UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
SCHEDULE 14A
Proxy Statement Pursuant to Section 14(a) of the Securities
and Exchange Act of 1934
Filed by the Registrant [X]
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-6(e)(2))
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Materials Pursuant to Section 240.14a-11(c) or
Section 240.14a-12
CENTRAL FREIGHT LINES, INC.
(Name of Registrant as Specified In Its Charter)
N/A
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
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[X] No fee required
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
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pursuant to Exchange Act Rule 0-11 (set forth the amount on which
the filing fee is calculated and state how it was determined): N/A
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[ ] Check box if any part of the fee is offset as provided by Exchange Act
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paid previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
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CENTRAL FREIGHT LINES, INC.
5601 West Waco Drive
Waco, Texas 76710
________________________________
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON MAY 19, 2004
________________________________
To our Stockholders:
You are cordially invited to attend the 2004 Annual Meeting of Stockholders
(the "Annual Meeting") of CENTRAL FREIGHT LINES, INC. (the "Company") to be held
at 1:00 P.M., Phoenix time, on May 19, 2004, at the Hilton Phoenix Airport, 2435
South 47th Street, Phoenix, Arizona 85034. The purposes of the Annual Meeting
are:
1. To consider and act upon a proposal to elect six (6) directors of the
Company;
2. To consider and act upon a proposal to approve the Company's 2004
Employee Stock Purchase Plan; and
3. To consider and act upon such other matters as may properly come
before the Annual Meeting and any adjournment thereof.
The Board of Directors has fixed the close of business on March 31, 2004,
as the Record Date for determining those stockholders who are entitled to
receive notice of and vote at the Annual Meeting or any adjournment of that
meeting. Shares of the Company's Common Stock can be voted at the Annual Meeting
only if the holder is present at the Annual Meeting in person or by valid proxy.
A copy of the Company's Annual Report to Stockholders for the fiscal year ended
December 31, 2003, which includes audited consolidated financial statements, is
enclosed.
YOUR VOTE IS IMPORTANT. TO ENSURE YOUR REPRESENTATION AT THE ANNUAL
MEETING, YOU ARE REQUESTED TO PROMPTLY DATE, SIGN, AND RETURN THE ACCOMPANYING
PROXY IN THE ENCLOSED ENVELOPE.
By Order of the Board of Directors,
Jeffrey A. Hale
Secretary
Waco, Texas
April 23, 2004
TABLE OF CONTENTS
GENERAL INFORMATION............................................. 1
Proxies and Voting............................................ 1
Right to Attend Annual Meeting; Revocation of Proxy........... 2
Costs of Solicitation......................................... 2
Annual Report................................................. 2
How To Read This Proxy Statement.............................. 2
PROPOSAL ONE - ELECTION OF DIRECTORS............................ 3
CORPORATE GOVERNANCE............................................ 5
Board of Directors............................................ 5
Committees of the Board of Directors.......................... 5
Report of the Audit Committee................................. 6
Director Compensation......................................... 9
Executive Officers of the Company.............................10
Code of Conduct and Ethics....................................10
Section 16(a) Beneficial Ownership Reporting Compliance.......11
EXECUTIVE COMPENSATION..........................................12
Summary Compensation Table....................................12
Options Grants In Last Fiscal Year............................13
Aggregated Options Exercises in Last Fiscal Year and Fiscal
Year-End Option Value Table..................................14
Employment Agreements.........................................14
Executive Bonus Program.......................................15
Incentive Stock Plan..........................................15
401(k) Profit Sharing Plan....................................16
Compensation Committee Interlocks and Insider Participation...16
Compensation Committee Report on Executive Compensation.......18
Stock Performance Graph.......................................20
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT....................................................21
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS..................23
PROPOSAL TWO - APPROVAL OF EMPLOYEE STOCK PURCHASE
PLAN..........................................................24
Summary Description of the ESPP...............................24
Federal Income Tax Consequences...............................25
New Plan Benefits.............................................25
Shareholder Vote Required to Approve the ESPP.................26
RELATIONSHIP WITH INDEPENDENT PUBLIC ACCOUNTANTS................27
Principal Accountant Fees and Services........................27
STOCKHOLDER PROPOSALS...........................................28
OTHER MATTERS...................................................29
CENTRAL FREIGHT LINES, INC.
5601 West Waco Drive
Waco, Texas 76710
________________________________
PROXY STATEMENT
FOR ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON MAY 19, 2004
________________________________
GENERAL INFORMATION
This Proxy Statement is furnished in connection with the solicitation of
proxies from the stockholders of Central Freight Lines, Inc. to be voted at the
Annual Meeting of Stockholders (the "Annual Meeting") to be held on May 19,
2004. THE ENCLOSED PROXY IS SOLICITED BY THE BOARD OF DIRECTORS OF THE COMPANY.
If not otherwise specified, all proxies received pursuant to this solicitation
will be voted (i) FOR the Director Nominees named below; (ii) FOR the proposal
to approve the Company's 2004 Employee Stock Purchase Plan, and (iii) with
respect to any other matters properly brought before the Annual Meeting, in
accordance with the recommendations of the Board of Directors, or, if no
recommendations are given, in accordance with the judgment of the proxy holders.
The Proxy Statement, proxy card, and our Annual Report were first mailed on
or about April 23, 2004, to stockholders of record at the close of business on
March 31, 2004 (the "Record Date").
The terms "we," "our," "us" or the "Company" refer to Central Freight
Lines, Inc. and its subsidiaries.
Proxies and Voting
Only holders of record of our Common Stock, par value $0.001 per share
("Common Stock"), at the close of business on the Record Date are entitled to
vote at the Annual Meeting, either in person or by valid proxy. Stockholders are
entitled to one vote for each share held of record on each matter of business to
be considered at the Annual Meeting. As of the Record Date, there were
17,776,621 shares of our Common Stock issued and outstanding. Votes cast at the
Annual Meeting will be tabulated by the Inspector of Elections and the results
of all items voted upon will be announced at the Annual Meeting.
In order to transact business at the Annual Meeting, a quorum must be
present. A quorum is present if a majority of the issued and outstanding shares
of Common Stock as of the Record Date are represented at the Annual Meeting in
person or by proxy. Shares that are entitled to vote but that are not voted at
the direction of the holder (called "abstentions") and shares that are not voted
by a broker or other record holder due to the absence of instructions from the
beneficial owner (called "broker non-votes") will be counted for the purpose of
determining whether a quorum is present.
Other than the election of Directors, which requires a plurality of the
votes cast, each matter to be submitted to the Stockholders requires the
affirmative vote of a majority of the votes cast at the meeting. Abstentions and
broker non-votes will be disregarded in determining whether a matter has been
approved. In other words, abstentions and broker non-votes will neither be
counted as votes for nor as votes against a matter.
1
Right to Attend Annual Meeting; Revocation of Proxy
Returning a proxy card now will not interfere with your right to attend the
Annual Meeting or to vote your shares personally at the Annual Meeting, if you
wish to do so. Stockholders who execute and return proxies may revoke them at
any time before they are exercised by giving written notice to the Secretary of
the Company at our address, by executing a subsequent proxy and delivering it to
the Secretary of the Company, or by attending the Annual Meeting and voting in
person.
Costs of Solicitation
We will bear the cost of solicitation of proxies, which we expect to be
nominal and will include reimbursements for the charges and expenses of
brokerage firms and others for forwarding solicitation material to beneficial
owners of our outstanding Common Stock. Proxies will be solicited by mail, and
may be solicited personally by directors, officers or our regular employees, who
will not receive any additional compensation for any such services.
Annual Report
The information included in this Proxy Statement should be reviewed in
conjunction with the Consolidated Financial Statements, Notes to Consolidated
Financial Statements, Independent Public Accountants' Report and other
information included in our Annual Report to Stockholders for the fiscal year
ended December 31, 2003 that was mailed on or about April 23, 2004, together
with this Notice of Annual Meeting and Proxy Statement, to all stockholders of
record as of the Record Date.
How To Read This Proxy Statement
Set forth below are the proposals to be considered by stockholders at the
Annual Meeting, as well as important information concerning, among other things:
our management and our Board of Directors; executive compensation; transactions
between the Company and our officers, directors and affiliates; the stock
ownership of management and other large stockholders; the services provided to
us by and fees of KPMG LLP, our independent accountants; and how stockholders
may make proposals at the Annual Meeting. Each stockholder should read this
information before completing and returning the enclosed proxy card.
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PROPOSAL ONE -
ELECTION OF DIRECTORS
At the Annual Meeting, the Stockholders will elect six directors to serve
as the Board of Directors until the 2005 Annual Meeting of the Stockholders of
the Company or until their successors are elected and qualified. The Board of
Directors has nominated Robert V. Fasso, Jerry Moyes, Duane W. Acklie, John
Breslow, Porter J. Hall, and Gordan W. Winburne for election as directors. Each
of the director nominees currently serves as a member of the Board of Directors.
In the absence of contrary instructions, each proxy will be voted for the
election of the all the proposed directors.
Information concerning the names, ages, positions with the Company, tenure
as a director, and business experience of the proposed directors is as follows:
Robert V. Fasso, 50 Director Since 2002
Robert V. Fasso has served as our Chief Executive Officer and as a member
of the Board of Directors since January 2002, and as President since March 2002.
Mr. Fasso previously served as President-- Regional Carrier Group of USF
Corporation from 1997 to 2001, running its regional LTL group. Mr. Fasso has 34
years of experience in the LTL industry.
Jerry Moyes, 60 Director Since 1997
Jerry Moyes is our Chairman of the Board and has served on our Board of
Directors since we were founded in 1997. Mr. Moyes has served as Chairman of the
Board, President, and Chief Executive Officer of Swift Transportation Co., Inc.
since 1984. Mr. Moyes also served as a non-officer Chairman of the Board of
Simon Transportation Services Inc., a publicly traded temperature-controlled
truckload carrier, from September 2000 to February 2002. Simon Transportation
filed for protection under Chapter 11 of the United States Bankruptcy Code on
February 25, 2002, and sold substantially all of its assets to Central
Refrigerated on April 22, 2002. Mr. Moyes is the Chairman of the Board of
Central Refrigerated, a former subsidiary of ours, and has served in that
capacity since its inception in April 2002.
Duane W. Acklie, 72 Director Since 2003
Duane W. Acklie has served on the Board of Directors since the Company's
initial public offering in December 2003. Mr. Acklie is Chairman of Crete
Carrier Corporation, a truckload carrier based in Lincoln, Nebraska, and has
held such position since 1991. Mr. Acklie previously served as President and
Chief Executive Officer of Crete Carrier Corporation from 1971 to 1991. Mr.
Acklie is a member and past Chairman of the Nebraska State Highway Commission
and a past Chairman of the Nebraska Economic Development Commission, the
Nebraska Chamber of Commerce and Industry, and the American Trucking
Associations. In July 2003, President Bush appointed Mr. Acklie as Chairman of
the Student Loan Marketing Association (Sallie Mae), the government-sponsored
enterprise subsidiary of SLM Corp. In the transportation industry, Mr. Acklie
has been a director and stockholder of Crete Carrier Corporation since 1971, and
has served as Chairman and Director of Hunt Transportation, Inc. of Omaha,
Nebraska, a subsidiary of Crete Carrier Corporation, from 1999 to the present.
Mr. Acklie has served on the boards of numerous other privately held insurance
and banking entities. Mr. Acklie previously served as a director of Aliant
Communications Inc. from 1986 to 1999.
John Breslow, 54 Director Since 2003
John Breslow has served on the Board of Directors since the Company's
initial public offering in December 2003. Mr. Breslow is the owner and, since
1979, Chairman of the Board of Linweld, Inc. Linweld is a retail distributor of
welding products and related equipment and a manufacturer and distributor of
3
industrial, medical, and specialty gases based in Lincoln, Nebraska. Mr. Breslow
previously served two terms as Auditor of Public Accounts for the State of
Nebraska between 1991 and 1998. Since March 2002 Mr. Breslow has also served as
a member of the Board of Directors of EMT Corp., an indirect, wholly-owned
subsidiary of Nelnet, Inc., which owns and manages student loan portfolios.
Porter J. Hall, 60 Director Since 2003
Porter J. Hall has served on the Board of Directors since the Company's
initial public offering in December 2003. Mr. Hall is a certified public
accountant. Mr. Hall retired from public accounting in August 2000 after
thirty-three years with Arthur Andersen LLP. At the time of his retirement, Mr.
Hall was managing partner of Arthur Andersen's Salt Lake City, Utah office. He
is an investor in and Chief Executive Officer of MyePhit.com, a fitness and
wellness company.
Gordan W. Winburne, 54 Director Since 2003
Gordan W. Winburne has served on the Board of Directors since the Company's
initial public offering in December 2003. Mr. Winburne is the President of
Handwerker-Winburne, Inc., a cotton merchant firm headquartered in Phoenix,
Arizona, and has served in that capacity since 1990. Prior to joining
Handwerker-Winburne (then W.P. Handwerker & Co.) in 1981, Mr. Winburne worked
for ten years in the agricultural finance and banking industry. He has
previously served as President of the Western Cotton Shippers Association and as
a Merchant Delegate to the National Cotton Council. He is the current Vice
President of the American Cotton Shippers Association.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT STOCKHOLDERS VOTE "FOR"
THE NOMINEES FOR DIRECTOR PRESENTED IN PROPOSAL ONE.
4
CORPORATE GOVERNANCE
Board of Directors
Meetings of the Board of Directors. Prior to December 2003, we were a
privately held company whose Board of Directors acted primarily by unanimous
written consent. During the fiscal year ended December 31, 2003, our Board of
Directors met or acted by unanimous written consent ten times. On December 11,
2003, our current Board of Directors was organized. None of the members of our
Board of Directors attended fewer than 75% of the aggregate of the total number
of Board meetings held during the period for which he has been a director or the
total number of meetings held by all committees of the Board on which he served
during the periods that he served.
Director Independence. The Company's Common Stock is listed on the Nasdaq
National Market, and therefore it is subject to the listing standards, including
standards relating to corporate governance, embodied in applicable rules
promulgated by the National Association of Securities Dealers, Inc. (the
"NASD"). Pursuant to NASD Rule 4350(c)(1), the Board of Directors has determined
that the following directors and nominees are "independent" under NASD Rule
4200(a)(15): Duane W. Acklie, John Breslow, Porter J. Hall, and Gordan W.
Winburne. In accordance with NASD Rule 4350(c)(2), the Company's independent
directors will hold regularly scheduled meetings, referred to as "executive
sessions," at which only the independent directors are present. We anticipate
that beginning in 2004 the independent directors will meet in executive session
at least twice per year.
Stockholder Communications. Our Board of Directors provides a process for
stockholders to send written communications to the entire Board or individual
directors. Information concerning the manner in which stockholders can send
communications to the entire Board or individual directors is available on the
Company's website, located at http://www.centralfreight.com.
Committees of the Board of Directors
The Board of Directors has standing Audit, Compensation, and Nominating and
Corporate Governance Committees. The Board does not maintain any other standing
committees. The table below sets forth the current membership of each of the
standing committees of the Board of Directors.
Nominating and
Audit Compensation Corporate Governance
Name Committee Committee Committee
- ---------------------- ------------ -------------- ---------------------
Duane W. Acklie x x x
John Breslow x x
Porter J. Hall x x x
Gordan W. Winburne x x
The Audit Committee
Purpose, Functions, Composition, and Meetings of the Audit Committee. The
Audit Committee is responsible for the appointment, compensation, retention, and
oversight of the work of any independent public accountants engaged by the
Company for the purpose of preparing or issuing an audit report or performing
other audit or similar services for the Company. The Audit Committee meets with
the Company's independent public accountants to discuss the Company's financial
statements and matters related to their independence, as well as to ensure that
the scope of their activities has not been restricted and that adequate
responses to their recommendations and inquiries have been received. The Audit
Committee also periodically meets with management to discuss the Company's
financial statements and the adequacy of the Company's internal
5
financial controls. In addition, the Audit Committee reviews and approves
transactions between the Company and related parties, in the absence of the
appointment of a special committee for that purpose.
The Audit Committee was formed in 2003 in connection with our initial
public offering, and there were no meetings of the Audit Committee during 2003.
In 2004, the Audit Committee has held two meetings. The Audit Committee
currently is comprised of Duane W. Acklie, John Breslow, and Porter J. Hall. Mr.
Hall serves as the Chairman of the Audit Committee. Each member of the Audit
Committee satisfies the independence and Audit Committee membership criteria set
forth in NASD Rule 4350(d)(2). Specifically, each member of the audit committee:
o Is independent under NASD Rule 4200(a)(15);
o Meets the criteria for independence set forth in Rule 10A-3(b)(1)
under the Securities Exchange Act of 1934, as amended (the "Exchange
Act");
o Did not participate in the preparation of the financial statements of
the Company or any current subsidiary of the Company at any time
during the past three years; and
o Is able to read and understand fundamental financial statements,
including the Company's balance sheet, income statement, and cash flow
statement.
Audit Committee Financial Expert. The Board of Directors has determined
that at least one "audit committee financial expert," as defined under Item
401(h) of Regulation S-K, currently serves on the Audit Committee. The Board of
Directors has identified Porter J. Hall as an "audit committee financial
expert." Mr. Hall is independent, as independence for Audit Committee members is
defined under applicable NASD rules.
Audit Committee Charter. Since the Company's initial public offering in
December 2003, the Audit Committee has operated pursuant to a written charter
detailing its powers and duties. In March 2004, the Board of Directors adopted
an Amended and Restated Charter to comply with the requirements of NASD Rule
4350(d)(1). A copy the Audit Committee's current Amended and Restated Charter is
attached to this proxy statement as Appendix A.
Report of the Audit Committee
Report of the Audit Committee. In performing its duties, the Audit
Committee, as required by applicable rules and regulations promulgated by the
Securities and Exchange Commission (the "SEC"), issues a report recommending to
the Board of Directors that our audited financial statements be included in our
Annual Report on Form 10-K, and certain other matters, including the
independence of our outside public accountants. The Report of the Audit
Committee is set forth below.
The Report of the Audit Committee shall not be deemed to be incorporated by
reference into any filing made by us under the Securities Act of 1933 or the
Exchange Act, notwithstanding any general statement contained in any such
filings incorporating this Proxy Statement by reference, except to the extent we
incorporate such report by specific reference.
Report of the Audit Committee of
Central Freight Lines, Inc.
The primary purpose of the Audit Committee is to assist the Board of
Directors in fulfilling its oversight responsibilities relating to the
quality and integrity of the Company's financial reports and financial
reporting processes and systems of internal controls. Management of the
Company has primary responsibility for the Company's financial
6
statements and the overall reporting process, including maintenance of the
Company's system of internal controls. The Company retains independent
auditors who are responsible for conducting an independent audit of the
Company's financial statements, in accordance with generally accepted
auditing standards, and issuing a report thereon. In performing its duties,
the Audit Committee has discussed the Company's financial statements with
management and the Company's independent auditors and, in issuing this
report, has relied upon the responses and information provided to the Audit
Committee by management and the independent auditors.
For the fiscal year ended December 31, 2003, the Audit Committee has:
o Reviewed and discussed the audited financial statements with
management and KPMG LLP, the Company's independent auditors;
o Discussed with the auditors the matters required to be disclosed
by Statement on Auditing Standards No. 61, as amended,
"Communication with Audit Committees or Others with Equivalent
Authority and Responsibility";
o Received the written disclosures and the letter from the
independent auditors required by Independence Standards Board
Statement No. 1, as amended, "Independence Discussions with Audit
Committees," and discussed with the independent auditors the
independent auditors' independence.
Based on the foregoing reviews and meetings, the Audit Committee
recommended to the Board of Directors that the audited financial statements
be included in the Annual Report on Form 10-K for the year ended December
31, 2003, for filing with the Securities and Exchange Commission.
Audit Committee
Porter J. Hall, Chairman
Duane W. Acklie, Member
John Breslow, Member
March 29, 2004
The Compensation Committee
The Compensation Committee currently is comprised of Duane W. Acklie,
Porter J. Hall, and Gordan W. Winburne, with Mr. Winburne serving as Chairman.
The Compensation Committee did not meet during 2003, while we were a privately
held company. The Compensation Committee reviews all aspects of executive
compensation, including salary, bonus, and equity compensation of the Chief
Executive Officer and other executive officers, and makes recommendations on
such matters to the Board of Directors. The Compensation Committee also reviews
and approves stock options granted by the Company to other officers and
employees. Additional information concerning the Compensation Committee,
Compensation Committee interlocks, and its Report on Executive Compensation are
set forth under "Executive Compensation" below.
The Nominating and Corporate Governance Committee
Purpose, Composition, and Meetings of the Nominating and Corporate
Governance Committee. Following completion of our initial public offering in
2004, the Board of Directors established a Nominating
7
and Corporate Governance Committee. We did not have a Nominating and Corporate
Governance Committee during 2003, prior to our initial public offering. The
Nominating and Corporate Governance Committee currently is comprised of Duane W.
Acklie, John Breslow, Porter J. Hall, and Gordan W. Winburne, with Mr. Acklie
serving as Chairman. The duties of the Nominating and Corporate Governance
Committee include, among other things, recommending to the Board potential
candidates for election to the Board of Directors and making recommendations to
the Board concerning issues related to corporate governance. All current members
of the Nominating and Governance Committee are independent, as independence for
nominating committee members is defined under applicable NASD rules. In March
2004, before the Nominating and Corporate Governance Committee was established,
the Company's independent directors unanimously nominated Robert V. Fasso, Jerry
Moyes, Duane W. Acklie, John Breslow, Porter J. Hall, and Gordan W. Winburne for
election as directors. Each nominee for election as a director is an executive
officer of the Company, standing for reelection, or both.
Nominating and Governance Committee Charter. A written charter for the
Nominating and Governance Committee was adopted in March 2004. A copy of the
charter is available to stockholders on the Company's website, located at
http://www.centralfreight.com.
Process for Identifying and Evaluating Director Nominees. Director nominees
are chosen by the entire Board of Directors, after considering the
recommendations of the Nominating and Corporate Governance Committee. As a
matter of course, the members of the Nominating and Corporate Governance
Committee review the qualifications of various persons to determine whether they
might be candidates for consideration for membership on the Board of Directors.
The Nominating and Corporate Governance Committee also accepts recommendations
of director candidates from executive officers of the Company, advisors of the
Company, and stockholders. The Nominating and Corporate Governance Committee
will review all candidate recommendations, including those properly submitted by
stockholders, in accordance with the mandate contained in its charter. This will
include a review of the person's judgment, integrity, experience, independence,
knowledge of the Company's industry or other industries related to the Company's
business, and such other factors as the Nominating and Corporate Governance
Committee determines are relevant in light of the needs of the Board of
Directors and the Company. With regard to specific qualities and skills, the
Nominating and Corporate Governance Committee believes it necessary that: (i) at
least a majority of the members of the Board of Directors qualify as
"independent" under NASD Rule 4200(a)(15); (ii) at least three members of the
Board of Directors satisfy the audit committee membership criteria specified in
NASD Rule 4350(d)(2); and (iii) at least one member of the Board of Directors
eligible to serve on the Audit Committee has sufficient knowledge, experience,
and training concerning accounting and financial matters so as to qualify as an
"audit committee financial expert" within the meaning of Item 401(h) of
Regulation S-K. The Company does not pay a fee to any third party to identify or
evaluate or assist in identifying or evaluating potential nominees.
Consideration of Director Candidates Recommended by Stockholders. In March
2004, a written charter for the Nominating and Corporate Governance Committee
was adopted. Under this charter, the Nominating and Corporate Governance
Committee will consider director candidates recommended by stockholders,
provided that the following procedural requirements are satisfied. Candidate
recommendations should be mailed via certified mail, return receipt requested,
and addressed to the Nominating and Corporate Governance Committee, Central
Freight Lines, Inc., c/o Jeff Hale - Senior Vice President and Chief Financial
Officer, 15333 North Pima Road, Suite 230, Scottsdale, Arizona 85260. In order
to be considered, a stockholder recommendation must: (i) be received at least 90
days prior to the Annual Meeting of Stockholders (or 120 days prior to the first
anniversary of the date of the prior year's annual meeting; (ii) contain
sufficient background information, such as a resume and references, to enable
the Committee to make a proper judgment regarding his or her qualifications;
(iii) be accompanied by a signed consent of the proposed nominee to serve as a
director if elected; (iv) state the name and address of the person submitting
the recommendation and the number of shares of the Company's Common Stock owned
of record or beneficially by such person; and (v) if
8
submitted by a beneficial stockholder, be accompanied by evidence, such as a
recent brokerage statement, that the person making the recommendation
beneficially owns shares of the Company's Common Stock.
Director Compensation
Directors who are not 10% stockholders, officers, or employees of the
Company ("Outside Directors") receive an annual retainer of $8,000 plus $1,000
for each meeting of the Board of Directors or Board Committee they attend. We
also reimburse directors for travel and other related expenses incurred in
attending a meeting.
On December 11, 2003, we granted to each of Duane W. Acklie, John Breslow,
Porter J. Hall, and Gordan W. Winburne options to purchase 20,000 shares of our
common stock at $15.00 per share, the price established for our initial public
offering. These options vest at the rate of 1,000 shares per meeting attended.
On July 10, 2002, we granted to Jerry Moyes options to purchase 20,000 shares of
our common stock at $1.35 per share. These options vest at the rate of 20% per
year over a period of five years.
Directors who are employees or 10% stockholders of the Company do not
receive compensation for Board or committee service. We do, however, reimburse
them for travel and other related expenses.
In our Amended and Restated Articles of Incorporation, we have agreed to
indemnify our officers and directors against liabilities they may incur while
serving in such capacities to the fullest extent allowed by the Nevada General
Corporation Law. Under this indemnification provision, we are generally required
to indemnify each of our directors and officers against any reasonable expenses
actually incurred in the defense of any action, suit, or proceeding, to which
the director or officer is a party by reason of his or her service to our
company. We will also advance expenses incurred by a director or officer in
defending such an action, suit, or proceeding upon receipt of an undertaking by
that director or officer to repay those advances if a court establishes that his
or her acts or omissions involved intentional misconduct, fraud, or a knowing
violation of law and were material to the cause of action. In addition, we
maintain insurance for directors and officers for liability they may incur as a
result of service to our Company.
9
Executive Officers of the Company
The table below sets forth, as of March 31, 2004, certain information
regarding our executive officers.
Name Age Position
------------------------------------ ----- -------------------------------------------------
Robert V. Fasso..................... 50 Chief Executive Officer and President
Jeffrey A. Hale..................... 44 Senior Vice President and Chief Financial Officer
J. Mark Conard...................... 45 Senior Vice President - Yield Management &
Pricing Services
Steven L. Key....................... 47 Senior Vice President-Operations
Doak D. Slay ....................... 43 Senior Vice President - Sales and Marketing
Jeffrey A. Hale has served as our Senior Vice President and Chief Financial
Officer since August 2003. He previously served our company as Vice President--
Finance and Chief Financial Officer from June 2002 to August 2003. Prior to
joining us, Mr. Hale served as Vice President-- Finance and Chief Financial
Officer of USF Bestway, Inc., a subsidiary of USF Corporation, from May 1982 to
June 2002. Mr. Hale has 21 years of experience in the LTL industry.
J. Mark Conard has served as our Senior Vice President -- Yield Management
& Pricing Services since September 2003. Prior to joining us, Mr. Conard served
as Vice President -- Pricing Services for USF Reddaway, a subsidiary of USF
Corporation, from June 1995 to August 2003. Mr. Conard has 22 years of
experience in the LTL industry.
Steven L. Key has served as our Senior Vice President -- Operations since
April 2002. Mr. Key has been an employee of our company from our founding in
1997, previously serving as our Vice President -- Division Operations, Northern
Division from March 2002 to April 2002, our Senior Vice President -- Eastern
Division from January 2001 to March 2002, our Vice President -- Transportation
from February 2000 to January 2001, Terminal Manager of our Dallas terminal from
June 1997 to February 2000, and Assistant Terminal Manager of our Dallas
terminal from June 1992 to June 1997. Mr. Key has 24 years of experience in the
LTL industry.
Doak D. Slay has served as our Senior Vice President -- Sales and Marketing
since January 2003. Prior to joining us, Mr. Slay served as Vice President --
Sales for FedEx Freight East, Inc., and its predecessor, American Freightways,
Inc. from October 1998 to January 2003. Mr. Slay has 19 years of experience in
sales and marketing in the LTL industry.
See "Proposal One - Election of Directors," above, for information
concerning the business experience of Robert V. Fasso.
Code of Conduct and Ethics
The Board of Directors has adopted a Code of Conduct and Ethics that
applies to all directors, officers, and employees of the Company. The Code of
Conduct and Ethics includes provisions applicable to the Company's principal
executive officer, principal financial officer, principal accounting officer or
controller, and persons performing similar functions that constitute a "code of
ethics" within the meaning of Item 406(b) of Regulation S-K. A copy of the Code
of Conduct and Ethics is available to stockholders on the Company's website,
located at http://www.centralfreight.com.
10
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Exchange Act requires our directors and executive
officers, and persons who own more than 10% of a registered class of our equity
securities, to file with the SEC and the Nasdaq Stock Market reports of
ownership and changes in ownership of Common Stock and other equity securities
of the Company. Officers, directors, and greater than 10% beneficial owners are
required by SEC regulations to furnish us with copies of all Section 16(a) forms
they file. Based solely upon a review of the copies of such forms furnished to
the Company, the Company believes that its officers, directors, and greater than
10% beneficial owners complied with all Section 16(a) filing requirements
applicable to them during the Company's preceding fiscal year except that: (i)
Forms 4 for Duane W. Acklie, John Breslow, Porter J. Hall, and Gordan W.
Winburne reporting the grant of options to purchase 20,000 shares of our Common
Stock at $15.00 per share on December 11, 2003 were not filed until January 16,
2004, and (ii) a Form 4 for John Breslow reporting the purchase of 3,000 shares
of our Common Stock at $15.00 per share on December 11, 2003 was not filed until
January 16, 2004. We post copies of Section 16(a) forms our directors and
executive officers file with the SEC on our website at
http://www.centralfreight.com.
11
EXECUTIVE COMPENSATION
Summary Compensation Table
The following table sets forth information concerning the annual and
long-term compensation for services rendered in all capacities to the Company
during each of the two fiscal years ended December 31, 2003, and 2002, of those
persons who were, at December 31, 2003, (i) our Chief Executive Officer and (ii)
our four other most highly compensated executive officers (collectively, the
"Named Executive Officers").
Annual Compensation Long-term Compensation
------------------------------------- --------------------------------------
Awards Payouts
------------------------- ----------
Restricted Securities
Other Annual Stock Underlying All Other
Name and Salary Bonus Compensation Award(s) Options LTIP Compensation
Principal Position Year ($)(1) ($) ($)(2) ($) (#) Payouts ($)(3)
- ------------------ ---- --------- -------- -------------- ----------- ----------- --------- -------------
Robert V. Fasso............. 2003 348,077 -- 2,686,706 -- 0 -- 12,973
President and Chief 2002 306,250 150,000 -- -- 1,260,000 -- 5,923
Executive Officer
Patrick J. Curry(4)......... 2003 207,058 -- 750,109 -- 0 -- 3,645
Executive Vice 2002 184,500 50,000 -- -- 100,000 -- 3,322
President, Secretary,
and Treasurer
Jeffrey A. Hale(5).......... 2003 172,115 -- -- -- 0 -- 11,625
Senior Vice President 2002 77,884 50,000 -- -- 100,000 -- 3,330
and Chief Financial
Officer
Steven L. Key............... 2003 164,288 -- -- -- 0 -- 1,752
Senior Vice President- 2002 141,725 30,650 -- -- 26,000 -- 2,234
Operations
Doak D. Slay(6)............. 2003 174,504 -- -- -- 100,000 -- 25,690
Senior Vice President- 2002 -- -- -- -- -- -- --
Sales and Marketing
- ----------------------------------
(1) Includes amounts deferred pursuant to our 401(k) plan.
(2) Consists of ordinary income recognized under federal income tax guidelines
(no cash was received) by the Named Executive Officers upon exercise of
vested incentive stock options. The stock options were granted in 2002, in
the case of Mr. Fasso, and in 1997 and 1998, in the case of Mr. Curry,
pursuant to our Incentive Stock Plan.
(3) Consists of: (a) excess life insurance paid for Mr. Fasso ($690 in 2003,
and $300 in 2002), Mr. Curry ($270 in 2003, and $245 in 2002), Mr. Hale
($254 in 2003, and $53 in 2002) and Mr. Slay ($211 in 2003); (b) personal
use of a company car for Mr. Fasso ($6,113 in 2003, and $5,623 in 2002),
Mr. Curry ($2,510 in 2003, and $3,077 in 2002), Mr. Hale ($10,576 in 2003,
and $3,277 in 2002), Mr. Key ($1,753) in 2003, and $2,234 in 2002), and Mr.
Slay ($6,369 in 2003); (c) moving costs for Mr. Slay ($17,805 in 2003); and
(d) other insurance premiums paid for Mr. Fasso ($6,170 in 2003), Mr. Hale
($795 in 2003), Mr. Curry ($865 in 2003) and Mr. Slay ($1,305 in 2003).
(4) Mr. Curry resigned as Executive Vice President, Secretary, and Treasurer
effective January 23, 2004.
(5) Mr. Hale was hired in June 2002, and amounts included in the table above
for 2002 are for June to December of that year.
(6) Mr. Slay was hired in January 2003.
12
Options Grants In Last Fiscal Year
The following table sets forth stock options granted to Named Executive
Officers in the fiscal year ended December 31, 2003:
Option Grants in 2003
----------------------
Individual Grants
--------------------------------------------------------------------------
Potential Realizable
Value at Assumed Annual
Number of Percent of Rates of Stock Price
Securities Total Options Appreciation for Option
Underlying Granted to Exercise Term(4)
Options Employees price Expiration ------------------------
Name Granted (#)(1) in Fiscal Year (2) ($/Sh)(3) Date 5% ($) 10% ($)
- ---- ----------------- -------------------- ------------- ------------- ----------- -----------
Robert V. Fasso............... 0 -- -- -- -- --
Patrick J. Curry.............. 0 -- -- -- -- --
Jeffrey A. Hale............... 0 -- -- -- -- --
Steven L. Key................. 0 -- -- -- -- --
Doak D. Slay.................. 100,000 44.4% $5.86 1/13/13 368,532 933,933
(1) Each option represents the right to purchase one share of Common Stock
under our incentive stock plan.
(2) During 2003, we granted employees options to purchase an aggregate of
225,000 shares of Common Stock.
(3) The exercise price for options granted to Mr. Slay was determined by
the Board of Directors. While the Board of Directors believed that the
exercise price reflected fair market value, we reported compensation
expense of approximately $17,400 related to these options in 2003.
(4) We show the potential realizable values net of the options' exercise
price, but before the payment of taxes associated with exercise.
Potential realizable values are based on a fair market value at the
date of grant of $5.86 per share for the underlying Common Stock. The
potential realizable values represent hypothetical gains if the
holders exercised their options at the end of the option term. The
SEC's rules provide the assumed 5% and 10% annual rates of stock price
appreciation and measure the appreciation from the grant date. You
should be aware that, following our initial public offering, the
potential realizable value of the options is already greater than the
values reflected in the table. Using the assumed rates of appreciation
from the initial public offering price of $15.00 per share over the
remaining term of the options would yield approximately $1.7 million
at 5% and $3.0 million at 10% to Mr. Slay.
Except as set forth above, no stock options or stock appreciation rights
(SARs) were granted during the 2003 fiscal year to any of the Named Executive
Officers.
13
Aggregated Options Exercises in Last Fiscal Year and Fiscal Year-End Option
Value Table
The table below sets forth information with respect to the exercise of
stock options during the fiscal year ended December 31, 2003, by the Named
Executive Officers.
Aggregated Option Exercises in Last Fiscal Year and Fiscal Year-End Option Values
-----------------------------------------------------------------------------------
Shares Number of Securities Value of Unexercised
Acquired Underlying Unexercised In-the-Money
on Value Options at FY-End (#) Options at FY-End ($)(2)
Exercise Realized ---------------------------------- --------------------------------
Name (#) ($)(1) Exercisable Unexercisable Exercisable Unexercisable
- ---- ----------- ------------- -------------- ----------------- -------------- ----------------
Robert V. Fasso........ 756,000 $ 10,319,400 0 504,000 $ 0 $ 8,265,600
Patrick J. Curry....... 307,627 3,825,529 290,257 80,000 4,697,150 1,312,000
Jeffrey A. Hale........ -- -- 20,000 80,000 328,000 1,312,000
Steven L. Key.......... -- -- 19,900 44,326 307,552 691,136
Doak D. Slay........... -- -- 0 100,000 0 1,189,000
(1) The options were exercised (purchased but not sold) by the above Named
Executive Officers prior to our initial public offering. The Value
Realized is based on the $15.00 per share initial public offering
price of our Common Stock.
(2) Based on the $17.75 per share closing price of our Common Stock on
December 31, 2003.
Employment Agreements
On January 7, 2002, we entered into an employment agreement with Robert V.
Fasso. Mr. Fasso's agreement provides for (a) an annual salary of $325,000,
which may be increased by merit raises in an amount to be determined annually by
the Board of Directors, and (b) the grant of options to purchase 1,260,000
shares of our stock for $1.35 per share, exercisable for 10 years. Options for
630,000 shares vested immediately upon execution of the employment agreement,
options for 126,000 shares vested on January 7, 2003, and options for 126,000
shares will vest on each of the first four anniversaries of January 7, 2003. On
November 17, 2003, Mr. Fasso exercised options to acquire 400,000 shares, and on
December 5, 2003, Mr. Fasso exercised options to acquire 356,000 additional
shares. In addition, Mr. Fasso was allowed to purchase 10% of the membership
interests of Southwest Premier Properties L.L.C. for $2.0 million. The purchase
price was paid through delivery of a promissory note payable to Southwest
Premier that matures on January 30, 2007. On February 6, 2003, the Board
approved an increase in Mr. Fasso's salary to $350,000. He is eligible for a
bonus of up to $360,000 based on our operating efficiency. The actual bonus paid
in a given year will range from zero, if our annual operating ratio exceeds 95%,
to the full $360,000, if our annual operating ratio is at or below 90%. The
employment agreement also requires us to pay the insurance premiums for a $5.0
million term life insurance policy and a $0.5 million whole life insurance
policy under which Mr. Fasso's family members are the beneficiaries. Mr. Fasso
may be terminated at any time upon payment of two years' salary at the then
current level. He will not be entitled to receive such payment if he voluntarily
terminates his employment.
In June 2002, we hired Jeffrey A. Hale as our Vice President -- Finance and
Chief Financial Officer. We agreed to pay Mr. Hale an annual salary of $150,000
and agreed to grant him options to acquire 100,000 shares of common stock at the
fair market value of the stock on the grant date. We also agreed that Mr. Hale
would be eligible to participate in our executive bonus program. In September
2003, Mr. Hale became our Senior Vice President and Chief Financial Officer. Mr.
Hale may be terminated at any time upon payment of one year's salary at the then
current level. He will not be entitled to receive such payment if he voluntarily
terminates his employment or is terminated for cause.
14
In January 2003, we hired Doak D. Slay as our Senior Vice President-Sales
and Marketing. We agreed to pay Mr. Slay an annual salary of $190,000 in 2003
and granted him options to acquire 100,000 shares of common stock at the fair
market value of the stock on the grant date. Further, we agreed to provide Mr.
Slay with a company car and to reimburse certain relocation expenses. We also
agreed that Mr. Slay would be eligible to participate in our executive bonus
program. Mr. Slay may be terminated at any time upon payment of one year's
salary at the then current level. He will not be entitled to receive such
payment if he voluntarily terminates his employment or is terminated for cause.
In connection with our hiring of Doak Slay, we made an advance to Mr. Slay
in an amount equal to the net equity value of his home in Atlanta, Georgia. This
advance was made in order to allow Mr. Slay to relocate and purchase a home near
Waco, Texas, where he moved at our request. This advance was in the amount of
approximately $120,000 and was to be repaid upon the sale of Mr. Slay's Atlanta
home. Although we viewed this as a loan with a customary business purpose, in
order to avoid any potential conflict with the prohibitions on executive loans
contained in the Sarbanes-Oxley Act, in September 2003 we purchased Mr. Slay's
prior home at its appraised value of $325,000, and the relocation loan was
repaid by Mr. Slay in full. We intend to sell the house and will receive all of
the proceeds when it is sold.
In September 2003, we hired J. Mark Conard as our Senior Vice
President-Yield Management & Pricing Services. We agreed to pay Mr. Conard an
annual salary of $180,000 and agreed to grant him options to acquire 100,000
shares of common stock at the fair market value of the stock on the grant date.
Further, we agreed to provide Mr. Conard with a company car and to reimburse
certain relocation expenses. Pursuant to this agreement, we purchased Mr.
Conard's prior home in Portland, Oregon for its appraised value of $445,000 in
order to allow him to relocate and purchase a home near Waco, Texas, where he
moved at our request. We intend to sell the house and will receive all of the
proceeds when it is sold. We also agreed that Mr. Conard would be eligible to
participate in our executive bonus program and guaranteed him a bonus of $80,000
for 2003. Mr. Conard may be terminated at any time upon payment of one year's
salary at the then current level. He will not be entitled to receive such
payment if he voluntarily terminates his employment or is terminated for cause.
Executive Bonus Program
We have established an executive bonus program for certain of our executive
officers and other key employees. Bonuses in this program are determined by
reference to our fiscal year operating ratio. Participants may receive bonuses
ranging from zero, if our operating ratio for the year exceeds 95%, to fifty
percent of salary, if our operating ratio for the year is at or below 90%.
Incentive Stock Plan
We have an incentive stock plan. The key terms of the incentive stock plan
are as follows:
o We can grant incentive stock options, non-qualified stock options,
bonus stock, reload options, or any other stock-based award to
employees, officers, directors, consultants, and any other person
determined by the Board of Directors to have performed services for or
on behalf of the company which merit the grant of an award.
o We reserved 5,000,000 shares of common stock for issuance under the
plan and have outstanding options covering 1,906,087 of those shares
as of April 3, 2003.
o Our Board of Directors or its designated committee administers the
plan and makes all grants thereunder.
15
o Options that are canceled, forfeited, expire, or are tendered for tax
withholding or to pay the exercise price become available again for
use under the plan.
401(k) Profit Sharing Plan
We maintain a defined contribution retirement plan, which includes a 401(k)
option. All employees age 21 or older are eligible to participate after ninety
days of service and generally may contribute up to 20% of their annual
compensation to the plan. These participant contributions vest immediately.
Employees are eligible for matching contributions after one year of service. Our
contributions to the plan each year are made at the discretion of our Board of
Directors. Currently, our matching contributions are between 50% and 100% of a
participant's pre-tax contributions, depending on company performance, up to a
maximum of 5% of the participant's compensation. Matching contributions vest 40%
upon completion of two years of service, with an additional 20% vesting each
year thereafter through the fifth year of service.
Compensation Committee Interlocks and Insider Participation
The Compensation Committee is currently comprised of Duane Acklie, Porter
Hall, and Gordan W. Winburne. No current member of the Compensation Committee is
or has been an officer or employee of the Company. Prior to our initial public
offering, our Compensation Committee consisted of Jerry Moyes and Earl H.
Scudder. Mr. Scudder resigned as a director and member of the Compensation
Committee on September 19, 2003. Mr. Moyes ceased to be a member of the
Compensation Committee on December 11, 2003. From time to time, we have engaged
in transactions with Mr. Moyes, parties affiliated with Mr. Moyes, and parties
affiliated with Mr. Scudder.
On-Going Transactions with Mr. Moyes and His Affiliates
We currently lease 26 active terminals and eight dormant terminals from
Southwest Premier Properties, L.L.C. Southwest Premier is owned by some of our
directors, executive officers and existing stockholders, including 77% by Jerry
Moyes, 10% by Robert Fasso, and 1% by members of Scudder Law Firm. In 1998, we
sold thirty-four of these properties to Southwest Premier, along with additional
terminals that have since been sold, for an aggregate of $27.8 million in a
sale-and-leaseback transaction that was accounted for as a financing
transaction. We also currently have operating leases for two active terminals
owned by Mr. Moyes. We incurred aggregate expense to Southwest Premier of
approximately $6.6 million in 2003. We incurred aggregate lease expense to Mr.
Moyes of approximately $0.3 million in 2003.
Swift Transportation Co., Inc. and Central Refrigerated Service, Inc.
provide us with a variety of transportation services. Mr. Moyes is the Chairman
and Chief Executive Officer of Swift and the owner and Chairman of the Board of
Central Refrigerated. Together, these companies provided us with approximately
58% of all third-party linehaul transportation services in 2003. Under these
arrangements, Swift provided us with approximately $14.6 million in services in
2003. At year end, we owed Swift approximately $1.0. Central Refrigerated
provided us with approximately $2.7 million in services in 2003. At year end, we
owed Central Refrigerated approximately $0.2 million. We believe that the
amounts paid are equivalent to rates that could have been obtained in an arm's
length transaction with an unrelated third party.
We currently lease terminal space from Swift in Memphis, Tennessee at a
lease rate of $15,836 per month and in Fontana, California at a lease rate of
$60,500 per month. We also sublease portions of our terminal facilities to Swift
at seven different locations. Swift leases property from us in Tyler, Texas, for
$3,750 per month, in Houston, Texas, for $9,181 per month, in Little Rock,
Arkansas, in San Antonio, Texas for $17,755 per month, and in Amarillo, Texas
for $160 per month. All leases with Swift are, either by their terms or due to
expiration of the contract, on a month-to-month basis. Under these subleases and
other subleases we formerly had with Swift, our rental income from Swift was
approximately $0.6 million in 2003.
16
We believe that the amounts paid are equivalent to lease terms and rates that
could have been obtained in an arms' length transaction with an unrelated third
party.
We lease independent contractor drivers and their tractors through
Interstate Equipment Leasing, Inc., a company owned by Jerry Moyes. The
independent contractors provide linehaul services for us at a rate per mile that
we believe is equivalent to rates that could have been obtained in an arm's
length transaction with an unrelated third party. We incurred expenses with
Interstate of approximately $1.2 million in 2003. At year end, we owed
Interstate approximately $12,000.
Past Transactions with Mr. Moyes and His Affiliates
In 2002, we both formed and disposed of Central Refrigerated, a
refrigerated truckload carrier. Central Refrigerated was formed as our
wholly-owned subsidiary to acquire certain assets from the bankruptcy estate of
Simon Transportation Services Inc. and its subsidiaries, Dick Simon Trucking,
Inc. and Simon Terminal, LLC. Simon Transportation and its subsidiaries filed
bankruptcy petitions under Chapter 11 of the United States Bankruptcy Code on
February 25, 2002. Jerry Moyes was the Chairman of the Board of Simon
Transportation commencing in September 2000 and was also the majority
stockholder during this period. In the acquisition, we assumed approximately
$11.4 million owed by Simon Transportation to Jerry Moyes and his affiliates. We
also borrowed $3.3 million from Mr. Moyes to pay $2.6 million in cash to the
bankruptcy estate, and $0.7 million in transaction costs. The approximately
$14.7 million we owed to Mr. Moyes and his affiliates was secured solely by all
of the outstanding stock of Central Refrigerated. At the closing of the
acquisition, Central Refrigerated assumed leases for approximately 1,360
tractors and 1,920 trailers, approximately $13.0 million in real estate
financing, and approximately $56.1 million in other liabilities. We did not
guarantee or otherwise become obligated for any of these amounts. The
acquisition closed, and the operations of Central Refrigerated began, on April
22, 2002.
On December 31, 2002, we transferred the shares of Central Refrigerated to
Jerry Moyes and one of his affiliates in exchange for the cancellation of the
approximately $14.7 million of indebtedness owed by us to them, at which time
Central Refrigerated obtained separate insurance coverage. As part of the
disposition, we agreed to make a payment of $8.3 million to Central Refrigerated
to compensate Central Refrigerated and Jerry Moyes for facilitating the
transaction. This payment was made on October 28, 2003. Central Refrigerated was
under our group insurance policy between April 22, 2002, and December 31, 2002,
and under our workers' compensation policy through June 2003, and has posted
letters of credit in the aggregate amount of $9.3 million with respect to its
self-insured retentions during those periods. Central Refrigerated has also
agreed to indemnify us for any losses we suffer as a result of those retentions.
During 2003, we had tire sales of approximately $1.0 million to an
affiliate of Jerry Moyes. We had no receivables, at December 31, 2003, from
these transactions.
From time to time prior to our initial public offering, we made unsecured
loans to Jerry Moyes and Southwest Premier pursuant to a revolving line of
credit arrangement. The interest rate charged by us for these loans was a
floating rate that was generally equivalent to our cost of borrowing. During
2003, the maximum aggregate principal amount outstanding for such loans was
$18.0 million, and the interest rate on such loans was 4.1 percent. We received
interest payments of approximately $600,000 in 2003 in respect of these
borrowings. On October 28, 2003, Jerry Moyes repaid to us all principal and
accrued interest due on these borrowings, and there were no amounts owed to us
by either Jerry Moyes or Southwest Premier at year end.
17
Transactions with Former Director's Law Firm
Earl H. Scudder, our former director and a former member of the
Compensation Committee, is a principal of Scudder Law Firm, which provided legal
services to the Company in 2003 and which will provide such services in 2004.
Scudder Law Firm earned approximately $484,000 in 2003. Scudder Law Firm also
provides legal services to Swift, Central Refrigerated, Jerry Moyes personally,
and other companies controlled by Mr. Moyes. Mr. Scudder also serves on the
Boards of Directors of Swift and Central Refrigerated.
Compensation Committee Report on Executive Compensation
The Compensation Committee Report on Executive Compensation that follows
shall not be deemed to be incorporated by reference into any filing made by us
under the Securities Act of 1933 or the Exchange Act, notwithstanding any
general statement contained in any such filings incorporating this Proxy
Statement by reference, except to the extent we incorporate such report by
specific reference.
The Compensation Committee of the Board of Directors has furnished the
following Report on Executive Compensation:
Compensation Committee Report on Executive Compensation
The Compensation Committee's philosophy in setting compensation
policies for the Company's senior executive group, which includes the Chief
Executive Officer and President and each of the Senior Vice Presidents, is
to attract, motivate, and retain high caliber talent while maximizing
stockholder value over time. The Compensation Committee sets the
compensation policy applicable to these senior executive officers and
evaluates, in consultation with the Chief Executive Officer and President,
the performance of such officers.
The compensation program for the Company's executive officers is
administered in accordance with a pay-for-performance philosophy to link
executive compensation with the values, objectives, business strategy,
management incentives, and financial performance of the Company. The
Compensation Committee has adopted the following guidelines in making its
compensation decisions:
o Provide a fair and competitive total compensation package that
enables us to attract and retain superior executive talent;
o Design compensation programs to further the Company's yearly and
long-term business objectives; and
o Include variable components in the compensation package that
links executive financial reward to Company performance.
In 2003, the Company's first year as a publicly traded company, the
Compensation Committee focused on the following three components in forming
the total compensation package for the Company's senior executive officers:
Base salary; annual incentive bonus; and long-term equity incentives.
Base Salary
The Company's Chief Executive Officer and President has a written
employment agreement that establishes his base salary. In addition, the
Company hired two Senior Vice
18
Presidents in 2003 pursuant to written offers of employment that fixed
their starting salaries in 2003. Within the context of these agreements,
the Compensation Committee annually reviews the Chief Executive Officer and
President's base salary and consults on the base compensation of the Senior
Vice Presidents. The Compensation Committee intends to compensate the
Company's senior executive officers, including the Chief Executive Officer
and President, fairly and competitively within the trucking industry. In
order to evaluate the Company's competitive position in the trucking
industry, the Compensation Committee, reviews and analyzes the compensation
packages, both cash and equity, offered by other publicly traded, truckload
and less-than-truckload companies. We believe that this approach allows the
Compensation Committee to compensate the senior executive officers fairly
and competitively by industry standards. As reflected in the Summary
Compensation Table, Mr. Fasso's salary for fiscal year 2003 was $348,077.
As discussed below, the Committee also emphasizes longer-term compensation
incentives for these executives as it believes that these longer-term
incentives help motivate the executives to better achieve the Company's
corporate performance goals, thereby more directly contributing to
stockholder value.
Annual Incentive Bonus
During fiscal year 2003, the Company's senior executive officers were
eligible for a target annual incentive bonus, calculated as a percentage of
each officer's base salary, under the terms of the Company's executive
bonus program. The executive bonus program promotes a pay-for-performance
philosophy by providing the executive group with direct cash incentives to
achieve corporate financial goals. Bonuses in this program were determined
by reference to the Company's fiscal year operating ratio. Participants in
this program, including Mr. Fasso, were eligible to receive bonuses ranging
from zero, if the operating ratio for the year exceeded 95%, to fifty
percent of salary, if the operating ratio for the year was at or below 90%.
The determination of the Company's operating ratio was measured
objectively.
Long-Term Incentives
The Compensation Committee may award stock options to the senior
executive officers to enhance the link between executive pay and
stockholder value. Awards are made pursuant to the Company's Incentive
Stock Plan. Under the Incentive Stock Plan, the Compensation Committee also
has the ability to award other equity-based incentives such as stock
appreciation rights or restricted stock, but has not done so to date. The
Compensation Committee is responsible for determining who should receive
stock option grants, when the grants should be made, the exercise price per
share, and the number of shares to be granted. The Committee considers
grants of long-term incentive awards to senior executive officers during
each fiscal year. To date, stock options have been granted at an option
price set at fair market value of the Company's Common Stock on the date of
grant. As such, stock options have value only if the stock price
appreciates following the date the options are granted. The stock options
reflected in the Summary Compensation Table are generally subject to a
60-month vesting period. This approach encourages the creation of
stockholder value over the long term. The stock options awarded to the
senior executive group in fiscal year 2003 were based primarily on the need
to attract senior executives and reflected prior option grants made in
connection with the hiring of such senior executives. In fiscal 2003, Mr.
Fasso did not receive any options, due to the prior grant to him of options
to purchase 1,260,000 shares of the Company's Common Stock on January 7,
2002 in connection with his hiring. The Committee believes that equity
ownership, including stock options, provides the Company's executive
officers substantial motivation to maximize long-term stockholder value.
19
The Compensation Committee believes that the annual salaries and other
compensation of the Company's Chief Executive Officer and President and
other senior executive officers are reasonable compared to similarly
situated executives of other less-than-truckload and truckload motor
carriers.
Gordan W. Winburne, Chairman
Duane W. Acklie, Member
Porter J. Hall, Member
March 29, 2004
Stock Performance Graph
A stock performance graph is not included in this Proxy Statement because
the Company was a public company for less than thirty days in the fiscal year
ended December 31, 2003.
20
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT
The following table sets forth, as of March 31, 2004, the number and
percentage of outstanding shares of our Common Stock beneficially owned by each
person known by us to beneficially own more than 5% of such stock, by each
director and Named Executive Officer of the Company, and by all directors and
executive officers of the Company as a group. According to the Company's
transfer agent, the Company had outstanding 17,776,621 shares of Common Stock as
of March 31, 2004.
Amount and Nature
of Beneficial
Name and Address of Beneficial Owner(1) Ownership(2) Percent of Class(2)
- --------------------------------------------------------------------- ------------------- ---------------------
Jerry and Vickie Moyes(3)............................................ 5,758,351 32.4%
Robert V. Fasso(4)................................................... 882,000 4.9
Patrick J. Curry(5).................................................. 796,109 4.4
Jeffrey A. Hale(6)................................................... 20,000 *
J. Mark Conard....................................................... 0 *
Steven L. Key(7)..................................................... 18,045 *
Doak D. Slay(8)...................................................... 20,000 *
Duane W. Acklie(9)................................................... 1,001 *
John Breslow(10)..................................................... 4,001 *
Porter J. Hall(11)................................................... 1,001 *
Gordan W. Winburne(12)............................................... 1,001 *
All directors and executive officers as a group (10 persons) (13) ... 6,705,400 37.3%
------------------------------------------
* Less than one percent.
(1) Unless otherwise indicated, the business address of the persons named in
the above table is care of Central Freight Lines, Inc., 5601 West Waco
Drive, Waco, Texas 76710.
(2) For purposes of this table, a person or group of persons is deemed to have
"beneficial ownership" of any shares which such person has the right to
acquire within sixty days. For purposes of computing the percentage of
outstanding shares held by each person or group of persons named above, any
security which such person or group of persons has the right to acquire
within sixty days is deemed to be outstanding for the purpose of computing
the percentage ownership for such person or persons, but is not deemed to
be outstanding for the purpose of computing the percentage ownership of any
other person. As a result, the denominator used in calculating the
beneficial ownership among our stockholders may differ., but are not deemed
outstanding for purposes of computing the percentage ownership of any other
person.
(3) Includes 4,000 shares beneficially owned under options that are currently
exercisable or will become exercisable within sixty days. Of the shares
attributed to Jerry Moyes, 1,046,002 are held by Jerry and Vickie Moyes as
trustees of the Jerry and Vickie Moyes Family Trust (the "Moyes Family
Trust"), 4,708,348 are held by Gerald F. Ehrlich as trustee of the Moyes
Children's Trust (the "Moyes Children's Trust"), and 4,001 shares
(including 4,000 shares under option) are held by Mr. Moyes individually.
Mr. Ehrlich has sole voting and investment power for the Moyes Children's
Trust. Mr. Moyes disclaims beneficial ownership of the shares held by Mr.
Ehrlich as trustee of the Moyes Children's Trust. The business address of
Mr. Moyes, Mrs. Moyes, and the Family Trust is care of Swift Transportation
Co.,
21
Inc., 2200 South 75th Avenue, Phoenix, Arizona 85043. The business address
of Mr. Ehrlich and the Children's Trust is 4001 North Third St., Suite 200,
Phoenix, AZ 85012.
(4) Includes 126,000 shares beneficially owned under options that are currently
exercisable or will become exercisable within sixty days.
(5) Includes 290,257 shares beneficially owned under options that are currently
exercisable or will become exercisable within sixty days.
(6) Includes 20,000 shares beneficially owned under options that are currently
exercisable or will become exercisable within sixty days.
(7) Includes 18,045 shares beneficially owned under options that are currently
exercisable or will become exercisable within sixty days after the date
hereof.
(8) Includes 20,000 shares beneficially owned under options that are currently
exercisable or will become exercisable within sixty days.
(9) Includes 1,000 shares beneficially owned under options that are currently
exercisable or will become exercisable within sixty days. The business
address of Mr. Acklie is P.O. Box 81228, Lincoln, NE 68501.
(10) Includes 1,000 shares beneficially owned under options that are currently
exercisable or will become exercisable within sixty days. The business
address of Mr. Breslow is 2900 South 70th Street, Suite 400, Lincoln, NE
68506.
(11) Includes 1,000 shares beneficially owned under options that are currently
exercisable or will become exercisable within sixty days. The business
address of Mr. Hall is 6360 South 3000 E, Suite 340, Salt Lake City, UT
84121.
(12) Includes 1,000 shares beneficially owned under options that are currently
exercisable or will become exercisable within sixty days. The business
address of Mr. Winburne is 9014 North 23rd Avenue #11, Phoenix, AZ 85021.
(13) Excludes Mr. Curry, who resigned as Executive Vice President, Secretary,
and Treasurer effective January 23, 2004.
22
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
We have adopted a policy that transactions with affiliated persons or
entities will be on terms, on the whole, no less favorable to us than those that
could be obtained from unaffiliated third parties on an arm's length basis, and
that any such transaction must be reviewed and approved by our Audit Committee
or another committee of the Board comprised entirely of directors who are
independent under NASD Rule 4200(a)(15).
In connection with our hiring of Doak Slay as Senior Vice President-Sales
and Marketing, we made an advance to Mr. Slay in an amount equal to the net
equity value of his home in Atlanta, Georgia. This advance was made in order to
allow Mr. Slay to relocate and purchase a home near Waco, Texas, where he moved
at our request. This advance was in the amount of approximately $120,000 and was
to be repaid upon the sale of Mr. Slay's Atlanta home. Although we viewed this
as a loan with a customary business purpose, in order to avoid any potential
conflict with the prohibitions on executive loans contained in the
Sarbanes-Oxley Act, in September 2003 we purchased Mr. Slay's prior home at its
appraised value of $325,000, and the relocation loan was repaid by Mr. Slay in
full.
In connection with our hiring of J. Mark Conard as our Senior Vice
President -- Yield Management and Pricing Services and his subsequent relocation
to Waco, Texas, we purchased his home in Portland, Oregon for its appraised
value of $445,000. Except for price, the terms and conditions of the purchase of
Mr. Conard's house were substantially identical to those in our purchase of Mr.
Slay's house. We intend to sell the houses purchased from Mr. Conard and Mr.
Slay and will receive all of the proceeds when they are sold.
See "Executive Compensation - Compensation Committee Interlocks and Insider
Participation," above, for a description of transactions between us and some of
our Board members who formerly served on our Compensation Committee or their
affiliates.
23
PROPOSAL TWO -
APPROVAL OF THE COMPANY'S 2004 EMPLOYEE STOCK PURCHASE PLAN
On April 19, 2004, the Board of Directors approved the Company's 2004
Employee Stock Purchase Plan (the "ESPP"), subject to approval by the holders of
a majority of the Company's outstanding shares of Common Stock, which approval
is now being sought. The purpose of the ESPP is to provide an incentive to
employees of the Company to acquire or increase an ownership interest in the
Company through the purchase of shares of Common Stock.
Certain key provisions of the ESPP are summarized below. The full text of
the ESPP appears in Appendix B to this Proxy Statement.
Summary Description of the ESPP
Eligibility
Generally, all employees of the Company and its subsidiaries who work at
least twenty hours a week and more than five months in a calendar year are
eligible to participate in the ESPP. An employee is ineligible to participate,
however, if immediately after such grant, such employee would own stock
possessing 5% or more of the total combined voting power or value of all classes
of stock of the Company or any subsidiary of the Company. The Company and its
subsidiaries currently have a total of approximately 4,000 employees.
Purchase of Shares
The ESPP will permit eligible employees to purchase Common Stock through
payroll deductions. Participation periods are six months in length. In general,
for each participation period, eligible employees will be allowed to elect to
purchase full shares through payroll deductions of up to 15% of compensation,
but in no event will the participant's rights to purchase shares of Common Stock
be allowed to accrue at a rate that exceeds $25,000 of fair market value of
Common Stock in a calendar year. Further, a participant will not be allowed to
purchase more than 2,500 shares of Common Stock in any six-month participation
period. The purchase price a participant will pay for the shares will be equal
to 90% of the market closing price of the Common Stock on the first business day
or the last business day of each participation period, whichever is lower.
Termination of Employment
If a participant dies, retires, or otherwise terminates employment, the
participant's accumulated payroll deductions as of the date of death,
retirement, or other termination will be refunded.
Administration
The ESPP will be administered by the Compensation Committee, which has the
power to interpret the ESPP and may adopt, amend, and rescind rules, not
inconsistent with the provisions of the ESPP, that it deems advisable. The
proceeds of the sale of Common Stock received under the ESPP will constitute
general funds of the Company and may be used by the Company for any purpose.
Amendment and Termination
The Company will be able to amend the ESPP from time to time as it deems
desirable in its sole discretion, except that approval of the stockholders of
the Company will be required to the extent the
24
amendment would increase the number of shares available for issuance or
materially modify the eligibility conditions or materially increase the benefits
available under the ESPP. The Company will be able to terminate the ESPP at any
time.
Authorized Shares
The ESPP provides that 1,000,000 shares of the Company's Common Stock will
be reserved for purchase under the plan. In case of a reorganization,
recapitalization, stock split, reverse stock split, stock dividend, combination
of shares, merger, consolidation, offering of rights, or other change in the
capital structure of the Company, the Compensation Committee may make such
adjustment as it deems appropriate in the number, kind and purchase price of
shares of stock available for purchase under the ESPP.
Federal Income Tax Consequences
If the shareholders of the Company approve the ESPP as described above, the
ESPP and the right of participants to make purchases thereunder, should qualify
for treatment under the provisions of Sections 421 and 423 of the Internal
Revenue Code of 1986, as amended. Under these provisions no income will be
taxable for United States federal income tax purposes to a participant until the
shares purchased under the ESPP are sold or otherwise disposed of.
Generally, if shares of Common Stock are issued to a participant under the
ESPP, and if no disposition of such shares is made within two years of the first
day of the participation period, then:
o No income will be realized by the participant at the time of the
transfer of the shares to such participant; and
o When the participant sells or otherwise disposes of such shares (or
dies holding the shares), there will be included in his or her gross
income, as compensation, an amount equal to the lesser of (a) the
amount by which the fair market value of the shares on the first day
of the participation period exceeds the purchase price for the shares,
or (b) the amount by which the fair market value at the time of
disposition or death exceeds the purchase price for the shares.
Any further gain will be treated for federal income tax purposes as
long-term capital gain, provided that the employee holds the shares for the
applicable long-term capital gain holding period after the last day of the
participation period applicable to such shares.
No deduction will be allowed to the Company for federal income tax purposes
in connection with the grant or exercise of any right to purchase shares under
the ESPP if there is no disposition of the shares within the two-year period
referred to above. If there is a disposition of shares by a participant within
such period, such participant will realize ordinary income in the year of
disposition in an amount equal to the difference between the purchase price and
the fair market value of the shares at the time of purchase, and the Company
will generally be entitled to a deduction in the same amount. The amount of
ordinary income realized by the participant may be subject to withholding for
taxes. Any difference between the amount received by an employee upon such a
disposition and the fair market value of the shares at the time of purchase will
be capital gain or loss, as the case may be.
New Plan Benefits
The benefits or amounts that will be received by or allocated to the
participants under the ESPP, including the Named Executive Officers, are not
determinable. If the ESPP had been in effect for 2003, the
25
benefits or amounts that would have been received by or allocated to the
participants under the Plan, including the Named Executive Officers, are also
not determinable.
Shareholder Vote Required to Approve the ESPP
The favorable vote of a majority of the shares present and voting is
required for approval of the ESPP. Abstentions and broker non-votes are
considered neither a vote "for" nor "against."
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT STOCKHOLDERS VOTE "FOR"
PROPOSAL TWO TO APPROVE THE EMPLOYEE STOCK PURCHASE PLAN.
26
RELATIONSHIP WITH INDEPENDENT PUBLIC ACCOUNTANTS
The principal independent public accounting firm utilized by the Company
during fiscal 2003 was KPMG LLP, independent certified public accountants
("KPMG"). KPMG has served as our independent public accountants since June1997.
The Company's principal public accounting firm for fiscal 2004 has not yet been
selected because the Audit Committee is still in the process of reviewing KPMG's
performance and is not prepared to make a recommendation. Representatives of
KPMG LLP are expected to be present at the Annual Meeting and will have an
opportunity to make a statement, if they desire to do so, and to respond to
appropriate questions.
Principal Accountant Fees and Services
The following table shows the fees for professional services provided by
KPMG in the fiscal year ended December 31, 2003 for the audit of prior year
financial statements in connection with our initial public offering and the
audit of our annual financial statements for the fiscal year ended December 31,
2003, as well as fees billed by KPMG for other services rendered during that
year:
Aggregate Amount
Billed by
KPMG ($)
-------------------
Services Rendered 2003
----------------- ----
Audit Fees(1) $733,735
Audit-Related Fees(2) 16,870
Tax Fees(3) 26,090
All Other Fees(4) -
- ----------------------------------
(1) Audit Fees represent fees billed for professional services rendered by
the principal independent public accountant for the audit of our
annual financial statements and review of financial statements
included in our Registration Statement on Form S-1 and the prospectus
included therein, amendments to our Registration Statement on Form S-1
and the prospectus included therein, Annual Report on Form 10-K, and
other services that are normally provided by such accountant in
connection with statutory or regulatory filings or engagements for
that fiscal year.
(2) Audit-Related Fees represent fees billed for assurance and related
services by the principal independent public accountant that are
reasonably related to the performance of the audit or review of
financial statements. For fiscal 2003, Audit-Related Fees were
comprised of fees for the performance of agreed upon procedures
related to requirements under our credit facilities.
(3) Tax Fees represent fees billed for professional services rendered by
the principal independent accountant for tax compliance, tax advice,
and tax planning. For fiscal 2003, Tax Fees were for tax planning and
advice.
(4) All Other Fees represent fees billed for products and services
provided by the principal independent public accountant, other than
Audit Fees, Audit-Related Fees, and Tax Fees. All Other Fees were zero
for fiscal 2003.
Since September 22, 2003, we have maintained a policy pursuant to which our
Audit Committee pre-approves all audit, audit-related, tax, and other
permissible non-audit services provided by our principal independent accountant
in order to assure that the provision of such services is compatible with
maintaining the accountant's independence. Under this policy, the Audit
Committee pre-approves, on an annual basis,
27
specific types or categories of engagements constituting audit, audit-related,
tax, or other permissible non-audit services to be provided by the principal
independent public accountant. Pre-approval of an engagement for a specific type
or category of services generally is provided for up to one year and typically
is subject to a budget comprised of a range of anticipated fee amounts for the
engagement. Management and the independent public accountant are required to
periodically report to the Audit Committee regarding the extent of services
provided by the principal independent accountant in accordance with the annual
pre-approval, and the fees for the services performed to date. To the extent
that management believes that a new service or the expansion of a current
service provided by the principal independent accountant is necessary or
desirable, such new or expanded services are presented to the Audit Committee
for its review and approval prior to the engagement of the principal independent
accountant to render such services. No audit-related, tax, or other non-audit
services were approved by the Audit Committee pursuant to the de minimus
exception to the pre-approval requirement under Rule 2-01, paragraph
(c)(7)(i)(C), of Regulation S-X during the fiscal year ended December 31, 2003.
STOCKHOLDER PROPOSALS
To be eligible for inclusion in the Company's proxy materials relating to
the 2005 Annual Meeting of Stockholders, stockholder proposals intended to be
presented at that meeting must be received in writing by the Company on or
before December 25, 2004. The inclusion of any such stockholder proposals in
such proxy materials will be subject to the requirements of the proxy rules
adopted under the Exchange Act, including Rule 14a-8.
The Company must receive in writing any stockholder proposals intended to
be considered at its 2005 Annual Meeting of Stockholders, but not included in
the Company's proxy materials relating to that meeting, by March 9, 2005.
Pursuant to Rule 14(a)-4(c)(1) under the Exchange Act, the proxy holders
designated by an executed proxy in the form accompanying the Company's 2005
proxy statement will have discretionary authority to vote on any stockholder
proposal that is considered at the Annual Meeting, but not received on or prior
to the deadline described above.
All stockholder proposals should be sent via certified mail, return receipt
requested, and addressed to Jeff Hale, Senior Vice President and Chief Financial
Officer, 15333 North Pima Road, Suite 230, Scottsdale, Arizona 85260.
See "Corporate Governance - The Board of Directors and Its Committees -
Committees of the Board of Directors - The Nominating Committee," above, for
information regarding how stockholders can recommend director candidates for
consideration by the Nominating Committee.
28
OTHER MATTERS
The Board of Directors does not intend to present at the Annual Meeting any
matters other than those described herein and does not presently know of any
matters that will be presented by other parties. If any other matters are
properly brought before the Annual Meeting or any adjournment thereof, the proxy
holders named in the accompanying for of proxy will have discretionary authority
to vote proxies on such matters in accordance with the recommendations of the
Board of Directors, or, if no recommendations are given, in accordance with
their judgment, unless the person executing any such proxy indicates that such
authority is withheld.
Central Freight Lines, Inc.
Robert V. Fasso
Chief Executive Officer and President
April 23, 2004
29
Appendix A
AMENDED AND RESTATED
CHARTER OF THE AUDIT COMMITTEE
OF
THE BOARD OF DIRECTORS
OF
CENTRAL FREIGHT LINES, INC.
March 4, 2004
Recitals.
On February 8, 1999, the Securities and Exchange Commission's Blue Ribbon
Committee on Improving the Effectiveness of Corporate Audit Committees (the
"Blue Ribbon Committee") issued a report containing recommendations for
improving the effectiveness of corporate audit committees. The Blue Ribbon
Committee directed its recommendations to the Securities and Exchange Commission
(the "Commission"), the New York Stock Exchange (the "NYSE"), the American Stock
Exchange (the "AMEX"), the National Association of Securities Dealers (the
"NASD"), and the Auditing Standards Board (the "ASB") (collectively, the "Market
Authorities"). In response to its recommendations, the Market Authorities
adopted rules pertaining to corporate audit committees. In 2002, the United
States Congress passed the Sarbanes-Oxley Act, which Act created additional
requirements for audit committees of publicly traded companies and directed the
Market Authorities to amend and supplement their rules with respect to such
committees. The United States Congress, the Market Authorities, and any other
regulatory bodies that from time to time may adopt rules pertaining to audit
committees are hereinafter referred to as the "Regulatory Authorities."
The Board of Directors (the "Board") of Central Freight Lines, a Nevada
corporation (the "Company"), has adopted this Audit Committee Charter (the
"Charter"). The Charter describes the duties and responsibilities of the
Company's audit committee (the "Audit Committee") and grants the Audit Committee
the authority necessary to perform its oversight responsibility.
Charter.
1. Purposes of Audit Committee. The purposes of the Audit Committee are (a)
to oversee the accounting and financial reporting processes of the Company and
the audits of the Company's financial statements, and (b) in connection
therewith, to assist the Board in fulfilling its responsibility to ensure the
fairness and accuracy of the Company's financial statements and to ensure the
existence of appropriate internal financial controls, and the independence of
the independent public accountants engaged to audit the Company's financial
statements (the "external auditors"), and to render the reports required of the
Audit Committee, and to allow the Company to make the disclosures required by
related Commission regulations.
2. Qualifications of Audit Committee. The Audit Committee shall consist of
not less than three directors, each of whom meets the definition of an
"independent director" specified by applicable law (including the Sarbanes-Oxley
Act of 2002) and rules and regulations of Regulatory Authorities, or is subject
to an available exemption from the requirement to meet such definition pursuant
to rules and regulations of Regulatory Authorities. Each member of the Audit
Committee shall be generally familiar with the general requirements of financial
reporting and shall demonstrate all other qualifications required by law or any
Regulatory Authority. At least one member of the Audit Committee shall in the
judgment of the Board be an audit committee financial expert in accordance with
the rules and regulations of the Commission.
A-1
3. Duties and Authority of the Audit Committee. Subject to the second
sentence of Paragraph 10, the Audit Committee will perform the following duties
in the manner and priority the Audit Committee determines, in its discretion, to
be appropriate under the circumstances:
(a) Review the Company's earnings statements with management and with the
Company's external auditors prior to the release of such statements to the
public;
(b) Assure that the Company's interim financial statements are reviewed by
the Company's external auditors, as required by Commission rules, prior to the
filing of such interim financial statements with the Commission as part of the
Company's report on Form 10-Q;
(c) Review and discuss the Company's audited financial statements with
management, and recommend to the Board whether the audited financial statements
should be included in the Company's Form 10-K;
(d) Review and discuss the Company's audited financial statements with the
Company's external auditors and shall review those matters required to be
discussed by Statement of Auditing Standards No. 61, as modified or supplemented
from time to time;
(e) Receive the written disclosures and the letter from the Company's
external auditors required by the Independent Standards Board's Standard No. 1,
as modified or supplemented, discuss with the external auditors their
independence, and, as required by Commission rules, pre-approve all audit
services and permitted non-audit services to be performed by the external
auditor and establish policies and procedures for the engagement of the
independent external auditor to provide permitted non-audit services;
(f) Review annually the scope of the external auditors' work, including any
non-auditing or consulting services;
(g) Review with the Company's external auditors all adjustments made to the
Company's audited financial statements, including a reconciliation of any
adjustments made in the audited financial statements from the Company's
quarterly interim financial statements;
(h) Review with management and the Company's external auditors any
significant financial reporting issues or judgments called for in connection
with the preparation of the Company's financial statements, including the
adequacy and appropriateness of any reserves, policies relating to the
recognition of revenue, the quality and appropriateness of the Company's
accounting principles, and any other matters which, in its judgment, or the
judgment of the Company's external auditors, could have a material impact on the
Company's financial statements;
(i) Meet with the Company's external auditors and with management to review
and assess any material financial risk exposure to the Company and the steps
management has or plans to take to monitor and control financial risk;
(j) Review with the Company's external auditors and management the adequacy
of the Company's internal financial controls and reporting systems;
(k) Confer with the Company's external auditors about any audit
requirements as specified in the Securities and Exchange Act of 1934 that may
have come to the attention of the external auditors;
A-2
(1) Review any major changes to the Company's auditing and accounting
policies and practices suggested by the Company's external auditors or by
management. (In undertaking the duties specified herein, in communications with
the Company's external auditors, the Audit Committee will, in accordance with
Statement of Auditing Standards No. 61, communicate with the external auditors
with respect to (1) methods used to account for significant or unusual
transactions; (2) the effect of significant accounting policies in controversial
or emerging areas for which there is a lack of authoritative guidance or
consensus; (3) the process used by management in formulating particularly
sensitive accounting estimates, and the basis for the auditors' conclusions
regarding the reasonableness of those estimates; and (4) disagreements with
management, if any, over the application of accounting principles, the basis for
management's accounting estimates, and the disclosures in the Company's
financial statements);
(m) Take responsibility for the appointment, compensation, retention, and
oversight of the Company's external auditors, review the proposed scope and plan
of the annual audit, and recommend their selection and engagement;
(n) Review the external auditors' management letter and consider any
comments made by the external auditors with respect to improvements in the
internal accounting controls of the Company, consider any corrective action
recommended by the external auditors, and review any corrective action taken by
management;
(o) Review and devote attention to any areas in which management and the
Company's external auditors disagree and determine the reasons for such
disagreement;
(p) Review the performance of the external auditors and take direct
responsibility for hiring and, if appropriate, replacing any external auditor
failing to perform satisfactorily;
(q) Review the performance of the Company's Chief Financial Officer;
(r) Review any difficulties any external auditor may have encountered with
respect to performance of an audit, including, without limitation, any
restrictions placed upon the scope of the audit on access to information, or any
changes in the proposed scope of the audit;
(s) Provide, as part of the Company's proxy filed pursuant to Commission
regulations, the report required by Commission regulations relating to proxies
and cause a copy of that report to be included annually in the Company's proxy
solicitation materials;
(t) Establish procedures for the receipt, retention, and treatment of
complaints received by the Company regarding accounting, internal accounting
controls, or auditing matters;
(u) Establish in accordance with law and the rules and regulations of
Regulatory Authorities procedures for the confidential, anonymous submission by
employees of the Company of concerns regarding questionable accounting or
auditing matters;
(v) Obtain the advice and assistance, as appropriate, of independent
counsel and other advisors as necessary to fulfill the responsibilities of the
Audit Committee;
(w) Establish policies for the hiring of employees and former employees of
the independent external auditor;
(x) Review and approve in advance all transactions between the Company and
its executive officers and directors;
A-3
(y) Review and approve in advance all non-audit related work performed on
behalf of the Company by the external auditor; and
(z) Periodically review the adequacy of this Charter and make
recommendations to the Board with respect to any changes in this Charter.
4. Access to Information. In order to perform its obligations, the Audit
Committee shall have unrestricted access to all relevant internal and external
Company information and to any officer, director, or employee of the Company.
5. Employee Access to Audit Committee. Any person employed by the Company
and any of the Company's independent contractors will have access to the Audit
Committee, pursuant to procedures adopted by the Audit Committee, to report any
matter which such person believes would be of interest to the Audit Committee or
of general concern to the Audit Committee or the Board. Contacting a member of
the Audit Committee to report any irregularity, questionable activity, or other
matter will not subject the person making the report to discipline.
6. Frequency of Meetings.
(a) The Audit Committee will meet each quarter prior to the release of the
Company's earnings statements to review the earnings release. In addition, the
Audit Committee will convene if a meeting is noticed by its Chairman, any member
of the Audit Committee, any member of the Board, the Chief Financial Officer, or
the Chief Executive Officer.
(b) The Audit Committee, at least once a year, will meet privately with the
Company's external and, if applicable, internal auditors, and no representative
of the Company's management shall attend such meetings.
7. Access to Legal Counsel and Advisors. The Audit Committee shall have
full and free access to the Company's outside legal counsel, and if requested,
to its own independent legal counsel and other advisors. The Company will pay
for the cost of any such legal counsel and advisors.
8. Meeting Procedures.
(a) Members of the Audit Committee shall endeavor to attend all meetings of
the Audit Committee. The Audit Committee may meet telephonically or in person
and may take action upon the written consent of all members. A majority of the
Audit Committee will constitute a quorum for all purposes.
(b) Written minutes will be maintained for each meeting of the Audit
Committee.
9. Other Duties. The Audit Committee will perform such other duties as the
Board may assign to it or as may be imposed by law or by rule or regulation of
Regulatory Authorities.
10. Limitation of Audit Committee Duties. The Audit Committee is not an
investigative committee of the Board and shall have no investigative duties
unless expressly assigned to the Audit Committee by the Board. The Audit
Committee will exercise its business judgment in performing its duties under
this Charter, including the duties outlined in Paragraph 3, and may emphasize
and prioritize those duties and responsibilities set forth above which the
Committee, in its discretion and judgment, believes are the most important,
given the particular circumstances. It is not the duty of the Audit Committee to
undertake the audit of the Company itself, to plan the audit, or to undertake
any of the responsibilities of the Company's internal or
A-4
external auditors. The Audit Committee is not required to follow the procedures
required of auditors in performing reviews of interim financial statements or
audited financial statements. In performing its functions, the Audit Committee
may rely upon information provided to it by management, by the Company's
internal and external auditors, or by legal counsel. This Charter imposes no
duties on the Audit Committee or its members that are greater than those duties
imposed by law upon a director of a Nevada corporation under Section 78.138 of
the Nevada General Corporation Law. If any claim is asserted against the Audit
Committee, any of its members or the Company by a stockholder or any other
person, nothing in this Charter shall be construed to limit or restrict any
defense or indemnification available to the Audit Committee, any of its members,
or the Company.
A-5
Appendix B
CENTRAL FREIGHT LINES, INC.
2004 EMPLOYEE STOCK PURCHASE PLAN
The following constitute the provisions of the 2004 Employee Stock Purchase
Plan of Central Freight Lines, Inc.
1. Purpose. The purpose of the Plan is to provide employees of the Company
and its Designated Subsidiaries with an opportunity to purchase Common Stock of
the Company. It is the intention of the Company to have the Plan qualify as an
"Employee Stock Purchase Plan" under Section 423 of the Code. The provisions of
the Plan shall, accordingly, be construed so as to extend and limit
participation in a manner consistent with the requirements of that section of
the Code.
2. Definitions.
(a) "Board" means the Board of Directors of the Company.
(b) "Code" means the Internal Revenue Code of 1986, as amended.
(c) "Common Stock" means the Common Stock of the Company.
(d) "Company" means Central Freight Lines, Inc., a Nevada corporation.
(e) "Compensation" means total cash compensation received by an Employee
from the Company or a Designated Subsidiary. By way of illustration, but not
limitation, Compensation includes regular compensation such as salary, wages,
overtime, shift differentials, bonuses, commissions and incentive compensation,
but excludes relocation, expense reimbursements, tuition or other reimbursements
and income realized as a result of participation in any stock option, stock
purchase, or similar plan of the Company or any Designated Subsidiary.
(f) "Continuous Status as an Employee" means the absence of any
interruption or termination of service as an Employee. Continuous Status as an
Employee shall not be considered interrupted in the case of (i) sick leave; (ii)
military leave; (iii) any other leave of absence approved by the Administrator,
provided that such leave is for a period of not more than 90 days, unless
reemployment upon the expiration of such leave is guaranteed by contract or
statute, or unless provided otherwise pursuant to Company policy adopted from
time to time; or (iv) in the case of transfers between locations of the Company
or between the Company and its Designated Subsidiaries.
(g) "Contributions" means all amounts credited to the account of a
participant pursuant to the Plan.
(h) "Corporate Transaction" means a sale of all or substantially all of the
Company's assets, or a merger, consolidation or other capital reorganization of
the Company with or into another corporation.
(i) "Designated Subsidiaries" means the Subsidiaries that have been
designated by the Board from time to time in its sole discretion as eligible to
participate in the Plan; provided however that the Board shall only have the
discretion to designate Subsidiaries if the issuance of options to such
Subsidiary's
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Employees pursuant to the Plan would not cause the Company to incur adverse
accounting charges.
(j) "Employee" means any person, including an Officer, who is an Employee
of the Company for tax purposes and who is customarily employed for at least
twenty (20) hours per week and more than five (5) months in a calendar year by
the Company or one of its Designated Subsidiaries.
(k) "Exchange Act" means the Securities Exchange Act of 1934, as amended.
(l) "Offering Date" means the first business day of each Offering Period of
the Plan, except that in the case of an individual who becomes an eligible
Employee after the first business day of an Offering Period but prior to the
first business day of the fourth calendar month within such Offering Period, the
term "Offering Date" means the first business day of such fourth calendar month
coinciding with or next succeeding the day on which that individual becomes an
eligible Employee.
Options granted after the first business day of an Offering Period will be
subject to the same terms and conditions as the options granted on the first
business day of such Offering Period except that they will have a different
grant date (and thus, potentially, a different Purchase Price) and, because they
expire at the same time as the options granted on the first business day of such
Offering Period, a shorter term.
(m) "Offering Period" means a period of six (6) months commencing on June 1
and December 1 of each year.
(n) "Officer" means a person who is an officer of the Company within the
meaning of Section 16 of the Exchange Act and the rules and regulations
promulgated thereunder.
(o) "Plan" means this 2004 Employee Stock Purchase Plan.
(p) "Purchase Date" means the last day of each Offering Period of the Plan.
(q) "Purchase Price" means with respect to an Offering Period an amount
equal to 90% of the Fair Market Value (as defined in Section 7(b) below) of a
Share of Common Stock on the Offering Date or on the Purchase Date, whichever is
lower; provided, however, that in the event (i) of any stockholder-approved
increase in the number of Shares available for issuance under the Plan, and (ii)
all or a portion of such additional Shares are to be issued with respect to the
Offering Period that is underway at the time of such increase ("Additional
Shares"), and (iii) the Fair Market Value of a Share of Common Stock on the date
of such increase (the "Approval Date Fair Market Value") is higher than the Fair
Market Value on the Offering Date for any such Offering Period, then in such
instance the Purchase Price with respect to Additional Shares shall be 90% of
the Approval Date Fair Market Value or the Fair Market Value of a Share of
Common Stock on the Purchase Date, whichever is lower.
(s) "Share" means a share of Common Stock, as adjusted in accordance with
Section 19 of the Plan.
(t) "Subsidiary" means a corporation, domestic or foreign, of which not
less than 50% of the voting shares are held by the Company or a Subsidiary,
whether or not such corporation now exists or is hereafter organized or acquired
by the Company or a Subsidiary.
3. Eligibility.
(a) Any person who is an Employee as of the Offering Date of a given
Offering Period shall be eligible to participate in such Offering Period under
the Plan, subject to the requirements of
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Section 5(a) and the limitations imposed by Section 423(b) of the Code.
(b) Any provisions of the Plan to the contrary notwithstanding, no Employee
shall be granted an option under the Plan (i) if, immediately after the grant,
such Employee (or any other person whose stock would be attributed to such
Employee pursuant to Section 424(d) of the Code) would own capital stock of the
Company and/or hold outstanding options to purchase stock possessing five
percent (5%) or more of the total combined voting power or value of all classes
of stock of the Company or of any subsidiary of the Company, or (ii) if such
option would permit his or her rights to purchase stock under all employee stock
purchase plans (described in Section 423 of the Code) of the Company and its
Subsidiaries to accrue at a rate that exceeds Twenty-Five Thousand Dollars
($25,000) of the Fair Market Value (as defined in Section 7(b) below) of such
stock (determined at the time such option is granted) for each calendar year in
which such option is outstanding at any time.
4. Offering Periods. The Plan shall be implemented by a series of Offering
Periods of six (6) months' duration, with new Offering Periods commencing on or
about June 1 and December 1 of each year (or at such other time or times as may
be determined by the Board of Directors). The first Offering Period shall
commence on June 1, 2004 and continue until December 31, 2004. The Plan shall
continue until terminated in accordance with Section 19 hereof. The Board of
Directors of the Company shall have the power to change the duration and/or the
frequency of Offering Periods with respect to future offerings without
stockholder approval if such change is announced at least five (5) days prior to
the scheduled beginning of the first Offering Period to be affected.
5. Participation.
(a) An eligible Employee may become a participant in the Plan by completing
a subscription agreement and any other required documents ("Enrollment
Documents") provided by the Company and submitting them to the Company's Human
Resources Department or the a stock brokerage or other financial services firm
designated by the Company ("Designated Broker") prior to the applicable Offering
Date, unless a later time for submission of the Enrollment Documents is set by
the Board for all eligible Employees with respect to a given Offering Period.
The Enrollment Documents and their submission may be electronic, as directed by
the Company. The Enrollment Documents shall set forth the percentage of the
participant's Compensation (subject to Section 6(a) below) to be paid as
Contributions pursuant to the Plan.
(b) Payroll deductions shall commence on the first full payroll following
the Offering Date and shall end on the last payroll paid on or prior to the
Purchase Date of the Offering Period to which the Enrollment Documents are
applicable, unless sooner terminated by the participant as provided in Section
10.
6. Method of Payment of Contributions.
(a) A participant shall elect to have payroll deductions made on each
payday during the Offering Period in an amount not less than one percent (1%)
and not more than fifteen percent (15%) (or such greater percentage as the Board
may establish from time to time before an Offering Date) of such participant's
Compensation on each payday during the Offering Period. All payroll deductions
made by a participant shall be credited to his or her account under the Plan. A
participant may not make any additional payments into such account.
(b) A participant may discontinue his or her participation in the Plan as
provided in Section 10, or, on one occasion only during an Offering Period may
increase or decrease the rate of his or her Contributions with respect to the
Offering Period by completing and filing with the Company new Enrollment
Documents authorizing a change in the payroll deduction rate. The change in rate
shall be effective as of the
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beginning of the next payroll period following the date of filing of the new
Enrollment Documents, if the documents are completed at least five (5) business
days prior to such date and, if not, as of the beginning of the next succeeding
payroll period.
(c) Notwithstanding the foregoing, to the extent necessary to comply with
Section 423(b)(8) of the Code and Section 3(b) herein, a participant's payroll
deductions may be decreased during any Offering Period scheduled to end during
the current calendar year to 0%. Payroll deductions shall re-commence at the
rate provided in such participant's Enrollment Documents at the beginning of the
first Offering Period that is scheduled to end in the following calendar year,
unless terminated by the participant as provided in Section 10.
7. Grant of Option.
(a) On the Offering Date of each Offering Period, each eligible Employee
participating in such Offering Period shall be granted an option to purchase on
each Purchase Date a number of Shares of the Company's Common Stock determined
by dividing such Employee's Contributions accumulated prior to such Purchase
Date and retained in the participant's account as of the Purchase Date by the
applicable Purchase Price; provided however that the maximum number of Shares an
Employee may purchase during each Offering Period shall be 2,500 Shares (subject
to any adjustment pursuant to Section 18 below), and provided further that such
purchase shall be subject to the limitations set forth in Sections 3(b) and 12.
(b) The fair market value of the Company's Common Stock on a given date
(the "Fair Market Value") shall be determined by the Board in its discretion
based on the closing sales price of the Common Stock for such date (or, in the
event that the Common Stock is not traded on such date, on the immediately
preceding trading date), as reported by the National Association of Securities
Dealers Automated Quotation (Nasdaq) National Market or, if such price is not
reported, the mean of the bid and asked prices per share of the Common Stock as
reported by Nasdaq or, in the event the Common Stock is listed on a stock
exchange, the Fair Market Value per share shall be the closing sales price on
such exchange on such date (or, in the event that the Common Stock is not traded
on such date, on the immediately preceding trading date), as reported in The
Wall Street Journal.
8. Exercise of Option. Unless a participant withdraws from the Plan as
provided in Section 10, his or her option for the purchase of Shares will be
exercised automatically on each Purchase Date of an Offering Period, and the
maximum number of Shares subject to the option will be purchased at the
applicable Purchase Price with the accumulated Contributions in his or her
account. Fractional Shares shall be issued, as necessary. The Shares purchased
upon exercise of an option hereunder shall be deemed to be transferred to the
participant on the Purchase Date. During his or her lifetime, a participant's
option to purchase Shares hereunder is exercisable only by him or her.
9. Delivery. As promptly as practicable after a Purchase Date, the number
of Shares purchased by each participant upon exercise of his or her option shall
be deposited into an account established in the participant's name with the
Designated Broker. Any payroll deductions accumulated in a participant's account
that are not applied toward the purchase of Shares on a Purchase Date due to
limitations imposed by the Plan shall be returned to the participant.
10. Voluntary Withdrawal; Termination of Employment.
(a) A participant may withdraw all but not less than all the Contributions
credited to his or her account under the Plan at any time prior to a Purchase
Date by submitting a completed "Notice of Withdrawal" form to the Company's
Human Resources Department or electronically completing the required
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documentation provided by the Company through the Designated Broker, as directed
by the Company's Human Resources Department. All of the participant's
Contributions credited to his or her account will be paid to him or her promptly
after receipt of his or her notice of withdrawal and his or her option for the
current period will be automatically terminated, and no further Contributions
for the purchase of Shares will be made during the Offering Period.
(b) Upon termination of the participant's Continuous Status as an Employee
prior to the Purchase Date of an Offering Period for any reason, whether
voluntary or involuntary, including retirement or death, the Contributions
credited to his or her account will be returned to him or her or, in the case of
his or her death, to the person or persons entitled thereto under Section 14,
and his or her option will be automatically terminated.
(c) In the event an Employee fails to remain in Continuous Status as an
Employee of the Company for at least twenty (20) hours per week during the
Offering Period in which the employee is a participant, he or she will be deemed
to have elected to withdraw from the Plan and the Contributions credited to his
or her account will be returned to him or her and his or her option terminated.
(d) A participant's withdrawal from an offering will not have any effect
upon his or her eligibility to participate in a succeeding offering or in any
similar plan that may hereafter be adopted by the Company.
11. Interest. No interest shall accrue on the Contributions of a
participant in the Plan.
12. Stock.
(a) Subject to adjustment as provided in Section 18, the maximum number of
Shares that shall be made available for sale under the Plan shall be 1,000,000
Shares. If the Board determines that, on a given Purchase Date, the number of
shares with respect to which options are to be exercised may exceed (1) the
number of shares of Common Stock that were available for sale under the Plan on
the Offering Date of the applicable Offering Period, or (2) the number of shares
available for sale under the Plan on such Purchase Date, the Board may in its
sole discretion provide (x) that the Company shall make a pro rata allocation of
the Shares of Common Stock available for purchase on such Offering Date or
Purchase Date, as applicable, in as uniform a manner as shall be practicable and
as it shall determine in its sole discretion to be equitable among all
participants exercising options to purchase Common Stock on such Purchase Date,
and continue the Plan as then in effect, or (y) that the Company shall make a
pro rata allocation of the Shares available for purchase on such Offering Date
or Purchase Date, as applicable, in as uniform a manner as shall be practicable
and as it shall determine in its sole discretion to be equitable among all
participants exercising options to purchase Common Stock on such Purchase Date,
and terminate the Plan pursuant to Section 19 below. The Company may make a pro
rata allocation of the Shares available on the Offering Date of any applicable
Offering Period pursuant to the preceding sentence, notwithstanding any
authorization of additional Shares for issuance under the Plan by the Company's
stockholders subsequent to such Offering Date.
(b) The participant shall have no interest or voting right in Shares
covered by his or her option until such option has been exercised.
(c) Shares to be delivered to a participant under the Plan will be
registered in the name of the participant or in the name of the participant and
his or her spouse.
13. Administration. The Board, or a committee named by the Board, shall
supervise and administer the Plan and shall have full power to adopt, amend and
rescind any rules deemed desirable and appropriate for the administration of the
Plan and not inconsistent with the Plan, to construe and interpret the
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Plan, and to make all other determinations necessary or advisable for the
administration of the Plan.
14. Designation of Beneficiary.
(a) A participant may designate a beneficiary who is to receive any Shares
and cash, if any, from the participant's account under the Plan in the event of
such participant's death subsequent to the end of an Offering Period but prior
to delivery to him or her of such Shares and cash. In addition, a participant
may designate a beneficiary who is to receive any cash from the participant's
account under the Plan in the event of such participant's death prior to the
Purchase Date of an Offering Period. If a participant is married and the
designated beneficiary is not the spouse, spousal consent shall be required for
such designation to be effective. Beneficiary designations under this Section
14(a) shall be made as directed by the Human Resources Department of the
Company, which may require electronic submission of the required documentation
with the Designated Broker.
(b) Such designation of beneficiary may be changed by the participant (and
his or her spouse, if any) at any time by submission of the required notice,
which required notice may be electronic. In the event of the death of a
participant and in the absence of a beneficiary validly designated under the
Plan who is living at the time of such participant's death, the Company shall
deliver such Shares and/or cash to the executor or administrator of the estate
of the participant, or if no such executor or administrator has been appointed
(to the knowledge of the Company), the Company, in its discretion, may deliver
such Shares and/or cash to the spouse or to any one or more dependents or
relatives of the participant, or if no spouse, dependent or relative is known to
the Company, then to such other person as the Company may designate.
15. Transferability. Neither Contributions credited to a participant's
account nor any rights with regard to the exercise of an option or to receive
Shares under the Plan may be assigned, transferred, pledged or otherwise
disposed of in any way (other than by will, the laws of descent and
distribution, or as provided in Section 14) by the participant. Any such attempt
at assignment, transfer, pledge or other disposition shall be without effect,
except that the Company may treat such act as an election to withdraw funds in
accordance with Section 10.
16. Use of Funds. All Contributions received or held by the Company under
the Plan may be used by the Company for any corporate purpose, and the Company
shall not be obligated to segregate such Contributions.
17. Reports. Individual accounts will be maintained for each participant in
the Plan. Statements of account will be provided to participating Employees by
the Company or the Designated Broker at least annually, which statements will
set forth the amounts of Contributions, the per Share Purchase Price, the number
of Shares purchased and the remaining cash balance, if any.
18. Adjustments Upon Changes in Capitalization; Corporate Transactions.
(a) Adjustment. Subject to any required action by the stockholders of the
Company, the number of Shares covered by each option under the Plan that has not
yet been exercised, the number of Shares that have been authorized for issuance
under the Plan but have not yet been placed under option (collectively, the
"Reserves"), the maximum number of Shares of Common Stock that may be purchased
by a participant in an Offering Period, the number of Shares of Common Stock set
forth in Section 12(a)(i) above, and the price per Share of Common Stock covered
by each option under the Plan that has not yet been exercised, shall be
proportionately adjusted for any increase or decrease in the number of issued
Shares resulting from a stock split, reverse stock split, stock dividend,
combination or reclassification of the Common Stock (including any such change
in the number of Shares of Common Stock effected in connection with a change in
domicile of the
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Company), or any other increase or decrease in the number of Shares effected
without receipt of consideration by the Company; provided however that
conversion of any convertible securities of the Company shall not be deemed to
have been "effected without receipt of consideration." Such adjustment shall be
made by the Board, whose determination in that respect shall be final, binding
and conclusive. Except as expressly provided herein, no issue by the Company of
shares of stock of any class, or securities convertible into shares of stock of
any class, shall affect, and no adjustment by reason thereof shall be made with
respect to, the number or price of Shares subject to an option.
(b) Corporate Transactions. In the event of a dissolution or liquidation of
the Company, any Offering Period then in progress will terminate immediately
prior to the consummation of such action, unless otherwise provided by the
Board. In the event of a Corporate Transaction, each option outstanding under
the Plan shall be assumed or an equivalent option shall be substituted by the
successor corporation or a parent or Subsidiary of such successor corporation.
In the event that the successor corporation refuses to assume or substitute for
outstanding options, each Offering Period then in progress shall be shortened
and a new Purchase Date shall be set (the "New Purchase Date"), as of which date
any Offering Period then in progress will terminate. The New Purchase Date shall
be on or before the date of consummation of the transaction and the Board shall
notify each participant in writing, at least ten (10) days prior to the New
Purchase Date, that the Purchase Date for his or her option has been changed to
the New Purchase Date and that his or her option will be exercised automatically
on the New Purchase Date, unless prior to such date he or she has withdrawn from
the Offering Period as provided in Section 10. For purposes of this Section 18,
an option granted under the Plan shall be deemed to be assumed, without
limitation, if, at the time of issuance of the stock or other consideration upon
a Corporate Transaction, each holder of an option under the Plan would be
entitled to receive upon exercise of the option the same number and kind of
shares of stock or the same amount of property, cash or securities as such
holder would have been entitled to receive upon the occurrence of the
transaction if the holder had been, immediately prior to the transaction, the
holder of the number of Shares of Common Stock covered by the option at such
time (after giving effect to any adjustments in the number of Shares covered by
the option as provided for in this Section 18); provided however that if the
consideration received in the transaction is not solely common stock of the
successor corporation or its parent (as defined in Section 424(e) of the Code),
the Board may, with the consent of the successor corporation, provide for the
consideration to be received upon exercise of the option to be solely common
stock of the successor corporation or its parent equal in Fair Market Value to
the per Share consideration received by holders of Common Stock in the
transaction.
The Board may, if it so determines in the exercise of its sole discretion,
also make provision for adjusting the Reserves, as well as the price per Share
of Common Stock covered by each outstanding option, in the event that the
Company effects one or more reorganizations, recapitalizations, rights offerings
or other increases or reductions of Shares of its outstanding Common Stock, and
in the event of the Company's being consolidated with or merged into any other
corporation.
19. Amendment or Termination.
(a) The Board may at any time and for any reason terminate or amend the
Plan. Except as provided in Section 18, no such termination of the Plan may
affect options previously granted, provided that the Plan or an Offering Period
may be terminated by the Board on a Purchase Date or by the Board's setting a
new Purchase Date with respect to an Offering Period then in progress if the
Board determines that termination of the Plan and/or the Offering Period is in
the best interests of the Company and the stockholders or if continuation of the
Plan and/or the Offering Period would cause the Company to incur adverse
accounting charges as a result of a change after the effective date of the Plan
in the generally accepted accounting rules applicable to the Plan. Except as
provided in Section 18 and in this Section 19, no amendment to the Plan shall
make any change in any option previously granted that adversely affects the
rights of any participant. In
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addition, to the extent necessary to comply with Rule 16b-3 under the Exchange
Act, or under Section 423 of the Code (or any successor rule or provision or any
applicable law or regulation), the Company shall obtain stockholder approval in
such a manner and to such a degree as so required.
(b) Without stockholder consent and without regard to whether any
participant rights may be considered to have been adversely affected, the Board
(or its committee) shall be entitled to change the Offering Periods, limit the
frequency and/or number of changes in the amount withheld during an Offering
Period, establish the exchange ratio applicable to amounts withheld in a
currency other than U.S. dollars, permit payroll withholding in excess of the
amount designated by a participant in order to adjust for delays or mistakes in
the Company's processing of properly completed withholding elections, establish
reasonable waiting and adjustment periods and/or accounting and crediting
procedures to ensure that amounts applied toward the purchase of Common Stock
for each participant properly correspond with amounts withheld from the
participant's Compensation, and establish such other limitations or procedures
as the Board (or its committee) determines in its sole discretion advisable that
are consistent with the Plan.
20. Notices. All notices or other communications by a participant to the
Company under or in connection with the Plan shall be deemed to have been duly
given when received in the form specified by the Company at the location, or by
the person, designated by the Company for the receipt thereof.
21. Conditions Upon Issuance of Shares. Shares shall not be issued with
respect to an option unless the exercise of such option and the issuance and
delivery of such Shares pursuant thereto shall comply with all applicable
provisions of law, domestic or foreign, including, without limitation, the
Securities Act of 1933, as amended, the Exchange Act, the rules and regulations
promulgated thereunder, applicable state securities laws and the requirements of
any stock exchange upon which the Shares may then be listed, and shall be
further subject to the approval of counsel for the Company with respect to such
compliance.
As a condition to the exercise of an option, the Company may require the
person exercising such option to represent and warrant at the time of any such
exercise that the Shares are being purchased only for investment and without any
present intention to sell or distribute such Shares if, in the opinion of
counsel for the Company, such a representation is required by any of the
aforementioned applicable provisions of law.
22. Term of Plan; Effective Date. The Plan shall become effective upon
approval by the Company's stockholders. It shall continue in effect for a term
of ten (10) years unless sooner terminated under Section 19.
23. Additional Restrictions of Rule 16b-3. The terms and conditions of
options granted hereunder to, and the purchase of Shares by, persons subject to
Section 16 of the Exchange Act shall comply with the applicable provisions of
Rule 16b-3. This Plan shall be deemed to contain, and such options shall
contain, and the Shares issued upon exercise thereof shall be subject to, such
additional conditions and restrictions as may be required by Rule 16b-3 to
qualify for the maximum exemption from Section 16 of the Exchange Act with
respect to Plan transactions.
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PROXY
CENTRAL FREIGHT LINES, INC.
PROXY FOR ANNUAL MEETING OF STOCKHOLDERS MAY 19, 2004
Solicited on Behalf of the Board of Directors of the Company
The undersigned holder(s) of Common Stock of Central Freight Lines, Inc., a
Nevada corporation (the "Company"), hereby appoint(s) Robert V. Fasso and
Jeffrey A. Hale, and each or either of them, attorneys and proxies of the
undersigned, with full power of substitution, to vote all of the Common Stock
that the undersigned is (are) entitled to vote at the Annual Meeting of
Stockholders of the Company to be held at the Hilton Phoenix Airport, 2435 South
47th Street, Phoenix, Arizona 85034. , at 1:00 p.m., Phoenix Time, and at any
adjournment thereof, as follows:
1. Election of Directors [ ] FOR all nominees listed below [ ] WITHHOLD AUTHORITY to
(except as marked to the contrary below) vote for all nominees listed below
INSTRUCTIONS: To withhold authority to vote for any individual nominee, strike a line through the nominee's name below.
Robert V. Fasso Jerry Moyes Duane W. Acklie
John Breslow Porter J. Hall Gordan W. Winburne
2. Approval of the proposal to adopt the Company's 2004 Employee Stock Purchase Plan.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
3. In their discretion, the attorneys and proxies are authorized to vote upon such other matters as may properly come before the
meeting or any adjournment thereof.
[ ] GRANT AUTHORITY to vote [ ] WITHHOLD AUTHORITY to vote
(Continued and to be signed on reverse side)
(Continued from the other side)
A vote FOR Proposals 1 and 2, and granting the proxies discretionary authority, is recommended by the Board of Directors of the
Company. When properly executed, this proxy will be voted in the manner directed by the undersigned stockholder(s). If no direction
is given, the proxy will be voted "For" Proposals 1 and 2, and, at the discretion of the proxy holder, upon such other matters as
may properly come before the meeting or any adjournment thereof. Proxies marked "Abstain" and broker non-votes are counted only for
purposes of determining whether a quorum is present at the meeting.
The undersigned acknowledges receipt of the Notice and Proxy Statement for the 2004 Annual Meeting of Stockholders and the
Annual Report to Stockholders for the fiscal year ended December 31, 2003.
Dated __________________________________, 2004
____________________________________________________
____________________________________________________
Signature(s)
Please date and sign exactly as name(s) appear(s) on your
Common Stock certificate(s). If shares are held jointly, each
owner should sign this proxy. If acting as an executor,
administrator, trustee, custodian, guardian, etc., you should
so indicate in signing. If the stockholder is a corporation or
other business entity, the proxy should indicate the full
legal name of the corporation or entity, and be signed by a
duly authorized officer (indicating his or her position).