(18) (16) | As reported on Schedule 13G/A filed with the SEC on February 13, 2019, which indicates that RE Advisers CorporationJanuary 14, 2021 on behalf of Gregory Willett, as Trust Protector and National Rural Electric Cooperative Association haveInvestment Manager. Mr. Willett has sole voting power with respect to 1,241,9191,000,000 shares, no shared voting power, sole dispositive power with respect to 1,241,9191,000,000 shares, and no shared dispositive power with respect to no shares.dispositive. Information is as of December 31, 2018.January 6, 2021.
| (17)(19) | The other executive officers areofficer is James F. Brower, Jr., M. Paul Bunn, William J. Cartright, Samuel F. Hough, R.H. Lovin, Jr., and Paul T. Newbourne. S. Grant III. As of the Record Date, Mr. BrowerGrant beneficially owned 58,8751,976 shares of Class A common stock, comprised of 28,499 shares owned directly and 30,376 shares of restricted Class A common stock. Mr. Bunn beneficially owned 54,334 shares of Class A common stock, comprised of 16,914 shares owned directly, 19,991 shares of restricted Class A common stock, 2,515 shares held by Mr. Bunn's spouse, and 14,914 shares allocated to the account of Mr. Bunn under our 401(k) plan (the number of shares reported as beneficially owned is equal to Mr. Bunn's March 11, 2019 account balance in the employer stock fund under the Company's 401(k) plan divided by the closing market price on such date). Mr. Cartright beneficially owned 28,337 shares of Class A common stock, comprised of 1,499 owned shares owned directly and 26,838 shares of restricted Class A common stock. Mr. Hough beneficially owned 63,911 shares of Class A common stock, comprised of 21,387 owned shares owned directly and 42,524 shares of restricted Class A common stock. Mr. Lovin beneficially owned 39,192 shares of Class A common stock, comprised of 16,293 shares owned directly, 16,967 shares of restricted Class A common stock, 3,607 shares allocated to the account of Mr. Lovin under our 401(k) plan (the number of shares reported as beneficially owned is equal to Mr. Lovin's March 11, 2019 account balance in the employer stock fund under the Company's 401(k) plan divided by the closing market price on such date), and 2,325 shares held as custodian for his minor grandchildren. Mr. Newbourne beneficially owned 41,623 shares of Class A common stock, comprised of 2,904 shares owned directly, 35,839 shares of restricted Class A common stock, and 2,880 shares owned jointly with his spouse. The shares detailed in this footnote are included in the calculation of all directors and executive officers as of March 30, 2021 as a group. The restricted Class A common stock is subject to vesting and, in certain circumstances, holding provisions. |
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Under its charter, our Audit Committee must review and approve all transactions between our executive officers and us. The Audit Committee reviews all of such ongoing transactions quarterly; however, the compensation of our executive officers is not within the Audit Committee'sCommittee’s purview. Pursuant to its charter, our Audit Committee must review and approve in advance any transaction, or any proposed transaction, in which we were or are to be a participant and the amount involved exceeds $120,000, and in which any "related person"“related person” (as that term is defined in Instruction 1 to Item 404(a) of SEC Regulation S-K) had or will have a direct or indirect material interest, referred to as a "related“related party transaction."” All such transactions must be reviewed and preapproved by our Audit Committee. No director may participate in any discussion or approval of a related party transaction for which he or she, or his or her relative, is a related party. If a related party transaction will be ongoing, the Audit Committee may establish guidelines for our management to follow in its ongoing dealings with the related party and then at least annually must review and assess ongoing relationships with the related party.
For 2018,2019 and 2020, no such transactions involved an amount equal to or exceeding $120,000, except for the employment of twoone immediate family membersmember of David Parker, and the Consulting AgreementCompany’s transactions with Mr. Schmidt.Seat My Trucks, LLC and WLC Properties. In 2018,2019 and 2020, the Company employed the following persons: (i) Clay Scholl, an employee of our Solutions subsidiary, who is the brother-in-law of David Parker, and (ii) Rob Hatchett, Vice President of Recruiting for our Covenant Transport subsidiary, is the son-in-law of David Parker. Total compensation for 20182019 and 2020 for each of Clay Scholl and Rob Hatchett was approximately $214,000$133,000 and $288,000,$151,000, respectively, and includes the grant date fair value of equity awards subject to performance-based and time-based vesting conditions. In July 2016,2019, the Company entered into a Consulting Agreementbusiness arrangement with Herbert J. Schmidt, oneSeat My Trucks, LLC, a company owned by Rob Hatchett, the son-in-law of our directors. PursuantDavid Parker and husband of Rachel Parker-Hatchett. The total payments made to Seat My Trucks in 2019 were: $1,384,100 in media pass-through expenses, $105,000 in monthly consulting fees, and $247,805 in placement fees. The total payments made to Seat My Trucks in 2020 were: $733,000 in media pass-through expenses, $60,000 in monthly consulting fees, and $300,000 in placement fees. The Company leases certain real estate from WLC Properties, which is partially owned by John Tweed’s children’s trust. The total rental payments made to WLC Properties in 2019 and 2020 was $717,000 and $774,000, respectively. In the Consulting Agreement, Mr. Schmidt provided consulting services tofourth quarter of 2020, the Company and to SRTpurchased a shop facility in particular, including assisting SRT's management in improving SRT's performance. In approving the Consulting Agreement, the Board determined that Mr. Schmidt’s extensive, executive-level operational experience at Con-way would make him an ideal candidate to assist in the Company’s goal of improving SRT’s operating results. The Board further determined that achieving this goal would require greater involvement by Mr. Schmidt, both in terms of time and operational direction, than would be commensurate with his role as director.
The Consulting Agreement had an initial term of six months and entitled Mr. Schmidt to receive compensation of $18,333 per month, plus reimbursement of reasonable and customary expenses incurred in connection with his performance of the agreement. In December 2016, upon a determination that it was in the Company’s interest to continue to utilize Mr. Schmidt as a consultant, the Consulting Agreement was amended so that the term continues on a month-to-month basis, subject to termination by either party upon 30 days’ advance written notice. The Consulting Agreement was also amended so that Mr. Schmidt was entitled to compensation of $2,000 per dayGreeneville, TN, from WLC properties for every day he is on-site at a Company location to perform consulting services or is traveling to or from a Company location to perform consulting services. This compensation arrangement replaced the previous $18,333 per month arrangement, effective January 1, 2017. Upon entering into the Consulting Agreement, Mr. Schmidt ceased to serve on our Compensation Committee and, upon amending and extending the Consulting Agreement in December 2016, Mr. Schmidt ceased to serve on our Nominating Committee. During 2018, the Company paid Mr. Schmidt $106,000 in fees and $13,778 in expense reimbursements under the Consulting Agreement. Given SRT’s improved performance, the Consulting Agreement terminated in January 2019.$4.5 million.
PROPOSAL 2 – ADVISORY AND NON-BINDING RESOLUTION ON EXECUTIVE COMPENSATION
In accordance with the requirements of Section 14A of the Exchange Act (which was added by the Dodd-Frank Wall Street Reform and Consumer Protection Act and the related rules of the SEC), we are including in this proxy statement a separate resolution, subject to stockholder vote, to approve, in a non-binding vote, the compensation of our Named Executive Officers as disclosed on pages 1517 to 32.37. Non-binding votes to approve the compensation of our Named Executive Officers are held every year.
As described in more detail in the Compensation Discussion and Analysis section of this Proxy Statement, the Compensation Committee has structured our executive compensation program to achieve the following key objectives: Objective | | How Our Executive Compensation Program Achieves This Objective | Attract and retain talented executives and motivate those executives to achieve superior results. | ·•
| We link compensation to achievement of specified performance goals, appreciation in the market price of our Class A common stock, and continued employment with the Company and utilize multi-year vesting requirements to promote long-term ownership. | Align executives'executives’ interests with our corporate strategies, our business objectives, and the performance of specific business units to the extent applicable. | ·•
| Annual management bonuses for each of our Named Executive Officers are based on adjusted EPS (and for certain of our Named Executive Officers, the satisfaction of operating incomestrategic and operating ratio targets established for the Company's subsidiaries)financial goals critical to our goal of maintaining profitability and fostering long-term growth. | Enhance executives'executives’ incentives to increase our stock price and focus on the long-term interests of our stockholders. | · •
| We incorporate cash and equity compensation components into our plan to provide incentives for short-term and long-term objectives. | | o
| Annual cash incentives based on targets with objective, measurable criteria keep management focused on near-term results. For 2018, the annual cash incentives were subject to adjustment based on our performance relative to peer companies. Caps on cash awards are built into our plan design. | | | o
| The equity compensation component, which includes awards such as restricted stock grants and stock options, provides balance to our other elements of our compensation program and creates incentive for executives to increase stockholder value over an extended period of time. | | · • | We attempt to keep base salaries reasonable and weight overall compensation toward incentive and equity-based compensation. | Control costs. | · • | We provide de minimis perquisites to our Named Executive Officers and make matching "discretionary"“discretionary” contributions to the Named Executive Officers'Officers’ 401(k) accounts (which contributionsaccount, which we have temporarily discontinued between April 2020 and December 2020 due to the effects of COVID-19. Contributions for our Named Executive Officers for 20182020 aggregated to approximately $20,125).$19,000. | | · •
| We seek to ensure, to the extent possible, that incentive compensation paid by us is deductible for tax purposes. | | · | Historically, we have frozen the base salaries of our Named Executive Officers during challenging economic environments. |
We urge stockholders to read the Compensation Discussion and Analysis beginning on page 1517 of this proxy statement for more information on our executive compensation policies and procedures. The Compensation Committee and the Board believe that the policies and procedures articulated in the Compensation Discussion and Analysis are effective in achieving our goals.
Accordingly, we are asking our stockholders to approve, in a non-binding vote, the following resolution in respect of this Proposal 2:
"“RESOLVED, that the stockholders advise that they approve the compensation of the Company'sCompany’s Named Executive Officers, including the Compensation Discussion and Analysis, the Summary Compensation Table, and the related compensation tables, notes, and narrative discussion in this proxy statement for the Company's 2019Company’s 2021 Annual Meeting of Stockholders."”
This advisory resolution, commonly referred to as a "say-on-pay"“say-on-pay” resolution, is non-binding on the Board of Directors. Although non-binding, the Board and the Compensation Committee will review and consider the voting results when making future decisions regarding our executive compensation program.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT STOCKHOLDERS VOTE "FOR"“FOR” ADVISORY APPROVAL OF THE RESOLUTION SET FORTH ABOVE. RELATIONSHIPS WITH INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
On April 17, 2020, the Audit Committee made the decision to change the Company’s independent registered public accounting firm and the Company dismissed KPMG as its independent registered public accounting firm. The audit reports of KPMG on the Company's consolidated financial statements as of and for the years ended December 31, 2019 and 2018 did not contain an adverse opinion or disclaimer of opinion, and were not qualified or modified as to uncertainty, audit scope or accounting principles, except as follows:
The audit report of KPMG on the consolidated financial statements of the Company as of and for the year ended December 31, 2019 contained a paragraph stating that “As discussed in Note 1 to the consolidated financial statements, the Company has changed its method of accounting for leases as of January 1, 2019 due to the adoption of ASU 2016-02, Leases, and subsequently issued additional ASUs amending this ASU (collectively ASC 842, Leases).”
The audit reports of KPMG on the effectiveness of internal control over financial reporting as of and for the years ended December 31, 2019 and 2018 did not contain an adverse opinion or disclaimer of opinion, nor were they qualified or modified as to uncertainty, audit scope or accounting principles, except that KPMG’s report indicates that the Company did not maintain effective internal control over financial reporting as of December 31, 2018 because of the effect of a material weakness described in the following paragraph. During the two fiscal years ended December 31, 2019 and 2018, and from January 1, 2020 through April 17, 2020, there were no “disagreements” (as defined in Item 304(a)(1)(iv) of Regulation S-K and related instructions) with KPMG on any matter of accounting principles or practices, financial statement disclosure or auditing scope or procedure, which disagreements, if not resolved to the satisfaction of KPMG, would have caused KPMG to make reference in connection with their opinion to the subject matter of the disagreement. During the years ended December 31, 2019 and 2018, and from January 1, 2020 through April 17, 2020, there were no “reportable events” (as defined in Regulation S-K Item 304(a)(1)(v)); except for a material weakness in internal control over financial reporting identified during the audit for the year ended December 31, 2018 related to the design and maintenance of effective program change management controls over certain information technology (“IT”) operating systems, databases and IT applications that support the Company’s financial reporting processes. This material weakness was disclosed in Item 9A of the Company’s Annual Report on Form 10-K for the year ended December 31, 2018 and was disclosed by the Company as remediated in Item 9A of the Company’s Annual Report on Form 10-K for the year ended December 31, 2019. On April 17, 2020, the Audit Committee made the decision to engage Grant Thornton LLP (“Grant Thornton”) as the Company's independent registered public accounting firm, effective immediately, to perform independent audit services for the fiscal year ending December 31, 2020. During the fiscal years ended December 31, 2019 or 2018, and from January 1, 2020 through April 17, 2020, neither the Company nor anyone on its behalf consulted Grant Thornton regarding either (i) the application of accounting principles to a specified transaction, either completed or proposed, or the type of audit opinion that might be rendered with respect to the consolidated financial statements of the Company, and no written report or oral advice was provided to the Company by Grant Thornton that was an important factor considered by the Company in reaching a decision as to any accounting, auditing or financial reporting issue; or (ii) any matter that was the subject of a “disagreement” (as defined in Item 304(a)(1)(iv) of Regulation S-K and the related instructions) or a “reportable event” (as that term is defined in Item 304(a)(1)(v) of Regulation S-K). Principal Accountant Fees and Services
The principal independent registered public accounting firm utilized by us during 20182020 was KPMG LLP. KPMG has served as our independent registered public accounting firm since September 2001. A representative of KPMG is expected to be present at the Annual MeetingGrant Thornton and to be available to respond to appropriate questions. KPMG's representative will have an opportunity to make a statement at the Annual Meeting should he or she desire to do so.during 2019 we utilized KPMG.
Grant Thornton and KPMG billed us the following amounts for services provided in the following categories during the years ended December 31, 20182020 and 2017:2019:
| 2020 | 2019 | Audit Fees(1) | $594,135 | $714,975 | Audit-Related Fees(2) | - | - | Tax Fees(3) | - | - | All Other Fees(4) | - | - | Total | $594,135 | $714,975 |
| | 2018 | | | 2017 | | Audit Fees(1) | | $ | 736,927 | | | $ | 496,350 | | Audit-Related Fees(2) | | | - | | | | - | | Tax Fees(3) | | | 180,285 | | | | 156,992 | | All Other Fees(4) | | | - | | | | - | | Total | | $ | 917,242 | | | $ | 656,992 | |
(1) | Represents the aggregate fees billed and expenses for professional services rendered by Grant Thornton and KPMG, respectively, for the audit of our annual financial statements and reviews of financial statements included in our quarterly reports on Form 10-Q, and services that are normally provided by an independent registered public accounting firm in connection with statutory or regulatory filings or engagements for those years. For 2018, the audit fees included work related to the Landair Acquisition.
| (2) | Represents the aggregate fees billed for assurance and related services by Grant Thornton and KPMG, respectively, that are reasonably related to the performance of the audit or review of our financial statements and are not reported under "audit“audit fees." ” There were no such fees and expenses for 20182020 or 2017.2019.
| (3) | Represents the aggregate fees billed for professional services rendered by Grant Thornton and KPMG, respectively, for tax compliance, tax advice, and tax planning. There were no such fees and expenses for 2020 or 2019.
| (4) | Represents the aggregate fees billed for products and services provided by Grant Thornton and KPMG, respectively, other than audit fees, audit-related fees, and tax fees. There were no such fees for 20182020 or 2017. 2019. |
Our Audit Committee maintains a policy pursuant to which the Audit Committee Chair reviews all audit services and permitted non-audit services to be performed by our independent registered public accounting firm in order to assure that the provision of such services is compatible with maintaining the firm'sfirm’s independence, with the Audit Committee retaining the authority to make the final decision. Under this policy, the Audit Committee pre-approves specific types or categories of engagements constituting audit, audit-related, tax, or other permissible non-audit services to be provided by our principal independent registered public accounting firm. Pre-approval of an engagement for a specific type or category of services generally is provided for up to one year and typically is subject to a budget comprised of a range of anticipated fee amounts for the engagement. Management and the principal independent registered public accounting firm are required to periodically report to the Audit Committee regarding the extent of services provided by the principal independent registered public accounting firm in accordance with the annual pre-approval, and the fees for the services performed to date. To the extent that management believes that a new service or the expansion of a current service provided by the principal independent registered public accounting firm is necessary or desirable, such new or expanded services are presented to the Audit Committee for its review and approval prior to the engagement of the principal independent registered public accounting firm to render such services. No audit-related, tax, or other non-audit services were approved by the Audit Committee pursuant to the de minimis exception to the pre-approval requirement under Rule 2‑01(c)(7)(i)(C), of SEC Regulation S-X during the year ended December 31, 2018.2020. PROPOSAL 3 – RATIFICATION OF APPOINTMENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The Audit Committee of the Board has appointed KPMG LLPGrant Thornton as the Company'sCompany’s independent registered public accounting firm for the year ending December 31, 2019. KPMG LLP served as the Company's independent registered public accounting firm for 2018, and the services it provided to the Company and its subsidiaries in 2018 are described under Principal Accountant Fees and Services above.2021. We are asking our stockholders to ratify the appointment of KPMG LLPGrant Thornton as our independent registered public accounting firm for the year ending December 31, 2019.2021. Each proxy will be voted as directed on each proxy card; or in the absence of contrary instructions, each proxy will be voted for the ratification of KPMG LLP.Grant Thornton. Although ratification is not required by our Third Amended and Restated Bylaws or otherwise, the Board is submitting the selection of KPMG LLPGrant Thornton to our stockholders for ratification as a matter of good corporate practice. The Audit Committee
A representative of Grant Thornton is expected to participate in the Annual Meeting by telephone and to be available to respond to appropriate questions. Grant Thornton’s representative will reconsiderhave an opportunity to make a statement at the appointment if not ratified.Annual Meeting should he or she desire to do so.
THE BOARD RECOMMENDS THAT STOCKHOLDERS VOTE "FOR"“FOR” THE RATIFICATION OF THE APPOINTMENT OF KPMGGRANT THORNTON LLP AS THE COMPANY'SCOMPANY’S INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM FOR 2019.2021.
In the event stockholders do not ratify the appointment, the appointment will be reconsidered by the Audit Committee and the Board. Even if the appointment is ratified, the Audit Committee in its discretion may select a different registered public accounting firm at any time during the year if it determines that such a change would be in the best interests of the Company and its stockholders.
PROPOSAL 4 - APPROVAL OF AMENDMENT TO THE COMPANY’S AMENDED AND RESTATED ARTICLES OF INCORPORATION TO INCREASE THE NUMBER OF AUTHORIZED SHARES OF CLASS A COMMON STOCK
The Board unanimously approved and directed that there be submitted to our stockholders for their approval a proposal to amend our amended and restated articles of incorporation to increase the number of authorized shares of Class A common stock from 20,000,000 shares to 40,000,000 shares. In addition, to effect this change, the total number of shares of capital stock authorized in our amended and restated articles of incorporation would increase from 30,000,000 shares to 50,000,000 shares. The amendment would not increase any other class of authorized shares, including Class B common stock and preferred stock.
The text of the proposed amendment is set forth below:
“RESOLVED, that the first paragraph of Article IV of the Company’s amended and restated articles of incorporation be amended by restating it as follows:
The total number of shares of capital stock of all classes which the corporation shall have authority to issue is fifty million (50,000,000) shares, all having a par value of One Cent ($0.01) per share, consisting of the following: forty million (40,000,000) Class A Common Shares; five million (5,000,000) Class B Common Shares; and five million (5,000,000) Preferred Shares.”
Purpose and Effect of Amendment
The Board recommends the increase in order to provide a sufficient reserve of shares of Class A common stock for our present and future needs and growth. The Company is currently authorized to issue up to 20,000,000 shares of Class A common stock, of which 16,018,513 shares of Class A common stock were issued and outstanding as of March 11, 2019. Additionally, as of March 11, 2019, there were 3,072,231 shares of Class A common stock reserved for future issuance (which would increase to 3,822,231 shares of Class A common stock reserved for future issuance if the First Amendment to the Incentive Plan is approved by stockholders), including:
● | 2,350,000 shares of Class B common stock, which have been outstanding since our 1994 initial public offering and are convertible into the same number of shares of Class A common stock; | ● | 671,271 shares of restricted Class A common stock that are subject to certain performance vesting, time vesting, and holding provisions; and | ● | 50,960 shares of Class A common stock available for issuance under the Incentive Plan (which will increase to 800,960 shares of Class A common stock if the First Amendment to the Incentive Plan is approved by stockholders).
|
As a result, as of March 11, 2019, there were only 909,256 authorized and unreserved shares of Class A common stock available for future issuance (which would decrease to 159,256 authorized and unreserved shares of Class A common stock available for future issuance if the First Amendment to the Incentive Plan is approved by stockholders).
The Board wishes to be in the position to take advantage of any opportunities that might present themselves in a timely and efficient manner, understanding that opportunities for additional issuance could arise at any time without warning. The availability of additional Class A common shares for issuance, without the delay and expense of obtaining additional stockholder approval at a special meeting or at the next scheduled annual meeting, will afford the Company greater flexibility in acting upon opportunities and transactions, if any, which may arise. Additionally, the Board believes that sufficient Class A common shares are needed for future issuance under the Incentive Plan to incentivize retention of executive officers and align executive officers’ interest with those of our stockholders. Other than future issuances under the Incentive Plan, as may be authorized by the Compensation Committee from time to time, there are no plans, proposals, arrangements, or understandings to issue any of the newly available authorized shares of Class A common stock.
Accordingly, the Board believes it is appropriate to increase the number of authorized shares of Class A common stock at this time.
Rights of Additional Authorized Shares of Class A Common Stock
The proposed additional shares of Class A common stock would have rights identical to currently outstanding shares of Class A common stock. Approval of the proposal and issuance of the additional shares of Class A common stock would not affect the rights of the holders of currently outstanding Class A common stock or Class B common stock, except for effects incidental to any increase in the number of shares of the Class A common stock outstanding, such as dilution of the earnings per share and voting rights of current holders of Class A common stock or Class B common stock. Holders of Class A common stock do not have preemptive rights to subscribe to or purchase additional securities which may be issued, sold, or offered for sale by the Company.
Potential Adverse Effects of Amendment
The existence of additional authorized but unissued shares of Class A common stock could hinder or frustrate a takeover of the Company without further action by the stockholders. If the stockholders approve this proposal, the Company will be able to issue additional shares of Class A common stock and the Board has greater flexibility in responding to a merger or acquisition bid by placing blocks of shares with persons friendly to the Company, or by taking other steps to prevent an acquisition of the Company under circumstances that the Board does not believe to be in the Company's best interest. The Board is not currently aware of any pending capital transactions, corporate acquisitions, takeover proposals, or other similar events involving the Company. This proposal is not being presented with the intent that it be used to prevent or discourage any acquisition attempt.
Effectiveness of Amendment
The proposed amendment, if approved by stockholders, will become effective on the date such amendment is filed with the Nevada Secretary of State. We anticipate that the appropriate filing to effect the amendment will be made as soon after the Annual Meeting as practicable. Under Nevada law, approval of the proposed amendment requires (i) the affirmative vote of a majority of the voting power of the Class A stockholders and the Class B stockholders voting together as a single class and (ii) the affirmative vote of a majority of the voting power of the Class A stockholders voting as a separate class.
THE BOARD RECOMMENDS THAT STOCKHOLDERS VOTE “FOR” THIS PROPOSAL TO AMEND THE COMPANY’S AMENDED AND RESTATED ARTICLES OF INCORPORATION TO INCREASE THE NUMBER OF AUTHORIZED SHARES OF CLASS A COMMON STOCK.
PROPOSAL5: APPROVAL OF THE FIRST AMENDMENT TO THE INCENTIVE PLANSummary
● | The Board is asking for stockholder approval to amend our Third Amended and Restated 2006 Omnibus Incentive Plan (the "Incentive Plan") to increase the number of shares of Class A common stock available for issuance thereunder. Equity compensation is critical for the Company to attract, motivate and retain qualified executive officers and other key personnel through competitive compensation packages, and it aligns our executives’ and stockholders’ short- and long-term interests by creating a strong and direct link between executive pay and stockholder return. | ● | The Board believes the shares remaining under the Incentive Plan are insufficient to fulfill the Company’s objectives. If stockholders do not approve the First Amendment to the Incentive Plan, the Company will have approximately 50,960 remaining shares under the Incentive Plan for future awards and may need to resort to greater cash compensation to remain competitive. | ● | The Board is also asking for stockholder approval to amend our Incentive Plan to make technical updates related to Section 162(m) of the Code in light of the 2017 Tax Cuts and Jobs Act (the “TCJA”), and to make such other miscellaneous, administrative and conforming changes as are necessary. | ● | In addition, the Board is asking for stockholder approval to amend our Incentive Plan to comply with certain shareholder advisory group guidelines and best practices, including amendments to disallow: |
| o | tax gross-ups of any kind; | | o | payment of dividends on unvested future awards; | | o | vesting periods of less than twelve months for future awards; | | o | share recycling related to exercise of stock options, shares available for issuance upon the grant of SARs and shares forfeited for tax withholding obligations; and | | o | the power to vote shares underlying awards prior to the vesting of such shares (for awards granted on or after the date on which the First Amendment to the Incentive Plan is approved by our stockholders). |
Introduction
At the Annual Meeting, our stockholders are being asked to approve the proposed First Amendment to the Incentive Plan to (i) increase the number of shares of Class A common stock available for issuance thereunder by an additional 750,000 shares, (ii) implement additional changes designed to comply with certain shareholder advisory group guidelines and best practices, (iii) make technical updates related to Section 162(m) of the Code in light of the TCJA, and (iv) make such other miscellaneous, administrative and conforming changes as are necessary (collectively, the “First Amendment to the Incentive Plan”). Currently there are approximately 800,960 shares available for issuance under the Incentive Plan; therefore, the First Amendment to the Incentive Plan would result in approximately 50,960 shares being available for future awards, subject to adjustment for future forfeitures (except for tax withholding and cashless exercise forfeitures) and to reflect the occurrence of certain events (described under “Proposal 5: Approval of the First Amendment to the Incentive Plan – Description of the Incentive Plan and the First Amendment to the Incentive Plan — Adjustments Upon Certain Events” below). The Compensation Committee has approved the First Amendment to the Incentive Plan and the Board has directed that it be submitted for stockholder approval at the Annual Meeting. If approval of the First Amendment to the Incentive Plan is not obtained at the Annual Meeting from our stockholders, the Incentive Plan will remain in full force and effect, and our ability to grant equity awards to attract, motivate and retain new and existing key employees, directors, officers and eligible participants (collectively, “Participants”) would be limited. In that event, to remain competitive, the Company may be required to adopt additional cash or equity related compensation programs.
Before approving the First Amendment to the Incentive Plan, the Compensation Committee considered a number of factors, including share usage over the last three years, shares expected to be required in the future based upon historical practices, and shares expected to be required as the Company continues to retain and complement our leadership team. The Compensation Committee believes additional shares are needed to (i) recruit talent to fill open positions on our management team as they arise and (ii) continue to make awards under the Company’s historical Incentive Plan, which tie a significant portion of total compensation to equity awards and align with stockholder interests. Furthermore, a significant portion of our executives’ total annual compensation is in the form of equity awards. The majority of performance-based restricted shares granted in 2018 have a performance period that extends beyond 2018. If performance targets are met, it benefits both our stockholders and our equity recipients. If performance targets are not met, the restricted shares are forfeited and our effective burn rate reduced.
In deciding to increase the number of shares available for issuance under the Incentive Plan by 750,000 shares, the Compensation Committee considered, among other factors:
● | the approximately 50,960 shares currently available for issuance under the Incentive Plan; | ● | the number of shares necessary to attract, motivate and retain qualified executive officers and other key personnel; | ● | the Board’s desire to have sufficient availability under the Incentive Plan to grant awards for the next three years;
| ● | our current three-year average burn rate of approximately 1.4%, calculated based upon performance-based awards vested in the year (versus granted) and time-based awards granted in the year each times a stock volatility multiplier of 2.0, divided by our weighted average common shares outstanding; | ● | the number of shares of Class A common stock outstanding, the dilutive effects of awards under the Incentive Plan and our projected burn rate; and | ● | the effect of the price of our Class A common stock on the number of shares needed to maintain the significant percentage of our compensation packages for key employees that is currently granted in the form of equity. |
In addition to the factors above, the Compensation Committee also considered the following factors, among others, when determining whether to approve the First Amendment to the Incentive Plan:
● | the Board’s belief that equity-based grants to employees are a highly effective recruiting and retention tool that allows key employees to share in the ownership of our Company and contribute to our revenue and earnings growth by aligning the long-term interests of our management and key employees with those of our stockholders; | ● | approximately 64% of awards currently outstanding under the Incentive Plan vest only if certain performance criteria are achieved, thus resulting in dilution only if stockholder value is created; | ● | the Board’s belief that if additional shares are not available for future awards, we would be required to discontinue or significantly curtail our current equity incentive program and increase the use of cash awards, which could have an adverse impact on our ability to attract, motivate and retain employees and our results of operations; and | ● | the provisions in the First Amendment to the Incentive Plan designed to protect stockholders’ interests, including provisions that disallow (i) tax gross-ups of any kind, (ii) payment of dividends on unvested future awards, (iii) vesting periods of less than twelve months for future awards, (iv) share recycling related to exercise of stock options, shares available for issuance upon the grant of SARs and shares forfeited for tax withholding obligations, and (v) the power to vote shares underlying awards prior to the vesting of such shares (for awards granted on or after the date on which the First Amendment to the Incentive Plan is approved by our stockholders). |
Provisions Designed to Protect Stockholders
The Incentive Plan (as amended by the First Amendment to the Incentive Plan) and our governance and compensation policies contain a number of provisions that we believe are designed to protect stockholder interests, including:
● | prohibition of share recycling related to exercise of stock options, shares available for issuance upon the grant of SARs and shares forfeited for tax withholding obligations; | ● | prohibition of the repricing of stock options without stockholder approval; | ● | prohibition of the issuance of stock options with an exercise price less than the fair market value of the Class A common stock on the grant date; | ● | limiting the maximum term of a stock option to ten years; | ● | prohibition of (i) tax gross-ups of any kind, (ii) payment of dividends on unvested future awards, (iii) vesting periods of less than twelve months for future awards, and (iv) the power to vote shares underlying awards prior to the vesting of such shares (for awards granted on or after the date on which the First Amendment to the Incentive Plan is approved by our stockholders) (added by the First Amendment to the Incentive Plan); | ● | administration of the Incentive Plan by the Compensation Committee, which is comprised entirely of independent directors; |
● | the Compensation Committees’ ability to exercise negative discretion to eliminate or reduce the size of an award if appropriate; | ● | awards to Participants are subject to limits as to the number of shares or cash received; and | ● | our Executive Stock Ownership, Retention, and Anti-Hedging and Anti-Pledging Policy, which, among other things, (i) requires certain of our executive officers to build certain stock ownership over time through equity grants, expressed as multiples of annual base salary, (ii) requires such individuals to retain post-tax shares from each award on exercise, vesting or earn-out, until such individual complies with the stock ownership levels required by the Executive Stock Ownership, Retention, and Anti-Hedging and Anti-Pledging Policy, and (iii) prohibits hedging transactions in our Class A and Class B common stock and pledging our Class A and Class B common stock as collateral for loans or purchasing our Class A common stock on margin, all as further provided in our Executive Stock Ownership, Retention, and Anti-Hedging and Anti-Pledging Policy. |
Description of the Incentive Plan and the First Amendment to the Incentive Plan
In May 2013, our stockholders approved the Third Amended and Restated 2006 Omnibus Incentive Plan, as amended (the "Incentive Plan"), which replaced the Second Amended and Restated Incentive Plan. If approved by our stockholders at the Annual Meeting, the First Amendment to the Incentive Plan will be effective as of May 8, 2019, its approval date. The principal provisions of the Incentive Plan, as amended by the First Amendment to the Incentive Plan, are summarized below. This summary is qualified in its entirety by reference to the text of the Incentive Plan as currently in effect. The First Amendment to the Incentive Plan is attached as Appendix A to this Proxy Statement. You are urged to read the actual text of the Incentive Plan and the First Amendment to the Incentive Plan in their entirety.
The purposes of the Incentive Plan are to: (i) provide our employees with an opportunity to acquire Class A common stock in a manner that reinforces our performance goals and provides an incentive to continue employment with us and work toward our long-term growth, development and financial success; (ii) attract, motivate and retain qualified executive officers and other key personnel by providing them with long-term incentives and reward such Participants by the issuance of equity grants so that these employees and directors will contribute to and participate in our long-term performance; and (iii) align our executives’ and stockholders’ short- and long-term interests by creating a strong and direct link between executive pay and stockholder return. In furtherance of these purposes, the Incentive Plan authorizes the grant of stock options and restricted stock, subject to applicable law, to our employees, directors and consultants.
The Incentive Plan allows the Compensation Committee to link compensation to performance over a period of time by granting Awards (as defined in the Incentive Plan) that have multiple-year vesting schedules. Awards with multiple-year vesting schedules, such as restricted stock grants, provide balance to the other elements of our compensation program that otherwise link compensation to our short-term performance. Awards with multiple-year vesting schedules create an incentive for executive officers to increase stockholder value over an extended period of time because the value received from such Awards is based upon the growth of the stock price. Furthermore, the First Amendment to the Incentive Plan provides that any Award subject to vesting over a period of time will not vest in periods of less than twelve months from the Grant Date of such Award (for Awards granted on or after the date on which the First Amendment to the Incentive Plan is approved by our stockholders). Such Awards also incentivize executives to remain with us over an extended period of time. Thus, we believe the Incentive Plan is an effective way of aligning the interests of our executive officers with those of our stockholders.
When the Third Amended and Restated 2006 Omnibus Incentive Plan was originally adopted in May 2013, it increased the number of shares of Class A common stock available for issuance under the Incentive Plan by an additional 750,000 shares. The First Amendment to the Incentive Plan increases the number of shares of Class A common stock available for issuance under the Incentive Plan by an additional 750,000 shares. Currently there are approximately 50,960 shares available for issuance under the Incentive Plan; therefore, the First Amendment to the Incentive Plan would result in approximately 800,960 shares being available for future Awards, subject to adjustment for future forfeitures (except for tax withholding and cashless exercise forfeitures) and to reflect the occurrence of certain events (described under “Proposal 5: Approval of the First Amendment to the Incentive Plan – Description of the Incentive Plan and the First Amendment to the Incentive Plan — Adjustments Upon Certain Events” below).
In addition, we are amending our Incentive Plan (i) to make technical updates related to Section 162(m) of the Code in light of the TCJA, (ii) to make such other miscellaneous, administrative and conforming changes as are necessary, and (iii) to comply with certain shareholder advisory group guidelines and best market practices, and as a result, the Compensation Committee approved amendments to disallow:
● | tax gross-ups of any kind; | ● | payment of dividends on unvested future Awards; | ● | vesting periods of less than twelve months for future Awards; | ● | share recycling related to exercise of stock options, shares available for issuance upon the grant of SARs and shares forfeited for tax withholding obligations; and | ● | the power to vote shares underlying Awards prior to the vesting of such shares (for Awards granted on or after the date on which the First Amendment to the Incentive Plan is approved by our stockholders). |
Burn Rate
With the significant percentage of outstanding Awards containing performance criteria and, we believe calculating the Company’s burn rate based upon performance-based awards vested in the year (versus granted) and time-based awards granted in the year, divided by our weighted average common shares outstanding, provides a more accurate depiction of our burn rate. The following table summarizes our performance-based awards to all employees over the last three years that were granted, vested and forfeited. Our current burn rate is approximately 1.4% calculated based upon performance-based awards vested in the year (versus granted) and time-based awards granted in the year each times a stock volatility multiplier of 2.0, divided by our weighted average common shares outstanding.
Performance-Based Awards | | | | # of Shares(1)
| | Non-vested at December 31, 2015 | | | 136,961 | | Granted | | | 50,245 | | Vested | | | (74,551 | ) | Forfeited | | | (5,202 | ) | | | | | | Non-vested at December 31, 2016 | | | 107,453 | | Granted | | | 344,731 | | Vested | | | (29,734 | ) | Forfeited | | | (5,988 | ) | | | | | | Non-vested at December 31, 2017 | | | 416,462 | | Granted | | | 45,404 | | Vested | | | - | | Forfeited | | | (29,291 | ) | | | | | | Non-vested at December 31, 2018 | | | 432,575 | | | | | | | Non-vested at March 11, 2019 | | | 432,575 | |
(1) | Does not include time-based awards |
Types of Awards
A description of the Awards that may be made pursuant to the Incentive Plan follows. Such descriptions are qualified in their entirety by reference to the text of the Incentive Plan.
Stock Options. Pursuant to the Incentive Plan, the Compensation Committee may grant Awards in the form of stock options to purchase shares of Class A common stock, which stock options may be non-qualified or incentive stock options for federal income tax purposes. Stock options granted under the Incentive Plan vest and become exercisable at such times and upon such terms and conditions as may be determined by the Compensation Committee. Any stock option granted in the form of an incentive stock option must satisfy the requirements of Section 422 of the IRC. The exercise price per share of Class A common stock for any stock option cannot be less than 100% of the fair market value of a share of Class A common stock on the day that the stock option is granted. In addition, the term of the stock option may not exceed ten (10) years. In the case of an incentive stock option granted to an employee Participant who owns, directly or indirectly (as determined by reference to Section 424(d) of the IRC), at the time the option is granted, stock possessing more than 10 percent of the total combined voting power of all classes of our stock, the exercise price per share of Class A common stock for any stock option will not be less than 110% of the fair market value of a share of Class A common stock on the day that the stock option is granted, and the term of the stock option may not exceed five (5) years. The exercise price of any stock option granted pursuant to the Incentive Plan may not be subsequently reduced by amendment or cancellation and substitution of such stock option or any other action of the Compensation Committee without stockholder approval, subject to the Compensation Committee’s authority to adjust Awards upon certain events as set forth in the Incentive Plan. The type (incentive or non-qualified), vesting, exercise price, and other terms of each stock option are set forth in the award notice for such stock option.
A stock option may be exercised by paying the exercise price in cash or its equivalent and/or, to the extent permitted by the Compensation Committee and applicable law, shares of Class A common stock, a combination of cash and shares of Class A common stock, or through the delivery of irrevocable instruments to a broker to sell the shares obtained upon the exercise of the stock option and to deliver to us an amount equal to the exercise price.
Stock Appreciation Rights. The Compensation Committee may grant Awards in the form of stock appreciation rights, either in tandem with a stock option ("Tandem SARs") or independent of a stock option ("Freestanding SARs"). The exercise price of a stock appreciation right is an amount determined by the Compensation Committee, but in no event is such amount less than 100% of the fair market value of a share of Class A common stock on the date that the stock appreciation right is granted or, in the case of a Tandem SAR, the exercise price of the related stock option.
A Tandem SAR may be granted either at the time of grant of the related stock option or at any time thereafter during the term of the related stock option. A Tandem SAR is exercisable to the extent its related stock option is exercisable. Each Tandem SAR entitles the holder of such stock appreciation right to surrender the related stock option and to receive an amount equal to (i) the excess of (A) the fair market value on the exercise date of one share of Class A common stock over (B) the stock option price per share of Class A common stock, times (ii) the number of shares of Class A common stock covered by the stock option which is surrendered. Upon the exercise of a stock option as to some or all of the shares of Class A common stock covered by such stock option, the related Tandem SAR is automatically canceled to the extent of the number of shares of Class A common stock covered by the exercise of the stock option.
Each Freestanding SAR will entitle the holder of such stock appreciation right upon exercise to an amount equal to (i) the excess of (A) the fair market value on the exercise date of one share of Class A common stock over (B) the exercise price, times (ii) the number of shares of Class A common stock covered by the Freestanding SAR and as to which the stock appreciation right is exercised.
The type (Tandem SAR or Freestanding SAR), exercise price, vesting, and other terms of each stock appreciation right is set forth in the award notice for such stock appreciation rights. Payment of stock appreciation rights may be made in shares of Class A common stock or in cash, or partly in shares of Class A common stock and partly in cash, as determined by the Compensation Committee.
Other Stock-Based Awards. The Compensation Committee may grant Awards in the form of stock awards (for either unrestricted or restricted shares of Class A common stock), restricted stock unit awards, and other awards that are valued in whole or in part by reference to, or are otherwise based on the fair market value of, Class A common stock. Such other stock-based awards are in such form, and dependent on such conditions, as the Compensation Committee determines, including, without limitation, the right to receive, or vest with respect to, one or more shares of Class A common stock (or the equivalent cash value of such shares of Class A common stock) upon the completion of a specified period of service, the occurrence of an event, and/or the attainment of performance objectives. In addition, the Compensation Committee may choose, at the time of grant of a stock-based award, or any time thereafter up to the time of the payment of such award, to include as part of such award an entitlement to receive dividends or dividend equivalents on the shares of Class A common stock underlying such award (for Awards granted before the date on which the First Amendment to the Incentive Plan is approved by our stockholders), subject to such terms, conditions, restrictions, and/or limitations, if any, as the Compensation Committee may establish. Payment of dividends on unvested Awards would be prohibited for Awards granted on or after the date on which the First Amendment to the Incentive Plan is approved by our stockholders. The restrictions, conditions, and other terms of each stock-based award are set forth in the award notice for such award.
Performance Units. The Compensation Committee may grant Awards in the form of performance units, which are units valued by reference to designated criteria established by the Compensation Committee, other than Class A common stock. Performance units are in such form, and dependent on such conditions, as the Compensation Committee determines, including, without limitation, the right to receive a designated payment upon the completion of a specified period of service, the occurrence of an event, and/or the attainment of performance objectives. The form, applicable conditions, and other terms of each performance unit are set forth in the award notice for such performance unit.
Performance Awards. Performance awards are designed to reward executive officers for their contributions to our financial and operating performance and are based primarily upon our financial results and certain operating statistics that the Compensation Committee identifies each year as being important to our success. Performance awards may take the form of cash, stock awards, restricted stock unit awards, or performance units that are conditioned upon the satisfaction of enumerated performance criteria during a stated performance period, which awards, in addition to satisfying the requirements otherwise applicable to that type of award generally, also satisfy the requirements of performance awards under the Incentive Plan.
Performance awards must be based upon one or more of the following performance criteria: (i) revenues (including without limitation, measures such as revenue per mile (loaded or total) or revenue per tractor), (ii) net revenues, (iii) fuel surcharges, (iv) accounts receivable collection or days sales outstanding, (v) cost reductions and savings (or limits on cost increases), (vi) safety and claims (including, without limitation, measures such as accidents per million miles and number of significant accidents), (vii) operating income, (viii) operating ratio, (ix) income before taxes, (x) net income, (xi) earnings before interest and taxes (EBIT), (xii) earnings before interest, taxes, depreciation, and amortization (EBITDA), (xiii) adjusted net income, (xiv) earnings per share, (xv) adjusted earnings per share, (xvi) stock price, (xvii) working capital measures, (xviii) return on assets, (xix) return on revenues, (xx) debt-to-equity or debt-to-capitalization (in each case with or without lease adjustment), (xxi) productivity and efficiency measures (including, without limitation, measures such as driver turnover, trailer to tractor ratio, and tractor to non-driver ratio), (xxii) cash position, (xxiii) return on stockholders’ equity, (xxiv) return on invested capital, (xxv) cash flow measures (including, without limitation, free cash flow), (xxvi) market share, (xxvii) stockholder return, (xxviii) economic value added, or (xxix) completion of acquisitions (either with or without specified size). In addition, the Compensation Committee may establish, as an additional performance measure, the attainment by a Participant of one or more personal objectives and/or goals that the Compensation Committee deems appropriate, including but not limited to implementation of Company policies, negotiation of significant corporate transactions, development of long-term business goals or strategic plans, or the exercise of specific areas of managerial responsibility. The performance goals set by the Compensation Committee may be expressed on an absolute and/or relative basis, and may include comparisons with our past performance (including the performance of one or more of our divisions) and/or the current or past performance of other peer companies or indices.
For each performance period, the Compensation Committee designates, in its sole discretion, which persons are eligible for performance awards for such period, the length of the performance period, the types of performance awards to be issued, the performance criteria that are to be used to establish performance goals, the kind or level of performance goals, and other relevant matters.
After the close of each performance period, the Compensation Committee determines whether the performance goals for the cycle have been achieved. In determining the actual award to be paid to a Participant, the Compensation Committee has the authority to reduce or eliminate any performance award earned by the Participant, based upon any objective or subjective criteria it deems appropriate. The award notice for each performance award sets forth or makes reference to the performance period, performance criteria, performance goals, performance formula, performance pool, and other terms applicable to such performance award.
Administration
The Incentive Plan is administered by the Compensation Committee, or such other committee as may be designated by the Board, which consists of at least two individuals who are intended to qualify both as "non-employee directors" within the meaning of Rule 16b-3 under the Exchange Act, and as “independent directors” for purposes of the rules of the principal national securities exchange on which the Class A Common Stock is then listed or admitted to trading, to the extent required by such rules.
The Compensation Committee may allocate all or any portion of its responsibilities and powers under the Incentive Plan to any one or more of its members, our CEO, or other senior members of management as the Compensation Committee deems appropriate; however, only the Compensation Committee (or another committee consisting of two or more individuals who qualify both as "non-employee directors" and as "independent directors") may select and grant Awards to Participants who are subject to Section 16 of the Exchange Act. The Compensation Committee may revoke any such allocation or delegation at any time for any reason with or without prior notice.
The Compensation Committee has broad authority in its administration of the Incentive Plan, including, but not limited to, the authority to interpret the Incentive Plan; to establish rules and regulations for the operation and administration of the Incentive Plan; to select the persons to receive Awards; to determine the form, size, terms, conditions, limitations, and restrictions of Awards, including, without limitation, terms regarding vesting, exercisability, assignability, expiration, and the effect of certain events, such as a Participant’s death, disability, retirement, or termination as a result of breach of agreement; to create additional forms of Awards consistent with the terms of the Incentive Plan; to allow for the deferral of Awards; and to take all other action it deems necessary or advisable to administer the Incentive Plan.
To facilitate the granting of Awards to Participants who are employed or retained outside of the United States, the Compensation Committee is authorized to modify and amend the terms and conditions of an Award to accommodate differences in local law, policy, or custom.
Shares Available and Maximum Awards
When the Third Amended and Restated 2006 Omnibus Incentive Plan was originally adopted in May 2013, it increased the number of shares of Class A common stock available for issuance under the Incentive Plan by an additional 750,000 shares. As of December 31, 2018, we had approximately 50,960 shares available for issuance and currently 50,960 shares remain available for future Awards. In March 2018, the Compensation Committee adopted the First Amendment to the Incentive Plan to increase by 750,000 the number of shares of the Company’s Class A common stock available for issuance of stock grants, options and other equity awards to the Company’s employees, directors and consultants, which would result in approximately 800,960 shares being currently available for future Awards following such increase, subject to approval by our stockholders at the Annual Meeting. Any shares subject to outstanding option or restricted stock grants are counted against the shares reserved and available for issuance as one share for every share subject thereto. If an option expires or is terminated without having been exercised in full, or if a restricted stock grant is forfeited, the unexercised or forfeited shares become available for future grant under the Incentive Plan.
The number of shares of Class A common stock available under the Incentive Plan shall be adjusted to reflect the occurrence of certain events described under Proposal 5 – Approval of the First Amendment to the Incentive Plan — Adjustments Upon Certain Events below. The total number of shares reserved and available for issuance under the Incentive Plan is automatically adjusted, without further action by the Board or stockholders, to reflect stock dividends, stock splits, reverse stock splits, subdivisions, reorganizations, reclassifications, or any similar recapitalizations that affect or modify the number of shares of outstanding Class A common stock.
The maximum Award granted or payable to any one Participant under the Incentive Plan for a calendar year is 200,000 shares of Class A common stock, subject to the Compensation Committee’s authority to adjust Awards upon certain events described under “Proposal 5 – Description of the Incentive Plan and the First Amendment to the Incentive Plan — Adjustments Upon Certain Events” below, or in the event the Award is paid in cash, $2,000,000.
Payment Terms
Awards may be paid in cash, shares of Class A common stock, a combination of cash and shares of Class A common stock, or in any other permissible form, as the Compensation Committee determines. Payment of Awards may include such terms, conditions, restrictions, and/or limitations, if any, as the Compensation Committee deems appropriate, including, in the case of Awards paid in shares of Class A common stock, restrictions on transfer of such shares and provisions regarding the forfeiture of such shares under certain circumstances.
At the discretion of the Compensation Committee, a Participant may defer payment of any Award; salary or bonus compensation; Board compensation; dividend or dividend equivalent; or any portion thereof. If permitted by the Compensation Committee, any such deferral shall be accomplished by the delivery of a written, irrevocable election by the Participant prior to the time established by the Compensation Committee for such purpose, on a form provided by the Company. Further, all deferrals must be made in accordance with the administrative guidelines established by the Compensation Committee to ensure that such deferrals comply with all applicable requirements of the IRC for such purpose. Such deferred items may be paid in a lump sum or installments, or credited with interest (at a rate determined by the Compensation Committee) or deemed invested by us, as determined by the Compensation Committee, and, with respect to those deferred Awards denominated in the form of Class A common stock, credited with dividends or dividend equivalents, provided that no dividends or dividend equivalents shall be paid on unvested Awards granted on or after the date on which the First Amendment to the Incentive Plan is approved by our stockholders.
The Company is entitled to deduct from any payment to a Participant under the Incentive Plan the amount of all applicable income and employment taxes required by law to be withheld with respect to such payment or may require the Participant to pay us such tax prior to and as a condition of the making of such payment. Subject to certain limitations, the Compensation Committee may allow a Participant to pay the amount of taxes required by law to be withheld from an Award by withholding any shares of Class A common stock to be paid under such Award or by permitting the Participant to deliver to us shares of Class A common stock having a Fair Market Value equal to the amount of such taxes.
No Dividends or Gross-Ups
The First Amendment to the Incentive Plan prohibits payment of dividends on unvested Awards (for Awards granted on or after the date on which the First Amendment to the Incentive Plan is approved by our stockholders) or additional withholding tax “gross-up” payments to Participants to meet excise taxes or other additional income tax liability.
Repricing Prohibited
Except for certain adjustments that the Incentive Plan contemplates, we may not, without obtaining stockholder approval, (i) amend the terms of outstanding options or stock appreciation rights to reduce the exercise price of such outstanding options or stock appreciation rights; or (ii) cancel or substitute outstanding options or stock appreciation rights in exchange for options or stock appreciation rights with an exercise price that is less than the exercise price of the original options or stock appreciation rights.
Adjustments Upon Certain Events
In the event that there is a stock dividend or split, reorganization, recapitalization, merger, consolidation, spin-off, combination, or transaction or exchange of Class A common stock or other corporate exchange, or any distribution to stockholders of Class A common stock or other property or securities (other than regular cash dividends) or any transaction similar to the foregoing or other transaction that results in a change to our capital structure, the Compensation Committee shall make substitutions and/or adjustments to the maximum number of shares available for issuance under the Incentive Plan, the maximum Award payable, the number of shares to be issued pursuant to outstanding Awards, the option prices, exercise prices, or purchase prices of outstanding Awards, and/or any other affected terms of an Award or the Incentive Plan as the Compensation Committee, in its sole discretion, deems equitable or appropriate. Unless the Compensation Committee determines otherwise, in no event shall an Award that is intended to qualify as "performance-based compensation" for purposes of Section 162(m) of the IRC (to the extent that such Award remains eligible to qualify as “performance-based compensation” for purposes of Section 162(m) under applicable “grandfathering” rules relating thereto) be adjusted to the extent such adjustment would cause such Award to fail to qualify as "performance-based compensation" under Section 162(m) of the IRC (to the extent that such Award remains eligible to qualify as “performance-based compensation” for purposes of Section 162(m) under applicable “grandfathering” rules relating thereto). With the exception of the foregoing, the Compensation Committee shall not reprice any stock options and/or stock appreciation rights unless such action is approved by the Company's stockholders.
Termination and Amendment
The Compensation Committee may suspend or terminate the Incentive Plan at any time for any reason with or without prior notice. In addition, the Compensation Committee may amend the Incentive Plan, provided that it may not, without stockholder approval, adopt any amendment if stockholder approval is required, necessary, or deemed advisable with respect to tax, securities, or other applicable laws or regulations, including, but not limited to, the listing requirements of the stock exchanges on which the securities of the Company are listed. No amendment of the Incentive Plan may materially and adversely affect the rights of a Participant under any outstanding Award without the consent of that Participant. No Awards may be made under the Incentive Plan after March 31, 2023, or March 31, 2029 if the First Amendment to the Incentive Plan is passed. No amendment may materially and adversely affect any of the rights of such Participant under any Award theretofore granted to such Participant under the Plan.
Tax Status of Incentive Plan Awards
No person connected with the Incentive Plan in any capacity, including, but not limited to, the Company and its directors, officers, agents, and employees, makes any representation, commitment, or guaranty that any tax treatment, including, but not limited to, federal, state, and local income, estate, and gift tax treatment, will be applicable with respect to the tax treatment of any Award, any amounts deferred under the Incentive Plan, or paid to or for the benefit of a Participant under the Incentive Plan, or that such tax treatment will apply to or be available to a Participant on account of participation in the Incentive Plan.
Securities Act Registration
The registration with the SEC on Form S-8 of the shares of Class A common stock issuable under the Incentive Plan will be post-effectively amended on Form S-8 as soon as practicable, subject to the stockholders' approval of the First Amendment to the Incentive Plan.
Eligible Participants
Participants in the Incentive Plan will be selected by the Compensation Committee from our executive officers, directors, employees, and consultants. Participants may be selected and Awards may be made at any time until the Incentive Plan expires pursuant to the provisions of the IRC and Treasury Regulations promulgated thereunder. As of February 28, 2019, approximately 6,800 employees, which includes 11 executive officers, 5 non-employee directors, and 50 employees of an entity we account for under the equity method were eligible to participate in our current equity compensation plans. The Incentive Plan also permits the granting of our current equity awards to eligible consultants. The number of active engagements with consultants varies from time to time, and the Compensation Committee has not historically made grants to these individuals under the Incentive Plan.
The selection of those persons within a particular class who will receive Awards is entirely within the discretion of the Compensation Committee. Only employees, however, are eligible to receive "incentive stock options" within the meaning of Section 422 of the IRC. The Compensation Committee has not determined how many people are likely to participate in the Incentive Plan over time. The Compensation Committee intends, however, to grant most of the Awards to those persons who are in a position to have a significant direct impact on our growth, profitability, and success, which would include a portion of the Participants in our current equity compensation plans.
Federal Income Tax Status of Incentive Plan Awards
The following is only a summary of the effect of federal income taxation upon us and the Participants under the Incentive Plan. It does not purport to be complete and does not discuss all of the tax consequences of a Participant’s death or the provisions of the income tax laws of any state, municipality or foreign country in which the Participants may reside.
Incentive Stock Options. A Participant is not treated as receiving taxable income upon either the grant of an incentive stock option (an “ISO”) or upon the exercise of an ISO. However, the difference between the exercise price and the fair market value on the date of exercise is an item of tax preference at the time of exercise in determining liability for the alternative minimum tax, assuming that the Class A common stock is either transferable or is not subject to a substantial risk of forfeiture under Section 83 of the Code. If at the time of exercise, the Class A common stock is both nontransferable and is subject to a substantial risk of forfeiture, the difference between the exercise price and the fair market value of the Class A common stock (determined at the time the Class A common stock becomes either transferable or not subject to a substantial risk of forfeiture) will be a tax preference item in the year in which the Class A common stock becomes either transferable or not subject to a substantial risk of forfeiture.
If Class A common stock acquired by the exercise of an ISO is not sold or otherwise disposed of within two years from the date of its grant and is held for at least one year after the date such Class A common stock is transferred to the Participant upon exercise, any gain or loss resulting from its disposition is treated as long-term capital gain or loss. If such Class A common stock is disposed of before the expiration of the above-mentioned holding periods, a “disqualifying disposition” occurs. If a disqualifying disposition occurs, the Participant realizes ordinary income in the year of the disposition in an amount equal to the difference between the fair market value of the Class A common stock on the date of exercise and the exercise price, or the selling price of the Class A common stock and the exercise price, whichever is less. The balance of the Participant’s gain on a disqualifying disposition, if any, is taxed as capital gain.
We are not entitled to any tax deduction as a result of the grant or exercise of an ISO, or on a later disposition of the Class A common stock received, except that in the event of a disqualifying disposition, we are entitled to a deduction equal to the amount of ordinary income realized by the Participant.
Non-Qualified Stock Options. A Participant does not recognize any taxable income upon the grant of a non-qualified stock option (a “NSO”), and we are not entitled to a tax deduction by reason of such grant. Upon exercise of a NSO, the Participant recognizes ordinary income generally measured by the excess of the then fair market value of the shares over the exercise price, and we are entitled to a corresponding tax deduction. Upon a disposition of shares acquired upon exercise of a NSO by the Participant, any difference between the sale price and the exercise price, to the extent not recognized as ordinary income as provided above, is treated as long-term or short-term capital gain or loss, depending on the holding period. Such subsequent disposition by the Participant has no tax consequence to us.
Stock Appreciation Rights. No income is realized by a Participant at the time a stock appreciation right is awarded, and no deduction is available to us at such time. A Participant realizes ordinary income upon the exercise of the stock appreciation right in an amount equal to the fair market value of the shares of Class A common stock received by the Participant from such exercise.
Unrestricted Stock-Based Award. Upon the grant of an unrestricted stock-based Award, a Participant will realize taxable income equal to the fair market value at such time of the shares of Class A common stock received by the Participant under such Award (less the purchase price therefor, if any).
Restricted Stock-Based Award. Upon the grant of a restricted stock-based Award, no income will be realized by a Participant (unless a Participant timely makes an election to accelerate the recognition of the income to the date of the grant), and we will not be allowed a deduction at that time. When the Award vests and is no longer subject to a substantial risk of forfeiture for income tax purposes, the Participant will realize taxable ordinary income in an amount equal to the fair market value at such time of the shares of Class A common stock received by the Participant under such Award (less the purchase price therefor, if any), and we will be entitled to a corresponding deduction at such time, subject to limitations under Sections 280G and 162(m) of the IRC (to the extent such limitations remain relevant under any applicable “grandfathering” rules relating thereto). If a Participant does make a timely election to accelerate the recognition of income, then the Participant will recognize taxable ordinary income in an amount equal to the cash and the fair market value at the time of grant of the shares of Class A common stock to be received by the Participant under such Award (less the purchase price therefor, if any), and we will be entitled to a corresponding deduction at such time, subject to limitations under Sections 280G and 162(m) of the IRC (to the extent such limitations remain relevant under any applicable “grandfathering” rules relating thereto). Participants will only be eligible to make such an election on restricted stock-based Awards that constitute an Award of “property” within the meaning of Section 83 of the Code (e.g., shares of restricted stock) as of the grant date.
Performance Units and Performance Awards. A Participant receiving a performance unit or a Performance Award will not recognize income, and we will not be allowed a deduction, at the time such Award is granted. When a Participant receives payment of a performance unit or Performance Award, the amount of the fair market value of any shares of Class A common stock received will be ordinary income to the Participant.
Effect of Deferral on Taxation of Awards. If the Compensation Committee permits a Participant to defer the receipt of payment of an Award and such Participant makes an effective election to defer the payment of the Award in accordance with the administrative guidelines established by the Compensation Committee, the Participant will not realize taxable income until the date the Participant becomes entitled to receive such payment pursuant to the terms of the deferral election, and we will not be entitled to a deduction until such time, subject to limitations under Sections 280G and 162(m) of the Code (to the extent such limitations remain relevant under any applicable “grandfathering” rules relating thereto), assuming the deferral arrangement complies with Section 409A of the Code. Any interest or dividends paid on, or capital gains resulting from, the investment by us of the amount deferred during the deferral period will be taxable to us in the year recognized. At the time the Participant becomes entitled to receive the deferred payment, the Participant will recognize taxable income in an amount equal to the actual payment to be received, including any interest or earnings credited on the amount deferred during the deferral period. Section 409A of the Code generally establishes rules that must be followed with respect to covered deferred compensation arrangements in order to avoid the imposition of an additional 20% penalty tax (plus interest) on the employee or other service provider who is entitled to receive the deferred compensation.
Limitation on Income Tax Deduction
U.S. federal income tax law generally prohibits publicly held companies from deducting compensation paid to certain executive officers that exceeds $1 million during the tax year. Historically Section 162(m) of the Internal Revenue Code of 1986, as amended ("Section 162(m)"), provided an exemption from the deductibility limit for certain compensation that was "performance-based" and meet various requirements as set forth under Section 162(m). The 2017 Tax Cuts and Jobs Act repealed this exemption, and now compensation paid to such executive officers in excess of $1 million in 2018 and later is no longer deductible, even if performance-based, unless it meets certain limited transition relief. While guidance has been issued on the scope of this transition relief, its application is based on interpretation and no assurance can be given as to whether Awards that are intended to qualify for the Section 162(m) exemption (as such exemption existed prior to January 1, 2018) will be deductible under the applicable transition relief guidance. We retain the ability to pay compensation that exceeds deductibility limits and believe that having flexibility to recruit, retain and motivate our employees with a compensation program that promotes long-term value creation, even though some compensation awards may not be tax-deductible, is in the best interests of our stockholders.
Incentive Plan Benefits
The following table sets forth certain information regarding grants of equity awards made under the Incentive Plan during 2018 to (i) each of the Named Executive Officers; (ii) all current executive officers of the Company as a group; (iii) all current directors who are not executive officers as a group; and (iv) all employees, including all current officers who are not executive officers, as a group. Future Awards, if any, that will be made to eligible Participants under the Incentive Plan are subject to the discretion of the Compensation Committee. Accordingly, future grants of Awards under the Incentive Plan are not determinable.
| | 2018(1) | | Name and Principal Position | | Dollar Value(2) | | | Number of Equity Awards | | David R. Parker | | $ | 311,758 | | | | 13,539 | | CEO and Chairman of the Board | | | | | | | | | Joey B. Hogan | | $ | 276,487 | | | | 11,827 | | President and COO | | | | | | | | | Richard B. Cribbs | | $ | 98,800 | | | | 4,796 | | EVP and CFO | | | | | | | | | T. Ryan Rogers | | $ | 504,598 | | | | 23,599 | | Chief Transformation Officer | | | | | | | | | John A. Tweed | | $ | 349,088 | | | | 11,250 | | EVP and COO of Landair | | | | | | | | | Executive Group | | $ | 2,169,107 | | | | 85,446 | | Non-Executive Director Group | | $ | 374,959 | | | | 12,115 | | Employee Group | | $ | 1,618,951 | | | | 67,764 | |
(1) Represents the 2018 grants that were granted at various dates during the year.
(2) | This column represents the grant date fair value of the stock awards under FASB ASC Topic 718 granted to the recipients during 2018. The fair value of the equity awards is accounted for in accordance with FASB ASC Topic 718. |
Equity Compensation Plan Information
The following table provides certain information, as of December 31, 2018, with respect to our compensation plans and other arrangements under which shares of our Class A common stock are authorized for issuance. The number of shares of Class A common stock reflected in column (c) of the following table is comprised entirely of shares available for future grant under the Incentive Plan as of December 31, 2018.
Plan category | | Number of securities to be issued upon exercise of outstanding options, warrants and rights | | | Weighted average exercise price of outstanding options, warrants and rights | | | Number of securities remaining eligible for future issuance under equity compensation plans (excluding securities reflected in column (a)) | | | | (a) | | | (b) | | | (c) | | Equity compensation plans approved by security holders | | | 675,437 | (1) | | | - | | | | 50,960 | | Equity compensation plans not approved by security holders | | | - | | | | - | | | | - | | Total | | | 675,437 | | | | - | | | | 50,960 | |
(1) | Represents unvested restricted shares granted under the Incentive Plan. The weighted average stock price on the date of grant for outstanding restricted stock awards was $20.08, which is not reflected in column (b), because restricted stock awards do not have an exercise price. |
THE BOARD UNANIMOUSLY RECOMMENDS A VOTE “FOR” THE APPROVAL OF THE FIRST AMENDMENT TO THE INCENTIVE PLAN.
All duly submitted and unrevoked proxies will be voted “FOR” Proposal 5, unless otherwise instructed.
To be eligible for inclusion in our proxy materials relating to our 20202022 Annual Meeting of Stockholders, stockholder proposals intended to be presented at that meeting (other than proxy access nominations) must be in writing and received by us at our principal executive office on or before December 10, 2019.17, 2021. However, if the date of the 20202022 Annual Meeting of Stockholders is more than thirty days before or after May 8, 2020,19, 2022, then the deadline for submitting any such stockholder proposal for inclusion in the proxy materials relating to the 20202022 Annual Meeting of Stockholders will be a reasonable time before we begin to print or mail such proxy materials. The inclusion of any such stockholder proposals in such proxy materials will be subject to the requirements of the proxy rules adopted under the Exchange Act, including Rule 14a‑8.
Our Bylaws include a proxy access provision. Stockholders who meet the requirements set forth in our Bylaws may submit director nominations for inclusion in the proxy materials. Proxy access nominations for the 2022 Annual Meeting must be received by the Company no earlier than November 17, 2021 and no later than December 17, 2021. However, if the date of the 2022 Annual Meeting of Stockholders is more than thirty days before or after May 19, 2022, then the deadline for submitting any such proxy access nominations is the later of the close of business on the date that is 180 days prior to the date of the 2022 Annual Meeting of Stockholders or the tenth day following the date that such date of the 2022 Annual Meeting of Stockholders is first publicly announced or disclosed. Proxy access nominations must meet all the requirements set forth in our Bylaws.
In accordance with our Bylaws, a stockholder’s notice of director nominations to be considered at our 2022 Annual Meeting of Stockholders, but not included in our proxy materials, must be received by the Company no earlier than January 19, 2022 and no later than February 18, 2022. However, if the date of the 2022 Annual Meeting of Stockholders is more than thirty days before or after May 19, 2022, then the deadline for submitting such notice is the tenth day following the day on which notice of the date of the 2022 Annual Meeting of Stockholders was mailed or public disclosure of the date of the 2022 Annual Meeting of Stockholders was made, whichever first occurs. Stockholder director nominations must meet all of the requirements set forth in our Bylaws.
We must receive in writing any stockholder proposals (other than director nominations) to be considered at our 20202022 Annual Meeting of Stockholders, but not included in our proxy materials relating to that meeting pursuant to Rule 14a-8 under the Exchange Act, by February 23, 2020.March 2, 2022. However, if the date of the 20202022 Annual Meeting of Stockholders is more than thirty days before or after May 8, 2020,19, 2022, then the deadline for submitting any such stockholder proposal will be a reasonable time before we mail the proxy materials relating to such meeting. Under Rule 14a-4(c)(1) of the Exchange Act, the proxy holders designated by an executed proxy in the form accompanying our Proxy Statement for our next annual meeting will have discretionary authority to vote on any stockholder proposal that is not received on or prior to the deadline described above.
Written copies of all stockholder proposals (including proxy access nominations) should be addressed and sent to Joey B. Hogan, President and COO; Covenant Transportation Group, Inc.;President; 400 Birmingham Highway; Chattanooga, Tennessee 37419. Stockholder proposals must comply with the rules and regulations of the SEC. 5246
As of the mailing date of this Proxy Statement, the Board does not intend to present at the Annual Meeting any matters other than those described herein and does not presently know of any matters that will be presented by other parties. As to other business (if any) that may properly be brought before the Annual Meeting, we intend that proxies solicited by the Board will be voted in accordance with the best judgment of those voting the proxies.
| Covenant TransportationLogistics Group, Inc. | | /s/ David R. Parker | | David R. Parker | | Chairman of the Board | April 8, 201916, 2021 | |
53
FIRST AMENDMENT
TO THE
COVENANT TRANSPORTATION GROUP, INC.
THIRD AMENDED AND RESTATED
2006 OMNIBUS INCENTIVE PLAN
This Amendment (the "First Amendment") to the Covenant Transportation Group, Inc. Third Amended and Restated 2006 Omnibus Incentive Plan (the "Plan") is made and adopted by Covenant Transportation Group, Inc. (the "Company"). Capitalized terms used herein but not defined herein shall have the meanings ascribed to them in the Plan, as amended by the First Amendment.
WHEREAS, the Company has adopted the Plan for the benefit of employees, directors, and other eligible participants;
WHEREAS, the Plan is administered by the Compensation Committee of the Board of Directors of the Company (the "Committee");
WHEREAS, Section 16.4 of the Plan provides that the Committee may amend the Plan from time to time, subject to the approval of the Company's stockholders as required under applicable laws or regulations;
WHEREAS, the number of shares of Common Stock of the Company available for issuance under the Plan is no longer sufficient to fulfill the objectives of the Plan; and
WHEREAS, the Committee desires to further amend the Plan through this First Amendment to increase by 750,000 the number of shares available for issuance pursuant to the Plan and make additional changes to (i) comply with certain stockholder advisory group guidelines and best practices, and (ii) make other miscellaneous, administrative and conforming changes as are necessary.
RESOLVED, that the Committee hereby amends the Plan as follows, with deletions shown as bold strikethroughs and additions shown as bold underlines:
1. Section 1.2 of the Plan is hereby amended in its entirety as follows:
Section 1.2.Background and Effective Date. The Plan was initially adopted by the Board of Directors on April 12, 2006, and became effective on May 23, 2006, the date of the approval by the Company's stockholders at the 2006 Annual Meeting of Stockholders. The Plan was amended and restated by the Committee on March 31, 2009 (the "First Amended and Restated Plan") to: (i) provide that the maximum aggregate number of shares of Common Stock available for the grant of Awards under the Plan from and after the First Amended and Restated Plan Effective Date (as defined below) shall not exceed 700,000, (ii) provide that any shares of Common Stock reserved for issuance under the Predecessor Plans in excess of the number of shares of Common Stock as to which Awards have been awarded thereunder shall not be available for issuance under the Plan, (iii) provide that any shares of Common Stock related to Awards granted under the Predecessor Plans or the Plan prior to the First Amended and Restated Plan Effective Date that terminate by expiration, forfeiture, cancellation, or otherwise without the issuance of such shares, are settled in cash in lieu of Common Stock, or are exchanged with the Committee’s permission for Awards not involving Common Stock, shall not be available for issuance or reissuance under the Plan, and (iv) make such other miscellaneous administrative and conforming changes as necessary. The First Amended and Restated Plan was effective on May 5, 2009, the date of the approval by the Company's stockholders at the 2009 Annual Meeting of the Stockholders (the "First Amended and Restated Plan Effective Date").
On March 31, 2011, the Committee adopted a second amendment and restatement to the Plan (the "Second Amended and Restated Plan") to: (i) provide that the maximum aggregate number of shares of Common Stock available for the grant of Awards under the Plan from and after the Second Amended and Restated Plan Effective Date (as defined below) shall not exceed 800,000, (ii) provide that any shares of Common Stock reserved for issuance under the Predecessor Plans or the First Amended and Restated Plan in excess of the number of shares of Common Stock as to which Awards have been awarded thereunder shall not be available for issuance under the Plan, (iii) re-set the Term of the Plan to expire on March 31, 2021 with respect to the ability to grant new Awards, and (iv) make such other miscellaneous administrative and conforming changes as necessary. The Second Amended and Restated Plan was effective on May 17, 2011, the date of approval by the Company's stockholders at the 2011 Annual Meeting of Stockholders (the "Second Amended and Restated Plan Effective Date").
On February 21, 2013, the Committee adopted a third amendment and restatement to the Plan (the "Third Amended and Restated Plan") to: (i) provide that the maximum aggregate number of shares of Common Stock available for the grant of Awards under the Plan from and after the Third Amended and Restated Plan Effective Date (as defined below) shall not exceed 750,000 plus the 800,000 shares of Common Stock previously made available under the Second Amended and Restated Plan, plus any of such shares that terminate by expiration, forfeiture, cancellation, or otherwise without the issuance of shares, are settled in cash in lieu of Common Stock, or are exchanged with the Committee's permission for Awards not involving Common Stock, (ii) provide that any shares of Common Stock reserved for issuance under the Predecessor Plans, excluding the 800,000 shares reserved for issuance under the Second Amended and Restated Plan, in excess of the number of shares of Common Stock as to which Awards have been awarded thereunder shall not be available for issuance under the Plan, (iii) re-set the Term of the Plan to expire on March 31, 2023 with respect to the ability to grant new Awards, and (iv) make such other miscellaneous administrative and conforming changes as necessary. ThisThe third amendment and restatement will becomewas effective upon the date of theon May 29, 2013, the date of approval by the Company's stockholders at the 2013 Annual Meeting of Stockholders (the "Third Amended and Restated Plan Effective Date"). If stockholder approval of this amendment is not obtained at the 2013 Annual Meeting of Stockholders, the Plan as last approved in May 2011 will remain in full force and effect.
On March 14, 2019, the Committee adopted a first amendment to the Plan (the “First Amendment”) to: (i) provide that the maximum aggregate number of shares of Common Stock available for the grant of Awards under the Plan from and after the First Amendment Effective Date (as defined below) shall not exceed 750,000 plus any remaining amount of the 750,000 shares of Common Stock previously made available under the Third Amended and Restated Plan as remain or become available for grant pursuant to the terms of the Plan, (ii) re-set the Term of the Plan to expire on March 31, 2029 with respect to the ability to grant new Awards, (iii) make changes to comply with certain stockholder advisory group guidelines and best practices, (iv) make technical updates related to Section 162(m) of the Code in light of the 2017 Tax Cuts and Jobs Act, and (v) make such other miscellaneous, administrative and conforming changes as necessary. This First Amendment will become effective upon the date of the approval by the Company's stockholders at the 2019 Annual Meeting of Stockholders (the "First Amendment Effective Date"). If stockholder approval of this amendment is not obtained at the 2019 Annual Meeting of Stockholders, the Third Amended and Restated Plan will remain in full force and effect.
2. Section 1.3 of the Plan is hereby amended in its entirety as follows:
Section 1.3Successor Plan. This Plan shall serve as the successor to the Covenant Transport, Inc. 2003 Incentive Stock Plan; the Incentive Stock Plan, Amended and Restated as of May 17, 2001; the Incentive Plan, Amended and Restated as of May 23, 2006; the Incentive Plan, Amended and Restated as of May 17, 2011; the Outside Director Stock Option Plan; and Amendment No. 1 to the Outside Director Stock Option Plan (collectively, the "Predecessor Plans"), and no further Awards shall be made under the Predecessor Plans from and after the effective date of this Plan. All outstanding Awards under the Predecessor Plans immediately prior to the effective date of this Plan are hereby incorporated into this Plan and shall accordingly be treated as outstanding Awards under this Plan; provided, however, each such Award shall continue to be governed solely by the terms and conditions of the instrument evidencing such Award and interpreted under the terms of the respective Predecessor Plan, and, except as otherwise expressly provided herein, no provision of this Plan shall affect or otherwise modify the rights or obligations of holders of such incorporated Awards with respect to their acquisition of shares of Common Stock, or otherwise modify the rights or the obligations of the holders of such Awards. Shares of Common Stock shall not be available for issuance or reissuance under Section 6.1 of the Plan if any such shares (i) were reserved for issuance under the Predecessor Plans, excluding the 800,000 shares of Common Stock reserved for issuance under the Second Amended and Restated Plan, in excess of the number of shares as to which Awards have been awarded thereunder or (ii) are related to Awards granted under the Predecessor Plans, excluding the 800,000 shares of Common Stock reserved for issuance under the Second Amended and Restated Plan, that terminate by expiration, forfeiture, cancellation, or otherwise without the issuance of such shares, are settled in cash in lieu of Common Stock, or are exchanged with the Committee’s permission for Awards not involving Common Stock. Accordingly, only 750,000 shares of Common Stock plus the 800,000 shares of Common Stock previously made available under the Second Amended and Restated Plan, plus any of such shares that terminate by expiration, forfeiture, cancellation, or otherwise without the issuance of such shares, are settled in cash in lieu of Common Stock, or are exchanged with the Committee’s permission for Awards not involving Common Stock, shall be available for issuance or reissuance under Section 6.1 of the Plan.47
3. Section 2.1(f) of the Plan is hereby amended in its entirety as follows:
(f)"Committee" means the Compensation Committee of the Board, or such other Board committee as may be designated by the Board to administer the Plan; provided, that the Committee shall consist of two or more Directors, all of whom are both a "Non-Employee Director" within the meaning of Rule 16b-3 under the Exchange Act and an "outsideindependent director" withinfor purposes of the meaningrules of the definition ofprincipal national securities exchange on which the Common Stock is then listed or admitted to trading, to the extent required by such term as contained in Treasury Regulation Section 1.162-27(e)(3), or any successor definition adopted under Section 162(m) of the Coderules.
4. Section 2.1(j) of the Plan is hereby amended in its entirety as follows:
(j)"Covered Employee" means an Employee who is a "covered employee" within the meaning of Section 162(m) of the Code. Reserved.
5. Section 2.1(s) is hereby amended in its entirety as follows:
(s)"Performance Awards" means the Stock Awards and performance units granted pursuant to Article VII. Performance Awards are intended to qualify as "performance-based compensation" under Section 162(m) of the Code.
6. Section 2.1(v) of the Plan is hereby amended in its entirety as follows:
(v)"Performance Goals" means, for a Performance Period, the one or more goals established by the Committee for the Performance Period based upon the Performance Criteria. Any Performance Goal shall be established in a manner such that a third party having knowledge of the relevant performance results could calculate the amount to be paid to the Participant. For any Performance Period, the Committee is authorized at any time during the initial time period permitted by Section 162(m) of the Code, or at any time thereafter, in its sole and absolute discretion, to adjust or modify the calculation of a Performance Goal for such Performance Period in order to prevent the dilution or enlargement of the rights of Participants (i) in the event of, or in anticipation of, any unusual or extraordinary corporate item, transaction, event, or development; (ii) in recognition of, or in anticipation of, any other unusual or nonrecurring events affecting the Company, or the financial statements of the Company, or in response to, or in anticipation of, changes in applicable laws, regulations, accounting principles, or business conditions; and (iii) in view of the Committee’s assessment of the business strategy of the Company, performance of comparable organizations, economic and business conditions, and any other circumstances deemed relevant.
7. Section 2.1(bb) of the Plan is hereby amended in its entirety as follows:
(bb)"Term" means the term during which new Awards may be granted under the Plan, which shall be, (i) if stockholder approval of this Third Amended and Restated PlanFirst Amendment is obtained at the 20132019 Annual Meeting of Stockholders, the Third Amended and Restated PlanFirst Amendment Effective Date until the Plan expires on March 31, 20232029, or (ii) if stockholder approval of this Third Amended and Restated PlanFirst Amendment is not obtained at the 20132019 Annual Meeting of Stockholders, the SecondThird Amended and Restated Plan Effective Date until the Plan expires on March 31, 20212023.
8. Section 4.4 of the Plan is hereby amended in its entirety as follows:
Section 4.4Section 162(m) of the Code. With regard to Awards issued to Covered Employees that are or were intended to qualify as "performance-based compensation" for purposes of Section 162(m) of the Code (to the extent that such Awards remain eligible to qualify as “performance-based compensation” for purposes of Section 162(m) under applicable “grandfathering” rules relating thereto), the Plan shall, for all purposes, be interpreted and construed with respect to such Awards in the manner that would result in such interpretation or construction satisfying the exemptions available under Section 162(m) of the Code or applicable “grandfathering” rules” relating thereto.
9. Section 4.6 of the Plan is hereby amended in its entirety as follows:
Section 4.6.Allocation and Delegation of Authority. The Committee may allocate all or any portion of its responsibilities and powers under the Plan to any one or more of its members, the CEO, or other senior members of management as the Committee deems appropriate, and may delegate all or any part of its responsibilities and powers to any such person or persons; provided, that any such allocation or delegation be in writing; provided, further, that only the Committee, or other committee consisting of two or more Directors, all of whom are both "Non-Employee Directors" within the meaning of Rule 16b-3 under the Exchange Act and "outsideindependent directors" withinfor purposes of the meaningrules of the definition ofprincipal national securities exchange on which the Common Stock is then listed or admitted to trading, to the extent required by such term as contained in Treasury Regulation Section 1.162-27(e)(3), or any successor definition adopted under Section 162(m) of the Coderules, may select and grant Awards to Participants who are subject to Section 16 of the Exchange Act or are Covered Employees. The Committee may revoke any such allocation or delegation at any time for any reason with or without prior notice.
10. Section 6.1 of the Plan is hereby amended in its entirety as follows:
Section 6.1Available Shares. The maximum aggregate number of shares of Common Stock which shall be available for the grant of Awards under the Plan from and after the Third Amended and Restated PlanFirst Amendment Effective Date (including incentive stock options) until the end of the Plan's Term shall not exceed 750,000 shares plus such of the 750,000 plus the 800,000 shares previously reserved under the SecondThird Amended and Restated Plan as remain or become available for grant pursuant to the terms of the Plan (the "Share Reserve"). The Share Reserve shall be subject to adjustment as provided in Section 6.2. Any shares of Common Stock related to Awards that terminate by expiration, forfeiture, cancellation, or otherwise without the issuance of such shares, are settled in cash in lieu of Common Stock, or are exchanged with the Committee’s permission for Awards not involving Common Stock (collectively, "Terminated Shares") shall be available again for grant under the Plan to the extent such Terminated Shares relate to Awards granted on or after the Third Amended and Restated PlanFirst Amendment Effective Date or relate to the 800,000750,000 shares previously reserved under the SecondThird Amended and Restated Plan. Moreover, if the exercise price of any Award granted under the Plan or the tax withholding requirements with respect to any Award granted under the Plan are satisfied by tendering shares of Common Stock to the Company (by either actual delivery or by attestation), only the number of shares of Common Stock issued net of the shares of Common Stock tendered will be deemed delivered for purposes of determining the Share Reserve available for delivery under the Plan.Notwithstanding anything contained in this Plan to the contrary, the following shares shall not become available for issuance under the Plan: (a) shares tendered by Participants as full or partial payment to the Company upon exercise of stock options granted under this Plan; (b) shares reserved for issuance upon the grant of SARs, to the extent the number of reserved shares exceeds the number of shares actually issued upon exercise of the SARs; (c) shares withheld by, or otherwise remitted to, the Company to satisfy a Participant’s tax withholding obligations upon the lapse of restrictions on restricted stock or the exercise of stock options or SARs granted under the Plan or upon any other payment or issuance of shares under the Plan; (d) shares that were reserved for issuance under the Predecessor Plans; and (e) shares that are related to Awards granted under the Predecessor Plans that terminate by expiration, forfeiture, cancellation or otherwise without the issuance of such shares, are settled in cash in lieu of Common Stock, or are exchanged with the Committee’s permission for Awards not involving Common Stock. The shares of Common Stock available for issuance under the Plan may be authorized and unissued shares or treasury shares, including shares purchased in open market or private transactions. For the purpose of computing the total number of shares of Common Stock granted under the Plan, where one or more types of Awards, both of which are payable in shares of Common Stock, are granted in tandem with each other such that the exercise of one type of Award with respect to a number of shares cancels an equal number of shares of the other, the number of shares granted under both Awards shall be deemed to be equivalent to the number of shares under one of the Awards.
11. Section 6.2 of the Plan is hereby amended in its entirety as follows:
Section 6.2.Adjustment Upon Certain Events. In the event that there is, with respect to the Company, a stock dividend or split, reorganization, recapitalization, merger, consolidation, spin-off, combination, or transaction or exchange of Common Stock or other corporate exchange, or any distribution to stockholders of Common Stock or other property or securities (other than regular cash dividends), or any transaction similar to the foregoing or other transaction that results in a change to the Company’s capital structure, then the Committee shall make substitutions and/or adjustments to the maximum number of shares available for issuance under the Plan, the maximum Award payable under Section 6.3, the number of shares to be issued pursuant to outstanding Awards, the option prices, exercise prices or purchase prices of outstanding Awards, and/or any other affected terms of an Award or the Plan as the Committee, in its sole discretion and without liability to any person, deems equitable or appropriate. Unless the Committee determines otherwise, in no event shall an Award to any Participant that is intended to qualify as "performance-based compensation" for purposes of Section 162(m) of the Code (to the extent that such Award remains eligible to qualify as “performance-based compensation” for purposes of Section 162(m) under applicable “grandfathering” rules relating thereto) be adjusted pursuant to this Section 6.2 to the extent such adjustment would cause such Award to fail to qualify as "performance-based compensation" under Section 162(m) of the Code.
12. Section 6.4 is hereby added to the Plan, immediately following Section 6.3:
Section 6.4.Vesting. Notwithstanding any provision contained in the Plan to the contrary, any Award granted on or after the First Amendment Effective Date subject to vesting over a period of time shall not vest in a period of less than twelve (12) months from the Grant Date of such Award.
13. Sections 7.1, 7.2, and 7.3 of the Plan are hereby amended in their entirety as follows:
Section 7.1.Purpose. For purposes of Performance Awards issued to Employees, Directors, and Consultants that are intended to qualify as "performance-based compensation" for purposes of Section 162(m) of the Code (to the extent that such Performance Awards remain eligible to qualify as “performance-based compensation” for purposes of Section 162(m) under applicable “grandfathering” rules relating thereto), the provisions of this Article VII shall apply in addition to and, where necessary, in lieu of the provisions of Article X, Article XI, and Article XII. The purpose of this Article is to provide the Committee the ability to qualify the Stock Awards authorized under Article X, the Restricted Stock Unit Awards authorized under Article XI, and the performance units under Article XII as "performance-based compensation" under Section 162(m) of the Code (to the extent that such Awards remain eligible to qualify as “performance-based compensation” for purposes of Section 162(m) under applicable “grandfathering” rules relating thereto). The provisions of this Article VII shall control over any contrary provision contained in Article X, Article XI, or Article XII.
Section 7.2.Eligibility. For each Performance Period, the Committee will, in its sole discretion, designate within the initial period allowed under Section 162(m) of the Code which Employees, Directors, and Consultants will be Participants for such period. However, designation of an Employee, Director, or Consultant as a Participant for a Performance Period shall not in any manner entitle the Participant to receive an Award for the period. The determination as to whether or not such Participant becomes entitled to an Award for such Performance Period shall be decided solely in accordance with the provisions of this Article VII. Moreover, designation of an Employee, Director, or Consultant as a Participant for a particular Performance Period shall not require designation of such Employee, Director, or Consultant as a Participant in any subsequent Performance Period, and designation of one Employee, Director, or Consultant as a Participant shall not require designation of any other Employee, Director, or Consultant as a Participant in such period or in any other period.
Section 7.3.Discretion of Committee with Respect to Performance Awards. The Committee shall have the authority to determine which Covered Employees or other Employees, Directors, or Consultants shall be Participants of a Performance Award. With regard to a particular Performance Period, the Committee shall have full discretion to select the length of such Performance Period, the type(s) of Performance Awards to be issued, the Performance Criteria that will be used to establish the Performance Goal(s), the kind(s) and/or level(s) of the Performance Goal(s), whether the Performance Goal(s) is (are) to apply to the Company or any one or more subunits thereof and the Performance Formula. For each Performance Period, with regard to the Performance Awards to be issued for such period, the Committee will, within the initial period allowed under Section 162(m) of the Code, exercise its discretion with respect to each of the matters enumerated in the immediately preceding sentence of this Section 7.3 and record the same in writing.
14. Section 8.1 of the Plan is hereby amended in its entirety as follows:
Section 8.1.In General. Awards may be granted in the form of stock options. These stock options may be incentive stock options within the meaning of Section 422 of the Code, non-qualified stock options (i.e., stock options which are not incentive stock options), or a combination of both. All Awards under the Plan issued to Covered Employees in the form of non-qualified stock options shall qualify as "performance-based compensation" under Section 162(m) of the Code (to the extent that such Awards remain eligible to qualify as “performance-based compensation” for purposes of Section 162(m) under applicable “grandfathering” rules relating thereto).
15. Section 9.1 of the Plan is hereby amended in its entirety as follows:
Section 9.1.In General. Awards may be granted in the form of stock appreciation rights ("SARs"). SARs entitle the Participant to receive a payment equal to the appreciation in a stated number of shares of Common Stock from the exercise price to the Fair Market Value of the Common Stock on the date of exercise. The "exercise price" for a particular SAR shall be defined in the Award Notice for that SAR. A SAR may be granted in tandem with all or a portion of a related stock option under the Plan ("Tandem SARs"), or may be granted separately ("Freestanding SARs"). A Tandem SAR may be granted either at the time of the grant of the related stock option or at any time thereafter during the term of the stock option. All Awards under the Plan issued to Covered Employees in the form of a SAR shall qualify as "performance-based compensation" under Section 162(m) of the Code (to the extent that such Awards remain eligible to qualify as “performance-based compensation” for purposes of Section 162(m) under applicable “grandfathering” rules relating thereto).
16. Section 10.3 of the Plan is hereby amended in its entirety as follows:
Section 10.3.Rights as Stockholders. During the period in which any restricted shares of Common Stock are subject to any restrictions, the Committee may, in its sole discretion, deny a Participant to whom such restricted shares have been awarded all or any of the rights of a stockholder with respect to such shares, including, but not by way of limitation, limiting the right to vote such shares or the right to receive dividends on such shares.Notwithstanding the foregoing, Participants shall have no right to vote any shares underlying any Awards granted on or after the First Amendment Effective Date unless and until the shares underlying such Award vest.
17. Section 13.2 of the Plan is hereby amended to add the following sentence to the end thereof:
"The Company shall not make withholding tax "gross-up" payments to Participants to meet excise taxes or other additional income tax liability."
18. Article XIV of the Plan is hereby amended in its entirety as follows:
ARTICLE XIV
DIVIDEND AND DIVIDEND EQUIVALENTS
Dividends and dividend equivalents shall not be paid on Awards granted on or after the First Amendment Effective Date before such Awards vest.
19. Except as expressly amended hereby, all provisions of the Plan shall remain unmodified and shall continue to be, and shall remain, in full force and effect in accordance with their respective terms.
20. This First Amendment shall be and hereby is incorporated in and forms a part of the Plan.
21. This First Amendment is contingent upon and shall have no force or effect until such time as it is approved by the stockholders of the Company.
Covenant Transportation Group Vote Your vote matters – here’s how to vote! You may vote online or by phone instead of mailing this card. Votes submitted electronically must be received by 1:00 A.M., EDT, on May 8, 2019.19, 2021. Online Go to www.investorvote.com/CVTICVLG or scan the QR code — login details are located in the shaded bar below. Phone Call toll free 1-800-652-VOTE (8683) within the USA, US territories and Canada Save paper, time and money! Sign up for electronic delivery at www.investorvote.com/CVTI Using a black ink pen, mark your votes with an X as shown in this example. Please do not write outside the designated areas. Save paper, time and money! Sign up for electronic delivery at www.investorvote.com/CVLG Annual Meeting Proxy Card IF VOTING BY MAIL, SIGN, DETACH AND RETURN THE BOTTOM PORTION IN THE ENCLOSED ENVELOPE. A Proposals — The Board of Directors recommends a vote FOR all the nominees listed and FOR ProposalProposals 2 through 5.and 3. 1. Election of Directors: 01 – David R. Parker 02 – William T. AltRobert E. Bosworth 03 – Robert E. BosworthD. Michael Kramer 04 – Bradley A. Moline 05 – Rachel Parker-Hatchett 06 – Herbert J. Schmidt 0607 – W. Miller Welborn Mark here to vote FOR all nominees Mark here to WITHHOLD vote from all nominees 01 02 03 04 05 06 07 For All EXCEPT - To withhold a vote for one or more nominees, mark the box to the left and the corresponding numbered box(es) to the right. 01 02 03 04 05 06For Against Abstain 2. Advisory and non-binding vote to approve executiveNamed Executive Officer compensation. For Against Abstain 3. Ratification of the appointment of KPMGGrant Thornton, LLP as our independent registered public accounting firm for the fiscal year ending December 31, 2019. For Against Abstain 4. Amendment to our amended and restated articles of incorporation to increase the number of authorized shares of Class A common stock. 5. First Amendment to our Third Amended and Restated 2006 Omnibus Incentive Plan.2021. B Authorized Signatures — This section must be completed for your vote to count. Please date and sign below. Please sign below exactly as your name appears above at the upper left. When shares are held by joint tenants, both shall sign. When signing as attorney, executor, administrator, trustee or guardian, please give full title as such. If a corporation, please sign in full corporate name by president or other authorized officer. If a partnership, please sign in partnership name by authorized person. Date (mm/dd/yyyy) — Please print date below. Signature 1 — Please keep signature within the box. Signature 2 — Please keep signature within the box. Important notice regarding the Internet availability of proxy materials for the Annual Meeting of Stockholders. The Annual Report and Proxy Statement are available at www.edocumentview.com/CVTICVLG Small steps make an impact. Help the environment by consenting to receive electronic delivery, sign up at www.investorvote.com/CVTICVLG IF VOTING BY MAIL, SIGN, DETACH AND RETURN THE BOTTOM PORTION IN THE ENCLOSED ENVELOPE.ENVELOPE Proxy — COVENANT TRANSPORTATIONLOGISTICS GROUP, INC. PROXY FOR ANNUAL MEETING OF STOCKHOLDERS MAY 8, 2019May 19, 2021 Solicited on Behalf of the Board of Directors of the Company The undersigned holder(s) of Class A and/or Class B common stock (individually or together referred to as "Common Stock"“Common Stock”) of Covenant TransportationLogistics Group, Inc., a Nevada corporation (the "Company"“Company”), hereby appoint(s) David R. Parker and Joey B. Hogan, and each or any of them, attorneys and proxies of the undersigned, with full power of substitution, to vote all of the Common Stock that the undersigned is (are) entitled to vote at the Annual Meeting of Stockholders of the Company (the “2021 Annual Meeting”) to be held at the Company’s Corporate Headquarters at 400 Birmingham Highway, Chattanooga, Tennessee 37419,by teleconference only, on Wednesday, May 8, 2019,19, 2021, at 10:00 A.M. Eastern Daylight Time, and at any adjournment thereof. The undersigned may call into the 2021 Annual Meeting by dialing 1-310-372-7549 and entering participant code 124676, beginning at 9:45 a.m., up until the start time of 10:00 a.m. Eastern Daylight Time. The undersigned should be prepared to provide their name and personal identification number. The undersigned acknowledges receipt of the Notice and Proxy Statement for the 20192021 Annual Meeting of Stockholders of the Company and the Annual Report to Stockholders for the year ended December 31, 2018.2020. A vote FOR Proposals 1, 2, 3, 4, and 53 is recommended by the Board of Directors of the Company. When properly executed, this proxy will be voted in the manner directed by the undersigned stockholder(s). If no direction is given, this proxy will be voted FOR Proposals 1, 2, 3, 4, and 5,3, and, at the discretion of the proxy holder, upon such other matters as may properly come before the meeting or any adjournment thereof. PLEASE SIGN, DATE, AND PROMPTLY RETURN IN THE ACCOMPANYING ENVELOPE. If you vote by telephone or over the Internet, do not mail your proxy card. (CONTINUED AND TO BE SIGNED ON REVERSE SIDE) C Non-Voting Items Change of Address — Please print new address below. |