-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, NJIvNiaIh8OPYs23T/P3/R3XEQw/DxhIG3t087/Bk3z97LSrIuKSR926F92qB8Ho OqXWofaBEWhLewFXy7I/1w== 0000094328-98-000012.txt : 19980521 0000094328-98-000012.hdr.sgml : 19980521 ACCESSION NUMBER: 0000094328-98-000012 CONFORMED SUBMISSION TYPE: DEF 14A PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 19980131 FILED AS OF DATE: 19980512 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: STEWART & STEVENSON SERVICES INC CENTRAL INDEX KEY: 0000094328 STANDARD INDUSTRIAL CLASSIFICATION: 3510 IRS NUMBER: 741051605 STATE OF INCORPORATION: TX FISCAL YEAR END: 0131 FILING VALUES: FORM TYPE: DEF 14A SEC ACT: SEC FILE NUMBER: 001-11443 FILM NUMBER: 98616192 BUSINESS ADDRESS: STREET 1: 2707 N LOOP W CITY: HOUSTON STATE: TX ZIP: 77008 BUSINESS PHONE: 7138687700 MAIL ADDRESS: STREET 1: P O BOX 1637 CITY: HOUSTON STATE: TX ZIP: 77251-1637 DEF 14A 1 PROXY SECURITIES 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: [ ] Preliminary Proxy Statement [ ] Confidential, for use of the Commission only (as permitted by Rule 14a-6(e)(2)) [X] Definitive Proxy Statement [ ] Definitive Additional Materials [ ] Soliciting Material Pursuant to 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):_____________________________________________ 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 9, 1998, and Adjournments _______________ Approximate date proxy material first sent to shareholders: May 15, 1998 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 9, 1998, 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. 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, 1999. The presence of the holders of a majority of the issued and outstanding shares of Common Stock entitled to vote, either in person or represented by proxy, is necessary to constitute a quorum for the transaction of business at the Annual Meeting. Proxies that withhold authority to vote for a nominee or abstain from voting on any matter are counted for the purpose of determining whether a quorum is present. Broker non-votes, which may occur when a broker or nominee has not received timely voting instructions on certain proposals, are not counted for the purpose of determining whether a quorum is present. If there are not sufficient shares represented at the meeting to constitute a quorum, the meeting may be adjourned until a specified future date to allow the solicitation of additional proxies. Directors are elected by a plurality of the votes cast at the meeting. The four nominees that receive the greatest number of votes will be elected even though the number of votes received may be less than a majority of the shares represented in person or by proxy at the meeting. Proxies that withhold authority to vote for a nominee and broker non-votes will not prevent the election of such nominee if other shareholders vote for such a nominee. The approval of 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 22, 1998, the record date for the Annual Meeting, the Company had outstanding 31,560,868 shares (not including treasury shares) of Common Stock, without par value. Each outstanding share of Common Stock is entitled to one vote with respect to each of the four director positions and one vote with respect to each of the other matters considered at the meeting. Cumulative voting is not permitted under the Company's Third Restated Articles of Incorporation. Shareholders of record at the close of business on April 22, 1998 are entitled to vote at or execute proxies relating to the Annual Meeting of Shareholders. The following table lists the beneficial ownership of shares of the Company's Common Stock by (i) all persons and groups known by the Company to own beneficially more than 5% of the outstanding shares of the Company's Common Stock, (ii) each director and nominee, (iii) the Chief Executive Officer and four highest compensated executive officers who were serving as executive officers on January 31, 1998, 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, 1998 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 __________________________________________________________ Sole Shared Sole Shared Total Percent Name of Voting Voting Investment Investment Beneficial Of Individual or Group Power Power Power Power Ownership Class 5% SHAREHOLDERS FMR Corporation 82 Devonshire Street Boston, MA 02109........................... 156,300 -0- 2,957,100 -0- 2,957,100 9.3 Neuberger & Berman, LLC 605 Third Avenue New York, NY 10158-3698.................... 1,066,800 683,300 -0- 1,892,000 1,892,000 5.9 INDIVIDUAL DIRECTORS AND NOMINEES C. Jim Stewart II............................. 391,399 251,425 411,339 231,425 643,514 (F2) 2.0 J. Carsey Manning............................. 1,026 -0- 1,026 -0- 1,776 (F2) * Donald E. Stevenson........................... 495,204 940 496,144 -0- 502,594 (F3) 1.6 Robert H. Parsley............................. 2,674 -0- 2,674 -0- 3,424 (F2) * Jack W. Lander, Jr............................ 6,426 -0- 6,426 -0- 7,176 (F2) * Robert L. Hargrave............................ 40,463 -0- 40,463 -0- 85,963 (F4) * Jack T. Currie................................ 6,426 -0- 6,426 -0- 7,176 (F2) * Robert S. Sullivan............................ 526 -0- 526 -0- 1,276 (F2) * Richard R. Stewart............................ 133,166 7,935 138,466 2,635 221,101 (F5) * Orson C Clay.................................. 3,426 -0- 3,426 -0- 4,176 (F2) * Brian H. Rowe................................. 3,326 -0- 3,326 -0- 4,076 (F2) * NON-DIRECTOR EXECUTIVE OFFICERS Garth C. Bates, Jr............................ 70,469 12,126 82,775 -0- 124,775 (F6) * C. LaRoy Hammer............................... 33,000 -0- 33,000 -0- 71,500 (F7) * Jay C. Manning................................ 989 -0- 989 -0- 17,589 (F8) * EXECUTIVE OFFICER NO LONGER SERVING ON JANUARY 31, 1998 Bob H. O'Neal(1).............................. 34,774 -0- 34,774 -0- 99,774 (F9) * ALL DIRECTORS AND EXECUTIVE OFFICERS (19 Persons)...................................... 2,313,788 279,886 2,357,394 236,220 2,911,014 (F10) 9.1 * Less than 1% _______________ (F1) Mr. O'Neal was on administrative leave in Fiscal 1997 and retired on December 31, 1997. (F2) Includes options to purchase 750 shares of Common Stock. (F3) Includes options to purchase 6,450 shares of Common Stock. (F4) Includes options to purchase 45,500 shares of Common Stock. (F5) Includes options to purchase 80,000 shares of Common Stock. (F6) Includes options to purchase 42,000 shares of Common Stock. (F7) Includes options to purchase 38,500 shares of Common Stock. (F8) Includes options to purchase 16,600 shares of Common Stock. (F9) Includes options to purchase 65,000 shares of Common Stock. (F10) Includes options to purchase 317,400 shares of Common Stock.
ELECTION OF DIRECTORS The Board of Directors of the Company consists of ten directors divided into three classes. One class of directors consists of four members, and the other two classes each consist 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 2001. Each of the nominees except for Mr. William R. Lummis currently serves as a director of the Company, and the Board of Directors believes that each of the nominees will be willing and able to serve. If any such person is unable to serve for good cause, or is unwilling to serve for any reason, proxies will be voted for the election of another person selected by the Nominating Committee of the Board of Directors. The Board of Directors recommends that the nominees listed below be elected by the shareholders. Unless otherwise specified, all properly executed proxies received by the Company will be voted at the Annual Meeting or any adjournment thereof for the election of the persons whose names are listed in the following table as nominees for directors whose term will expire in 2001.
NOMINEES FOR DIRECTORS WHOSE TERM EXPIRES IN 2001 Director Name and Principal Occupation Age Since - - ----------------------------------------------------------------------------------------- J. CARSEY MANNING...................................................... 72 1973 Retired Senior Vice President of the Company. DONALD E. STEVENSON(F1)(F4)............................................ 54 1975 Vice President of the Company. ROBERT S. SULLIVAN(F2)(F3)............................................. 54 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...................................................... 69 N/A 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. DIRECTORS WHOSE TERM WILL EXPIRE IN 1999 Director Name and Principal Occupation Age Since - - ----------------------------------------------------------------------------------------- ROBERT L. HARGRAVE(F1)................................................. 57 1984 President and Chief Executive Officer of the Company. ORSON C CLAY(F2)....................................................... 67 1994 Retired President of American National Insurance Co., a diversified life insurance company in Galveston, Texas. BRIAN H. ROWE(F2)...................................................... 66 1994 Retired Chairman of GE Aircraft Engines, General Electric Company, a manufacturer of Combustion turbine engines for aircraft, marine and industrial applications in Cincinnati, Ohio. Before 1993, served as President and Chief Executive Officer and, before 1991, as Senior Vice President of GE Aircraft Engines, General Electric Company. Serves as a director of 5th/3rd Bank Corp. of Cincinnati, Ohio; Atlas Air, Inc. of Golden, Colorado; B/E Aerospace, Inc. of Wellington, Florida; Textron, Inc. of Providence, Rhode Island; Canadian Marconi Company of Montreal, Quebec and Cincinnati Bell Inc. of Cincinnati, Ohio. DIRECTORS WHOSE TERM EXPIRES IN 2000 Director Name and Principal Occupation Age Since - - ----------------------------------------------------------------------------------------- C. JIM STEWART II(F1)(F4).............................................. 72 1955 Chairman of the Board of the Company. Retired Chief Executive Officer of the Company. JACK W. LANDER, JR.(F2)(F3)(F4)........................................ 72 1982 Chairman of the Board of Merchants Bancshares, Inc. and Chairman of the Board and director for its holding company, Gulf Southwest Bancorp, Inc., in Houston, Texas. JACK T. CURRIE(F3)(F4)................................................. 69 1988 Personal investments. Retired Managing Director of Mason Best Company, a merchant banking firm in Houston, Texas and retired Vice Chairman of Rotan Mosle Financial Corp., an investment banking firm in Houston, Texas. Director for American Indemnity Financial Corp.; American National Growth Fund, Inc.; American National Income Fund Inc. and Triflex Fund, Inc. _______________ (F1) Member of Executive Committee. (F2) Member of Compensation and Management Development Committee. (F3) Member of Audit Committee. (F4) Member of Nominating Committee.
Each nominee and current director has been employed for more than five years either as shown in the foregoing table or in various executive capacities with the Company. All nominees except for Mr. William R. Lummis were last elected as a director at the 1995 Annual Meeting. Meetings and Committees of the Board of Directors The Board of Directors held nine meetings during the fiscal year ended January 31, 1998 ("Fiscal 1997"). During Fiscal 1997, 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 1997. 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 three meetings during Fiscal 1997. The Nominating Committee selects nominees for the Board of Directors of the Company. The Nominating Committee considers nominees submitted by the members of the Board of Directors, the officers of the Company and the Company's shareholders. Nominees for the Board of Directors may be submitted to the Chairman of the Nominating Committee at the Company's executive offices for consideration by the Nominating Committee. The Nominating Committee held one meeting during Fiscal 1997. Compensation Committee Interlocks and Insider Participation No person serving on the Compensation and Management Development Committee during Fiscal 1997 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 1997 served, on the Board of Directors or Compensation and Management Development Committee of the Company. The Company's Compensation and Management Development Committee presently consists of Messrs. Orson C Clay, Jack W. Lander, Jr., Brian H. Rowe and Robert S. Sullivan. Compensation of Directors During Fiscal 1997, directors whose principal occupation is other than employment with the Company were compensated at the rate of $8,000 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 1997, 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 1997, (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, 1999. 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, 1999 be ratified by the shareholders. Unless otherwise indicated, all properly executed proxies received by the Company will be voted for such ratification at the Annual Meeting or any adjournment thereof. An adverse vote will be considered a direction to the Audit Committee to select other independent public accountants in the following year. Notwithstanding any statement contained in a previous filing by the Company under the Securities Act of 1933, as amended, or the Securities Act of 1934, as amended, neither the Performance Graph set forth below nor the Report of the Compensation and Management Development Committee that follows is incorporated by reference into any such filing. PERFORMANCE OF STEWART & STEVENSON COMMON STOCK The following graph compares the cumulative total shareholder return on the Company's Common Stock to the cumulative total shareholder return of the Standard & Poor's 500 Stock Index and the cumulative total shareholder return of the Standard & Poor's Machinery-Diversified Index for the Company's last five fiscal years. The graph assumes that the value of an investment in the Company's Common Stock and each index was $100 on January 31, 1993 and that all dividends were reinvested. [Performance Graph]
Year Ended January 31, 1993 1994 1995 1996 1997 1998 Stewart & Stevenson Services, Inc. 100 134 88 71 72 72 S&P 500 Stock Index 100 113 113 157 199 252 S&P Machinery-Diversified Index 100 144 134 177 210 263
REPORT OF THE COMPENSATION AND MANAGEMENT DEVELOPMENT COMMITTEE TO THE SHAREHOLDERS OF STEWART & STEVENSON SERVICES, INC. The Compensation and Management Development Committee of the Board of Directors (the "Committee") consists of four independent, non-employee directors who have no "interlocking" relationships as defined by the Securities and Exchange Commission. The Committee reviews and recommends all salary arrangements and other executive compensation for approval by the independent members of the Board of Directors, approves the design of executive compensation programs, administers such programs and assesses their effectiveness in supporting the Company's compensation policies. The Committee also evaluates executive performance and considers management succession and related matters. The Committee is authorized to, and does, retain independent consultants to assist in the design of compensation programs and assess their effectiveness. The Committee is committed to implementing a compensation program that encourages creation of shareholder value. To facilitate the achievement of the Company's business strategies, the Committee adheres to the following compensation policies: To strengthen the relationship between pay and performance, executives' annual and long-term compensation programs should include variable compensation that is dependent upon the contribution of each executive to the Company's performance. To focus management on the achievement of both short-term performance goals and the long-term interests of shareholders, a significant portion of each executive's total compensation should consist of "at-risk" compensation. To enable the Company to attract, retain and encourage the development of the best available executive personnel, competitive compensation opportunities should be offered. Total Compensation In determining the total compensation levels and the levels of each component of compensation for the Company's executives, the Committee refers to levels of compensation paid to executives of a comparator group of companies. This comparator group is comprised of companies with national business operations and one or more lines of business similar to the major business segments of the Company. Compensation information relating to the executive officers of the comparator companies is obtained from independent sources and adjusted for differences in the size of the comparator companies, as measured by sales volumes and market capitalization. The Committee uses the adjusted information as a measurement of competitive compensation levels for executive positions within the Company. The selection of companies used for compensation comparison purposes is reviewed and approved by the Committee each year. The companies comprising the comparator group used for compensation purposes generally are not the same companies comprising the published industry index used in the Performance Graph included in this proxy statement. The Committee believes that the Company's most direct competitors for executive talent are not necessarily the same companies included in the Standard & Poor's Machinery - Diversified Index, which is used for comparing shareholder returns. The key elements of the Company's executive compensation program are base salary, annual incentives and long-term incentives, each of which is addressed separately below. In determining each component of compensation, the Committee considers all elements of an executive's total compensation package and relationship of such executive's total compensation to the total compensation paid to executives holding similar positions in the comparator group of companies. The Company's President, Mr. Bob H. O'Neal, was on administrative leave for most of the twelve months ended January 31, 1998 ("Fiscal 1997"). The total compensation paid to Mr. O'Neal was substantially below the total compensation paid to the Presidents of the comparator companies because the Committee deferred any action on salary increases, annual incentives, and long-term incentives until such time as Mr. O'Neal returned from leave. During Mr. O'Neal's absence, Mr. Robert L. Hargrave, the Company's Chief Financial Officer, undertook the additional duties of the Chief Executive Officer. The total compensation paid to Mr. Hargrave is below the mean compensation paid to the Chief Executive Officers of the comparator group because of his temporary assignment in this position and 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 similar officers in the comparator group because cash and long-term incentives were reduced to reflect the Company's performance. Base Salary Base salary levels are generally targeted at or below the median levels of compensation for the Company's comparator group. Each executive's base salary is reviewed regularly by the Committee. Increases to base salaries are driven primarily by individual performance, which is evaluated based on sustained levels of individual contribution to the Company. The executive's experience and past performance are also considered, as are historical individual base salary levels, the individual executive's expected role for the upcoming fiscal year and changes in the cost of living. In making its evaluation, the Committee has assigned no particular weights to these factors. Base salaries established by the Committee for Fiscal 1997 were generally near the median level of salaries for similar positions in the comparator companies. No change was made to Mr. O'Neal's base salary in Fiscal 1997 because of his status on administrative leave. In determining Mr. Hargrave's base salary in Fiscal 1997, the Committee considered his long-term contributions to the success of the Company and the additional temporary duties as the Company's Chief Executive Officer. Although Mr. Hargrave's base salary was above the median salary of the Chief Financial Officers in the comparator group, it was substantially below the median salary paid by the comparator group to their Chief Executive Officers and was below the salary paid by the Company to Mr. O'Neal. Annual Incentives The Company provides an annual bonus opportunity to executives. Annual bonuses motivate executives to maximize short-term performance as a part of achieving long-term goals. In addition, bonus payments are used to compensate executives for the lower than median base salaries and provide a competitive total annual compensation. In establishing bonus payments made to each executive officer, the Committee considers (i) the aggregate total annual compensation paid by the Company to such person compared to amounts paid by the comparator group of companies for similar positions, (ii) the performance of the Company in comparison to other companies in the same industry and in comparison to the market as a whole and (iii) the performance of the cost or profit centers for which an individual executive is responsible compared to goals established for such cost or profit centers. The Committee has assigned no particular weights to these factors in establishing bonus payments. Bonus payments approved by the Committee for Fiscal 1997 were affected primarily by the performance of the Company compared to other companies in the same industry and by the level of salary paid to each position compared to the mean salaries paid by the comparator companies for similar positions. The Committee further reduced or increased the bonus paid to each officer based either on the performance of the business unit for which such officer was responsible or the perceived contribution of such officer to overall Company performance if the officer was not directly responsible for a business unit. No bonus was paid to Mr. O'Neal because of his status on administrative leave. Mr. Hargrave's bonus reflects both his temporary duties as the Chief Executive Officer and the Company's overall financial performance. Mr. Hargrave's and certain other officers' bonuses were increased based on their contribution and performance in connection with the sale of the Company's Gas Turbine Operations to the General Electric Company during Fiscal 1997. 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 to similar positions by the comparator group but was considered by the Committee to be within the acceptable competitive range for each position. Certain positions were in excess of the mean annual compensation paid by the comparator companies for similar positions because of the performance of certain highly performing business units during Fiscal 1997. 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 1997 consisted exclusively of stock options pursuant to the Stewart & Stevenson 1988 Nonstatutory Stock Option Plan. Stock options under this plan are granted at an option price not less than the fair market value of the Common Stock on the date of grant. Accordingly, stock options have value only if the stock price appreciates from the date the options are granted. The design of these stock options focuses executives on the creation of shareholder value over the long term and encourages equity ownership in the Company. The size of award to each executive is effected by individual performance, level of responsibility, historical award data, other compensation and the number of shares of common stock already owned by the recipient. Overall, the Committee attempts to provide a competitive long-term benefit based on the dollar value of the options granted. As a result, the number of shares underlying stock option awards varies from year to year and is dependent on the stock price on the date of grant. No stock options were awarded to Mr. O'Neal during Fiscal 1997 because of his status on administrative leave. The dollar value of the stock options granted to Mr. Hargrave and the other officers of the Company during Fiscal 1997 was substantially below the median value of long-term incentives granted to similar positions by the comparator group because the Committee believes that the market price of the Company's Common Stock on the date of grant was below normal levels. Policy with Respect to the $1 Million Deduction Limit Section 162(m) of the Internal Revenue Code of 1986 generally limits the corporate deduction for compensation paid to executive officers named in the proxy to $1 million, unless certain requirements are met. The Committee has carefully considered the impact of this provision on the Company's incentive plans and has determined that Section 162(m) is currently inapplicable because no named executive officer is expected to receive compensation, other than performance-based compensation, in excess of $1 million in the foreseeable future. The Committee believes it is in the Company's and shareholders' best interest to retain the Committee's discretionary evaluation of individual and Company performance when determining total compensation payable to the Company's executive officers. Additional Information About Executive Compensation On September 21, 1997, the Company signed an agreement to sell substantially all of the assets of its Gas Turbine Operations to the General Electric Company for an aggregate sale price of approximately $600 million, subject to certain adjustments. Certain officers that became employees of General Electric in connection with this transaction were paid substantial bonuses as compensation for their past efforts in increasing the value of the Gas Turbine Operations and their efforts in maximizing the purchase price received by the Company. The Committee has retained a new compensation consultant to assist it in designing and implementing a performance based incentive compensation program for the Company's officers which will incorporate objective measurements of Company performance. The Committee intends to continue its practice of exercising discretion in the application of the incentive compensation plans but such discretion will affect only a portion of the incentives paid to each executive in future fiscal years. Conclusion The Committee believes these executive compensation policies and programs serve the interests of the shareholders and the Company effectively. The various pay vehicles offered are appropriately balanced to provide increased motivation for executives to contribute to the Company's overall future success, thereby enhancing the value of the Company for the shareholders' benefit. The Committee will continue to monitor the effectiveness of the Company's total compensation program to meet the current needs of the Company. Respectfully submitted, THE COMPENSATION AND MANAGEMENT DEVELOPMENT COMMITTEE Orson C Clay - Chairman Jack W. Lander, Jr. Robert S. Sullivan Brian H. Rowe EXECUTIVE OFFICERS The names, ages and positions of all the executive officers of the Company as of January 31, 1998 are listed below. Except as noted below, each officer was last elected as an executive officer at the meeting of directors immediately following the 1997 Annual Meeting of Shareholders. The term of each executive officer will expire at the meeting of directors following the 1998 Annual Meeting of Shareholders, except that Richard R. Stewart and Jay C. Manning resigned from the Company effective February 2, 1998 in connection with the sale of the Company's Gas Turbine Operations to the General Electric Company. There exist no arrangements or understandings between any officer and any other person pursuant to which the officer was elected.
Officer Name Age Position Since ___________________________________ ____ _______________________________________________ ______ Robert L. Hargrave................. 57 Chief Executive Officer, Chief Financial 1981 Officer & Treasurer Richard R. Stewart................. 48 Group Vice President (Engineered Power Systems) 1986 Garth C. Bates, Jr................. 49 Group Vice President (Distribution) 1991 C. LaRoy Hammer.................... 61 Group Vice President (Tactical Vehicle Systems) 1980 T. Michael Andrews................. 57 Vice President 1982 Donald E. Stevenson................ 54 Vice President 1984 Keith T. Stevenson................. 51 Vice President 1986 C. Jim Stewart III................. 49 Vice President 1988 Jay Manning........................ 41 Vice President 1996 Lawrence E. Wilson................. 45 Vice President and Secretary 1989
Each of the officers listed above, except Jay C. Manning, has been employed by the Company in an executive capacity for more than five years. Jay C. Manning was elected as a Vice President of the Company in 1996. He previously served as a Vice President of Stewart & Stevenson International, Inc., a subsidiary of the Company, from 1994 to 1996, and as an International Sales Manager from 1992 to 1994. Richard R. Stewart and C. Jim Stewart III are sons of Mr. C. Jim Stewart II, the Chairman of the Board of Directors of the Company. Garth C. Bates, Jr. is a nephew of Mr. C. Jim Stewart II and a first cousin of Richard R. Stewart and C. Jim Stewart III. Keith T. Stevenson is the brother, and T. Michael Andrews is a first cousin, of Mr. Donald E. Stevenson, a director of the Company. These persons and other members of the Stewart family and the Stevenson family could be deemed "control persons" with respect to the Company as such term is defined in the rules and regulations of the Securities and Exchange Commission. Jay C. Manning is the son of Mr. J. Carsey Manning, a director of the Company. At a meeting of directors on April 14, 1998, the following actions were taken regarding the executive officers of the Company. Robert L. Hargrave was elected to serve as President and Chief Executive Officer of the Company, and Garth C. Bates, Jr. and C. LaRoy Hammer were each elected to serve as Senior Vice Presidents of the Company. Also, the following new executive officers were elected. Donavon L. Wallin, 63, was elected to serve as a Vice President of the Company. Mr. Wallin previously served as President of Stewart & Stevenson Operations, Inc., a subsidiary of the Company. Patrick G. O'Rourke, 48, was elected to serve as Controller of the Company. Mr. O'Rourke previously served as the Company's corporate controller. David R. Stewart, 47, was elected to serve as Treasurer of the Company. Mr. Stewart has served the Company as Director of Investor Relations and will continue to serve in that position. Patrick G. O'Rourke is a first cousin of Keith T. Stevenson, Donald E. Stevenson and T. Michael Andrews. David R. Stewart is the son of Mr. C. Jim Stewart II and the brother of Richard R. Stewart and C. Jim Stewart III. EXECUTIVE COMPENSATION The following Summary Compensation Table shows the aggregate compensation paid or accrued by the Company during each of the last three fiscal years to or for the Company's current Chief Executive Officer and each of the four highest compensated executive officers.
SUMMARY OF COMPENSATION Long-Term Annual Compensation Compensation _________________________________ ___________________ Other All Annual Other Name and Year ended Compen- Options LTIP Compen- Principal Position January 31 Salary Bonus sation Granted Payout sation(F2) Robert L. Hargrave......... 1998 $260,000 $200,000 (F1) 20,000 -0- $ 668 Chief Executive Officer, 1997 234,169 150,000 (F1) 20,000 -0- 1,066 Chief Financial Officer & 1996 207,115 200,000 (F1) 14,000 -0- 842 Treasurer Richard R. Stewart......... 1998 270,000 250,000 (F1) 20,000 -0- 1,319 (F3) Group Vice President, 1997 259,353 85,000 (F1) 20,000 -0- 3,663 (F4) (Engineered Power Systems) 1996 238,115 170,000 (F1) 17,500 -0- 976 Garth C. Bates, Jr......... 1998 260,000 150,000 (F1) 20,000 -0- Group Vice President 1997 234,108 120,000 (F1) 18,000 -0- 668 (Distribution) 1996 205,000 150,000 (F1) 14,000 -0- 935 C. LaRoy Hammer............ 1998 250,000 60,000 (F1) 20,000 -0- 643 Group Vice President 1997 224,169 70,000 (F1) 16,000 -0- 896 (Tactical Vehicle Systems) 1996 197,308 130,000 (F1) 14,000 -0- 811 Jay C. Manning............. 1998 120,000 200,000 (F1) 7,000 -0- 308 Vice President 1997 77,750 194,700 (F5)(F1) 3,000 -0- 314 1996 74,500 204,736 (F5)(F1) 3,000 -0- 192 Bob H. O'Neal.............. 1998 337,333 -0- (F1) -0- -0- 3,110 (F6) President* 1997 368,308 -0- (F1) -0- -0- 3,708 (F7) 1996 367,308 -0- (F1) 30,000 -0- 3,589 (F8) * Mr. O'Neal was on administrative leave in Fiscal 1997 and retired on December 31, 1997. (F1) 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. (F2) 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. (F3) Other Compensation for Mr. Stewart during the fiscal year ended January 31, 1998 consists of term life insurance premiums of $694 and contributions by the Company to a defined contribution pension plan of $625. (F4) Other Compensation for Mr. Stewart during the fiscal year ended January 31, 1997 consists of term life insurance premiums of $1,038 and contributions by the Company to a defined contribution pension plan of $2,625. (F5) Bonus compensation for Mr. Manning includes sales commission. (F6) Other Compensation for Mr. O'Neal during the fiscal year ended January 31, 1998 consists of term life insurance premiums of $947 and contributions by the Company to a defined contribution pension plan of $2,163. (F7) Other Compensation for Mr. O'Neal during the fiscal year ended January 31, 1997 consists of term life insurance premiums of $1,479 and contributions by the Company to a defined contribution pension plan of $2,229. (F8) Other Compensation for Mr. O'Neal during the fiscal year ended January 31, 1996 consists of term life insurance premiums of $1,550 and contributions by the Company to a defined contribution pension plan of $2,039.
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 984,950 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 1997, the Company granted options to purchase an aggregate of (i) 121,000 shares of Common Stock under the 1988 Plan, (ii) 246,900 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 1997 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 1997 and the value of all outstanding options owned as of January 31, 1998 by the individuals named in the Summary Compensation Table.
OPTION/SAR GRANTS DURING FISCAL 1997 Potential Realizable Value at Assumed Annual Rates of Individual Grants Stock Price Appreciation for Option Term ______________________________________________ ________________________ % of Total Exercise Options Price Options Granted to per Expiration Name Granted (F1) Employees share (F2) Date 5% 10% Robert L. Hargrave........ 20,000 5.4 $ 20.00 04/01/07 $ 251,558 $ 637,497 Richard R. Stewart........ 20,000 5.4 20.00 04/01/07 251,558 637,497 Garth C. Bates, Jr. 20,000 5.4 20.00 04/01/07 251,558 637,497 C. LaRoy Hammer........... 20,000 5.4 20.00 04/01/07 251,558 637,497 Jay C. Manning............ 7,000 1.9 20.00 04/01/07 88,045 223,124 Bob H. O'Neal............. -0- 0.0 N/A N/A N/A N/A All Employees, including officers................. 367,900 100.0 20.00 04/01/07 4,627,407 11,726,757 _______________ (F1) All options become exercisable in four 25% cumulative annual installments commencing on April 1, 1998. (F2) All options are exercisable at the closing market price on the date of grant.
OPTION/SAR EXERCISES DURING FISCAL 1997 AND YEAR-END VALUES Number of Unexercised Value of Unexercised In-the- Options at Money Options at January 31, 1998 January 31, 1998 _______________________ ________________________ Shares Acquired Name on Value Exercise Realized Exercisable Unexercisable Exercisable Unexercisable Robert L. Hargrave........ -0- $ N/A 29,500 44,500 $ 938 $ 91,563 Richard R. Stewart........ -0- N/A 33,125 46,875 938 91,563 Garth C. Bates, Jr........ -0- N/A 26,500 43,000 844 91,281 C. LaRoy Hammer........... 2,500 2,500 23,500 41,500 750 91,000 Jay C. Manning............ 4,000 3,000 5,925 10,675 141 31,484 Bob H. O'Neal............. -0- N/A 65,000 -0- -0- -0- All Employees, including officers 70,000 269,250 572,046 792,179 14,849 1,617,196
Retirement Plans The Company has a defined benefit Pension Plan (the "Pension Plan") under which benefits are determined primarily by average final base salary and years of service. The Pension Plan covers substantially all of its full-time employees, including officers, and, subject to certain limitations described below, bases pension benefits on 1.5% of (a) the employee's highest consecutive five-year average base salary out of the last ten years or (b) $235,840 ($160,000 in 1997 and thereafter subject to adjustment for increases in the cost of living), whichever is lower, times the employee's years of credited service. The Internal Revenue Code of 1986, as amended, limited benefits that may be paid under the Pension Plan to $125,000 per year in 1997. 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 (F1) Years of Service ______________________________________________________________________ Final Average Compensation 20 25 30 35 40 45 $100,000.......................... $ 24,863 $ 31,079 $ 37,294 $ 43,939 $ 51,439 $ 58,939 200,000........................... 54,863 68,579 82,294 96,439 111,439 126,439 300,000........................... 84,863 106,079 127,294 148,939 171,439 193,939 400,000........................... 114,863 143,579 172,294 201,439 231,439 261,439 500,000........................... 144,863 181,079 217,294 253,939 291,439 328,939 600,000........................... 174,863 218,579 262,294 306,439 351,439 396,439 700,000........................... 204,863 256,079 307,294 358,939 411,439 463,939 800,000........................... 234,863 293,579 352,294 411,439 471,439 531,439 900,000........................... 264,863 331,079 397,294 463,939 531,439 598,939 1,000,000......................... 294,863 368,579 442,294 516,439 591,439 666,439 _______________ (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............. 30 $ 372,234 $ 213,600 Richard R. Stewart............. 26 423,216 237,000 Garth C. Bates, Jr.............. 27 348,229 208,200 C. LaRoy Hammer................ 40 326,149 203,600 Jay C. Manning................. 19 269,601 82,600 Bob H. O'Neal.................. 33 539,461 350,800
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 1997 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 1999 ANNUAL MEETING Shareholders may submit proposals for the 1999 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 1999 Annual Meeting, such proposals should be received by the Company on or before January 15, 1999. By Order of the Board of Directors, LAWRENCE E. WILSON Vice President, Secretary and General Counsel Dated: Houston, Texas May 15, 1998 APPENDIX STEWART & STEVENSON SERVICES, INC. ANNUAL MEETING OF SHAREHOLDERS 2707 NORTH LOOP WEST TO BE HELD JUNE 9, 1998 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 9, 1998, 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 22, 1998 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 15, 1998 DETACH PROXY CARD HERE STEWART & STEVENSON SERVICES, INC. ANNUAL MEETING OF SHAREHOLDERS - JUNE 9, 1998 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 9th day of June, 1998 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.) 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: J. Carsey Manning, Donald E. Stevenson, Robert S. Sullivan and William R. Lummis (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 In their discretion the public accountants of the Company. Proxies are authorized to vote upon such other matters as may properly come before the meeting or any adjournment or postponement thereof. FOR [ ] AGAINST [ ] ABSTAIN [ ] Address Change and/or Comments Mark Here [ ] The signature on the Proxy should correspond exactly with shareholder's name as printed to the left. In the case of joint tenancies, co-executors or co-trustees, both should sign. Persons signing as Attorney, Executor, Administrator, Trustee or Guardian should give their full title. Dated: _____________, 1998 __________________________ Signature __________________________ Signature __________________________ VOTES MUST BE INDICATED (x) IN BLACK OR BLUE INK. X (Please sign, date and return this proxy in the enclosed postage paid envelope.) -----END PRIVACY-ENHANCED MESSAGE-----