FROZEN FOOD EXPRESS INDUSTRIES, INC.
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD APRIL 29, 2004
TO THE SHAREHOLDERS OF
FROZEN FOOD EXPRESS INDUSTRIES, INC.:
Notice is hereby given that the Annual Meeting of Shareholders (the "Annual
Meeting") of Frozen Food Express Industries, Inc. (the "Company"), a Texas
corporation, will be held on Thursday, April 29, 2004, at 3:30 p.m., Dallas,
Texas time, at The City Club, 901 Main Street, 69th Floor, Dallas, Texas 75202
for the following purposes:
1. To elect three Class III directors for a three-year term, and
until their respective successors are elected and qualified;
2. Considering and voting upon approval of an amendment to the
Company's 2002 Incentive and Nonstatutory Option Plan,
increasing the number of shares available for the grant of
options from 850,000 to 1,700,000 shares; and
3. Transacting such other business as may properly be brought
before the Annual Meeting or any adjournment thereof.
You are encouraged to attend the Annual Meeting in person. Directions to
the Annual Meeting are printed on the outside back cover of this Proxy. Whether
or not you plan to attend the Annual Meeting, please complete, date, sign and
return the accompanying proxy at your earliest convenience. A reply envelope is
provided for this purpose, which needs no postage if mailed in the United
States. Your immediate attention is requested in order to save your Company
additional solicitation expense.
Information regarding the matters to be acted upon at the Annual Meeting is
contained in the Proxy Statement attached to this Notice.
Only shareholders of record at the close of business on March 19, 2004 (the
"Record Date") are entitled to notice of and to vote at such meeting or any
adjournment thereof.
By Order of the Board of Directors
/s/ Leonard W. Bartholomew
Dallas, Texas LEONARD W. BARTHOLOMEW
March 31, 2004 Secretary
TABLE OF CONTENTS
PAGE
----
Solicitation of Proxy-------------------------------------------- 1
Annual Report---------------------------------------------------- 1
Revocation of Proxy---------------------------------------------- 1
Quorum and Voting------------------------------------------------ 2
Outstanding Capital Stock; Principal Shareholders---------------- 2
Corporate Governance Principles and Board Matters---------------- 3
Director Compensation-------------------------------------------- 7
Nominees for Directors------------------------------------------- 8
Approve of an Amendment to the Company's 2002
Incentive and Nonstatutory Option Plan------------------------- 11
Executive Compensation------------------------------------------- 14
Compensation Committee Report on Executive Compensation---------- 17
Transactions with Management and Directors----------------------- 20
Five-Year Shareholder Return Comparison-------------------------- 21
Independent Public Accountants----------------------------------- 21
Report of the Audit Committee of the Board of Directors---------- 22
Section 16(a) Beneficial Ownership Reporting Compliance---------- 23
Shareholder Proposal at the 2005 Annual Meeting------------------ 24
Appendix A - Audit Committee Charter
FROZEN FOOD EXPRESS INDUSTRIES, INC.
1145 EMPIRE CENTRAL PLACE
P. O. BOX 655888
DALLAS, TEXAS 75265-5888
TELEPHONE: (214) 630-8090
PROXY STATEMENT FOR ANNUAL MEETING OF
SHAREHOLDERS TO BE HELD APRIL 29, 2004
SOLICITATION OF PROXIES
The accompanying proxy is solicited by the management of Frozen Food
Express Industries, Inc. (the "Company") for use at the Annual Meeting of
Shareholders to be held at The City Club, 901 Main Street, 69th Floor, Dallas,
Texas 75202, on the 29th day of April, 2004 at 3:30 p.m., Dallas, Texas time
(the "Annual Meeting"), and at any adjournment thereof, for the purposes set
forth in the accompanying Notice of Annual Meeting of Shareholders. Directions
to the Annual Meeting are printed on the inside front cover of this Proxy. This
Proxy Statement and accompanying proxy are being mailed or delivered to
shareholders on or about March 31, 2004. Solicitations of proxies may be made by
personal interview, mail, telephone, facsimile, electronic mail or telegram by
directors, officers and regular employees of the Company. The Company may also
request banking institutions, brokerage firms, custodians, trustees, nominees
and fiduciaries to forward solicitation material to the beneficial owners of the
Company's $1.50 par value Common Stock (the "Common Stock") held of record by
such persons and may reimburse such forwarding expenses. All costs of preparing,
printing, assembling and mailing the form of proxy and the material used in the
solicitation thereof and all clerical and other expenses of solicitation will be
borne by the Company.
ANNUAL REPORT
The Company's Annual Report on Form 10-K covering the fiscal year ended
December 31, 2003, including audited financial statements (the "Annual Report"),
is also being mailed to the shareholders entitled to notice of and vote at the
Annual Meeting in the envelope containing this Proxy Statement. The Annual
Report does not form any part of the material for solicitation of proxies.
SIGNATURES OF PROXIES IN CERTAIN CASES
If a shareholder is a corporation, the accompanying proxy should be signed
in its full corporate name by the President or another authorized officer, who
should indicate his title. If a shareholder is a partnership, the proxy should
be signed in the partnership name by an authorized person. If stock is
registered in the name of two or more trustees or other persons, the proxy
should be signed by each of them. If stock is registered in the name of a
decedent, the proxy should be signed by an executor or an administrator. The
executor or administrator should attach to the proxy appropriate instruments
showing his or her qualification and authority. Proxies signed by a person as
agent, attorney, administrator, executor, guardian or trustee should indicate
such person's full title following his or her signature.
REVOCATION OF PROXY
All shares represented by a valid proxy will be voted. A proxy may be
revoked at any time before it is voted by the giving of written notice to that
effect to the Secretary of the Company, by executing and delivering a
later-dated proxy or by attending the Annual Meeting and voting in person.
1
QUORUM AND VOTING
The presence, in person or by proxy, of the holders of a majority of the
outstanding shares of Common Stock entitled to vote is necessary to constitute a
quorum at the Annual Meeting. Abstentions and broker non-votes will be counted
in determining the presence of a quorum. A "broker non-vote" occurs when a
nominee holding shares for a beneficial owner has voted on certain matters at
the Annual Meeting pursuant to discretionary authority or instructions from the
beneficial owner but may not have received instructions or exercised
discretionary voting power with respect to other matters.
Each shareholder will be entitled to one vote, in person or by proxy, for
each share of such stock owned of record at the close of business on March 19,
2004 (the "Record Date"). A shareholder may, by checking the appropriate box on
the proxy: (i) vote for all director nominees as a group; (ii) withhold
authority to vote for all director nominees as a group; or (iii) vote for all
director nominees as a group except those nominees identified by the shareholder
in the appropriate area. With respect to the other proposal, a shareholder may,
by checking the appropriate box on the proxy; (a) vote "FOR" the proposal; (b)
vote "AGAINST" the proposal; or (c) "ABSTAIN" from voting on the proposal.
Cumulative voting is not permitted.
ACTION TO BE TAKEN UNDER THE PROXY
The accompanying proxy, if properly executed and returned, will be
voted, unless otherwise specified thereon, (i) for the election of the three
nominees named under "Nominees for Directors" below, (ii) for the approval of an
amendment to the Company's 2002 Incentive and Non-Statutory Option Plan and
(iii) in the transaction of such other business as may properly come before the
Annual Meeting or any adjournment thereof in accordance with the judgment of the
proxies. The management of the Company does not know of any such other matter or
business. Should any nominee named herein for the office of director become
unable or be unwilling to accept nomination for or election to such position,
the persons acting under the proxy will vote for the election, in his stead, of
such other persons as the management of the Company may recommend. The
management of the Company has no reason to believe that any of the nominees will
be unable or unwilling to serve if elected to office. To be elected, each
director must receive the affirmative vote of the holders of a plurality of the
issued and outstanding shares of common stock represented in person or by proxy
at the Annual Meeting. Approval of the proposed amendment to the Company's 2002
Incentive and Non-Statutory Option Plan will require the affirmative vote of the
holders of a majority of the shares represented in person or by proxy at the
Annual Meeting. Abstentions and broker non-votes will have no affect in the
election of directors. Broker non-votes will have no affect on the proposal to
approve an amendment to the Company's Incentive and Non-Statutory Option Plan,
and abstentions will have the same affect as a vote against such proposal.
OUTSTANDING CAPITAL STOCK; PRINCIPAL SHAREHOLDERS
At the close of business on the Record Date, there were outstanding and
entitled to be voted 17,361,439 shares of Common Stock. The following table sets
forth certain information, as of the Record Date, with respect to each person
known to the management of the Company to be a beneficial owner of more than
five percent of the outstanding Common Stock.
2
AMOUNT AND NATURE OF PERCENT
NAME AND ADDRESS OF BENEFICIAL OWNER BENEFICIAL OWNERSHIP(1) OF CLASS
- -----------------------------------------------------------------------------------------------------
Frozen Food Express Industries, Inc 3,379,374 19.46%
401(k) Savings Plan
ABN AMRO Trust Services Company
161 N Clark Street, 10th Floor
Chicago, IL 60601
Stoney M. Stubbs, Jr. (2) 1,776,095(3) 9.93%
158 Jellico Circle
Southlake, TX 76092
Royce & Associates, Inc. 1,691,142(4) 9.74%
1414 Avenue of the Americas
New York, NY 10019
Sarah M. Daniel(5) 1,444,280 8.32%
612 Linda
El Paso, TX 79922
Lucile B. Fielder(5) 1,326,102 7.64%
104 South Commerce St.
Lockhart, TX 78644
Dimensional Fund Advisors, Inc. 1,082,479(6) 6.23%
1299 Ocean Avenue, 11th Floor
Santa Monica, CA 90401
- --------------------------------
(1) Except as otherwise noted, each beneficial owner has sole voting and
investment power with respect to all shares owned by him or her, and all
shares are directly held by the person named.
(2) Mr. Stubbs holds, and has held for the past twenty-four years, the offices
of Chairman of the Board, President and Chief Executive Officer of the
Company and FFE Transportation Services, Inc. ("FFE").
(3) Includes 526,326 shares issuable pursuant to options exercisable by Mr.
Stubbs within 60 days, 207,697 shares allocated to his account in the
Frozen Food Express Industries, Inc. 401(k) Savings Plan, 23,626 shares
allocated to his account in the FFE Transportation Services, Inc. 401(k)
Wrap Plan, and 769,387 shares held in family partnerships controlled by Mr.
Stubbs.
(4) Information concerning the number of shares owned by Royce & Associates,
Inc. is as of October 31, 2003 and was obtained from a Schedule 13G dated
February 3, 2004.
(5) Ms. Daniel has sole voting and dispositive power over 66,597 shares, which
includes joint voting and dispositive power with her husband over 59,631
shares, and shared voting and dispositive power with Ms. Fielder over
1,323,332 shares owned by Weller Investment, Ltd. Ms. Fielder has sole
voting and dispositive power over 2,770 shares, of which 730 shares are
held as custodian for her daughter, and shared voting and dispositive power
with Ms. Daniel over 1,323,332 shares owned by Weller Investment Ltd.
(6) Information concerning the number of shares owned by Dimensional Fund
Advisors, Inc. is as of December 31, 2003 and was obtained from a Schedule
13G dated February 6, 2004.
CORPORATE GOVERNANCE PRINCIPLES AND BOARD MATTERS
The Company is committed to having sound corporate governance principles.
Having such principles is essential to running the Company's business
efficiently and maintaining integrity in the marketplace. The Company's Code of
Business Conduct and Ethics is available on the Internet at
http://www.ffex.net/corporategovernance.
Board Independence
The Company's Board of Directors (the "Board") has determined that each of
our five non-employee directors has no material relationship with the Company
(either directly or as a partner, shareholder or officer of an organization that
has a relationship with the Company) and is independent within the meaning of
the Nasdaq Stock Market, Inc. ("Nasdaq") director independence standards. Such
directors are sometimes hereinafter referred to as "Independent Directors" and
are identified in the table set forth below.
3
Consideration of Director Nominees
Each Independent Director has the responsibility to periodically assess,
develop and communicate with the full Board concerning the appropriate criteria
for nominating and appointing directors, including the Board's size and
composition, applicable listing standards and laws, individual director
performance, expertise, experience, willingness to serve actively, number of
other public and private company boards on which a director candidate serves,
consideration of director nominees timely proposed by stockholders in accordance
with the bylaws and other appropriate factors. Other specific duties and
responsibilities of the Independent Directors as a group include but are not
limited to: recommending to the Board the individuals to be nominated for
election as directors at each annual meeting of stockholders, identifying and
recommending to the Board the appointees to be selected by the Board for service
on the committees of the Board, retaining and terminating any search firm used
to identify director candidates, overseeing an annual review of the performance
of the full Board and performing any other activities the Board considers
appropriate.
Procedures for Nominations by Shareholders
The Company does not have a standing nominating committee or a committee
performing similar functions. The board of directors believes that it is
appropriate for the Company not to have such a committee because director
nominees have historically been selected by the board of directors, a majority
of which are considered independent. In accordance with the Nasdaq Stock Market
Marketplace rules, a majority of the Company's independent directors will
recommend director nominees for the board's selection. Because the Company does
not maintain a standing nominating committee, it has no written charter;
however, the Company has adopted the nomination policy described in this section
by board resolution.
The Independent Directors have adopted policies concerning the process for
the consideration of director candidates by shareholders. The Independent
Directors will consider director candidates submitted by shareholders of the
Company. Any shareholder wishing to submit a candidate for consideration should
send the following information to the Corporate Secretary, Frozen Food Express
Industries, Inc., 1145 Empire Central Place, Dallas, Texas 75247:
o The name and address of the shareholder submitting the candidate as it
appears on the Company's books; the number and class of shares owned
beneficially and of record by such shareholder and the length of
period held; and proof of ownership of such shares;
o Name, age and address of the candidate;
o A detailed resume describing, among other things, the candidate's
educational background, occupation, employment history, and material
outside commitments (e.g., memberships on other boards and committees,
charitable foundations, etc.);
o Any information relating to such candidate that is required to be
disclosed in solicitations of proxies for election of directors in an
election contest, or is otherwise required, in each case pursuant to
the Securities Exchange Act of 1934 and rules adopted thereunder;
4
o A description of any arrangements or understandings between the
recommending shareholder and such candidate;
o A supporting statement which describes the candidate's reasons for
seeking election to the Board of Directors, and documents his or her
ability to satisfy the director qualifications; and
o A signed statement from the candidate, confirming his or her
willingness to serve on the Board of Directors.
The Corporate Secretary will promptly forward such materials to the
Independent Directors of the Company. The Secretary will also maintain copies of
such materials for future reference by the Independent Directors when filling
Board positions.
If a vacancy arises or the Board decides to expand its membership, the
Independent Directors will seek recommendations of potential candidates from a
variety of sources (which may include incumbent directors, shareholders, the
Corporation's management and third party search firms). At that time, the
Independent Directors also will consider potential candidates submitted by
shareholders in accordance with the procedures described above. The Independent
Directors will then evaluate each potential candidate's educational background,
employment history, outside commitments and other relevant factors to determine
whether he or she is potentially qualified to serve on the Board. The
Independent Directors seek to identify and recruit the best available
candidates, and intend to evaluate qualified shareholder candidates on the same
basis as those submitted by other sources.
After completing this process, the Independent Directors will determine
whether one or more candidates are sufficiently qualified to warrant further
investigation. If the process yields one or more desirable candidates, the
Independent Directors will rank them by order of preference, depending on their
respective qualifications and the Company's needs. The Independent Directors
will then contact the desired candidate(s) to evaluate their potential interest
and to set up interviews with the Independent Directors. All such interviews
will be held in person, and include only the candidate and the Independent
Directors. Based upon interview results, the candidate's qualifications and
appropriate background checks, the Independent Directors will then decide
whether they will recommend the candidate's nomination to the full Board.
Shareholder Communications With the Board of Directors
The Board of Directors has adopted the following procedures for
shareholders to send communications to the Board or individual directors of the
Company:
Shareholders seeking to communicate with the Board of Directors should
submit their written comments to the Secretary of the Company, Frozen Food
Express Industries, Inc., 1145 Empire Central Place, Dallas, Texas 75247. The
Secretary of the Company will forward all such communications (excluding routine
advertisements and business solicitations and communications which the Secretary
of the Company, in his or her sole discretion, deems to be a security risk or
for harassment purposes) to each member of the Board of Directors, or if
applicable, to the individual director(s) named in the correspondence. Subject
5
to the following, the Chairman of the Board and the Independent Directors will
receive copies of all shareholder communications, including those addressed to
individual directors, unless such communications address allegations of
misconduct or mismanagement on the part of the Chairman. In such event, the
Secretary of the Company will first consult with and receive the approval of the
Independent Directors before disclosing or otherwise discussing the
communication with the Chairman.
The Company reserves the right to screen materials sent to its directors
for potential security risks and/or harassment purposes, and the Company also
reserves the right to verify ownership status before forwarding shareholder
communications to the Board of Directors.
The Secretary of the Company will determine the appropriate timing for
forwarding shareholder communications to the directors. The Secretary will
consider each communication to determine whether it should be forwarded promptly
or compiled and sent with other communications and other Board materials in
advance of the next scheduled Board meeting.
Shareholders also have an opportunity to communicate with the Board of
Directors at the Company's Annual Meeting of Shareholders. Absent unusual
circumstances, directors are expected to attend all Annual Meetings of
Shareholders. All directors attended the 2004 Annual Meeting of Shareholders.
Board Structure and Committee Composition
Our Board has five independent directors, an Audit committee and a
Compensation committee. The membership during 2003 and the function of each of
the committees are described below. During 2003, the Board held five meetings.
Each director attended at least 75% of all Board and applicable committee
meetings.
- ---------------------------------------------------------------- ------------------- ------------------------
NAME OF INDEPENDENT DIRECTOR AUDIT COMPENSATION
- ---------------------------------------------------------------- ------------------- ------------------------
- ---------------------------------------------------------------- ------------------- ------------------------
Jerry T. Armstrong X
- ---------------------------------------------------------------- ------------------- ------------------------
W. Mike Baggett X X
- ---------------------------------------------------------------- ------------------- ------------------------
Brian R. Blackmarr X*
- ---------------------------------------------------------------- ------------------- ------------------------
Leroy Hallman X* X
- ---------------------------------------------------------------- ------------------- ------------------------
T. Michael O'Connor X
- ---------------------------------------------------------------- ------------------- ------------------------
Number of Meetings in Fiscal 2003 8 3
- ---------------------------------------------------------------- ------------------- ------------------------
X = Committee member; * = Chair
Audit Committee
The Board has concluded that the Audit Committee is comprised only of
Independent Directors and that Mr. Armstrong is the Audit Committee financial
expert within the meaning of the Securities and Exchange Commission rules. The
Audit Committee assists the Board in fulfilling its responsibilities for general
oversight of the integrity of the Company's financial statements, the
independent auditors' qualifications and independence, the Company's compliance
with legal and regulatory requirements and the Company's internal audit function
and internal controls over financial reporting. The Audit Committee works
closely with management as well as the Company's independent public accountants.
The report of the Audit Committee is begins herein on page 22. The charter
of the Audit Committee is attached hereto as Appendix A.
6
Compensation Committee
The Compensation Committee issues a report annually on executive
compensation for inclusion in the proxy statement and provides a general
overview of the Company's compensation structure, including the Company's equity
compensation and certain employee benefit plans. Other specific duties and
responsibilities include reviewing and approving objectives relevant to
executive officer compensation, evaluating performance and determining the
compensation of executive officers in accordance with those objectives,
approving and amending the Company's incentive compensation and stock option
program and recommending compensation arrangements for the directors. The
current report of the Compensation Committee is begins herein on page 17.
DIRECTOR COMPENSATION
Directors who are not employees of the Company receive $1,000 for each
meeting personally attended, $500 for each telephonic meeting attended and $500
for each committee meeting attended which is not on the same day as a Board
meeting.
The 1999 Non-Employee Director Stock Option Plan (the "Director Plan")is
intended to advance the interests of the Company and its shareholders by
attracting and retaining experienced and able non-employee Directors. Upon a
non-employee Director's initial appointment or election to the Board, he or she
is granted an option to purchase 9,375 shares of Common Stock. Upon reelection
each non-employee Director is granted an option to purchase 1,875 shares of
Common Stock.
If a non-employee director has served for one or more years prior to the
grant of an option, the option is immediately exercisable for one-seventh of the
number of shares subject to the option for each full year such non-employee
director has served. On each anniversary thereafter, one-seventh of the number
of shares subject to the option become exercisable. Options expire if not
exercised before the tenth anniversary of grant. Upon death, options become
fully exercisable and may be exercised by the beneficiary under the option
holder's will or the executor of such option holder's estate at any time prior
to the second anniversary of his or her death. If an option holder ceases to be
a director for any other reasons, the vested options may be exercised at any
time prior to the second anniversary of the date he or she ceases to be a
director. In no event, however, shall the period during which options may be
exercised extend beyond the tenth anniversary of an option's grant. No shares
from the exercise of the options may be sold by a director until the expiration
of six months after the date of grant.
Per-share stock option exercise prices are the greater of $1.50 or fifty
percent (50%) of the fair market value of the Common Stock at the close of
business on the day prior to the date of a stock option's grant. The exercise
price may be paid in cash, check or shares of the Company's Common Stock. No
option may be granted pursuant to the Director Plan after March 3, 2005. Grants
are subject to adjustments to reflect certain changes in capitalization.
On February 12, 2003, Mr. Jerry T. Armstrong, a non-employee Director, was
appointed to the Board and was granted an option to purchase 9,375 shares with
an exercise price of $1.50 per share.
On April 24, 2003 each Independent Director was granted an option to
purchase 1,875 shares with an exercise price of $1.50 per share.
7
NOMINEES FOR DIRECTORS
The Company's Board of Directors currently consists of eight members and is
divided into three classes. The directors in one of the three classes are
elected to serve for a three-year term. At the 2004 Annual Meeting, three
incumbent Class III directors will be nominated for election to serve until the
year 2007 Annual Meeting of Shareholders or until their successors are elected
and qualified. Two Class I and three Class II incumbent directors will not be
elected this year, because their current three-year terms do not expire until
2005 or beyond.
If you sign your proxy or voting instruction card but do not give
instructions with respect to the voting of directors, your shares will be voted
for the three persons recommended by the Board. If you wish to give specific
instructions with respect to the voting of directors, you may do so by
indicating your instructions on your proxy or voting instruction card.
If any nominee is unable or unwilling to accept nomination, the persons
acting under the proxy will vote for the election, in his stead, of such other
person as the management of the Company may recommend. The management of the
Company has no reason to believe that any of the nominees will be unable or
unwilling to serve if elected to office. To be elected, each director must
receive the affirmative vote of the holders of a plurality of the issued and
outstanding shares of Common stock represented in person or by proxy and voting
at the Annual Meeting. Abstentions and broker non-votes will have no effect on
the election of directors.
The Company's Bylaws provide that the Board of Directors shall consist of
nine directors. Presently, there are eight directors. Management is attempting
to identify a qualified candidate to fill the vacancy on the Board.
The following table presents information regarding the name, occupation,
term as a director of the Company and beneficial ownership of the Company's
Common Stock for all three of the persons nominated for election to be a
director at the Annual Meeting and of the other directors not standing for
election at this Annual Meeting. Each director has served continuously since the
date he first became a director.
OUR BOARD RECOMMENDS A VOTE FOR THE ELECTION TO THE BOARD OF EACH OF THE
FOLLOWING NOMINEES.
8
AMOUNT AND
PRINCIPAL OCCUPATION FIRST TERM NATURE OF PERCENT
DURING PAST FIVE YEARS BECAME A EXPIRATION BENEFICIAL OF
NAME AGE AND DIRECTORSHIPS DIRECTOR DATE CLASS OWNERSHIP(1) CLASS
- -------------------------- ----- ------------------------------------ ----------- ------------ ------- --------------- ----------
NOMINEES FOR ELECTION
- ---------------------
T. Michael 49 Partner T. J. O'Connor 1992 2007 III 16,875(2) *
O'Connor Cattle Co.
Stoney M. Chairman of the Board
Stubbs, Jr. 67 President and Chief 1977 2007 III 1,776,095(3) 9.93%
Executive Officer of
the Company and FFE
Charles G. 62 Executive Vice President of 1982 2007 III 794,263(5) 4.48%
Robertson (4) the Company and Executive
Vice President and Chief
Operating Officer of FFE
CONTINUING DIRECTORS
- --------------------
Jerry T. Armstrong 65 Chairman and CEO of Wind 2003 2005 I 1,607(6) *
Associates, Inc., a private
investment and management
company, Mr. Armstrong has
held executive positions and
served on the boards of a
number of transportation
companies and currently serves
as a director of Landair
Corporation.
Leroy Hallman 88 Attorney, Retired 1975 2005 I 32,275(7) *
Brian R. Blackmarr 62 CEO, Fusion Laboratories, Inc., a 1990 2006 II 31,875(8) *
software company, since
January 2001, eBus
Link, Inc., a technology
consulting company, from
August 1999 until January
2001, and previously President
B. R. Blackmarr and Associates
Inc.
W. Mike Baggett 57 Chairman, President and CEO 1999 2006 II 15,421(9) *
Winstead Sechrest &
Minick, P.C., a Dallas-based
law firm
F. Dixon McElwee, 57 Senior Vice President of the 1999 2006 II 103,688(10) *
Jr. (4) Company and FFE since
September 1999 and, prior
thereto, Executive Vice
President and Chief
Financial Officer for
Cameron-Ashley Building
Products
--------- -----
All directors and executive officers, as a group (8 people) 2,772,099(11) 15.06%
========= =====
- -----------------------------------------------------------
* less than 1%
(1) Except as otherwise noted, all shares are held directly, and the owner
has sole voting and investment power.
(2) Represents 16,875 shares issuable pursuant to options exercisable by
Mr. O'Connor within 60 days.
9
(3) Includes 526,326 shares issuable pursuant to options exercisable by
Mr. Stubbs within 60 days, 207,697 shares allocated to his account in
the Frozen Food Express Industries, Inc. 401(k) Savings Plan, 23,626
shares allocated to his account in the FFE Transportation Services,
Inc. 401(k) Wrap Plan, and 769,387 shares held in family partnerships
controlled by Mr. Stubbs.
(4) Messrs. Robertson and McElwee are also directors of FFE.
(5) Includes 366,653 shares issuable pursuant to options exercisable by
Mr. Robertson within 60 days, 138,701 shares allocated to his account
in the Frozen Food Express Industries, Inc. 401(k) Savings Plan,
19,058 shares allocated to his account in the FFE Transportation
Services, Inc. 401(k) Wrap Plan, and 192,236 shares held by a family
partnership controlled by Mr. Robertson.
(6) Represents 1,607 shares issuable pursuant to options exercisable by
Mr. Armstrong within 60 days.
(7) Includes 11,250 shares issuable pursuant to options exercisable by Mr.
Hallman within 60 days and 7,475 shares held by a trust of which Mr.
Hallman is the Trustee.
(8) Includes 16,875 shares issuable pursuant to options exercisable by Mr.
Blackmarr within 60 days.
(9) Includes 15,003 shares issuable pursuant to options exercisable by Mr.
Baggett within 60 days.
(10) Includes 86,725 shares issuable pursuant to options exercisable by Mr.
McElwee within 60 days, 5,604 shares allocated to Mr. McElwee's
account in the Frozen Food Express Industries, Inc. 401(k) Savings
Plan and 11,359 shares allocated to his account in the FFE
Transportation Services, Inc. 401(k) Wrap Plan.
(11) Includes 1,041,314 shares issuable pursuant to options exercisable
within 60 days, 352,002 shares allocated to the accounts of executive
officers pursuant to the Frozen Food Express Industries, Inc. 401(k)
Savings Plan, 54,043 shares allocated to the accounts of executive
officers pursuant to the FFE Transportation Services, Inc, 401(k) Wrap
Plan and 961,623 shares held by family partnerships controlled by
directors and executive officers, and 7,475 shares held by a trust of
which a director is Trustee.
10
APPROVAL OF AN AMENDMENT TO THE COMPANY'S 2002 INCENTIVE AND
NONSTATUTORY OPTION PLAN
The Company's 2002 Incentive and Nonstatutory Option Plan (the "2002 Plan")
was previously approved by the shareholders on May 8, 2002.
The Board of Directors of the Company has approved, and proposed that the
shareholders approve at the Annual Meeting, an Amendment to the 2002 Plan
increasing the number of shares of Common Stock reserved for issuance from
850,000 to 1,700,000 shares.
OUR BOARD RECOMMENDS A VOTE FOR THE APPROVAL OF THE AMENDMENT TO THE
COMPANY'S 2002 INCENTIVE AND NONSTATUTORY OPTION PLAN.
GENERAL
The objective of the 2002 Plan is to provide an incentive for key
employees, including officers and directors who may be employees, and certain
non-employees, of the Company or its subsidiaries to remain in the service of
the Company by providing them with opportunities to acquire an economic interest
in the future success and prosperity of the Company and its subsidiaries.
There are 387,500 shares available for future grants under the 2002 Plan,
which the Board believes is not sufficient to achieve the purpose of the 2002
Plan, which is to promote Company success by aligning key employee financial
interest with long-term shareholder value.
The following table summarizes options granted under the 2002 Plan to the
individuals specified below in 2003 and options under the 2002 Plan held by the
individuals specified below as of March 23, 2004:
NUMBER OF NUMBER OF
OPTIONS GRANTED OPTIONS
NAME AND POSITION IN 2003 OUTSTANDING
----------------- ------- -----------
Stoney M. (Mit) Stubbs, Jr-------------------------- 90,000 90,000
Chairman of the Board, President and Chief
Executive Officer
Charles G. Robertson-------------------------------- 65,000 65,000
Executive Vice President
F. Dixon McElwee, Jr.------------------------------- 40,000 40,000
Senior Vice President
Executive Officer Group----------------------------- 195,000 195,000
Non-Executive Directors Group----------------------- - -
Non-Executive Officer Employee Group---------------- 247,500 267,500
On March 23, 2004, the closing sales price of the Company's Common Stock as
reported by Nasdaq was $6.62.
Options may be granted under the 2002 Plan to employees and consultants of
the Company or its subsidiaries. Both incentive and nonstatutory stock options
may be granted under the 2002 Plan. However, no incentive stock options may be
granted to any individual who is not an employee of the Company or one of its
subsidiaries on the date of grant. The Company and its subsidiaries had
approximately 2,811 employees as of December 31, 2003, three of whom are also
serving as directors of the Company. Any employee-director or
consultant-director is eligible to receive options under the 2002 Plan, unless
such person serves on the Committee(as hereinafter defined). Actual participants
in the 2002 Plan in this or next fiscal year cannot be determined precisely nor
can the benefits or amounts that will be received by or allocated to any
participant.
11
Options granted under the 2002 Plan will be evidenced by a written option
agreement, the terms and provisions of which will be determined by the Committee
or by the Board of Directors at the time an option is granted. The exercise
price for incentive stock options granted under the Plan and for non-statutory
options intended to qualify for the performance-based compensation exception of
Section 162(m) of the Code will not be less than 100% of the fair market value
of a share of the Company's Common Stock at the time of the grant. The exercise
price for nonstatutory stock options granted under the Plan and not intended to
qualify for the performance-based compensation exemption of Section 162(m) of
the Code will be determined by the Committee or Board of Directors at the time
of the grant, but will not be less than the greater of the par value of the
Common Stock ($1.50 per share) or 50% of the fair market value of a share of the
Company's Common Stock at the time of the grant. The term of the options granted
under the 2002 Plan will be determined by the Committee or the Board of
Directors, but may not exceed ten years. In the case of incentive stock options
granted to a 5% or more shareholder of the Company, such options may not have an
exercise price of less than 110% of the fair market value of a share of the
Company's Common Stock at the time of grant and may not have a term of more than
five years. In addition, in order to comply with the performance-based
compensation exception of Section 162(m) of the Code, the Plan provides that
options with respect to no more than 100,000 shares may be granted to any
individual option holder in any fiscal year of the Company.
Except as may be included in a particular option agreement and then only to
the extent permitted by applicable law, options granted under the 2002 Plan
shall be exercisable during the option holder's lifetime only by that holder or
such holder's legal guardian or legal representative and are not transferable
other than by will or the laws of descent and distribution, except that the
nonstatutory options may be transferable, in the discretion of the Committee, by
gift or sale to certain family members or trusts or other entities for the
benefit of family members of the option holder. Options will automatically
terminate upon the severance of the option holder's relationship with the
Company or its Subsidiaries; provided that the portion of the option that is
exercisable at the time of such severance may be exercised for a period equal to
the lesser of the remainder of the term of the option or (a) in the case of any
employee, (i) for a period of 90 days after (A) the severance of the employment
relationship or (B) the employee's retirement, or (ii) for a period of one year
after the death of such employee during the employment relationship or within 90
days of such employee's retirement; or (b) in the case of a non-employee, (i)
for a period of 90 days after the severance of the relationship between such
non-employees and the Company, or (ii) for a period of one year after the death
of such non-employee.
The option price may be paid in cash or, at the discretion of the Committee
or the Board of Directors, or if the related option agreement so provides,
partially or entirely in issued and outstanding Common Stock of the Company
owned by the option holder, which shall be valued at the fair market value of
such Common Stock on the date the option is exercised. In addition, any
resulting withholding tax may be paid with such Common Stock acquired pursuant
to the exercise price of the options.
12
Administration
The 2002 Plan will be administered by the Board of Directors or by a
committee (the "Committee") consisting of two or more directors who are
non-employee directors of the Company within the meaning of Rule 16b-3 under the
Securities Exchange Act of 1934, as amended, and who meet the requirements of
being "outside directors" within the meaning of the performance-based
compensation exception of Section 162(m) of the Code. The members of the
Committee are appointed by and serve at the pleasure of the Board of Directors.
The Committee has full authority, subject to the provisions of the 2002 Plan, to
determine the individuals to whom options are to be granted, the number of
shares of Common Stock represented by each option, the time or times at which
options shall be granted and exercisable, and the exercise price of the options.
Termination
The 2002 Plan will expire by its terms in May 2012. The Board of Directors
has the right to revise, amend, or terminate the 2002 Plan; provided, however,
that shareholder approval is necessary to the extent required by law, regulation
or rule, including those relating to incentive stock options and to securities
exchanges or associations.
Accounting Treatment
Because the 2002 Plan permits the exercise price of nonstatutory options
granted under the Plan to be less than the fair market value of the Company's
Common Stock on the date of grant, charges to earnings will be made at the time
of the grant of any options to the extent, if any, that the fair market value of
the Common Stock on the date of grant exceeds the exercise price. For options
that are granted to employees with an exercise price equal to or greater than
the fair market value of the Common Stock on the date of such grant, and which
are not subsequently amended in certain respects constituting a substantial
change or, in substance, a reissuance, no compensation expense will be recorded
by the Company upon the grant or exercise of such option, unless accounting
principles generally accepted in the United States at the time of an options
grant require that such compensation expense be recorded.
Tax Treatment
The Federal income tax discussion set forth below is intended for general
information only. State and local income tax consequences are not discussed and
may vary from locality to locality.
Under current federal tax law, upon the grant of a nonstatutory stock
option, no taxable income will be realized by a participant in the 2002 Plan and
the Company will not be entitled to any tax deduction. Upon exercise of a
nonstatutory stock option, a participant will realize ordinary taxable income on
the date of exercise in an amount equal to the excess of the fair market value
of the shares on the date of exercise over the option price (the "Spread at
Exercise"). The Company will be entitled to a corresponding tax deduction.
Income tax withholding requirements apply upon exercise. The optionee's basis in
the shares acquired upon exercise will equal the option price plus the amount of
ordinary income upon which he or she is taxed. Upon the subsequent disposition
of the shares, the optionee will realize a capital gain or loss, long-term or
short-term, depending upon the length of time the shares are held after the
option is exercised.
13
Upon the grant of an incentive stock option, no taxable income will be
realized by a participant and the Company will not be entitled to any tax
deduction. If a participant exercises the option, without having ceased to be an
employee of the Company or any of its subsidiaries at any time during the period
from the grant of the option until three months before its exercise, then
generally, no taxable income or deduction will result at the time of the
exercise of such option.
When a participant exercises an incentive stock option, he or she will
realize an item of tax preference for purposes of the alternative minimum tax
provisions of the Code equal to the amount by which the fair market value of the
stock purchased at the time of exercise exceeds the option price. If no
"disqualifying disposition" of the stock transferred to a participant upon
exercise of the option is made by the option holder (i.e., no disposition occurs
within the period that ends on the later to occur of one year after such stock
is so transferred and two years after the grant of the option), any profit (or
loss) realized by a participant from a sale or exchange of such stock will be
treated under the Code as long-term capital gain (or loss), and no tax deduction
will be allowable to the Company with respect thereto. If a disqualifying
disposition of such stock is made by an option holder, the disposition will
result in ordinary income at the time of the disposition in the amount equal to
the lesser of (1) the gain on the sale or (2) the Spread at Exercise. If the
gain exceeds the Spread at Exercise, the excess is a short-term or long-term
capital gain depending upon how long the shares are held prior to the sale. If
the stock is sold for less than the exercise price, failure to meet the holding
period requirement generally will result in a short-term or long-term capital
loss, depending upon how long the shares have been held before the sale, equal
to the difference between the exercise price and the sale price. Under current
Internal Revenue Service guidelines, the Company is not required to withhold any
Federal income tax in the event of a disqualifying disposition.
EXECUTIVE COMPENSATION
Summary Compensation Table:
Set forth below is information with respect to the compensation paid by the
Company for services rendered during 2003, 2002 and 2001, to each executive
officer (collectively, the "Executive Officers"):
LONG-TERM COMPENSATION
AWARDS
------------------------------
ANNUAL COMPENSATION SECURITIES
------------------- RESTRICTED UNDERLYING
NAME AND STOCK OPTIONS/ ALL OTHER
PRINCIPAL POSITION YEAR SALARY BONUS TOTAL(1) AWARDS $(2) SARS # (3) COMPENSATION(4)
-------------------------- ---- ------ ----- --------- ----------- ---------- ---------------
Stoney M. Stubbs, Jr. 2003 $317,613 - $317,613 $ 41,613 90,000 $307,435
Chairman of the Board 2002 $317,613 - $317,613 $ 13,283 214,027 $ 22,358
President and Chief 2001 $317,613 - $317,613 $ 25,531 -- $ 23,775
Executive Officer
of the Company and FFE
Charles G. Robertson 2003 $247,595 - $247,595 $ 25,591 65,000 $192,623
Executive Vice 2002 $247,595 - $247,595 $ 16,168 147,164 $ 13,217
President of the 2001 $247,595 - $247,595 $ 17,980 -- $ 14,517
Company and Executive
Vice President and
Chief Operating
Officer of FFE
F. Dixon McElwee, Jr. 2003 $184,263 - $184,263 $ 24,150 40,000 $ 2,534
Senior Vice President 2002 $184,263 - $184,263 $ 11,129 22,500 $ 2,744
of the Company and FFE 2001 $184,263 - $184,263 $ 13,478 -- $ 4,175
14
- ---------------------------
(1) Personal benefits provided to each of the named individuals under various
Company programs do not exceed the disclosure thresholds established under
SEC rules and are not included in this total.
(2) Includes restricted phantom stock units awarded pursuant to the FFE
Transportation Services, Inc. 2000 Executive Bonus and Phantom Stock Plan
(the "Executive Plan") or in accordance with the Company's Supplemental
Executive Retirement Plan (the "SERP") and Common Stock issued to a trust
for the benefit of participants in the FFE Transportation Services, Inc.
401(k) Wrap Plan (the "Wrap Plan"). Phantom stock units generally will be
adjusted to prevent dilution in the event of any cash and non-cash
dividends, recapitalizations and similar transactions affecting the Common
Stock. An officer may elect to cash out any number of the phantom stock
units between December 1 and December 15 of any year. In that event an
amount equal to the product of the greater of (i) the Fair Market Value of
a share of Common Stock as of the last business day of the calendar year in
which such election is made and (ii) the average of the Fair Market Values
of a share of Common Stock as of the last business day of each calendar
month of the calendar year in which such election is made multiplied by the
number of units that the officer elected to cash out shall be paid to the
officer. In the event of certain mergers, the sale of all or substantially
all of the Company's assets and certain similar transactions (a
"Reorganization") within six months after the date an officer has been paid
for units and as a result of such Reorganization the holders of Common
Stock receive cash for each share so held in an amount in excess of the
amount paid to such officer for such units, then such excess shall be paid
to the officer. The following table sets forth the total number of phantom
stock units and shares of restricted Common Stock issued to a trust awarded
under the Executive Plan, the SERP and the Wrap Plan for 2003, 2002 and
2001, to each Executive Officer of the Company:
2003 2002 2001
---- ---- ----
Mr. Stubbs 6,267 5,129 11,930
Mr. Robertson 3,854 6,242 8,402
Mr. McElwee 3,637 4,283 5,282
During 2000, a "grantor" (or "rabbi") trust was established in connection
with the Wrap Plan to hold Company assets to satisfy obligations under the
Plan. As of December 31, 2003, the total number of phantom stock units and
share of restricted Common Stock allocated to the accounts of Messrs.
Stubbs, Robertson, and McElwee was 112,669, 74,875 and 11,359,
respectively. The total value of such accounts, based upon the market price
of a share of Common Stock on December 31, 2003 was $748,123, $497,169 and
$75,424, respectively, for Messrs. Stubbs, Robertson, and McElwee.
(3) Options to acquire shares of the Company's Common Stock.
(4) Amounts shown in this column include the following benefits associated with
split dollar arrangements and supplemental medical:
Split Dollar Bonus and Base Salary Increase
The Company had previously entered into Split Dollar Agreements with each
of The Stubbs Irrevocable 1995 Trust and The Robertson Irrevocable 1995 Trust
for the benefit of Stoney M. Stubbs, Jr. ("Stubbs") and Charles G. Robertson
("Robertson"). Under the agreements the Company agreed to pay certain premium
payments under split dollar life insurance policies, and the trusts agreed to
repay such premiums to the Company on the earlier of surrender or cancellation
of each policy for its cash value or upon payment of death benefits. Due to
changes in the law and other pertinent factors the Board terminated such
obligation to pay premiums with respect to each policy and agreed to compensate
Stubbs and Robertson for the loss by (i) paying cash bonuses to each of Stubbs
and Robertson of $296,276 and $185,414, respectively, which amounts equal
one-half of the total premiums still payable under each of their respective
policies and (ii) increasing the base salary by $45,717 and $17,132 for Stubbs
and Robertson, respectively, effective November 12, 2003 to offset adverse
federal tax consequences resulting from their revised arrangements.
15
Split Dollar Life Valuation
The value of benefits, as determined under a methodology required by
the SEC, ascribed to Split Dollar life insurance policies whose premiums
were paid by the Company.
Supplemental Medical Benefits
The Company maintains an Exec-U-Care Medical Reimbursement Plan which
provides additional health insurance protection for certain key employees
of the Company and its subsidiaries, in addition to the group health and
life insurance policies provided to all employees.
SPLIT DOLLAR
---------------------------------------
BASE SALARY SUPPLEMENTAL
BONUS INCREASE VALUATIONS MEDICAL TOTAL
----- -------- ---------- ------- -----
Stoney M. Stubbs, Jr. 2003 $296,276 $6,506 $ 120 $4,533 $307,435
2002 - - $19,172 $3,186 $ 22,358
2001 - - $19,736 $4,039 $ 23,775
Charles G. Robertson 2003 $185,414 $2,438 $ 27 $4,744 $192,623
2002 - - $ 9,949 $3,268 $ 13,217
2001 - - $10,618 $3,899 $ 14,517
F. Dixon McElwee, Jr. 2003 - - - $2,534 $ 2,534
2002 - - - $2,744 $ 2,744
2001 - - - $4,175 $ 4,175
Option/SAR Grants in Last Fiscal Year
Following is information concerning the grant of stock options to the
Executive Officers in 2003 under the Company's option plans:
INDIVIDUAL GRANTS
% OF TOTAL
NUMBER OF OPTIONS/SARS POTENTIAL REALIZABLE VALUE AT
SECURITIES GRANTED TO ASSUMED ANNUAL RATES OF
UNDERLYING EMPLOYEES EXERCISE OR STOCK PRICE APPRECIATION
OPTIONS/SARS IN FISCAL BASE PRICE EXPIRATION FOR OPTION TERM (1)
-------------------
NAME GRANTED (2) YEAR (#/SH) DATE 5% 10%
- ---- ----------- ---- ------ ---- ----------- ------------
Mr. Stubbs 90,000 24.3% $2.40 05/14/2013 $ 135,841 $ 344,248
Mr. Robertson 65,000 17.6% $2.40 05/14/2013 $ 98,108 $ 248,624
Mr. McElwee 40,000 10.8% $2.40 05/14/2013 $ 60,374 $ 152,999
All Holders of
Common Stock (3) N/A N/A $2.40 N/A $26,204,438 $66,407,190
- --------------------
(1) Represents assumed rates of appreciation only. Actual gains depend on the
future performance of the Common Stock and overall stock market conditions.
There can be no assurance that the amounts reflected in this table will be
achieved.
(2) All options granted were granted on March 14, 2003, under the 2002
Incentive and Nonstatutory Stock Option Plan, are exercisable one year from
the date of grant, are exercisable for ten years from the date of grant,
and were granted with an exercise price equal to the market price of the
Common Stock on the date of grant.
(3) Assumes a total of 17,361,439 shares of Common Stock outstanding with a
value of $2.40 (the closing sales price of the Common Stock on March 13,
2003) per share held from March 14, 2003 until March 14, 2013.
Aggregated Option/SAR Exercises in Last Fiscal Year and Fiscal Year-end
Option/sar Values
The following table provides information, with respect to each Executive
Officer, concerning the exercise of options during the last fiscal year and
unexercised options held as of the end of the fiscal year ending December 31,
2003:
16
NUMBER OF SECURITIES
UNDERLYING VALUE OF UNEXERCISED
UNEXERCISED IN-THE-MONEY
OPTIONS/SARS OPTIONS/SARS
AT FISCAL AT FISCAL
YEAR-END YEAR-END
(#) ($)(1)
SHARES ACQUIRED VALUE EXERCISABLE/ ($)EXERCISABLE/
NAME ON EXERCISE (#) REALIZED UNEXERCISABLE UNEXERCISABLE
- ---- --------------- -------- ------------- -------------
Mr. Stubbs - $ - 436,326/90,000 $1,827,368/$381,600
Mr. Robertson - $ - 301,653/65,000 $1,262,761/$275,600
Mr. McElwee - $ - 46,725/40,000 $ 195,382/$169,600
- -----------------
(1) The closing price for the Company's Common Stock as reported by Nasdaq on
December 31, 2003, was $6.64. Value is calculated on the basis of the
difference between $6.64 and the option exercise price of an
"in-the-money" option multiplied by the number of shares of Common Stock
underlying the option.
Change in Control Agreements
The Company has entered into Change in Control Agreements ("Agreements")
with each Executive Officer, pursuant to which each Executive Officer is
entitled to severance benefits in the event of a "change in control" of the
Company during the term of his employment.
Under the terms of the Agreements, if an Executive Officer (i) is
terminated by the Company without cause during the six month period following a
change in control ("Transition Period"), (ii) resigns for "good reason" (as
defined in the Agreements) during the Transition Period, or (iii) resigns for
any reason during the ten day period following a change in control or during the
thirty day period following the Transition Period, then the Company is required
to provide the Executive Officer with certain payments and benefits. Such
payments and benefits include (a) payment of accrued and unpaid base salary, car
allowance, plus accrued and unpaid bonus, if any, for the prior fiscal year plus
a pro-rated bonus (as defined in the Agreements) for the year during which such
Executive Officer's employment is terminated; (b) payment of a lump sum amount
equal to the sum of 2.9 times the Executive Officer's annual pay (as defined in
the Agreement); (c) payment of the unvested account balance under the Company's
401(k) Savings Plan and 401(k) Wrap Plan; (d) continued participation, at the
same premium rate charged when actively employed, in the Company's employee
welfare plans, until the expiration of two years following the change in control
or cash equivalent; (e) vesting of all stock options on change of control; and
(f) "gross-up" payments, if applicable, in the amount necessary to satisfy any
excise tax imposed on the Executive Officer by the Internal Revenue Code of
1986, as amended (the ("Code")).
Compensation Committee Interlocks and Insider Participation
There are no compensation committee interlocks between the members of our
Compensation Committee and any other entity.
COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
This report has been prepared by Messrs. Brian R. Blackmarr, Chairman, W.
Mike Baggett and Leroy Hallman, serving as the Company's Compensation Committee
during 2003. Each member is an Independent Director. We are responsible for
overseeing the development and administration of all compensation policies and
programs for Executive Officers of the Company.
17
We seek to design compensation programs that align the interests of such
officers with the Company's shareholders. We have implemented compensation
programs we believe will enhance the profitability of the Company, and reward
such officers for efforts to achieve enhanced profitability. We believe the
compensation programs allow the Company to attract, motivate, and retain the
services of its Executive Officers.
The executive compensation package is designed to retain senior management
by providing total compensation comparable to the Company's competitors. To
align the interests of the Company's executives with the interests of
shareholders, a substantial portion of each executive's compensation is provided
through annual and long-term incentive plans. Such plans place a substantial
portion of the executives' compensation packages at risk and serve as an
integral component of the Company's executive compensation philosophy. We
believe the executives' attentions are better balanced between achieving
short-term business goals and increasing the long-term value of the Company with
a "pay-at-risk" policy. The programs reward Executive Officers for successful
leadership when certain levels of Company performance are achieved. The
Company's Executive Officer compensation program also provides base salary,
supplemental retirement benefits and other benefits, including medical and
retirement plans generally available to all Company employees.
We periodically retain the services of an outside consulting firm to review
the Company's executive compensation practices. Such a review of base salary,
short-term bonus and long-term incentives was completed in February of 2004.
These reviews also cover retirement benefits for the Company's executive
officers as measured against the competitive pay practices of a peer group of
publicly-traded trucking companies. The major components of executive
compensation are detailed below.
Base Salary
As part of the review performed by outside consultants, base salary levels
of the executives are reviewed to ensure comparability with other
publicly-traded trucking companies. Base salary levels of executive officers
have been set below the market median of the amounts paid to such peer group
executives in the past. We directed our outside consultants to compare
compensation practices with a peer group of twelve publicly traded companies
with operations most similar to the Company's. Based on this study and our
recommendations, the Board approved a 10% increase in Mr. Stubbs base salary
effective January 1, 2004.
Annual Incentive/bonus Compensation
The Company's shareholders reapproved the incentive compensation program in
1999. The program is designed to reward key employees for the Company's
performance based on the achievement of performance goals established prior to
the particular year. Components of annual incentive compensation include an
Incentive Bonus Plan (the "Incentive Plan") covering all full-time FFE employees
(including Executive Officers) and the FFE Transportation Services, Inc. 1999
Executive Bonus and Phantom Stock Plan (the "Executive Plan"), which covers only
the key employees. Both plans focus on operational efficiencies. An Executive
Officer's total cash compensation rises above the peer group market median as
the Company's performance rises above the median performance of the Company's
peer group. For 2002 and 2003, reflecting Company performance, no cash bonuses
were awarded under these plans.
18
Other Compensation
The Company has previously entered into Split Dollar Agreements with each
of the Stubbs Irrevocable 1995 Trust and the Robertson Irrevocable 1995 Trust
for the benefit of Stoney M. Stubbs, Jr. ("Stubbs") and Charles G. Robertson
("Robertson"). Under the Agreements, the Company agreed to pay certain premium
payments under split dollars life insurance policies, and the Trusts agreed to
repay such premiums to the Company on the earlier of surrender or cancellation
of each policy for its cash value or upon payment of death benefits. Due to
changes in the law and other pertinent factors, the Board terminated such
obligation to pay premiums. Awards to offset adverse consequences resulting from
the revised arrangement for fiscal year 2003 are disclosed in the "Summary
Compensation Table".
Long-term Incentive Compensation
The Company's long-term incentive compensation is comprised of stock
options and phantom equity programs. These serve to align the interests of the
executive officers and other key employees with shareholder interests by linking
executive pay with shareholder return. These programs also act as a
counter-balance to the short-term goals and responsibilities of the Incentive
Plan and Executive Plan.
The 2002 Incentive and Nonstatutory Option Plan, (the "2002 Plan") as
approved by shareholders, provides that the exercise price for incentive stock
options may not be less than the fair market value of the Common Stock on the
date of grant. We or the Board determine the exercise price of nonstatutory
stock options under the 2002 Plan. The exercise price may not be less than 50%
of the fair market value of a share of the Common Stock on the date of grant.
Options granted under the 2002 Plan may not be outstanding for more than ten
years. On May 14, 2003, Mr. Stubbs was granted an option to purchase 90,000
shares of common stock under the 2002 Plan.
Supplemental Executive Retirement and 401(k) Wrap Plans
To provide supplemental retirement benefits to Executive Officers and other
key members of management, the Company maintains the SERP and 401(k) Wrap Plans,
respectively. The SERP provides benefits limited by the Code by awarding phantom
stock units. The 401(k) Wrap Plan supplements the Company's 401(k) Plan by
allowing benefits supplemental to those limited by the Code.
Both the SERP and the 401(k) Wrap Plan are unfunded deferred compensation
arrangements not subject to the annual reporting and disclosure requirements of
the Employee Retirement Income Security Act of 1974. Awards under both the SERP
and the Wrap Plan for fiscal year 2003 are disclosed in the "Summary
Compensation Table".
Compensation for the Chief Executive Officer
During 2003, Mr. Stubbs served as the Chairman of the Board, President and
Chief Executive Officer of the Company. For 2003, 2002 and 2001, Mr. Stubbs'
base salary was approximately $318,000. For 2003, Mr. Stubbs did not receive
payments under the Company's Incentive Plan or Executive Plan. As disclosed in
the "Summary Compensation Table", Mr. Stubbs received approximately $307,000 in
other compensation, $296,000 of which relates to an award to offset a portion of
the adverse consequences associated with the revised split-dollar life
arrangement referred to above.
19
We evaluate Mr. Stubbs' performance by the same criteria established for
all Company executives. We made an assessment of Mr. Stubbs' contributions to
enhancing the Company's performance, his individual performance, and the
compensation paid to chief executive officers of the Company's peer group to
determine Mr. Stubbs' total compensation.
Deductibility of Executive Compensation
The Company has entered into Change in Control Agreements ("Agreements")
with each of the Executive Officers whereby such individuals will be entitled to
receive payments if they are terminated without cause or resign with good reason
within specified periods following the occurrence of certain events deemed to
involve a change in control of the Company. See "Change in Control Agreements".
under Section 162(m) of the Code, the federal income tax deduction for certain
types of compensation paid to the chief Executive Officer and up to four of the
other most highly compensated Executive Officers of publicly-held companies is
limited to $1 million per officer per fiscal year unless such compensation meets
certain requirements. In determining the amount of compensation paid to the
chief executive officer or the four other most highly compensated executive
officers, "performance-based compensation" under Section 162(m) of the Code is
disregarded. Additionally, Section 280G of the Code disallows a deduction for
certain compensation paid upon a change in control of the Company. We are aware
of the limitations of Section 162(m) and 280G of the Code and believe that no
compensation paid by the Company will exceed these limitations, except possibly
a portion of the sums payable pursuant to the Agreements in the event of a
change in control of the Company, if paid.
The undersigned members of the Compensation Committee have submitted this
Report to the Board of Directors.
/s/Brian R. Blackmarr, Chair
/s/W. Mike Baggett
/s/Leroy Hallman
EQUITY COMPENSATION PLAN INFORMATION
The following table provides information concerning all of our equity
compensation plans as of December 31, 2003. Specifically, the number of shares
of common stock subject to outstanding options, warrants and rights and the
exercise price thereof, as well as the number of shares of common stock
available for issuance under all of our equity compensation plans.
Number of securities remaining
Number of securities to be available for future issuance
issued upon exercise of Weighted-average exercise under equity compensation plans
outstanding options, price of outstanding (excluding securities reflected
Plan Category warrants and rights options, warrants and rights in column (a)
- ----------------------------------------------------------------------------------------------------------------------------
Equity compensation
Plans approved
by security holders 2,088,383 $2.86 415,000
Equity compensation
plans not approved
by security holders 949,700 $8.88 -
--------- -------
Total 3,038,083 $4.74 415,000
========= =======
TRANSACTIONS WITH MANAGEMENT AND DIRECTORS
A subsidiary of the Company leases certain tractors from Mr. Stubbs, Mr.
Robertson, and a family partnership controlled by Mr. Stubbs. Lease terms are
for two to five years and lease payments were determined by reference to amounts
the subsidiary pays to unaffiliated lessors for similar equipment leased under
similar terms. Because the terms of these leases with these related parties are
more flexible than those governing tractors we lease from unaffiliated lessors,
we pay the officers a premium over the rentals we pay to unaffiliated lessors.
20
The subsidiary entered into several replacement tractor leases for sixty
months during 2003. The subsidiary also extended for twenty-four months tractor
leases previously scheduled to expire in 2003. The Company's Audit Committee
approved the terms of these leases.
The subsidiary also rents certain trailers from these officers, on a
month-to-month basis, at rates that are generally less than market-rate monthly
trailer rentals.
The Company and the related-party lessors have agreed, should the
month-to-month trailer leases be terminated within twelve months following a
change in control that the Company is required to pay to the lessors a lump sum
payment in cash equal to 24 times the most recent monthly rental.
Rentals paid during 2003 by the subsidiary for tractors and trailers
pursuant to the lease agreements were as follows: Mr. Stubbs and the family
partnership - $1,323,000 and Mr. Robertson - $705,000. The subsidiary has an
option to purchase the tractors at the end of the lease term for fair market
value. During 2003, the Company purchased (for market value) tractors valued at
$958,200 from Mr. Stubbs and the family partnership and $606,860 from Mr.
Robertson. The Company subsequently sold these tractors to unrelated third
parties and did not incur a gain or loss on such transactions. The aggregate
future minimum lease payments to Mr. Stubbs and the family partnership and Mr.
Robertson under the tractor leases are approximately $1,061,000 and $540,000,
respectively, in 2004, $814,000 and $409,000, respectively, in 2005, $814,000
and $409,000, respectively in 2006, and $695,000 and $378,000, respectively in
2007.
FIVE-YEAR SHAREHOLDER RETURN COMPARISON
The following graph compares the cumulative total shareholder return on the
Company's Common Stock for the last five years to the S&P 500 Index and the
Media General Industry Group Index #774 - Trucking Companies (assuming the
investment of $100 in the Company's Common Stock, the S&P 500 Index and the
Media General Index on December 31, 1998 and reinvestment of all dividends).
[SHAREHOLDER RETURN GRAPH HERE]
December 31,
------------------------------------------------------
1998 1999 2000 2001 2002 2003
---- ---- ---- ---- ---- ----
FFEX $100 $ 50 $ 25 $ 28 $ 33 $ 85
MG Industry Group Index 100 96 101 127 137 174
S & P 500 Index 100 121 110 97 76 97
INDEPENDENT PUBLIC ACCOUNTANTS
KPMG LLP ("KPMG") served as independent public accountants for 2003.
Representatives of KPMG are expected to be present at the Annual Meeting, with
the opportunity to make a statement if they so desire, and will be available to
respond to appropriate questions. The Company intends to select its independent
public accountants for 2004 after receiving the recommendation of the Audit
Committee expected at the Audit Committee's May 2004 meeting.
AUDIT AND NON-AUDIT FEES
The following table presents fees for the professional audit services
rendered and billed by KPMG for the audit of the Company's annual financial
statements for the years ended December 31, 2003 and December 31, 2002 and fees
billed for other services rendered by KPMG during those periods. Certain amounts
for 2002 have been reclassified to conform to the 2003 presentation.
21
FY 2003 FY 2002
------- -------
Audit Fees(1) $119,000 $115,000
Tax Fees(2) 10,000 9,000
All Other Fees (3) 214,000 -
--------- ---------
$343,000 $124,000
========= =========
(1) Audit Fees consist of the aggregate fees billed for professional services
rendered for the audit of the Company's annual financial statements and
reviews of the financial statements included in the Company's Quarterly
Reports on Form 10-Q and services that are normally provided by KPMG in
connection with statutory and regulatory filings or engagements.
(2) Tax Fees consist of the aggregate fees billed for professional services
rendered for tax compliance, tax advice and tax planning. For fiscal 2003
and fiscal 2002, these services include review of and consultation
regarding the Company's federal tax returns.
(3) All Other Fees consist of aggregate fees billed by KPMG for products and
services other than the services reported above.
Policy On Audit Committee Pre-approval of Audit and Non-audit Services
For the 2003 fiscal year, the Audit Committee's policy with respect to the
pre-approval of audit and non-audit services was to specifically pre-approve the
terms and fees of each engagement for services to be performed by the
independent accountant. The Audit Committee did not delegate its responsibility
to a member of the committee or to management. In addition, none of the fees
paid by the Company to the independent public accountant under the categories,
Tax and All-Other fees described above were approved by the Audit Committee
after services were rendered pursuant to the de minimis exception established
under the regulations of the Securities and Exchange Commission.
REPORT OF THE AUDIT COMMITTEE OF THE BOARD OF DIRECTORS
The Audit Committee operates pursuant to a written charter, which has been
approved and adopted by the Board of Directors and is reviewed and reassessed
annually by the Audit Committee. The Committee charter is included within this
proxy as Exhibit A and is available within the corporate governance section of
the Company's Internet website at www.ffex.net. For the year ended December 31,
2003 and as of the date of the adoption of this report, the Audit Committee was
comprised of four directors who met the independence and experience requirements
of The Nasdaq Stock Market. Mr. Armstrong is an "audit committee financial
expert" as defined by the applicable rules of the Securities and Exchange
Commission.
The Audit Committee oversees the Company's financial reporting process on
behalf of the Board of Directors and oversees the entire audit function,
including the selection of independent public accountants. Management has the
primary responsibility for the financial statements and the financial reporting
process, including the systems of internal controls and the Company's legal and
regulatory compliance. In fulfilling its oversight responsibilities, the Audit
Committee reviewed and discussed with management the audited financial
statements for the year ended December 31, 2003, including a discussion of the
acceptability and quality of the accounting principles, the reasonableness of
significant accounting judgments and critical accounting policies and estimates,
and the clarity of disclosures in the financial statements. The Audit Committee
also discussed with the Chief Executive Officer and Chief Financial Officer
their respective certifications with respect to the Company's Annual Report on
Form 10-K for the year ended December 31, 2003.
22
The Audit Committee reviewed with the independent public accountants, who
are responsible for expressing an opinion on the conformity of those audited
financial statements with accounting principles generally accepted in the United
States, their judgments as to the acceptability and quality of the Company's
accounting principles and such other matters as are required to be discussed
with the Audit Committee under auditing standards generally accepted in the
United States, including those matters required to be discussed by Statement on
Auditing Standards No. 61, "COMMUNICATION WITH AUDIT COMMITTEES". In addition,
the Audit Committee has received the written disclosures and the letter from the
independent public accountants required by Independence Standards Board Standard
No. 1, Independence Discussions with Audit Committees, and has discussed those
disclosures and other matters relating to independence with the independent
public accountants.
The Audit Committee discussed with the Company's internal auditor and
independent public accountants the overall scope and plans for their respective
audits. The Audit Committee meets with the internal auditor and independent
public accountants, with and without management present, to discuss the results
of their examinations of the Company's internal controls, and the overall
quality of financial reporting.
Members of the Audit Committee rely without independent verification on the
information provided to them and on the representations made by management and
the independent public accountants. In reliance on the reviews and discussions
with management and with the independent public accountants referred to above,
and the receipt of an unqualified opinion from KPMG LLP dated February 20, 2004
regarding the audited financial statements of the Company for the year ended
December 31, 2003, the Audit Committee recommended to the Board of Directors
(and the Board approved) 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 MEMBERS
/s/Leroy Hallman, Chair
/s/Jerry T. Armstrong
/s/W. Mike Baggett
/s/T. Michael O'Connor
SECTION 16(a)
BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Rules promulgated under Section 16(a) of the Securities Exchange Act of
1934, as amended, require the Company's executive officers and directors and
persons who own more than ten percent of a registered class of the Company's
equity securities to file reports of ownership and changes in ownership with the
Securities and Exchange Commission ("SEC") and Nasdaq. Such persons are required
by SEC regulations to furnish the Company with copies of such forms they file.
Based entirely upon a review of Forms 3, 4 and 5 and amendments thereto
furnished to the Company, the Company believes that, during 2003, all Section
16(a) filing requirements applicable to such persons were complied with.
23
SHAREHOLDER PROPOSALS AT THE 2005 ANNUAL MEETING
Shareholders intending to present proposals at the 2005 Annual Meeting and
desiring to have those proposals included in the Company's proxy statement and
form of proxy relating to that meeting must submit such proposals, in compliance
with Rule 14A-8 of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), to the Secretary of the Company on or before December 2, 2004.
For proposals that shareholders intend to present at the 2005 Annual Meeting of
Shareholders outside the processes of Rule 14A-8 of the Exchange Act, unless the
shareholder notifies the Secretary of the Company of such intent by February 15,
2005, any proxy solicited by the Company for such Annual Meeting will confer on
the holder of the proxy discretionary authority to vote on the proposal so long
as such proposal is properly presented at the Annual Meeting.
By Order of the Board of Directors
/s/ Leonard W. Bartholomew
Dallas, TX LEONARD W. BARTHOLOMEW
March 31, 2004 Secretary
A COPY OF THE COMPANY'S ANNUAL REPORT ON FORM 10-K FOR 2003 MAY BE OBTAINED
WITHOUT CHARGE UPON WRITTEN REQUEST TO LEONARD W. BARTHOLOMEW, THE SECRETARY OF
THE COMPANY, P.O. BOX 655888, DALLAS, TEXAS 75265-5888 OR BY ACCESSING THE
COMPANY'S INTERNET SITE AT WWW.FFEX.NET AND CLICKING ON "SEC FILINGS" OR "2003
ANNUAL REPORT".
24
APPENDIX A
AUDIT COMMITTEE CHARTER
CHARTER OF THE AUDIT COMMITTEE
OF THE BOARD OF DIRECTORS OF
FROZEN FOOD EXPRESS INDUSTRIES, INC.
AMENDED AND RESTATED AS OF FEBRUARY 18, 2004
1. PURPOSE.
The primary purposes of the Committee (the "Committee") are to oversee on
behalf of the Board of Directors (the "Board") of Frozen Food Express
Industries, Inc. (the "Company"): (1) the accounting and financial reporting
processes of the Company and integrity of the Company's financial statements,
(2) the audits of the Company's financial statements and appointment,
compensation, qualifications, independence and performance of the Company's
independent public accountants, (3) the Company's compliance with legal and
regulatory requirements, and (4) the Company's internal audit function and
internal control over financial reporting.
The Committee's function is one of oversight only and does not relieve the
responsibilities of the Company's management for preparing financial statements
that accurately and fairly present the Company's financial results and
condition, or the responsibilities of the independent public accountants
relating to the audit or review of financial statements.
2. COMPOSITION.
(a) AT LEAST THREE MEMBERS. The Committee is comprised of at least
three directors. The Committee will designate a Committee member as the
chairperson of the Committee (the "Chair") by majority vote of the Committee
membership.
(b) INDEPENDENCE. All Committee members must be independent as
determined by the Board in accordance with the Nasdaq listing standards (the
"listing standards") and applicable rules of the Securities and Exchange
Commission (the "SEC"), as they may be amended from time to time.
(c) FINANCIAL LITERACY. Each Committee member must be financially
literate upon appointment to the Committee, as determined by the Board pursuant
to the listing standards. At all times, there must be at least one member of the
Committee who, as determined by the Board, meets the finance, accounting or
comparable experience requirement of the listing standards. In addition, the
Board must annually evaluate whether or not at least one member of the Committee
is an audit committee financial expert as defined in the SEC rules.
(d) APPOINTMENT. Subject to the requirements of the listing standards,
the Board may appoint and remove Committee members in accordance with the
Company's bylaws and on recommendation of the Nominating Committee. Committee
members will serve for terms as may be fixed by the Board and in any case at the
will of the Board whether or not a specific term is fixed.
3. SELECTION AND REVIEW OF INDEPENDENT PUBLIC ACCOUNTANTS AND THEIR
SERVICES.
(a) OVERALL AUTHORITY. The Committee has sole authority and direct
responsibility for the appointment, compensation, retention, termination,
evaluation and oversight of the work of the independent public accountants
engaged by the Company for the purpose of preparing or issuing an audit report
or related work or performing other audit, review or attest services for the
Company. The independent public accountants must report directly to the
Committee. The Committee's authority includes, without limitation, resolution of
disagreements between management and the independent public accountants
regarding financial reporting.
A-1
(b) TERMS OF AUDIT AND NON-AUDIT ENGAGEMENTS. The Committee has sole
authority to pre-approve all audit, review, attest and permissible non-audit
services to be provided to the Company or its subsidiaries by the independent
public accountants. The Committee may establish pre-approval policies and
procedures in compliance with applicable SEC rules.
4. ANNUAL FINANCIAL REPORTING.
In connection with the audit of each fiscal year's financial statements,
the Committee will:
(a) DISCUSS FINANCIAL STATEMENTS AND INTERNAL CONTROL REPORT WITH
MANAGEMENT: review and discuss with appropriate members of the Company's
management the audited financial statements, related accounting and auditing
principles and practices, and management's assessment of internal control over
financial reporting and the related reports on internal control to be included
in the Company's Annual Report on Form 10-K (as and when these reports are
required under SEC rules).
(b) CRITICAL ACCOUNTING POLICY REPORT: timely request and receive from
the independent public accountants (prior to each filing of the audit report
with the SEC) the report required in connection with the annual audit pursuant
to applicable SEC rules concerning (1) all critical accounting policies and
practices to be used; (2) all alternative treatments within accounting
principles generally accepted in the United States for policies and practices
related to material items that have been discussed with management of the
Company, including: (i) ramifications of the use of such alternative disclosures
and treatments; and (ii) the treatment preferred by the independent public
accountants; and (3) other material written communications between the
independent public accountants and the management of the Company, such as any
management letter or schedule of unadjusted differences.
(c) SAS 61 REVIEW: discuss with the independent public accountants the
audited financial statements and the matters required to be discussed by
Statement on Auditing Standards No. 61, including such matters as (1) the
quality and acceptability of the accounting principles applied in the financial
statements, (2) new or changed accounting policies, the effect of regulatory and
accounting initiatives, and significant estimates, judgments, uncertainties or
unusual transactions, (3) the selection, application and effects of critical
accounting policies and estimates applied by the Company, (4) issues raised by
any "management" or "internal control" letter from the independent public
accountants, problems or difficulties encountered in the audit and management's
response, disagreements with management, or other significant aspects of the
audit, and (5) any off-balance sheet transactions, and relationships with any
unconsolidated entities or any other persons, that may have a material current
or future effect on the financial condition or results of the Company and are
required to be reported under SEC rules.
(d) REVIEW OF MD&A: review with appropriate management and
representatives of the independent public accountants the Company's intended
disclosures under "Management's Discussion and Analysis of Financial Condition
and Results of Operations" to be included in the Company's annual report on Form
10-K.
A-2
(e) OBTAIN ISB NO. 1 DISCLOSURE: receive from the independent public
accountants a formal written statement of all relationships between the
independent public accountants and the Company consistent with Independence
Standards Board Standard No. 1.
(f) DIALOGUE WITH INDEPENDENT PUBLIC ACCOUNTANTS ON INDEPENDENCE:
actively discuss with the Independent Public Accountants any disclosed
relationships or services that may impact the objectivity or independence of the
independent public accountants.
(g) RECOMMEND FILING OF AUDITED FINANCIAL STATEMENTS: recommend whether
or not the audited financial statements should be included in the Company's
Annual Report on Form 10-K for filing with the SEC.
5. QUARTERLY FINANCIAL REPORTING.
The Committee's quarterly review will normally include a review and
discussion with management and the independent public accountants, as the
Committee considers appropriate, of the following:
(a) QUARTERLY REVIEW: the quarterly financial statements of the Company
and the results of the independent public accountant's review of financial
statements.
(b) DISCUSSION OF SIGNIFICANT MATTERS WITH MANAGEMENT: management's
analysis of significant matters that relate to (1) the quality and acceptability
of the accounting principles applied in the financial statements (2) new or
changed accounting policies, the effect of regulatory and accounting
initiatives, and significant estimates, judgments, uncertainties or unusual
transactions, (3) the selection, application and effects of critical accounting
policies and estimates applied by the Company, and (4) any off-balance sheet
transactions and relationships with any unconsolidated entities or any other
persons that may have a material current or future effect on the financial
condition or results of the Company and are required to be reported under SEC
rules.
(c) MD&A: the Company's disclosures under "Management's Discussion and
Analysis of Financial Condition and Results of Operations" to be included in the
Company's quarterly reports on Form 10-Q.
6. OTHER FUNCTIONS.
(a) ANNUAL REVIEW OF THIS CHARTER. The Committee will review and
reassess the adequacy of this charter annually and recommend any proposed
changes to the Board.
(b) COMPLAINTS AND ANONYMOUS SUBMISSIONS. The Committee will establish
and maintain procedures for (1) the receipt, retention, and treatment of
complaints received by the Company regarding accounting, internal accounting
controls, and auditing matters, and (2) the confidential, anonymous submission
by employees of the Company of concerns regarding questionable accounting or
auditing matters.
(c) RELATED PARTY APPROVALS. It is the Company's policy that the
Company will not enter into related party transactions defined in the listing
standards unless the Committee or another independent body of the Board first
reviews and approves the transactions.
(d) COMPLIANCE. The Committee, to the extent it deems necessary or
appropriate, will periodically review with management the Company's disclosure
controls and procedures, internal control for financial reporting purposes, and
systems and procedures to promote compliance with laws.
A-3
(e) EARNINGS RELEASES. The Committee will discuss with management
earnings press releases and other published financial information. This may be
conducted generally as to types of information and presentations, and need not
include advance review of each release or other information or guidance.
(f) INTERNAL AUDITING. The Committee will monitor that the Company
maintains an internal audit function (which may be outsourced to a firm other
than the Company's independent public accountants). The Committee will oversee
the internal auditors (or other personnel responsible for the internal audit
function), who will report directly to the Committee.
(g) INTERNAL CONTROL OVER FINANCIAL REPORTING. The Committee will
periodically review and discuss, as appropriate, with the internal audit
department, management and the independent public accountants: (1) the design
and effectiveness of the Company's internal control over financial reporting as
defined in the SEC rules, and (2) any significant deficiencies or material
weaknesses in that internal control, any change that has materially affected or
is reasonably likely to materially affect that internal control, and any fraud
(whether or not material) that involves management or other employees who have a
significant role in that internal control, that have been reported to the
Committee.
(h) REPORTS FROM LEGAL COUNSEL. The Committee will review and take
appropriate action with respect to any reports to the Committee from legal
counsel engaged by the Company concerning any material violation of securities
law or breach of fiduciary duty or similar violation by the Company, its
subsidiaries or any person acting on their behalf.
(i) OTHER REVIEWS. The Committee, as the Committee may consider
appropriate, may consider and review with the full Board, Company management,
internal or outside legal counsel, or the independent public accounants any
other topics relating to the purpose of the Committee that may come to the
Committee's attention. The Committee may perform any other activities consistent
with this charter, the bylaws and applicable listing standards and laws as the
Committee or the Board considers appropriate.
7. MEETINGS, REPORTS AND RESOURCES OF THE COMMITTEE.
(a) MEETINGS. The Committee will meet as often as it determines to be
necessary to carry out its responsibilities. The Committee may act by unanimous
written consent. The Committee will meet separately, periodically, with
management, internal auditors (or other personnel responsible for the internal
audit function), the independent public accountants and any other persons as it
deems necessary.
(b) PROCEDURES. The Committee may establish its own procedures,
including the formation and delegation of authority to subcommittees, in a
manner not inconsistent with this charter, the bylaws or the listing standards
and SEC rules. The Chair or majority of the Committee members may call meetings
of the Committee. A majority of the authorized number of the Committee members
constitutes a quorum for the transaction of Committee business, and the vote of
a majority of the Committee members present at a meeting at which a quorum is
present will be the act of the Committee, unless in either case a greater number
is required by this charter, the bylaws or the listing standards. The Committee
will keep written minutes of its meetings and deliver copies of the minutes to
the corporate secretary for inclusion in the corporate records.
A-4
(c) REPORTS. The Committee will timely prepare the audit committee
report required to be included in the Company's annual meeting proxy statement,
and report to the Board on the other matters relating to the Committee or its
purposes, as required by the listing standards or SEC rules. The Committee will
also report to the Board annually the overall results of the annual review of
the independent public accountants and their independence. The Committee also
will report to the Board on the major items covered by the Committee at each
Committee meeting, and provide additional reports to the Board as the Committee
may determine to be appropriate, including review with the full Board of any
issues that arise from time to time with respect to the quality or integrity of
the Company's financial statements, the Company's compliance with legal or
regulatory requirements, the performance and independence of the independent
public accountants or the performance of the internal audit function.
(d) COMMITTEE ACCESS AND RESOURCES. The Committee is at all times
authorized to have direct, independent and confidential access to the
independent public accountants and to the Company's other directors, management
and personnel to carry out the Committee's purposes. The Committee is authorized
to conduct investigations, and to retain, at the expense of the Company,
independent legal, accounting, or other professional advisers or consultants
selected by the Committee, for any matters relating to the purposes or duties of
the Committee. The Company will provide for adequate funding, as determined by
the Committee, for payment of compensation to the independent auditors for their
audit and audit-related, review and attest services, for payment of compensation
to advisers engaged by the Committee, and for ordinary administrative expenses
of the Committee necessary or appropriate in carrying out its duties.
(e) RELIANCE ON OTHERS. Nothing in this charter is intended to preclude
or impair the protection provided in Article 2.41(C) of the Texas Business
Corporation Act for good faith reliance by members of the Committee on reports
or other information provided by others.
8. RATIFICATION.
This charter was originally ratified by the Board on May 10, 2000 and
re-ratified by the Board on August 8, 2001 and February 18, 2004.
A-5
PROXY FROZEN FOOD EXPRESS INDUSTRIES, INC.
PLEASE MARK VOTE IN OVAL IN THE FOLLOWING MANNER USING DARK INK ONLY. [ ]
1. ELECTION OF DIRECTORS: For Withhold For All
Class III (three-year term): All All Except
(1) T. Michael O'Connor [ ] [ ] [ ]
(2) Stoney M. Stubbs, Jr.
(3) Charles G. Robertson
_______________________________________
For all nominees except as noted above.
2. Proposal to amend the Company's 2002 For Against Abstain
Incentive and Nonstatutory Option Plan. [ ] [ ] [ ]
3. In their discretion, the Proxies are
authorized to vote upon such other
business as may properly come before
the meeting.
MARK HERE FOR ADDRESS CHANGE AND NOTE BELOW AT LEFT [ ]
Date:_________________________
____________________________________________
____________________________________________
Signature of Shareholder(s)
When shares are held by joint tenants, both
should sign. When signing as an agent,
attorney, administrator, executor, guardian
or trustee, please give full title as such.
If a corporation, please sign in full
corporate name by President or other
authorized officer who should indicate his
title. If a partnership, please sign in
partnership name by authorized person.
Please date, sign and mail this proxy card
in the enclosed envelope. No postage is
required if mailed in the United States.
- --------------------------------------------------------------------------------
^ FOLD AND DETACH HERE ^
YOUR VOTE IS IMPORTANT.
PLEASE PROMPTLY COMPLETE, DATE, SIGN AND RETURN THIS
PROXY USING THE ENCLOSED ENVELOPE.
PROXY PROXY
FROZEN FOOD EXPRESS INDUSTRIES, INC.
ANNUAL MEETING OF SHAREHOLDERS--APRIL 29, 2004
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby (1) acknowledges receipt of the notice, dated
March 31, 2004, of the Annual Meeting of Shareholders of Frozen Food Express
Industries, Inc. (herein called the "Company") to be held on Thursday, April 29,
2004, at 3:30 p.m., Dallas, Texas time, at The City Club, 901 Main Street, 69th
Floor, Dallas, Texas 75201, and the Proxy Statement, also dated March 31, 2004,
in connection therewith (herein called the "Proxy Statement"), and (2)
constitutes and appoints Stoney M. Stubbs, Jr., and F. Dixon McElwee, Jr., and
each of them (if only one be present, then by that one alone), his attorneys and
proxies, with full power of substitution and revocation to each, for and in the
name, place and stead of the undersigned, to vote, and act with respect to, all
of the shares of capital stock of the Company standing in the name of the
undersigned or with respect to which the undersigned is entitled to vote and
act, at said meeting and at any adjournment thereof. The Board of Directors of
the Company recommends a vote For election of its three nominees for directors
and For Proposal 2 set forth on the reverse.
THE PROXY WHEN PROPERLY EXECUTED WILL BE VOTED IN THE MANNER DIRECTED
HEREIN BY THE UNDERSIGNED SHAREHOLDER. IF NO DIRECTION IS MADE, THIS PROXY WILL
BE VOTED FOR ALL NOMINEES LISTED IN PROPOSAL 1 AND FOR PROPOSAL 2.
(CONTINUED AND TO BE SIGNED ON REVERSE SIDE.)