. Carsey Manning.................. 1,163 -0- 1,163 -0- 3,413 (5) *
Donald E. Stevenson................ 687,728 1,880 445,204 532,476 1,233,124 (6) 4.4
Jack W. Lander, Jr................. 6,989 -0- 6,989 -0- 9,239 (5) *
Jack T. Currie (3)................. 6,989 -0- 6,989 -0- 9,239 (5) *
Robert S. Sullivan................. 1,089 -0- 1,089 -0- 3,339 (5) *
Brian H. Rowe...................... 3,889 -0- 3,889 -0- 6,139 (5) *
William R. Lummis.................. 10,563 -0- 10,563 -0- 10,563 *
Khleber V. Attwell................. 1,563 -0- 1,563 -0- 1,563 *
Darvin M. Winick................... -0- -0- -0- -0- -0- *
Howard Wolf........................ -0- -0- -0- -0- -0- *
Michael L. Grimes (3).............. -0- -0- -0- -0- -0- *
NON-DIRECTOR EXECUTIVE OFFICERS
Robert L. Hargrave (4).............. 40,463 -0- 40,463 -0- 144,463 (7) *
Garth C. Bates, Jr.................. 70,871 -0- 70,871 -0- 131,121 (8) *
C. LaRoy Hammer..................... 33,000 -0- 33,000 -0- 89,000 (9) *
Lawrence E. Wilson.................. 1,118 -0- 1,118 -0- 43,818 (10) *
John T. Wall........................ 187 -0- 187 -0- 11,537 (11) *
ALL DIRECTORS AND EXECUTIVE
OFFICERS
(26 Persons)...................... 2,457,046 260,940 2,238,122 767,936 3,157,376 (12) 11.3
</TABLE>
* Less than 1%
- - ---------------
(1) A Schedule 13D was filed with the Securities and Exchange Commission
jointly by Donald E. Stevenson, Keith T. Stevenson, Kathleen Cynthia
Pickett Stevenson, and Madlin Stevenson, in various capacities, to
reflect certain understandings and agreements with respect to the voting
of shares of Common Stock. The parties indicated their intention to
unite the voting power of their shares, including with respect to
matters voted on at the Company's 1999 Annual Meeting of Shareholders,
however the parties have no written agreement to vote in concert at the
Annual Meeting or otherwise. The shares of Common Stock described as
beneficially owned by Donald E. Stevenson are included in the Stevenson
Voting Group.
(2) Includes options to purchase 41,200 shares of Common Stock.
(3) As of April 14, 1999, Jack T. Currie resigned from the Board, and as of
April 20, 1999, Michael L. Grimes was appointed to the Board.
(4) Robert L. Hargrave served as President and Chief Executive Officer until
his retirement on January 15, 1999.
(5) Includes options to purchase 2,250 shares of Common Stock.
(6) Includes options to purchase 10,100 shares of Common Stock.
(7) Includes options to purchase 104,000 shares of Common Stock.
(8) Includes options to purchase 61,250 shares of Common Stock.
(9) Includes options to purchase 56,000 shares of Common Stock.
(10) Includes options to purchase 42,700 shares of Common Stock.
(11) Includes options to purchase 11,350 shares of Common Stock.
(12) Includes options to purchase 439,450 shares of Common Stock.
ELECTION OF DIRECTORS
The Board of Directors of the Company consists of eleven directors
divided into three classes. Two classes of directors consists of four members,
and the other class consists of three 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 2002. 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 Corporate Governance 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 2002.
NOMINEES FOR DIRECTORS WHOSE TERM EXPIRES IN 2002
<TABLE>
<CAPTION>
DIRECTOR
NAME AND PRINCIPAL OCCUPATION AGE SINCE
- - ----------------------------------------------------------------------------
<S> <C> <C> <C>
KHLEBER V. ATTWELL (3)(4)................ 68 1998
Management consulting (private practice). Previously, partner with
Ernst & Young LLP.
BRIAN H. ROWE (2)......................... 68 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. From 1979 through 1993, he
served as President and Chief Executive Officer of GE Aircraft Engines
and Senior Vice President of the General Electric Company. Serves as a
director of 5th/3rd Bank Corp. and Convergys Corporation of Cincinnati,
Ohio; Atlas Air, Inc. of Golden, Colorado; B/E Aerospace, Inc. of
Wellington, Florida; Textron, Inc. of Providence, Rhode Island; and
Dynatech Corp. of Burlington, MA.
DARVIN M. WINICK, PH.D..................... 69 1999
President of Winick Consultants, Organizational Consultants. Director
for Vallen Corporation and Citizens State Bank.
HOWARD WOLF................................ 64 1999
Senior Partner of the international law firm of Fulbright & Jaworski
LLP. Serves as a director of Offshore Logistics, Inc. of Lafayette,
Louisiana, and Midway Airlines Corp. of Durham, North Carolina.
</TABLE>
DIRECTORS WHOSE TERM EXPIRES IN 2000
<TABLE>
<CAPTION>
DIRECTOR
NAME AND PRINCIPAL OCCUPATION AGE SINCE
- - ---------------------------------------------------------------------------
<S> <C> <C> <C>
C. JIM STEWART II (1)...................... 73 1995
Chairman of the Board of the Company. Retired Chief Executive Officer
of the Company.
JACK W. LANDER, JR. (1)(2)(3)(4)(5)........ 73 1982
Senior Chairman, Union Planters Bank, Houston.
MICHAEL L. GRIMES......................... 49 1999
Elected as President and Chief Executive Officer of the Company on
April 20, 1999.
</TABLE>
DIRECTORS WHOSE TERM WILL EXPIRE IN 2001
<TABLE>
<CAPTION>
DIRECTOR
NAME AND PRINCIPAL OCCUPATION AGE SINCE
- - ---------------------------------------------------------------------------
<S> <C> <C> <C>
J. CARSEY MANNING.......................... 73 1973
Retired Senior Vice President of the Company.
DONALD E. STEVENSON (1)..................... 55 1975
Vice President of the Company.
ROBERT S. SULLIVAN (2)(3)................... 55 1992
Dean, Kenan-Flagler Business School of the University of North Carolina
at Chapel Hill. Previously, Director of the IC2 Institute, The
University of Texas at Austin, Austin, Texas, and Dean of the Graduate
School of Industrial Administration, Carnegie Mellon University,
Pittsburgh, Pennsylvania.
WILLIAM R. LUMMIS (3)(4)..................... 70 1998
Retired Chairman of the Board of The Hughes Corporation and
Administrator of the Estate of Howard R. Hughes, Jr. Director for The
Rouse Company and Trustee for the Howard Hughes Medical Institute.
</TABLE>
- - ---------------
(1) Member of Executive Committee.
(2) Member of Compensation and Management Development Committee.
(3) Member of Audit Committee.
(4) Member of Corporate Governance Committee.
(5) Pursuant to the Company's Bylaws, Mr. Jack W. Lander, Jr. will reach
the age of mandatory retirement on the date of the 1999 Annual Meeting.
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. Mr. Brian H. Rowe was last elected as a director at the 1996
Annual Meeting.
MEETINGS AND COMMITTEES OF THE BOARD OF DIRECTORS
The Board of Directors held nine meetings during the fiscal year ended
January 31, 1999 ("Fiscal 1998"). During Fiscal 1998, except for Messrs. Jack W.
Lander, Jr. and Brian H. Rowe, no director attended fewer than 75% of the
aggregate of (a) the total number of meetings of the Board of Directors (held
during the period for which he was a director) and (b) the total number of
meetings held by all committees of the Board of Directors on which he served
(during the periods that he served).
The Audit Committee of the Board of Directors reviews with the Company's
independent public accountants the plan, scope and results of the annual audit;
reviews with the Company's independent public accountants and internal auditors
the procedures for and results of internal auditing and controls; and reviews
with management the effectiveness of various operational policies and controls,
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 1998.
The Compensation and Management Development Committee recommends the
total compensation payable by the Company to its executive officers, 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; 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 two meetings during Fiscal 1998.
The Corporate Governance Committee selects nominees for the Board of
Directors of the Company. The Corporate Governance 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 Corporate Governance Committee at the Company's
executive offices for consideration by the Corporate Governance Committee. In
addition, the Corporate Governance Committee administers the principles and
practices established by the Board of Directors. The Corporate Governance
Committee held one meeting during Fiscal 1998.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
No person serving on the Compensation and Management Development
Committee during Fiscal 1998 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 1998
served, on the Board of Directors or Compensation and Management Development
Committee of the Company. The Company's Compensation and Management Development
Committee presently consists of Messrs. Jack W. Lander, Jr., Brian H. Rowe and
Robert S. Sullivan.
COMPENSATION OF DIRECTORS
During Fiscal 1998, directors whose principal occupation is other than
employment with the Company were compensated at the rate of $12,000 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.
The Company has a retirement plan for directors, but accrual of benefits
thereunder terminated after the 1997 Annual Meeting. Under such retirement plan,
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.
During Fiscal 1998, each director who was not an officer or employee of
the Company participated in the 1996 Director Stock Plan (the "1996 Plan").
Under the 1996 Plan, such directors received, on the date of the Annual Meeting
in 1998, (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 were granted at the closing price on the
date of grant and will become exercisable on the first anniversary of the grant.
All options granted under the 1996 Plan expire on the tenth anniversary of the
grant.
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, 2000. 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, 2000
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.
SHAREHOLDER PROPOSAL
The following proposal was submitted by William Steiner, a shareholder
of the Company. Mr. Steiner has informed the Company that his address is 4
Radcliff Drive, Great Neck, NY 11024, and that he is the owner of 1,650 shares
of the Company's Common Stock.
ELIMINATE CLASSIFIED BOARD OF DIRECTORS RESOLUTION
"RESOLVED, that the stockholders of the Company request that the Board
of Directors take the necessary steps, in accordance with state law, to
declassify the Board of Directors so that all directors are elected annually,
such declassification to be effected in a manner that does not affect the
unexpired terms of directors previously elected."
SUPPORTING STATEMENT
The election of directors is the primary avenue for stockholders to
influence corporate governance policies and to hold management accountable for
its implementation of those policies. I believe that the classification of the
Board of Directors, which results in only a portion of the Board being elected
annually, is not in the best interests of the Company and its stockholders.
I believe that the Company's classified Board of Directors maintains the
incumbency of the current Board and therefore of current management, which in
turn limits management's accountability to stockholders.
The elimination of the Company's classified Board would require each new
director to stand for election annually and allow stockholders an opportunity to
register their views on the performance of the Board collectively and each
director individually. I believe this is one of the best methods available to
stockholders to insure that the Company will be managed in a manner that is in
the best interests of the stockholders.
I believe that all concerns expressed by companies with classified
boards that the annual election of all directors could leave companies without
experienced directors in the event that all incumbents are voted out by
stockholders, are unfounded. In my view, in the unlikely event that stockholders
vote to replace all directors, this decision would express stockholder
dissatisfaction with the incumbent directors and reflect the need for change.
I URGE YOUR SUPPORT, VOTE FOR THIS RESOLUTION
STATEMENT OF BOARD OF DIRECTORS RECOMMENDING
A VOTE AGAINST THIS SHAREHOLDER PROPOSAL
The Board of Directors believes that the present system of electing
directors of the Company in three classes is in the best interests of the
Company and its shareholders and should not be changed.
A classified Board increases the likelihood that a majority of the Board
at any given time has prior experience serving as directors of the Company. This
provides continuity and stability in the Company's management and policies,
while preserving the ability of the Company's shareholders to make changes in
the Board's composition and character. The Board believes that this continuity
and stability facilitates more long term planning and enables the Board to
better evaluate opportunities to enhance shareholder value. Furthermore, a
classified Board helps the Company attract and retain qualified individuals
willing to commit the time and dedication necessary to understand the Company,
its operations and competitive environment.
The Board believes in corporate responsibility and accountability and
does not accept the proposition that a classified Board insulates directors from
accountability. As mentioned above, a classified Board allows the shareholders
to change yearly one-third of its directors. Moreover, corporate accountability
depends on the selection of responsible and experienced individuals, not on
whether they serve terms of one year or three.
In addition, a classified Board protects shareholders against coercive
takeover tactics, whereby a party may attempt to effect a change in control of
the Company with inadequate consideration paid to the shareholders. Since a
classified Board prevents removal of the entire Board in a single election, any
person seeking control of the Company is encouraged to negotiate with the Board,
which is uniquely positioned under such circumstances to assure shareholders
that any such transaction will be equitable and fair to them.
The Company understands that the Board should be responsive to the
shareholders, and the Board has taken action to assure corporate accountability
through the recent adoption of its Corporate Governance Principles and
Practices. Under the Company's Corporate Governance Principles and Practices,
the Board intends that it shall maintain a substantial degree of independence
from management (at least two-thirds of its members shall not be currently or
previously employed as executive officers of the Company). Currently, eight of
eleven directors are outside directors. Furthermore, the audit, corporate
governance (nominating) and compensation committees shall consist entirely of
outside directors.
FOR THESE REASONS, THE BOARD OF DIRECTORS RECOMMENDS THAT THE
SHAREHOLDERS VOTE AGAINST THIS PROPOSAL. UNLESS OTHERWISE INDICATED, ALL
PROPERLY EXECUTED PROXIES RECEIVED BY THE COMPANY WILL BE VOTED AGAINST THIS
SHAREHOLDER PROPOSAL.
SHAREHOLDER PROPOSAL
The following proposal was submitted by Ruthellen Miller, a shareholder
of the Company. Ms. Miller has informed the Company that her address is 23 Park
Circle, Great Neck, NY 11024, and that she is the owner of 250 shares of the
Company's Common Stock.
MAXIMIZE VALUE RESOLUTION
Resolved that the shareholders of Stewart & Stevenson Services, Inc.
Corporation urge the Stewart & Stevenson Services, Inc. Board of Directors to
arrange for the prompt sale of Stewart & Stevenson Services, Inc. to the
highest bidder.
The purpose of the Maximize Value Resolution is to give all Stewart &
Stevenson Services, Inc. shareholders the opportunity to send a message to the
Stewart & Stevenson Services, Inc. Board that they support the prompt sale of
Stewart & Stevenson Services, Inc. to the highest bidder. A strong and or
majority vote by the shareholders would indicate to the board the displeasure
felt by the shareholders of the shareholder returns over many years and the
drastic action that should be taken. Even if it is approved by the majority of
the Stewart & Stevenson Services, Inc. shares represented and entitled to vote
at the annual meeting, the Maximize Value Resolution will not be binding on the
Stewart & Stevenson Services, Inc. Board. The proponent however believes that if
this resolution receives substantial support from the shareholders, the board
may choose to carry out the request set forth in the resolution:
The prompt auction of Stewart & Stevenson Services, Inc. should be
accomplished by any appropriate process the board chooses to adopt including a
sale to the highest bidder whether in cash, stock, or a combination of both. It
is expected that the board will uphold its fiduciary duties to the utmost during
the process.
The proponent further believes that if the resolution is adopted, the
management and the board will interpret such adoption as a message from the
company's stockholders that it is no longer acceptable for the board to continue
with its current management plan and strategies.
I URGE YOUR SUPPORT, VOTE FOR THIS RESOLUTION
STATEMENT OF BOARD OF DIRECTORS RECOMMENDING
A VOTE AGAINST THIS SHAREHOLDER PROPOSAL
The Board of Directors believes that this proposal would not serve the
Company's best interests and, in fact, believes the adoption of this proposal
could seriously prejudice the shareholders' financial interest.
Although this proposal only requests certain action by the Board and
does not obligate the Board to take any action, the Board believes that if this
proposal is adopted or receives significant support it will create uncertainty
with the Company's shareholders, customers, suppliers and employees. The
approval of this proposal or the initiation of an auction in the manner
contemplated by the proposal could, in the opinion of the Board, create a
"forced sale" atmosphere which would reduce the perceived value of the Company,
invite unsolicited proposals for less than the Company's intrinsic value and
create an environment in which the Company must negotiate with bidders from a
position of weakness.
The Board of Directors has always acted and will continue to act in what
it considers to be the best interest of all shareholders. The Board reviews all
available strategic alternatives, is committed to maximizing value for
shareholders, and will pursue the course of action which best achieves that
objective. At this time, the Board believes that the Company's Common Stock is
significantly under-valued, primarily as a result of the changes in the
Company's business that resulted from the sale of the Gas Turbine Operations and
the negative impact from write-downs and disappointing earnings in the last two
fiscal years.
The Board is aware of the unsatisfactory performance of the Company and
has taken recent action to increase shareholder value. The Board believes that
the maximum shareholder value will be obtainable by improving earnings and
return on assets on a sustainable basis. This goal is best achieved by long-term
commitment to strategic industries and careful stewardship of the Company's
assets. To this end, the Board of Directors has recently named two new outside
directors, a new Chief Executive Officer, a new Chief Financial Officer, and has
instituted other management changes. Finally, the Board has engaged a nationally
recognized financial consulting firm to perform a strategic assessment of the
Company's business units and assist the Board in identifying the Company's
business segments with the greatest strategic potential. The Board has also
increased management's focus on increasing the return on assets utilized in the
Company's core businesses and has taken steps to increase the Company's presence
in the gas compression equipment industry and the airline ground support
industry (through the acquisition of Tug Manufacturing Corporation).
THE BOARD OF DIRECTORS RECOMMENDS THAT THE SHAREHOLDERS VOTE AGAINST
THIS PROPOSAL. UNLESS OTHERWISE INDICATED, ALL PROPERLY EXECUTED PROXIES
RECEIVED BY THE COMPANY WILL BE VOTED AGAINST THIS SHAREHOLDER PROPOSAL.
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 Machinery-Diversified Index, the S&P Smallcap 600 Index, and
the S&P 500 Stock Index for the Company's last five fiscal years. Due to the
significant decline in the Company's market capitalization, the Company has
decided to compare its cumulative total shareholder return against the S&P
Smallcap 600 Index rather than the S&P 500 Stock Index. For this year, the
Company will include in its comparison the cumulative total shareholder return
of both the S&P Smallcap 600 Index and the S&P 500 Stock Index. The graph
assumes that the value of an investment in the Company's Common Stock and each
index was $100 on January 31, 1994 and that all dividends were reinvested.
[PERFORMANCE GRAPH]
<TABLE>
<CAPTION>
YEAR ENDED JANUARY 31,
<S> <C> <C> <C> <C> <C> <C>
1994 1995 1996 1997 1998 1999
---- ---- ---- ---- ---- ----
Stewart & Stevenson Services, Inc. 100 66 53 54 54 19
S&P 500 Stock Index 100 101 139 176 224 296
S&P Smallcap 600 Index 100 92 121 149 181 180
S&P Machinery - Diversified Index 100 93 123 146 183 148
</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 three 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 will 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 will 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 will be offered.
The Committee, with the assistance of its independent compensation consultants,
has evaluated the function of each executive position to determine the skills,
knowledge and accountability required. Using this information, the Committee is
able to compare the compensation of each executive officer with a broad data
base of compensation paid to others occupying positions with a similar
functional content.
TOTAL COMPENSATION
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 the relationship of such executive's total compensation to the total
compensation paid to executives with similar position content.
Mr. Robert L. Hargrave served as Chief Executive Officer of the Company
from January 31, 1998 and as President and Chief Executive Officer from April
14, 1998, until January 15, 1999. The total compensation paid to Mr. Hargrave
was below the mean compensation paid to executives with similar position content
because of the disappointing financial performance of the Company. Total
compensation paid to other executive officers of the Company was also generally
below the mean total compensation paid to executives with similar position
content because annual cash incentives were reduced to reflect the Company's
disappointing financial performance.
BASE SALARY
Base salary levels are targeted at the median levels of compensation for
executives with similar position content and administered within a range of plus
or minus 20% of the midpoint. Each executive's base salary is reviewed annually
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 1998 were
generally near the median level of salaries for executives with similar position
content. In determining Mr. Hargrave's base salary in Fiscal 1998, the Committee
considered his long-term contributions to the success of the Company, his
performance as the Acting Chief Executive Officer prior to April 1998, and the
additional position content as President of the Company. Mr. Hargrave's base
salary was substantially below the median salary paid to executives with a
similar position content.
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. Incentive opportunities are targeted to provide total
annual compensation equal to the median annual compensation for positions with
similar content if profit, return on assets and other performance goals are met.
After the end of each fiscal year, the Committee considers (i) the
performance of the Company compared to pre-established goals; (ii) the
performance of a particular cost or profit center for which each individual
executive is responsible compared to pre-established goals; and (iii) other
matters such as the aggregate to total compensation paid by the Company to such
person compared to amounts paid by other companies to executives with similar
position content, whether the performance of the Company or profit center was
affected by external factors, and the commitment of the individual to ethical
business practices. The Committee has assigned different weights to each of
these considerations for each position. At least 65% of the target bonus for
each executive officer is based on financial measurements of the Company's
and/or individual profit center performance and the balance is based on
non-financial goals and considerations.
Bonus payments approved by the Committee for Fiscal 1998 were affected
primarily by the performance of the Company compared to the pre-established
performance goals. The Committee considered the aggregate total compensation
paid to certain executive officers and the achievement of specific performance
goals in the payment of the discretionary portion of the bonus payments. Mr.
Hargrave's bonus was based entirely on discretionary considerations and took
into account his retirement on January 15, 1999.
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
generally below the median annual compensation paid by other companies to
positions with similar content 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 1998 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 affected by individual
performance, the level of responsibility, historical award, data and other
compensation. 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.
The dollar value of the stock options granted to Mr. Hargrave and the
other officers of the Company during Fiscal 1998 was substantially below the
median value of long-term incentives granted by other companies to positions
with similar content because of the depressed value of the Company's common
stock. The Committee believes that the market price of the Company's Common
Stock on the date of grant was below normal levels and the strike price on
options granted to officers was set above the market value on the date of grant.
This decision by the Committee further reduced the dollar value of the options
granted.
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 some non-formula evaluation of individual 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
also takes into account the performance of the Company when assessing the base
salary and bonus awards to executive officers. 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
Robert S. Sullivan - Chairman
Jack W. Lander, Jr.
Brian H. Rowe
EXECUTIVE OFFICERS
The names, ages and positions of all the executive officers of the
Company as of January 31, 1999 are listed below. Except as noted below, each
officer was last elected as an executive officer at the meeting of directors
immediately following the 1998 Annual Meeting of Shareholders. The term of each
executive officer will expire at the meeting of directors following the 1999
Annual Meeting of Shareholders. There exist no arrangements or understandings
between any officer and any other person pursuant to which the officer was
elected.
<TABLE>
<CAPTION>
OFFICER
NAME AGE POSITION SINCE
- - ----------------------------------- ---- ---------------------------------------------------
<S> <C> <C> <C> <C>
Michael L. Grimes............. 49 President and Chief Executive Officer (1) 1999
C. Jim Stewart II............. 73 Chief Executive Officer (1) (1)
Garth C. Bates, Jr............ 50 Senior Vice President 1991
C. LaRoy Hammer............... 62 Senior Vice President 1980
John H. Doster................ 57 Chief Financial Officer 1998
T. Michael Andrews............ 58 Vice President 1982
Donald E. Stevenson........... 55 Vice President 1984
Keith T. Stevenson............ 52 Vice President 1986
C. Jim Stewart III............ 50 Vice President 1988
Lawrence E. Wilson............ 46 Vice President and Secretary 1989
Ralston R. Cole............... 61 Vice President 1998
J. Michael Conine............. 50 Vice President 1998
Patrick G. O'Rourke........... 48 Controller 1998
Frank M. Pool, Jr............. 51 Vice President 1998
David R. Stewart.............. 47 Treasurer 1998
John T. Wall.................. 51 Vice President 1998
Donavon L. Wallin............. 64 Vice President 1998
</TABLE>
(1) Effective January 15, 1999, Mr. Robert L. Hargrave retired from the offices
of President and Chief Executive Officer. The Board of Directors elected C.
Jim Stewart II to serve as Chief Executive Officer until a successor was
appointed. As of April 20, 1999, the Board of Directors elected Michael L.
Grimes to the offices of President and Chief Executive Officer.
Except as follows, each of the officers listed above has been employed
by the Company in an executive capacity for more than five years.
Mr. Grimes was elected as President and Chief Executive Officer of the
Company on April 20, 1999. He previously served as President of Cooper Cameron
Power Generation from 1998 to 1999, President of Cooper Energy Services from
1996 to 1998, and General Manager of various operations within the General
Electric Company from 1973 to 1996.
Mr. Doster was elected as Chief Financial Officer of the Company on July
15, 1998. He previously served as Senior Vice President and Chief Financial
Officer of Battelle Memorial Institute from 1991 to 1997.
Mr. Cole was elected as a Vice President of the Company in 1998. He
previously served as the Gulf Coast Regional Manager of the Company's Power
Products Division from 1995 to 1998. Prior to 1995, Mr. Cole was the manager of
the New Orleans branch of the Power Products Division.
Mr. Conine was elected as a Vice President of the Company in 1998. He
has served as President of Stewart & Stevenson Power, Inc., a subsidiary of the
Company, and will continue to serve in that position.
Mr. O'Rourke was elected as Controller of the Company in 1998. He
previously served as the Company's corporate controller.
Mr. Pool was elected as a Vice President of the Company in 1998. He
previously served in various management positions within Stewart & Stevenson
Power, Inc., a subsidiary of the Company.
Mr. David Stewart was elected as Treasurer of the Company in 1998. He
has served the Company as Director of Investor Relations and will continue to
serve in that position.
Mr. Wall was elected as a Vice President of the Company in 1998. He
previously served as the General Manager of the Company's Petroleum Equipment
Division from 1990 to 1998.
Mr. Wallin was elected as a Vice President of the Company in 1998. He
previously served as President of Stewart & Stevenson Operations, Inc., a
subsidiary of the Company.
C. Jim Stewart III and David R. Stewart 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 C. Jim Stewart III
and David R. Stewart. Keith T. Stevenson is the brother, and T. Michael Andrews
is a first cousin, of Mr. Donald E. Stevenson. Patrick G. O'Rourke is a first
cousin of Keith T. Stevenson, Donald E. Stevenson and T. Michael Andrews. These
persons and other members of the Stewart family and the Stevenson family could
be deemed "control persons" with respect to the Company as such term is defined
in the rules and regulations of the Securities and Exchange Commission.
EXECUTIVE COMPENSATION
The following Summary Compensation Table shows the aggregate
compensation paid or accrued by the Company during each of the last three fiscal
years to or for (i) any individual that held the office of Chief Executive
Officer during Fiscal 1998 and (ii) each of the other four highest compensated
executive officers.
SUMMARY OF COMPENSATION
<TABLE>
<CAPTION>
LONG-TERM
ANNUAL COMPENSATION COMPENSATION
---------------------------------------------------
Year Other All
ended Annual Other
Name and January Compen- Options LTIP Compen-
Principal Position 31 Salary Bonus sation Granted Payout sation(2)
------------------- -- ------ ----- ------ ------- ------ ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Robert L. Hargrave....... 1999 $330,000 $65,000 (1) 30,000 -0- $ 849
President and Chief 1998 260,000 200,000 (1) 20,000 -0- 668
Executive Officer* 1997 234,168 150,000 (1) 20,000 -0- 1,066
C. Jim Stewart II........ 1999 -0- -0- (1) 1,000 -0- -0-
President and Chief 1998 -0- -0- (1) 1,000 -0- -0-
Executive Officer* 1997 -0- -0- (1) 1,000 -0- -0-
Garth C. Bates, Jr...... 1999 290,000 50,000 (1) 25,000 -0- 746
Senior Vice President 1998 260,000 150,000 (1) 20,000 -0- 668
1997 234,108 120,000 (1) 18,000 -0- 935
C. LaRoy Hammer.......... 1999 250,000 25,000 (1) 20,000 -0- 643
Senior Vice President 1998 250,000 60,000 (1) 20,000 -0- 643
1997 224,169 70,000 (1) 16,000 -0- 896
Lawrence E. Wilson....... 1999 190,000 40,000 (1) 12,000 -0- 2,989 (3)
Vice President and 1998 180,000 85,000 (1) 10,000 -0- 2,794 (3)
Secretary 1997 163,000 70,000 (1) 10,000 -0- 1,470 (3)
John T. Wall............. 1999 130,000 65,000 (1) 3,200 -0- 334
Vice President 1998 125,961 125,000 (1) 3,000 -0- -0-
1997 93,784 95,000 (1) 3,000 -0- -0-
</TABLE>
* Mr. Hargrave retired from the positions of President and Chief Executive
Officer on January 15, 1999. Mr. Stewart served as Chief Executive Officer
during the remainder of Fiscal 1998. Mr. Michael L. Grimes became Chief
Executive Officer on April 20, 1999.
(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) For each of the fiscal years ended January 31, 1999, 1998 and 1997,
respectively, Other Compensation for Mr. Wilson consists of term life
insurance premiums of $489, $419 and $419, and contributions by the
Company to a defined contribution pension plan of $2,500, $2,375 and
$1,051.
GRANTS AND EXERCISES OF STOCK OPTIONS AND STOCK APPRECIATION RIGHTS
The Company has three stock option plans. The 1988 Nonstatutory Stock
Option Plan (as amended and restated effective as of June 10, 1997) (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 authorizes
the grant of options to employees, including officers, to purchase an aggregate
of up to 1,500,000 shares of Common Stock and provides that limited stock
appreciation rights may be granted in connection with such options. The 1993
Nonofficer Stock Option Plan (the "1993 Plan") authorizes the grant of options
to employees other than officers of the Company to purchase an aggregate of up
to 1,231,850 shares of Common Stock. Stock appreciation rights may not be
granted under the 1993 Plan. The 1996 Director Stock Plan (the "1996 Plan")
authorizes 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 1998, the Company granted options to purchase an aggregate
of (i) 114,000 shares of Common Stock under the 1988 Plan, (ii) 155,500 shares
of Common Stock under the 1993 Plan and (iii) 8,000 shares of Common Stock under
the 1996 Plan. No limited stock appreciation rights were granted under the 1988
Plan during Fiscal 1998 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 1998 and the value of all outstanding options owned as of January
31, 1999 by the individuals named in the Summary Compensation Table.
OPTION/SAR GRANTS DURING FISCAL 1998
<TABLE>
<CAPTION>
Potential Realizable
Value at
Assumed Annual Rates of
Stock Price
Appreciation
Individual Grants for Option Term
-------------------------------------------------------------------
% of
Total Exercise
Options Price
Options Granted per
Granted to share Expiration
Name (1) Employees (2) Date 5% 10%
----- --- --------- --- ---- -- ---
<S> <C> <C> <C> <C> <C> <C> <C>
Robert L. Hargrave... 30,000 11.0 $ 24.38 03/20/08 $459,879 $1,165,424
C. Jim Stewart II.... 1,000 0.4 21.31 06/09/08 13,403 33,967
Garth C. Bates, Jr... 25,000 9.2 24.38 03/20/08 383,233 971,187
C. LaRoy Hammer...... 20,000 7.4 24.38 03/20/08 306,586 776,949
Lawrence E. Wilson... 12,000 4.4 24.38 03/20/07 183,952 466,170
John T. Wall......... 3,200 1.2 24.38 03/20/08 49,054 124,312
All Employees, including
officers........... 269,500 100.0 24.38 03/20/98 4,131,248 10,469,396
</TABLE>
- - ---------------
(1) All options become exercisable in four 25% cumulative annual
installments commencing March 20, 1999, except those granted to Mr.
Stewart which become fully exercisable June 9, 1999.
(2) All options are exercisable at the closing market price on the date of
grant.
OPTION/SAR EXERCISES DURING FISCAL 1998
AND YEAR-END VALUES
<TABLE>
<CAPTION>
Value of Unexercised
Number of Unexercised In-the-
Options at Money Options at
January 31, 1999 January 31, 1999
----------------------- ------------------------
Shares
Acquired
on Value
Name Exercise Realized Exercisable Unexercisable Exercisable Unexercisable
- - - ----- -------- -------- ---------- ------------ ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Robert L. Hargrave... -0- $ N/A 104,000 -0- $-0- $-0-
C. Jim Stewart II.... -0- N/A 2,250 1,750 -0- -0-
Garth C. Bates, Jr... -0- N/A 42,000 52,500 -0- -0-
C. LaRoy Hammer...... -0- N/A 38,500 46,500 -0- -0-
Lawrence E. Wilson... -0- N/A 31,900 27,300 -0- -0-
John T. Wall......... -0- N/A 8,475 7,525 -0- -0-
All Employees, including
officers........... 17,000 77,109 964,963 559,162 -0- -0-
</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) $160,000 (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, limits benefits that may be paid under the Pension
Plan to $125,000 per year in 1998, offset by a compensation of Social Security
benefits.
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.
ESTIMATED ANNUAL RETIREMENT BENEFIT (1)
YEARS OF SERVICE
----------------------------------------------------------------------
<TABLE>
<CAPTION>
FINAL AVERAGE COMPENSATION 20 25 30 35 40 45
- - -------------------------- -- -- -- -- -- --
<S> <C> <C> <C> <C> <C> <C>
$100,000......................$24,816 $31,020 $37,224 $43,861 $51,361 $58,861
200,000........................54,816 68,520 82,224 96,361 111,361 126,361
300,000........................84,816 106,020 127,224 148,861 171,361 193,861
400,000.......................114,816 143,520 172,224 201,361 231,361 261,361
500,000.......................144,816 181,020 217,224 253,861 291,361 328,861
600,000.......................174,816 218,520 262,224 306,361 351,361 396,361
700,000.......................204,816 256,020 307,224 358,861 411,461 463,861
800,000.......................234,816 293,520 352,224 411,361 471,361 531,361
900,000.......................264,816 331,020 397,224 463,861 531,361 598,861
1,000,000.....................294,816 368,520 442,224 516,361 591,361 666,361
</TABLE>
- - ---------------
(1) Computation of estimated annual retirement benefit based on a
straight-line annuity for the life of the employee, net of base Social Security
benefits under the Social Security law currently in effect, assuming the
employee retires in 2000 at age 65.
The five-year average compensation of each executive officer listed in
the Summary of Compensation Table differs from the present salary and bonus in
such table as a result of changes in the rate of pay during the average period.
The following table sets forth the years of credited service, five-year average
compensation and consecutive five-year average base salary for each of the
individuals listed in the Summary of Compensation Table.
YEARS OF AVERAGE TOTAL AVERAGE
NAME SERVICE COMPENSATION BASE SALARY
-------------------------- --------- ------------- ------------
Robert L. Hargrave......... 31 $364,850 $243,600
C. Jim Stewart II.......... 43 0 0
Garth C. Bates, Jr......... 28 381,200 234,200
C. LaRoy Hammer............ 41 337,600 220,600
Lawrence E. Wilson......... 20 227,600 167,600
John T. Wall............... 29 206,920 103,120
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.
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, the Company believes that all filings were made on a
timely basis.
FORM 10-K FOR FISCAL 1998
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 2000 ANNUAL MEETING
Shareholders may submit proposals for the 2000 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 2000 Annual Meeting,
such proposals should be received by the Company on or before January 7, 2000.
By Order of the Board of Directors,
/s/ Lawrence E. Wilson
LAWRENCE E. WILSON
Vice President, Secretary and
General Counsel
Dated: Houston, Texas
May 7, 1999
APPENDIX
STEWART & STEVENSON SERVICES, INC. ANNUAL MEETING OF SHAREHOLDERS
2707 NORTH LOOP WEST TO BE HELD JUNE 8, 1999
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 8, 1999, in the Chase Auditorium, 601
Travis Street, Houston, Texas, for the following purposes:
1. Election of four directors to the Board of Directors.
2. Ratification of the selection of independent public accountants of the
Company.
3. Consideration of a shareholder proposal to reorganize the Board of
Directors into one class.
4. Consideration of a shareholder proposal to maximize the value of the
Company.
Only holders of Common Stock of Stewart & Stevenson Services, Inc. of record at
the close of business on April 21, 1999 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 7, 1999
DETACH PROXY CARD HERE
STEWART & STEVENSON SERVICES, INC.
ANNUAL MEETING OF SHAREHOLDERS - JUNE 8, 1999
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 Chase Auditorium, 601 Travis
Street, Houston, Texas at 10:00 a.m. on the 8th day of June, 1999, and any
adjournments thereof, upon all matters which may properly come before said
Annual Meeting.
THIS PROXY SHALL BE VOTED IN ACCORDANCE WITH THE INSTRUCTRIONS 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, FOR PROPOSAL 2, AGAINST
PROPOSAL 3 AND AGAINST PROPOSAL 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 acknowleged.
(Please sign proxy on reverse side and return in enclosed envelope.)
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THE FOLLOWING NOMINEES, "FOR"
ITEM 2, "AGAINST" ITEM 3 AND "AGAINST" ITEM 4.
1. Election of Directors FOR all nominees WITHHOLD AUTHORITY to vote
listed below [ ] for all nominees listed below [ ]
*EXCEPTIONS [ ]
Nominees: Khleber V. Attwell, Brian H. Rowe, Darvin M. Winick and Howard
Wolf (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 Arthur Andersen LLP as independent public accountants for the
Company.
FOR [ ] AGAINST [ ] ABSTAIN [ ]
3. Consideration of a shareholder proposal to reorganize the Board of Directors
into one class.
FOR [ ] AGAINST [ ] ABSTAIN [ ]
4. Consideration of a shareholder proposal to maximize the value of the Company.
FOR [ ] AGAINST [ ] ABSTAIN [ ]
In their discretion the Proxies are authorized to vote upon such other matters
as may properly come before the meeting or any adjournment or postponement
thereof.
Address Change and/or
Comments Mark Here [ ]
The signature on this Proxy should
correspond exactly with the
shareholder's name as printed to
the left. In the case of joint
tendancies, co-executors, co-
trustees, both should sign.
Persons signing as Attorney,
Executor, Administrator, Trustee
or Guardian should give their full
title.
Dated: _____________________, 1999
__________________________________
Signature
__________________________________
Signature
VOTES MUST BE INDICATED (x) IN
BLACK OR BLUE INK.
(Please sign, date and retun this proxy in the enclosed postage paid envelope).
