FROZEN FOOD EXPRESS INDUSTRIES, INC.
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
To Be Held May 8, 2002
TO THE SHAREHOLDERS OF
FROZEN FOOD EXPRESS INDUSTRIES, INC.:
Notice is hereby given that the Annual Meeting of Shareholders (the "Annual
Meeting") of Frozen Food Express Industries, Inc. (the "Company"), a Texas
corporation, will be held on Wednesday, May 8, 2002, at 3:30 p.m., Dallas,
Texas time, at the offices of Strasburger & Price, LLP, 901 Main Street, 43rd
Floor, Dallas, Texas 75201 for the following purposes:
1. To elect two Class I directors for a three-year term, and until their
respective successors are elected and qualified;
2. Considering and voting upon the approval of the Frozen Food Express
Industries, Inc. 2002 Incentive and Nonstatutory Option Plan; and
3. Transacting such other business as may properly be brought before the
Annual Meeting or any adjournment thereof.
You are encouraged to attend the Annual Meeting in person. Whether or not
you plan to attend the Annual Meeting, please complete, date, sign and return
the accompanying proxy at your earliest convenience. A reply envelope is
provided for this purpose, which needs no postage if mailed in the United
States. Your immediate attention is requested in order to save your Company
additional solicitation expense.
Information regarding the matters to be acted upon at the Annual Meeting is
contained in the Proxy Statement attached to this Notice.
Only shareholders of record at the close of business on March 14, 2002
are entitled to notice of and to vote at such meeting or any adjournment
thereof.
By Order of the Board of Directors
/s/ Leonard W. Bartholomew
Dallas, Texas LEONARD W. BARTHOLOMEW
April 12, 2002 Secretary
FROZEN FOOD EXPRESS INDUSTRIES, INC.
1145 Empire Central Place
P. O. Box 655888
Dallas, Texas 75265-5888
Telephone: (214) 630-8090
PROXY STATEMENT FOR ANNUAL MEETING OF
SHAREHOLDERS TO BE HELD MAY 8, 2002
SOLICITATION OF PROXIES
- -----------------------
The accompanying proxy is solicited by the management of Frozen Food
Express Industries, Inc. (the "Company") for use at the Annual Meeting of
Shareholders to be held at offices of Strasburger & Price, LLP, 901 Main
Street, 43rd Floor, Dallas, Texas, on the 8th day of May, 2002 (the "Annual
Meeting"), and at any adjournment thereof, for the purposes set forth in the
accompanying Notice of Annual Meeting of Shareholders. This Proxy Statement
and accompanying proxy are being mailed or delivered to shareholders on or
about April 12, 2002. Solicitations of proxies may be made by personal
interview, mail, telephone, facsimile, electronic mail or telegram by
directors, officers and regular employees of the Company. The Company may
also request banking institutions, brokerage firms, custodians, trustees,
nominees and fiduciaries to forward solicitation material to the beneficial
owners of the Company's $1.50 par value Common Stock (the "Common Stock")
held of record by such persons and may reimburse such forwarding expenses.
All costs of preparing, printing, assembling and mailing the form of proxy
and the material used in the solicitation thereof and all clerical and other
expenses of solicitation will be borne by the Company.
ANNUAL REPORT
- -------------
The Company's Annual Report to Shareholders, covering the fiscal year ended
December 31, 2001, including audited financial statements, is also being mailed
to the shareholders entitled to notice of and vote at the Annual Meeting in the
envelope containing this Proxy Statement. The Annual Report does not form any
part of the material for solicitation of proxies.
SIGNATURES OF PROXIES IN CERTAIN CASES
- --------------------------------------
If a shareholder is a corporation, the accompanying proxy should be signed
in its full corporate name by the President or another authorized officer, who
should indicate his title. If a shareholder is a partnership, the proxy should
be signed in the partnership name by an authorized person. If stock is
registered in the name of two or more trustees or other persons, the proxy
should be signed by each of them. If stock is registered in the name of a
decedent, the proxy should be signed by an executor or an administrator. The
executor or administrator should attach to the proxy appropriate instruments
showing his or her qualification and authority. Proxies signed by a person as
agent, attorney, administrator, executor, guardian or trustee should indicate
such person's full title following his or her signature.
REVOCATION OF PROXY
- -------------------
All shares represented by a valid proxy will be voted. A proxy may be
revoked at any time before it is voted by the giving of written notice to that
effect to the Secretary of the Company, by executing and delivering a later-
dated proxy or by attending the Annual Meeting and voting in person.
QUORUM AND VOTING
- -----------------
The presence, in person or by proxy, of the holders of a majority of the
outstanding shares of Common Stock entitled to vote is necessary to constitute
a quorum at the Annual Meeting. Abstentions and broker non-votes will be
counted in determining the presence of a quorum. A "broker non-vote" occurs
when a nominee holding shares for a beneficial owner has voted on certain
matters at the Annual Meeting pursuant to discretionary authority or
instructions from the beneficial owner but may not have received instructions
or exercised discretionary voting power with respect to other matters.
Each shareholder will be entitled to one vote, in person or by proxy, for
each share of such stock owned of record at the close of business on March 14,
2002. A shareholder may, by checking the appropriate box on the proxy: (i)
vote for both director nominees as a group; (ii) withhold authority to vote for
both director nominees as a group; or (iii) vote for either director nominees
as an individual. Cumulative voting for directors is not permitted.
OUTSTANDING CAPITAL STOCK; PRINCIPAL SHAREHOLDERS
- -------------------------------------------------
At the close of business on the 14th day of March, 2002, the record date
for determination of shareholders entitled to notice of, and to vote at, the
Annual Meeting, there were outstanding and entitled to be voted 16,624,936
shares of Common Stock. The following table sets forth certain information,
as of March 14, 2002, with respect to each person known to the management of
the Company to be a beneficial owner of more than five percent of the
outstanding Common Stock.
Amount and Nature of Percent
Name and Address Of Beneficial Owner Beneficial Ownership <1> of Class
- ------------------------------------ ------------------------ --------
Frozen Food Express Industries, Inc
401(k) Savings Plan 4,320,099 25.99%
The Charles Schwab Trust Company
425 Market Street, 7th Floor
San Francisco, CA 94105
Royce & Associates, Inc. 1,482,292 <2> 8.92%
1414 Avenue of the Americas
New York, NY 10019
Sarah M. Daniel <3> 1,449,560 8.72%
612 Linda
El Paso, TX 79922
Stoney M. Stubbs, Jr. <4> 1,465,698 <5> 8.70%
158 Jellico Circle
Southlake, TX 76092
Dimensional Fund Advisors, Inc. 1,326,586 <6> 7.98%
1299 Ocean Avenue, 11th Floor
Santa Monica, CA 90401
Lucile B. Fielder <3> 1,326,102 7.98%
104 South Commerce St.
Lockhart, TX 78644
________________________________
<1> Except as otherwise noted, each beneficial owner has sole voting and
investment power with respect to all shares owned by him or her, and all
shares are directly held by the person named.
<2> Information concerning the number of shares owned by Royce & Associates,
Inc. is as of December 31, 2001 and was obtained from a Schedule 13G dated
February 8, 2002.
<3> Ms. Daniel has sole voting and dispositive power over 66,597 shares, of
which 5,280 shares are held as custodian for her daughter, and joint
voting and dispositive power with her husband over 59,631 shares, and
shared voting and dispositive power with Ms. Fielder over 1,323,332 shares
owned by Weller Investment, Ltd. Ms. Fielder has sole voting and
dispositive power over 2,770 shares, of which 730 shares are held as
custodian for her daughter, and shared voting and dispositive power with
Ms. Daniel over 1,323,332 shares owned by Weller Investment Ltd.
<4> Mr. Stubbs holds, and has held for the past twenty-two years, the offices
of Chairman of the Board, President and Chief Executive Officer of the
Company and FFE. Mr. Stubbs is the nephew of Edgar O. Weller, a director
of the Company.
<5> Includes 227,326 shares which Mr. Stubbs has the right to acquire pursuant
to options exercisable within 60 days, 202,217 shares allocated to his
account in the Frozen Food Express Industries, Inc. 401(k) Savings Plan,
17,709 shares allocated to his account in the FFE Transportation Services,
Inc. 401(k) Wrap Plan, and 769,387 shares held in family partnerships
controlled by Mr. Stubbs.
<6> Information concerning the number of shares owned by Dimensional Fund
Advisors, Inc. is as of December 31, 2001 and was obtained from a
Schedule 13G dated January 30, 2002.
ACTION TO BE TAKEN UNDER THE PROXY
- ----------------------------------
Properly executed and returned proxies will be voted, unless otherwise
specified thereon, (i) FOR the election of the two nominees named in the
following table as Class I directors of the Company, (ii) unless otherwise
specified thereon, FOR the approval of the Frozen Food Express Industries, Inc.
2002 Incentive and Nonstatutory Stock Option Plan, and (iii) in the transaction
of such other business as may properly come before the Annual Meeting or any
adjournment thereof in accordance with the judgment of the proxies. The
management of the Company does not know of any such other matter or business.
If any nominee is unable or be unwilling to accept nomination, the persons
acting under the proxy will vote for the election, in his stead, of such other
person as the management of the Company may recommend. The management of the
Company has no reason to believe that any of the nominees will be unable or
unwilling to serve if elected to office. To be elected, each director must
receive the affirmative vote of the holders of a plurality of the issued and
outstanding shares of Common Stock represented in person or by proxy at the
Annual Meeting. Abstentions and broker non-votes will have no effect in the
election of directors.
NOMINEES FOR DIRECTORS
- ----------------------
The Company's Board of Directors currently consists of eight members and
is divided into three classes. Each year, the directors in one of the three
classes are elected to serve a three-year term. At the 2002 Annual Meeting,
two directors, comprising Class I, will be nominated for election to serve
until the year 2005 Annual Meeting of Shareholders or until their successors
are elected and qualified. Class II and Class III directors will not be
elected this year.
The amended By-Laws provide that the Board of Directors shall consist of
nine directors including three Class I directors. Presently, there are eight
directors. Management is attempting to identify qualified candidates to stand
for election at the 2003 annual meeting. Accordingly, management has nominated
two persons to be elected as Class I directors at this annual meeting.
The table below presents information regarding the names, occupation, term
as a director of the Company and beneficial ownership of the Company's common
stock for both of the Class I director nominees for election at this meeting
and the Class II and Class III directors presently serving on the Board of
Directors. Each director has served continuously since the date he first
became a director.
Principal Class,
Occupation Amount and
During Past First Term Nature of Percent
Five Years Became a Expiration Beneficial of
Name and (Age) & Directorships Director Date Ownership<1> Class
- -------------- --------------- ------- ---- ------------ -----
Nominees For Election
- ---------------------
Edgar O. Weller (84) Vice Chairman 1969 2005 I 548,560<2> 3.30%
of the Board
of the Company
Leroy Hallman (86) Attorney, 1975 2005 I 28,525<3> *
Retired
Continuing Directors
- --------------------
Brian R. Blackmarr (60) CEO, 1990 2003 II 33,125<4> *
Fusion
Laboratories,
Inc. since
January 2001,
President,
eBus Link, Inc.
from August 1999
until January
2001, and
previously
President B.R.
Blackmarr &
Associates Inc.
W. Mike Baggett (55) Chairman, 1999 2003 II 8,723<5> *
President and
CEO Winstead
Sechrest &
Minick, P.C.
F. Dixon McElwee, Senior Vice 1999 2003 II 37,980<7> *
Jr. (55) <6> President of
the Company
and FFE since
September 1998
and, prior
thereto,
Executive Vice
President and
Chief Financial
Officer for
Cameron-Ashley
Building
Products
Stoney M. (Mit) Chairman 1977 2004 III 1,465,698<8> 8.70%
Stubbs, Jr. (65) of the Board,
President and
Chief Executive
Officer of
the Company
Charles G. Executive 1982 2004 III 575,807<9> 3.43%
Robertson (60) <6> Vice President
of the Company
T. Michael Chief 1992 2004 III 13,125<10> *
O'Connor (47) Executive
Officer,
Ecosource, Inc.,
Managing
Partner T. J.
O'Connor
Cattle Co.
__________________________________________ --------- -----
All directors and executive officers, as a group
(8 people) 2,711,543<11>15.88%
========= =====
* less than 1%
<1> Except as otherwise noted, all shares are held directly, and the owner
has sole voting and investment power.
<2> Includes 3,750 shares issuable pursuant to options to options exercisable
by Mr. Weller within 60 days.
<3> Includes 7,500 shares issuable pursuant to options exercisable by Mr.
Hallman within 60 days and 7,475 shares held by a trust of which Mr.
Hallman is the Trustee.
<4> Includes 13,125 shares issuable pursuant to options exercisable by Mr.
Blackmarr within 60 days.
<5> Includes 8,573 shares issuable pursuant to options exercisable by Mr.
Baggett within 60 days.
<6> Mr. Robertson is also Executive Vice President and a director of FFE.
Mr. McElwee is also Senior Vice President and a director of FFE.
<7> Includes 24,225 shares issuable pursuant to options exercisable by Mr.
McElwee within 60 days, 5,059 shares allocated to Mr. McElwee's account
in the Frozen Food Express Industries, Inc. 401(k) Savings Plan and
8,696 shares allocated to his account in the FFE Transportation Services,
Inc. 401(k) Wrap Plan.
<8> Includes 227,326 shares issuable pursuant to options exercisable by Mr.
Stubbs within 60 days, 202,217 shares allocated to his account in the
Frozen Food Express Industries, Inc. 401(k) Savings Plan, 17,709 shares
allocated to his account in the FFE Transportation Services, Inc. 401(k)
Wrap Plan, and 769,387 shares held in family partnerships controlled by
Mr. Stubbs.
<9> Includes 157,034 shares issuable pursuant to options exercisable by Mr.
Robertson within 60 days, 133,184 shares allocated to his account in the
Frozen Food Express Industries, Inc. 401(k) Savings Plan, 15,738 shares
allocated to his account in the FFE Transportation Services, Inc. 401(k)
Wrap Plan, and 192,236 shares held by a family partnership controlled by
Mr. Robertson.
<10> Represents 13,125 shares issuable pursuant to options exercisable by Mr.
O'Connor within 60 days.
<11> Includes 454,658 shares issuable pursuant to options exercisable within
60 days, 340,460 shares allocated to the accounts of executive officers
pursuant to the Frozen Food Express Industries, Inc. 401(k) Savings Plan,
42,143 shares allocated to the accounts of executive officers pursuant
to the FFE Transportation Services, Inc, 401(k) Wrap Plan and 961,623
shares held by family partnerships controlled by directors and executive
officers, and 7,475 shares held by a trust of which a Director is Trustee.
The Board of Directors held a total of five regularly scheduled and special
meetings in 2001. Each incumbent Director, with the exception of Mr. Hallman
and Mr. O'Connor who attended 71% and 57%, respectively, attended at least 75%
of the total of all meetings of the Board of Directors held during the period
for which he was a Director and all meetings of the committees during the
periods he served on such committees.
The Compensation Committee consists of Messrs. Blackmarr, Chairman, and
Baggett and did not meet during 2001. It is charged with recommending
compensation arrangements for the directors and executive officers of the
Company and recommending compensation programs for FFE. Stock options are long-
term incentive compensation and accordingly must be approved by this committee
prior to the grant of an option.
Prior to April 3, 2002, the Audit Committee consists of Messrs. Hallman,
Chairman, Weller and O'Connor. On April 3, 2002, the Board of Directors
elected W. Mike Baggett to replace Edgar O. Weller on the Audit Committee.
During 2001, the Committee held two meeting at which it reviewed with
representatives of Arthur Andersen LLP the results of its 2000 annual audit,
plans for the 2001 annual audit and other services provided by the Independent
Public Accountants.
DIRECTOR COMPENSATION
- ---------------------
Directors who are not employees of the Company receive $1,000 for each
meeting attended, $500 for each telephonic meeting attended and $500 for each
committee meeting attended that is not on the same day as a Board meeting.
The 1995 Non-Employee Director Stock Option Plan (the "Director Plan") is
intended to advance the interests of the Company and its shareholders by
attracting and retaining experienced and able independent Directors. Upon a
non-employee director's initial appointment or election to the Board, he or she
is granted an option to purchase 9,375 shares of Common Stock. Upon reelection
such Directors are granted an option to purchase 1,875 shares of Common Stock.
Each such director was granted an option to purchase 1,875 shares with an
exercise price of $1.50 per share on April 26, 2001. Exercise prices are the
greater of $1.50 or fifty percent (50%) of the fair market value of the Common
Stock at the close of business on the day prior to the date of grant. The
exercise price may be paid in cash, check or shares of the Company's Common
Stock. No option may be granted pursuant to the Director Plan after March 3,
2005. Grants are subject to adjustments to reflect certain changes in
capitalization.
If a non-employee director has served for one or more years prior to the
grant of an option, the option is immediately exercisable for one-seventh of
the number of shares subject to the option for each full year such non-employee
director has served. On each anniversary thereafter, one-seventh of the number
of shares subject to the option become exercisable. Options expire if not
exercised before the tenth anniversary of grant. Upon death options become
fully exercisable and may be exercised by the beneficiary under the option
holder's will or the executor of such option holder's estate at any time prior
to the second anniversary of his or her death. If an option holder ceases to
be a director for any other reason, the vested options may be exercised at any
time prior to the second anniversary of the date he or she ceases to be a
director. In no event, however, shall the period during which options may be
exercised extend beyond the tenth anniversary of an option's grant. No shares
from the options may be sold by a director until the expiration of six months
after the date of grant.
FIVE-YEAR SHAREHOLDER RETURN COMPARISON
- ---------------------------------------
The following table compares the cumulative total shareholder return on the
Company's Common Stock for the last five years to the S&P 500 Index and the
Media General Industry Group Index #774 - Trucking Companies, consisting of the
Company and 31 other trucking companies (assuming the investment of $100 in the
Company's Common Stock, the S&P 500 Index and the Media General Index on
December 31, 1997, and reinvestment of all dividends).
1997 1998 1999 2000 2001
---- ---- ---- ---- ----
Frozen Food Express Industries, Inc. $100 $ 88 $ 43 $ 22 $ 24
MG Industry Group Index 100 94 90 95 118
S&P 500 Index 100 127 151 136 118
EXECUTIVE COMPENSATION
- ----------------------
Summary Compensation Table:
Set forth below is information with respect to the compensation paid by the
Company for services rendered during 2001, 2000, and 1999, to each executive
officer (collectively, the "Executive Officers"):
Long-Term Compensation
Awards
----------------------
Securities
Underlying
Name and Annual Options/ All Other
Principal Compensation Stock Total Awards SARs # Compensation
Position Year Salary Bonus <1> $<2> <3> <4>
- -------- ---- ------ ----- ----- ------ ----- ------------
Stoney M.
Stubbs, Jr. 2001 $317,613 - $317,613 $25,531 - $19,736
Chairman of 2000 $317,613 - $317,613 $22,636 222,299 $20,265
the Board 1999 $317,613 - $317,613 $18,713 3,500 $20,819
President
and Chief
Executive
Officer
of the
Company and FFE
Charles G.
Robertson 2001 $247,595 - $247,595 $17,980 - $10,618
Executive 2000 $247,595 - $247,595 $21,854 154,489 $11,310
Vice 1999 $247,595 - $247,595 $19,225 3,500 $12,018
President
and
Executive
Officer of
the Company
and FFE
F. Dixon
McElwee, Jr. 2001 $184,263 - $184,263 $13,478 - -
Senior Vice 2000 $209,043 - $209,043 $11,921 24,225 -
President 1999 $184,263 - $184,263 $ 188 3,500 $ 3,753
of the
Company and
FFE
<1> Personal benefits provided to each of the named individuals under various
Company programs do not exceed the disclosure thresholds established
under SEC rules and are not included in this total.
<2> Includes restricted phantom stock units awarded pursuant to the FFE
Transportation Services, Inc. 2000 Executive Bonus and Phantom Stock Plan
(the "Executive Plan") or in accordance with the Company's Supplemental
Executive Retirement Plan (the "SERP") or common stock issued to a trust
for benefit of participants in the FFE Transportation Services, Inc.
401(k) Wrap Plan (the "Wrap Plan"). Phantom stock units generally will
be adjusted to prevent dilution in the event of any cash and non-cash
dividends, recapitalizations and similar transactions affecting the
Common Stock. An officer may elect to cash out any number of the phantom
stock units between December 1 and December 15 of any year. In that
event an amount equal to product of the greater of (i) the Fair Market
Value of a share of Common Stock as of the last business day of the
calendar year in which such election is made and (ii) the average of the
Fair Market Values of a share of Common Stock as of the last business
day of each calendar month of the calendar year in which such election
is made multiplied by the number of units that the officer elected to
cash out shall be paid to the officer. In the event of certain mergers,
the sale of all or substantially all of the Company's assets and
certain similar transactions (a "Reorganization") within six months after
the date an officer has been paid for units and as a result of such
Reorganization the holders of Common Stock receive cash for each share so
held in an amount in excess of the amount paid to such officer for such
units, then such excess shall be paid to the officer.
The following table sets forth the total number of phantom stock unit
and common stock issued to a trust awarded under the Executive Plan, the SERP
and the Wrap Plan for 2001, 2000 and 1999, to each executive officer of the
Company:
2001 2000 1999
---- ---- ----
Mr. Stubbs 11,930 11,497 4,829
Mr. Robertson 8,402 11,100 4,961
Mr. McElwee 5,282 6,055 48
During 2000, a "grantor" trust was established in connection with the Wrap
Plan to hold Company assets to satisfy obligations under the Plan. As of
December 31, 2001, the total number of phantom stock units allocated to the
accounts of Messrs. Stubbs, Robertson, and McElwee was 108,964; 73,965 and
11,337, respectively. The total value of such accounts, based upon the market
price of a share of Common Stock on December 31, 2001 was $233,183; $158,284
and $24,261, respectively, for Messrs. Stubbs, Robertson, and McElwee.
<3> Options to acquire shares of the Company's Common Stock.
<4> Company contributions to the Frozen Food Express Industries, Inc. 401(k)
Savings Plan (the "Savings Plan") and the value of benefits, as
determined under a methodology required by the United States Securities
and Exchange Commission ("SEC"), ascribed to life insurance policies
whose premiums are paid by the Company for the benefit of the
persons in the amounts indicated below:
Split Dollar
Name Year Savings Plan Life Insurance
---- ---- ------------ --------------
Mr. Stubbs 2001 - $19,736
2000 - $20,265
1999 - $20,819
Mr. Robertson 2001 - $10,618
2000 - $11,310
1999 - $12,018
Mr. McElwee 2001 - -
2000 - -
1999 $3,753 -
Aggregated Option/SAR Exercises in Last Fiscal Year & Year-End Option/SAR Values
- --------------------------------------------------------------------------------
The following table provides information, with respect to each Executive
Officer, concerning the exercise of options during the last fiscal year and
unexercised options held as of the end of the fiscal year ending December 31,
2001:
Securities Value of
Underlying Unexercised
Unexercised In-the-Money
Options/SARs Options/SARs
at Fiscal at Fiscal
Shares Yearend Yearend
Acquired Value (#) Exercisable/ ($)Exercisable/
On Exercise Realized Unexercisable Unexercisable
Name (#) <1> <2> <3>
- -------------- ----------- -------- -------------- -------------
Mr. Stubbs - $ - 227,326 / - $ - /$ -
Mr. Robertson - $ - 157,034 / - $ - /$ -
Mr. McElwee - $ - 24,225 / - $ - /$ -
<1> Calculated on the basis of the difference between the closing price for
the Company's Common Stock on the date of exercise and the option
exercise price multiplied by the number of shares of Common Stock
underlying the option exercised.
<2> On February 13, 2002, Messrs. Stubbs, Robertson and McElwee were granted
an option to purchase 214,027, 147,164 and 22,500 shares of common stock,
respectively. These options have been excluded from the above summary.
<3> The closing price for the Company's Common Stock as reported by the
Nasdaq Stock Market on December 31, 2001, was $2.14. Value is calculated
on the basis of the difference between $2.14 and the option exercise
price of an "in-the-money" option multiplied by the number of shares of
Common Stock underlying the option.
Change in Control Agreements
- ----------------------------
The Company has entered into Change in Control Agreements ("Agreements")
with the Executive Officers, pursuant to which each Executive Officer is
entitled to severance benefits in the event of a "change in control" of the
Company during the term of his employment.
Under the terms of the Agreements, if an Executive Officer (i) is
terminated by the Company without cause during the six month period following
a change in control ("Transition Period"), (ii) resigns for "good reason" (as
defined in the Agreements) during the Transition Period, or (iii) resigns for
any reason during the ten day period following a change in control or during
the thirty day period following the Transition Period, then the Company is
required to provide the Executive Officer with certain payments and benefits.
Such payments and benefits include (a) payment of accrued and unpaid base
salary, car allowance, plus accrued and unpaid bonus, if any, for the prior
fiscal year plus a pro-rated bonus (as defined in the Agreements) for the year
during which such Executive Officer's employment is terminated; (b) payment
of a lump sum amount equal to the sum of 2.9 times the Executive Officer's
annual pay (as defined in the Agreement); (c) payment of the unvested account
balance under the Company's 401(k) Savings Plan and 401(k) Wrap Plan;
(d) continued participation, at the same premium rate charged when actively
employed, in the Company's employee welfare plans, until the expiration of
two years following the change in control or cash equivalent; (e) vesting of
all stock options on change of control; and (f) "gross-up" payments, if
applicable, in the amount necessary to satisfy any excise tax imposed on the
Executive Officer by the Internal Revenue Code of 1986, as amended the
("Code").
REPORT OF THE AUDIT COMMITTEE
- -----------------------------
We the Audit Committee operate under a written charter adopted by the
Board of Directors which is attached to and made a part of this Proxy
Statement as Appendix A.
We have reviewed and discussed with management the Company's audited
financial statements as of and for the year ended December 31, 2001.
We have discussed with Arthur Andersen LLP, the Company's independent
public accountants, the matters required to be discussed by Statement of
Auditing Standards No. 61, Communication with Audit Committees, as amended by
the Auditing Standards Board of the American Institute of Certified Public
Accountants.
We have received and reviewed the written disclosures and the letter
from the independent public accountants required by Independent Standard No.
1, Independence Discussions with Audit Committees, as amended, by the
Independent Standards Board, and have discussed with the independent public
accountants their independence.
Based on the reviews and discussions referred to above, we recommend to
the Board of Directors that the financial statements referred to above be
included in the Company's Annual Report on Form 10-K for the year ended
December 31, 2001.
For the year 2001, the Company paid Arthur Andersen LLP $105,000 for
audit services and $9,000 for non-audit and consulting services.
/s/ Leroy Hallman, Chairman of the Audit Committee
/s/ Edgar O. Weller, Member of the Audit Committee until April 3, 2002
/s/ T. Michael O'Connor, Member of the Audit Committee
/s/ W. Mike Baggett, Member of the Audit Committee since April 3, 2002
COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
- -------------------------------------------------------
This report has been prepared by Messrs. Brian R. Blackmarr, Chairman,
and W. Mike Baggett, serving as the Company's Compensation Committee during
2001. We are responsible for overseeing the development and administration of
all compensation policies and programs for executive officers of the Company.
We seek to design compensation programs that align the interests of such
officers with the Company's shareholders. We have implemented compensation
programs we believe will enhance the profitability of the Company, and reward
such officers for efforts to achieve enhanced profitability. We believe the
compensation programs allow the Company to attract, motivate, and retain the
services of its executive officers.
The executive compensation package is designed to retain senior management
by providing total compensation comparable to the Company's competitors. To
align the interests of the Company's executives with the interests of
shareholders, a substantial portion of each executive's compensation is
provided through annual and long-term incentive plans. Such plans place a
substantial portion of the executives' compensation packages at risk and serve
as an integral component of the Company's executive compensation philosophy. We
believe the executives' attentions are better balanced between achieving short-
term business goals and increasing the long-term value of the Company with a
"pay-at-risk" policy. The programs reward executive officers for successful
leadership when certain levels of Company performance are achieved. The
Company's executive officer compensation program also provides base salary,
supplemental retirement benefits and other benefits, including medical and
retirement plans generally available to all Company employees.
We periodically retain the services of an outside consulting firm to review
the Company's executive compensation practices. Such a review was completed in
April 1999, and recommendations for base salary, short-term bonus, and long-
term incentive were developed. These reviews also cover retirement benefits
for the Company's executive officers as measured against the competitive pay
practices of a peer group of publicly-traded trucking companies. The major
components of executive compensation are detailed below.
Base Salary
- -----------
As part of the review performed by outside consultants, base salary levels
of the executives are reviewed to ensure comparability with other publicly-
traded trucking companies. Base salary levels of executive officers have been
set below the market median of the amounts paid to such peer group executives
in the past. We believe that many of the 45 companies included in the market
index for the five-year shareholder return comparison differ from the Company
in size and nature of services provided. Therefore, we directed our outside
consultants to compare compensation practices with a peer group of ten publicly
traded companies with operations most similar to the Company's.
Annual Incentive/Bonus Compensation
- -----------------------------------
The Company's shareholders reapproved the incentive compensation program
in 1999. The program is designed to reward key employees for the Company's
performance based on the achievement of performance goals established prior to
the particular year. Components of annual incentive compensation include an
Incentive Bonus Plan (the "Incentive Plan") covering all full-time FFE
employees (including executive officers) and the FFE Transportation Services,
Inc. 1999 Executive Bonus and Phantom Stock Plan (the "Executive Plan"), which
covers only the key executive leadership. Both plans focus on operational
efficiencies. An executive officer's total cash compensation rises above the
peer group market median as the Company's performance rises above the median
performance of the Company's peer group. For 2000 and 2001, reflecting Company
performance, no cash bonuses were awarded.
Long-Term Incentive Compensation
- --------------------------------
The Company's long-term incentive compensation is comprised of stock
options and phantom equity programs. These serve to align the interests of
the executive officers and other key employees' with shareholder interests by
linking executive pay with shareholder return. These programs also act as a
counter-balance to the short-term goals and responsibilities of the Incentive
Plan and Executive Plan.
The 1992 Incentive and Nonstatutory Stock Option Plan, (the "1992 Plan")
as approved by shareholders, provides the exercise price for incentive stock
options may not be less than the fair market value of the Common Stock on the
date of grant. We or the Board determines the exercise price of nonstatutory
stock options under the 1992 Plan. The exercise price may not be less than 50%
of the fair market value of a share of the Common Stock on the date of grant.
Options granted under the 1992 Plan may not be outstanding for more than ten
years. On February 13, 2002, Mr. Stubbs was granted an option to purchase
214,027 shares of common stock under the 1992 Plan. The 1992 Plan expires in
April 2002. The Board of Directors has approved and proposed that the
shareholders approve a 2002 Stock Option Plan. See "Proposal to Approve
Adoption of the 2002 Incentive and Nonstatutory Stock Option Plan".
Supplemental Executive Retirement And 401(k) Wrap Plans
- -------------------------------------------------------
To provide supplemental retirement benefits to members of the key
management, the Company maintains the SERP and Wrap Plans, respectively. The
SERP provides benefits limited by the Code by awarding phantom stock units.
The Wrap Plan supplements the Company's 401(k) Plan by allowing benefits
supplemental to those limited by the Code.
Both the SERP and the Wrap Plan are unfunded deferred compensation
arrangements not subject to the annual reporting and disclosure requirements
of the Employee Retirement Income Security Act of 1974. Awards under both the
SERP and the Wrap Plan for fiscal year 2001 are disclosed in the Summary
Compensation Table.
Compensation For The Chief Executive Officer
- --------------------------------------------
During 2001, Mr. Stubbs served as the Chairman of the Board, President,
and Chief Executive Officer. For 2001, 2000 and 1999, Mr. Stubbs' base salary
was $317,613. For 2001, Mr. Stubbs did not receive payments under the Company's
Incentive Plan or Executive Plan. We evaluate Mr. Stubbs' performance by the
same criteria established for all Company executives. We made an assessment of
Mr. Stubbs' contributions to enhancing the Company's performance, his
individual performance, and the compensation paid to chief executive officers
of the Company's peer group to determine Mr. Stubbs' total compensation.
Deductibility Of Executive Compensation
- ---------------------------------------
The Company has entered into Change in Control Agreements ("Agreements")
with certain executive officers whereby such individuals will be entitled to
receive payments if they are terminated without cause or resign with good
reason within specified periods following the occurrence of certain events
deemed to involve a change in control of the Company. See "Change in Control
Agreements". Under Section 162(m) of the Code, the federal income tax
deduction for certain types of compensation paid to the chief executive officer
and up to four of the other most highly compensated executive officers of
publicly-held companies is limited to $1 million per officer per fiscal year
unless such compensation meets certain requirements. In determining the amount
of compensation paid to the chief executive officer or the four other most
highly "performance-based compensation" under Section 162(m) of the Code is
disregarded. Additionally, Section 280G of the Code disallows a deduction for
certain compensation paid upon a change in control of the Company. We are
aware of the limitations of Section 162(m) and 280G of the Code and believe
that no compensation paid by the Company will exceed these limitations, except
possibly a portion of the sums payable pursuant to the Agreements in the event
of a change in control of the Company, if paid.
/s/ Brian R. Blackmarr, Chairman of the Compensation Committee
/s/ W. Mike Baggett, Member of the Compensation Committee
Members of the Compensation Committee
TRANSACTIONS WITH MANAGEMENT AND DIRECTORS
- ------------------------------------------
A subsidiary of the Company leases certain tractors from Mr. Stubbs, Mr.
Robertson, and a family partnership controlled by Mr. Stubbs. Lease terms are
for three years and lease payments were determined by reference to amounts the
subsidiary pays to unaffiliated lessors for similar equipment leased under
similar terms. Because the terms of these leases with related parties are more
flexible than those governing tractors we lease from unaffiliated lessors, we
pay the officers a modest premium over the rentals we pay to unaffiliated
lessors. The subsidiary also rents certain trailers from these officers, on
a month-to-month basis, at rates that are generally less than market-rate
monthly trailer rentals.
The Company and the related-party lessors have agreed, should the month to
month leases be terminated within twelve months following a change in control
of the Company, then the Company is required to pay to the lessors a lump sum
payment in cash equal to 24 times the most recent monthly rental.
Rentals paid during 2001 by the subsidiary for tractors and trailers
pursuant to the lease agreements were as follows: Mr. Stubbs and the family
partnership - $1,289,000 and Mr. Robertson - $690,000. The subsidiary has an
option to purchase the tractors at the end of the lease term for fair market
value. During 2001, the Company purchased (for market value) tractors valued at
$860,000 from Mr. Stubbs and the family partnership and $344,000 from Mr.
Robertson. The Company subsequently sold these tractors to unrelated third
parties and did not incur a gain or loss on such transactions. The aggregate
future minimum lease payments to Mr. Stubbs and the family partnership and Mr.
Robertson under the tractor leases are approximately $712,000 and $411,000,
respectively, in 2002, and $307,000 and $147,000, respectively, in 2003.
EQUITY COMPENSATION PLAN INFORMATION
- ------------------------------------
The following table provides information concerning all equity
compensation plans of the Company, specifically, the number of shares of
common stock subject to outstanding options, warrants and rights and the
exercise price thereof, as well as the number of shares of common stock
available for issuance under all of the Company's equity compensation plans.
Number of
securities
remaining
available
for future
issuance under
Number of Weighted-average equity
securities to exercise compensation
be issued upon price of plans
exercise of outstanding (excluding
outstanding options, securities
options, warrants warrants reflected in
Plan Category and rights and rights column (a))
- ------------- ---------- ---------- -----------
Equity compensation
plans approved
by security holders 1,120,595 $3.70 1,052,400
Equity compensation
plans not approved
by security holders 1,295,500 $8.87 1,695,500
--------- ---------
Total 2,416,095 $6.47 2,747,900
========= =========
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
- -----------------------------------------------------------
The Compensation Committee consists of Messrs. Blackmarr and Baggett and is
charged with recommending compensation arrangements for the directors and
executive officers of the Company and recommending compensation programs for
the Company. No payments other than director fees were made to Compensation
Committee members during 2001, and neither had any relationships requiring
disclosure according to applicable rules and regulations of the Securities and
Exchange Commission.
PROPOSAL TO APPROVE ADOPTION OF THE 2002 INCENTIVE AND NONSTATUTORY OPTION PLAN
- -------------------------------------------------------------------------------
GENERAL
The Board of Directors of the Company has approved, and proposed that the
shareholders approve at the Annual Meeting, the adoption of the Frozen Food
Express Industries, Inc. 2002 Incentive and Nonstatutory Option Plan (the "2002
Plan"). An aggregate of 850,000 shares of Common Stock has been reserved for
issuance upon the exercise of options granted under the Plan. The market value
of the Common Stock as of March 25, 2002 was $2.41 per share.
The objective of the 2002 Plan is to provide an incentive for key
employees, including officers and directors who may be employees, and certain
non-employees of the Company or its subsidiaries to remain in the service of
the Company by providing them with opportunities to acquire an economic
interest in the future success and prosperity of the Company and its
subsidiaries. The 2002 Plan is intended to replace the Company's current
stock option plan, the Frozen Food Express Industries, Inc. 1992 Incentive
Stock Option Plan (the "1992 Plan"), which expires by its terms in April of
2002. Upon the expiration of the 1992 Plan, the Company's ability to grant
options to its key employees, consultants and advisors will no longer be
available unless the 2002 Plan is adopted.
The 2002 Plan provides for the granting of incentive stock options, for
which option holders may receive favorable tax treatment under the Code, and
nonstatutory options, for which option holders do not receive special tax
treatment. For further information regarding the tax treatment of options
granted under the 2002 Plan, see "Tax Treatment" below.
The Company is seeking the shareholders' approval for the 2002 Plan.
Shareholder approval is required under the requirements of the NASDAQ Stock
Exchange which are applicable to the Company and is also required to receive
favorable tax treatment for incentive stock options granted under the 2002
Plan, and to qualify the stock options for the performance-based compensation
exception of Section 162(m) of the Code.
Options granted under the 2002 Plan will be evidenced by a written option
agreement, the terms and provisions of which will be determined by the
Committee (as hereinafter defined) or by the Board of Directors at the time an
option is granted. The exercise price for incentive stock options granted under
the Plan and for non-statutory options intended to qualify for the performance-
based compensation exception of Section 162(m) of the Code will not be less
than 100% of the fair market value of a share of the Company's Common Stock at
the time of the grant. The exercise price for nonstatutory stock options
granted under the Plan and not intended to qualify for the performance-based
compensation exemption of Section 162(m) of the Code will be determined by the
Committee or Board of Directors at the time of the grant, but will not be less
than the greater of the par value of the Common Stock ($1.50 per share) or 50%
of the fair market value of a share of the Company's Common Stock at the time
of the grant. The term of the options granted under the 2002 Plan will be
determined by the Committee or the Board of Directors, but may not exceed ten
years. In the case of incentive stock options granted to a 5% or more
shareholder of the Company, such options may not have an exercise price of less
than 110% of the fair market value of a share of the Company's Common Stock at
the time of grant and may not have a term of more than five years. In
addition, in order to comply with the performance-based compensation exception
of Section 162(m) of the Code, the Plan provides that options with respect to
no more than 100,000 shares may be granted to any individual option holder in
any fiscal year of the Company.
Except as may be included in a particular option agreement and then only
to the extent permitted by applicable law, options granted under the 2002 Plan
shall be exercisable during the option holder's lifetime only by that holder or
such holder's legal guardian or legal representative. Except as provided in an
option agreement, and then only to the extent permitted by applicable law,
options granted under the 2002 Plan will not be transferable other than by will
or the laws of descent and distribution, except that nonstatutory options may
be transferable, in the discretion of the Committee, by gift or sale to certain
family members or trusts or other entities for the benefit of family members of
the option holder. Options will automatically terminate upon the severance of
the option holder's relationship with the Company or its Subsidiaries; provided
that the portion of the option that is exercisable at the time of such
severance may be exercised for a period the lesser of the remainder of the term
of the option or (a) in the case of an employee, (i) for a period of 90 days
after (A) the severance of the employment relationship or (B) the employee's
retirement, or (ii) for a period of one year after the death of such employee
during the employment relationship or within 90 days of such employee's
retirement; or (b) in the case of a non-employee, (i) for a period of 90 days
after the severance of the relationship between such non-employee and the
Company, or (ii) for a period of one year after the death of such non-employee.
The option price may be paid in cash or, at the discretion of the Committee
or the Board of Directors, or if the related option agreement so provides,
partially or entirely in issued and outstanding Common Stock of the Company
owned by the option holder, which shall be valued at the fair market value of
such Common Stock on the date the option is exercised. In addition, any
resulting withholding tax may be paid with such Common Stock acquired pursuant
to the exercise of the options.
ADMINISTRATION
The 2002 Plan will be administered by the Board of Directors or by a
committee (the "Committee") consisting of two or more directors who are non-
employee directors of the Company within the meaning of Rule 16b-3 under the
Securities Exchange Act of 1934, as amended, and who meet the requirements for
being "outside directors" within the meaning of the performance-based
compensation exception of Section 162(m) of the Code. The members of the
Committee are appointed by and serve at the pleasure of the Board of Directors.
The Committee has full authority, subject to the provisions of the 2002 Plan,
to determine the individuals to whom options are to be granted, the number of
shares of Common Stock represented by each option, the time or times at which
options shall be granted and exercisable, and the exercise price of the
options.
TERMINATION
If approved by the shareholders, the 2002 Plan will expire by its terms in
April, 2012. The Board of Directors has the right to revise, amend, or
terminate the 2002 Plan; provided, however, that shareholder approval is
necessary to the extent required by law, regulation or rule, including those
relating to incentive stock options and to securities exchanges or
associations.
ACCOUNTING TREATMENT
Because the 2002 Plan permits the exercise price of nonstatutory options
granted under the Plan to be less than the fair market value of the Company's
Common Stock on the date of grant, charges to earnings will be made at the time
of the grant of any options to the extent, if any, that the fair market value
of the Common Stock on the date of grant exceeds the exercise price. The
Company applies APB Opinion 25 and related interpretations to account for its
stock options. Accordingly for options that are granted to employees with an
exercise price equal to or greater than the fair market value of the Common
Stock on the date of such grant, and which are not subsequently amended in
certain respects constituting a substantial change or, in substance, a
reissuance, no compensation expense will be recorded by the Company upon the
grant or exercise of such option.
TAX TREATMENT
Under current Federal tax law, upon the grant of a nonstatutory stock
option, no taxable income will be realized by a participant in the 2002 Plan
and the Company will not be entitled to any tax deduction. Upon exercise of a
nonstatutory stock option, a participant will realize ordinary taxable income
on the date of exercise. Such taxable income will equal the difference between
the option price and the fair market value of the Common Stock on the date of
exercise (the "Spread at Exercise"). The Company will be entitled to a
corresponding tax deduction.
Upon the grant of an incentive stock option, no taxable income will be
realized by a participant and the Company will not be entitled to any tax
deduction. If a participant exercises the option, without having ceased to be
an employee of the Company or any of its subsidiaries at any time during the
period from the grant of the option until three months before its exercise,
then generally, no such taxable income or deduction will result at the time of
the exercise of such option. If no "disqualifying disposition" of the stock
transferred to a participant upon exercise of the option is made by the option
holder (i.e., no disposition occurs within the period that ends on the later to
occur of one year after such stock is so transferred and two years after the
grant of the option), any profit (or loss) realized by a participant from a
sale or exchange of such stock will be treated under the Code as long-term
capital gain (or loss), and no tax deduction will be allowable to the Company
with respect thereto. When a participant exercises an incentive stock option,
he or she will realize an item of tax preference for purposes of the
alternative minimum tax provisions of the Code equal to the amount by which the
fair market value of the Common Stock at the time of exercise exceeds the
option price. If a disqualifying disposition of such stock is made by an option
holder, the disposition will result in ordinary income at the time of the
disposition in an amount equal to the lesser of (1) the gain on the sale or (2)
the Spread at Exercise. If the gain exceeds the Spread at Exercise, the excess
is a short-term or long-term capital gain depending upon how long the shares
are held prior to the sale. If the stock is sold for less than the exercise
price, failure to meet the holding period requirement generally will result in
a short-term or long-term capital loss, depending upon how long the shares have
been held before the sale, equal to the difference between the exercise price
and the sale price.
INDEPENDENT PUBLIC ACCOUNTANTS
- ------------------------------
Arthur Andersen LLP served as independent public accountants for 2001.
Representatives of Arthur Andersen LLP may be present at the Annual Meeting,
with the opportunity to make a statement if they so desire, and will be
available to respond to appropriate questions. The Company intends to select
its independent public accountants for 2002 after receiving the recommendation
of the Audit Committee expected at the Audit Committee's May 2002 meeting.
COMPLIANCE WITH SECTION 16(a) OF THE SECURITIES EXCHANGE ACT OF 1934
- --------------------------------------------------------------------
Rules promulgated under Section 16(a) of the Securities Exchange Act of
1934, as amended, require the Company's executive officers and directors and
person who own more than ten percent of a registered class of the Company's
equity securities to file reports of ownership and changes in ownership with
the Securities and Exchange Commission ("SEC") and Nasdaqr. Such persons are
required by SEC regulations to furnish the Company with copies of such forms
they file. The Company believes that, during 2001, all section 16(a) filing
requirements applicable to such persons were complied with except that the
annual reports on beneficial ownership on Form 5 which were due February 14,
2001 were not filed until February 15, 2001.
SHAREHOLDER PROPOSALS AT 2003 ANNUAL MEETING
- --------------------------------------------
Shareholders intending to present proposals at the 2003 Annual Meeting and
desiring to have those proposals included in the Company's proxy statement and
form of proxy relating to that meeting must submit such proposals, in
compliance with Rule 14A-8 of the Securities Exchange Act of 1934, as amended
(the "Exchange Act"), to the Secretary of the Company on or before November 30,
2002. For proposals that shareholders intend to present at the 2002 Annual
Meeting of Shareholders outside the processes of Rule 14A-8 of the Exchange
Act, unless the shareholder notifies the Secretary of the Company of such
intent by February 10, 2003, any proxy solicited by the Company for such Annual
Meeting will confer on the holder of the proxy discretionary authority to vote
on the proposal so long as such proposal is properly presented at the Annual
Meeting.
By Order of the Board of Directors
Dallas, TX /s/ LEONARD W. BARTHOLOMEW
April 12, 2002 Secretary
A copy of the Company's Annual Report on Form 10-K for 2001, may be obtained
without charge upon written request to the Secretary of the Company, P.O. Box
655888, Dallas, Texas 75265-5888.
EXHIBIT A
---------
FROZEN FOOD EXPRESS INDUSTRIES, INC.
Charter of the Audit Committee of the Board of Directors
I. Audit Committee Purpose
The Audit Committee is appointed by the Board of Directors to assist the
Board in fulfilling its oversight responsibilities. The Audit Committee's
primary duties and responsibilities are to:
1. Monitor the integrity of the Company's financial reporting process
and systems of internal controls regarding finance, accounting, and
legal compliance.
2. Monitor the independence and performance of the Company's independent
auditors and internal auditing department.
3. Provide an avenue of communication among the independent auditors,
management, the internal auditing department, and the Board of Directors.
4. Report to the Board of Directors.
5. Encourage adherence to, and continuous improvement of, the Company's
policies, procedures, and practices at all levels.
6. Review areas of potential significant financial risk to the Company.
7. Monitor compliance with legal and regulatory requirements including
but not limited to SEC, FASB and Nasdaq? rules and pronouncements.
The Audit Committee has the authority to conduct any investigation
appropriate to fulfilling its responsibilities, and it has direct access to
the independent auditors as well as anyone in the organization. The Audit
Committee has the ability to retain, at the Company's expense, special
legal, accounting, or other consultants or experts it deems necessary in the
performance of its duties.
II. Audit Committee Composition and Meetings
Audit Committee members shall meet the requirements of the Nasdaq? Stock
Market, Inc. The Audit Committee shall be comprised of three or more
directors as determined by the Board, each of whom shall be independent
nonexecutive directors, free from any relationship that would interfere with
the exercise of his or her independent judgment. All members of the
Committee shall have a basic understanding of finance and accounting and be
able to read and understand fundamental financial statements, and at least
one member of the Committee shall have accounting or related financial
management expertise.
Audit Committee members shall be appointed by the Board on recommendation of
the Nominating Committee. If an audit committee Chair is not designated or
present, the members of the Committee may designate a Chair by majority vote
of the Committee membership.
The Committee shall meet in person, by telephone or by videoconference, at
least 2 times annually, or more frequently as circumstances dictate. The
Audit Committee Chair shall prepare and/or approve an agenda in advance of
each meeting. The Committee should meet privately in executive session at
least annually with management, the director of the internal auditing
department, the independent auditors, and as a committee to discuss any
matters that the Committee or each of these groups believe should be
discussed. In addition, the Committee, or at least its Chair, should
communicate with management and the independent auditors quarterly to review
the Company's financial statements and significant findings based upon the
auditors limited review procedures.
III. Audit Committee Responsibilities and Duties
Review Procedures
1. Review and reassess the adequacy of this Charter at least annually.
Submit the charter to the Board of Directors for approval and have the
document published at least every three years in accordance with SEC
regulations.
2. Review the Company's annual audited financial statements prior to
filing or distribution. Review should include discussion with management
and independent auditors of significant issues regarding accounting
principles, practices, and judgments.
3. In consultation with the management, the independent auditors, and
the internal auditors, evaluate the integrity of the Company's financial
reporting processes and controls. Discuss significant financial risk
exposures and the steps management has taken to monitor, control, and
report such exposures. Review significant findings prepared by the
independent auditors and the internal auditing department together with
management's responses, including the status of previous recommendations.
4. Review with financial management and the independent auditors the
company's quarterly financial results. Discuss any significant changes
to the Company's accounting principles and any items required to be
communicated by the independent auditors in accordance with SAS 61 (see
item 9). The Chair of the Committee may represent the entire Audit
Committee for purposes of this review.
Independent Auditors
5. The independent auditors are ultimately accountable to the Audit
Committee and the Board of Directors. The Audit Committee shall review
the independence and performance of the auditors and annually recommend
to the Board of Directors the appointment of the independent auditors or
approve any discharge of auditors when circumstances warrant.
6. Approve the fees and other significant compensation to be paid to the
independent auditors. Review and approve requests for significant
management consulting engagements to be performed by the independent
auditors' firm and be advised of any other significant study undertaken
at the request of management that is beyond the scope of the audit
engagement letter.
7. On an annual basis, the Committee will review and discuss with the
independent auditors all significant relationships they have with the
Company that could impair the auditors' independence.
8. Review the independent auditors' engagement letter and audit plan -
discuss scope, staffing, locations, reliance upon management, and
internal audit and general audit approach.
9. Prior to releasing the year-end earnings, discuss the results of the
audit with the independent auditors. Discuss certain matters required to
be communicated to audit committees in accordance with AICPA SAS 61.
SAS No. 61 requires that auditors discuss certain matters with audit
committees of all SEC engagements. The communication may be in writing
or oral and may take place before or after the financial statements are
issued. Items to be communicated include:
A. The auditor's responsibility under Generally Accepted Auditing
Standards (GAAS);
B. Significant accounting policies;
C. Management judgments and accounting estimates;
D. Significant audit adjustments;
E. Other information in documents containing audited financial
statements;
F. Disagreements with management - including accounting principles,
scope of audit, disclosures;
G. Consultation with other accountants by management;
H. Major issues discussed with management; and
I. Difficulties encountered in performing the audit.
10. Consider the independent auditors' judgments about the quality and
appropriateness of the Company's accounting principles as applied in its
financial reporting, including:
A. Discuss with management and the independent auditors the quality of
the accounting principles and underlying estimates used in the
preparation of the Company's financial statements.
B. Discuss with the independent auditors the financial disclosure
practices used or proposed by the Company.
C. Inquire as to the independent auditors' views about whether
management's choices of accounting principles appear reasonable
from the perspective of income, asset and liability recognition,
and whether those principles are common practices or are unusual
practices.
Internal Audit Department and Legal Compliance
- ----------------------------------------------
11. Review the budget, plan, changes in plan, activities, organizational
structure, and qualifications of the internal audit department, as
needed. The internal audit department shall be responsible to senior
management, but have a direct reporting responsibility to the Board of
Directors through the Committee. Changes in the senior internal audit
executive shall be subject to committee approval.
12. Review the appointment, performance, and replacement of the senior
audit executive.
13. Review significant reports prepared by the internal audit department
together with management's response and follow-up to these reports.
14. On at least an annual basis, review with management and, if
appropriate, the Company's counsel, any legal matters that could have a
significant impact on the organization's financial statements, the
Company's compliance with applicable laws and regulations, and inquiries
received from regulators or governmental agencies.
Other Audit Committee Responsibilities
- --------------------------------------
16. Annually prepare a report to shareholders as required by the
Securities and Exchange Commission (SEC). The report should be included
in the Company's annual proxy statement.
The SEC requires that the Audit Committee issue a report to shareholders
stating whether they have:
A. Reviewed and discussed the audited financial statements with
management;
B. Discussed with Independent auditors the matters required to be
discussed by SAS 61; and
C. Received certain disclosures from the auditors regarding their
independence as required by the ISB and then include a statement if
based on this review if the audit committee recommended to the board
to include the audited financial statements in the annual report
filed with the SEC.
17. Perform any other activities consistent with this Charter, the
Company's by-laws, and governing law, as the Committee or the Board deems
necessary or appropriate.
18. Maintain minutes of meetings and periodically report to the Board of
Directors on significant results of the foregoing activities.
19. Have committee meeting agendas prepared by the Committee Chair with
input from committee members. It is expected that the Chair would also
ask for management and key committee advisors, and perhaps others, to
participate in this process.
20. Report at least semi-annually, or as deemed necessary, to the full
board. In addition, summarized minutes from Committee meetings shall be
distributed to each board member prior to the subsequent Board of
Directors meeting.
21. Review financial and accounting personnel succession planning within
the company.
22. Annually review policies and procedures as well as audit results
associated with directors' and officers expense accounts and perquisites.
Annually review a summary of director and officers' related party
transactions and potential conflicts of interests.
III. Ratification
This Charter was originally ratified by the Board of Directors on May 10,
2000 and re-ratified by the Board of Directors on August 8, 2001.