SECURITIES AND EXCHANGE COMMISSION
WASHINGTON D.C. 20549
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934
(X) Filed by the Registrant
( ) Filed by a Party other than the Registrant
Check the appropriate box:
( ) Preliminary Proxy Statement
( ) Confidential, for Use of the Commission Only (as permitted by Rule
14a-b(e)(2))
(X) Definitive Proxy Statement
( ) Definitive Additional Materials
( ) Soliciting Material pursuant to Rule 14a-11(c) or Rule 14a-12
Kenan Transport Company
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(Name of Registrant as Specified In Its Charter)
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(Name of Person(s) Filing Proxy Statement If Other Than Registrant)
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( ) Fee computed on table below per Exchange Act Rules 14a-6(i)(4)
and 0-11.
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registration statement number, or the Form or Schedule and the date
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4) Date Filed:
KENAN TRANSPORT COMPANY
CHAPEL HILL, NORTH CAROLINA
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Notice of Annual Meeting of Shareholders
May 3, 1999
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The Annual Meeting of the Shareholders of KENAN TRANSPORT COMPANY, a
North Carolina corporation, will be held at The Kenan Center, Bowles Drive
(adjacent to the Dean Smith Student Activities Center), Chapel Hill, North
Carolina, at 10:00 A.M. local time on Monday, May 3, 1999, for the
following purposes:
(1) To elect a Board of Directors for the ensuing year;
(2) To transact such other business as may properly come before
the meeting or any adjournment thereof.
It is requested that you read carefully this Notice of Annual Meeting
and the accompanying Proxy Statement for information on the matters to be
considered and acted upon.
The Board of Directors of the Company has fixed the close of business
on March 1, 1999 as the record date for the determination of shareholders
entitled to notice of and to vote at the meeting.
Information relating to the Company's activities and operations during
the fiscal year ended December 31, 1998 is contained in the Company's
Annual Report, which is enclosed.
Your Proxy is enclosed. You are cordially invited to attend the
meeting in person, but if you do not expect to attend, please date and
sign your Proxy and return it promptly in the enclosed envelope.
WILLIAM L. BOONE
Secretary
March 30, 1999
Chapel Hill, North Carolina
KENAN TRANSPORT COMPANY
P.O. Box 2729
Chapel Hill, North Carolina 27515-2729
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PROXY STATEMENT
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GENERAL INFORMATION
This Proxy Statement is furnished in connection with the solicitation
of proxies by the Board of Directors of KENAN TRANSPORT COMPANY (the
"Company") for the Annual Meeting of the Shareholders to be held on May 3,
1999 at 10:00 A.M. local time at The Kenan Center, Bowles Drive (adjacent
to the Dean Smith Student Activities Center), Chapel Hill, North Carolina.
This Proxy Statement and the accompanying Proxy were mailed on or about
March 30, 1999.
Holders of record of shares of the Common Stock of the Company at the
close of business on March 1, 1999 will be entitled to vote at the Annual
Meeting of Shareholders.
Shareholders who execute and return proxies will retain the right to
revoke them at any time before they are voted. When executed and not so
revoked, proxies will be voted in accordance therewith.
The solicitation of proxies by the Board of Directors will be by mail.
The total expense of such solicitation will be borne by the Company and
will include reimbursement to brokerage firms and others for their
expenses in forwarding solicitation material regarding the meeting to
beneficial owners. Further solicitation of proxies may be made by
telephone or oral communication with some shareholders of the Company
following the original solicitation. All such further solicitation will be
made by regular employees of the Company who will not be additionally
compensated therefor, or by the Company's transfer agent, and the cost
will be borne by the Company.
OUTSTANDING SECURITIES AND VOTING RIGHTS
Only shareholders of record at the close of business on March 1, 1999
will be entitled to notice of and to vote at the Annual Meeting of
Shareholders. On such date, the number of outstanding shares of Common
Stock, no par value, was 2,421,562. Each share of Common Stock is
entitled to one vote.
The enclosed Proxy is designed to permit each shareholder of record at
the close of business on the record date of March 1, 1999, to vote for the
election of directors and on other matters coming before the meeting. Two
directors of the Company, Thomas S. Kenan, III and Lee P. Shaffer, have
been designated as proxies to vote shares in accordance with the
instructions of the Proxy.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
Unless otherwise noted, the following table shows the ownership on
March 1, 1999, of the Company's Common Stock by each person who owned of
record, or was known by the Company to own beneficially, more than five
percent (5%) of such stock:
Shares Owned
Name and Address Beneficially Percent
---------------------------- ------------------- ---------
Frank H. Kenan 1988 Trust (1) 789,360 32.6%
100 Europa Drive, Suite 525
Chapel Hill, NC 27514
1965 Trust established by
Sarah Graham Kenan (2) 300,000 12.4%
9 West 57th Street
New York, NY 10019
Royce & Associates, Inc. (3) 209,830 8.7%
1414 Avenue of Americas
New York, NY 10019
Franklin Resources, Inc. (3) 168,550 7.0%
777 Mariners Island Blvd.
San Mateo, CA 94403
Lee P. Shaffer 201,085 8.2%
P.O. Box 2729
Chapel Hill, NC 27515
(1) There are six trustees of the Frank H. Kenan 1988 Trust, each of
whom may be deemed to own beneficially the shares of common stock held
thereby. The trustees are Elizabeth P. Kenan, Thomas S. Kenan, III, Owen
G. Kenan, Elizabeth Kenan Howell, Annice Hawkins Kenan and Braxton Schell.
(2) There are four trustees of the 1965 Trust established by Sarah
Graham Kenan, each of whom may be deemed to own beneficially the shares of
common stock held thereby. The trustees are Thomas S. Kenan, III, Owen G.
Kenan, Elizabeth Kenan Howell and Morgan Guaranty Trust Company of New
York.
(3) Ownership as of December 31, 1998 as reported to the Company on
Schedule 13G.
-----------------------
SECURITY OWNERSHIP OF MANAGEMENT
The following table sets forth information with respect to the
beneficial ownership of the Company's Common Stock, as of March 1, 1999,
by its directors, nominees for election as directors, named executive
officers and by all directors and executive officers as a group:
Name of Officer, Director Shares Owned
Beneficial Owner and/or Nominee Beneficially Percent
-------------------- ------------------- ------------------ -------
Lee P. Shaffer Officer, Director 201,085 (3) 8.2%
Owen G. Kenan Officer, Director 32,820 (1)(2) 1.4%
Thomas S. Kenan, III Officer, Director 41,000 (1) 1.7%
William L. Boone Officer 55,329 (3) 2.3%
L. Avery Corning Officer 7,407 (3) *
William P. Prevost Officer 6,200 (3) *
James H. Reid Officer 6,200 (3) *
William C. Friday Director 1,100 *
William O. McCoy Director 0 *
Paul J. Rizzo Director 0 *
Braxton Schell Director 1,000 (4) *
Kenneth G. Younger Director 500 *
All Directors and Executive Officers
as a Group (15 Persons) 381,168 (1)(3) 15.3%
* Less than 1%.
(1) The shares shown as beneficially owned by Owen G. Kenan, Thomas S.
Kenan, III and all directors and executive officers as a group do not
include 1,089,360 shares owned by trusts of which Owen G. Kenan and Thomas
S. Kenan, III are beneficiaries as well as trustees, and 18,900 shares
held by The Kenan Family Foundation, a nonprofit corporation of which each
is a director. When these amounts (1,089,360 and 18,900) are added to the
shares listed in the table above for each of the following individuals and
directors and executive officers as a group, the aggregate beneficial
ownership of stock and percentage of outstanding stock owned by each
person or group is as follows: Owen G. Kenan - 1,141,080 or 47.1%; Thomas
S. Kenan, III - 1,149,260 or 47.4%; and all directors and executive
officers as a group - 1,489,428 or 59.9%.
(2) Includes 1,380 shares owned by Owen G. Kenan's wife, 10,950 shares
held by his wife as custodian for their children under the Uniform Gifts
to Minors Act and 11,490 shares held by a trust of which Owen G. Kenan
serves as trustee.
(3) Includes 28,180 shares for Mr. Shaffer; 11,460 shares for Mr. Boone,
4,700 shares for Mr. Corning, 4,700 shares for Mr. Prevost, 4,700 shares
for Mr. Reid and 65,780 shares for all directors and executive officers as
a group which may be acquired within 60 days of March 1, 1999 pursuant to
options granted under the Company's 1998 Long-Term Incentive Plan.
(4) Does not include 789,360 shares held by a trust of which Mr. Schell
serves as trustee.
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SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Under federal securities laws, the Company's directors, its executive
officers, and any persons holding more than 10 percent of the Company's
stock are required to report their ownership of the Company's stock, as
well as any changes in that ownership, to the Securities and Exchange
Commission. Specific due dates for these reports have been established,
and the Company is required to report in this Proxy Statement any failure
during fiscal year 1998 to file such reports in a timely fashion. All of
these filing requirements were satisfied by its directors, officers and 10
percent shareholders.
ELECTION OF DIRECTORS
At the meeting, the shareholders will elect the Company's directors.
The Board of Directors has set the number of directors to be elected at
the 1999 Annual Meeting at eight. All members of the present Board are
nominees for election to hold office until the next annual meeting of the
shareholders and until their successors have been duly elected. A
plurality of the votes cast is required to elect each director. Broker
nonvotes and abstentions will not affect the election results if a quorum
is present.
If the enclosed Proxy is duly executed and received in time for the
meeting and if no contrary specifications are made as provided therein, it
is the intention of the persons named therein to vote the shares
represented thereby for the eight persons nominated for election as
directors of the Company. If any nominee should refuse or be unable to
serve, the Proxy will be voted for such persons as shall be designated by
the Board of Directors to replace any such nominee. The Board of
Directors presently has no knowledge that any of the nominees will refuse
or be unable to serve.
Information About Nominees for Director
The following information is furnished with respect to nominees:
Principal Occupation;
Business Experience Past Five Years;
Name; Period Served Other Directorships and Age
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Thomas S. Kenan, III (1) Chairman of the Board of Directors since July
Director Since 1964 1996; President, The Westfield Company,
Durham, NC; Trustee, The Duke Endowment,
Charlotte, NC; Trustee, The William R. Kenan
Jr. Charitable Trust, Chapel Hill, NC;
Director, Flagler System, Palm Beach, FL.
Age 61.
Owen G. Kenan (1) Vice Chairman of the Board of Directors since
Director Since 1978 July 1996; President and Chief Executive
Officer, Kenan Enterprises, Inc.; President
and Chief Executive Officer, Kenan Oil
Company, Inc., Chapel Hill, NC (1987-1997);
Director, Central Carolina Bank & Trust
Company; Director and Vice Chairman, Flagler
System, Palm Beach, FL. Age 55.
William C. Friday President, The William R. Kenan Jr. Fund,
Director Since 1978 Chapel Hill, NC. Age 78.
William O. McCoy Partner, Franklin Street Partners, Chapel
Director Since 1996 Hill, NC; Vice President-Finance, The
University of North Carolina, General
Administration (1995-1998); Vice Chairman,
BellSouth Corporation-Telecommunications
(1984-1994); Director, Carolina Power & Light
Company; Director, The Liberty Corporation;
Director, The Weeks Corporation; Director,
Fidelity Investments. Age 65.
Paul J. Rizzo Chairman, Franklin Street Partners, Chapel
Director Since 1996 Hill, NC; Vice Chairman, IBM Corporation
(1993-1994); Director, Morgan Stanley;
Director, Ryder Systems; Director, McGraw-Hill
Companies, Inc.; Director, Johnson & Johnson.
Age 71.
Braxton Schell Attorney-at-Law, Schell Bray Aycock Abel
Director Since 1986 & Livingston P.L.L.C., Greensboro, NC;
Director, Flagler System, Palm Beach, FL.
Age 75.
Information About Nominees for Director - continued
Principal Occupation;
Business Experience Past Five Years;
Name; Period Served Other Directorships and Age
------------------------ ----------------------------------------------
Lee P. Shaffer (2) President of the Company since 1975; Chief
Director Since 1967 Executive Officer of the Company since July
1996; Chief Operating Officer of the Company
(1975-1996). Age 60.
Kenneth G. Younger Retired; Chairman and Chief Executive Officer,
Director Since 1996 Carolina Freight Corporation (1977-1990 and
1993-1994); Director, Trailer-Bridge, Inc.
Age 73.
(1) Thomas S. Kenan, III and Owen G. Kenan are brothers.
(2) Lee P. Shaffer is the father of Lee P. Shaffer, III, the Vice
President of Operations Services, an executive officer of the Company.
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Board of Directors and Board Committees
The Board of Directors met five times during 1998. Each director
attended all meetings of the Board and of each Committee of which such
director was a member, except Owen G. Kenan who was absent from two Board
meetings. In addition, the Board took action by unanimous written consent
five times during 1998. The Board of Directors of the Company has an
Audit Committee, a Compensation Committee and an Executive Committee. The
Board of Directors has no standing nominating committee.
The members of the Audit Committee are William C. Friday, William O.
McCoy and Braxton Schell. The purpose of the Committee is to assist the
Board of Directors in assuring that the Company's financial reports are
fairly presented and accurate, that there is an adequate system of
internal accounting controls and that the auditors are independent and
effectively performing their duties. The Audit Committee met twice during
1998.
The members of the Compensation Committee are William O. McCoy, Paul J.
Rizzo and Kenneth G. Younger. Messrs. McCoy and Rizzo were appointed to
the Committee on January 29, 1998. They replaced Messrs. Friday and
Schell who had served as members of the Compensation Committee, along with
Mr. Younger, during fiscal year 1997. The Committee recommends
compensation for executive officers of the Company. The Committee met
three times during 1998.
The members of the Executive Committee are Owen G. Kenan, Thomas S.
Kenan, III and Lee P. Shaffer. The Committee may exercise all the
authority of the Board of Directors in the management and affairs of the
Company, except that the Committee may not authorize distributions;
approve or propose to shareholders action that North Carolina law
requires be approved by shareholders; fill vacancies on the Board of
Directors or on any committee; amend the Articles of Incorporation; adopt,
amend, or repeal bylaws; approve a plan of merger not requiring
shareholder approval; authorize or approve reacquisition of shares of
capital stock of the Company, except according to a formula or method
prescribed by the Board of Directors; or authorize or approve the issuance
or sale or contract for sale of shares, or determine the designation and
relative rights, preferences, and limitations of a class or series of
shares. The Executive Committee took action by unanimous written consent
four times during 1998.
Compensation of Directors
During 1998, Thomas S. Kenan, III was paid an annual retainer of
$52,000 for his services as Chairman of the Board. Each outside director
is paid an annual retainer of $6,000 plus an additional $1,500 for each
meeting of the Board or meeting of a Board Committee that he attends.
Certain Transactions
The Company leases its corporate offices in University Square at 143
West Franklin Street in Chapel Hill, North Carolina from the Frank H.
Kenan 1988 Trust under a five-year lease agreement that became effective
January 1, 1995. In 1998 the Company paid $306,516 in base lease payments
to the Frank H. Kenan 1988 Trust, the present owner of University Square.
Based upon studies performed by the Company of rental rates for comparable
facilities, the Company is satisfied that the rent paid does not exceed
market rates in the area.
Braxton Schell is a partner in Schell Bray Aycock Abel & Livingston,
P.L.L.C., a law firm that provides legal services to the Company. In 1998,
the Company paid $203,362 in legal fees to this firm.
EXECUTIVE COMPENSATION AND RELATED MATTERS
The following table sets forth the annual compensation paid or accrued
by the Company to or for the account of the Chief Executive Officer and
the next four most highly compensated executive officers for fiscal 1998
("Named Executive Officers") of the Company for the years ended December
31, 1998, 1997 and 1996.
Summary Compensation Table
Long-Term
Compensation Awards
Annual -----------------------
Compensation Restricted Securities
------------------ Stock Underlying All Other
Name and Principal Salary Bonus Awards Options Compensation
Position Year ($) (1) ($) (2) (#) (#) (3) ($)
- ------------------------ ---- -------- -------- ---------- ---------- ------------
Lee P. Shaffer, 1998 302,300 99,660 9,100 140,900 118,543
President, Chief 1997 290,600 90,667 -- -- 108,967
Executive Officer 1996 279,500 60,372 -- -- 102,146
William L. Boone, 1998 170,900 37,598 3,700 57,300 55,412
Vice President-Finance 1997 164,300 51,262 -- -- 55,063
Secretary, Treasure 1996 158,000 34,128 -- -- 53,056
L. Avery Corning, 1998 126,000 22,428 1,500 23,500 18,976
Vice President- 1997 121,100 37,783 -- -- 17,761
Operations 1996 116,400 25,142 -- -- 15,326
William P. Prevost, 1998 120,000 21,360 1,500 23,500 17,158
Vice President- 1997 10,000 -- -- -- --
Marketing 1996 -- -- -- -- --
James H. Reid, 1998 192,500 34,265 1,500 23,500 19,916
President & Chief 1997 -- -- -- - --
Operating Officer 1996 -- -- -- -- --
of Petro-Chemical
Transport, Inc.
(1) Amounts shown for 1996 and 1997 are based on the fair market value of
stock awarded in those years under the Company's Stock Bonus Plan.
(2) The Company is required to use the closing price of its Common Stock
on the date of grant of the restricted stock award for valuation purposes
in this column. The restricted period for all grants of restricted stock
is five years with 20% of the stock granted becoming free of restrictions
on the anniversary of the date of grant each year, beginning in 1999. Each
recipient of restricted stock reported above will receive dividends and has
the right to vote the full number of shares granted. Based on the closing
price of $32.00 per share of the Company's Common Stock on December 31,
1998, the aggregate value of the restricted stock holdings of the Named
Executive Officers is as follows: Mr. Shaffer, $291,200; Mr. Boone,
$118,400; Mr. Corning, $48,000; Mr. Reid, $48,000; Mr. Prevost,
$48,000.
(3) Other compensation includes benefits paid or accrued by the Company
pursuant to the Company's Profit-Sharing Retirement Plan (PSRP) and
Supplemental Executive Retirement Plan (SERP). Other compensation also
includes the value of split dollar life insurance premiums paid on behalf
of executive officers under a Senior Management Life Insurance Plan
(SMLIP). Plan benefits paid and/or accrued for the year ended December 31,
1998 are presented below.
PSRP SERP SMLIP
Name ($) ($) ($)
----------------------- ----- ------ ------
Lee P. Shaffer 7,712 71,406 39,425
William L. Boone 7,712 25,921 21,779
L. Avery Corning 6,073 8,287 4,606
William P. Prevost 5,784 5,119 6,255
James H. Reid 7,712 12,204 --
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The following table sets forth information regarding options to purchase
common stock of the Company granted pursuant to the Company's 1998
Long-Term Incentive Plan to the five executive officers named in the
Summary Compensation Table.
Option Grants in Last Fiscal Year
Potential Realizable Value
Number of % of Total at Assumed Annual Rates
Securities Options Exercise of Stock Appreciation
Underlying Granted to or Base for Option Term (2)
Options Employees in Price Expiration --------------------------
Name Granted (1) Fiscal Year ($/Share) Date 5% ($) 10% ($)
- ------------------ ----------- ------------ --------- ---------- --------------------------
Lee P. Shaffer 140,900 42.84 31.75 2/03/08 2,818,352 7,112,984
William L. Boone 57,300 17.42 31.75 2/03/08 1,146,143 2,892,647
L. Avery Corning 23,500 7.15 31.75 2/03/08 470,059 1,186,339
William P. Prevost 23,500 7.15 31.75 2/03/08 470,059 1,186,339
James H. Reid 23,500 7.15 32.00 3/02/08 473,760 1,195,680
(1) Options granted under the Company's 1998 Long-Term Incentive Plan in
February 1999, subject to shareholder approval of the Plan, which was
obtained on May 4, 1998. Options vest over a five-year period beginning
February 3, 1999, with 20% of the options becoming exercisable on that date
and 20% becoming exercisable on each anniversary date thereafter through
the year 2003.
(2) As required by the Securities and Exchange Commission, the amounts
shown assume a 5% and 10% annual rate of appreciation on the price of the
Company's Common Stock throughout a ten-year option term. There can be no
assurance that the rate of appreciation assumed for purposes of this table
will be achieved. The actual value of the stock options to the Named
Executive Officers and all optionees as a group will depend on the future
price of the Company's Common Stock.
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The following table sets forth information with respect to the five
executive officers named in the Summary Compensation Table concerning the
number and value of options to purchase the Company's Common Stock
outstanding at the end of 1998.
Aggregated Fiscal Year-End Option Values
Number of Value of
Securities Underlying Unexercised
Unexercised Options In-the-Money Options
at Fiscal Year End at Fiscal Year End
(#) ($)
Shares Acquired Value Exercisable/ Exercisble/
Name On Exercise Realized Unexercisable Unexercisable (1)
- ------------------ ---------------- ---------- --------------------- --------------------
Lee P. Shaffer 0 0 0 / 140,900 0 / 35,225
William L. Boone 0 0 0 / 57,300 0 / 14,325
L. Avery Corning 0 0 0 / 23,500 0 / 5,875
William P. Prevost 0 0 0 / 23,500 0 / 5,875
Jame H. Reid 0 0 0 / 23,500 0 / 5,875
(1) This is an estimate based on the aggregate dollar value of
in-the-money, unexercised options using the closing price of the Company's
Common Stock on December 31, 1998 of $32.00.
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Severance, Change in Control and Other Arrangements
The following Company plans provide for payments to be made to certain
Named Executive Officers upon the occurrence of specified events after a
change in control of the Company.
Senior Management Severance Plan
--------------------------------
Each of Messrs. Shaffer, Boone and Corning has entered into an agreement
with the Company that provides for payment to the covered individual under
the Company's Senior Management Severance Plan (the "Severance Plan"). The
Severance Plan provides for payments equal to two times the average base
salary of the covered individual for the immediately preceding three fiscal
years if he is terminated without cause or suffers a change in employment
conditions within 24 months following a change in control of the Company.
A change in control includes (i) the acquisition by any person of
beneficial ownership of securities representing 50% or more of the combined
voting power of the Company's outstanding securities, (ii) the failure of
the current Board members to constitute a majority of the Board (except
that any new Board member approved by at least a majority of the current
Board will be deemed to be a member of the current Board), and (iii) the
approval by the Board of the sale of all or substantially all of the
Company's assets or certain other mergers, reorganizations or
consolidations of the Company, which would result in the occurrence of any
event described in clauses (i) or (ii) above.
In exchange for payments under the Severance Plan, the covered
individual agrees to abide by certain restrictive covenants for a period of
one year following termination of his employment. Under these restrictive
covenants, the terminated employee agrees that he will not influence
customers of the Company to discontinue use of the Company's services,
interfere with or disrupt the relationships between the Company and any of
its suppliers, distributors, lessees or licensees, or solicit any employees
of the Company to work for any other person or firm.
1998 Long-Term Incentive Plan
-----------------------------
Under the provisions of the Company's 1998 Long-Term Incentive Plan (the
"Incentive Plan"), upon the occurrence of a change in control of the
Company, all stock options previously issued thereunder become immediately
exercisable for the underlying shares. The term change in control in the
Incentive Plan includes substantially the same events that constitute a
change in control under the Severance Plan as described above.
Senior Managers' Life Insurance Plan
------------------------------------
The Senior Managers' Life Insurance Plan (the "Plan") contains a
provision that would require the Company to continue making premium
payments for any covered employee who is terminated within 24 months
following a change in control of the Company. The definition of change in
control in the Plan includes the sale or transfer of all or substantially
all of the Company's assets or a 50% change in the ownership of the Company
as a result of a merger, sale of shares or issuance of new shares. The
Company is obligated to provide continued coverage under the Plan in the
event of termination following a change in control until the later of (i)
the date the terminated participant turns 65 or (ii) the date on which the
terminated participant has been covered for 15 years. For each of the
current executive officers participating in the Plan, the fifteen-year
coverage period will end in 2013.
Compensation Committee Report
In 1998 the Compensation Committee undertook a comprehensive review of
the Company's compensation structure for senior management. The purpose of
this review was to evaluate each component of the compensation package
available to executive officers and other members of senior management to
determine how it compares to the types of compensation generally available
in the industry. The Committee has considered the advice of an outside
consultant in its review of the Company's compensation structure,
specifically to provide a market analysis in order to assess the
competitiveness of the Company's compensation practices with those of its
competitors for executive talent.
In order to attract and retain the highest quality executive managers in
the industry, the Company must remain competitive by offering an
appropriate balance among base salary, short-term bonuses, long-term
incentives and retirement benefits. With this in mind, the Committee
reviewed the Company's executive compensation philosophy and structure and
considered what performance measures should be used to determine cash
bonuses and other forms of incentive compensation.
As part of its review, the Committee evaluated the appropriateness of
the "mix" of compensation which consists of five components: (i) base
salary, (ii) long-term incentive compensation in the form of stock options,
restricted stock and similar awards, (iii) short-term incentive
compensation in the form of annual cash bonuses, (iv) retirement benefits
in the form of Company contributions on behalf of participants in the
profit-sharing retirement plan and supplementary executive retirement plan
and (v) payment of premiums for senior managers' life insurance policies.
Compensation Philosophy
-----------------------
The Company maintains a compensation program that provides executive
officers with base salaries at competitive market levels and the
opportunity to earn incentive compensation when targeted performance goals
are achieved. The Committee believes that the overall compensation
package, which the Company uses to reward and motivate executive officers,
enables the Company to attract and retain the caliber of executives
necessary to help it achieve targeted growth and earnings objectives. In
1998, the Board of Directors adopted the 1998 Long-Term Incentive Plan (the
"Incentive Plan") and in early 1999, the Executive Bonus Award Plan (the
"Bonus Plan") was adopted. The addition of these plans helps fulfill the
Committee's objective of increasing the availability of long and short-term
incentive compensation designed to link significant portions of executive
compensation to the Company's overall performance. Awards made under the
Incentive Plan are designed to encourage the retention of key executives
and to motivate superior performance over time while awards made under the
Bonus Plan provide a means of rewarding achievement of specified short-term
performance objectives established by the Committee at the beginning of the
year.
Long-Term Incentive Compensation
--------------------------------
In January 1998, the Board of Directors of the Company adopted the
Incentive Plan, which was approved by shareholders at the Annual Meeting on
May 4, 1998. The Incentive Plan provides a number of different awards
available to reward those persons who have contributed significantly to the
success of the Company and to provide incentive for them to remain with the
Company. The Incentive Plan is designed to allow the Committee maximum
flexibility in structuring awards through a combination of incentive stock
options and nonqualified stock options, restricted stock, stock
appreciation rights, performance shares and performance-based compensation
awards ("Awards"). The Incentive Plan is also intended to allow
compensation paid to the Company's five most highly compensated officers to
qualify as performance-based compensation as defined in Section 162(m) of
the Internal Revenue Code.
As a result of the Company's acquisition of Petro-Chemical Transport,
Inc. and the transportation assets of Transport South, Inc., the Company's
market has grown dramatically. In recognition of the efforts of senior
management in the successful acquisition and integration of these entities
into the Company and the increasing demands placed upon such executives as
a result of the significant growth of the Company, the Committee made the
following grants under the Incentive Plan.
Stock Options - On February 4, 1998, subject to shareholder approval
of the Incentive Plan, which was obtained on May 4, 1998, the
Committee granted nonqualified stock options to executive officers as
indicated in the Summary Compensation Table. The options vest in
increments of 20% each year over a period of five years on February 3
of each year beginning in 1999. In the event of a change of control
of the Company, as defined in the Incentive Plan, all outstanding
options become immediately exercisable. Stock options expire one
year after termination of employment if an employee ceases to be
employed by reason of death, disability or normal retirement or three
months after termination for any other reason. The Committee elected
to make an initial grant of a large number of options to the
executive officers in 1998 as a way of significantly increasing the
portion of compensation tied to the Company's performance in lieu of
a program that would award smaller number of options on an annual
basis. It is not expected that Awards under the Incentive Plan will
be granted on an annual basis.
Restricted Stock Award - The Committee granted certain executives of
the Company shares of restricted stock as indicated in the Summary
Compensation Table. The restrictions lapse in increments of 20% each
year on the anniversary date of the grant and all of the stock
awarded to each officer in 1998 will be fully vested and free of
restrictions by the year 2003. Certificates evidencing the
restricted stock have been issued but are being held in escrow by the
Company to be delivered to the holders as the restrictions lapse.
Holders of restricted stock receive all dividends and other incidents
of ownership from the date of grant.
Short-Term Incentive Compensation
---------------------------------
Upon approval of the Incentive Plan by the Company's shareholders, the
Company's Stock Bonus Plan was terminated. With the elimination of the
Stock Bonus Plan, the Company did not have a plan for awarding short-term
incentive compensation. Therefore, the Committee undertook a review and
evaluation of cash-based incentive plans of similar-sized companies and
determined that the ability to award cash bonuses based on the achievement
of short-term performance standards would be an appropriate addition to the
Company's overall compensation package. Effective January 1, 1999, the
Bonus Plan was adopted after a careful review and consideration of market
data prepared for the Committee by an outside consultant. The study
included a comparison among companies surveyed of the percentage of each
company's total revenue and profit shared with executives of each company,
a review of external and proprietary sources to evaluate a range of bonus
percentages in the market, and finally, a review of performance measures
used by other companies to determine executive bonuses. The purpose of
this analysis was to compare the Company's short-term compensation
practices with those of companies with which it competes for executive
personnel.
The Bonus Plan was adopted to provide a competitive short-term
compensation component to the Company's overall compensation package.
Under the terms of the Bonus Plan, the Committee has the authority to
establish performance measures (from among those specified in the Bonus
Plan) to be used in determining annual bonus awards. Unless the Committee
adopts another or additional performance measures, the one to be used is
the Company's annual Net Income After Taxes. The Committee must establish
a target amount of Net Income After Taxes (the "Target Amount") within 90
days of the beginning of each year. Once the Target Amount is determined,
a threshold amount is set at 81% of the Target Amount and a maximum amount
is set at 135% of the Target Amount. The Committee then creates a bonus
award schedule indicating a range of bonus payments to be paid to each
eligible participant depending on the level of Net Income After Taxes that
the Company achieves. In addition to achieving at least the threshold
level of Net Income After Taxes, the Company must also achieve at least a
ten percent return on equity before any bonuses may be paid.
In December 1998, the Committee approved the bonuses for certain
executive officers of the Company as described in the Summary Compensation
Table. Although the Bonus Plan did not take effect until January 1, 1999,
the bonuses awarded for 1998 were determined by the Committee in a manner
consistent with that outlined above. The bonus payments reflect the fact
that the Company's Net Income After Taxes was in excess of the threshold
amount but slightly below the Target Amount established by the Committee in
July, 1998.
Salary
------
In establishing salary levels for executives, the Committee annually
monitors salaries at other businesses through a broad-based industry survey
of similar-sized companies. Salary levels are set to compare with averages
as reported for such companies based on revenue.
Lee P. Shaffer has served as Chief Executive Officer of the Company
since 1996. The recently completed fiscal year marked one of significant
growth and expansion for the Company with the merger of Transport South,
Inc. into the Company and the successful integration of the operations of
Petro-Chemical Transport, Inc. as a wholly-owned subsidiary of the Company.
The acquisition of these entities increased the managerial responsibilities
performed by Mr. Shaffer as CEO. In recognition of his role in the
successful assimilation of these businesses and his overall performance as
CEO for the year, the Committee awarded Mr. Shaffer a 4.6% increase in
salary, an award of 9,100 shares of restricted stock, the grant of an
option to purchase 140,900 shares of Common Stock at an exercise price of
$31.75 and a cash bonus in the amount of $99,660. Mr. Shaffer also
received the benefit of certain payments made on his behalf to the
Company's Profit-Sharing Retirement Plan, Supplemental Executive Retirement
Plan, and Senior Management Life Insurance Plan in an aggregate amount of
$120,473, which amount represented approximately 40% of Mr. Shaffer's
salary, as well as other benefits available to the Company's executives.
Salary levels for the other Named Executive Officers for 1998, 1997 and
1996 are reported in the Summary Compensation Table.
Kenneth G. Younger William O. McCoy Paul J. Rizzo
Performance Graph
The following graph shows a five-year comparison of cumulative total
shareholder returns for the Company, the Nasdaq Market Index and an index
of peer companies. The comparison assumes a $100 investment on January 1,
1994 and reinvestment of dividends.
Measurement Period (MP) Kenan
----------------------- Transport NASDAQ Peer
(Fiscal Year Covered) Company Market Group
----------------------- --------- ---------- ---------
MP - 01/01/94 $100.00 $100.00 $100.00
FYE 12/31/94 102.08 104.99 96.14
FYE 12/31/95 122.56 136.18 81.51
FYE 12/31/96 113.72 169.23 76.99
FYE 12/31/97 221.89 207.00 111.25
FYE 12/31/98 195.61 291.96 107.04
(1) The peer group chosen consists of companies listed under Standard
Industrial Classification Code 4213 - trucking, except local.
INDEPENDENT PUBLIC ACCOUNTANTS
Arthur Andersen LLP served as the independent public accountants for the
Company in 1998, and they will be considered for appointment for 1999 at
the Board of Directors' meeting following the meeting of shareholders. A
representative of the firm will be in attendance at the shareholders'
meeting, will have the opportunity to make a statement if he desires to do
so and will be available to respond to shareholder questions.
OTHER MATTERS
The Board of Directors knows of no other matters that may properly be,
or which are likely to be, brought before the meeting; however, if any
other matters are properly brought before the meeting, the persons who are
named in the enclosed Proxy or their substitutes will vote in accordance
with their best judgment on such matters.
SHAREHOLDER PROPOSALS
Shareholder proposals to be presented at the next annual meeting of the
Company's shareholders must be received by the Company at its principal
offices, Fifth Floor, University Square West, 143 West Franklin Street,
Chapel Hill, North Carolina 27516-3910, on or before November 30, 1999, in
order to be included in the Company's next Proxy Statement for such annual
meeting.
Notice of a matter to be presented by a shareholder for consideration at
the next annual meeting of the Company's shareholders, other than pursuant
to the foregoing paragraph, will be considered untimely if not received by
the Company prior to February 14, 2000. Failure to give timely notice of
such matter will result in discretionary authority being conferred on
management proxies to vote with respect to the matter without any
requirement for the Proxy Statement to disclose how management intends to
exercise its discretion.
By Order of the Board of Directors
WILLIAM L. BOONE
Secretary
March 30, 1999
Chapel Hill, North Carolina
APPENDIX I
PROXY SOLICITED BY THE BOARD OF DIRECTORS
FOR THE ANNUAL MEETING OF THE SHAREHOLDERS OF
KENAN TRANSPORT COMPANY
The undersigned having received Notice of Meeting and Proxy Statement dated
March 30, 1999, hereby appoints THOMAS S. KENAN, III and LEE P. SHAFFER,
and each or either of them, as proxies with full power of substitution and
revocation, to represent the undersigned and to vote as designated below
all shares of Common Stock of KENAN TRANSPORT COMPANY which the undersigned
is entitled to vote at the Annual Meeting of the Shareholders of the
Company to be held on May 3, 1999 at The Kenan Center, Bowles Drive, Chapel
Hill, North Carolina at 10:00 A.M. local time, or any adjournment thereof.
UNLESS OTHERWISE SPECIFIED BELOW, THIS PROXY WHEN PROPERLY EXECUTED WILL BE
VOTED FOR THE NOMINEES FOR DIRECTOR.
(1) ELECTION OF DIRECTORS
[ ] FOR all nominees listed below; except vote withheld for the
nominees whose names are written in the space below
[ ] WITHHOLD AUTHORITY to vote for all nominees listed below
William C. Friday William O. McCoy Lee P. Shaffer
Owen G. Kenan Paul J. Rizzo Kenneth G. Younger
Thomas S. Kenan, III Braxton Schell
(INSTRUCTION: To withhold authority to vote for any individual nominee,
write that nominee's name in the space provided below.)
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(Continued on Reverse Side)
(Continued from Reverse Side)
(2) IN THEIR DISCRETION, THE PROXIES ARE AUTHORIZED TO VOTE UPON SUCH
OTHER MATTERS AS MAY PROPERLY COME BEFORE THE MEETING.
Dated , 1999
--------------
Signature
-----------------------------
Signature
-----------------------------
Please sign the Proxy exactly as name appears. Joint owners should each
sign. Trustees and others signing in a representative capacity should
indicate the capacity in which they sign.
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PLEASE MARK, SIGN AND RETURN THE PROXY CARD PROMPTLY USING THE ENCLOSED
ENVELOPE.
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