PROXY STATEMENT
FOR ANNUAL MEETING OF STOCKHOLDERS
To Be Held April 28, 2006May 9, 2008
This Proxy Statement is furnished to the stockholders of
We at Stewart Information Services Corporation (the “Company”), 1980 Post Oak Boulevard, Suite 800, Houston, Texas 77056 (Tel. No. 713-625-8100),are furnishing this proxy statement to our stockholders in connection with the solicitation by the Boardour board of Directors of the Companydirectors of proxies to be used atfor the Annual Meetingannual meeting of Stockholders to be heldstockholders we are holding on Friday, April 28, 2006,May 9, 2008, at 8:30 A.M., in the First Floor Conference Room of Three Post Oak Central, 1990 Post Oak Boulevard, Houston, Texas, or for any adjournment thereof.of that meeting.
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 notUnless you specify otherwise, the shares represented by his or heryour proxy will be voted for the nominees listed therein. The giving of aIf after sending in your proxy does not preclude the rightyou wish to vote in person, shouldyou may revoke the person giving the proxy so desire, and the proxy may be revoked at any time before it is exercised by delivering written notice delivered to the Companyus at or prior to the meeting. This Proxy Statement is being mailedWe are mailing this proxy statement on or about March 27, 2006April 8, 2008 to stockholders of record at the close of business on February 28, 2006 (the “Record Date”).March 11, 2008.
At the close of business on the Record Date, thereMarch 11, 2008, 17,069,810 shares of our common stock and 1,050,012 shares of our Class B common stock were outstanding and entitled to vote, 17,146,697 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 tomay vote at the meeting. As long as 600,000 or more shares of Class B Common Stockcommon stock are outstanding, the common stock and Class B common stock will be voted as separate classes at each election of directors the Common Stock anddirectors. Holders of our Class B Common Stock are votedcommon stock, to whom we refer as separate classes. Shares of the Company’sour Class B Common Stock are convertiblecommon stockholders, may convert their shares of Class B common stock on aone-for-one basis into shares of the Company’s Common Stock.our common stock at any time.
The holders of Common Stock,our common stock, to whom we refer as our common stockholders, voting as a class, are entitled to elect five of theour nine directors of the Company.directors. Each share of Common Stockcommon stockholder is entitled at the option of the person voting such share, either to cast one vote per share for each of thethose 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.nominees for director. The enclosed form of proxy provides a means for stockholdersallows you 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 you withhold authority to vote for four or fewer of the nominees, is withheld, and if there are nominees other than management nominees for the directorshipspositions to be filledelected by the holders of the Common Stock,common stockholders, 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 you did not withhold authority to vote is not withheld.vote. If there are no nominees other than management 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 ofcommon stockholders, the persons named in the enclosed proxy intend to allocate the votes represented by the proxy evenly among the management nominees. If there should beare 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.they will elect.
Unless a holder of Common Stock who withholds authority votes in person at the meeting or votes by means of another proxy, the withholding
Withholding of authority to vote in the enclosed proxy will have no effect uponnot affect the election of those directors for whom you withhold authority to vote, is withheldunless you vote in person at the meeting or by means of another proxy, because the Company’sour 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 onnot affect the outcome of the election of directors. TheWe will count the shares held by each stockholder who signs and returns the enclosed form of proxy will be counted for purposes of determiningonly to determine the presence of a quorum at the meeting.
The holders of
Our Class B Common Stock,common stockholders, voting as a class, are entitled to elect the remaining four of theour nine directors of the Company.directors. Each holder of Class B Common Stockcommon stockholder has the right to vote, in person or by
proxy, the number of shares owned by him for thethose four directors to be elected by the holders of Class B Common Stock and for whose election he has a right to vote.
Section 16(a) Beneficial Ownership Reporting Compliance
Each directorof our directors 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 Stockcommon stock or Class B Common Stock.common stock. Based solely on a review of the copies of reports furnished to the Companyus or written representations that no other reports were required, the Company believeswe believe that during the 2005 fiscal year all filing requirements applicable to itsour executive officers, directors and greater than 10% beneficial owners were met except that Mr. Clarke was late in filing one Form 4.during the 2007 fiscal year.
ELECTION OF DIRECTORS
At theour annual meeting, our stockholders will elect nine directors, (constitutingconstituting the entire Boardboard of Directors) are to be elected. The holders of Common Stockdirectors. Our common stockholders are entitled to elect five directors, and the holders ofour Class B Common Stockcommon stockholders are entitled to elect four directors.
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Common Stock Nominees
The following persons have been nominated to fill the five positionsas directors to be elected by the holders of Common Stock. The management of the Company doesour common stockholders. Although we do not contemplatebelieve that any of suchthese nominees will become unavailable, for any reason, but if thatone or more should occurbecome unavailable before the meeting, proxiesyour proxy will be voted for another nominee, or other nominees, to be selected by the Boardour board of Directors of the Company.directors.
| | | | | |
Nominee, Age and Position with the CompanyStewart | | Director Since | |
| | | | |
Robert L. Clarke, 63,65, Director | | | 2004 | |
Nita B. Hanks, 52,54, Director | | | 1990 | |
Dr. E. Douglas Hodo, 71,73, Director | | | 1988 | |
Laurie C. Moore, 60,62, Director | | | 2004 | |
Dr. W. Arthur Porter, 64,66, Director | | | 1993 | |
Each of the Common Stockfive nominees up for election by our common stockholders was elected by the holderscommon stockholders at our 2007 annual meeting of Common Stock at their 2005 annual meeting. It is the intention of thestockholders. The persons named in your proxy intend to vote the proxy for the holders of Common Stock to vote the proxies for the election of theeach of these nominees, named above, unless otherwise specified.you specify otherwise.
Mr. Clarke has been a partner of the law firm of Bracewell & Giuliani LLP for more than the past five years. Mr. Clarke also serves as director and chairman of the audit committees of the boards of Eagle Materials, Inc., a NYSE-listed manufacturer of building materials, and First Investors Financial Services Group, Inc., a consumer finance company. He served as U.S. Comptroller of the Currency from December 1985 through February 1992. Prior to his election as aour director, of the Company, Mr. Clarke had been anserved as our advisory director of the Company since 2003.
For more than the past five years, Ms. Hanks has been a Senior Vice President of Stewart Title Guaranty Company, (“Guaranty”), the Company’sour largest subsidiary. Ms. Hanks is our Director of Employee Services for the Company and brings a key perspective from the Company’sour employees to its Boardour board of Directors.directors. Employee costs representsrepresent one of the Company’sour largest expenses.
Dr. Hodo serves as Chairman of the Company’sour Audit Committee. Dr. Hodo has served as President of Houston Baptist University for more than 19 years and became President Emeritus of the past five years. Dr. Hodo also serves as a director of U.S. Global Investors Funds and chairman of its audit committee.University in 2006.
Ms. Moore is the President of Laurie Moore and Associates, a speaking and consulting practice. In 2003 she founded, and has since served as President of, The Institute for Luxury Home Marketing, LLC, an international membership organization targeting real estate agents who work in the upper-tier residential market. She also serves as the Executive Director of The Trendsetters CEO Group, 14 large, non-competing real estate company CEOs who meet multiple times each year to share ideas, conduct peer reviews of each others’ organizations, and compare financial statements. Prior to 2003, Ms. Moore co-founded and served as managing partner of REAL Trends, Inc., a publishing, communications and research company serving brokerage company owners and top management of franchise organizations in the residential real estate industry. Prior to her election as a Director of the Company,our director, Ms. Moore had been anserved as our advisory director of the Company since 2002.
Dr. Porter hasis a Professor Emeritus of the University of Oklahoma. Prior to his retirement, he served as University Professor and Regents Chair of Engineering at that university. From 1998 to 2006 he served as University Vice President for Technology Development of the University of Oklahoma since 1998. He has served as Regents Chair of Engineering of the University of Oklahoma since 2005, prior to which heand also served as Dean of the College of Engineering of the University of Oklahoma since 1998.from 1998 to 2005. Prior to those appointments, he had served as President and Chief Executive Officer of Houston
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successor plan, but only to the extent permitted by law and the Corporate Governance Standards of the New York Stock Exchange.
The
Pursuant to our By-Laws, the Nominating and Corporate Governance Committee pursuant to the Company’s By-Laws, will accept and consider nominations by stockholders of persons for election by the holdersour common stockholders to our board of Common Stock to the Board of Directors of the Company.directors. To be considered for nomination at the Annual Meetingour 2009 annual meeting of Stockholders of the Company to be held in 2007,stockholders, stockholder nominations must be received by the Companyus no later than February 15, 2007.2009. Persons wishing to submit the names of candidates for consideration by the Nominating and Corporate Governance Committee may write to the Nominating and Corporate Governance Committee in care of Corporate Secretary, Stewart Information Services Corporation, 1980 Post Oak Boulevard, Suite 800, Houston, Texas 77056, providing77056. Any such submission should include the candidate’s name, credentials, contact information and consent to be considered as a candidate. The person proposing the candidate should include his or her contact information and a statement of his or her share ownership, including the number of shares and the period of time the shares have been held.
The Nominating and Corporate Governance Committee held four meetings during 2005,2007, at which all members were present, except that one director did not attend one meeting. The charter of the Company’spresent. Our Nominating and Corporate Governance CommitteeCommittee’s charter is available on the Company’sour website at www.stewart.com.www.stewart.com.
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 (Chair), Robert L. Clarke and Dr. W. Arthur Porter. During 2005,2007, the Compensation Committee held two meetings, at which all members then serving were present.
Each
Our board of directors has determined that each member of the Company’s Audit Committee, Nominating and Corporate Governance Committee andour Compensation Committee has been determined by the Board of Directors to beis “independent” as that term is defined in the rules of the New York Stock Exchange.
Executive Sessions of Non-Management Directors
The
Our non-management directors, of the Company, all of whom are independent, meet at regularly scheduled executive sessions without management. TheOur Audit Committee’s Chairman of the Company’s Audit Committee serves as the presiding director at those executive sessions. Persons wishing to communicate with the Company’sour non-management directors may do so by writing in care of Chairman, Audit Committee, Stewart Information Services Corporation, 1980 Post Oak Boulevard, Suite 800, Houston, Texas 77056. Persons wishing to communicate with the Company’sour other directors may do so by writing in care of Corporate Secretary, Stewart Information Services Corporation, at the same address.
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EXECUTIVE COMPENSATION
Summary of Compensation DISCUSSION AND ANALYSIS
Introduction
The following table summarizes compensation information concerningCompensation Committee is comprised of Paul W. Hobby (Chair), Robert L. Clarke and Dr. W. Arthur Porter, each of whom is an independent director under the Company’sstandards of the New York Stock Exchange. The Compensation Committee functions pursuant to its charter, which is available on our web site atwww.stewart.com. Under its charter, the Compensation Committee is charged with establishing and monitoring the basic philosophy and policies governing the compensation of our executive officers for eachand senior managers. The Committee makes recommendations to the board of the three years ended December 31, 2005.directors with respect to compensation, incentive compensation plans and equity-based plans.
Summary Compensation Table
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | Long-Term | | | |
| | | | | | | Compensation | | | |
| | | | | Annual Compensation | | | (Awards) | | | |
| | | | | | | | | | | |
| | | | | | | Minimum | | | Variable | | | Stock Options | | | All Other | |
| Name and Principal Position | | Year | | | Salary ($)(1) | | | Bonus ($) | | | Bonus ($) | | | (# Shares) | | | Compensation ($) | |
| | | | | | | | | | | | | | | | | | | |
| Stewart Morris, Jr. | | | 2005 | | | | 165,000 | | | | 250,000 | | | | 426,172 | | | | 25,000 | | | | 12,312 | (2) |
| | President and | | | 2004 | | | | 150,000 | | | | 250,000 | | | | 400,069 | | | | 25,000 | | | | 21,067 | |
| | Co-Chief Executive Officer | | | 2003 | | | | 150,000 | | | | 250,000 | | | | 559,450 | | | | 25,000 | | | | 32,051 | |
| Malcolm S. Morris | | | 2005 | | | | 165,000 | | | | 250,000 | | | | 426,172 | | | | 25,000 | | | | 13,770 | (3) |
| | Chairman of the Board and | | | 2004 | | | | 150,000 | | | | 250,000 | | | | 400,069 | | | | 25,000 | | | | 31,515 | |
| | Co-Chief Executive Officer | | | 2003 | | | | 150,000 | | | | 250,000 | | | | 559,450 | | | | 25,000 | | | | 48,630 | |
| Max Crisp | | | 2005 | | | | 160,000 | | | | 145,000 | | | | 323,879 | | | | 16,500 | | | | 113,321 | (4) |
| | Executive Vice President | | | 2004 | | | | 156,000 | | | | 135,000 | | | | 309,052 | | | | 16,500 | | | | 114,974 | |
| | and Chief Financial | | | 2003 | | | | 155,000 | | | | 135,000 | | | | 428,588 | | | | 16,500 | | | | 120,630 | |
| | Officer, Secretary and Treasurer | | | | | | | | | | | | | | | | | | | | | | | | |
| Matthew W. Morris | | | 2005 | | | | 150,000 | | | | 75,000 | | | | 75,469 | | | | — | | | | 2,896 | (6) |
| | Senior Vice President | | | 2004 | (5) | | | 100,577 | | | | 75,000 | | | | 44,543 | | | | — | | | | 2,325 | |
The Compensation Committee’s specific duties and responsibilities include, but are not limited to, the following:
| | |
(1) | Includes salary earned• | Review and approve our goals and objectives relevant to the compensation of the Co-Chief Executive Officers, evaluate the Co-Chief Executive Officers’ performance in 2005light of those goals and deferred atobjectives, and recommend to the officer’s election.board of directors the Co-Chief Executive Officers’ compensation levels based on this evaluation. |
| |
(2) | Consists of matching contributions to• | Administer the Company’s 401(k) plan ($2,896), director’s fees ($3,600) and $5,816, 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.stock-based compensation plans that we have adopted (or may adopt). |
| |
(3) | Consists of matching contributions• | Review and approve employment, severance and change in control agreements with our executive officers. |
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| | |
| • | Review the overall compensation structure for all employees and make recommendations to the Company’s 401(k) plan ($2,896), director’s fees ($2,550) and $8,324, representing the portionboard of insurance premiums paid by the Companydirectors with respect to term life insurance plus the dollar value of the benefit of the remainder of life insurance premiums paid by the Company.non-Chief Executive Officer compensation, incentive compensation plans and equity-based plans. |
| |
(4) | Includes $102,564 paid under a deferred• | Retain in our discretion and on our behalf one or more firms that specialize in officer compensation agreement. See “Deferred Compensation.” Also includes matching contributions to the Company’s 401(k) plan ($2,896), director’s fees ($3,600) and $4,261, representing the portion of insurance premiums(i) compare compensation we pay to our officers with comparable compensation paid by competitors, (ii) compute the Company with respect to term life insurance plus the dollar value of the benefitstock options and (iii) issue a fairness letter upon completion of the remainder of life insurance premiums paid by the Company.firm’s study. |
| |
(5) | Matthew W. Morris joined• | Produce an annual report on executive compensation for inclusion in the Company on April 30, 2004.proxy statement as the Compensation Committee Report. |
| |
(6) | Consists• | Annually review and reassess the adequacy of matching contributionsour charter and recommend any proposed changes to the Company’s 401(k) plan.board of directors for approval. |
|
| • | Annually perform an evaluation of our performance to determine whether the Committee is functioning effectively and report its conclusions to the board of directors. |
Option Grants
The Compensation Committee currently engages a compensation consultant in odd-numbered years to gather and Exercisespresent to the Committee data available publicly with respect to the compensation of executive officers serving with other title insurance companies and other financial services companies deemed comparable by the Compensation Committee. This information is supplemented by similar data developed internally. The Compensation Committee considers many factors, including the information on comparable compensation at other companies, in its evaluation of the fairness of our compensation program, as discussed below. For the reasons discussed below, the compensation of our Co-Chief Executive Officers has historically been set at levels below those of executives at comparable companies. The Compensation Committee consults with the Co-Chief Executive Officers for the purposes of assuring the Committee that executive compensation programs do not distort our overall compensation structure, resulting in discontent among our Region Managers and other Associates. The Compensation Committee also works with the Co-Chief Executive Officers to structure their compensation programs and those of our other executive officers to make the compensation programs tax efficient and accommodate their estate planning.
The Compensation Committee met twice in 2007, with all members participating.
Objectives of the Compensation Programs
We were founded in 1893 by the sons of Judge William H. Stewart, and have been managed by his lineal descendents since that time. At the time of our initial public offering in 1972, our capital stock was divided into two classes, with the Stewart family owning all of the outstanding shares of Class B Common Stock, which entitles them to elect a certain number of directors depending on the number of shares of this class that they hold. Currently, Malcolm S. Morris and Stewart Morris, Jr. own a sufficient number of shares of Class B Common Stock to enable them to elect four of our nine directors. Because the vote of six directors is required to take action, at least one of the four directors elected by the Morrises must vote with the directors elected by our Common stockholders for our board of directors to take action.
The following table sets forth information concerning individual grantsCompensation Committee believes that our century-long management by members of the Stewart/Morris family has created a climate of long-term stability that is attractive to the kind of Associates that we wish to hire and retain, as well as to our customers. We are managed with a view to maximizing intermediate and long-term shareholder values.
In light of the Company’s history as a family-controlled company, the Compensation Committee has adopted a compensation philosophy of fairness, rather than focusing on attracting and retaining its chief executive officers. The Compensation Committee’s compensation philosophy also includes maintaining Associate satisfaction and morale by assuring that the compensation of executive officers, particularly the Co-Chief Executive Officers, is not out of line with that of Region Managers and other Associates. The Compensation Committee believes that our compensation programs have in the past achieved these goals. The Compensation Committee notes that it is not uncommon for the compensation of one or more Region Managers to exceed that of the Co-Chief Executive Officers in some years.
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The Compensation Committee also follows a policy, begun in 1985 when the respective fathers of the current Co-Chief Executive Officers served in such capacities, of equalizing the compensation packages of the Co-Chief Executive Officers. The Compensation Committee believes that this policy has served us well by eliminating a source of possible friction.
Finally, the Compensation Committee’s compensation philosophy considers the cyclical nature of our business, which is strongly influenced by prevailing mortgage interest rates and the U.S. real estate market. Because these factors are beyond the control of the executive officers, we do not attempt to closely link year to year operating results with their compensation. The Compensation Committee nevertheless tends to focus on tangible book value along with earnings per share and accretion of stockholder value over time, among other measures, in evaluating our executive officers’ performance.
Elements of In-Service Compensation
The principal elements of in-service compensation for our executive officers are salary, an annual bonus based on Stewart Title Guaranty Company’s financial performance and equity awards, which have historically taken the form of fully vested10-year stock options at an exercise price equal to the market price of our stock on the grant date. In 2007, our 2005 Long-Term Incentive Plan was amended to permit us to make restricted and unrestricted stock grants to our executive officers. However, no equity awards were made duringto our Co-Chief Executive Officers in 2007.
The salaries of our executive officers are kept relatively stable, with the year ended December 31, 2005base salaries of our Co-Chief Executive Officers having increased annually by an average of 9% since 2002. We have historically paid cash bonuses to our executive officers under formulas based on the consolidated pretax income (after deducting minority interests) of Stewart Title Guaranty Company. Guaranty had a loss in 2007, and no cash bonuses were earned by our Co-Chief Executive Officers under those plans in that year. The Compensation Committee attempts to set performance targets that will result in an aggregate compensation package that meets its standard of fairness. Our executive officers may receive discretionary cash bonuses from time to time upon approval by our board of directors. For 2007, each of the Company’s Co-Chief Executive Officers was awarded a discretionary bonus of $140,000 in recognition of their efforts in managing the Company to mitigate the effects of the recent downturn in the real estate markets.
As disclosed in our Summary Compensation Table under “All Other Compensation”, and the accompanying footnotes, we provide certain perquisites to our executive officers, including home security, tax and financial planning, country club dues, and company cars or car allowances. These perquisites have been provided for many years, and we believe them to whom suchbe reasonable as to type and amounts.
Recent Changes in Compensation Strategy for Co-Chief Executive Officers
In 2008, the Compensation Committee revised its compensation strategy for our Co-Chief Executive Officers by deciding to use restricted stock grants, rather than stock options, were granted. All suchas a part of their compensation packages and by approving a Strategic Incentive Pool, described below.
Restricted Stock Grants. These are equity awards that replace the option grants were made on February 2, 2005. The hypothetical valuesused in some previous years to supplement the cash components of compensation of our Co-Chief Executive Officers. While the grants are taxable to the receiving executive, they advance our concept of management equity ownership generally and alignment of interest between our Co-Chief Executive Officers and holders of our common stock. While the taxability of stock grants may result in modest sales of stock by our Chief Executive Officers in order to fund personal tax liabilities, the concept of direct ownership and clear and transparent reporting for financial statement purposes seem to the Committee to be preferable to the volatility of stock option valuations, particularly in light of the current real estate environment.
Strategic Incentive Pool. As a carefully constructed experiment, the Committee has recommended, and the Board has approved in principle, a34-month cash incentive plan tied to quantifiable measures in each of the several areas chosen by the Board and management aslong-term and strategic in nature. This Strategic Incentive Pool is intended to keep management’s eyes on the date of grant of stock options grantedhorizon at this difficult moment in 2005 shown below are presented pursuant to the rules of the Securitiesreal estate 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 relationship to the compensationtitle insurance
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costbusiness cycles. An extraordinarily rapid contraction in the housing market has created an operational imperative to right-size employee counts and centralize operating expenses. While that type of nimble, reactive management is necessary at times, the Company or potential gain realized by an optionee. Committee seeks to counterbalance that daily reality with long-term objectives consistent with the board’s and management’s vision for the Company.
The actualtotal amount if any, realized upon the exercise of stock options will depend upon the market price per share 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 actuallyStrategic Incentive Pool available for distribution will be realized.
Option Grants in Fiscal Year Ended December 31, 2005
| | | | | | | | | | | | | | | | | | | | | |
| | | Individual Grants | |
| | | | |
| | | | | Percent of | | | |
| | | Options | | | Total Options | | | | | Grant Date | |
| | | Granted | | | Granted to | | | Exercise | | | Expiration | | | Present | |
| Name | | (# Shares) | | | Employees (%) | | | Price ($) | | | Date | | | Value(1)($) | |
| | | | | | | | | | | | | | | | |
| Stewart Morris, Jr. | | | 25,000 | | | | 27.6 | | | | 42.11 | | | | 02/02/15 | | | | 446,750 | |
| Malcolm S. Morris | | | 25,000 | | | | 27.6 | | | | 42.11 | | | | 02/02/15 | | | | 446,750 | |
| Max Crisp | | | 16,500 | | | | 18.2 | | | | 42.11 | | | | 02/02/15 | | | | 294,855 | |
| |
(1) | The grant date present values are calculated under the Model. The Model is a mathematical formula used to value stock options and is based on assumptions regarding the stock’s volatility (30.39%), dividend rate (1.09%), option term (10 years) and a risk-free interest rate (4.35%). |
The following table sets forth information concerning each exercise of stock options during the year ended December 31, 2005 by eachcash equivalent of the Company’s executive officers and thefair market value of unexercised options at December 31, 2005. The Company has not issued any tandem or freestanding stock appreciation rights.
Aggregated Option Exercises in 2005 and Option Values at December 31, 2005
| | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | Number of Unexercised | | | | | |
| | | | | | | Options at | | | | | |
| | | | | | | December 31, 2005 | | | |
| | | Shares | | | | | | | | Value of Unexercised In-the-Money | |
| | | Acquired on | | | | | | | Options at December 31, 2005 | |
| | | Exercise | | | Value | | | Exercisable | | | Unexercisable | | | | |
| Name | | (# Shares) | | | Realized($) | | | (# Shares) | | | (# Shares) | | | Exercisable ($) | | | Unexercisable ($) | |
| | | | | | | | | | | | | | | | | | | |
| Stewart Morris, Jr. | | | — | | | | — | | | | 194,000 | | | | — | | | | 4,524,080 | | | | — | |
| Malcolm S. Morris | | | 844 | | | | 8,229 | | | | 153,734 | | | | — | | | | 3,440,718 | | | | — | |
| Max Crisp | | | — | | | | — | | | | 38,000 | | | | — | | | | 268,145 | | | | — | |
The following table provides additional information about our compensation plans under which equity securities are authorized for issuance as of December 31, 2005.
| | | | | | | | | | | | | |
| | | Number of | | | | | |
| | | Securities to be | | | | | Number of | |
| | | Issued Upon | | | Weighted Average | | | Securities | |
| | | Exercise of | | | Price of | | | Remaining Available | |
| | | Outstanding | | | Outstanding | | | for Future Issuance | |
| | | Options, Warrants | | | Options, Warrants | | | Under Equity | |
| Plan Category | | And Rights | | | And Rights | | | Compensation Plans | |
| | | | | | | | | | |
| Equity compensation plans approved by security holders | | | 449,634 | | | | 27.75 | | | | 910,366 | (1) |
| Equity compensation plans not approved by security holders | | | — | | | | — | | | | — | |
| Totals | | | 449,634 | | | | 27.75 | | | | 910,366 | |
| |
(1) | Does not include shares reserved for issuance under existing equity incentive plans if further issuances under these plans require stockholder approval in accordance with the Corporate Governance Guidelines of the New York Stock Exchange. |
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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 | |
| | | All | | | Committee | | | Committee | | | Committee | | | Committee | |
| Type of Compensation | | Directors | | | Chairman | | | Members | | | Chairs | | | Members | |
| | | | | | | | | | | | | | | | |
Annual Retainer: | | | | | | | | | | | | | | | | | | | | |
| | Cash | | $ | 20,000 | | | $ | 12,500 | (1) | | | | | | $ | 3,000 | | | | | |
| | Stock(2) | | | 10,000 | | | | | | | | | | | | | | | | | |
Per-Meeting Fees: | | | | | | | | | | | | | | | | | | | | |
| | Attendance in person: | | | | | | | | | | | | | | | | | | | | |
| | | Board meeting(3) | | | 3,000 | | | | | | | | | | | | | | | | | |
| | | Committee meeting | | | | | | | | | | $ | 2,500 | | | | | | | $ | 2,000 | |
| | | Out-of-state travel(4) | | | 1,000 | | | | | | | | | | | | | | | | | |
| | Attendance by telephone: | | | | | | | | | | | | | | | | | | | | |
| | | Board meeting | | | 2,000 | | | | | | | | | | | | | | | | | |
| | | Committee meeting | | | | | | | | | | | 2,500 | | | | | | | | 2,000 | |
| |
(1) | Includes $5,000 per year for service as the presiding director of executive sessions of the non-management members of the Company’s Board of Directors. |
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(2) | The annual stock award to directors is valued based on the market value per share of Common Stock on the date of the award. |
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(3) | The fee for attendance at the Company’s annual Board retreat is $4,000. |
|
(4) | 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 June 2005, Ms. Hanks was granted, in her capacity as Director of Employee Services for the Company, a10-year option for 1,50050,000 shares of the Company’s Common Stock as of December 31, 2010. Subject to certain conditions and to the extent each of the three equally weighted, independent targets set out under the plan are achieved, the cash award would be made in equal amounts to each of the Co-Chief Executive Officers. At least half of the after-tax cash received by each Co-Chief Executive Officer must be invested in the Company’s Common Stock within 60 days of the award. The targets under the plan relate to increasing our market share of commercial business, increasing our revenues from international business and implementing technology milestones. Each measure is independent and eligible for one-third of the cash award. To the extent a strategic measure’s threshold is achieved at an exercise priceless than 100% but at the minimum of $39.25 per share, which was80%, there will be a proportionate reduction in the marketcash award from the 100% level. Targets met at less than 80% are not eligible for their respective one-third of the cash award. The Company believes that the achievement of the strategic measure under the plan will significantly enhance the value of a sharethe Company.
The Strategic Incentive Pool will be presented to the full Board for final adoption in May 2008, to be effective for the 34 months ending December 31, 2010.
Elements of Common Stock on the option grant date.
DeferredPost-Termination Compensation Agreementsand Benefits
On March 10,
In 1986, the Companywe entered into a Deferred Compensation Agreementan agreement with each of Malcolm S. Morris, Stewart Morris, Jr. and Max Crisp, (individually, a “Beneficiary”). Pursuantpursuant to such agreements, as amended, a Beneficiarywhich the executive officer 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 federal 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 Beneficiarybeneficiary 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’sbeneficiary’s employment with the Companyus is terminated by reason of fraud, dishonesty, embezzlement or theft. Any death or income benefits provided to a Beneficiarybeneficiary under certain insurance policies we currently maintained by the Companymaintain will reduce payments due to such Beneficiarybeneficiary or his designee under his Deferreddeferred compensation agreement. The Compensation Agreement.Committee has no plans to propose any additional defined benefit plans for its executive officers.
Our executive officers also participate in our defined contribution (401(k)) plan on the same terms as our other Associates.
We have no “change of control” agreements that would provide additional post-termination compensation to any of our executive officers upon a change of control of the Company.
Limitation on the deductibility of executive compensation imposed by Section 162(m) of the Internal Revenue Code has had no effect on our compensation program for executive officers because we have never exceeded those limits.
Conclusion
In summary, the Compensation Committee strives to focus on the principles of fairness, stability and correlation between the duties and compensation of our senior corporate officers and our operational managers. Compensation of executive officers who are not members of the Morris family is intended to balance the market opportunities of those individuals and the deliberate modesty of the compensation packages provided to members of the Morris family.
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11
Performance GraphEXECUTIVE COMPENSATION
Summary of Compensation
The following graph compares the yearly percentage change in the Company’s cumulative total stockholder return on Common Stock with the cumulative total returntable summarizes compensation information for each of the Russell 2000 Index and the Russell 2000 Financial Services Sector Index (which includes the Company and its major publicly owned competitors)our executive officers for the fivetwo years ended December 31, 2005. The graph assumes that the value of the investment in the Company’s Common Stock and each index was $100 at2007.
Summary Compensation Table
(Year Ended December 31, 2000, and that all dividends were reinvested.2007)
COMPARISON OF FIVE YEAR CUMULATIVE TOTAL RETURN AMONG THE COMPANY,
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | Change in
| | | | | | | |
| | | | | | | | | | | | | | | | | | Pension
| | | | | | | |
| | | | | | | | | | | | | | | | | | Value and
| | | | | | | |
| | | | | | | | | | | | | | | | | | Nonqualified
| | | | | | | |
| | | | | | | | | | | | | | | | | | Deferred
| | | | | | | |
| | | | | | | | | | | | | | | Non-Equity
| | | Compensation
| | | All Other
| | | | |
| | | | | | Salary
| | | Bonus
| | | Awards | | | Incentive Plan
| | | Earnings
| | | Compensation
| | | Total
| |
Name and Principal Position | | Year | | | ($) (1) | | | ($) | | | Options ($) | | | Compensation ($) (2) | | | ($) | | | ($) (3) | | | ($) | |
| (a) | | (b) | | | (c) | | | (d) | | | (f) | | | (g) | | | (h) | | | (i) | | | (j) | |
| |
| Stewart Morris, Jr. | | | 2007 | | | | 225,000 | | | | 140,000 | | | | — | | | | — | | | | 81,000 | | | | 47,504 | | | | 493,504 | |
President andCo-Chief Executive Officer | | | 2006 | | | | 175,000 | | | | — | | | | — | | | | 486,299 | | | | 76,000 | | | | 19,001 | | | | 756,300 | |
| Malcolm S. Morris | | | 2007 | | | | 225,000 | | | | 140,000 | | | | — | | | | — | | | | 93,000 | | | | 26,187 | | | | 484,187 | |
Chairman of the Board andCo-Chief Executive Officer | | | 2006 | | | | 175,000 | | | | — | | | | — | | | | 486,299 | | | | 87,000 | | | | 24,754 | | | | 773,053 | |
| Max Crisp | | | 2007 | | | | 207,000 | | | | 140,000 | | | | — | | | | — | | | | — | | | | 56,173 | | | | 403,173 | |
| Executive Vice President and Chief Financial Officer, Secretary and Treasurer | | | 2006 | | | | 200,000 | | | | — | | | | — | | | | 295,974 | | | | — | | | | 70,527 | | | | 566,501 | |
| Matthew W. Morris(4) | | | 2007 | | | | 200,000 | | | | 140,000 | | | | 15,172 | | | | — | | | | — | | | | 12,700 | | | | 367,872 | |
| Senior Executive Vice President | | | 2006 | | | | 150,000 | | | | 25,000 | | | | — | | | | 105,565 | | | | — | | | | 11,950 | | | | 292,515 | |
| E. Ashley Smith(5) | | | 2007 | | | | 347,692 | | | | — | | | | 9,482 | | | | — | | | | — | | | | 10,900 | | | | 368,074 | |
| Executive Vice President and Chief Legal Officer | | | 2006 | | | | 316,667 | | | | 62,500 | | | | — | | | | — | | | | — | | | | 11,250 | | | | 390,417 | |
RUSSELL 2000 AND RUSSELL 2000 FINANCIAL SERVICES SECTOR
| | | | | | | | | | | | | | | | | | | | | | | | | |
| | | 2000 | | | 2001 | | | 2002 | | | 2003 | | | 2004 | | | 2005 | |
| | | | | | | | | | | | | | | | | | | |
| Company | | $ | 100.00 | | | $ | 89.01 | | | $ | 96.41 | | | $ | 184.83 | | | $ | 191.94 | | | $ | 227.75 | |
| Russell 2000 Index | | | 100.00 | | | | 102.49 | | | | 81.49 | | | | 120.03 | | | | 142.12 | | | | 148.70 | |
| Russell 2000 Financial Services Sector Index | | | 100.00 | | | | 115.64 | | | | 119.65 | | | | 167.32 | | | | 202.62 | | | | 207.08 | |
| | |
| (1) | | Includes salary earned and deferred at the officer’s election. |
|
| (2) | | Consists of the variable portion of executive bonuses. See “Compensation Discussion and Analysis — Elements of In-Service Compensation”. |
|
| (3) | | See the following table captioned “All Other Compensation”. |
|
| (4) | | Mr. Morris, age 36, has served as Senior Vice President of the Company since May 2004. Prior to that time, he served as Director for a strategic litigation consulting firm from 2000 to May 2004. |
|
| (5) | | Mr. Smith, age 61, has served as Executive Vice President and Chief Legal Officer of the Company since January 2006. Prior to that time, he served as Vice Chancellor of the University of Texas, with responsibilities for policy and governmental relations. |
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12
The following table shows the components of the compensation included in column (i) of our Summary Compensation table for the year ended December 31, 2007.
ALL OTHER COMPENSATION
| | | | | | | | | | | | | | | | | | | | | |
| | | Stewart
| | | Malcolm S.
| | | | | | Matthew W.
| | | E. Ashley
| |
Item | | Morris, Jr. | | | Morris | | | Max Crisp | | | Morris | | | Smith | |
| |
Other Compensation | | | | | | | | | | | | | | | | | | | | |
| Directors’ fees | | $ | 4,350 | | | $ | 4,350 | | | $ | 4,350 | | | $ | 3,000 | | | $ | — | |
Taxgross-up | | | — | | | | — | | | | 35,897 | | | | — | | | | — | |
| 401(k) match | | | 2,500 | | | | 2,500 | | | | 2,500 | | | | 2,500 | | | | 2,500 | |
Perquisites | | | | | | | | | | | | | | | | | | | | |
Personal use of company-owned auto
or car allowance | | | 5,825 | | | | 8,072 | | | | 8,501 | | | | 7,200 | | | | 8,400 | |
| Home security | | | 516 | | | | 4,200 | | | | 363 | | | | — | | | | — | |
| Country club dues | | | 4,266 | | | | 6,455 | | | | 3,556 | | | | — | | | | — | |
| Investment and tax planning and tax preparation | | | 30,047 | | | | 610 | | | | 1,006 | | | | — | | | | — | |
| | | | | | | | | | | | | | | | | | | | | |
| | | $ | 47,504 | | | $ | 26,187 | | | $ | 56,173 | | | $ | 12,700 | | | $ | 10,900 | |
| | | | | | | | | | | | | | | | | | | | | |
Plan-Based Awards
The following table sets forth information concerning individual grants of plan-based equity andnon-equity awards.
Grants of Plan-Based Awards
(Year Ended December 31, 2007)
| | | | | | | | | | | | | | | | | |
| | | | | All Other
| | | | |
| | | | | Option Awards:
| | | | Grant Date
|
| | | | | Number of
| | Exercise or
| | Fair Value
|
| | | | | Securities
| | Base Price
| | of Stock
|
| | | | | Underlying
| | of Option
| | and Option
|
| Name | | Grant Date | | Options (#) | | Awards ($/Sh) | | Awards ($) |
| (a) | | (b) | | (j) | | (k) | | (l) |
| |
| Matthew W. Morris | | | 11/30/07 | | | | 1,600 | | | | 26.83 | | | | 42,928 | |
| E. Ashley Smith | | | 11/30/07 | | | | 1,000 | | | | 26.83 | | | | 26,830 | |
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The following table sets forth information concerning the outstanding equity awards held by each of our executive officers at December 31, 2007. No executive officer held unexercisable options at that date.
Outstanding Equity Awards at December 31, 2007
| | | | | | | | | | | | | |
| | | Option Awards | |
| | | Number of
| | | | | | | |
| | | Securities
| | | | | | | |
| | | Underlying
| | | | | | | |
| | | Unexercised
| | | Option
| | | Option
| |
| | | Options (#) | | | Exercise
| | | Expiration
| |
| Name | | Exercisable | | | Price ($) | | | Date | |
| (a) | | (b) | | | (c) | | | (d) | |
| |
| Stewart Morris, Jr. | | | 25,000 | | | | 42.11 | | | | 02/02/15 | |
| | | | 25,000 | | | | 47.10 | | | | 02/02/14 | |
| | | | 25,000 | | | | 21.87 | | | | 01/23/13 | |
| | | | 25,000 | | | | 19.10 | | | | 02/01/12 | |
| | | | 25,000 | | | | 20.01 | | | | 01/31/11 | |
| | | | 25,000 | | | | 13.00 | | | | 02/04/10 | |
| | | | 20,000 | | | | 19.375 | | | | 05/24/09 | |
| | | | 24,000 | | | | 18.78 | | | | 05/13/08 | |
| Malcolm S. Morris | | | 25,000 | | | | 42.11 | | | | 02/02/15 | |
| | | | 25,000 | | | | 47.10 | | | | 02/02/14 | |
| | | | 25,000 | | | | 21.87 | | | | 01/23/13 | |
| | | | 25,000 | | | | 19.10 | | | | 02/01/12 | |
| Max Crisp | | | 16,500 | | | | 42.11 | | | | 02/02/15 | |
| | | | 16,500 | | | | 47.10 | | | | 02/02/14 | |
| | | | 5,000 | | | | 21.87 | | | | 01/23/13 | |
| Matthew W. Morris | | | 1,600 | | | | 26.83 | | | | 11/30/17 | |
| E. Ashley Smith | | | 1,000 | | | | 26.83 | | | | 11/30/17 | |
The following table sets forth information concerning options exercised or transferred by our named executive officers in 2007.
Option Exercises and Stock Vested as of December 31, 2007
| | | | | | | | | |
| | | Option Awards |
| | | Number of
| | |
| | | Shares
| | |
| | | Acquired
| | Value Realized
|
| | | on Exercise
| | on Exercise
|
| Name | | (#) | | ($) |
| (a) | | (b) | | (c) |
| |
| Malcolm S. Morris | | | 19,156 | | | | 581,768 | |
Defined Benefit Agreements
On March 10, 1986, we entered into an agreement with each of Malcolm S. Morris, Stewart Morris, Jr. and Max Crisp pursuant to which 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 federal income taxes thereon, result in a net annual payment of $66,667 to Max Crisp and $133,333 to each of Malcolm S. Morris and Stewart Morris, Jr. For purposes of such agreements, each beneficiary is deemed to be subject to federal income taxes at the highest marginal rate applicable to individuals. Such benefits are fully vested and are forfeited only if a beneficiary’s employment with us is terminated by reason of fraud, dishonesty, embezzlement or theft. Any death or income benefits provided to a beneficiary under certain insurance policies we own will reduce payments due to such beneficiary or his designee under his agreement. We have paid no premiums on these policies since 2001.
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The following table provides information with respect to each defined contribution or other plan that provides for the deferral of compensation on a basis that is not tax-qualified.
Nonqualified Deferred Compensation
(Year Ended December 31, 2007)
| | | | | | | | | | | | | | | | | |
| | | Executive
| | | Registrant
| | | | | | | |
| | | Contributions in
| | | Contributions in
| | | Aggregate Earnings
| | | Aggregate Balance
| |
| | | Last FY
| | | Last FY
| | | in Last FY
| | | at Last FYE
| |
| Name | | ($) | | | ($) | | | ($) | | | ($) | |
| (a) | | (b) | | | (c) | | | (d) | | | (e) | |
| |
| Stewart Morris, Jr. | | | 70,833 | | | | — | | | | 57,349 | | | | 490,534 | |
| Malcolm S. Morris | | | 75,000 | | | | — | | | | 27,137 | | | | 512,136 | |
| Max Crisp | | | 75,000 | | | | — | | | | 21,553 | | | | 446,248 | |
Pension Plans
The following table summarizes benefits payable and paid to our executive officers under our defined benefit pension plans. All benefits are fully vested.
Pension Benefits as of December 31, 2007
| | | | | | | | | | | |
| | | | | Present
| | | | |
| | | | | Value of
| | | Payments During
| |
| | | | | Accumulated Benefit
| | | Last Fiscal Year
| |
| Name | | Plan Name | | ($) | | | ($) | |
| (a) | | (b) | | (d) | | | (e) | |
| |
| Stewart Morris, Jr. | | Agreement with beneficiary | | | 1,242,000 | | | | — | |
| Malcolm S. Morris | | Agreement with beneficiary | | | 1,422,000 | | | | — | |
| Max Crisp | | Agreement with beneficiary | | | 556,000 | | | | 66,667 | |
Compensation of Directors
Our non-employee directors receive fees as follows:
Director Compensation
(Year Ended December 31, 2007)
| | | | | | | | | | | | | | | | | |
| | | Fees Earned or
| | | Stock
| | | All Other
| | | | |
| | | Paid in Cash
| | | Awards
| | | Compensation
| | | Total
| |
| Name | | ($) | | | ($)(1) | | | ($) | | | ($) | |
| (a) | | (b) | | | (c) | | | (d) | | | (e) | |
| |
| Robert L. Clarke | | | 52,000 | | | | 40,000 | | | | — | | | | 92,000 | |
| Paul W. Hobby | | | 48,000 | | | | 20,000 | | | | — | | | | 68,000 | |
| Dr. E. Douglas Hodo | | | 73,000 | | | | 20,000 | | | | — | | | | 93,000 | |
| Laurie C. Moore | | | 68,000 | | | | 20,000 | | | | — | | | | 88,000 | |
| Dr. W. Arthur Porter | | | 55,000 | | | | 20,000 | | | | 4,000 | | | | 79,000 | |
| | |
| (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. |
Our directors who are employees receive directors’ fees of $150 per meeting. On November 30, 2007, Ms. Hanks was granted, as our Director of Employee Services, a fully vested10-year option for 1,600 shares of our common stock at an exercise price of $26.83 per share, which was the closing price of a share of our common stock on the grant date. The compensation of our named executive officers for service on our board of directors or the boards of directors of our subsidiaries is included in “All Other Compensation” in our Summary Compensation Table.
15
Compensation Committee Report
To the Board of Directors of
Stewart Information Services Corporation:
Compensation Policy.
The Compensation Committee has reviewed and discussed the Compensation Discussion and Analysis section of this proxy statement with Stewart’s management and, based on that review and discussions, the Compensation Committee recommended to the board of directors that the Compensation Discussion and Analysis be included in this proxy statement.
Members of the Board of Directors (the “Committee”) is responsible for the oversight and administration of the Company’s executive compensation program. TheCompensation 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 the executive officers of the Company, who are Malcolm S. Morris, Stewart Morris, Jr., Max Crisp and Matthew W. Morris, 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. As a holding company, the Company has no payroll, and the annual salaries and cash bonuses of its executive officers are paid by a subsidiary of the Company.
Base Salary. For 2005, the minimum bonus levels described below for each of theCo-Chief Executive Officers of the Company remained unchanged, and the base salaries of such persons were raised from $150,000 to $165,000. Base salary amounts do not include the minimum bonuses described below. Historically, the base salaries of the Company’sCo-Chief 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.
Paul W. Hobby, Chair
Robert L. Clarke
Dr. W. Arthur Porter
Annual Bonus. Each of theCo-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 net 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 2005, the Committee recommended and the Company adopted the following bonus formula for each of the Co-Chief Executive Officers:
| | | | |
| | Incremental Percent | |
Guaranty Consolidated Net Income Before Taxes | | Payable 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 | % |
For 2005, the Committee recommended and the Company adopted the following bonus formula for Mr. Crisp:
| | | | |
| | Incremental Percent | |
Guaranty Consolidated Net Income Before Taxes | | Payable as Bonus | |
| | | |
Up to $50 million | | | 0.50 | % |
$50 million to $75 million | | | 0.40 | % |
$75 million to $100 million | | | 0.30 | % |
Over $100 million | | | 0.20 | % |
Mr. Crisp’s minimum bonus is $145,000 and his bonus may not exceed 75% of the aggregate base salary and bonus earned by a Chief Executive Officer.
For 2005, the Committee also recommended and the Company adopted a bonus plan for Matthew W. Morris under which he will receive a bonus of 0.10% of the consolidated net income before taxes of Guaranty, with a minimum bonus of $75,000, and up to $25,000 in discretionary bonuses based upon the completion of projects and with the approval of Stewart Morris, Jr.Dated: February 28, 2008
16
13
The consolidated income before taxes of Guaranty in 2005 was approximately $150.5 million. Accordingly, each of theCo-Chief Executive Officers received a bonus of $676,172 for 2005, and Mr. Crisp received a bonus of $468,879 for 2005.
Stock Options. In 2005 the 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. Such options were taken into account by the Committee in determining the reasonableness of the recipient officer’s annual compensation package. The Incentive Plan is intended 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 $4.53 per diluted share in 2004 to $4.86 per diluted share in 2005. 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, as well as the other independent members of the Company’s Board of Directors, subjectively evaluates the performance of the Company’s executive officers, including theCo-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 2005, the Committee gave particular consideration to the efforts of theCo-Chief Executive Officers in further developing the Company’s automation programs, entering new markets through acquisitions, increasing book value per share and pursuing opportunities in international markets.
| |
| Members of the Compensation Committee |
|
| Paul W. Hobby, Chair |
| Robert L. Clarke |
| Dr. W. Arthur Porter |
Dated: February 9, 2006
14
SELECTION OF INDEPENDENT AUDITORS
KPMG LLP served as the Company’sour principal independent auditors for the Company’sour fiscal year ended December 31, 2005. Representatives2007. We expect representatives of KPMG LLP are expected to be present at the Annual Meeting of Stockholdersmeeting 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. The Company’sOur Audit Committee has not yet selected independent auditors for the fiscal year ending December 31, 2006.2008.
Audit and Other Fees
The following table sets forth the aggregate fees billed for professional services rendered by KPMG LLP for each of the Company’sour last two fiscal years:
| | | | | | | | | |
| | | Year Ended December 31, | |
| | | | |
| | | 2005 | | | 2004 | |
| | | | | | | |
| Audit Fees(1) | | $ | 1,070,400 | | | $ | 1,017,500 | |
| Audit-Related Fees(2) | | | 206,260 | | | | 230,000 | |
| Tax Fees(3) | | | 58,005 | | | | 155,700 | |
| All Other Fees(4) | | | 1,350 | | | | 1,350 | |
| | | | | | | | | |
| | | Year Ended December 31, | |
| | | 2007 | | | 2006 | |
| |
| Audit Fees (1) | | $ | 1,487,992 | | | $ | 1,631,629 | |
| Audit-Related Fees (2) | | | — | | | | 7,893 | |
| Tax Fees (3) | | | 61,426 | | | | 54,944 | |
| All Other Fees (4) | | | 1,500 | | | | 1,500 | |
| | |
| (1) | | Fees for the audit of the Company’sour annual financial statements, the audit of the effectiveness of our internal controls over financial reporting, review of financial statements included in the Company’sour Quarterly Reports onForm 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. The 2005 audit fees include work performed related to the audit of management’s assessment included in the Sarbanes-Oxley Section 404 Management Report. Less than 50 percent of the hours expended on KPMG LLP’s engagement to audit the Company’s financial statements for 2005 were attributed to work performed by persons other than KPMG LLP’s full-time, permanent employees. |
| |
| (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’sour financial statements and that are not reported under “Audit Fees”. PrimarilyThis primarily represents fees for separate statutory audits of minor subsidiaries and affiliates. Also includes fees for consultation on accounting questions. |
| |
| (3) | | Fees for professional services rendered by KPMG LLP primarily for tax compliance, tax advice and tax planning. |
| |
| (4) | | Fees not included under other captions. Consistscaptions, consisting of subscription for on-line accounting references. |
The Audit Committee must preapprove all auditingaudit services and permitted non-audit services (including the fees and terms thereof) to be performed for the Companyus by itsour independent auditor. The Audit Committee may form and delegate authority to subcommittees consisting of one or more members when appropriate, including the authority to grant preapprovals of audit and permitted non-audit services, provided that the subcommittee will present all decisions of such subcommittee to grant preapprovals shall be presented to the full Audit Committee at its next scheduled meeting. Since May 6, 2003, the effective date of the Securities and Exchange Commission’s rules requiring preapproval of audit and non-audit services, 100% of the services identified in the preceding table were approved by the Audit Committee.
17
15
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 Boardboard of directors for the general oversight of Stewart’s processes in the Company’sfollowing areas: 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’scorporate compliance. Stewart’s management has primary responsibility for preparing the consolidated financial statements and for the Company’sStewart’s financial reporting process. The Company’sStewart’s independent auditors, KPMG LLP, are responsible for expressing an opinion on the conformity of the Company’s auditedStewart’s consolidated financial statements, to accounting principlesand whether such financial statements are presented fairly in accordance with U.S. generally accepted in the United States of America.accounting principles.
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. |
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| 2. The Audit Committee has discussed with the independent auditors the matters required to be discussed by SAS No. 61 (Codification of Statements on Auditing Standards, AU § 380). |
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| 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 auditors the independent auditors’ independence. |
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| 4. Based on the review and discussion referred to in paragraphs (1) through (3) above, the Audit Committee has recommended to the Board of Directors that the audited financial statements be included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2005, for filing with the Securities and Exchange Commission. |
1. The Audit Committee has reviewed and discussed the audited financial statements with Stewart’s management.
2. The Audit Committee has discussed with the independent auditors the matters required to be discussed by SAS No. 114 (Codification of Statements on Auditing Standards, AU § 380).
3. The Audit Committee has received the written disclosures and letters from the independent auditors required by Independence Standards Board Standard No. 1 (Independent Discussions with Audit Committees) and has discussed with the independent auditors the independent auditors’ independence.
4. Based on the review and discussions referred to in paragraphs (1) through (3) above, the Audit Committee has recommended to the board of directors that the audited financial statements be included in Stewart’s Annual Report onForm 10-K for the year ended December 31, 2007, 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:
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| Dr. E. Douglas Hodo, Chair |
| Robert L. Clarke |
| Laurie C. Moore |
Dr. E. Douglas Hodo, Chair
Robert L. Clarke
Dated: February 14, 200628, 2008
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CERTAIN TRANSACTIONS
Stewart Morris is the father of Stewart Morris, Jr. and Carloss Morris, who passed away in 2005, is the fatheruncle of Malcolm S. Morris. Stewart Morris and Carloss Morris are brothers. During the year ended December 31, 2005,2007, Stewart Morris served as a director of Stewart Title Company and Stewart Title Guaranty Company and as chairman of Title’sStewart Title Company’s executive committee and untilreceived compensation in 2007 of approximately $344,000, consisting of his death, Carloss Morris served as a director of Titlesalary and Guarantybonus.
During 2007, we and as chairman of Guaranty’s executive committee. Aggregate salaries, bonuses and other compensation for 2005 for Stewart Morris and Carloss Morris were $403,767 and $320,784, respectively.
During 2005, the Company and itsour subsidiaries paid a total of $263,211$418,065 to the law firm of Morris, Lendais, Hollrah & Snowden, P.C., of which Carloss Morris was and Malcolm S. Morris is a shareholder. In connection with real estate transactions processed by Stewart Title Company, such firm receives legal fees from its clients who are also customers of Stewart Title Company and who select such firm as their counsel.
During 2005, Marietta Maxfield, sister
For many decades, we have maintained a collection of antique and replica carriages for business promotion and entertainment purposes. The carriages have been associated with the Company by its customers and potential customers. They symbolize the tradition, quality and stability of the Company in keeping with our long history.
The Company also maintains approximately 10 horses, which have been trained to safely pull the carriages. When not in use, both the carriages and horses are housed at the Morris Ranch in Wharton, Texas, which is owned by Stewart Morris and Stewart Morris, Jr., and occasionally at their homes and at the home of Malcolm S. Morris in Houston. The horses and most of the carriages are owned by the Morrises, and both horses and carriages are under separate terminable leases to the Company for no charge other than maintenance expenses. The Company also owns some carriages directly. The Company directly pays third-party vendors for the expenses incidental to maintaining and insuring its horse and carriage assets. These expenses include staff payroll, carriage maintenance, horse training, feed, veterinary, shoeing and trucking these assets to the different locations where they are used. These expenses also include maintenance and related utilities for a 14,000-square foot carriage house at the Morris Ranch, where the carriage operation maintains a stable and an office and where the main body of the carriage collection is housed and kept on display for guests. The only payment by the Company to an affiliate is $10,400 per year paid to the Morris Ranch for rental of the Carriage House and non-exclusive pasture rental of 600 acres. Our total expenses for maintenance of these assets in 2007 was a full-time attorney for Guaranty and was paid $130,326 for services rendered in such capacity.approximately $270,000
PROPOSALS FOR NEXT ANNUAL MEETING
Any
To be included in the proxy statement and form of proxy relating to our 2009 annual meeting of stockholders, proposals of holders of Common Stock orcommon stockholders and Class B Common Stock intended to be presented at the Annual Meeting of Stockholders of the Company to be held in 2007common stockholders must be received by the Companyus at itsour principal executive offices, 1980 Post Oak Boulevard, Suite 800, Houston, Texas 77056, no later thanby December 15, 2006, in order to be included in the proxy statement and form of proxy relating to that meeting.2008.
OTHER MATTERS
The
Our management does not know of the Company knows of noany other matters whichmatter that 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 intend to vote such proxy in accordance with their best judgment.
Proxies for the Company’sour 2009 annual meeting of stockholders to be held in 2007 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 receiveswe receive notice, by certified mail, return receipt requested, addressed to the Company’sour Secretary, not later than the 15th13th day of February next preceding the meeting, that the matter will be presented at the annual meeting and (ii) the Company failswe fail to include in its proxy statement for the annual meeting advice on the nature of the matter and how the Company intendswe intend to exercise itsour discretion to vote on the matter.
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The
We will pay the cost of solicitation of proxies in the accompanying form will be paid by the Company. The Company hasform. We have retained Innisfree M&A Incorporated, a proxy solicitation firm, to assist itus in soliciting proxies for the proposals described in this proxy statement. The Company has agreed toWe will 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 of our officers or employees, of the Company, and certain officers or employees of Innisfree, may solicit the return of proxies by telephone, telegram or personal interview.
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| By Order of the Board of Directors, |
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| Max Crisp |
| Secretary |
March 27, 2006By Order of the Board of Directors,
Max Crisp
Secretary
April 8, 2008
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| | 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 -MAY 9, 2008 The undersigned appoints Ken Anderson, Jr. and E. Ashley Smith, 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 May 9, 2008, 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. (Mark the corresponding box on the reverse side) FOLD AND DETACH HERE You can now access your Stewart Information Services Corporation account online. Access your Stewart Information Services Corporation stockholder account online via Investor ServiceDirect (ISO). The transfer agent for Stewart Information Services corporation now makes it easy and convenient to get current information on your stockholder account. View account status View payment history for dividends View certificate history Make address changes View book-entry information Obtain a duplicate 1099 tax form• Establish/change your PIN Visit us on the web at http://www.bnymel/on.com/shareowner For Technical Assistance Call 1-877-978-7778 between 9am-7pm Monday-Friday Eastern Time ****TRY IT OUT**** www.bnymellon.com/shareowner/isd Investor ServiceDirect Available 24 hours per day, 7 days per week TOLL FREE NUMBER: 1-800 ·370-1163 |
Please
Mark Here
for Address
Change or
Comments
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| SEE REVERSE SIDE |
The Board of Directors recommends a vote FOR:
1. | | Election of Directors — |
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FORall nominees
| | WITHHOLD | | | | | | |
listed at right (except | | AUTHORITY | | | | Nominees: | | 01 Robert L. Clarke, |
as marked to the | | torecommends a vote for all nominees | | | | | | 02 Nita B. Hanks, |
contrary) | | listed at right | | | | | | 03 Dr. E. Douglas Hodo, |
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| | o | | | | | | 04 Dr. W. Arthur Porter, |
| | | | | | 05 Laurie C. Moore |
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(INSTRUCTION: To withhold authority to vote for any nominee, write that nominee’s name on the line below.)
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| | | | FOR: The undersigned acknowledges receipt of the Notice of Annual Meeting of Stockholders and of the Proxy Statement. |
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Dated: | | | |
, 2006 |
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| | | | Statement 1. Election of Directors -Nominees: FOR all nominees WITHHOLD 01 Robert L. Clarke, Please sign exactly as your name appears. Joint owners listed ill fight (except as marked to the contrary) WITHHOLD AUTHORITY to vote for all nominees listed al right D 02 03 04 05 Nita B, Hanks, Dr-E. Douglas Hodo, Dr-W. Arthur Porter. Laurie C, Moore should each sign personally. Where applicable, indicate your official position or representation capacity. (INSTRUCTION: To withhold authority to vote for any nominee, write that nominee’s name on the line below.) . ,”,. ,. ,2008 SIGNATURE(S) . FOLD AND DETACH HERE . WE ENCOURAGE YOU TO TAKE ADVANTAGE OF INTERNET OR TELEPHONE VOTING, BOTH ARE AVAILABLE 24 HOURS A DAY, 7 DAYS A WEEK. Internet and telephone voting is available through 11 :59 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 http://www.proxyvoting.comlstc Use the Internet to vote your proxy. Have your proxy card in hand when you access the web site. TELEPHONE 1-866-540-5760 Use any touch-tone telephone to OR vote your proxy. Have your proxy card in hand when you call. If you vote your proxy by Internet or by telephone, you do NOT need to mail back your proxy card. To vote by mail, mark, sign and date your proxy card and return it in the enclosed postage-paid envelope. Choose MLinkSM for fast, easy and secure 24/7 online access to your future proxy materials, investment plan statements, tax documents and more. Simply log on to Investor ServiceDirect at www.bnymellon com/shareownerlisd where step-by-step instructions will prompt you through enrollment. |
