SCHEDULE 14A
(RULE 14a - 101)
INFORMATION REQUIRED IN PROXY STATEMENT
Proxy Statement Pursuant to Section 14(a) of the Securities Exchange Act of 1934
(Amendment No.___)
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[ ] Preliminary proxy statement.
[ ] Confidential, for use of the Commission only (as permitted by Rule
14a-6(e)(2)).
[X] Definitive proxy statement.
[ ] Definitive additional materials.
[ ] Soliciting material under Rule 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):
________________________________
4) Proposed maximum aggregate value of transaction:
________________________________
5) Total fee paid:_________________________________________________
[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by
Exchange Act Rule 0-11(a)(2) and identify the filing for which
the offsetting fee was paid previously. Identify the previous
filing by registration statement number, or the form or schedule
and the date of its filing.
1) Amount Previously Paid:_________________________________________
2) Form, Schedule or Registration Statement No.:___________________
3) Filing Party:___________________________________________________
4) Date Filed:_____________________________________________________
STEWART & STEVENSON SERVICES, INC.
2707 NORTH LOOP WEST
P.O. BOX 1637
HOUSTON, TEXAS 77251-1637
PROXY STATEMENT FOR ANNUAL MEETING OF SHAREHOLDERS
JUNE 13, 2000, AND ADJOURNMENTS
APPROXIMATE DATE PROXY MATERIAL FIRST SENT TO SHAREHOLDERS:
MAY 11, 2000
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 13, 2000, 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 $5,000. 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, 2001.
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 requires the affirmative vote of a majority of the shares
represented in person or by proxy at the meeting. Proxies that abstain from
voting on this proposal have the same effect as a vote against this proposal.
Broker non-votes will not have any effect on this proposal.
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
RATIFICATION OF ARTHUR ANDERSEN LLP AS THE COMPANY'S INDEPENDENT PUBLIC
ACCOUNTANTS FOR THE CURRENT FISCAL YEAR. 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 26, 2000, the record date for the Annual
Meeting, the Company had outstanding 28,012,203 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 the
ratification of Arthur Andersen LLP as the Company's independent public
accountants. Cumulative voting is not permitted under the Company's Third
Restated Articles of Incorporation. Shareholders of record at the close of
business on April 26, 2000 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 during the last fiscal year and the four highest
compensated executive officers who were serving as executive officers on January
31, 2000, (iv) each person who would have been one of the four highest
compensated executive officers but was not serving as an executive officer on
January 31, 2000, and (v) 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 29, 2000 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 13D or 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.
<PAGE>
<TABLE>
<CAPTION>
AMOUNT AND NATURE OF
BENEFICIAL OWNERSHIP
----------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
SOLE SHARED SOLE SHARED PERCENT
NAME OF VOTING VOTING INVESTMENT INVESTMENT TOTAL BENEFICIAL OF
INDIVIDUAL OR GROUP POWER POWER POWER POWER OWNERSHIP CLASS
- ------------------------ ---------- --------- ------------- ----------- ------------------ -------
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%
J. L. Kaplan Associates, L.L.C.
222 Berkeley Street, Suite 2010
Boston, MA 02116............ 1,238,000 -0- 1,557,775 -0- 1,557,775 5.6%
INDIVIDUAL DIRECTORS AND NOMINEES
C. Jim Stewart II............ 392,923 245,870 407,368 231,425 642,543 (3) 2.3
J. Carsey Manning............ 2,184 -0- 2,184 -0- 5,934 (3) *
Donald E. Stevenson.......... 689,608 -0- 447,084 532,476 1,235,184 (4) 4.4
Robert S. Sullivan........... 2,110 -0- 2,110 -0- 5,860 (3) *
Brian H. Rowe................ 24,910 -0- 24,910 -0- 28,660 (3) *
William R. Lummis............ 11,584 -0- 11,584 -0- 12,584 (5) *
Khleber V. Attwell........... 4,584 -0- 4,584 -0- 5,584 (5) *
Darvin M. Winick............. 2,021 -0- 2,021 -0- 2,021 *
Howard Wolf.................. 6,021 -0- 6,021 -0- 6,021 *
Michael L. Grimes............ 10,000 -0- 10,000 -0- 35,000 (6) *
Monroe M. Luther............. -0- -0- -0- -0- -0- *
Charles R. Ofner............. -0- -0- -0- -0- -0- *
NON-DIRECTOR EXECUTIVE OFFICERS
John H. Doster............... 12,000 -0- 12,000 -0- 22,000 (7) *
Garth C. Bates, Jr........... 70,935 -0- 70,935 -0- 155,435 (8) *
Lawrence E. Wilson........... 1,118 -0- 1,118 -0- 55,568 (9) *
Richard M. Wiater............ 5,000 -0- 5,000 -0- 5,000 *
FORMER EXECUTIVE OFFICERS
Robert L. Hargrave (10)...... 40,463 -0- 40,463 -0- 40,463 *
C. LaRoy Hammer (11)......... 33,000 -0- 33,000 -0- 33,000 *
ALL DIRECTORS AND EXECUTIVE
OFFICERS
(24 Persons)................. 2,457,175 258,370 2,237,696 767,801 3,636,371 (12) 13.0
</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 shares of Common Stock
described as beneficially owned by Donald E. Stevenson are included
in the Stevenson Voting Group.
(2) Includes options to purchase 35,700 shares of Common Stock.
(3) Includes options to purchase 3,750 shares of Common Stock.
(4) Includes options to purchase 13,100 shares of Common Stock.
(5) Includes options to purchase 1,000 shares of Common Stock.
(6) Includes options to purchase 25,000 shares of Common Stock.
(7) Includes options to purchase 10,000 shares of Common Stock.
(8) Includes options to purchase 84,500 shares of Common Stock.
(9) Includes options to purchase 54,450 shares of Common Stock
(10) Mr. Hargrave retired from the Company on March 1, 1999.
(11) Mr. Hammer retired from the Company on May 1,1999.
(12) Includes options to purchase 184,300 shares of Common Stock.
<PAGE>
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
persons named below have been nominated for election to the Board of Directors
at the Annual Meeting to serve as directors until 2003. 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 2003.
<TABLE>
<CAPTION>
PERSONS NOMINATED FOR DIRECTOR WHOSE TERM WILL EXPIRE IN 2003
<S> <C> <C>
DIRECTOR
NAME AND PRINCIPAL OCCUPATION AGE SINCE
- ---------------------------------------------------------------------------------------------------------------------------
C. JIM STEWART II (1)........................................................... 74 1955
Chairman of the Board of the Company. Retired Chief Executive Officer of the
Company.
MICHAEL L. GRIMES (1)........................................................... 50 1999
President and Chief Executive Officer of the Company. Previously, President
of Cooper Cameron Power Generation, President of Cooper Energy Services, and
General Manager of various operations within the General Electric Company.
MONROE M. LUTHER................................................................ 59 2000
Chairman of Wind River Capital Company, Chairman of The Prague Post, and
Chairman of Bigger Than That Productions. Founder and former Chief
Executive Officer of Eagle Management & Trust Company. Director for
Transcoastal Marine Services, Inc.
CHARLES R. OFNER................................................................ 54 2000
Senior Vice President of R&B Falcon Corporation. Previously, Vice President
of Reading & Bates Corporation.
</TABLE>
THE FOLLOWING PERSONS HAVE BEEN PREVIOUSLY ELECTED AS DIRECTORS OF THE COMPANY
AND WILL CONTINUE TO SERVE AFTER THE ANNUAL MEETING.
<TABLE>
<CAPTION>
DIRECTORS WHOSE TERM EXPIRES IN 2001
<S> <C> <C>
DIRECTOR
NAME AND PRINCIPAL OCCUPATION AGE SINCE
- ---------------------------------------------------------------------------------------------------------------------------
J. CARSEY MANNING............................................................... 74 1973
Retired Senior Vice President of the Company.
DONALD E. STEVENSON (1)......................................................... 56 1975
Vice President of the Company.
ROBERT S. SULLIVAN (2)(3)....................................................... 56 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 (1)(3)(4)..................................................... 71 1998
Retired Chairman of the Board of The Hughes Corporation and Administrator
of the Estate of Howard R. Hughes, Jr. and Trustee for the Howard Hughes
Medical Institute.
</TABLE>
<TABLE>
<CAPTION>
DIRECTORS WHOSE TERM EXPIRES IN 2002
<S> <C> <C>
DIRECTOR
NAME AND PRINCIPAL OCCUPATION AGE SINCE
- ------------------------------------------------------------------------------------------------------------------------------
KHLEBER V. ATTWELL (1)(3)(4).................................................... 69 1998
Management consulting (private practice). Previously, partner with Ernst &
Young LLP.
BRIAN H. ROWE (2)............................................................... 69 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. (3)(4).................................................. 70 1999
President of Winick Consultants, Organizational Consultants. Director for
Citizens State Bank.
HOWARD WOLF (2)................................................................. 65 1999
Senior Partner of the international law firm of Fulbright & Jaworski LLP.
Serves as a director of Offshore Logistics, Inc. of Lafayette, Louisiana.
</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.
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. C. Jim Stewart II was last elected as a director at the
1997 Annual Meeting.
MEETINGS AND COMMITTEES OF THE BOARD OF DIRECTORS
The Board of Directors held eight meetings during the fiscal year ended
January 31, 2000 ("Fiscal 1999"). During Fiscal 1999, 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 consists of four independent,
non-employee directors. The Audit Committee reviews with the Company's
independent auditors the plan, scope and results of the annual audit; reviews
with the Company's independent auditors 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 auditors and considers, in
general, the audit services to be performed by such independent auditors and the
possible effect on the independence of the independent auditors from the
performance of non-audit services. The Board of Directors has adopted a written
charter governing the responsibilities of the Audit Committee, a copy of which
is attached as Exhibit A to these proxy materials. The Audit Committee held
seven meetings during Fiscal 1999.
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. The Compensation and Management Development
Committee held four meetings during Fiscal 1999.
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 three meetings during Fiscal 1999.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
No person serving on the Compensation and Management Development Committee
during Fiscal 1999 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 1999 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. Brian H. Rowe, Robert S. Sullivan and Howard Wolf.
COMPENSATION OF DIRECTORS
During Fiscal 1999, 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. Each committee
chairman received an annual fee of $3,000. 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 1999, 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
1999, (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 3,000 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, 2001. 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, 2001
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 OR THE REPORT OF THE AUDIT
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 and the S&P Smallcap 600 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,
1995 and that all dividends were reinvested.
[PERFORMANCE GRAPH]
<TABLE>
<CAPTION>
YEAR ENDED JANUARY 31,
----------------------
<S> <C> <C> <C> <C> <C> <C>
1995 1996 1997 1998 1999 2000
---- ---- ---- ---- ---- ----
Stewart & Stevenson Services, Inc. 100 81 82 82 29 38
S&P Smallcap 600 Index 100 132 163 197 196 216
S&P Machinery - Diversified Index 100 132 157 197 159 182
</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,
executive's 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 skill,
knowledge, and accountability required. Using this information, the Committee is
able to compare the compensation of each executive officer with a broad 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 the executives with similar position content.
Mr. C. Jim Stewart II served as interim Chief Executive Officer from January 31,
1999 until April 20, 1999, while a committee of the Board of Directors searched
for a new President and Chief Executive Officer. Since Mr. Stewart was retired
from the Company and a director of the Company during this period, he did not
receive any compensation for serving as interim Chief Executive Officer.
Effective April 20, 1999, Mr. Michael L. Grimes became the President and Chief
Executive Officer of the Company. Total compensation paid to Mr. Grimes during
the twelve months ended January 31, 2000 ("Fiscal 1999") was below the median
amount paid to other executives with similar position content because of his
short length of time as an employee of the Company and limited experience as a
Chief Executive Officer of a public corporation. Total compensation paid to
other executive officers of the Company was also generally below the median
total compensation paid to executives with similar position content because
annual cash incentives were reduced to reflect the Company's disappointing
financial performance. However, certain officers' total compensation exceeded
the median total compensation for similar positions due either to (a) a
reduction in the content of their position due to corporate reorganization
without a corresponding salary reduction, or (b) increased annual incentive
compensation payments for the performance of the business unit for which they
are responsible.
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 median. The Committee reviews each executive's salary on an
annual basis. Increases to base salaries are driven primarily by changes in the
functional content of the executive's position, the expected contributions of
the executive in the upcoming fiscal year and changes in the cost of living.
Individual performance, experience, past performance and historical salary
levels are also considered. In making its evaluation, the Committee has not
assigned particular weights to these factors.
Base salaries established by the Committee for Fiscal 1999 were within the
administrative range. Several officers' salaries were above the median for
positions with similar job content because of recent assignment to new positions
or decreases in content during Fiscal 1999. In determining Mr. Grimes' base
salary, the Committee considered the position content of previous positions held
by him, the length of time that he had served in those positions, his salary in
those positions, and the uncertainty associated with hiring a President and
Chief Executive Officer from outside of the Company. Mr. Grimes' base salary was
substantially below the median base salary for positions with 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. On occasion, bonus payments are used to compensate executives
for lower than median base salaries and provide a competitive total annual
compensation.
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 center, profit center, or business function for which each
individual executive is responsible compared to pre-established goals; and (iii)
other matters such as the aggregate total compensation paid by the Company to
such person compared to amounts paid by other companies to executives with
similar position content, whether business function performance was the result
of individual efforts or external factors, and the commitment of the individual
to ethical business practices. Approximately 50% 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 1999 were affected primarily
by the performance of the Company compared to the pre-established performance
goals. The Committee also 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. Grimes'
bonus was based upon measured accomplishments during his first year as CEO, as
well as the total compensation packages of senior executives with similar
responsibilities. During his short period with Stewart & Stevenson, Mr. Grimes
has installed management systems that have reduced inventory, increased capacity
and improved overall profitability of the Company.
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 1999 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 a 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
individual's level of responsibility, and the desire of the Company to retain
the individual. 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 Committee believes that the market price of the Company's Common Stock on
the date of grant was substantially below normal levels as a result of external
factors. As a result, the Committee elected to grant options during Fiscal 1999
at a strike price that was above the market value on the date of grant and in
quantities that were substantially below the median long-term incentive awards
to executives with similar position content. Options awarded to Mr. Grimes,
however, were granted on the date he was elected the President and Chief
Executive Officer. The grants to Mr. Grimes represent an amount that is near the
median long-term incentive award for positions with similar content and reflect
the desire of the Committee to retain his services for the Company.
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 officer named in the
proxy to $1 million per year, 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 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
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
Brian H. Rowe
Howard Wolf
<PAGE>
REPORT OF THE AUDIT COMMITTEE
TO THE SHAREHOLDERS OF STEWART & STEVENSON SERVICES, INC.
The Audit Committee of the Board of Directors (the "Audit Committee") has:
1. Reviewed and discussed the audited financial statements for the
fiscal year ended January 31, 2000 with the management of the Company;
2. Discussed with the Company's Independent Auditors the matters required
to be discussed by Statement of Accounting Standards No. 61, as the same
was in effect on the date of the Company's financial statements; and
3. Received the written disclosures and the letter from the Company's
Independent Auditors required by Independence Standards Board
Standard No. 1 (Independence Discussions with Audit Committees), as the
same was in effect on the date of the Company's financial statements.
Based on the foregoing materials and discussions, the Audit Committee
recommended to the Board of Directors that the audited financial statements for
the fiscal year ended January 31, 2000 be included in the Company's Annual
Report on Form 10-K.
Respectfully submitted,
THE AUDIT COMMITTEE
Khleber V. Attwell - Chairman
Robert S. Sullivan
William R. Lummis
Darvin M. Winick
<PAGE>
EXECUTIVE OFFICERS
The names, ages and positions of all the executive officers of the Company
as of January 31, 2000 are listed below. Except as noted below, each officer was
last elected as an executive officer at the meeting of directors immediately
following the 1999 Annual Meeting of Shareholders. The term of each executive
officer will expire at the meeting of directors following the 2000 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>
<S> <C> <C> <C>
OFFICER
NAME AGE POSITION SINCE
- ----------------------------------- ---- ---------------------------------------- ------
Michael L. Grimes.............. 50 President and Chief Executive Officer 1999
John H. Doster................. 58 Senior Vice President and Chief Financial Officer 1998
Garth C. Bates, Jr.*........... 51 Senior Vice President 1991
T. Michael Andrews............. 59 Vice President 1982
Donald E. Stevenson............ 56 Vice President 1984
Keith T. Stevenson............. 53 Vice President 1986
C. Jim Stewart III............. 51 Vice President 1988
Lawrence E. Wilson............. 47 Vice President and Secretary 1989
Ralston R. Cole................ 62 Vice President 1998
J. Michael Conine.............. 51 Vice President 1998
Patrick G. O'Rourke............ 49 Controller and Chief Accounting Officer 1998
Frank M. Pool, Jr.............. 52 Vice President 1998
David R. Stewart............... 49 Treasurer 1998
John T. Wall................... 52 Vice President 1998
Ralph T. Tierno III............ 44 Vice President 1999
Richard M. Wiater.............. 64 Vice President 1999
</TABLE>
*Mr. Bates resigned from the Company in April 2000.
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 for more than the last five years.
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. Tierno was elected as a Vice President of the Company in 1999. He
previously served as President of Clarostat Sensors & Controls Inc., a division
of Invensys PLC, from March 1998 to September 1999. He previously served as Vice
President - General Manager of various divisions of Schlumberger, Ltd.
Mr. Wiater was elected as a Vice President of the Company in June 1999. He
previously was a personal investor and advisor to several small businesses from
1995 to 1998 after retiring from the General Electric 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.
<PAGE>
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 1999 and (ii) each of the other four highest compensated executive
officers.
<TABLE>
<CAPTION>
SUMMARY OF COMPENSATION
LONG-TERM
ANNUAL COMPENSATION COMPENSATION
--------------------------------- -----------------
<S> <C> <C> <C> <C> <C> <C> <C>
Other All
Annual Other
Name and Year ended Compen- Options LTIP Compen-
Principal Position January 31 Salary Bonus sation Granted Payout sation(3)
- ------------------- ---------- ------ ----- ------ ------- ------ ---------
Michael L. Grimes.......... 2000 $ 236,015 $250,000 (1) (2) 100,000 -0- $ 4,733 (4)
President and Chief 1999 N/A N/A (2) N/A N/A N/A
Executive Officer* 1998 N/A N/A (2) N/A N/A N/A
C. Jim Stewart II.......... 2000 -0- -0- (2) 3,000 -0- -0-
President and Chief 1999 -0- -0- (2) 1,000 -0- -0-
Executive Officer* 1998 -0- -0- (2) 1,000 -0- -0-
John H. Doster............. 2000 260,000 125,000 (2) 40,000 -0- 3,947 (5)
Senior Vice President and 1999 121,115 40,000 $21,156 (2) -0- -0- 302
Chief Financial Officer 1998 N/A N/A (2) N/A N/A N/A
Garth C. Bates, Jr......... 2000 300,689 100,000 (2) 30,000 -0- 4,802 (6)
Senior Vice President 1999 290,000 50,000 (2) 25,000 -0- 746
1998 260,000 150,000 (2) 20,000 -0- 668 (6)
Lawrence E. Wilson......... 2000 200,626 40,000 (2) 15,000 -0- 4,265 (7)
Vice President and 1999 190,000 40,000 (2) 12,000 -0- 2,989 (7)
Secretary 1998 180,000 85,000 (2) 10,000 -0- 2,794 (7)
Richard M. Wiater.......... 2000 108,173 125,000 (2) -0- -0- 2,250 (8)
Vice President 1999 N/A N/A (2) N/A N/A N/A
1998 N/A N/A (2) N/A N/A N/A
Robert L. Hargrave......... 2000 38,076 -0- (2) -0- -0- 1,314,375 (9)
1999 330,000 65,000 (2) 30,000 -0- 849
1998 260,000 250,000 (2) 20,000 -0- 1,066
C. LaRoy Hammer............ 2000 76,923 -0- (2) 20,000 -0- 652,825 (10)
1999 250,000 25,000 (2) 20,000 -0- 643
1998 250,000 60,000 (2) 20,000 -0- 643
</TABLE>
* Mr. Stewart served as Chief Executive Officer from February 1, 1999 until
April 20, 1999. Mr. Michael L. Grimes became Chief Executive Officer on
April 20, 1999.
(1) Mr. Grimes' bonus compensation consists of (i) a signing bonus in the
amount of $100,000 paid in April 1999, and (iii) a bonus in the amount of
$150,000 for the fiscal year ended January 31, 2000.
(2) Except with respect to Mr. Doster, the total amount of all perquisites and
other personal benefits, securities or property paid or accrued by the
Company is less than the lesser of (i) $50,000 or (ii) 10% of the total of
annual salary and bonus. During the fiscal year ended January 31, 1999,
the Company paid Mr. Doster's relocation expenses in the amount of $21,156.
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 was
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.
(3) 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.
(4) For the fiscal year ended January 31, 2000, Other Compensation for Mr.
Grimes consists of term life insurance premiums of $579 and contributions
by the Company to a defined contribution pension plan of $4,154.
(5) For the fiscal year ended January 31, 2000, Other Compensation for Mr.
Doster consists of term life insurance premiums of $662 and
contributions by the Company to a defined contribution pension plan of
$3,285.
(6) For the fiscal year ended January 31, 2000, Other Compensation for Mr.
Bates consists of term life insurance premiums of $772 and contributions
by the Company to a defined contribution pension plan of $4,030.
(7) For each of the fiscal years ended January 31, 2000, 1999 and 1998,
respectively, Other Compensation for Mr. Wilson consists of term life
insurance premiums of $515, $489 and $419, and contributions by the Company
to a defined contribution pension plan of $3,750, $2,500 and $2,375.
(8) For the fiscal year ended January 31, 2000, Other Compensation for Mr.
Wiater consists of contributions by the Company to a defined contribution
pension plan of $2,250.
(9) Mr. Hargrave retired from the Company on March 1, 1999. For the fiscal
year ended January 31, 2000, Other Compensation for Mr. Hargrave
consists of a severance package.
(10) Mr. Hammer retired from the Company on May 1, 1999. For the fiscal year
ended January 31, 2000, Other Compensation for Mr. Hammer consists of a
severance package.
<PAGE>
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 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 606,900 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 3,000 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 1999, the Company granted options to purchase an aggregate of
(i) 283,000 shares of Common Stock under the 1988 Plan, (ii) 138,750 shares of
Common Stock under the 1993 Plan and (iii) 24,000 shares of Common Stock under
the 1996 Plan. No limited stock appreciation rights were granted under the 1988
Plan during Fiscal 1999 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 1999 and the value of all outstanding options owned as of January
31, 2000 by the individuals named in the Summary Compensation Table.
<TABLE>
<CAPTION>
OPTION/SAR GRANTS DURING FISCAL 1999
Potential Realizable Value at
Assumed Annual Rates of
Stock Price Appreciation
Individual Grants for Option Term
---------------------------------------------- ------------------------
<S> <C> <C> <C> <C> <C> <C>
% of Total Exercise
Options Price
Options Granted to per Expiration
Name Granted (1) Employees share (2) Date 5% 10%
- ----- ----------- --------- --------- ---- -- ---
Michael L. Grimes........ 100,000 23.7 $8.91 04/20/2009 $560,112 $1,419,435
C. Jim Stewart II........ 3,000 0.7 11.75 06/08/2009 22,169 56,179
John H. Doster........... 40,000 9.5 10.50 03/11/2009 109,391 422,966
Garth C. Bates, Jr....... 30,000 7.1 10.50 03/11/2009 82,043 317,225
Lawrence E. Wilson....... 15,000 3.6 10.50 03/11/2009 41,022 158,612
Richard M. Wiater........ -0- 0.0 N/A N/A N/A N/A
Robert L. Hargrave....... -0- 0.0 N/A N/A N/A N/A
C. LaRoy Hammer.......... 20,000 4.7 10.50 03/11/2009 54,695 211,483
All Employees, including
officers............... 421,750 100.0 10.50 03/11/2009 1,153,389 4,459,651
</TABLE>
(1) All options become exercisable in four 25% cumulative annual
installments commencing March 11, 2000, except those granted to Mr.
Grimes which become exercisable in four 25% cumulative annual
installments commencing April 20, 2000, and those granted to Mr.
Stewart which become fully exercisable June 8, 2000.
(2) All options are exercisable at the prices shown, which are not less than
the closing market price on the date of grant.
<TABLE>
<CAPTION>
<PAGE>
OPTION/SAR EXERCISES DURING FISCAL 1999
AND YEAR-END VALUES
Number of Unexercised Value of Unexercised In-the-
Options at Money Options at
January 31, 2000 January 31, 2000
----------------------- ------------------------
<S> <C> <C> <C> <C> <C> <C>
Shares
Acquired on Value
Name Exercise Realized Exercisable Unexercisable Exercisable Unexercisable
- ----- -------- -------- ----------- ------------- ----------- -------------
Michael L. Grimes........ -0- N/A -0- 100,000 $-0- $90,620
C. Jim Stewart II........ -0- N/A 3,750 3,250 -0- -0-
Garth C. Bates, Jr....... -0- N/A 61,250 63,250 -0- -0-
John H. Doster........... -0- N/A -0- 40,000 -0- -0-
Lawrence E. Wilson....... -0- N/A 42,700 31,500 -0- -0-
Richard M. Wiater........ -0- N/A -0- -0- -0- -0-
Robert L. Hargrave....... -0- N/A 104,000 -0- -0- -0-
C. LaRoy Hammer.......... -0- N/A 105,000 -0- -0- -0-
All Employees, including
officers............... -0- N/A 865,239 710,311 -0- 90,620
</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.
<PAGE>
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
----------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
FINAL AVERAGE COMPENSATION 15 20 25 30 35
-------------------------- -- -- -- -- --
$125,000........................... 24,288 32,376 40,476 52,624 57,096
150,000........................... 29,916 39,888 49,848 59,820 70,224
175,000........................... 35,544 47,388 59,232 71,076 83,340
200,000........................... 41,160 54,888 68,604 82,320 96,468
225,000........................... 46,788 62,388 77,976 93,576 109,596
250,000........................... 52,416 69,888 87,360 104,820 122,724
300,000........................... 63,672 84,888 106,104 127,332 148,980
400,000........................... 86,172 114,888 143,616 172,332 201,480
450,000........................... 97,428 129,900 162,360 194,832 227,736
500,000........................... 108,672 144,900 181,116 217,332 253,980
</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
2001 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
- -------------------------- --------- ------------- ------------
Michael L. Grimes......... 1 N/A N/A
C. Jim Stewart II......... 44 -0- -0-
Garth C. Bates, Jr........ 29 380,475 $255,475
John H. Doster............ 2 N/A N/A
Lawrence E. Wilson........ 21 262,862 177,862
Richard M. Wiater......... 1 N/A N/A
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.
<PAGE>
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 1999
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 2001 ANNUAL MEETING
Shareholders may submit proposals for the 2001 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 2001 Annual Meeting,
such proposals should be received by the Company on or before January 11, 2001.
By Order of the Board of Directors,
/s/ LAWRENCE E. WILSON
LAWRENCE E. WILSON
Vice President, Secretary and
General Counsel
Dated: Houston, Texas
May 11, 2000
<PAGE>
EXHIBIT A
STEWART & STEVENSON SERVICES, INC.
AUDIT COMMITTEE
CHARTER
The audit committee of the board of directors consists of directors who are
independent of the management of the company and free to exercise independent
judgment. The committee provides assistance to the board of directors,
shareholders and prospective shareholders by providing oversight of corporate
accounting, financial controls, reporting practices and the quality and
integrity of financial reports. On behalf of the board, the committee:
A. Assures that open communications exist between the directors,
independent auditors, internal auditors and the financial management of the
company and recommends to the directors changes in policies, practices, or
organization to improve the company's financial management, controls or
reporting.
B. Recommends to the directors the independent auditors to audit the
corporation and its divisions and subsidiaries. The committee:
1. Prior to the annual audit, meets with the independent auditors and
financial management to review the scope and cost of the audit and the
procedures to be used and, at the conclusion of the audit, reviews all
reports, statements, comments and recommendations of the independent
auditors.
2. Prior to release, reviews the financial statements to be contained
in the annual report to shareholders, all reports to regulatory
bodies and releases to the investment community to determine that
the disclosures and content of the reports are satisfactory in the
opinion of the independent auditor and legal counsel.
3. Reviews with financial management and the independent auditors at
least annually the adequacy and effectiveness of accounting
practices and internal controls of the company, the scope and
effectiveness of internal audit activities and the compliance of
the company with laws, regulatory requirements and the company's code
of Business Practices.
C. Reviews with financial management the annual internal audit plan,
determines that the independence and authority of the internal auditors are
adequate and meets with the internal auditors to review their findings and
recommendations.
<PAGE>
ORGANIZATION
A. The committee consists of four directors. Committee members are nominated
by the corporate governance committee and elected by the board of
directors. At least four meetings are held annually.
B. A chair is appointed by the board from the committee members who sets the
date of four regular meetings, calls special meetings as required,
maintains meeting records and reports to the directors on all committee
Activities.
C. The committee may investigate any matter within the scope of its
responsibilities, may retain independent counsel or professional services,
if necessary, to discharge its duties and may meet independently with
members of management, independent or internal auditors or others to obtain
information.
<PAGE>
APPENDIX
STEWART & STEVENSON SERVICES, INC. ANNUAL MEETING OF SHAREHOLDERS
2707 NORTH LOOP WEST TO BE HELD JUNE 13, 2000
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 13, 2000, 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.
Only holders of Common Stock of Stewart & Stevenson Services,
Inc. of record at the close of business on April 26, 2000 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 this
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
MAY 11, 2000 VICE PRESIDENT, GENERAL COUNSEL AND
SECRETARY
DETACH PROXY CARD HERE
<PAGE>
STEWART & STEVENSON SERVICES, INC.
ANNUAL MEETING OF SHAREHOLDERS - JUNE 13, 2000
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 13th day of June, 2000 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 PROPOSAL
2. UNLESS OTHERWISE SPECIFIED, THIS PROXY WILL BE VOTED FOR THE ELECTION OF ALL
NOMINEES LISTED ON THE REVERSE SIDE AND FOR PROPOSAL 2.
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)
STEWART & STEVENSON SERVICES, INC.
P.O. BOX 11285
NEW YORK, NY 10203-0285
<PAGE>
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THE FOLLOWING NOMINEES AND "FOR"
ITEM 2.
1. Election of Directors FOR all nominees WITHHOLD AUTHORITY to vote
listed below [ ] for all nominees listed below [ ]
*EXCEPTIONS [ ]
Nominees: C. Jim Stewart II, Michael L. Grimes, Monroe M. Luther, Charles R.
Ofner
(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 In their discretion the Proxies
as independent public accountants are authorized to vote upon such
of the Company. other matters as may properly
come before the meeting or any
FOR [ ] AGAINST [ ] ABSTAIN [ ] adjournment or postponement
thereof.
