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 INFORMATION SERVICES CORPORATION
(Name of Registrant as Specified in its Charter)
STEWART INFORMATION SERVICES CORPORATION
(Name of Person(s) Filing Proxy Statement)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and
0-11.
1) Title of each class of securities to which transaction
applies: N/A
2) Aggregate number of securities to which transaction applies:
N/A
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): N/A
4) Proposed maximum aggregate value of transaction: N/A
5) Total fee paid: N/A
[ ] 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: N/A
2) Form, Schedule or Registration Statement No.: N/A
3) Filing Party: N/A
4) Date Filed: N/A
STEWART INFORMATION SERVICES CORPORATION
1980 POST OAK BOULEVARD
HOUSTON, TEXAS 77056
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD APRIL 25, 2003
Notice is hereby given that the Annual Meeting of the Stockholders of
Stewart Information Services Corporation, a Delaware corporation (the
"Company"), will be held on Friday, April 25, 2003, at 8:30 A.M. in the First
Floor Conference Room of Three Post Oak Central, 1990 Post Oak Boulevard,
Houston, Texas, for the following purposes:
(1) To elect directors of the Company to hold office until the
next Annual Meeting of Stockholders or until their respective
successors are duly elected and qualified.
(2) To transact such other business as may properly come before
the meeting or any adjournment thereof.
The holders of record of Common Stock and Class B Common Stock of the
Company at the close of business on February 26, 2003 will be entitled to vote
at the meeting.
By Order of the Board of Directors,
Max Crisp
Secretary
March 21, 2003
IMPORTANT
YOU ARE CORDIALLY INVITED TO ATTEND THE MEETING IN PERSON. EVEN IF YOU PLAN
TO BE PRESENT, YOU ARE URGED TO SIGN, DATE AND MAIL THE ENCLOSED PROXY PROMPTLY.
IF YOU ATTEND THE MEETING YOU CAN VOTE EITHER IN PERSON OR BY YOUR PROXY.
STEWART INFORMATION SERVICES CORPORATION
PROXY STATEMENT
FOR ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD APRIL 25, 2003
This Proxy Statement is furnished to the stockholders of Stewart
Information Services Corporation (the "Company"), 1980 Post Oak Boulevard, Suite
800, Houston, Texas 77056 (Tel. No. 713/625-8100), in connection with the
solicitation by the Board of Directors of the Company of proxies to be used at
the Annual Meeting of Stockholders to be held on Friday, April 25, 2003, at 8:30
A.M. in the First Floor Conference Room of Three Post Oak Central, 1990 Post Oak
Boulevard, Houston, Texas, or any adjournment thereof.
Proxies in the form enclosed, properly executed by stockholders and
received in time for the meeting, will be voted as specified therein. If a
stockholder does not specify otherwise, the shares represented by his or her
proxy will be voted for the nominees listed therein. The giving of a proxy does
not preclude the right to vote in person should the person giving the proxy so
desire, and the proxy may be revoked at any time before it is exercised by
written notice delivered to the Company at or prior to the meeting. This Proxy
Statement is being mailed on or about March 21, 2003 to stockholders of record
at the close of business on February 26, 2003 (the "Record Date").
At the close of business on the Record Date, there were outstanding and
entitled to vote 16,681,212 shares of Common Stock and 1,050,012 shares of Class
B Common Stock, and only the holders of record on such date shall be entitled to
vote at the meeting. As long as 600,000 or more shares of Class B Common Stock
are issued and outstanding, at each election of directors the Common Stock and
Class B Common Stock are voted as separate classes. Shares of the Company's
Class B Common Stock are convertible on a one-for-one basis into shares of the
Company's Common Stock.
The holders of Common Stock, voting as a class, are entitled to elect five
of the nine directors of the Company. Each share of Common Stock is entitled, at
the option of the person voting such share, either to cast one vote per share
for each of the five directors to be elected by the holders of the Common Stock
or to vote cumulatively by casting five votes per share, which may be
distributed in any manner among any number of the nominees. The enclosed form of
proxy provides a means for stockholders to vote for all of the nominees listed
therein, to withhold authority to vote for one or more of such nominees or to
withhold authority to vote for all of such nominees. If authority to vote for
four or fewer of the nominees is withheld, and if there are nominees other than
management nominees for the directorships to be filled by the holders of the
Common Stock, then the persons named in the enclosed proxy may vote cumulatively
by dividing the number of votes represented by the proxy equally among the
nominees for which authority to vote is not withheld. If there are no nominees
for the five positions to be elected by the holders of Common Stock other than
the management nominees set forth herein, it is the intention of the persons
named in the enclosed proxy to allocate the votes represented by the proxy
evenly among the management nominees. If there should be any additional nominees
for such positions, then the persons named in the enclosed proxy will vote
cumulatively to elect as many as possible of the management nominees. If it is
not possible to elect each of the five management nominees, then the persons
named in the enclosed proxy will have discretion as to which of such nominees
may be elected.
Unless a holder of Common Stock who withholds authority votes in person at
the meeting or votes by means of another proxy, the withholding of authority
will have no effect upon the election of those directors for whom authority to
vote is withheld because the Company's By-Laws provide that directors are
elected by a plurality of the votes cast. Under applicable Delaware law, a
broker non-vote will have no effect on the outcome of the election of directors.
The shares held by each stockholder who signs and returns the enclosed form of
proxy will be counted for purposes of determining the presence of a quorum at
the meeting.
The holders of Class B Common Stock, voting as a class, are entitled to
elect the remaining four of the nine directors of the Company. Each holder of
Class B Common Stock has the right to vote, in person or by proxy, the number of
shares owned by him for the four directors to be elected by the holders of Class
B Common Stock and for whose election he has a right to vote.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth information as of the Record Date with
respect to persons known to the Company to be the beneficial owners of more than
5% of either class of the Company's voting shares:
AMOUNT AND
NATURE OF
BENEFICIAL PERCENT OF
NAME AND ADDRESS OF BENEFICIAL OWNER TITLE OF CLASS OWNERSHIP CLASS
------------------------------------ -------------- ---------- ----------
Malcolm S. Morris Class B Common Stock 525,006 50.0
3992 Inverness
Houston, Texas 77019
Stewart Morris, Jr. Class B Common Stock 525,006 50.0
#8 West Rivercrest
Houston, Texas 77042
Artisan Partners Limited Partnership Common Stock 1,781,894(1) 10.7
1000 North Water Street, #1770
Milwaukee, Wisconsin 53202
Third Avenue Management LLC Common Stock 1,392,544(2) 8.3
767 Third Avenue
New York, New York 10017
Barclays Global Investors, N.A. Common Stock 1,088,917(3) 6.5
45 Fremont Street
San Francisco, California 94105
Dimensional Fund Advisors, Inc. Common Stock 980,300(4) 5.9
1299 Ocean Avenue, 11th Floor
Santa Monica, California 90401
----------
(1) Artisan Partners Limited Partnership reported shared voting and dispositive
power with respect to all of such shares in its most recent report on
Schedule 13G filed January 31, 2003. Artisan Partners is an investment
advisor registered under section 203 of the Investment Advisors Act of
1940. The shares reported herein have been acquired on behalf of
discretionary clients of Artisan Partners. Persons other than Artisan
Partners are entitled to receive all dividends from and proceeds from the
sale of those shares.
(2) Third Avenue Management LLC ("TAM") reported sole voting power of 1,326,119
of such shares and dispositive power with respect to all of such shares in
its most recent report on Schedule 13G/A filed January 29, 2003. Third
Avenue Value Fund, an investment company registered under the Investment
Company Act of 1940, has the right to receive dividends from, and the
proceeds from the sale of, 1,029,615 of the shares reported by TAM. Third
Avenue Value Portfolio of the WRL Series Fund, an investment company
registered under the Investment Company Act of 1940, has the right to
receive dividends from, and the proceeds from the sale of, 112,900 of the
shares reported by TAM. AXP Partners Small Cap Value Fund, an investment
company registered under the Investment Company Act of 1940, has the right
to receive dividends from, and the proceeds from the sale of, 58,900 of the
shares reported by TAM. Third Avenue Value Portfolio of the Third Avenue
Variable Series Trust, an investment company registered under the
Investment Company Act
2
of 1940, has the right to receive dividends from, and the proceeds from the
sale of, 5,400 of the shares reported by TAM. Various clients for whom TAM
acts as investment advisor have the right to receive dividends from, and
the proceeds from the sale of, 191,129 of the shares reported by TAM.
(3) Barclays Global Investors, N.A. reported sole voting and dispositive power
with respect to all of such shares in its report on Schedule 13G filed
February 12, 2003.
(4) Dimensional Fund Advisors, Inc. reported sole voting and dispositive power
with respect to all of such shares in its most recent report on Schedule
13G/A filed February 10, 2003. Dimensional is an investment advisor
registered under Section 203 of the Investment Advisors Act of 1940 and
furnishes advice to four investment companies registered under the
Investment Company Act of 1940. Dimensional also serves as investment
manager to certain other commingled group trusts and separate accounts. All
securities reported in this schedule are owned by these investment
companies, trusts and accounts. Dimensional disclaims beneficial ownership
of such securities.
The holders of the Class B Common Stock have entered into an agreement
intended to maintain an equal ownership of shares of Common Stock and Class B
Common Stock by Carloss Morris and Malcolm S. Morris, collectively, and by
Stewart Morris and Stewart Morris, Jr., collectively. Such agreement also
provides for rights of first refusal with respect to Class B Common Stock among
themselves in the event of the death, voluntary or involuntary disposition of
the shares of Class B Common Stock and upon certain other specified conditions.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Each director and certain officers of the Company are required to report to
the Securities and Exchange Commission, by a specified date, his or her
transactions related to Common Stock or Class B Common Stock. Based solely on a
review of the copies of reports furnished to the Company or written
representations that no other reports were required, the Company believes that
during the 2002 fiscal year, all filing requirements applicable to its executive
officers, directors and greater than 10% beneficial owners were met, except that
one late filing on Form 4 was made with respect to the grant to Nita B. Hanks of
an option to purchase 1,200 shares of Common Stock.
3
The following table sets forth information as of the Record Date with
respect to each class of the Company's voting shares beneficially owned by
executive officers, directors and nominees for director of the Company and by
all officers, directors and nominees for director of the Company as a group:
AMOUNT AND NATURE
OF BENEFICIAL PERCENT OF
NAME TITLE OF CLASS OWNERSHIP(1) CLASS
---- -------------- ----------------- ----------
Malcolm S. Morris.............................. Common Stock 200,000(2) 1.2
Class B Common Stock 525,006 50.0
Stewart Morris, Jr. ........................... Common Stock 200,000(3) 1.2
Class B Common Stock 525,006 50.0
Lloyd Bentsen, III............................. Common Stock 6,871 *
Max Crisp...................................... Common Stock 77,500(4) *
Nita B. Hanks.................................. Common Stock 3,766(5) *
Paul W. Hobby.................................. Common Stock 3,871 *
Dr. E. Douglas Hodo............................ Common Stock 3,871 *
Gov. John P. LaWare............................ Common Stock 4,871 *
Dr. W. Arthur Porter........................... Common Stock 3,871 *
All officers, directors and nominees as a Common Stock 504,621 3.0
group (9 persons)....................... Class B Common Stock 1,050,012 100.0
----------
* Less than 1%.
(1) Unless otherwise indicated, the beneficial owner has sole voting and
investment power.
(2) Consists of 200,000 shares subject to stock options (see "Executive
Compensation--Option Grants and Exercises" at page 8).
(3) Consists of 200,000 shares subject to stock options (see "Executive
Compensation--Option Grants and Exercises" at page 8).
(4) Includes 74,500 shares subject to stock options (see "Executive
Compensation--Option Grants and Exercises" at page 8).
(5) Includes 3,400 shares subject to stock options.
4
ELECTION OF DIRECTORS
At the meeting, nine directors (constituting the entire Board of Directors)
are to be elected. The holders of Common Stock are entitled to elect five
directors, and the holders of Class B Common Stock are entitled to elect four
directors. All directors of the Company hold office until the next annual
meeting of stockholders or until their respective successors are elected and
qualify. All officers of the Company hold office until the regular meeting of
directors following the annual meeting of stockholders or until their respective
successors are duly elected and qualified.
During 2002, the Board of Directors held six meetings and executed two
consents in lieu of meetings. Each director attended each of such meetings. The
Board of Directors has an Executive Committee, an Audit Committee, a
Compensation Committee and a Nominating Committee. See "-Committees of the Board
of Directors" at page 7.
COMMON STOCK
The following persons have been nominated to fill the five positions to be
elected by the holders of Common Stock. The management of the Company does not
contemplate that any of such nominees will become unavailable for any reason,
but if that should occur before the meeting, proxies will be voted for another
nominee, or other nominees, to be selected by the Board of Directors of the
Company.
NOMINEE, AGE AND POSITION WITH THE COMPANY DIRECTOR SINCE
------------------------------------------ --------------
Lloyd Bentsen, III, 58, Director................................................................ 1995
Nita B. Hanks, 49, Director..................................................................... 1990
Dr. E. Douglas Hodo, 68, Director............................................................... 1988
Gov. John P. LaWare, 75, Director............................................................... 2001
Dr. W. Arthur Porter, 61, Director.............................................................. 1993
Each of such persons was elected to the Company's Board of Directors by the
holders of Common Stock at the annual meeting of stockholders held in 2002. It
is the intention of the persons named in the proxy for the holders of Common
Stock to vote the proxies for the election of the nominees named above, unless
otherwise specified.
Mr. Bentsen is a general partner and co-founder of Triad Ventures, Ltd., a
group of venture capital funds with over $50 million of capital that seeks to
invest in Texas-based emerging growth companies. Mr. Bentsen also serves as a
director of Zonagen, Inc., a development stage biopharmaceutical company. Prior
to founding his venture capital firm in 1979, Mr. Bentsen spent ten years with
Rotan Mosle, Inc., a regional investment banking firm, as a member of the
corporate finance department. Mr. Bentsen is a graduate of Princeton University
and holds an MBA from Stanford University.
For more than the past five years, Mrs. Hanks has been a Senior Vice
President of Stewart Title Guaranty Company ("Guaranty"), the Company's largest
subsidiary. Mrs. Hanks is Director of Employee Services for the Company and
brings a key perspective from the Company's employees to its Board of Directors.
Employee costs represent one of the Company's largest expenses.
Dr. Hodo serves as Chairman of the Company's Audit Committee. Dr. Hodo has
served as President of Houston Baptist University for more than the past five
years. Dr. Hodo also serves as a director of U.S. Global Investors Funds and
chairman of its audit committee.
Gov. LaWare served on the Board of Governors of the Federal Reserve System
from 1988 until 1995. A Harvard graduate, he began his banking career in 1953 at
Chemical Bank in New York. During his 25
5
years with Chemical Bank, Gov. LaWare spent several years as a senior lending
officer before organizing its holding company operations and marketing
divisions. He also served as Chairman, Chief Executive Officer and a director of
Shawmut Corp., a regional bank holding company from, 1980 to 1988. He served as
Chairman of Shawmut National Corp., a super-regional bank holding company, in
1988.
Dr. Porter has served as Dean of the College of Engineering and University
Vice President for Technology Development of the University of Oklahoma since
1998. Prior to those appointments, he had served as President and Chief
Executive Officer of Houston Advanced Research Center, a nonprofit research
consortium, for more than five years. He also had served as an Adjunct Professor
of Electrical Engineering at Rice University for more than five years prior to
his appointment with the University of Oklahoma. Dr. Porter is also a director
of Electro Scientific Industries, Inc., Portland, Oregon, and Bookham
Technologies, Oxfordshire, England.
CLASS B COMMON STOCK
The following persons have been nominated to fill the four positions to be
elected by the holders of Class B Common Stock. It is the intention of the
persons named in the proxy for the holders of Class B Common Stock to vote the
proxies for the election of the nominees named below, unless otherwise
specified. The management of the Company does not contemplate that any of such
nominees will become unavailable for any reason, but if that should occur before
the meeting, proxies will be voted for another nominee, or other nominees, to be
selected by the Board of Directors of the Company.
NOMINEE, AGE AND POSITION WITH THE COMPANY DIRECTOR SINCE
------------------------------------------ --------------
Max Crisp, 68, Executive Vice President and Chief Financial Officer,
Secretary, Treasurer and Director............................................................ 1970
Paul W. Hobby, 42, Director..................................................................... 1989
Malcolm S. Morris, 56, Co-Chief Executive Officer
and Chairman of the Board of Directors....................................................... 2000
Stewart Morris, Jr., 54, Co-Chief Executive Officer, President and Director..................... 2000
Each of such persons was elected by the holders of the Class B Common Stock
at the annual meeting of stockholders held in 2002.
Mr. Crisp has served as Vice President-Finance (Executive Vice President
commencing in 2002), Treasurer and Secretary of the Company and as its Chief
Financial Officer for more than the past five years. Mr. Crisp is also
Secretary, Treasurer and Vice President-Finance of Guaranty and Stewart Title
Company ("Title"), a subsidiary of Guaranty.
Mr. Hobby serves as Chairman of Genesis Park GP Company LLC and as Vice
President of Hobby Communications, L.L.C. Mr. Hobby served as Chairman of Hobby
Media Services, Inc., a media software company, from 1995 to 2002 and as
Chairman of Columbine JDS Systems from 1995 to 1997. In 1999 and 2000, Mr. Hobby
served as a Consultant and Interim Director of CinemaStar Luxury Theaters, Inc.
Mr. Hobby also served as Vice President of H & C Communications, Inc. until
December 31, 1996. In 1999 and 2001, Mr. Hobby served as a director of Coastal
Bancorp, Inc., Aronex Pharmaceuticals, Inc., and Propaganda Films, Inc. Mr.
Hobby also serves as a director of EGL, Inc., a transportation, supply chain
management and information services company, and Southwest Bancorporation of
Texas, Inc.
Malcolm S. Morris has served as Chairman of the Board and Co-Chief
Executive Officer of the Company since January 31, 2000, and as Senior Executive
Vice President-Assistant Chairman of the Company for
6
more than five years prior to that time. Malcolm S. Morris has also served for
more than the past five years as President and Chief Executive Officer of
Guaranty and Chairman of the Board of Title.
Stewart Morris, Jr. has served as President and Co-Chief Executive Officer
of the Company since January 31, 2000, and for more than five years prior to
that time as Senior Executive Vice President-Assistant President of the Company.
Stewart Morris, Jr. has also served for more than the past five years as
President and Chief Executive Officer of Title and Chairman of the Board of
Guaranty.
Stewart Morris, Jr. and Malcolm S. Morris are cousins. Acting together they
have the power to direct the management and policies of the Company.
Accordingly, they may be deemed to be "control persons" as such term is used in
regulations adopted under the Securities Exchange Act of 1934.
ADVISORY DIRECTORS
In addition to the directors elected by the holders of the Company's Common
Stock and Class B Common Stock, the Company has four advisory directors who are
appointed by the Company's Board of Directors. The Company's advisory directors
receive notice of and regularly attend meetings of the Company's Board of
Directors. They provide valuable insights and advice to the Company and
participate fully in all deliberations of the Company's Board of Directors but
are not included in quorum and voting determinations. Advisory directors receive
the same compensation for their services as do the members of the Company's
Board of Directors, who are elected by the stockholders of the Company.
COMMITTEES OF THE BOARD OF DIRECTORS
Executive Committee. The Executive Committee may exercise all of the powers
of the directors, except those specifically reserved to the Board of Directors
by law. Malcolm S. Morris, Stewart Morris, Jr. and Max Crisp serve as the
members of the Executive Committee. During 2002, the Executive Committee held
five meetings at which all members were present and executed 41 consents in lieu
of meetings.
Audit Committee. It is the duty of the Audit Committee to (i) review, with
the Company's independent auditors, the scope of the annual audit, (ii) review
the independent auditors' management letter and (iii) meet with the Company's
internal auditors. The Audit Committee operates under a written charter adopted
by the Board of Directors of the Company. The Audit Committee is comprised of
Dr. E. Douglas Hodo, Lloyd Bentsen, III, and Paul W. Hobby. During 2002, the
Audit Committee held five meetings, at which all members were present. Each of
the members of the Audit Committee is independent as defined under the listing
standards of the New York Stock Exchange.
Nominating Committee. The Nominating Committee is comprised of Dr. W.
Arthur Porter and Lloyd Bentsen, III. It is the duty of the Nominating Committee
to (i) recommend to the Board of Directors of the Company nominations of persons
for election to the Board of Directors of the Company by the holders of Common
Stock, (ii) create procedures for identification of nominees, (iii) consider and
recommend to the Board of Directors criteria for membership and (iv) receive and
consider nominations submitted by stockholders of the Company. In order to be
considered by the Nominating Committee, pursuant to the Company's By-Laws,
nominations of persons for election by the holders of Common Stock to the Board
of Directors of the Company at the Annual Meeting of Stockholders of the Company
to be held in 2004 must be received by the Company no later than February 15,
2004. The Nominating Committee held one meeting during 2002, at which both
members were present.
Compensation Committee. See "Executive Compensation--Compensation
Committee" at page 12 for information with respect to the Company's Compensation
Committee.
7
EXECUTIVE COMPENSATION
SUMMARY OF COMPENSATION
The following table summarizes compensation information concerning each of
the Company's executive officers for each of the three years ended December 31,
2002.
SUMMARY COMPENSATION TABLE
-----------------------------------------------------------------------------------------------------------------------------
LONG-TERM
COMPENSATION
ANNUAL COMPENSATION (AWARDS)
------------------------------------------------------- -------------
MINIMUM VARIABLE ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS BONUS STOCK OPTIONS COMPENSATION
---------------------------------- ---------- ---------- ---------- ---------- ------------- ------------
($) ($) ($) (# shares) ($)
Stewart Morris, Jr 2002 150,000 250,000 436,525 25,000 8,669(1)
President and 2001 135,000 250,000 250,660 25,000 8,157
Co-Chief Executive Officer 2000 135,000 250,000 -- 25,000 8,079
Malcolm S. Morris 2002 150,000 250,000 436,525 25,000 10,922(2)
Chairman of the Board and 2001 135,000 250,000 250,660 25,000 10,369
Co-Chief Executive Officer 2000 135,000 250,000 -- 25,000 9,554
Max Crisp 2002 150,000 135,000 342,431 16,500 119,625(3)
Executive Vice President and 2001 144,000 126,000 239,792 16,500 123,366
Chief Financial Officer, 2000 140,000 126,000 -- 16,500 118,451
Secretary and Treasurer
(1) Consists of matching contributions to the Company's 401(k) plan ($2,547),
director's fees ($1,800) and $4,322, representing the portion of insurance
premiums paid by the Company with respect to term life insurance plus the
dollar value of the benefit of the remainder of life insurance premiums
paid by the Company.
(2) Consists of matching contributions to the Company's 401(k) plan ($2,547),
director's fees ($1,800) and $6,575, representing the portion of insurance
premiums paid by the Company with respect to term life insurance plus the
dollar value of the benefit of the remainder of life insurance premiums
paid by the Company.
(3) Consists of $110,375 paid to Mr. Crisp under his deferred compensation
agreement. See "-Deferred Compensation Agreements" at page 10. Also
includes matching contributions to the Company's 401(k) plan ($2,547),
director's fees ($1,800) and $4,903, representing the portion of insurance
premiums paid by the Company with respect to term life insurance plus the
dollar value of the benefit of the remainder of life insurance premiums
paid by the Company.
Each executive officer of the Company holds office until the regular
meeting of directors following the annual meeting of stockholders or until his
successor is duly elected and qualified.
OPTION GRANTS AND EXERCISES
The following table sets forth information concerning individual grants of
stock options made during the year ended December 31, 2002 to each of the
Company's executive officers. All such grants were made on February 1, 2002,
under the terms of the Company's 1999 Stock Option Plan. The hypothetical values
on the date of grant of stock options granted in 2002 shown below are presented
pursuant to the rules of the Securities and Exchange Commission and are
calculated under the modified Black-Scholes model (the "Model") for pricing
options. This hypothetical value of options trading on the stock markets bears
little
8
relationship to the compensation cost to the Company or potential gain realized
by an optionee. The actual amount, if any, realized upon exercise of stock
options will depend upon the market price of the Company's Common Stock relative
to the exercise price per share of Common Stock issuable under the stock option
at the time the stock options are exercised. There is no assurance that the
hypothetical present values of stock options reflected in this table actually
will be realized.
OPTION GRANTS IN FISCAL YEAR ENDED DECEMBER 31, 2002
INDIVIDUAL GRANTS
---------------------------------------------------------------------------------
PERCENT OF
TOTAL OPTIONS
OPTIONS GRANTED TO EXERCISE EXPIRATION GRANT DATE
NAME GRANTED EMPLOYEES PRICE DATE PRESENT VALUE(1)
---- --------------- ------------- -------------- ----------- ----------------
(# shares) (%) ($) ($)
Stewart Morris, Jr..... 25,000 29.0 19.10 2/1/12 276,250
Malcolm S. Morris...... 25,000 29.0 19.10 2/1/12 276,250
Max Crisp.............. 16,500 19.2 19.10 2/1/12 182,325
----------
(1) The grant date present values are calculated under the Model. The Model is
a mathematical formula used to value stock options and is based on
assumptions regarding the stock's volatility (38.0%), dividend rate (0%),
option term (10 years) and a risk-free interest rate (4.80%).
The following table sets forth information concerning each exercise of
stock options during the year ended December 31, 2002 by each of the Company's
executive officers and the value of unexercised options at December 31, 2002.
The Company has not issued any tandem or freestanding stock appreciation rights.
AGGREGATED OPTIONS EXERCISES IN 2002 AND OPTION VALUES AT DECEMBER 31, 2002
NUMBER OF VALUE OF UNEXERCISED
UNEXERCISED OPTIONS AT IN-THE-MONEY OPTIONS AT
SHARES DECEMBER 31, 2002 DECEMBER 31, 2002
ACQUIRED ON VALUE ------------------------------- --------------------------------
NAME EXERCISE REALIZED EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- ----------- -------- ----------- ------------- ----------- -------------
(# shares) ($) (# shares) (# shares) ($) ($)
Stewart Morris, Jr........... -- -- 175,000 -- $1,042,480 --
Malcolm S. Morris............ 90,000 1,429,200 175,000 -- 1,042,480 --
Max Crisp.................... -- -- 58,000 -- 118,070 --
9
COMPENSATION OF DIRECTORS
Directors of the Company, other than employees of the Company, receive fees
in accordance with the following table:
AUDIT AUDIT OTHER OTHER
COMMITTEE COMMITTEE COMMITTEE COMMITTEE
TYPE OF COMPENSATION ALL DIRECTORS CHAIRMAN MEMBERS CHAIRMEN MEMBERS
-------------------- ------------- --------- --------- --------- ---------
ANNUAL RETAINER:
Cash......................... $ 12,000 $ 5,000 $ 2,000
Stock(1)..................... 10,000
PER MEETING FEES:
ATTENDANCE IN PERSON:
Board meeting (2)......... 3,000
Committee meeting......... 2,000 1,500
Out-of-state travel (3)... 1,000
ATTENDANCE BY TELEPHONE:
Board meeting............. 2,000
Committee meeting......... 2,000 1,500
----------
(1) The annual stock award to directors is valued based on the market value per
share of Common Stock on the date of the award.
(2) The fee for attendance at a Board retreat is $4,000.
(3) Plus expenses incurred.
Directors of the Company who are employees receive directors' fees of $150
per meeting. The Company also reimburses each director for the cost of an annual
medical examination. In May 2002, Mrs. Hanks was granted, in her capacity as
Director of Employee Services for the Company, a 10-year option for 1,200 shares
of the Company's Common Stock at an exercise price of $18.74 per share, which
was the market value of a share of Common Stock on the option grant date.
DEFERRED COMPENSATION AGREEMENTS
On March 10, 1986, the Company entered into a Deferred Compensation
Agreement with each of Malcolm S. Morris, Stewart Morris, Jr. and Max Crisp
(individually, a "Beneficiary"). Pursuant to such agreements, as amended, a
Beneficiary or his designee is entitled to receive, commencing upon his death or
attainment of the age of 65 years, 15 annual payments in amounts that will,
after payment of income taxes thereon, result in a net annual payment of $66,667
to Max Crisp and $133,333 to each of Malcolm S. Morris and Stewart Morris, Jr.
For purposes of such agreements, each Beneficiary is deemed to be subject to
federal income taxes at the highest marginal rate applicable to individuals.
Such benefits are fully vested and are forfeited only if a Beneficiary's
employment with the Company is terminated by reason of fraud, dishonesty,
embezzlement or theft. Any death or income benefits provided to a Beneficiary
under certain insurance policies currently maintained by the Company will reduce
payments due to such Beneficiary under his Deferred Compensation Agreement.
10
PERFORMANCE GRAPH
The following graph compares the yearly percentage change in the Company's
cumulative total stockholder return on Common Stock with the cumulative total
return of the Russell 2000 Index and the Russell 2000 Financial Services Sector
Index (which includes the Company and its major publicly owned competitors) for
the five years ended December 31, 2002. The graph assumes that the value of the
investment in the Company's Common Stock and each index was $100 at December 31,
1997 and that all dividends were reinvested.
COMPARISON OF FIVE YEAR CUMULATIVE TOTAL RETURN AMONG THE COMPANY,
RUSSELL 2000 AND RUSSELL 2000 FINANCIAL SERVICES SECTOR
(GRAPH)
1997 1998 1999 2000 2001 2002
---------- ---------- ---------- ---------- ---------- ----------
Company...................... $ 100.00 $ 201.23 $ 93.25 $ 155.42 $ 138.35 $ 149.83
Russell 2000................. 100.00 97.45 118.17 114.60 117.45 93.39
Russell 2000 Financial
Services Sector........... 100.00 92.81 87.36 105.74 122.28 126.53
11
COMPENSATION COMMITTEE
It is the duty of the Compensation Committee to approve the compensation of
the executive officers. The Compensation Committee is comprised of Paul W.
Hobby, Dr. W. Arthur Porter and, effective April 26, 2002, Gov. John P. LaWare.
During 2002, the Compensation Committee held two meetings at which both members
then serving were present.
Compensation Committee Report on Executive Compensation
To the Board of Directors of
Stewart Information Services Corporation:
COMPENSATION COMMITTEE REPORT
Compensation Policy. The Compensation Committee of the Board of Directors
(the "Committee") is responsible for the oversight and administration of the
Company's executive compensation program. The Committee reviews the compensation
program of the Company's operating subsidiaries during each year as it deems
necessary. The objective of the Company is to provide executive officers of the
Company with a compensation package that is fair and reasonable based on their
individual levels of responsibility and performance in relation to the
compensation of executive officers of other publicly held companies in the title
insurance and comparable industries. In making its determinations as to the
reasonableness of the Company's executive compensation, the Committee relies in
part on the advice of a nationally recognized, independent compensation
consulting firm. The principal elements of the Company's executive compensation
program are an annual salary, an annual cash bonus and stock option grants.
Base Salary. For 2002, the base salary level for each of the Co-Chief
Executive Officers of the Company increased to $150,000 from $135,000.
Historically, base salaries of the Company's executive officers have remained
relatively stable from year to year. Since the Company, as a holding company,
has no direct payroll, the base salaries of the Company's executive officers are
paid at the subsidiary level and are set at levels deemed reasonable by the
Committee based upon its subjective evaluation of the executive officer's level
of responsibility.
Annual Bonus. Each of the Co-Chief Executive Officers is eligible to
receive an annual cash bonus based on the consolidated income before taxes of
Guaranty, including a minimum bonus of $250,000. The Committee believes that the
consolidated income before taxes of Guaranty, and the effect thereof on the
Company's book value per share, are important determinants over time of the
value of the Company's Common Stock. For 2002, the Committee recommended and the
Company adopted the following bonus formula for each of the Co-Chief Executive
Officers:
GUARANTY CONSOLIDATED INCOME PERCENT PAYABLE
BEFORE TAXES AS BONUS
---------------------------- ---------------
Up to $20 million..................... 1.00%
$20 million to $40 million ........... 0.75%
$40 million to $60 million ........... 0.50%
Over $60 million ..................... 0.25%
The consolidated income before taxes of Guaranty in 2002 was $154.6 million.
Accordingly, each of the Co-Chief Executive Officers received a bonus of
$686,525 for 2002.
Stock Options. Pursuant to the Company's 1999 Stock Option Plan (the "1999
Plan"), in 2002 the
12
Committee granted options to Malcolm S. Morris, Stewart Morris, Jr. and Max
Crisp for 25,000, 25,000 and 16,500 shares, respectively. See "--Option Grants
and Exercises" elsewhere in the Proxy Statement in which this report is
included. The grant date values of such options were taken into account by the
Committee in determining the reasonableness of the recipient officer's annual
compensation package. The purpose of the 1999 Plan is to make available to the
Committee an additional form of compensation that will align the interests of
executive officers with those of the stockholders over a multi-year term. Each
of the executive officers is eligible for grants of options at a purchase price
not less than the fair market value of the shares on the date of grant.
The Company's net earnings increased from $2.98 per diluted share in 2001
to $5.30 per diluted share in 2002. The Committee recognizes that the title
insurance industry is strongly affected by nationally prevailing interest rates,
and the Company's financial results from year to year will depend largely on the
level of real estate activity in its primary markets. The Committee subjectively
evaluates the performance of the Company's executive officers, including the
Co-Chief Executive Officers, with respect to their efforts to provide for the
long-term financial well being of the Company and to respond to continuing
changes in the industry environment. In 2002, the Committee gave particular
consideration to the efforts of the Co-Chief Executive Officers in further
developing the Company's automation programs, entering new markets through
acquisitions and pursuing opportunities in international markets.
Paul W. Hobby Dr. W. Arthur Porter
Gov. John P. LaWare
Members of the Compensation Committee
13
SELECTION OF INDEPENDENT AUDITORS
KPMG LLP has been selected by the Company as its principal independent
auditors for the Company's fiscal year ending December 31, 2003, and served in
such capacity for the Company's fiscal year ended December 31, 2002.
Representatives of KPMG LLP are expected to be present at the Annual Meeting
with the opportunity to make a statement if they desire to do so, and such
representatives are expected to be available to respond to appropriate
questions.
AUDIT AND OTHER FEES
The following table sets forth the fees billed for services rendered by
KPMG LLP for each of the Company's last two fiscal years:
YEAR ENDED DECEMBER 31,
-----------------------------
2002 2001
------------ ------------
Audit Fees (1) ............... $ 506,000 $ 438,700
Audit-Related Fees (2) ....... 111,100 157,550
Tax Fees (3) ................. 88,000 99,000
All Other Fees (4) ........... -- 15,950
----------
(1) Fees for the audit of the Company's annual financial statements,
review of financial statements included in the Company's Quarterly
Reports on Form 10-Q, and services that are normally provided by KPMG
LLP in connection with statutory and regulatory filings or engagements
for the fiscal years shown.
(2) Fees for assurance and related services by KPMG LLP that are
reasonably related to the performance of the audit or review of the
Company's financial statements and that are not reported under "Audit
Fees". Primarily represents fees for separate statutory audits of
minor subsidiaries and affiliates.
(3) Fees for professional services rendered by KPMG LLP primarily for tax
compliance, in addition to tax advice and tax planning.
(4) Fees not included under other captions.
REPORT OF THE AUDIT COMMITTEE
OF THE BOARD OF DIRECTORS
The Audit Committee of the Board of Directors of the Company serves as the
representative of the Board for the general oversight of the Company's financial
accounting and reporting process, system of internal control, audit process, and
process for monitoring compliance with laws and regulations and the Company's
standards for Corporate Compliance. The Company's management has primary
responsibility for preparing the consolidated financial statements and for the
Company's financial reporting process. The Company's independent accountants,
KPMG LLP, are responsible for expressing an opinion on the conformity of the
Company's audited consolidated financial statements to accounting principles
generally accepted in the United States of America.
In this context, the Audit Committee hereby reports as follows:
1. The Audit Committee has reviewed and discussed the audited financial
statements with the Company's management.
14
2. The Audit Committee has discussed with the independent accountants the
matters required to be discussed by SAS 61 (Codification of Statements
on Auditing Standards, AU Section 380).
3. The Audit Committee has received the written disclosures and letters
from the independent accountants required by Independence Standards
Board Standard No. 1 (Independent Discussions with Audit Committees)
and has discussed with the independent accountants the independent
accountants' independence.
4. Based on the review and discussion referred to in paragraphs (1)
through (3) above, the Audit Committee has approved that the audited
financial statements be included in the Company's Annual Report on
Form 10-K for the year ended December 31, 2002, for filing with the
Securities and Exchange Commission.
Each of the members of the Audit Committee is independent as defined under
the listing standards of the New York Stock Exchange.
The undersigned members of the Audit Committee have submitted this report:
Dr. E. Douglas Hodo
Lloyd Bentsen, III
Paul W. Hobby
Dated: March 17, 2003
CERTAIN TRANSACTIONS
Stewart Morris is the father of Stewart Morris, Jr. and Carloss Morris is
the father of Malcolm S. Morris. Stewart Morris and Carloss Morris are brothers.
During the year ended December 31, 2002, Stewart Morris served as a director of
Title and Guaranty and as chairman of Title's executive committee, and Carloss
Morris served as a director of Title and Guaranty and as chairman of Guaranty's
executive committee. Aggregate salaries, bonuses and other compensation for 2002
for Stewart Morris and Carloss Morris were $307,729 and $308,443, respectively.
During 2002, the Company and its subsidiaries paid a total of $180,064 to
the law firm of Morris, Lendais, Hollrah & Snowden, P.C., of which Carloss
Morris and Malcolm S. Morris are shareholders. In connection with real estate
transactions processed by Title, such firm receives legal fees from its clients
who are also customers of Title, and who select such firm as their counsel.
During 2002, Marietta Maxfield, a sister of Malcolm S. Morris, was a
full-time attorney for Guaranty and was paid $115,909 for services rendered in
such capacity.
PROPOSALS FOR NEXT ANNUAL MEETING
Any proposals of holders of Common Stock or Class B Common Stock intended
to be presented at the Annual Meeting of Stockholders of the Company to be held
in 2004 must be received by the Company at its principal executive offices, 1980
Post Oak Boulevard, Suite 800, Houston, Texas 77056, no later than November 22,
2003, in order to be included in the proxy statement and form of proxy relating
to that meeting.
15
OTHER MATTERS
The management of the Company knows of no other matters which may come
before the meeting. However, if any matters other than those referred to above
should properly come before the meeting, it is the intention of the persons
named in the enclosed proxy to vote such proxy in accordance with their best
judgment.
Proxies for the Company's annual meeting of stockholders to be held in 2004
may confer discretionary power to vote on any matter that may come before the
meeting unless, with respect to a particular matter, (i) the Company receives
notice, by certified mail, return receipt requested, addressed to the Company's
Secretary, not later than the 15th day of February next preceding the meeting,
that the matter will be presented at the annual meeting and (ii) the Company
fails to include in its proxy statement for the annual meeting advice on the
nature of the matter and how the Company intends to exercise its discretion to
vote on the matter.
The cost of solicitation of proxies in the accompanying form will be paid
by the Company. The Company has retained Innisfree M&A Incorporated, a proxy
solicitation firm, to assist it in soliciting proxies for the proposals
described in this proxy statement. The Company has agreed to pay Innisfree a fee
for such services, which is not expected to exceed $6,500 plus expenses. In
addition to solicitation by use of the mails, certain officers or employees of
the Company, and of Innisfree, may solicit the return of proxies by telephone,
telegram or personal interview.
By Order of the Board of Directors,
Max Crisp
Secretary
March 21, 2003
16
PROXY PROXY
STEWART INFORMATION SERVICES CORPORATION
THIS PROXY FOR HOLDERS OF COMMON STOCK IS SOLICITED ON BEHALF OF
THE BOARD OF DIRECTORS FOR THE ANNUAL MEETING OF STOCKHOLDERS -- APRIL 25, 2003
The undersigned appoints Ken Anderson, Jr. and Tannie L. Pizzitola, Jr.,
and each of them, as proxies with full power of substitution and revocation, to
vote, as designated on the reverse side hereof, all the Common Stock of Stewart
Information Services Corporation which the undersigned has power to vote, with
all powers which the undersigned would possess if personally present, at the
annual meeting of stockholders thereof to be held on April 25, 2003, or at any
adjournment thereof.
Unless otherwise marked, this proxy will be voted FOR the election of the
nominees named.
PLEASE VOTE, SIGN, DATE AND RETURN THIS PROXY CARD
PROMPTLY USING THE ENCLOSED ENVELOPE.
Address Change/Comments (Mark the corresponding box on the reverse side)
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
(Continued and to be signed on reverse side.)
o FOLD AND DETACH HERE o
Please
Mark Here
for Address [ ]
Change or
The Board of Directors recommends a vote FOR: Comments
1. Election of Directors -- SEE REVERSE SIDE
FOR all nominees WITHHOLD Nominees: 01 Lloyd Bentsen, III, 02 Nita B. Hanks, 03 Dr. E. Douglas Hodo,
listed at right AUTHORITY 04 Dr. W. Arthur Porter, 05 Gov. John P. LaWare
(except as marked to vote for all nominees
to the contrary) listed at right (Instruction: To withhold authority to vote for any nominee, write that nominee's
name on the line below.)
[ ] [ ]
------------------------------------------------------------------------------------
The undersigned acknowledges receipt of the Notice of Annual
Meeting of Stockholders and of the Proxy Statement.
Date:___________________________________________________, 2003
______________________________________________________________
Signature(s)
______________________________________________________________
Signature(s)
Please sign exactly as your name appears. Joint owners should
each sign personally. Where applicable, indicate your official
position or representation capacity.
o FOLD AND DETACH HERE o
VOTE BY INTERNET OR TELEPHONE OR MAIL
24 HOURS A DAY, 7 DAYS A WEEK
INTERNET AND TELEPHONE VOTING IS AVAILABLE THROUGH 11 PM EASTERN TIME
THE DAY PRIOR TO ANNUAL MEETING DAY.
YOUR INTERNET OR TELEPHONE VOTE AUTHORIZES THE NAMED PROXIES TO VOTE YOUR SHARES
IN THE SAME MANNER AS IF YOU MARKED, SIGNED AND RETURNED YOUR PROXY CARD.
INTERNET TELEPHONE MAIL
http://www.eproxy.com/stc 1-800-435-6710
Use the Internet to vote your proxy. Use any touch-tone telephone to Mark, sign and date
Have your proxy card in hand when you vote your proxy. Have your proxy your proxy card
access the web site. You will be OR card in hand when you call. You will OR and
prompted to enter your control be prompted to enter your control return it in the
number, located in the box below, to number, located in the box below, enclosed postage-paid
create and submit an electronic and then follow the directions envelope.
ballot. given.
IF YOU VOTE YOUR PROXY BY INTERNET OR BY TELEPHONE,
YOU DO NOT NEED TO MAIL BACK YOUR PROXY CARD.