UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
SCHEDULE 14A
Proxy Statement Pursuant to Section 14(a) of the Securities and Exchange Act of
1934
Filed by the Registrant
Filed by a Party other than the Registrant
Check the Appropriate Box:
Preliminary Proxy Statement
Confidential, for Use of the Commission Only (as permitted by Rule 14a-6(e)(2))
Definitive Proxy Statement
Definitive Additional Materials
Soliciting Materials Pursuant toss. 240.14a-11(c) orss. 240.14a-12
CENTRAL FREIGHT LINES, INC.
(Name of Registrant as Specified In Its Charter)
N/A
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
No fee required
Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
(1) Title of each class of securities to which N/A
transaction applies: -----
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applies: -----
(3) Per unit price or other underlying value of transaction
computed pursuant to Exchange Act Rule 0-11 (set forth the
amount on which the filing fee is calculated and state
how it was determined): N/A
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Fee paid previously with preliminary materials.
Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
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3
CENTRAL FREIGHT LINES, INC.
5601 West Waco Drive
Waco, Texas 76710
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON MAY 3, 2005
To our Stockholders:
You are cordially invited to attend the 2005 Annual Meeting of
Stockholders (the "Annual Meeting") of CENTRAL FREIGHT LINES, INC. (the
"Company") to be held at 9:00 A.M., Phoenix time, on May 3, 2005, at the
Doubletree Guest Suites, 320 N. 44th Street, Phoenix, Arizona 85008. The
purposes of the Annual Meeting are:
1. To consider and act upon a proposal to elect five (5) directors of the
Company; and
2. To consider and act upon such other matters as may properly come before the
Annual Meeting and any adjournment thereof.
The Board of Directors has fixed the close of business on March 31,
2005, as the Record Date for determining those stockholders who are entitled to
receive notice of and vote at the Annual Meeting or any adjournment of that
meeting. Shares of the Company's Common Stock can be voted at the Annual Meeting
only if the holder is present at the Annual Meeting in person or by valid proxy.
A copy of the Company's Annual Report to Stockholders for the fiscal year ended
December 31, 2004, which includes audited consolidated financial statements, is
enclosed.
YOUR VOTE IS IMPORTANT. TO ENSURE YOUR REPRESENTATION AT THE ANNUAL
MEETING, YOU ARE REQUESTED TO PROMPTLY DATE, SIGN, AND RETURN THE ACCOMPANYING
PROXY IN THE ENCLOSED ENVELOPE.
By Order of the Board of Directors,
/s/ Jeffrey A. Hale
Jeffrey A. Hale
Secretary
Waco, Texas
April 19, 2005
TABLE OF CONTENTS
GENERAL INFORMATION...........................................................1
Proxies and Voting............................................................1
Right to Attend Annual Meeting; Revocation of Proxy...........................1
Costs of Solicitation.........................................................1
Annual Report.................................................................2
How To Read This Proxy Statement..............................................2
PROPOSAL ONE - ELECTION OF DIRECTORS..........................................3
CORPORATE GOVERNANCE..........................................................4
Board of Directors............................................................4
Lead Independent Director.....................................................4
Committees of the Board of Directors..........................................5
Report of the Audit Committee.................................................6
Director Compensation.........................................................8
Executive Officers of the Company.............................................9
Code of Conduct and Ethics....................................................9
Section 16(a) Beneficial Ownership Reporting Compliance.......................9
EXECUTIVE COMPENSATION.......................................................10
Summary Compensation Table...................................................10
Options Grants In Last Fiscal Year...........................................11
Aggregated Options Exercises in Last Fiscal Year and Fiscal
Year-End Option Value Table..................................................12
Employment Agreements........................................................12
Executive Bonus Program......................................................13
Incentive Stock Plan.........................................................13
401(k) Profit Sharing Plan...................................................13
Employee Stock Purchase Plan.................................................13
Compensation Committee Interlocks and Insider Participation..................14
Compensation Committee Report on Executive Compensation......................14
Stock Performance Graph......................................................15
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT...............16
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS...............................17
RELATIONSHIP WITH INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM..............18
STOCKHOLDER PROPOSALS........................................................19
OTHER MATTERS................................................................19
CENTRAL FREIGHT LINES, INC.
5601 West Waco Drive
Waco, Texas 76710
.........
PROXY STATEMENT
FOR ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON MAY 3, 2005
.........
GENERAL INFORMATION
This Proxy Statement is furnished in connection with the solicitation
of proxies from the stockholders of Central Freight Lines, Inc. to be voted at
the Annual Meeting of Stockholders (the "Annual Meeting") to be held on May 3,
2005. THE ENCLOSED PROXY IS SOLICITED BY THE BOARD OF DIRECTORS OF THE COMPANY.
If not otherwise specified, all proxies received pursuant to this solicitation
will be voted (i) FOR the Director Nominees named below; and (ii) with respect
to any other matters properly brought before the Annual Meeting, in accordance
with the recommendations of the Board of Directors, or, if no recommendations
are given, in accordance with the judgment of the proxy holders.
The Proxy Statement, proxy card, and our Annual Report were first
mailed on or about April 19, 2005, to stockholders of record at the close of
business on March 31, 2005 (the "Record Date").
The terms "we," "our," "us" or the "Company" refer to Central Freight
Lines, Inc. and its subsidiaries.
Proxies and Voting
Only holders of record of our Common Stock, par value $0.001 per share
("Common Stock"), at the close of business on the Record Date are entitled to
vote at the Annual Meeting, either in person or by valid proxy. Stockholders are
entitled to one vote for each share held of record on each matter of business to
be considered at the Annual Meeting. As of the Record Date, there were
18,200,771 shares of our Common Stock issued and outstanding. Votes cast at the
Annual Meeting will be tabulated by the Inspector of Elections and the results
of all items voted upon will be announced at the Annual Meeting.
In order to transact business at the Annual Meeting, a quorum must be
present. A quorum is present if a majority of the issued and outstanding shares
of Common Stock as of the Record Date are represented at the Annual Meeting in
person or by proxy. Shares that are entitled to vote but that are not voted at
the direction of the holder (called "abstentions") and shares that are not voted
by a broker or other record holder due to the absence of instructions from the
beneficial owner (called "broker non-votes") will be counted for the purpose of
determining whether a quorum is present.
Other than the election of Directors, which requires a plurality of the
votes cast, each matter to be submitted to the Stockholders requires the
affirmative vote of a majority of the votes cast at the meeting. Abstentions and
broker non-votes will be disregarded in determining whether a matter has been
approved. In other words, abstentions and broker non-votes will neither be
counted as votes for nor as votes against a matter.
Right to Attend Annual Meeting; Revocation of Proxy
Returning a proxy card now will not interfere with your right to attend
the Annual Meeting or to vote your shares personally at the Annual Meeting, if
you wish to do so. Stockholders who execute and return proxies may revoke them
at any time before they are exercised by giving written notice to the Secretary
of the Company at our address, by executing a subsequent proxy and delivering it
to the Secretary of the Company, or by attending the Annual Meeting and voting
in person.
Costs of Solicitation
We will bear the cost of solicitation of proxies, which we expect to be
nominal and will include reimbursements for the charges and expenses of
brokerage firms and others for forwarding solicitation material to beneficial
owners of our outstanding Common Stock. Proxies will be solicited by mail, and
may be solicited personally by directors, officers or our regular employees, who
will not receive any additional compensation for any such services.
Page 1
Annual Report
The information included in this Proxy Statement should be reviewed in
conjunction with the Consolidated Financial Statements, Notes to Consolidated
Financial Statements, Independent Public Accountants' Report and other
information included in our Annual Report to Stockholders for the fiscal year
ended December 31, 2004 that was mailed on or about April 19, 2005, together
with this Notice of Annual Meeting and Proxy Statement, to all stockholders of
record as of the Record Date.
How To Read This Proxy Statement
Set forth below are the proposals to be considered by stockholders at
the Annual Meeting, as well as important information concerning, among other
things: our management and our Board of Directors; executive compensation;
transactions between the Company and our officers, directors and affiliates; the
stock ownership of management and other large stockholders; the services
provided to us by and fees of KPMG LLP, our independent accountants; and how
stockholders may make proposals at the Annual Meeting. Each stockholder should
read this information before completing and returning the enclosed proxy card.
Page 2
PROPOSAL ONE -
ELECTION OF DIRECTORS
At the Annual Meeting, the Stockholders will elect five (5) directors
to serve as the Board of Directors until the 2006 Annual Meeting of the
Stockholders of the Company or until their successors are elected and qualified.
The Board of Directors has nominated Robert V. Fasso, Jerry Moyes, John Breslow,
John Campbell Carruth, and Porter J. Hall for election as directors. Each of the
director nominees currently serves as a member of the Board of Directors. In the
absence of contrary instructions, each proxy will be voted for the election of
the all the proposed directors.
Information concerning the names, ages, positions with the Company,
tenure as a director, and business experience of the proposed directors is as
follows:
Robert V. Fasso, 51 Director Since 2002
Robert V. Fasso has served as our Chief Executive Officer and as a member of
the Board of Directors since January 2002, and as President since March 2002.
Mr. Fasso previously served as President - Regional Carrier Group of USF
Corporation from 1997 to 2001, running its regional LTL group. Mr. Fasso
has 35 years of experience in the LTL industry.
Jerry Moyes, 61 Director Since 1997
Jerry Moyes is our Chairman of the Board and has served on our Board of
Directors since we were founded in 1997. Mr. Moyes has served as Chairman of
the Board, President, and Chief Executive Officer of Swift Transportation
Co., Inc. since 1984. Mr. Moyes also served as a non-officer Chairman of the
Board of Simon Transportation Services Inc., a publicly traded temperature-
controlled truckload carrier, from September 2000 to February 2002.
Simon Transportation filed for protection under Chapter 11 of the United
States Bankruptcy Code on February 25, 2002, and sold substantially all of its
assets to Central Refrigerated Services, Inc. on April 22, 2002. Mr. Moyes
is the Chairman of the Board of Central Refrigerated, a former subsidiary
of ours, and has served in that capacity since its inception in April 2002.
John Breslow, 55 Director Since 2003
John Breslow has served on the Board of Directors since the Company's initial
public offering in December 2003. Mr. Breslow is the owner and, since 1979,
Chairman of the Board of Linweld, Inc. Linweld is a retail distributor of
welding products and related equipment and a manufacturer and distributor of
industrial, medical, and specialty gases based in Lincoln, Nebraska. Mr.
Breslow previously served two terms as Auditor of Public Accounts for the
State of Nebraska between 1991 and 1998. Since 2000, Mr. Breslow has served
on the Board of Directors of Stratus Fund, Inc., a registered mutual fund
that offers shares in a number of separate investment portfolios. Since 2002,
Mr. Breslow has also served as a member of the Board of Directors of EMT Corp.
,an indirect,wholly-owned subsidiary of Nelnet, Inc., which owns and manages
student loan portfolios.
John Campbell Carruth, 74 Director Since 2004
John Campbell Carruth has served on the Board of Directors since November 2004.
Mr. Carruth retired from his position as Chairman of the Board, Chief Executive
Officer, and President of USF Corporation in 2000. Mr. Carruth served as Chief
Executive Officer and President of USF Corporation from June 1991 to July 2000,
and as Chairman of the Board of that company from January 1998 to December 2000.
Mr. Carruth was a director of USF Corporation from December 1991 to December
2000. Mr. Carruth is a past President of the Canadian Trucking Association and
the Ontario Trucking Associations, and is a past Director of the American
Trucking Associations.
Porter J. Hall, 61 Director Since 2003
Porter J. Hall has served on the Board of Directors since the Company's initial
public offering in December 2003. Mr. Hall is a certified public accountant.
Mr. Hall retired from public accounting in August 2000 after thirty-three
years with Arthur Andersen LLP. At the time of his retirement, Mr. Hall was
managing partner of Arthur Andersen's Salt Lake City, Utah office. He is an
investor in and Chief Executive Officer of MyePhit.com, a fitness and wellness
company.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT STOCKHOLDERS VOTE
"FOR" THE NOMINEES FOR DIRECTOR PRESENTED IN PROPOSAL ONE.
Page 3
CORPORATE GOVERNANCE
Board of Directors
Meetings of the Board of Directors. During the year ended December 31,
2004, our Board of Directors met on eight occasions. Each of the directors
attended 75% or more of the meetings of the Board of Directors and the meetings
held by all of the committees of the Board on which he served. In addition, from
time to time, our Board of Directors acts by written consent to approve matters
arising between scheduled meetings. Our Board of Directors acted by written
consent on three occasions during the year ended December 31, 2004. We encourage
the members of our Board of Directors to attend its Annual Meetings of
Stockholders. All six of the Company's then-current directors attended the 2004
Annual Meeting of Stockholders.
Director Independence. The Company's Common Stock is listed on the
Nasdaq National Market, and therefore it is subject to the listing standards,
including standards relating to corporate governance, embodied in applicable
rules promulgated by the National Association of Securities Dealers, Inc. (the
"NASD"). Pursuant to NASD Rule 4350(c)(1), the Board of Directors has determined
that the following directors and nominees are "independent" under NASD Rule
4200(a)(15): John Breslow, John Campbell Carruth, and Porter J. Hall. In
accordance with NASD Rule 4350(c)(2), the Company's independent directors hold
regularly scheduled meetings, referred to as "executive sessions," at which only
the independent directors are present. The independent directors held six such
executive sessions in 2004. All independent directors were present at each
executive session.
Stockholder Communications. Our Board of Directors provides a process
for stockholders to send written communications to the entire Board or
individual directors. Information concerning the manner in which stockholders
can send communications to the entire Board or individual directors is available
on the Company's website, located at http://www.centralfreight.com.
Lead Independent Director
On March 3, 2005, the Company's Board of Directors voted to establish
the position of Lead Independent Director and to elect Porter Hall to fill such
position. The Lead Independent Director will at all times be an Outside Director
who will be responsible for coordinating the activities of the Outside
Directors. In addition to the duties of all members of the Board of Directors,
the Lead Independent Director is responsible for:
(a) advising the Chairman of the Board as to an appropriate schedule of
Board of Directors meetings, seeking to ensure that the Outside
Directors can perform their duties responsibly while not interfering
with the flow of Company operations;
(b) providing the Chairman of the Board with input as to the preparation of
agendas for the Board of Directors meetings and committee meetings;
(c) advising the Chairman of the Board as to the quality, quantity, and
timeliness of the flow of information from Company management that is
necessary for the Outside Directors to perform their duties effectively
and responsibly; although Company management is responsible for the
preparation of materials for the Board of Directors, the Lead
Independent Director may specifically request the inclusion of certain
material;
(d) recommending to the Chairman of the Board the retention of consultants
who report directly to the Board of Directors;
(e) interviewing, along with the Chairman of the Nominating and Corporate
Governance Committee, all candidates for the Board of Directors, and
making recommendations to the Nominating and Corporate Governance
Committee and the full Board of Directors;
(f) assisting the Board of Directors and the Company's officers in assuring
compliance with and implementation of the Company's corporate
governance policies and procedures and recommending revisions to such
policies and procedures;
(g) coordinating, developing agendas for, and moderating executive sessions
of the Outside Directors; acting as principal liaison between the
Outside Directors and the Chairman of the Board on sensitive issues;
(h) evaluating, along with the members of the Compensation Committee and
full Board of Directors, the Chief Executive Officer's performance;
meeting with the Chief Executive Officer to discuss the Board of
Directors' evaluation; and
(i) recommending to the Chairman of the Board the membership of the various
committees of the Board of Directors, as well as recommending committee
Chairmen.
Page 4
Committees of the Board of Directors
The Board of Directors has standing Audit, Compensation, and Nominating
and Corporate Governance Committees. The Board does not maintain any other
standing committees. The table below sets forth the current membership of each
of the standing committees of the Board of Directors.
Audit Compensation Nominating and Corporate
Name Committee Committee Governance Committee
- ----- --------- ------------ ------------------------
John Breslow x x
John Campbell Carruth x x x
Porter J. Hall x x x
Gordan W. Winburne x x
The Audit Committee
Purpose, Functions, Composition, and Meetings of the Audit Committee.
The Audit Committee is responsible for the appointment, compensation, retention,
and oversight of the work of any independent public accountants engaged by the
Company for the purpose of preparing or issuing an audit report or performing
other audit or similar services for the Company. The Audit Committee meets with
the Company's independent public accountants to discuss the Company's financial
statements and matters related to their independence, as well as to ensure that
the scope of their activities has not been restricted and that adequate
responses to their recommendations and inquiries have been received. The Audit
Committee also periodically meets with management to discuss the Company's
financial statements and the adequacy of the Company's internal financial
controls. In addition, the Audit Committee reviews and approves transactions
between the Company and related parties, in the absence of the appointment of a
special committee for that purpose.
The Audit Committee currently is comprised of John Breslow, John
Campbell Carruth, and Porter J. Hall. Mr. Hall serves as the Chairman of the
Audit Committee. Each member of the Audit Committee satisfies the independence
and Audit Committee membership criteria set forth in NASD Rule 4350(d)(2).
Specifically, each member of the audit committee:
o Is independent under NASD Rule 4200(a)(15);
o Meets the criteria for independence set forth in Rule
10A-3(b)(1) under the Securities Exchange Act of 1934, as
amended (the "Exchange Act");
o Did not participate in the preparation of the financial
statements of the Company or any current subsidiary of the
Company at any time during the past three years; and
o Is able to read and understand fundamental financial
statements, including the Company's balance sheet, income
statement, and cash flow statement.
The Audit Committee met 13 times during 2004. Each member of the Audit
Committee attended all of the Audit Committee meetings during 2004. In addition,
from time to time, our Audit Committee acts by written consent to approve
matters arising between scheduled meetings. Our Audit Committee acted by written
consent on one occasion during the year ended December 31, 2004.
Audit Committee Financial Expert. The Board of Directors has determined
that at least one "audit committee financial expert," as defined under Item
401(h) of Regulation S-K, currently serves on the Audit Committee. The Board of
Directors has identified Porter J. Hall as an "audit committee financial
expert." Mr. Hall is independent, as independence for Audit Committee members is
defined under applicable NASD rules.
Audit Committee Charter. Since the Company's initial public offering in
December 2003, the Audit Committee has operated pursuant to a written charter
detailing its powers and duties. In March 2004, the Board of Directors adopted
an Amended and Restated Charter to comply with the requirements of NASD Rule
4350(d)(1). A copy the Audit Committee's Amended and Restated Charter was
attached as Appendix A to the Company's definitive proxy statement relating to
its 2004 Annual Meeting of Stockholders filed with the Securities and Exchange
Commission (the "SEC") on April 23, 2004. A copy of the charter is available to
stockholders on the Company's website, located at http://www.centralfreight.com.
Page 5
Report of the Audit Committee
Report of the Audit Committee. In performing its duties, the Audit
Committee, as required by applicable rules and regulations promulgated by the
SEC, issues a report recommending to the Board of Directors that our audited
financial statements be included in our Annual Report on Form 10-K, and certain
other matters, including the independence of our outside public accountants. The
Report of the Audit Committee, which was approved by all members of the
Compensation Committee in March 2005, is set forth below.
The Report of the Audit Committee shall not be deemed to be
incorporated by reference into any filing made by us under the Securities Act of
1933 or the Exchange Act, notwithstanding any general statement contained in any
such filings incorporating this Proxy Statement by reference, except to the
extent we incorporate such report by specific reference.
Report of the Audit Committee of
Central Freight Lines, Inc.
The primary purpose of the Audit Committee is to assist the
Board of Directors in fulfilling its oversight responsibilities
relating to the quality and integrity of the Company's financial
reports and financial reporting processes and systems of internal
controls. Management of the Company has primary responsibility for the
Company's financial statements and the overall reporting process,
including maintenance of the Company's system of internal controls. The
Company retains independent auditors who are responsible for conducting
an independent audit of the Company's financial statements, in
accordance with generally accepted auditing standards, and issuing a
report thereon. In performing its duties, the Audit Committee has
discussed the Company's financial statements with management and the
Company's independent auditors and, in issuing this report, has relied
upon the responses and information provided to the Audit Committee by
management and the independent auditors.
For the fiscal year ended December 31, 2004, the Audit
Committee has:
o Reviewed and discussed the audited financial statements with management
and KPMG LLP, the Company's independent auditors;
o Discussed with the auditors the matters required to be
disclosed by Statement on Auditing Standards No. 61, as
amended, "Communication with Audit Committees or Others
with Equivalent Authority and Responsibility";
o Received the written disclosures and the letter from the
independent auditors required by Independence Standards
Board Statement No. 1, as amended, "Independence
Discussions with Audit Committees," and discussed with the
independent auditors the independent auditors'
independence.
Based on the foregoing reviews and meetings, the Audit Committee
recommended to the Board of Directors that the audited financial
statements be included in the Annual Report on Form 10-K for the year
ended December 31, 2004, for filing with the Securities and Exchange
Commission.
Audit Committee
Porter J. Hall, Chairman
John Breslow, Member
John Campbell Carruth, Member
Page 6
The Compensation Committee
The Compensation Committee currently is comprised of John Campbell
Carruth, Porter J. Hall, and Gordan W. Winburne, with Mr. Winburne serving as
Chairman. Mr. Winburne is not standing for re-election at the Annual Meeting and
will be replaced as Chairman and member of the Compensation Committee by John
Breslow following the Annual Meeting. The Compensation Committee met once during
2004. The Compensation Committee reviews all aspects of executive compensation,
including salary, bonus, and equity compensation of the Chief Executive Officer
and other executive officers, and makes recommendations on such matters to the
Board of Directors. The Compensation Committee also reviews and approves stock
options granted by the Company to other officers and employees. Additional
information concerning the Compensation Committee, Compensation Committee
interlocks, and its Report on Executive Compensation are set forth under
"Executive Compensation" below.
The Nominating and Corporate Governance Committee
Purpose, Composition, and Meetings of the Nominating and Corporate
Governance Committee. In March 2004, the Board of Directors established a
Nominating and Corporate Governance Committee. The Nominating and Corporate
Governance Committee currently is comprised of John Breslow, John Campbell
Carruth, Porter J. Hall, and Gordan W. Winburne, with Mr. Carruth serving as
Chairman. Mr. Winburne is not standing for re-election at the Annual Meeting and
will no longer serve as a member of the Nominating and Corporate Governance
Committee following the Annual Meeting. The Nominating and Corporate Governance
Committee met once during 2004. Further, in November 2004, the Nominating and
Corporate Governance Committee acted by unanimous written consent to recommend
the appointment of John Campbell Carruth as a director. The duties of the
Nominating and Corporate Governance Committee include, among other things,
recommending to the Board potential candidates for election to the Board of
Directors and making recommendations to the Board concerning issues related to
corporate governance. All current members of the Nominating and Governance
Committee are independent, as independence for nominating committee members is
defined under applicable NASD rules.
Our independent directors, including all members of the Nominating and
Corporate Governance Committee met in March 2005 and recommended that the Board
of Directors nominate Robert V. Fasso, Jerry Moyes, John Breslow, John Campbell
Carruth, and Porter J. Hall for election as directors. Each nominee for election
as a director is standing for reelection. Mr. Fasso, also, is an executive
officer of the Company.
Nominating and Governance Committee Charter. A written charter for the
Nominating and Governance Committee was adopted in March 2004. A copy of the
charter is available to stockholders on the Company's website, located at
http://www.centralfreight.com.
Process for Identifying and Evaluating Director Nominees. Director
nominees are chosen by the entire Board of Directors, after considering the
recommendations of the Nominating and Corporate Governance Committee. As a
matter of course, the members of the Nominating and Corporate Governance
Committee review the qualifications of various persons to determine whether they
might be candidates for consideration for membership on the Board of Directors.
The Nominating and Corporate Governance Committee also accepts recommendations
of director candidates from executive officers of the Company, advisors of the
Company, and stockholders. The Nominating and Corporate Governance Committee
will review all candidate recommendations, including those properly submitted by
stockholders, in accordance with the mandate contained in its charter. This will
include a review of the person's judgment, integrity, experience, independence,
knowledge of the Company's industry or other industries related to the Company's
business, and such other factors as the Nominating and Corporate Governance
Committee determines are relevant in light of the needs of the Board of
Directors and the Company. With regard to specific qualities and skills, the
Nominating and Corporate Governance Committee believes it necessary that: (i) at
least a majority of the members of the Board of Directors qualify as
"independent" under NASD Rule 4200(a)(15); (ii) at least three members of the
Board of Directors satisfy the audit committee membership criteria specified in
NASD Rule 4350(d)(2); and (iii) at least one member of the Board of Directors
eligible to serve on the Audit Committee has sufficient knowledge, experience,
and training concerning accounting and financial matters so as to qualify as an
"audit committee financial expert" within the meaning of Item 401(h) of
Regulation S-K. The Company does not pay a fee to any third party to identify or
evaluate or assist in identifying or evaluating potential nominees.
Page 7
Consideration of Director Candidates Recommended by Stockholders. In
March 2004, a written charter for the Nominating and Corporate Governance
Committee was adopted. Under this charter, the Nominating and Corporate
Governance Committee will consider director candidates recommended by
stockholders, provided that the following procedural requirements are satisfied.
Candidate recommendations should be mailed via certified mail, return receipt
requested, and addressed to the Nominating and Corporate Governance Committee,
Central Freight Lines, Inc., c/o Jeff Hale - Senior Vice President and Chief
Financial Officer, 15333 North Pima Road, Suite 230, Scottsdale, Arizona 85260.
In order to be considered, a stockholder recommendation must: (i) be received at
least 90 days prior to the Annual Meeting of Stockholders (or 120 days prior to
the first anniversary of the date of the prior year's annual meeting; (ii)
contain sufficient background information, such as a resume and references, to
enable the Committee to make a proper judgment regarding his or her
qualifications; (iii) be accompanied by a signed consent of the proposed nominee
to serve as a director if elected; (iv) state the name and address of the person
submitting the recommendation and the number of shares of the Company's Common
Stock owned of record or beneficially by such person; and (v) if submitted by a
beneficial stockholder, be accompanied by evidence, such as a recent brokerage
statement, that the person making the recommendation beneficially owns shares of
the Company's Common Stock.
Director Compensation
In 2004, directors who were not 10% stockholders, officers, or
employees of the Company ("Outside Directors") received an annual retainer of
$8,000 plus $1,000 for each meeting of the Board of Directors or Board Committee
they attended. On March 3, 2005, the Company's Compensation Committee and Board
also approved a revised compensation structure for Outside Directors. During
2005 and thereafter, Outside Directors will receive an annual retainer of
$20,000, plus (a) $1,500 for each meeting of the Board they attend in person,
(b) $1,500 for each meeting of a Board committee they attend in person, if such
meeting is not on the same day as a meeting of the full Board, (c) $750 for each
meeting of a Board committee they attend in person, if such meeting is on the
same day as a meeting of the full Board, and (d) $750 for each telephonic
meeting of the Board or a Board committee they attend. In addition, the Chairman
of the Audit Committee will receive an annual retainer of $20,000, the Chairman
of the Compensation Committee will receive an annual retainer of $1,500, the
Chairman of the Nominating and Corporate Governance Committee will receive an
annual retainer of $1,500, and the Outside Director who serves as Lead
Independent Director will receive an annual retainer of $20,000. We also
reimburse directors for travel and other related expenses incurred in attending
a meeting.
On December 11, 2003, we granted to each of John Breslow, Porter J.
Hall, and Gordan W. Winburne options to purchase 20,000 shares of our common
stock at $15.00 per share. On November 5, 2004, we granted to John Campbell
Carruth options to purchase 20,000 shares of our common stock at $5.82 per
share. These options vest at the rate of 1,000 shares per meeting attended. On
July 10, 2002, we granted to Jerry Moyes options to purchase 20,000 shares of
our common stock at $1.35 per share. These options vest at the rate of 20% per
year over a period of five years.
Directors who are employees or 10% stockholders of the Company do not
receive compensation for Board or committee service. We do, however, reimburse
them for travel and other related expenses.
In our Amended and Restated Articles of Incorporation, we have agreed
to indemnify our officers and directors against liabilities they may incur while
serving in such capacities to the fullest extent allowed by the Nevada General
Corporation Law. Under this indemnification provision, we are generally required
to indemnify each of our directors and officers against any reasonable expenses
actually incurred in the defense of any action, suit, or proceeding, to which
the director or officer is a party by reason of his or her service to our
company. We will also advance expenses incurred by a director or officer in
defending such an action, suit, or proceeding upon receipt of an undertaking by
that director or officer to repay those advances if a court establishes that his
or her acts or omissions involved intentional misconduct, fraud, or a knowing
violation of law and were material to the cause of action. In addition, we
maintain insurance for directors and officers for liability they may incur as a
result of service to our Company.
Page 8
Executive Officers of the Company
The table below sets forth, as of March 31, 2005, certain information
regarding our executive officers.
Name Age Position
- --------------------- ----- ------------------------------------------------
Robert V. Fasso.........51.....Chief Executive Officer and President
Walter D. Ainsworth.....52.....Executive Vice President
Jeffrey A. Hale.........45.....Senior Vice President and Chief Financial Officer
Richard Stolz...........51.....Senior Vice President - Sales and Marketing
Walter D. Ainsworth has served as our Executive Vice President since July 2004.
Mr. Ainsworth served as President of USF Corporation's Eastern Carrier Group
from January 2004 to July 2004. Mr. Ainsworth previously served as the
President and Chief Executive Officer of USF Dugan from August 2000 to July
2004, and as the Senior Vice President of Operations of USF Reddaway from
September 1999 to August 2000. Mr. Ainsworth has over 30 years of experience in
the LTL industry.
Jeffrey A. Hale has served as our Senior Vice President and Chief Financial
Officer since August 2003. He previously served our company as Vice President
- - Finance and Chief Financial Officer from June 2002 to August 2003. Prior to
joining us, Mr. Hale served as Vice President - Finance and Chief Financial
Officer of USF Bestway, Inc., a subsidiary of USF Corporation, from April 1989
to June 2002. Mr. Hale has 22 years of experience in the LTL industry.
Richard Stolz has served as our Senior Vice President - Sales and
Marketing since March 2005. He previously served as a software consultant to the
transportation industry from January 2003 to March 2005, as Vice -President of
Business Development for Maersk Data from April 2001 to October 2002 and as
Vice-President Sales and Marketing for Route Master from May 2000 until April
2001.
See "Proposal One - Election of Directors," above, for information
concerning the business experience of Robert V. Fasso.
Code of Conduct and Ethics
The Board of Directors has adopted a Code of Conduct and Ethics that
applies to all directors, officers, and employees of the Company. The Code of
Conduct and Ethics includes provisions applicable to the Company's principal
executive officer, principal financial officer, principal accounting officer or
controller, and persons performing similar functions that constitute a "code of
ethics" within the meaning of Item 406(b) of Regulation S-K. A copy of the Code
of Conduct and Ethics is available to stockholders on the Company's website,
located at http://www.centralfreight.com.
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Exchange Act requires our directors and executive
officers, and persons who own more than 10% of a registered class of our equity
securities, to file with the SEC and the Nasdaq Stock Market reports of
ownership and changes in ownership of Common Stock and other equity securities
of the Company. Officers, directors, and greater than 10% beneficial owners are
required by SEC regulations to furnish us with copies of all Section 16(a) forms
they file. Based solely upon a review of the copies of such forms furnished to
the Company, the Company believes that its officers, directors, and greater than
10% beneficial owners complied with all Section 16(a) filing requirements
applicable to them during the Company's preceding fiscal year except that (i)
the initial Form 3 for Walter D. Ainsworth, identifying Mr. Ainsworth as a
reporting person as of July 21, 2004, was not filed until August 3, 2004, (ii)
an amendment to John Campbell Carruth's Form 4 dated November 15, 2004,
reporting the grant of 20,000 options to Mr. Carruth on November 5, 2004, was
filed on March 1, 2005. We post copies of Section 16(a) forms our directors and
executive officers file with the SEC on our website at
http://www.centralfreight.com .
Page 9
EXECUTIVE COMPENSATION
Summary Compensation Table
The following table sets forth information concerning the annual and
long-term compensation for services rendered in all capacities to the Company
during each of the three fiscal years ended December 31, 2004, 2003, and 2002,
of those persons who were (i) our Chief Executive Officer at December 31, 2004,
(ii) our two other executive officers at December 31, 2004, and (iii) one
additional executive officer who was not serving in such capacity at December
31, 2004 (collectively, the "Named Executive Officers").
Annual Compensation Long-term Compensation
--------------------------------------- ----------------------------------------
Awards Payouts
-------------------------- ----------
Restricted Securities
Other Annual Stock Underlying All Other
Salary Bonus Compensation Awards Options LITP Compenation
Principal Position Year ($)(1) ($) ($) ($) (#) Payouts ($)(2)
- ------------------ ---- ------ -------- ----------- ---------- --------- ------- -----------
Robert V. Fasso............. 2004 362,382 -- -- -- -- -- 14,708
President and Chief 2003 348,077 126,000(3) 2,686,706(4) -- -- -- 12,973
Executive Officer 2002 306,250 150,000 -- -- 1,260,000 -- 5,923
Walter D. Ainsworth(5)...... 2004 132,393 240,000(6) -- -- 150,000 -- 58,257
Executive Vice President 2003 -- -- -- -- -- -- --
2002 -- -- -- -- -- -- --
Jeffrey A. Hale(7).......... 2004 180,652 -- -- -- -- -- 13,533
Senior Vice President 2003 172,115 50,000(3) -- -- -- -- 11,625
and Chief Financial 2002 77,884 50,000 -- -- 100,000 -- 3,330
Officer
Doak D. Slay(8)............. 2004 160,769 -- -- -- -- -- 42,897
Senior Vice President- 2003 174,504 20,000(3) -- -- 100,000 -- 25,690
Sales and Marketing 2002 -- -- -- -- -- --
- -------------------------------------------------
(1) Includes amounts deferred pursuant to our 401(k) plan. Due to timing, 2004
included one additional payroll amount.
(2) Consists of: (a) excess life insurance paid for Mr. Fasso ($6,951 in
2004, $690 in 2003, and $300 in 2002), Mr. Hale ($254 in 2004, $254 in
2003, and $53 in 2002), and Mr. Slay ($1,324 in 2004 and $211 in 2003);
(b) personal use of a company car for Mr. Fasso ($6,677 in 2004, $6,113
in 2003, and $5,623 in 2002), Mr. Ainsworth ($2,120 in 2004), Mr. Hale
($12,199 in 2004, $10,576 in 2003, and $3,277 in 2002), and Mr. Slay
($6,723 in 2004 and $6,369 in 2003), (c) moving costs for Mr. Ainsworth
($55,837 in 2004) and Mr. Slay ($17,805 in 2003), (d) other insurance
premiums paid for Mr. Fasso ($1,080 in 2004 and $6,170 in 2003), Mr.
Ainsworth ($300 in 2004), Mr. Hale ($1,080 in 2004 and $795 in 2003),
and Mr. Slay ($720 in 2004 and $1,305 in 2003), and (e) amounts paid to
Mr. Slay ($42,897 in 2004) following termination of his employment.
(3) Consists of bonuses earned in 2003 and paid in 2004.
(4) Consists of ordinary income recognized in 2003 by Mr. Fasso under
federal income tax guidelines upon exercise of vested incentive stock
options. No cash was received by Mr. Fasso. The stock options were
granted to Mr. Fasso in 2002 pursuant to our Incentive Stock Plan.
(5) Mr. Ainsworth was hired in July 2004, and amounts included in the table
above for 2004 are for July to December of that year.
(6) Consists of a bonus earned in 2004, one half of which was paid in 2004 and
one half of which was paid in January 2005.
(7) Mr. Hale was hired in June 2002, and amounts included in the table above for
2002 are for June to December of that year.
(8) Mr. Slay was hired in January 2003, and his employment terminated in
October 2004. Following the termination of his employment, Mr. Slay was
entitled to receive payment of one year's salary at the then current
level. Amounts paid to Mr. Slay between January 2004 and October 2004
are reflected as "Salary" in the above table, while amounts paid after
termination of Mr. Slay's employment are reflected as "All Other
Compensation."
Page 10
Options Grants In Last Fiscal Year
The following table sets forth stock options granted to Named Executive
Officers in the fiscal year ended December 31, 2004:
Option Grants in 2004
---------------------
Individual Grants
------------------------------------------------------------
Potential Realizable Value
Number of at Assumed Annual Rates of
Securities Stock Price Appreciation for
Underlying Option Term(3)
Options price Percent of Total
Expiration Options Granted Exercise
to Employees price Expiration ------------------------------
Name Granted (#)(1) in Fiscal ($/Sh) Date 5% ($) 10% ($)
- ---- Year(2)
----------- ------------ ----------- ----------- ---------- -------------
Robert V. Fasso............. 0 -- -- -- -- --
Walter D. Ainsworth......... 150,000 46.5% $ 7.35 08/25/2014 $ 693,356 $ 1,757,101
Jeffrey A. Hale............. 0 -- -- -- -- --
Doak D. Slay................ 0 -- -- -- -- --
(1) Each option represents the right to purchase one share of Common Stock
under our incentive stock plan.
(2) During 2004, we granted employees options to purchase an aggregate of
322,758 shares of Common Stock.
(3) We show the potential realizable values net of the options' exercise
price, but before the payment of taxes associated with exercise.
Potential realizable values are based on a fair market value at the
date of grant of $7.35 per share for the underlying Common Stock. The
potential realizable values represent hypothetical gains if the holders
exercised their options at the end of the option term. The SEC's rules
provide the assumed 5% and 10% annual rates of stock price appreciation
and measure the appreciation from the grant date.
Except as set forth above, no stock options or stock appreciation
rights (SARs) were granted during the 2004 fiscal year to any of the Named
Executive Officers.
Aggregated Options Exercises in Last Fiscal Year and Fiscal Year-End Option
Value Table
The table below sets forth information with respect to the exercise of
stock options during the fiscal year ended December 31, 2004, by the Named
Executive Officers.
Page 11
Aggregated Option Exercises in Last Fiscal Year and Fiscal Year-End Option Values
Value of Unexercised
Shares Number of Securities Underlying In-the-Money
Acquired Unexercised Options at FY-End Options at FY-End
on (#) ($)(1)
Exercise Value ----------------------------------- --------------------------------
Name (#) Realized ($) Exercisable Unexercisable Exercisable Unexercisable
- ---- ---------- ------------- -------------- ----------------- --------------- --------------
Robert V. Fasso......... -- -- 126,000 378,000 $ 623,700 $ 1,871,100
Walter D. Ainsworth..... -- -- 0 150,000 0 0
Jeffrey A. Hale......... -- -- 40,000 60,000 198,000 297,000
Doak D. Slay............ -- -- 0 0 0 0
(1) Based on the $6.30 per share closing price of our Common Stock on
December 31, 2004.
Employment Agreements
On January 7, 2002, we entered into an employment agreement with Robert
V. Fasso. Mr. Fasso's agreement provides for (a) an annual salary of $325,000,
which may be increased by merit raises in an amount to be determined annually by
the Board of Directors, and (b) the grant of options to purchase 1,260,000
shares of our stock for $1.35 per share, exercisable for 10 years. Options for
630,000 shares vested immediately upon execution of the employment agreement,
options for 126,000 shares vested on each of January 7, 2003 and January 7,
2004, and options for 126,000 shares will vest on each of the first three
anniversaries of January 7, 2004. On November 17, 2003, Mr. Fasso exercised
options to acquire 400,000 shares, and on December 5, 2003, Mr. Fasso exercised
options to acquire 356,000 additional shares. In addition, Mr. Fasso was allowed
to purchase 10% of the membership interests of Southwest Premier Properties
L.L.C. for $2.0 million. The purchase price was paid through delivery of a
promissory note payable to Southwest Premier that matures on January 30, 2007.
On February 6, 2003, the Board approved an increase in Mr. Fasso's salary to
$350,000. He is eligible for a bonus of up to $360,000 based on our operating
efficiency. The actual bonus paid in a given year will range from zero, if our
annual operating ratio exceeds 95%, to the full $360,000, if our annual
operating ratio is at or below 90%. The employment agreement also requires us to
pay the insurance premiums for a $5.0 million term life insurance policy and a
$0.5 million whole life insurance policy under which Mr. Fasso's family members
are the beneficiaries. Mr. Fasso may be terminated at any time upon payment of
two years' salary at the then current level. He will not be entitled to receive
such payment if he voluntarily terminates his employment.
In June 2002, we hired Jeffrey A. Hale as our Vice President -- Finance
and Chief Financial Officer. We agreed to pay Mr. Hale an annual salary of
$150,000 and agreed to grant him options to acquire 100,000 shares of common
stock at the fair market value of the stock on the grant date. We also agreed
that Mr. Hale would be eligible to participate in our executive bonus program.
In September 2003, Mr. Hale became our Senior Vice President and Chief Financial
Officer. In March 2005, Mr. Hale's annual salary was increased to $225,000. Mr.
Hale may be terminated at any time upon payment of one year's salary at the then
current level. He will not be entitled to receive such payment if he voluntarily
terminates his employment or is terminated for cause.
In January 2003, we hired Doak D. Slay as our Senior Vice
President-Sales and Marketing. We agreed to pay Mr. Slay an annual salary of
$190,000 in 2003 and granted him options to acquire 100,000 shares of common
stock at the fair market value of the stock on the grant date. Further, we
agreed to provide Mr. Slay with a company car and to reimburse certain
relocation expenses. We also agreed that Mr. Slay would be eligible to
participate in our executive bonus program. Mr. Slay's employment terminated in
October 2004, at which time he was entitled to payment of one year's salary at
the then current level.
Page 12
In July 2004, we hired Walter D. Ainsworth as our Executive Vice
President. We agreed to pay Mr. Ainsworth an annual salary of $300,000 and
agreed to grant him options to acquire 150,000 shares of common stock at the
fair market value of the stock on the grant date. We also agreed that Mr.
Ainsworth would be eligible to participate in our executive bonus program. Mr.
Ainsworth may be terminated at any time upon payment of one year's salary at the
then current level. He will not be entitled to receive such payment if he
voluntarily terminates his employment or is terminated for cause.
In March 2005, we hired Richard Stolz as our Senior Vice President -
Sales and Marketing. We agreed to pay Mr. Stolz an annual salary of $240,000 and
agreed to grant him options to acquire 100,000 shares of common stock at the
fair market value of the stock on the grant date. We also agreed that Mr. Stolz
would be eligible to participate in its executive bonus program. Mr. Stolz may
be terminated at any time upon payment of one year's salary at the then current
level. He will not be entitled to receive such payment if he voluntarily
terminates his employment or is terminated for cause.
Executive Bonus Program
We have established an executive bonus program for certain of our
executive officers and other key employees. Bonuses in this program are
determined by reference to our fiscal year operating ratio. Participants, except
for Mr. Fasso - whose executive bonus program is described on page 14, may
receive bonuses ranging from zero, if our operating ratio for the year exceeds
95%, to one hundred percent of salary, if our operating ratio for the year is at
or below 90%. No bonuses were awarded to our executive officers under this
program for 2004.
Incentive Stock Plan
We have an incentive stock plan. The key terms of the incentive stock
plan are as follows:
o We can grant incentive stock options, non-qualified stock options,
bonus stock, reload options, or any other stock-based award to
employees, officers, directors, consultants, and any other person
determined by the Board of Directors to have performed services for or
on behalf of the company which merit the grant of an award.
o We reserved 5,000,000 shares of common stock for issuance under the
plan and have outstanding options covering 1,320,883 of those shares
as of March 31, 2005.
o Our Board of Directors or its designated committee administers the
plan and makes all grants thereunder.
o Options that are canceled, forfeited, expire, or are tendered for tax
withholding or to pay the exercise price become available again for use
under the plan.
401(k) Profit Sharing Plan
We maintain a defined contribution retirement plan, which includes a
401(k) option. All employees age 21 or older are eligible to participate after
ninety days of service and generally may contribute up to 20% of their annual
compensation to the plan. These participant contributions vest immediately.
Employees are eligible for matching contributions after one year of service. Our
contributions to the plan each year are made at the discretion of our Board of
Directors. Currently, our matching contributions are between 50% and 100% of a
participant's pre-tax contributions, depending on company performance, up to a
maximum of 5% of the participant's compensation. Matching contributions vest 40%
upon completion of two years of service, with an additional 20% vesting each
year thereafter through the fifth year of service.
Employee Stock Purchase Plan
We maintain an employee stock purchase plan. Generally, all of our
employees who work at least twenty hours a week and more than five months in a
calendar year are eligible to participate in the plan. An employee is ineligible
to participate, however, if immediately after such grant, such employee would
own stock possessing 5% or more of the total combined voting power or value of
all classes of our Common Stock. The plan permits eligible employees to purchase
shares of our Common Stock through payroll deductions. Participation periods are
six months in length. In general, for each participation period, eligible
employees are allowed to elect to purchase full shares through payroll
deductions of up to 15% of compensation, but in no event is the participant's
right to purchase shares of Common Stock allowed to accrue at a rate that
exceeds $25,000 of fair market value of Common Stock in a calendar year.
Further, a participant is not allowed to purchase more than 2,500 shares of
Common Stock in any six-month participation period. The purchase price a
participant pays for the shares is equal to 90% of the market closing price of
the Common Stock on the last business day of each participation period. If a
participant dies, retires, or otherwise terminates employment, the participant's
accumulated payroll deductions as of the date of death, retirement, or other
termination is refunded.
Page 13
Compensation Committee Interlocks and Insider Participation
The Compensation Committee is currently comprised of John Campbell
Carruth, Porter Hall, and Gordan W. Winburne. No current member of the
Compensation Committee is or has been an officer or employee of the Company.
There are no interlocking relationships between the executive officers and
directors of the Company and other entities that might affect the compensation
of the Company's executive officers. See "Certain Relationships and Related
Transactions" below, for a description of certain transactions between us and
our other directors, executive officers, or their affiliates, and "Corporate
Governance - Director Compensation" above, for a description of compensation of
the members of the Compensation Committee.
Compensation Committee Report on Executive Compensation
The Compensation Committee Report on Executive Compensation that
follows shall not be deemed to be incorporated by reference into any filing made
by us under the Securities Act of 1933 or the Exchange Act, notwithstanding any
general statement contained in any such filings incorporating this Proxy
Statement by reference, except to the extent we incorporate such report by
specific reference.
The Compensation Committee of the Board of Directors approved the
following Report on Executive Compensation in March 2005:
Compensation Committee Report on Executive Compensation
The Compensation Committee's philosophy in setting
compensation policies for the Company's senior executive group, which
includes the Chief Executive Officer and President, the Executive Vice
President, and each Senior Vice President, is to attract, motivate, and
retain high caliber talent while maximizing stockholder value over
time. The Compensation Committee sets the compensation policy
applicable to these senior executive officers and evaluates, in
consultation with the Chief Executive Officer and President, the
performance of such officers.
The compensation program for the Company's executive officers
is administered in accordance with a pay-for-performance philosophy to
link executive compensation with the values, objectives, business
strategy, management incentives, and financial performance of the
Company. The Compensation Committee has adopted the following
guidelines in making its compensation decisions:
o Provide a fair and competitive total compensation package that enables us to
attract and retain superior executive talent;
o Design compensation programs to further the Company's yearly and long-term
business objectives; and
o Include variable components in the compensation package that links executive
financial reward to Company performance.
In 2004, the Compensation Committee focused on the following
three components in forming the total compensation package for the
Company's senior executive officers: Base salary; annual incentive
bonus; and long-term equity incentives.
Base Salary
The Company's Chief Executive Officer and President has a
written employment agreement that establishes his base salary. In
addition, the Company hired its Executive Vice President in 2004
pursuant to a written offer of employment that fixed his starting
salary in 2004. Within the context of these agreements, the
Compensation Committee annually reviews the Chief Executive Officer and
President's base salary and consults on the base compensation of the
Executive Vice President and each Senior Vice President. The
Compensation Committee intends to compensate the Company's senior
executive officers, including the Chief Executive Officer and
President, fairly and competitively within the trucking industry. In
order to evaluate the Company's competitive position in the trucking
industry, the Compensation Committee reviews and analyzes the
compensation packages, both cash and equity, offered by other publicly
traded, truckload and less-than-truckload companies. We believe that
this approach allows the Compensation Committee to compensate the
senior executive officers fairly and competitively by industry
standards. As reflected in the Summary Compensation Table, Mr. Fasso's
salary for fiscal year 2004 was $362,382. As discussed below, the
Committee also emphasizes longer-term compensation incentives for these
executives as it believes that these longer-term incentives help
motivate the executives to better achieve the Company's corporate
performance goals, thereby more directly contributing to stockholder
value.
Page 14
Annual Incentive Bonus
During fiscal year 2004, the Company's senior executive
officers were eligible for a target annual incentive bonus, calculated
as a percentage of each officer's base salary, under the terms of the
Company's executive bonus program. The executive bonus program promotes
a pay-for-performance philosophy by providing the executive group with
direct cash incentives to achieve corporate financial goals. Bonuses in
this program were determined by reference to the Company's fiscal year
operating ratio. Participants in this program, excluding Mr. Fasso -
whose executive bonus program is described on page 14, were eligible to
receive bonuses ranging from zero, if the operating ratio for the year
exceeded 95%, to one hundred percent of salary, if the operating ratio
for the year was at or below 90%. The determination of the Company's
operating ratio was measured objectively. Because the Company's
operating ratio in 2004 exceeded 95%, no incentive bonuses were awarded
to senior executive officers for 2004.
Long-Term Incentives
The Compensation Committee may award stock options to the
senior executive officers to enhance the link between executive pay and
stockholder value. Awards are made pursuant to the Company's Incentive
Stock Plan. Under the Incentive Stock Plan, the Compensation Committee
also has the ability to award other equity-based incentives such as
stock appreciation rights or restricted stock, but has not done so to
date. The Compensation Committee is responsible for determining who
should receive stock option grants, when the grants should be made, the
exercise price per share, and the number of shares to be granted. The
Committee considers grants of long-term incentive awards to senior
executive officers during each fiscal year. To date, stock options have
been granted at an option price set at fair market value of the
Company's Common Stock on the date of grant. As such, stock options
have value only if the stock price appreciates following the date the
options are granted. The stock options reflected in the Summary
Compensation Table are generally subject to a 60-month vesting period.
This approach encourages the creation of stockholder value over the
long term. The stock options awarded to the senior executive group in
fiscal year 2004 were based on the need to attract senior executives
and reflected prior option grants made in connection with the hiring of
other senior executives. In fiscal 2004, Mr. Fasso did not receive any
options, due to the prior grant to him of options to purchase 1,260,000
shares of the Company's Common Stock on January 7, 2002 in connection
with his hiring. The Committee believes that equity ownership,
including stock options, provides the Company's executive officers
substantial motivation to maximize long-term stockholder value.
The Compensation Committee believes that the annual salaries
and other compensation of the Company's Chief Executive Officer and
President and other senior executive officers are reasonable compared
to similarly situated executives of other less-than-truckload and
truckload motor carriers.
Compensation Committee
Gordan W. Winburne, Chairman
John Campbell Carruth, Member
Porter J. Hall, Member
Stock Performance Graph
[GRAPH AND LEGEND APPEAR HERE IN PRINTED FORM]
Page 15
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT
Amount and Nature of
Name and Address of Beneficial Owner(1) Beneficial Ownership(2) Percent of Class(2)
- --------------------------------------- ----------------------- -------------------
Jerry and Vickie Moyes(3)............................................ 5,762,351
Wellington Management Company, LLP(4)................................ 2,236,700
NWQ Investment Management Company, LLC(5)............................ 2,006,404
The TCW Group, Inc. (6).............................................. 1,627,969
Hotchkiss and Wiley Capital Management, LLC(7)....................... 1,396,500
FMR Corp. (8)........................................................ 1,050,000
Robert V. Fasso(9)................................................... 1,008,000
Jeffrey A. Hale(10).................................................. 40,000 *
John Breslow(11)..................................................... 12,000 *
John Campbell Carruth(12)............................................ 14,000 *
Porter J. Hall(13)................................................... 9,000 *
Gordan W. Winburne(14)............................................... 9,000 *
Walter D. Ainsworth.................................................. 0 *
Doak D. Slay......................................................... 0 *
All directors and executive officers as a group (9 persons) (15).....
- ---------------------------------------------
* Less than one percent.
(1) Unless otherwise indicated, the business address of the persons
named in the above table is care of Central Freight Lines,Inc.,
5601 West Waco Drive, Waco, Texas 76710.
(2) For purposes of this table, a person or group of persons is deemed to
have "beneficial ownership" of any shares which such person has the
right to acquire within sixty days. For purposes of computing the
percentage of outstanding shares held by each person or group of
persons named above, any security which such person or group of persons
has the right to acquire within sixty days is deemed to be outstanding
for the purpose of computing the percentage ownership for such person
or persons, but is not deemed to be outstanding for the purpose of
computing the percentage ownership of any other person. As a result,
the denominator used in calculating the beneficial ownership among our
stockholders may differ, but are not deemed outstanding for purposes of
computing the percentage ownership of any other person.
(3) Includes 8,000 shares beneficially owned under options that are
currently exercisable or will become exercisable within sixty days. Of
the shares attributed to Jerry Moyes, 1,046,002 are held by Jerry and
Vickie Moyes as trustees of the Jerry and Vickie Moyes Family Trust
(the "Moyes Family Trust"), 4,708,348 are held by Gerald F. Ehrlich as
trustee of the Moyes Children's Trust (the "Moyes Children's Trust"),
and 8,001 shares (including 8,001 shares under option) are held by Mr.
Moyes individually. Mr. Ehrlich has sole voting and investment power
for the Moyes Children's Trust. Mr. Moyes disclaims beneficial
ownership of the shares held by Mr. Ehrlich as trustee of the Moyes
Children's Trust. The business address of Mr. Moyes, Mrs. Moyes, and
the Family Trust is care of Swift Transportation Co., Inc., 2200 South
75th Avenue, Phoenix, Arizona 85043. The business address of Mr.
Ehrlich and the Children's Trust is 4001 North Third St., Suite 200,
Phoenix, AZ 85012.
(4) As reported on Schedule 13G filed with the SEC on April 8, 2005. The
business address of Wellington Management Company, LLP, as reported in
such Schedule 13G, is 75 State Street, Boston, MA 02109.
(5) As reported on Schedule 13G filed with the SEC on February 14, 2005.
The business address of NWQ Investment Management Company, LLC, as
reported in such Schedule 13G, is 2049 Century Park East, 4th Floor,
Los Angeles, CA 90067.
(6) As reported on Schedule 13G filed with the SEC on February 14, 2005.
The business address of The TCW Group, Inc., as reported in such
Schedule 13G, is 865 South Figueroa Street, Los Angeles, CA 90017.
(7) As reported on Schedule 13G filed with the SEC on February 14, 2005.
The business address of Hotchkiss and Wiley Capital Management, LLC, as
reported in such Schedule 13G, is 725 South Figueroa Street, 39th
Floor, Los Angeles, CA 90017.
(8) As reported on Schedule 13G filed with the SEC on February 14, 2005.
The business address of FMR Corp., as reported in such Schedule 13G,
is 82 Devonshire Street, Boston, MA 02109.
Page 16
(9) Includes 252,000 shares beneficially owned under options that are
currently exercisable or will become exercisable within sixty days.
(10) Includes 40,000 shares beneficially owned under options that are
currently exercisable or will become exercisable within sixty days.
(11) Includes 9,000 shares beneficially owned under options that are
currently exercisable or will become exercisable within sixty days. The
business address of Mr. Breslow is PMB 205, 23233 N. Pima #113,
Scottsdale, AZ 85255.
(12) Includes 4,000 shares beneficially owned under options that are
currently exercisable or will become exercisable within sixty days. The
business address of Mr. Carruth is 316 Rivershire Court, Lincolnshire,
IL 60069.
(13) Includes 9,000 shares beneficially owned under options that are
currently exercisable or will become exercisable within sixty days. The
business address of Mr. Hall is 2825 E. Cottonwood Parkway, Suite 300,
Salt Lake City, UT 84121.
(14) Includes 9,000 shares beneficially owned under options that are
currently exercisable or will become exercisable within sixty days. The
business address of Mr. Winburne is 9014 North 23rd Avenue #11,
Phoenix, AZ 85021. Mr. Winburne is not standing for re-election as a
member of the Board of Directors at the Annual Meeting.
(15) Excludes Mr. Slay, whose employment as Senior Vice President - Sales &
Marketing was terminated effective October, 2004.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
We have adopted a policy that transactions with affiliated persons or
entities will be on terms, on the whole, no less favorable to us than those that
could be obtained from unaffiliated third parties on an arm's length basis, and
that any such transaction must be reviewed and approved by our Audit Committee
or another committee of the Board comprised entirely of directors who are
independent under NASD Rule 4200(a)(15).
We currently lease 22 active terminals and seven dormant terminals from
Southwest Premier Properties, L.L.C. Southwest Premier is owned by some of our
directors, executive officers and existing stockholders, including 77% by Jerry
Moyes, and 10% by Robert Fasso. In 1998, we sold thirty-four of these properties
to Southwest Premier, along with additional terminals that have since been sold,
for an aggregate of $27.8 million in a sale-and-leaseback transaction that was
accounted for as a financing transaction. We also currently have operating
leases for two active terminals owned by Mr. Moyes. We incurred aggregate
expense to Southwest Premier of approximately $6.8 million in 2004. We incurred
aggregate lease expense to Mr. Moyes of approximately $1.2 million in 2004.
Swift Transportation Co., Inc. and Central Refrigerated Service, Inc.
provide us with a variety of transportation services. Mr. Moyes is the Chairman
and Chief Executive Officer of Swift and the owner and Chairman of the Board of
Central Refrigerated. Together, these companies provided us with approximately
25.7% of all third-party linehaul transportation services in 2004. Under these
arrangements, Swift provided us with approximately $12.0 million in services in
2004. At year end, we owed Swift approximately $0.9 million. Central
Refrigerated provided us with approximately $2.0 million in services in 2004. At
year end, we owed Central Refrigerated approximately $0.1 million. We believe
that the amounts paid are equivalent to rates that could have been obtained in
an arm's length transaction with an unrelated third party.
We currently lease terminal space from Swift in Memphis, Tennessee at a
lease rate of $15,836 per month and in Fontana, California at a lease rate of
$60,500 per month. We also sublease portions of our terminal facilities to Swift
at seven different locations. Swift leases property from us in Tyler, Texas, for
$3,750 per month, in Houston, Texas, for $15,181 per month, in Little Rock,
Arkansas, for $ 800 per month, in San Antonio, Texas for $7,835 per month, and
in Amarillo, Texas for $160 per month. All leases with Swift are, either by
their terms or due to expiration of the contract, on a month-to-month basis.
Under these subleases and other subleases we formerly had with Swift, our rental
income from Swift was approximately $0.4 million in 2004. We believe that the
amounts paid are equivalent to lease terms and rates that could have been
obtained in an arms' length transaction with an unrelated third party.
Page 17
We lease independent contractor drivers and their tractors through
Interstate Equipment Leasing, Inc., a company owned by Jerry Moyes. The
independent contractors provide linehaul services for us at a rate per mile that
we believe is equivalent to rates that could have been obtained in an arm's
length transaction with an unrelated third party. We incurred expenses with
Interstate of approximately $0.5 million in 2004. At year end, we had no
liability to Interstate.
RELATIONSHIP WITH INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Principal Accounting Fees and Services
The principal independent registered public accounting firm utilized by us
during 2004 was KPMG LLP, independent accountants ("KPMG"). KPMG has served as
our independent registered public accounting firm since June 1997.
Representatives of KPMG are expected to be present at the Annual Meeting and
will have an opportunity to make a statement, if they desire to do so, and to
respond to appropriate questions.
Principal Accountant Fees and Services
The following table shows the fees for professional services provided
by KPMG in the fiscal years ended December 31, 2003 and 2004:
Aggregate Amount Billed by KPMG
---------------------------------------
2003(1) 2004
------------------ -----------------
Services Rendered:
Audit Fees(2) $ 733,735 $ 976,625
Audit-Related Fees(3) 16,870 18,000
Tax Fees(4) 26,090
-
All Other Fees(5) -
-
- ---------------------
(1) Amounts billed by KPMG in 2003 relate to professional services for both
the audit of prior year financial statements in connection with our
initial public offering and the audit of our annual financial
statements for the fiscal year ended December 31, 2003.
(2) Audit Fees represent fees billed for professional services rendered by
the principal independent public accountant for the audit of our annual
financial statements and review of financial statements included in our
Registration Statement on Form S-1 and the prospectus included therein,
amendments to our Registration Statement on Form S-1 and the prospectus
included therein, Annual Report on Form 10-K, and other services that
are normally provided by such accountant in connection with statutory
or regulatory filings or engagements for that fiscal year.
(3) Audit-Related Fees represent fees billed for assurance and related
services by the principal independent public accountant that are
reasonably related to the performance of the audit or review of
financial statements. For fiscal 2003 and 2004, Audit-Related Fees were
comprised of fees for audit of internal controls over financial
reporting and the performance of agreed upon procedures related to
requirements under our credit facilities.
(4) Tax Fees represent fees billed for professional services rendered by
the principal independent accountant for tax compliance, tax advice,
and tax planning. For fiscal 2003 and 2004, Tax Fees were for tax
planning and advice.
(5) All Other Fees represent fees billed for products and services provided
by the principal independent public accountant, other than Audit Fees,
Audit-Related Fees, and Tax Fees.
Page 18
Since September 22, 2003, we have maintained a policy pursuant to which
our Audit Committee pre-approves all audit, audit-related, tax, and other
permissible non-audit services provided by our principal independent accountant
in order to assure that the provision of such services is compatible with
maintaining the accountant's independence. Under this policy, the Audit
Committee pre-approves, on an annual basis, specific types or categories of
engagements constituting audit, audit-related, tax, or other permissible
non-audit services to be provided by the principal independent public
accountant. Pre-approval of an engagement for a specific type or category of
services generally is provided for up to one year and typically is subject to a
budget comprised of a range of anticipated fee amounts for the engagement.
Management and the independent public accountant are required to periodically
report to the Audit Committee regarding the extent of services provided by the
principal independent accountant in accordance with the annual pre-approval, and
the fees for the services performed to date. To the extent that management
believes that a new service or the expansion of a current service provided by
the principal independent accountant is necessary or desirable, such new or
expanded services are presented to the Audit Committee for its review and
approval prior to the engagement of the principal independent accountant to
render such services. No audit-related, tax, or other non-audit services were
approved by the Audit Committee pursuant to the de minimus exception to the
pre-approval requirement under Rule 2-01, paragraph (c)(7)(i)(C), of Regulation
S-X during the fiscal years ended December 31, 2003 and 2004.
STOCKHOLDER PROPOSALS
To be eligible for inclusion in the Company's proxy materials relating
to the 2006 Annual Meeting of Stockholders, stockholder proposals intended to be
presented at that meeting must be received in writing by the Company on or
before December 15, 2005. The inclusion of any such stockholder proposals in
such proxy materials will be subject to the requirements of the proxy rules
adopted under the Exchange Act, including Rule 14a-8.
The Company must receive in writing any stockholder proposals intended
to be considered at its 2005 Annual Meeting of Stockholders, but not included in
the Company's proxy materials relating to that meeting, by March 9, 2005.
Pursuant to Rule 14(a)-4(c)(1) under the Exchange Act, the proxy holders
designated by an executed proxy in the form accompanying the Company's 2005
proxy statement will have discretionary authority to vote on any stockholder
proposal that is considered at the Annual Meeting, but not received on or prior
to the deadline described above.
All stockholder proposals should be sent via certified mail, return
receipt requested, and addressed to Jeff Hale, Senior Vice President and Chief
Financial Officer, 15333 North Pima Road, Suite 230, Scottsdale, Arizona 85260.
See "Corporate Governance -Committees of the Board of Directors - The
Nominating and Corporate Governance Committee," above, for information regarding
how stockholders can recommend director candidates for consideration by the
Nominating and Corporate Governance Committee.
OTHER MATTERS
The Board of Directors does not intend to present at the Annual Meeting
any matters other than those described herein and does not presently know of any
matters that will be presented by other parties. If any other matters are
properly brought before the Annual Meeting or any adjournment thereof, the proxy
holders named in the accompanying for of proxy will have discretionary authority
to vote proxies on such matters in accordance with the recommendations of the
Board of Directors, or, if no recommendations are given, in accordance with
their judgment, unless the person executing any such proxy indicates that such
authority is withheld.
Central Freight Lines, Inc.
/s/ Robert V. Fasso
Robert V. Fasso
Chief Executive Officer and President
April 19, 2005
Page 19
PROXY
CENTRAL FREIGHT LINES, INC.
PROXY FOR ANNUAL MEETING OF STOCKHOLDERS MAY 3, 2005
Solicited on Behalf of the Board of Directors of the Company
The undersigned holder(s) of Common Stock of Central Freight Lines,
Inc., a Nevada corporation (the "Company"), hereby appoint(s) Robert V. Fasso
and Jeffrey A. Hale, and each or either of them, attorneys and proxies of the
undersigned, with full power of substitution, to vote all of the Common Stock
that the undersigned is (are) entitled to vote at the Annual Meeting of
Stockholders of the Company to be held at the Doubletree Guest Suites, 320 N.
44th Street, Phoenix, Arizona 85008, at 9:00 a.m., Phoenix Time, and at any
adjournment thereof, as follows:
1. Election of Directors [ ] FOR all nominees
listed below [ ] WITHHOLD AUTHORITY to
(except as marked to the contrary below) vote
for all nominees listed below
INSTRUCTIONS: To withhold authority to vote for any individual nominee,
strike a line through the nominee's name below.
Robert V. Fasso Jerry Moyes John Campbell Carruth
John Breslow Porter J. Hall
2. In their discretion, the attorneys and proxies are authorized to vote upon
such other matters as may properly come before the meeting or any
adjournment thereof.
[ ] GRANT AUTHORITY to vote [ ] WITHHOLD AUTHORITY to vote
(Continued and to be signed on reverse side)
Page 20
(Continued from the other side)
A vote FOR Proposal 1, and granting the proxies discretionary
authority, is recommended by the Board of Directors of the Company. When
properly executed, this proxy will be voted in the manner directed by the
undersigned stockholder(s). If no direction is given, the proxy will be voted
"For" Proposal 1, and, at the discretion of the proxy holder, upon such other
matters as may properly come before the meeting or any adjournment thereof.
Proxies marked "Abstain" and broker non-votes are counted only for purposes of
determining whether a quorum is present at the meeting.
The undersigned acknowledges receipt of the Notice and Proxy Statement
for the 2005 Annual Meeting of Stockholders and the Annual Report to
Stockholders for the fiscal year ended December 31, 2004.
Dated __________________________________, 2005
Signature(s)
Please date and sign exactly as name(s) appear(s) on your Common Stock
certificate(s). If shares are held jointly, each owner should sign this
proxy. If acting as an executor, administrator, trustee, custodian,
guardian, etc., you should so indicate in signing. If the stockholder is
a corporation or other business entity, the proxy should indicate the full
legal name of the corporation or entity, and be signed by a duly authorized
officer (indicating his or her position).
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