FROZEN FOOD EXPRESS INDUSTRIES, INC.
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
To Be Held April 24, 2003
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 Thursday, April 24, 2003, at 3:30 p.m.,
Dallas, Texas time, at the offices of Strasburger & Price, LLP, 901 Main
Street, 45th Floor, Dallas, Texas 75201 for the following purposes:
1. To elect one Class I director for a two-year term and three Class II
directors for a three-year term, and until their respective successors
are elected and qualified; and
2. 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 13, 2003 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
March 31, 2003 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 APRIL 24, 2003
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 the offices of Strasburger & Price, LLP, 901 Main
Street, 45th Floor, Dallas, Texas, on the 24th day of April, 2003 at 3:30
p.m., Dallas, Texas time(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 March 31, 2003.
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, 2002, including audited financial statements (the "Annual
Report"), 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
13, 2003 (the "Record Date"). A shareholder may, by checking the appropriate
box on the proxy: (i) vote for all director nominees as a group; (ii)
withhold authority to vote for all director nominees as a group; or (iii)
vote for all director nominees as a group except those nominees identified by
the shareholder in the appropriate area. Cumulative voting for directors is
not permitted.
OUTSTANDING CAPITAL STOCK; PRINCIPAL SHAREHOLDERS
At the close of business on the Record Date, there were outstanding and
entitled to be voted 16,901,290 shares of Common Stock. The following table
sets forth certain information, as of the Record Date, 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 4,897,530 28.98%
401(k) Savings Plan
ABN AMRO Trust Services Company
161 N Clark Street, 10th Floor
Chicago, IL 60601
Stoney M. Stubbs, Jr. <2> 1,679,828<3> 9.69%
158 Jellico Circle
Southlake, TX 76092
Royce & Associates, Inc. 1,451,792<4> 8.59%
1414 Avenue of the Americas
New York, NY 10019
Sarah M. Daniel<3> 1,444,280 8.55%
612 Linda
El Paso, TX 79922
Lucile B. Fielder(5) 1,326,102 7.85%
104 South Commerce St.
Lockhart, TX 78644
Dimensional Fund Advisors, Inc. 1,304,386<6> 7.72%
1299 Ocean Avenue, 11th Floor
Santa Monica, CA 90401
________________________________
<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> Mr. Stubbs holds, and has held for the past twenty-three years, the
offices of Chairman of the Board, President and Chief Executive Officer
of the Company and FFE Transportation Services, Inc.
<3> Includes 436,326 shares which Mr. Stubbs has the right to acquire
pursuant to options exercisable within 60 days, 202,689 shares allocated
to his account in the Frozen Food Express Industries, Inc. 401(k) Savings
Plan, 22,367 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.
<4> Information concerning the number of shares owned by Royce & Associates,
Inc. is as of December 31, 2002 and was obtained from a Schedule 13G
dated February 5, 2003.
<5> Ms. Daniel has sole voting and dispositive power over 66,597 shares,
which includes 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.
<6> Information concerning the number of shares owned by Dimensional Fund
Advisors, Inc. is as of December 31, 2002 and was obtained from a Schedule
13G dated February 3, 2003.
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 four nominees named in the
following table as directors of the Company, (ii) 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 on 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 2003 Annual Meeting,
one new Class I director will be nominated for election to serve until the
year 2005 and three incumbent Class II directors will be nominated for
election to serve until the year 2006 Annual Meeting of Shareholders or until
their successors are elected and qualified. One Class I and three Class III
incumbent directors will not be elected this year, because their current
three-year terms do not expire until 2004 or beyond.
On February 13, 2003, Edgar O. Weller, a Class I director retired from the
board. Mr. Weller, a founder of the company and the board's vice chairman,
served until 1984 as the board's chairman and the company's chief executive
officer -- posts he had held since 1978. Mr. Weller has been named a Senior
Advisor to the board of directors.
The Company's By-Laws provide that the Board of Directors shall consist of
nine directors. Presently, there are eight directors. Management is
attempting to identify a qualified candidate to fill the vacancy on the
Board.
The table below presents information regarding the name, occupation, term
as a director of the Company and beneficial ownership of the Company's Common
Stock for all three of the persons nominated for election to be a director at
the Annual Meeting and of the other nominees not standing for election at
this Annual Meeting. Each director has served continuously since the date he
first became a director.
Class,
Occupation Amount and
During Past First Term Nature of Percent
5 Years Became a Expiration Beneficial of
Name and (Age) Directorships Director Date Ownership <1> Class
- -------------------------------------------------------------------------------
Nominees
For Election
- -------------
Jerry T.
Armstrong (64) Chairman and 2003 2005 I - -
Chief Executive
Officer of Wind
Associates, Inc.,
a private investment
and management company,
Mr. Armstrong has held
chief executive positions
with and served on the
boards of a significant
number of transportation
related companies.
Mr. Armstrong currently
serves on the board of
directors of Landair
Corporation.
Brian R.
Blackmarr (61) CEO, 1990 2006 II 30,000<2> *
Fusion Laboratories,
Inc. since January 2001,
eBus Link, Inc. from Aug-
ust 1999 until January
2001, and previously
President B. R. Blackmarr
and Associates Inc.
W. Mike
Baggett (56) Chairman, 1999 2006 II 13,546<3> *
President and
CEO Winstead Sechrest and
Minick, P.C.
F. Dixon
McElwee, Jr.(56) Senior Vice 1999 2006 II 63,824<4> *
President of the Company
and FFE since September
1999 and prior thereto,
Executive Vice President
and Chief Finaancial
Officer for Cameron-
Ashley Building Products
Continuing Directors
- --------------------
Leroy Hallman (87) Attorney, 1975 2005 I - *
Retired
Stoney M.
Stubbs,Jr. (66) Chairman of the 1977 2004 III 1,679,828<7> 9.69%
Board, President
and Chief Executive
Officer of the
Company
Charles G. (61) Executive Vice 1982 2004 III 725,409<8> 4.22%
Robertson <5> President of the
Company and Executive
Vice President and
Chief Operating Officer
of FFE
T. Michael (48) Partner, T. J. 1992 2004 III 15,000<9> *
O'Connor O'Connor Cattle Co.
--------- -----
All directors and executive officers,
as a group (8 people) 2,588,007<10> 14.42%
- ----------------------- ========= =====
* less than 1%
<1> Except as otherwise noted, all shares are held directly, and the owner
has sole voting and investment power.
<2> Includes 15,000 shares issuable pursuant to options to options
exercisable by Mr. Blackmarr within 60 days.
<3> Includes 13,396 shares issuable pursuant to options exercisable by
Mr. Baggett within 60 days.
<4> Includes 46,725 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 12,040 shares allocated to his account in the FFE Transportation
Services, Inc. 401(k) Wrap Plan.
<5> Mr. Robertson is also Executive Vice President and a director of FFE.
Mr. McElwee is also Senior Vice President and a director of FFE.
<6> Includes 9,375 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.
<7> Includes 436,326 shares issuable pursuant to options exercisable by Mr.
Stubbs within 60 days, 202,689 shares allocated to his account in the
Frozen Food Express Industries, Inc. 401(k) Savings Plan, 22,367 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.
<8> Includes 301,653 shares issuable pursuant to options exercisable by
Mr. Robertson within 60 days, 133,672 shares allocated to his account
in the Frozen Food Express Industries, Inc. 401(k) Savings Plan, 20,233
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.
<9> Represents 15,000 shares issuable pursuant to options exercisable by Mr.
O'Connor within 60 days.
<10> Includes 837,475 shares issuable pursuant to options exercisable within
60 days, 341,420 shares allocated to the accounts of executive officers
pursuant to the Frozen Food Express Industries, Inc. 401(k) Savings
Plan, 54,640 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 Company's Board of Directors held six meetings in 2002. Each incum-
bent director attended during 2002 at least 75% of the aggregate of (i) the
total number of meetings of the Board of Directors held during the period
that he was a director and (ii) the total number of meetings held by all
committees of the Board on which he served (during the periods that he served).
The Compensation Committee consisting of Messrs. Blackmarr, Chairman, and
Baggett met once during 2002. 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.
The Audit Committee consists of Messrs. Hallman, Chairman, Baggett and
O'Connor. During 2002, the Audit Committee held seven meetings at which it
reviewed with representatives of Arthur Andersen LLP and KPMG, LLP the
results of Andersen's 2001 annual audit, KPMG's plans for the 2002 annual
audit and other services provided by the Independent Public Accountants.
On July 16, 2002, the Audit Committee selected KPMG, LLP to replace Arthur
Andersen, LLP as the Company's Independent Public Accountants. All of the
members of the Audit Committee are independent as defined in Rule 4200(a)(14)
of Nasdaq's listing standards.
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 Directors then in office 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 May 8, 2002.
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.
Upon his appointment to the Company Board of Directors on February 12,
2003, Mr. Armstrong was granted an option to purchase 9,375 shares of Common
Stock for $1.50 per share.
FIVE-YEAR SHAREHOLDER RETURN COMPARISON
The following graph 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(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).
December 31,
------------------------------------
1997 1998 1999 2000 2001 2002
---- ---- ---- ---- ---- ----
FFEX $100 $ 88 $ 43 $ 22 $ 24 $ 29
MG Industry Group Inde 100 94 90 95 118 126
S & P 500 Index 100 127 151 136 118 91
EXECUTIVE COMPENSATION
Summary Compensation Table:
Set forth below is information with respect to the compensation paid by
the Company for services rendered during 2002, 2001, and 2000, to each
executive officer (collectively, the "Executive Officers"):
Long-Term Compensation
Awards
----------------------
Securities
Name and Annual Restricted Underlying
Principal Compensation Total Stock Options/ All Other
------------ Total Awards SARs Compensation
Position Year Salary Bonus <1> $<2> # <3> <4>
- ------------------------------------------------------------------------------
Stoney M. 2002 $317,896 - $317,896 $13,283 214,027 $19,172
Stubbs,Jr. 2001 $317,613 - $317,613 $25,531 - $19,736
Chairman 2000 $316,613 - $317,613 $22,636 222,299 $20,265
of the
Board
President
and Chief
Executive
Officer of
the Company
and FFE
Charles G.
Robertson 2002 $247,740 - $247,740 $16,168 147,164 $ 9,949
Executive 2001 $247,595 - $247,595 $17,980 - $10,618
President 2000 $247,595 - $247,595 $21,854 154,489 $11,310
of the
Company and
Executive
Vice President
and Chief
Operating
Officer of FFE
F. Dixon
McElwee, Jr. 2002 $184,263 - $184,263 $11,129 22,500 -
Senior 2001 $184,263 - $184,263 $13,478 - -
Vice 2000 $209,043 - $209,043 $11,921 24,225 -
President
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 the 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 the 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
units and Restricted Common Stock issued to a trust awarded under the
Executive Plan, the SERP and the Wrap Plan for 2002, 2001 and 2000, to
each Executive Officer of the Company:
2002 2001 2000
-------------------------
Stubbs 5,129 11,930 11,497
Robertson 6,242 8,402 11,100
McElwee 4,283 5,282 6,055
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, 2002, the total number of phantom stock units and Re-
stricted Common Stock allocated to the accounts of Messrs. Stubbs,
Robertson, and McElwee was 111,410; 76,050 and 12,040, respectively. The
total value of such accounts, based upon the market price of a share of
Common Stock on December 31, 2002 was $288,551; $196,969 and $31,219,
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
-----------------------------------------------------------------------
Stubbs 2002 - $19,172
2001 - $19,736
2000 - $20,265
Robertson 2002 - $10,949
2001 - $10,618
2000 - $11,310
Option/SAR Grants in Last Fiscal Year
Following is information concerning the grant of stock options to the
Executive Officers in 2002 under the Company's 1992 Incentive and Nonstatu-
tory Stock Option Plan:
Individual Grants
-----------------------------------------------
Potential
Realizable
% of Total Value at
Number of Options/SARs Assumed Annual
Securities Granted to Exercise Rates of Stock
Underlying Employees or Base Price
Options/SARs in Fiscal Price Appreciation
Granted Year (#/Sh) Expiration For Option Term
Name <3> <1> <2> Date 5% 10%
- ------------------------------------------------------------------------------
Stubbs 214,027 26.3% $2.08 02/13/2112 $ 279,969 $ 709,496
Robertson 147,164 18.1% $2.08 02/13/2112 $ 192,505 $ 487,846
McElwee 22,500 2.8% $2.08 02/13/2112 $ 29,432 $ 74,587
All Holders
of Common
Stock N/A N/A $2.08 N/A $22,108,591 $56,027,511
<1> Represents assumed rates of appreciation only. Actual gains depend on
the future performance of the Common Stock and overall stock market
conditions. There can be no assurance that the amounts reflected in this
table will be achieved.
<2> All options granted were granted on February 13, 2002, under the 1992
Incentive and Nonstatutory Stock Option Plan, are exercisable one year
from the date of grant, are exercisable for ten years from the date of
grant, and were granted with an exercise price equal to the market price
of the Common Stock on the date of grant.
<3> Assumes a total of 16,901,000 shares of Common Stock outstanding with a
value of $2.08(the closing sales price of the Common Stock on February
12, 2002) per share held from February 13, 2002 until February 13, 2012.
Aggregated Option/SAR Exercises in Last Fiscal Year and Fiscal Year-End
Option/SAR Values
The following table provides information, with respect to each
Executive Officer, concerning the exercise of options during the last fiscal
year and unexercised options held as of the end of the fiscal year ending
December 31, 2002:
Number of
Securities Value of
Underlying Unexercised
Unexercised In-the-Money
Options/SARs Options/SARs
at Fiscal at Fiscal
Year end Year end
Shares Acquired Value (#)Exercisable/ ($) Exercisable/
Name On Exercise (#) Realized Unexercisable Unexercisable
--------------- -------- ---------------- --------------
Stubbs - $ - 222,299/214,027 $ - /$109,154
Robertson - $ - 154,489/147,164 $ - /$ 75,054
McElwee - $ - 24,225/ 22,500 $ - /$ 11,475
<1> The closing price for the Company's Common Stock as reported by the
Nasdaq Stock Market on December 31, 2002, was $2.59. Value is
calculated on the basis of the difference between $2.59 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").
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 2002.
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 manage-
ment 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 2001 and 2002,
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 that 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 expired in April 2002 and was replaced with the 2002
Incentive and Nonstatutory Option Plan, which was previously approved by the
shareholders of the Company.
Supplemental Executive Retirement and 401(k) Wrap Plans
To provide supplemental retirement benefits to Executive Officers and
other key members of management, the Company maintains the SERP and 401(k)
Wrap Plans, respectively. The SERP provides benefits limited by the Code by
awarding phantom stock units. The 401(k) Wrap Plan supplements the Company's
401(k) Plan by allowing benefits supplemental to those limited by the Code.
Both the SERP and the 401(k) 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 2002 are disclosed in the Summary
Compensation Table.
Compensation for the Chief Executive Officer
During 2002, Mr. Stubbs served as the Chairman of the Board, President,
and Chief Executive Officer. For 2002, 2001 and 2000, Mr. Stubbs' base salary
was approximately $318,000. For 2002, 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 compensated executive officers, 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 to four 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 these
related parties are more flexible than those governing tractors we lease from
unaffiliated lessors, we pay the officers a premium over the rentals we pay
to unaffiliated lessors.
The subsidiary extended for twelve months tractor leases previously
scheduled to term in 2002. Lease payments were not changed. The Company's
Audit Committee approved the terms of these leases. The subsidiary exchanged
some of these tractors for similar tractors and did not incur a gain or loss
on the exchange. The fair market value of tractors exchanged was $661,000
from Mr. Stubbs and the family partnership and $435,000 with Mr. Robertson.
The Company's Audit Committee approved the exchange.
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.
During 2002, the subsidiary exchanged 24 older trailers, generally 1987-
1994 vintage previously under lease with the officers, for 1994 trailers
previously owned by the subsidiary, and incurred an aggregate loss of $8,200.
The fair market value of trailers exchanged was $16,800 for Mr. Stubbs and
the family partnership and $12,000 with Mr. Robertson. The month-to-month
rental payments on the trailers were not changed. The Company's Audit
Committee approved the rental payments.
The Company and the related-party lessors have agreed, should the month-
to-month trailer leases be terminated within twelve months following a change
that 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 2002 by the subsidiary for tractors and trailers
pursuant to the lease agreements were as follows: Mr. Stubbs and the family
partnership - $1,172,000 and Mr. Robertson - $637,000. The aggregate future
minimum lease payments to Mr. Stubbs and the family partnership and Mr.
Robertson under the tractor leases are approximately $956,000 and $460,000,
respectively, in 2003, and $566,000 and $254,000, respectively, in 2004,
$314,000 and $126,000, respectively in 2005, and $288,000 and $115,000,
respectively in 2006.
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 2002, and neither had any relationships requiring
disclosure according to applicable rules and regulations of the Securities
and Exchange Commission.
INDEPENDENT PUBLIC ACCOUNTANTS
KPMG LLP ("KPMG") served as independent public accountants for 2002.
Representatives of KPMG are expected to 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 2003 after receiving the
recommendation of the Audit Committee expected at the Audit Committee's May
2003 meeting.
Audit Fees
KPMG has billed a total amount of $115,000 for professional services
rendered for the audit of the company's annual financial statements as of
December 31, 2002, and the reviews of the financial statements included in
the Company's Forms 10-Q beginning in the second quarter of 2002.
All Other Fees
KPMG has billed a total amount of $9,000 for tax compliance review and tax
consulting services primarily related to the federal corporate consolidated
tax return for the year 2001.
Change in Independent Public Accountants
Effective July 16, 2002, upon the recommendation of the Audit Committee of
Frozen Food Express Industries, Inc., the Board of Directors of the Company
dismissed Arthur Andersen LLP ("Andersen") as the Company's independent
public accountants and engaged KPMG to serve as the Company's independent
public accountants for the fiscal year 2002.
Andersen's reports on the Company's consolidated financial statements for
the years ended December 31, 2001 and 2000 did not contain any adverse
opinion or disclaimer of opinion, nor were such reports qualified or modified
as to uncertainty, audit scope or accounting principle. During the Company's
two most recent fiscal years ended December 31, 2001, and the subsequent
interim period through March 31, 2002, there were no disagreements between
the Company and Andersen on any matters of accounting principle or practices,
financial statement disclosure, or auditing scope or procedure which, if not
resolved to Andersen's satisfaction, would have caused them to make reference
to the subject matter of the disagreement in connection with their reports on
the Company's consolidated financial statements for such years and there were
no reportable events as defined in Item 304 (a)(1)(v)of Regulation S-K.
The Company provided Andersen with a copy of the foregoing disclosures.
Arthur Andersen informed the Company that due to its current difficulties it
is unable to respond to the Company's filing status whether it is in
agreement with such statements.
REPORT OF THE AUDIT COMMITTEE
We the Audit Committee operate under a written charter adopted by the
Board of Directors which was filed with our proxy statement relating to our
annual meeting held on May 8, 2002.
We have reviewed and discussed with management the Company's audited
financial statements as of and for the year ended December 31, 2002.
We have discussed with KPMG 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 Independence 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 recommended to
the Board of Directors that the audited financial statements referred to
above be included in the Company's Annual Report on Form 10-K for the year
ended December 31, 2002.
/s/ Leroy Hallman, Chairman of the Audit Committee
/s/ T. Michael O'Connor, Member of the Audit Committee
/s/ W. Mike Baggett, Member of the Audit Committee
SECTION 16(a)
BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Rules promulgated under Section 16(a) of the Securities Exchange Act of
1934, as amended, require the Company's executive officers and directors and
persons 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 Nasdaq. Such persons are
required by SEC regulations to furnish the Company with copies of such forms
they file. Based entirely upon a review of Forms 3, 4 and 5 and amendments
thereto furnished to the Company, the Company believes that, during 2002, all
section 16(a) filing requirements applicable to such persons were complied
with.
SHAREHOLDER PROPOSALS AT 2004 ANNUAL MEETING
Shareholders intending to present proposals at the 2004 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 December
1, 2003. 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 14, 2004, 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
/s/ Leonard W. Bartholomew
--------------------------
Dallas, TX LEONARD W. BARTHOLOMEW
March 31, 2003 Secretary
A copy of the Company's Annual Report on Form 10-K for 2002 may be obtained
without charge upon written request to the Secretary of the Company, P.O. Box
655888, Dallas, Texas 75265-5888 or by accessing the Company's internet site
at www.ffex.net and clicking on "SEC Filings".
PROXY FROZEN FOOD EXPRESS INDUSTRIES, INC. PROXY
Annual Meeting of Shareholders - April 24, 2003
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby (1) acknowledges receipt of the notice, dated
March 31, 2003, of the Annual meeting of Shareholders of Frozen Food Express
Industries, Inc. (herein called the "Company") to be held on Thursday, April
24, 2003, at 3:30 p.m. Dallas, Texas time, at the offices of Straburger and
Price, LLP, 901 Main Street, 45th Floor, Dallas, Texas 75201, and the Proxy
Statement, also dated March 31, 2003, in connection therewith (herein called
the "Proxy Statement"), and (2) constitutes and appoints Stoney M. Stubbs, Jr.
and F. Dixon McElwee, Jr. and each of them (if only one be present, then by
that one alone), his attorneys and proxies, with full power of substitution
and revocation to each, for and in the name, place and stead of the under-
signed, to vote, and act with respect to, all of the shares of capital stock
of the Company standing in the name of the undersigned or with respect to
which the undersigned is entitled to vote and act, at said meeting and at any
adjournment thereof. The Board of Directors of the Company recommends a vote
for election of its four nominees for directors.
The proxy when properly executed will be voted in the manner directed
herein by the undersigned shareholder. If no direction is made, this proxy
will be voted FOR all nominees listed in Proposal 1.
(CONTINUED AND TO BE SIGNED ON REVERSE SIDE.)
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FROZEN FOOD EXPRESS INDUSTRIES, INC.
PLEASE MARK VOTE IN OVAL IN THE FOLLOWING MANNER USING DARK INK ONLY //
1. ELECTION OF DIRECTORS:
To elect one Class I director 2. In their discretion, the
for a two-year term and three Proxies are authorized to
Class II directors for a three- vote upon such other business
year term, and until their as may properly come before
respective successors are duly the meeting.
elected and qualified.
For Withhold For All
Class I (Two-year) Term: All All Except
(1) Jerry T. Armstrong // // //
Class II (Three-year) Term:
(2) Brian R. Blackmarr MARK HERE FOR ADDRESS CHANGE
(3) W. Mike Baggett NOTE BELOW AT LEFT [ ]
(4) F. Dixon McElwee, Jr.
--------------------------- Date:
For all nominees except as noted above ---------------
----------------------------
----------------------------
Signature of Shareholders(s)
When shares are held by joint,
tenants, both should sign.
When signing as an agent,
attorney, administrator,
executor, guardian, or
trustee, please give full
title as such. If a cor-
poration, please sign in full
corporate name by President
or other authorized officer
who should indicate his title.
If a partnership, please sign
in partnership name by author-
ized person. Please date,
sign and mail this proxy card
in the enclosed envelope. No
postage is required if mailed
in the United States.
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FOLD AND DETACH HERE
YOUR VOTE IS IMPORTANT.
PLEASE PROMPTLY COMPLETE, DATE, SIGN AND RETURN THIS
PROXY USING THE ENCLOSED ENVELOPE.