SCHEDULE 14A
(Rule 14(a)-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14a INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities Exchange Act of 1934
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[X] Preliminary proxy statement [ ] Confidential, for use of the
[ ] Definitive proxy statement Commission only (as permitted
[ ] Definitive additional materials by Rule 14a-6(e)(2))
[ ] Soliciting material under Rule 14a-12
Knight Transportation, Inc.
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(Name of Registrant as Specified In Its Charter)
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(Name of Person(s) Filing Proxy Statement, if Other Than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
1) Title of each class of securities to which transaction applies:
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2) Aggregate number of securities to which transaction applies:
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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):
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4) Proposed maximum aggregate value of transaction:
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5) Total fee paid:
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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.
1) Amount Previously Paid:
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2) Form, Schedule or Registration Statement No.:
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3) Filing Party:
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4) Date Filed:
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KNIGHT TRANSPORTATION, INC.
PROXY STATEMENT
TABLE OF CONTENTS
Page
----
PROXY STATEMENT................................................................3
RIGHT TO ATTEND ANNUAL MEETING; REVOCATION OF PROXY..........................3
COSTS OF SOLICITATION........................................................3
VOTING SECURITIES OUTSTANDING................................................3
ANNUAL REPORT................................................................4
REQUIRED MAJORITY, CUMULATIVE VOTING.........................................4
HOW TO READ THIS PROXY STATEMENT.............................................4
PROPOSALS FOR SHAREHOLDER CONSIDERATION........................................5
ITEM NO. 1. ELECTION OF DIRECTORS...........................................5
INFORMATION CONCERNING DIRECTORS AND NOMINEES................................5
BIOGRAPHICAL INFORMATION CONCERNING DIRECTORS AND EXECUTIVE OFFICERS
OF THE COMPANY.............................................................6
ITEM NO. 2. PROPOSAL TO APPROVE THE 2003 STOCK OPTION PLAN...................8
ITEM NO. 3. PROPOSAL TO RATIFY APPOINTMENT OF KPMG LLP, AS
INDEPENDENT ACCOUNTANTS...................................................11
CORPORATE GOVERNANCE-- MEETINGS AND COMPENSATION OF THE BOARD OF DIRECTORS
AND ITS COMMITTEES............................................................12
COMMITTEES OF THE BOARD OF DIRECTORS........................................13
EXECUTIVE COMMITTEE.........................................................13
AUDIT COMMITTEE AND AUDIT COMMITTEE REPORT..................................13
REPORT OF THE AUDIT COMMITTEE OF KNIGHT TRANSPORTATION, INC.................14
COMPENSATION COMMITTEE......................................................16
NOMINATING COMMITTEE........................................................16
OTHER COMMITTEES............................................................16
COMPLIANCE WITH SECTION 16(a) OF THE SECURITIES EXCHANGE ACT OF 1934........16
EXECUTIVE COMPENSATION........................................................17
SUMMARY COMPENSATION TABLE..................................................17
EMPLOYMENT AGREEMENTS.......................................................19
STOCK OPTION PLAN...........................................................19
401(K) PLAN.................................................................19
COMPENSATION COMMITTEE, COMPENSATION COMMITTEE INTERLOCKS, REPORT
ON EXECUTIVE COMPENSATION.................................................20
STOCK PERFORMANCE GRAPH.....................................................22
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT................23
SHAREHOLDER PROPOSALS.........................................................26
OTHER MATTERS.................................................................26
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NOTICE AND PROXY STATEMENT
FOR
MAY 21, 2003
ANNUAL MEETING OF SHAREHOLDERS
OF
KNIGHT TRANSPORTATION, INC.
APRIL __, 2003
NOTICE AND PROXY STATEMENT
FOR
MAY 21, 2003
ANNUAL MEETING OF SHAREHOLDERS
OF
KNIGHT TRANSPORTATION, INC.
TO OUR SHAREHOLDERS:
You are cordially invited to attend the 2003 Annual Meeting of Shareholders
(the "Annual Meeting") of KNIGHT TRANSPORTATION, INC. (the "Company") to be held
at 10:00 A.M., Phoenix time, on May 21, 2003, at the Arizona Biltmore, 2400 East
Missouri, Phoenix, Arizona 85016. The purpose of the Annual Meeting is to:
1. Elect three (3) Class II Directors, each director to serve a term of
three years;
2. Approve the adoption of a new Stock Option Plan (the "2003 Plan");
3. Approve and ratify the selection of KPMG LLP, as our independent
public accountants for 2003; and
4. Transact such other business as may properly come before the Annual
Meeting.
The Board of Directors has fixed the close of business on March 24, 2003,
as the Record Date for determining those shareholders who are entitled to
receive notice of and vote at the Annual Meeting or any adjournment of that
meeting. Shares of Knight 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 2002 Annual Report to Shareholders, 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,
Timothy M. Kohl,
Secretary
Phoenix, Arizona
April ___, 2003
KNIGHT TRANSPORTATION, INC.
5601 WEST BUCKEYE ROAD
PHOENIX, ARIZONA 85043
PROXY STATEMENT
This Proxy Statement is furnished in connection with the solicitation of
proxies from the shareholders of Knight Transportation, Inc. to be voted at the
Annual Meeting of Shareholders (the "Annual Meeting") to be held on May 21,
2003. THE ENCLOSED PROXY IS SOLICITED BY THE BOARD OF DIRECTORS OF THE COMPANY.
If not otherwise specified, all proxies received pursuant to this solicitation
will be voted (i) FOR the Director Nominees named below; (ii) FOR the approval
of the Company's 2003 Stock Option Plan (the "2003 Plan"); and (iii) FOR the
selection of KPMG LLP, as our independent public accountants for 2003 at the
Annual Meeting.
The Proxy Statement, proxy card, and our Annual Report was first mailed on
or about April __, 2003, to shareholders of record at the close of business on
March 24, 2003 (the "Record Date").
THE TERMS "WE," "OUR," "US" OR THE "COMPANY" REFER TO KNIGHT
TRANSPORTATION, INC. AND ITS SUBSIDIARIES.
RIGHT TO ATTEND ANNUAL MEETING; REVOCATION OF PROXY
Returning your proxy 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. Shareholders 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 presenting 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 will 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 be compensated for their services.
VOTING SECURITIES OUTSTANDING
As of March 24, 2003, there were approximately _____________ shares of our
Common Stock, par value $0.01 per share (the "Common Stock") issued and
outstanding. Only holders of record of 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. Ballots cast at the Annual Meeting will be counted by the
Inspector of Elections and the results of all ballots cast will be announced at
the Annual Meeting.
Except in the election of directors, shareholders are entitled to one (1)
vote for each share held of record on each matter of business to be considered
at the Annual Meeting. In the election of directors, cumulative voting is
required by law. SEE "REQUIRED MAJORITY," below. Abstentions will not be counted
in voting on any proposal. A broker non-vote is not counted for purposes of
approving matters to be acted upon at the Annual Meeting. A "broker non-vote"
occurs when a nominee holding voting shares for a beneficial owner does not vote
on a particular proposal because the nominee does not have discretionary voting
power with respect to the item and has not received voting instructions from the
beneficial owner.
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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 2002 Annual Report to Shareholders that was mailed
on or about April ___, 2003, together with this Notice of Annual Meeting and
Proxy Statement, to all shareholders of record as of the Record Date.
REQUIRED MAJORITY; CUMULATIVE VOTING
Under the Constitution of the State of Arizona, each holder of Common Stock
has cumulative voting rights in electing directors of an Arizona corporation.
Under cumulative voting, each shareholder, when electing directors, has the
right to cast as many votes in the aggregate as he has voting shares multiplied
by the number of directors to be elected. For example, if a shareholder has 100
shares and three directors are to be elected, the shareholder may cast 300
votes. Each shareholder may cast the whole number of votes, either in person or
by proxy, for one candidate or may distribute such votes among the nominees for
director as the shareholder determines. The nominees for director who receive
the most votes will be elected. Under the cumulative voting rights provided by
the Constitution of the State of Arizona, each shareholder, when electing a
class of directors, has the right to cast as many votes in the aggregate as he
has voting shares multiplied by the number of directors to be elected in that
class of directors. For example, this year three (3) Class II directors will
stand for election. If a shareholder has 100 shares, the shareholder may cast
300 votes and may vote all of those shares for a single director nominee or
distribute those votes among the director nominees as the shareholder
determines. Other matters submitted to shareholders for consideration and action
at the Annual Meeting must be approved by a simple majority vote of those shares
present in person or by proxy.
HOW TO READ THIS PROXY STATEMENT
Set forth below are all the proposals to be considered by shareholders at
our Annual Meeting of Shareholders to be held on May 21, 2003. Following the
description of each proposal is important information about our management and
our Board of Directors; executive compensation; transactions between the Company
and our officers, directors and affiliates; our stock owned by management and
other large shareholders; and how shareholders may make proposals at the Annual
Meeting. EACH SHAREHOLDER SHOULD READ THIS INFORMATION BEFORE COMPLETING AND
RETURNING THE ENCLOSED PROXY CARD.
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PROPOSALS FOR SHAREHOLDER CONSIDERATION
ITEM NO. 1. ELECTION OF DIRECTORS
The Board of Directors has nominated three (3) persons to serve on the
Board commencing with the 2003 Annual Meeting. Pursuant to our Articles of
Incorporation, beginning with the first annual meeting of shareholders following
the first election of Class I, Class II and Class III directors, and continuing
at each annual meeting of shareholders thereafter, each director elected in a
class shall be elected to serve for a term ending with the conclusion of the
third annual meeting of shareholders after the date of such director's election.
At our 2001 Annual Meeting of Shareholders, nine (9) directors were elected to
serve on our Board in three (3) classes of three (3) directors each. Class I
directors were elected for a one year term; Class II directors were elected for
a two year term; and Class III directors were elected for a three year term. At
our 2002 Annual Meeting of Shareholders, three Class I directors were elected
for a three year term. Class II directors stand for reelection at this year's
Annual Meeting to serve a term of three years. Cumulative voting will apply in
the election of directors. INFORMATION CONCERNING THE COMPENSATION OF OFFICERS
AND DIRECTORS, THEIR STOCK OWNERSHIP IN THE COMPANY, AND TRANSACTIONS BETWEEN
OFFICERS, DIRECTORS AND 10% OR GREATER SHAREHOLDERS IS SET FORTH BELOW.
NOMINEES FOR DIRECTOR
CLASS II DIRECTORS
(THREE-YEAR TERM)
Gary Knight
G.D. Madden
Matt Salmon
Each nominee to the Board of Directors has consented to serve. Messrs.
Kevin P. Knight, Gary J. Knight, Keith T. Knight and Randy Knight, who
collectively have voting power over approximately 34% of our issued and
outstanding shares of Common Stock, have indicated that they intend to vote
their shares for the election of all director nominees.
INFORMATION CONCERNING DIRECTORS AND NOMINEES
Information concerning the names, ages, positions, terms and business
experience of our current directors and nominees for director is set forth
below.
NAME AGE COMPANY POSITION AND OFFICES HELD
---- --- ---------------------------------
Donald A. Bliss(1)(4) 70 Director
Timothy M. Kohl 55 Chief Financial Officer, Secretary, Director
Gary J. Knight(2)(4) 51 President, Director
Keith T. Knight(2) 48 Executive Vice President, Director
Kevin P. Knight(2)(4) 46 Chairman of the Board, Chief Executive
Officer, Director
Randy Knight(2)(5) 54 Director
G.D. Madden(1)(3) 63 Director
Matt Salmon(1) 45 Director
Mark Scudder(3)(4)(5) 40 Director
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Our executive officers serve at the will of the Board of Directors.
(1) Member of the Audit Committee.
(2) Randy Knight and Gary J. Knight are brothers and are cousins of Kevin P.
Knight and Keith T. Knight, who are also brothers.
(3) Member of the Compensation Committee.
(4) Member of the Executive Committee.
(5) Member of the Nominating Committee
BIOGRAPHICAL INFORMATION CONCERNING DIRECTORS AND EXECUTIVE OFFICERS OF THE
COMPANY
DONALD A. BLISS has served as a director of the Company since February
1995. Until December 1994, Mr. Bliss was Vice President and Chief Executive
Officer of U.S. West Communications, a U.S. West company. Mr. Bliss has also
been a Director of Bank of America Arizona since 1988 and was a Director of U.S.
West Communications from 1987 to 1994. Mr. Bliss has been a Director of
Continental General since 1990 and a Director of Western-Southern Insurance
Company since April 1, 1998. Mr. Bliss is currently the Chairman of the Western
Region Advisory Board of AON Risk Services of Arizona, Inc.
TIMOTHY M. KOHL joined us in 1996. Mr. Kohl was elected to our Board of
Directors in May 2001. Mr. Kohl has served as our Chief Financial Officer and
Secretary since October 16, 2000. Mr. Kohl served as our Vice President of Human
Resources from January, 1996 through May, 1999. From May, 1999 through October,
2000, Mr. Kohl served as Vice President of our Southeast Region. Prior to his
employment with us, Mr. Kohl was employed by Burlington Motor Carriers as Vice
President of Human Resources. Prior to his employment with Burlington Motor
Carriers, Mr. Kohl served as Vice President of Human Resources for JB Hunt.
GARY J. KNIGHT has served as our President since 1993, and has been an
officer and director of the Company since 1990. From 1975 until 1990, Mr. Knight
was employed by Swift Transportation Co., Inc. ("Swift"), a long haul trucking
company, where he was an Executive Vice President.
KEITH T. KNIGHT has served as our Executive Vice President since 1993, and
has been an officer and director of the Company since 1990. From 1977 until
1990, Mr. Knight was employed by Swift, where he was a Vice President and
Manager of Swift's Los Angeles terminal.
KEVIN P. KNIGHT has served as our Chairman of the Board since May 1999, has
served as our Chief Executive Officer since 1993, and has been an officer and
director of the Company since 1990. From 1975 to 1984 and again from 1986 to
1990, Mr. Knight was employed by Swift, where he was an Executive Vice President
and President of Cooper Motor Lines, Inc., a Swift subsidiary.
RANDY KNIGHT has been a director of the Company since its inception in 1989
and is presently a consultant to the Company. Mr. Knight served as an officer of
the Company from 1989 until July 31, 1999, when he resigned as an officer of the
Company. Mr. Knight served as Chairman of the Board from 1993 to July 1999. From
1985 to the present, Mr. Knight has owned a 50% interest in and served as
Chairman of Total Warehousing, Inc. ("Total Warehousing"), a commercial
warehousing and local transportation business located in Phoenix, Arizona. Mr.
Knight was employed by Swift or related companies from 1969 to 1985, where he
was a Vice President and shareholder.
G.D. MADDEN has served as a director of the Company since January 1997.
Since 1996, Mr. Madden has been President of Madden Partners, a consulting firm
he founded, which specializes in transportation technology and strategic issues.
Prior to founding Madden Partners, he was President and Chief Executive Officer
of Innovative Computing Corporation, a subsidiary of Westinghouse Electric
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Corporation. Mr. Madden founded Innovative Computing Corporation (ICC), a
privately held company, which grew to be the largest supplier of fully
integrated management information systems to the trucking industry. Mr. Madden
sold ICC to Westinghouse in 1990 and continued to serve as its President and
Chief Executive Officer until 1996.
MATT SALMON was elected to our Board in May 2001. Mr. Salmon is the
Executive Vice President of APCO Worldwide, a Washington, D.C. based consulting
firm specializing in worldwide strategic communications and public affairs
matters with 25 offices around the globe, including Europe and China. As an
executive of APCO, Mr. Salmon provides clients with strategic communications and
governmental affairs advice. Since 2002, Mr. Salmon has also provided consulting
services for Upstream Consulting, a governmental affairs consultant. Prior to
joining APCO and Upstream Consulting, Mr. Salmon was a member of the United
States House of Representatives from Arizona from 1994 through 1999. Prior to
that time, he served four years in the Arizona State Senate and for 13 years as
a telecommunications executive with U.S. West Communications. While a member of
the United States House of Representatives, Mr. Salmon served on the
International Relations Committee and as Chairperson and Founding Member of the
House Renewable Energy Caucus.
MARK SCUDDER has served as a director of the Company since November 1999.
Mr. Scudder is a principal of Scudder Law Firm, P.C., L.L.O. ("Scudder Law
Firm"), in Lincoln, Nebraska and has been involved in the private practice of
law since 1988. Mr. Scudder is a member of the board of directors of Covenant
Transport, Inc., a publicly held long-haul trucking company.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE FOR THE ELECTION OF
THE BOARD OF DIRECTOR NOMINEES.
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ITEM NO. 2. PROPOSAL TO APPROVE THE 2003 STOCK OPTION PLAN
We have maintained a Stock Option Plan since 1994 to enable certain
officers, directors and key and critical line employees, including drivers and
other employees, to participate in the ownership of the Company. The current
stock option plan in effect is the 1998 Amended and Restated Stock Option Plan
(the "1998 Plan"). As of March 1, 2003, a total of 3,675,000 shares of our
Common Stock were reserved for stock grants under the 1998 Plan, after giving
effect to the Company's three for two stock splits and the 2002 amendment to the
1998 Plan increasing the number of shares reserved for issuance. On February 6,
2003, the Board of Directors voted to terminate further option grants under the
1998 Plan, effective as of May 31, 2003, subject to our shareholders approving
the 2003 Stock Option Plan (the "2003 Plan") described below. The term "stock
grant," as used in this Proxy Statement, refers to a grant of either stock
options or restricted stock.
At the Annual Meeting, shareholders will be asked to approve the 2003 Plan
that will commence June 1, 2003. If the 2003 Plan is approved by shareholders,
1,000,000 shares will be reserved for issuance under the 2003 Plan and 1,793,008
shares will continue to be reserved under the 1998 Plan for stock grants
previously made under that Plan, for a total of 2,793,008 shares available for
stock grants under both plans, or __% of our issued and outstanding Common
Stock, as of March ___, 2003. If shareholders approve the 2003 Plan, option
grants issued under the 1998 Plan will continue in effect and may be exercised
on the terms and conditions under which the grants were made, but no further
stock grants will be made under the 1998 Plan. If the 2003 Plan is approved by
shareholders, any new stock grants will be made only under the 2003 Plan.
The Common Stock reserved for issuance under the 2003 Plan has an aggregate
market value of $_____, based on the price of our Common Stock of $__________
per share as of March ____, 2003. Common Stock reserved for options issued and
outstanding under the 1998 Plan, as of March ___, 2003, had an aggregate marked
value of $_________, based on our Common Stock price of $__________ per share as
of March ____, 2003.
A copy of the 2003 Plan is set forth in Exhibit 1 to this Proxy Statement.
The 2003 Plan is substantially the same as the 1998 Plan, except that it allows
additional stock option grants to be made to directors, in accordance with our
revised director's compensation plan. SEE "CORPORATE GOVERNANCE - MEETINGS AND
COMPENSATION OF THE BOARD OF DIRECTORS AND ITS COMMITTEES - DIRECTOR'S
COMPENSATION," below, for a description of our compensation plan for our
Independent Directors.
The 2003 Plan is broad-based and is designed to attract and retain
directors, officers, and key employees and critical line employees, to provide
them long-term incentives if our Company continues to grow, and to align their
interests with the interests of our shareholders. The 2003 Plan is administered
by the Compensation Committee of our Board of Directors (the "Compensation
Committee"). The 2003 Plan allows the Compensation Committee to grant incentive
stock options ("ISOs"), nonqualified stock options ("NSOs"), and restricted
stock to our employees as a form of incentive compensation. Although Kevin, Gary
and Keith Knight are eligible to receive stock grants under the 2003 Plan, in
the past we have not issued stock grants to these individuals, due primarily to
their large Common Stock holdings, and we do not currently anticipate that they
will receive stock grants under the 2003 Plan.
The 2003 Plan reserves 50,000 shares of Common Stock for option grants to
directors out of the total of 1,000,000 shares reserved for issuance under the
2003 Plan. The 2003 Plan, like the 1998 Plan, authorizes an automatic NSO grant
for 2,500 shares to a newly appointed or elected director. In addition, after
December 31, 2002, an Independent Director will receive an NSO for 500 shares
for each year of service as a director. The option grant of 500 shares to
directors is to be made as of June 1 of each year, beginning June 1, 2003, for
persons who are serving as directors on that date. The 2003 Plan also provides
that individuals who, as of December 31, 2002, have served as directors for the
last three years will also receive a "catch-up" NSO for 1,000 shares to be
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issued on June 1, 2003, with an exercise price equal to the then fair market
price of our Common Stock. If a director terminates service within one year
after the date of the grant, his option or any shares obtained through option
exercises will be forfeited.
Under the 2003 Plan, Independent Directors may also elect to have their
director's fees paid in stock of the Company. (This option is currently allowed
by the Company.) If they do so, the Company will issue to each elected
Independent Director on February 15 and August 15 of each calendar year, the
number of shares equal to the director's fees earned as of the preceding
December 31, and June 30, respectively, based on the fair market value of the
Common Stock as of the last trading day preceding such February 15 or August 15.
All stock grants made under the 2003 Plan will be evidenced by a written
agreement between the Company and the participant. ISOs granted under the Plan
are issued at the fair market value of a share of Common Stock on the date of
grant. Under the 2003 Plan, NSOs, restricted stock grants and options issued to
directors are issued at fair market value as of the date of grant. Directors
receive an NSO for 2,500 shares of our Common Stock at an exercise price of 85%
of fair market value of our Common Stock on the date of the grant upon their
election to our Board. SEE "EXECUTIVE COMPENSATION - STOCK OPTION PLAN," below.
Common Stock reserved for stock grants made under the Plan is automatically
increased upon the occurrence of any stock split, reverse stock split,
subdivision, stock dividend, reorganization or reclassification of our stock,
without further action by the Company. Participants exercise no rights as
shareholders of the Company with respect to shares subject to any stock grant
until a stock certificate is issued following the exercise of a grant. If not
earlier terminated, the 2003 Plan will expire on February 5, 2013.
The Compensation Committee has the right, subject to 2003 Plan limitations,
to designate the terms and conditions of any stock grant including, without
limitation, any vesting schedule and exercise rights. Under the 2003 Plan, stock
grants generally terminate upon an employee's termination of employment for
reasons other than death, disability or early or normal retirement. Options
granted under the 2003 Plan are non-transferable except pursuant to the laws of
descent and distribution. Shares reserved for issuance under the 2003 Plan will
be registered with the Securities and Exchange Commission on Form S-8 at the
time the 2003 Plan becomes effective.
We have reserved the right to terminate, suspend, discontinue, modify or
amend the 2003 Plan in any respect, at any time, except that without the
approval of our shareholders, no revision or amendment may change the number of
shares of Common Stock subject to the 2003 Plan (other than through the
automatic stock adjustments provided by the 2003 Plan), change the designation
of the class of employees eligible to receive stock grants, decrease the price
at which stock grants may be issued, or remove the administration of the Plan
from the Compensation Committee. Notwithstanding this limitation, we will not
terminate the 2003 Plan with regard to any outstanding stock grant unless notice
of termination is given to the participant and the participant is permitted at
least 15 days to exercise any issued and outstanding stock grant, but only if
such stock grant is then exercisable.
The tax consequences to the Company of options granted as an ISO, NSO, or
restricted stock grant vary. If the Company issues an ISO, the Company will have
no compensation deduction on the date the option is granted. If an employee
exercises an ISO and holds the stock until the later of (i) two years from the
date the ISO is granted or (ii) one year from the date in which the ISO was
exercised, the employee will recognize as capital gain the difference between
the amount received in any disposition over the employee's basis (the amount the
employee paid for the stock) and the Company will receive no compensation
deduction. If an employee disposes of ISO stock before the ISO holding period is
met, the disposition is a "disqualifying disposition" and we are entitled to a
compensatory deduction equal to the amount the employee recognizes as ordinary
income in the year the disqualifying disposition occurs. Generally, this is the
difference between the exercise price for the stock and the value of the stock
on the date the disqualifying disposition occurs. Amounts recognized on the
disqualifying disposition of an ISO are not "wages" for purposes of FICA and
FUTA.
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If an option is granted as an NSO, we have no deduction for compensation
expense at the time the option is granted, and the employee will recognize no
income. If the employee subsequently exercises the option, the difference
between the option price and the fair market value of the option stock at the
time of exercise is taxable as ordinary income to the employee, and is also
treated as wages. We will have a compensation deduction equal to the amount of
gain the employee recognizes at the time. Any gain recognized by an employee on
the exercise of an NSO is also subject to FICA and FUTA withholding tax.
If we make a restricted stock grant to any employee, as the 2003 Plan
allows us to do, we will receive no deduction until such time as the
restrictions on the stock lapse, unless the employee elects to treat the grant
as ordinary income at the time the grant is made; in that event the Company
would have a compensatory deduction in the same amount. At that time, we would
have a deduction for compensation expense equal to the fair market value of the
stock, less any amounts the employee is required to pay for the stock. If a
restricted stock grant is made to an employee without restrictions, we will have
a deduction for compensation paid equal to the fair market value of the stock
awarded, less any payment the employee makes.
The Board of Directors believes that the 2003 Plan is an appropriate
vehicle for recognizing employee performance and providing incentives to
employees for continued performance and that the 1998 Plan has been effective in
aligning the interests of our employees with our shareholders.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT SHAREHOLDERS APPROVE THE
2003 PLAN.
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ITEM NO. 3. PROPOSAL TO RATIFY APPOINTMENT OF KPMG LLP
AS INDEPENDENT PUBLIC ACCOUNTANTS
KPMG LLP, independent public accountants ("KPMG"), was our principal
independent accounting firm during the fiscal year ended December 31, 2002. KPMG
has served as our independent public accountants since June 2002. The Board of
Directors has appointed KPMG as our principal independent accounting firm for
the 2003 fiscal year. A representative of KPMG is expected to be present at the
annual meeting with an opportunity to make a statement if such representative
desires to do so, and is expected to respond to appropriate questions.
As previously reported in our Report on Form 8-K filed on May 3, 2002, with
the Securities and Exchange Commission, on April 29, 2002, we elected to replace
our independent auditors, Arthur Andersen LLP ("Arthur Andersen") with KPMG as
our new independent auditors, effective immediately. These actions were approved
by our Board of Directors upon the recommendation of our Audit Committee. KPMG
audited the consolidated financial statements of the Company for the year ending
December 31, 2002.
The reports issued by Arthur Andersen in connection with our financial
statements for the fiscal years ended December 31, 2001, and December 31, 2000,
respectively, did not contain an adverse opinion or disclaimer of opinion, nor
were these reports qualified or modified as to uncertainty, audit scope, or
accounting principles.
During the two fiscal years ended December 31, 2001, and December 31, 2000,
and the subsequent interim periods through the date of Arthur Andersen's
dismissal, there was no disagreement between us and Arthur Andersen, as defined
in Item 304 of Regulation S-K, on any matter of accounting principles or
practices, financial statement disclosure, or auditing scope or procedure, which
disagreements, if not resolved to the satisfaction of Arthur Andersen, would
have caused Arthur Andersen to make reference to the subject matter of the
disagreements in connection with its reports, and there occurred no "reportable
events" as defined in Item 304(a)(1)(v) of Regulation S-K.
During the two fiscal years ended December 31, 2001 and 2000, through the
date of Arthur Andersen's dismissal, neither us nor anyone on our behalf
consulted with KPMG regarding any of the matters or events set forth in Item
304(a)(2)(i) and (ii) of Regulation S-K.
We have provided Arthur Andersen with a copy of the foregoing statements.
Attached to our Form 10-K for the year ended December 31, 2002, as Exhibit 16 is
a copy of Arthur Andersen's letter to the Securities and Exchange Commission
dated May 3, 2002, stating its agreement with the foregoing statements.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE RATIFICATION OF THE
APPOINTMENT OF KPMG.
-11-
FISCAL YEAR 2002 AUDIT FEE SUMMARY
During fiscal year 2002, KPMG provided services in the following categories
to us and was paid the following amounts:
Audit Fees $104,009
Financial Information System Design and Implementation $ 0
All Other Fees $331,316
The services provided under the caption "All Other Fees" were primarily
tax-related.
The Audit Committee has considered whether the provision of non-audit
services by KPMG, as our principal independent auditor for the fiscal year
ending December 31, 2002, is compatible with maintaining auditor independence.
CORPORATE GOVERNANCE --
MEETINGS AND COMPENSATION OF THE BOARD OF DIRECTORS AND ITS COMMITTEES
BOARD OF DIRECTORS. Our business is managed by our Board of Directors. During
the year ended December 31, 2002, our Board of Directors met on five occasions.
Each of the directors other than Mr. Salmon 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. Mr. Salmon attended 60% of all meetings.
DIRECTORS' COMPENSATION. Directors who are not 10% shareholders or employees of
the Company ("Independent Directors") receive annual compensation of $5,000,
plus a fee of $500 for attendance at each meeting of the Board of Directors, and
a fee of $250 for Board committee meetings. We also reimburse directors for the
expense incurred in attending a meeting.
For all calendar years after December 31, 2002, we have increased the
compensation paid to our Independent Directors as follows: (i) compensation of
$6,000 per year for Independent Directors, plus a fee of $550 for attendance at
each meeting of the Board of Directors, and a fee of $350 for Audit Committee
Meetings and $300 for Compensation Committee Meetings. In addition, for 2003,
the Audit Committee Chairman will receive an annual fee of $1,500, in addition
to other director fees, and the Compensation Committee Chairman will receive an
annual fee of $500, in addition to other director fees.
If shareholders approve the 2003 Plan, for years after December 31, 2002,
Independent Directors will also receive each calendar year, beginning in 2003,
in addition to their director's and committee fees, (i) a stock option grant for
500 shares issued on June 1 of each calendar year, beginning June 1, 2003, at
fair market value, and (ii) for those directors who have served at least three
years as of December 31, 2003, a catch-up stock option for 1,000 shares, issued
at fair market value as of June 1, 2003.
Independent Directors appointed to the Board of Directors also receive an
automatic NSO grant for that number of shares of Common Stock approved by the
Board but not less than 2,500 nor more than 5,000 shares. To date, all directors
have received an option grant of 2,500 shares of our Common Stock upon their
election to our Board. The exercise price of this NSO is 85% of the fair market
value of our stock as of the date of grant. The option is forfeitable if a
director resigns within one year after election as a director. The Board of
Directors has granted each of Donald A. Bliss, G.D. Madden, Matt Salmon and Mark
Scudder, an NSO for 2,500 shares of our Common Stock upon their election to our
Board of Directors.
-12-
Members of the Board of Directors also have the option to accept shares of
our Common Stock in lieu of directors fees. If this option is elected, we issue
Common Stock on February 15 and August 15 of each year in payment of accrued
director's fees for the preceding six month periods ending June 30 and December
31, respectively, at the closing market price for such shares as of the trading
day prior to issuance.
COMMITTEES OF THE BOARD OF DIRECTORS
The Board of Directors has established four committees, which are
authorized to act on behalf of the Board in their respective spheres: the
Executive Committee, the Audit Committee, the Compensation Committee and the
Nominating Committee. The Nominating Committee was established on February 6,
2003, to nominate directors for elections beginning in 2004. The
responsibilities of each committee are described below.
EXECUTIVE COMMITTEE
The Executive Committee of the Board was established November 7, 2000. The
Executive Committee is authorized to act on behalf of the Board of Directors
when the Board of Directors is not in session. The members of the Executive
Committee are Kevin P. Knight, Gary J. Knight, Donald A. Bliss, and Mark
Scudder. The Executive Committee did not meet in 2002.
AUDIT COMMITTEE AND AUDIT COMMITTEE REPORT
The Audit Committee for 2002 was composed of Donald A. Bliss, G.D. Madden
and Matt Salmon. Mr. Bliss served as Chairman of the Audit Committee. The Audit
Committee is comprised of directors who meet the NASDAQ and Sarbanes-Oxley Act
of 2002 Standards for independence. The Audit Committee met five (5) times
during 2002. Each member of the Audit Committee attended at least 75% of the
Audit Committee meetings during 2002. Since 1994, the Audit Committee has
operated pursuant to a written charter detailing its duties. In October, 2002,
the Audit Committee amended and restated its charter to comply with certain
requirements of the Sarbanes-Oxley Act of 2002. The Audit Committee's Amended
and Restated Charter is set forth in Exhibit 2, below. In performing its duties,
the Audit Committee, as required by applicable Securities and Exchange
Commission rules, issues a report recommending to the Board of Directors that
our audited financial statements be included in our Annual Report on Form 10-K,
and certain other matters, including the independence of our outside public
accountants. The REPORT OF THE AUDIT COMMITTEE is set forth below.
THE AUDIT COMMITTEE REPORT SHALL NOT BE DEEMED TO BE INCORPORATED BY
REFERENCE INTO ANY FILING MADE BY US UNDER THE SECURITIES ACT OF 1933 OR THE
SECURITIES EXCHANGE ACT OF 1934, 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.
-13-
REPORT OF THE
AUDIT COMMITTEE
OF
KNIGHT TRANSPORTATION, INC.
The Board of Directors of the Company has appointed an Audit
Committee. The functions of the Audit Committee are focused on: (1)
the adequacy of the Company's internal controls and financial
reporting process and the reliability of the Company's financial
statements; (2) the independence of the Company's external auditors;
and (3) the Company's compliance with legal and regulatory
requirements.
The Audit Committee meets periodically with management to discuss
the adequacies of the Company's internal financial controls and the
objectivity of its financial reporting. The Committee also meets with
the Company's independent auditors.
For the fiscal year ending December 31, 2002, Donald A. Bliss,
Chairman, G.D. Madden and Matt Salmon comprised the Audit Committee.
The directors who serve on the Audit Committee are all
"independent" for purposes of the Sarbanes-Oxley Act of 2002 (the
"Act") and the NASDAQ Stock Market listing standards. That is, none of
the members have a relationship to the Company that would interfere
with his independence from the Company and its management.
The Board of Directors has adopted a written charter setting
forth the Audit Committee's functions and responsibilities. The Board
of Directors adopted an Amended and Restated Charter to enhance the
Audit Committee's functions and responsibilities in order to comply
with certain provisions of the Act. A copy of the Audit Committee's
Amended and Restated Charter may be found in Exhibit 2 to this Proxy
Statement.
The Company retains independent public accountants who are
responsible for conducting an independent audit of the Company's
financial statements, in accordance with generally accepted accounting
principles, 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 each of them.
Management of the Company is primarily responsible for the
Company's financial statements and the overall reporting process,
including maintenance of the Company's system of internal controls.
The independent auditors audit the annual financial statements
prepared by management, and express an opinion as to whether those
financial statements fairly present the financial position, results of
operations, and cash flows of the Company in conformance with
generally accepted accounting principles, and discuss with the Audit
Committee any issues they believe should be raised.
For the fiscal year ending December 31, 2002, the Audit
Committee:
(1) Reviewed and discussed the audited financial statements with
management of the Company;
-14-
(2) Discussed with KPMG LLP, the independent auditors of the
Company, the matters required to be discussed by Statement on
Accounting Standards No. 61 (communications with Audit Committees);
and
(3) Received the written disclosures and the letter from the
Company's independent auditors (required by Independence Standards
Board Standard No. 1, Independence Discussions with Audit Committees)
and has discussed with the Company's independent accountants, the
matters relating to the auditors' independence from the Company.
Based upon the Audit Committee's review and discussion of the
matters above, the Audit Committee recommends to the Board of
Directors of the Company that the audited financial statements be
included in the Company's Annual Report on Form 10-K for the year
ended December 31, 2002, filed with the Securities and Exchange
Commission.
FISCAL 2002 AUDIT COMMITTEE:
Donald A. Bliss, Chairman
G.D. Madden, Member
Matt Salmon, Member
February 6, 2003
-15-
COMPENSATION COMMITTEE
The Compensation Committee is composed entirely of directors who are not
officers, employees or 10% shareholders of the Company. The Compensation
Committee reviews all aspects of executive compensation and makes
recommendations on such matters to the Board of Directors. The Compensation
Committee also reviews and approves stock options granted by the Company. The
Compensation Committee met formally once in 2002 to issue its Report on
Executive Compensation. The Compensation Committee, by written action taken
without a meeting, also approves stock option grants we propose to make to
officers and employees. Additional information concerning the Compensation
Committee, its members, Compensation Committee interlocks, and its REPORT ON
EXECUTIVE COMPENSATION and the Performance Graph are set forth under "Executive
Compensation," below.
NOMINATING COMMITTEE
By action taken at the February 6, 2003, meeting of the Board of Directors,
the Board established a Nominating Committee to recommend to the Board potential
candidates for election to the Board of Directors for 2004 and thereafter. The
members of the Nominating Committee are Randy Knight and Mark Scudder. As of the
date of this Proxy Statement, the Nominating Committee has not held any
meetings.
OTHER COMMITTEES
We do not maintain any other standing committees of the Board of Directors.
COMPLIANCE WITH SECTION 16(a) OF THE SECURITIES EXCHANGE ACT OF 1934
Section 16(a) of the Securities Exchange Act of 1934 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 Securities and Exchange Commission
("SEC") and the National Association of Securities Dealers Automated Quotation
System ("NASDAQ") 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 reports furnished to the Company, or written representations that no
other reports were required, we believe that during the 2002 fiscal year, all
Section 16(a) filing requirements applicable to our directors, executive
officers and greater than 10% beneficial owners were complied with. Pursuant to
the Sarbanes-Oxley Act of 2002, we will post copies of Section 16(a) forms our
directors and executive officers file with the SEC on our website at
www.knighttrans.com.
-16-
EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE
The following table sets forth information concerning compensation for the
fiscal years ended December 31, 2002, 2001, and 2000 awarded to, earned by, or
paid to our Chief Executive Officer and our five most highly compensated
executive officers, other than the Chief Executive Officer, whose total annual
salary and bonus exceeded $100,000 for the fiscal year ended December 31, 2002
(the "Named Executive Officers").
ANNUAL COMPENSATION LONG-TERM COMPENSATION
--------------------------------------------------------------- -----------------------------------------------------
AWARDS PAYOUTS
--------------------- ------------------------------
RESTRICTED
NAME AND OTHER ANNUAL STOCK OPTIONS/ LTIP ALL OTHER
PRINCIPAL POSITION YEAR SALARY($) BONUS($) COMPENSATION($) AWARD(S)($) SARS(#) PAYOUTS($) COMPENSATION($)(1)
------------------ ---- --------- -------- --------------- ----------- ------- ---------- ------------------
Kevin P. Knight, 2002 265,000 0 0 0 0 0 1,785
Chairman, Chief 2001 265,000 0 0 0 0 0 1,725
Executive Officer 2000 260,000 0 0 0 0 0 2,220
Gary J. Knight, 2002 265,000 0 0 0 0 0 2,365
President 2001 265,000 0 0 0 0 0 2,840
2000 260,000 0 0 0 0 0 2,840
Keith T. Knight, 2002 265,000 0 0 0 0 0 1,965
Executive Vice 2001 265,000 0 0 0 0 0 1,865
President 2000 260,000 0 0 0 0 0 2,460
Timothy M. Kohl 2002 140,310 25,000 0 0 12,500 0 1,462
Chief Financial 2001 136,067 20,000 0 0 22,500 0 1,130
Officer, Secretary 2000 132,000 15,000 0 0 31,500 0 625
The following table sets forth stock options granted to Named Executive Officers
in 2002:
NUMBER OF SECURITIES PERCENT OF TOTAL EXERCISE OR
NAMED UNDERLYING OPTIONS OPTIONS GRANTED TO BASE PRICE EXPIRATION
OFFICER(1) GRANTED (#) EMPLOYEES IN 2002 ($/SH) DATE 5% ($) 10% ($)
---------- ----------- ----------------- ------ ---- ------ -------
Timothy M. Kohl 12,500 4.0 $19.00 6/14/12 38,125 51,250
Except as set forth above, no stock appreciation rights (SARs) or other
options were granted during the 2002 fiscal year to any of the Named Executive
Officers.
The following table sets forth the information with respect to the exercise
of stock options during the fiscal year ended December 31, 2002.
(1) In 2002, 2001 and 2000, compensation included in the category of "All Other
Compensation" for each of the Named Executive Officers included Company
contributions in the amount of $625, for each year, to the Knight
Transportation, Inc. 401(k) Plan. The balance of compensation included in
"All Other Compensation" represents the annual economic benefit derived
from a $2,000,000 split-dollar life insurance policy maintained for each of
the Knights, and a $1,000,000 policy maintained for Mr. Kohl, during 2002,
which will be reimbursed to the Company upon termination or payment of the
policy. In compliance with Section 402 of the Sarbanes-Oxley Act of 2002
the Company is no longer making premium payments under these split-dollar
life insurance polices as of July 30, 2002. To the extent any officer is
being compensated to make such premium payments, the Company treats such
payments as compensation and not loans or extensions of credit.
-17-
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND OPTION VALUES AS OF DECEMBER 31, 2002(1)
NUMBER OF UNEXERCISED VALUE OF UNEXERCISED
OPTIONS AT FISCAL YEAR END IN-THE-MONEY OPTIONS AT
SHARES 12/31/02(#)(2,3) 2001 FISCAL YEAR END($)(2,3,4)
ACQUIRED ON VALUE ----------------------------- ------------------------------
NAME EXERCISE (#) REALIZED ($) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- ------------ ------------ ----------- ------------- ----------- -------------
Timothy M. Kohl 11,437 184,049 9,375 70,999 $130,792 $769,872
----------
(1) None of the other Named Executive Officers (Kevin P. Knight, Gary J.
Knight, and Keith T. Knight) were granted or exercised any options during
fiscal year 2002.
(2) Any option exercisable within 60 days of December 31, 2002, is treated as
if it were currently exercisable.
(3) All options have been adjusted to reflect the effect of each of our
three-for-two stock splits, effected as stock dividends on May 18, 1998,
June 1, 2001 and December 28, 2001.
(4) Based on a closing price of $21.00 of our Common Stock on December 31,
2002.
SECURITIES AUTHORIZED FOR ISSUANCE UNDER EQUITY COMPENSATION PLANS
The following table provides information as of December 31, 2002, regarding
our 1998 Stock Option Plan compensation under which our equity securities are
authorized for issuance:
EQUITY COMPENSATION PLAN INFORMATION
NUMBER OF NUMBER OF SECURITIES
SECURITIES TO BE REMAINING AVAILABLE FOR
ISSUED UPON FUTURE ISSUANCE UNDER
EXERCISE OF WEIGHTED-AVERAGE EQUITY COMPENSATION
OUTSTANDING EXERCISE PRICE OF PLANS (EXCLUDING
OPTIONS, WARRANTS OUTSTANDING OPTIONS, SECURITIES REFLECTED IN
PLAN CATEGORY AND RIGHTS WARRANTS AND RIGHTS COLUMN (A))
------------- ---------- ------------------- -----------
(A) (B) (C)
Equity compensation plans
approved by security holders 1,793,008 $9.58 456,525
Equity compensation plans not
approved by security holders 0 0 0
Total 1,793,008 $9.58 456,525
-18-
EMPLOYMENT AGREEMENTS
We currently do not have any employment contracts, severance or
change-in-control agreements with any of our Named Executive Officers.
Upon Randy Knight's retirement as Chairman in 1999, we entered into a
Consulting Agreement with Mr. Knight for $50,000 per year. The Consulting
Agreement is terminable at any time by either party. Presently, consulting
services are rendered by Randy Knight through a limited liability company
controlled by Mr. Knight.
STOCK OPTION PLAN
We adopted in 1994 and currently maintain a stock option plan to enable
directors, officers and certain key and critical line employees of the Company,
including drivers and other employees, to participate in the ownership of the
Company. This plan was amended and restated during 1998 (the "1998 Plan") and
was approved by the Company's shareholders on May 13, 1998. In authorizing stock
grants under the 1998 Plan, the Compensation Committee has sought to align the
interests of employees with our shareholders and has sought to make stock grants
to those key employees and operating personnel whose performance is important to
our success. As of February 27, 2003, after giving effect to stock splits and
the 2002 amendment to the 1998 Plan increasing the number of shares reserved for
issuance by 300,000, we had 1,793,008 shares of our Common Stock subject to
outstanding option grants and 456,525 shares of Common Stock were reserved for
the issuance of future grants. Of the total number of issued and outstanding
stock grants under the 1998 Plan, 89% have been made to employees and only 11%
have been made to officers and directors. If Proposal No. 2 to approve the 2003
Plan is approved by shareholders, no further stock grants will be made under the
1998 Plan after May 31, 2003, and all future stock grants will be made
exclusively under the 2003 Plan. SEE Item No. 2, PROPOSAL TO APPROVE 2003 STOCK
OPTION PLAN, above, for more information on the 2003 Plan.
401(K) PLAN
We also sponsor a 401(k) Plan (the "401(k) Plan"). The 401(k) Plan is a
profit sharing plan that permits voluntary employee contributions on a pre-tax
basis under section 401(k) of the Internal Revenue Code. Under the 401(k) Plan,
a participant may elect to defer a portion of his compensation and have us
contribute a portion of his compensation to the 401(k) Plan. We make a
discretionary matching contribution. For 2002, our maximum contribution was $625
per participant. The 401(k) Plan's assets are held and managed by an independent
trustee. Under the 401(k) Plan, eligible employees have the right to direct the
investment of employee and employer contributions among several mutual funds.
The 401(k) Plan also allows its participants to direct the trustee to purchase
shares of our stock on the open market up to a maximum of 20% of their 401(k)
Plan account balance. As of December 31, 2002, approximately 5% of all assets
held by the 401(k) Plan were invested in our Common Stock. Our senior executives
and certain key employees are not permitted to participate in the 401(k) Plan
feature that allows them to purchase our Common Stock in their 401(k) Plan
accounts.
Amounts we contribute for a participant vest over five years and are held
in trust until distributed pursuant to the terms of the 401(k) Plan. An employee
is eligible to participate in the 401(k) Plan if he has attained age 19 and
completed 1,000 hours of service within a 12 month period. Distributions from
participant accounts are not permitted before age 59-1/2, except in the event of
death, disability, separation from service, or certain financial hardships.
-19-
COMPENSATION COMMITTEE, COMPENSATION COMMITTEE INTERLOCKS, REPORT ON EXECUTIVE
COMPENSATION
THE COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION, AND THE
PERFORMANCE GRAPH THAT FOLLOW SHALL NOT BE DEEMED TO BE INCORPORATED BY
REFERENCE INTO ANY FILING MADE BY US UNDER THE SECURITIES ACT OF 1933 OR THE
SECURITIES EXCHANGE ACT OF 1934, NOTWITHSTANDING ANY GENERAL STATEMENT CONTAINED
IN ANY FILING INCORPORATING THIS PROXY STATEMENT BY REFERENCE, EXCEPT TO THE
EXTENT WE INCORPORATE THIS REPORT AND GRAPH BY SPECIFIC REFERENCE.
The Compensation Committee is composed entirely of directors who are not
officers, employees or 10% or greater shareholders of the Company. The
Compensation Committee reviews all aspects of compensation of our executive
officers and makes recommendations on compensation matters to the full Board of
Directors. The Compensation Committee of the Board of Directors for 2002 was
composed of G.D. Madden and Mark Scudder. Mr. Scudder served as Chairman of the
Compensation Committee. SEE "CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS,"
below for a description of transactions between us and members of the Board of
Directors or their affiliates, and "CORPORATE GOVERNANCE - MEETINGS AND
COMPENSATION OF THE BOARD OF DIRECTORS AND ITS COMMITTEES," above, for a
description of compensation of the members of the Compensation Committee. The
Compensation Committee also renders an annual report to the Board of Directors
concerning the compensation of our executive officers.
The Compensation Committee of the Board of Directors has furnished the
following Report on Executive Compensation:
COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
Under the supervision of the Compensation Committee of the Board
of Directors, the Board of Directors reviews the compensation of the
Company's executive officers annually. 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.
Because the most senior executive officers of the Company each
have substantial holdings of the Company's Common Stock, corporate
performance directly affects these executive officers. The Committee
believes that stock ownership by the Company's most senior executive
officers aligns the interests of management with the interests of
shareholders in the enhancing of shareholder value. With the exception
of Mr. Timothy Kohl, Chief Financial Officer and Secretary, who is
eligible for stock options and bonus awards, the Company's executive
officers are compensated with a base salary only, with no bonus or
short or long term incentives. With respect to Mr. Kohl and other
executive officers without substantial holdings of the Company's
Common Stock, the objectives of the Company's compensation program are
to align, through the grant of stock options, executive and
shareholder long-term interests by creating a strong and direct link
between executive pay and shareholder return. The Company's stock
option program is intended to enable executives to develop and
maintain a significant, long-term stock ownership position in the
Company's Common Stock. The Committee believes that the Stock Option
Plan is an effective tool for accomplishing this objective.
In reviewing base salaries of senior management for 2002 and
salary compensation for 2002-2003, including the salary of Mr. Kevin
P. Knight, the Company's Chief Executive Officer, the Compensation
Committee reviewed and considered (i) compensation information
-20-
disclosed by similarly-sized publicly held truckload motor carriers;
(ii) the financial performance of the Company, as well as the role and
contribution of the particular executive with respect to such
performance; (iii) non-financial performance related to the individual
executive's contributions; and (iv) the particular executive's stock
holdings.
The Compensation Committee believes that the annual salaries of
the Company's Chief Executive Officer and other executive officers are
reasonable compared to similarly situated executives of other
truckload motor carriers.
2002 COMPENSATION COMMITTEE
Mark Scudder, Chairman
G. D. Madden, Member
February 6, 2003
(Intentionally Left Blank)
-21-
STOCK PERFORMANCE GRAPH
The graph below compares the cumulative total returns of our Common Stock,
the NASDAQ Stock Market and the NASDAQ Trucking and Transportation Stocks
Indices (the "Peer Group") from December 31, 1998 to December 31, 2002. The
graph assumes that $100 of our Common Stock was purchased on December 31, 1998,
at a price of $11.859 per share and all dividends were reinvested. The graph is
adjusted for stock dividends and stock splits. We have paid no dividends on our
Common Stock since our inception and do not expect to do so in the foreseeable
future. THERE IS NO ASSURANCE THAT OUR STOCK PERFORMANCE WILL CONTINUE INTO THE
FUTURE WITH THE SAME OR SIMILAR TRENDS DEPICTED IN THE GRAPH BELOW. WE MAKE NO
PREDICTIONS AS TO THE FUTURE PERFORMANCE OF OUR STOCK.
[GRAPH]
INDEX DESCRIPTION 12/31/98 12/31/99 12/31/00 12/31/01 12/31/02
----------------- -------- -------- -------- -------- --------
Knight Transportation, Inc. 11.859 7.610 8.554 18.780 21.000
100.00% 64.17% 72.13% 158.36% 177.08%
NASDAQ Stock Market 734.202 1326.416 2470.520 1950.400 1335.510
100.00% 180.66% 336.49% 265.65% 181.90%
NASDAQ Trucking & 279.678 266.549 242.276 286.489 291.519
Transportation Stocks 100.00% 95.31% 86.63% 102.44% 104.23%
Index (the "Peer Group")
-22-
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT
The following table sets forth, as of January 28, 2003, the number and
percentage of outstanding shares of Company Common Stock beneficially owned by
each person known by us to beneficially own more than 5% of such stock, by each
Director and Named Executive Officer of the Company, and by all directors and
executive officers of the Company as a group.
NAME AND ADDRESS OF AMOUNT AND NATURE OF PERCENT OF
BENEFICIAL OWNER(1) BENEFICIAL OWNERSHIP CLASS
------------------- -------------------- -----
Donald A. Bliss(2) 14,203 *
Timothy M. Kohl(3) 15,695 *
Gary J. Knight(4) 3,535,209 9.51%
Keith T. Knight(5) 3,300,640 8.88%
Kevin P. Knight(6) 3,277,973 8.82%
Randy Knight(7) 2,849,630 7.67%
G.D. Madden(8) 11,503 *
Matt Salmon(9) 5,625 *
Mark Scudder(10) 2,887 *
Wasatch Advisors, Inc.(11) 1,946,675 5.20%
All directors and executive officers
as a group (nine persons) 13,013,365 34.99%
* Represents less than 1% of our outstanding Common Stock.
(1) The address of each officer and director is 5601 West Buckeye Road,
Phoenix, Arizona 85043. The address of Wasatch Advisors, Inc. ("Wasatch")
is 150 Social Hall Avenue, Salt Lake City, Utah 84111. All information
provided with respect to Wasatch is based solely upon the Company's review
of a Schedule 13G/A, filed by Wasatch with the Securities and Exchange
Commission on February 13, 2003.
(2) Includes 14,203 shares beneficially owned by Donald A. Bliss over which he
exercises sole voting and investment powers under a Revocable Trust
Agreement.
(3) Includes 9,375 shares that Timothy M. Kohl has the right to acquire through
exercise of stock options and 6,320 shares owned outright.
(4) Includes 3,530,146 shares beneficially owned by Gary J. Knight over which
he exercises sole voting and investment power as a Trustee under a
Revocable Trust Agreement dated May 19, 1993, and 5,063 shares owned by
minor children who share the same household.
(5) Includes 3,295,577 shares beneficially owned by Keith T. Knight over which
he and his wife, Fawna Knight, exercise sole voting and investment power as
Trustees under a Revocable Trust Agreement dated March 13, 1995, and 5,063
shares owned by minor children who share the same household.
(6) Includes 3,254,127 shares beneficially owned by Kevin P. Knight over which
he and his wife, Sydney Knight, exercise sole voting and investment power
as Trustees under a Revocable Trust Agreement dated March 25, 1994, 18,050
shares held by Kevin P. and Sydney B. Knight Family Foundation over which
Kevin P. Knight and his wife, Sydney Knight, as officers of the Foundation,
exercise sole voting and investment power on behalf of the Foundation; and
5,796 shares owned by minor children who share the same household.
-23-
(7) Includes 2,165,405 shares beneficially owned by Randy Knight over which he
exercises sole voting and investment power as a Trustee under a Revocable
Trust Agreement dated April 1, 1993; 675,000 shares held by a limited
liability company for which Mr. Knight acts as manager and whose members
include Mr. Knight and trusts for the benefit of his four children; and
9,225 shares owned by a child who shares the same household and over which
Mr. Knight exercises voting power.
(8) Includes 8,438 shares that G.D. Madden has the right to acquire through the
exercise of a stock option, and 3,065 owned outright.
(9) Includes 5,625 shares that Matt Salmon has the right to acquire through the
exercise of a stock option.
(10) Includes 2,887 shares that Mark Scudder owns outright.
(11) Wasatch Advisors, Inc. has sole voting power over 1,946,675 shares and sole
dispositive power over 1,946,675 shares. It has shared voting power and
shared dispositive power over no shares. Wasatch Advisors, Inc. is the
owner of record and discloses beneficial ownership of such shares. The
foregoing is based solely on information provided by Form 13G/A, filed by
Wasatch Advisors, Inc. with the Securities and Exchange Commission on
February 13, 2003.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
COMPANY'S PURCHASE AND LEASE OF PROPERTIES
Our headquarters and principal place of business is located at 5601 West
Buckeye Road, Phoenix, Arizona, on approximately 65 acres. We own approximately
57 acres and, as of December 31, 2002, leased approximately 8 acres from Randy
Knight, a director and principal shareholder of the Company. The property we
lease from Randy Knight includes terminal and operating facilities. We made
total payments of approximately $83,000 to, or on behalf of, Total Warehousing
and Randy Knight for the year ended December 31, 2002. Randy Knight owns a 50
percent interest in Total Warehousing; the balance is owned by an unaffiliated
party.
In March 1999, we exercised our option to extend our lease with Randy
Knight for five (5) years, until April 30, 2004. We have an additional option to
extend the lease term for an additional five (5) years. The current monthly base
rent is $6,700. Under the lease, base rent increases by 3% on the first day of
each option term, and the third anniversary of the commencement date of each
option term. In addition to base rent, the lease requires us to pay our share of
all expenses, utilities, taxes and other charges. Under the lease, the Company
and Total Warehousing will continue to use portions of the premises jointly. We
have granted Randy Knight access and utility easements over our owned and leased
properties. The purchase and lease agreements between us and Randy Knight
include cross-indemnities relating to liabilities and expenses arising from the
use and occupancy of the property by the parties to the agreements.
We and Total Warehousing from time to time provide services to each other.
Total Warehousing provided us with general warehousing services and we paid
$15,000 to Total Warehousing for these services for the year ended December 31,
2002.
OTHER INVESTMENTS AND TRANSACTIONS WITH AFFILIATES
We have adopted a policy that transactions with affiliated persons or
entities will be on terms 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 by our Independent Directors. We periodically
examine investment opportunities in areas related to the truckload carrier
business. Our investment strategy is to add to shareholder value by investing in
industry-related businesses that will assist us in strengthening our overall
position in the transportation industry, minimize our exposure to start-up risk
and provide us with an opportunity to realize a substantial return on our
investment.
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In April 1999, we acquired a 17% interest in Concentrek, Inc.
("Concentrek"), formerly known as KNGT Logistics, Inc., with the intent of
investing in the non-asset transportation business. Our investment in Concentrek
was approved by a majority of our Independent Directors. We hold non-voting
Class A Preferred Stock in Concentrek which is preferred in the event of
liquidation, dissolution, sale or merger and with respect to dividends over all
other classes of stock, including stock held by members of the Knight family. We
have preferential rights if Concentrek issues additional shares and limited
voting rights with respect to any merger, consolidation, sale of substantially
all of Concentrek's assets, and certain other major corporate events. We have
loaned a total of $3.4 million to Concentrek to fund start-up costs. These loans
are evidenced by two promissory notes. One note evidences a loan by the Company
under a wholly owned limited liability company for $824,500 that is convertible
into Concentrek's Class A Preferred Stock and is secured by a first lien on
Concetrek's assets. The other note evidences a loan by the Company directly to
Concentrek for an additional $2.6 million that is secured by a first lien on
Concentrek's assets. Kevin Knight, Gary Knight, Keith Knight and Randy Knight,
who collectively own 34% of our issued and outstanding stock, and who are also
investors in Concentrek along with other unrelated Concentrek shareholders, have
personally guaranteed repayment of the $2.6 million note. The notes are on
parity with respect to their security. Our loans to Concentrek have priority
over the loans made by the Knights described below. Our investment has been
structured to limit our exposure to Concentrek start-up losses and business
risk. SEE "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS - OFF BALANCE SHEET ARRANGEMENTS" in our Form 10-K for the
year ended December 31, 2002.
Other investors in Concentrek include Randy, Kevin, Gary and Keith Knight,
who collectively own 43% of Concentrek's issued and outstanding stock, and
through the same limited liability company affiliate through which we invested,
Randy, Kevin, Gary and Keith Knight have collectively loaned to Concentrek the
sum of $4.5 million. This loan is evidenced by a promissory note convertible
into Concentrek Class B Preferred Stock to fund Concentrek's start-up costs.
In November 2000, we acquired a 19% interest in Knight Flight Services, LLC
("Knight Flight"), which acquired and operates a Cessna Citation 560 XL jet
aircraft. The aircraft is leased to Pinnacle Air Charter, L.L.C., an
unaffiliated entity, which leases the aircraft on behalf of Knight Flight. The
cost of the aircraft to Knight Flight was $8.9 million. We invested $1.7 million
in Knight Flight to assure access to charter air services for the Company. We
have a priority use right for the aircraft and are not obligated to make
additional capital contributions to Knight Flight. The remaining 81% interest in
Knight Flight is owned by Randy, Kevin, Gary and Keith Knight, who have
personally guaranteed the balance of the purchase price and agreed to contribute
any capital required to meet any cash short falls. Under the Knight Flight
Operating Agreement, losses are allocated first to Kevin Knight, Gary Knight and
Keith Knight. The acquisition of our interest in Knight Flight was approved by a
disinterested majority of our Board of Directors. We believe that our interest
in Knight Flight allows us to obtain any access to needed charter air services
for Company business at prices equal to or less than is available from unrelated
charter companies. Knight Flight also makes the aircraft available for charter
to third parties through a licensed aircraft charter company.
Randy Knight retired as an officer of the Company on July 31, 1999, and
since then has acted as a consultant to us for which we paid him fees of $50,000
per year. The consulting agreement is terminable at the will of either party.
The Board of Directors has approved this arrangement.
We paid approximately $50,000 during 2002 for key employees' life insurance
premiums. The life insurance policies provide for cash distributions to the
beneficiaries of the policyholders upon death of the key employee. We are
entitled to receive the total premiums paid out on the policies at distribution
prior to any beneficiary distributions.
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The Knight family has been involved in the transportation business for a
number of years and members of the families of Kevin Knight, Gary Knight, Keith
Knight and Randy Knight have been employed by us since our inception and are
employed on the same terms and conditions as other non-related employees. During
2002, we employed and compensated in excess of $60,000 in total compensation
seven individuals who are related to our principal shareholders and senior
executive officers. The aggregate total compensation paid to these nine
individuals in 2002 was $541,700.
During 2002, we retained Scudder Law Firm to perform certain legal services
on our behalf. Mark Scudder, a member of our Board of Directors, is also a
member of Scudder Law Firm and performed legal services on our behalf. We intend
to continue the use of Scudder Law Firm during 2003. Amounts paid to the Scudder
Law Firm in 2002 were less than $60,000.
SHAREHOLDER PROPOSALS
The Board of Directors will consider proposals from shareholders for
nominations of directors to be elected at the 2004 Annual Meeting of
shareholders that are made in writing to the Secretary of the Company, are
received at least ninety (90) days prior to the 2004 Annual Meeting, and contain
sufficient background information concerning the nominee to enable a proper
judgment to be made as to his or her qualifications, as more fully provided in
our Articles of Incorporation and Bylaws.
Proposals of shareholders as to other matters intended to be presented at
the 2004 Annual Meeting must be received by the Company by December 6, 2003, to
be considered for inclusion in our Proxy Statement and form of proxy relating to
such meeting. Proposals should be mailed via certified mail, return receipt
requested, and addressed to Timothy M. Kohl, Secretary, Knight Transportation,
Inc., 5601 West Buckeye Road, Phoenix, Arizona 85043.
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.
Knight Transportation, Inc.
Kevin P. Knight
Chairman of the Board and
Chief Executive Officer
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EXHIBIT 1
KNIGHT TRANSPORTATION, INC.
2003 STOCK OPTION PLAN
FEBRUARY 6, 2003
KNIGHT TRANSPORTATION, INC.
2003 STOCK OPTION PLAN
TABLE OF CONTENTS
PAGE
ARTICLE 1. HISTORY AND PURPOSE.................................................1
1.1 History.......................................................1
1.2 Purpose.......................................................1
ARTICLE 2. DEFINITIONS.........................................................1
2.1 Defined Terms.................................................1
ARTICLE 3. SHARES RESERVED FOR STOCK GRANTS; ADJUSTMENT TO SHARES..............3
3.1 Shares Reserved For Stock Grants..............................3
3.2 Adjustment to Shares..........................................3
3.3 Number of Stock Grants; Partial Exercise......................3
ARTICLE 4. PLAN ELIGIBILITY....................................................3
4.1 General.......................................................3
4.2 Stock Option Plan.............................................3
4.3 Independent Directors Plan....................................3
ARTICLE 5. STOCK OPTION PLAN...................................................4
5.1 Award of Stock Grant..........................................4
5.2 ISOs..........................................................4
(a) Fair Market Value of ISO..................................4
(b) Disposition of ISO Stock..................................4
(c) Insolvent Participants....................................4
(d) Construction..............................................4
5.3 Option or Purchase Price......................................4
5.4 Limitation on Period in Which to Grant or Exercise Options....5
ARTICLE 6. INDEPENDENT DIRECTORS PLAN..........................................5
6.1 Automatic Grant; Annual Compensation; Forfeiture..............5
6.2 Termination of Independent Director Option....................5
6.3 Holding Period................................................5
6.4 Existing Options..............................................5
6.5 Payment of Directors Fees in Stock............................5
ARTICLE 7. ADMINISTRATION......................................................6
7.1 Administrative Committee......................................6
7.2 Administration of the Plan....................................6
ARTICLE 8. GENERAL PROVISIONS..................................................7
8.1 Grant Agreement...............................................7
8.2 Mergers or Consolidations.....................................7
8.3 Termination of Employment.....................................7
8.4 Payment for Stock.............................................7
8.5 Compliance With Applicable Laws and Regulations...............8
8.6 No Right to Employment........................................8
8.7 Taxes.........................................................8
8.8 Expenses......................................................8
8.9 Unfunded Benefits.............................................8
8.10 Transferability...............................................8
8.11 Expiration Date of Plan.......................................8
8.12 Corporate Action..............................................8
8.13 Rights as a Shareholder.......................................8
8.14 Investment Purpose............................................8
8.15 Investment Letter.............................................9
8.16 Termination or Amendment of the Plan..........................9
8.17 Application of Funds..........................................9
8.18 Obligation to Exercise Grant..................................9
8.19 Approval of Shareholders; Termination of Plan.................9
8.20 Governing Law.................................................9
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KNIGHT TRANSPORTATION, INC.
2003 STOCK OPTION PLAN
KNIGHT TRANSPORTATION, INC.
2003 STOCK OPTION PLAN
ARTICLE 1.
HISTORY AND PURPOSE
1.1 HISTORY.
Knight Transportation, Inc. (the "Company" or "Knight") has maintained a
stock option plan for the benefit of officers, employees and directors since
1994. Grants under all prior plans have been broad-based and have been designed
to align the interest of employees of the Company receiving grants with those of
the Company's shareholders. On February 6, 2003, the Board of Directors approved
the termination of all further stock grants under the Company's Amended and
Restated Stock Option Plan adopted February 10, 1998 (the "1998 Plan"),
effective as of May 31, 2003, subject to the Company's shareholders approving
this 2003 Stock Option Plan. As amended, the 1998 Plan permits any issued and
outstanding option grants to continue in force and effect, in accordance with
their terms, but no further options or stock grants will be made under the 1998
Plan, if the Company's shareholders approve this Plan. The Board also adopted,
effective as of June 1, 2003, the Knight Transportation, Inc. 2003 Stock Option
Plan (the "Plan"), subject to approval by the Company's shareholders at its
annual meeting to be held in May, 2003.
This document sets forth the terms of the Company's 2003 Stock Option Plan,
including, without limitation, the number of shares that are reserved for grants
under the Plan and all other terms and conditions applicable to the Plan. This
Plan and any options or rights granted hereunder, are subject to approval by the
Company's shareholders within 12 months of February 6, 2003.
1.2 PURPOSE. The Plan has been adopted to: (a) provide certain key
employees of the Company (as defined below) with an opportunity to purchase the
common stock of Knight as an incentive to continue employment with the Company
and to work for the long-term growth, development, and financial success of the
Company; (b) attract qualified independent directors by providing the automatic
grant of certain nonqualified stock options to independent directors upon their
appointment to the Company's Board of Directors; and (c) attract, motivate, and
retain the services of critical employees of the Company and its subsidiaries
and reward such employees by the issuance of Stock Grants so that these
employees will contribute to and participate in the long-term performance of the
Company.
ARTICLE 2.
DEFINITIONS
2.1 DEFINED TERMS. The following terms shall have the meanings set forth
below, unless context otherwise requires:
"Beneficiary" means the person or persons designated by a Participant as
his beneficiary.
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"Board of Directors" or "Board" means the Board of Directors of Knight.
"Code" means the Internal Revenue Code of 1986, as amended from time to
time.
"Committee" means the Compensation Committee of the Board of Directors,
which shall be appointed in accordance with the procedures described in Article
7.
"Company" means Knight and any subsidiary of Knight that is treated as a
"subsidiary" under section 425 of the Code.
"Effective Date" means June 1, 2003, which shall be the date this 2003
Stock Option Plan is effective, subject only to Section 8.19.
"Knight" means Knight Transportation, Inc., an Arizona corporation, and its
successors in interest.
"ISO" means an incentive stock option granted a Participant under Article 5
of this Plan and which qualifies as an incentive stock option under section 422
of the Code. To the extent this Plan has authorized the Committee to grant ISOs,
this Plan shall be interpreted and construed so as to qualify as an incentive
stock option plan under Section 422 of the Code and the regulations thereunder.
"Independent Director" means a director of the Company who is not an
officer, employee or 10% shareholder of the Company.
"Independent Directors Plan" means the Independent Directors Automatic
Stock Option Plan set forth in Article 6.
"NSO" means any option granted under this Plan that is not an ISO.
"Participant" means any employee or independent director of the Company who
has been selected by the Committee to participate in the Plan.
"Plan" means the Knight Transportation, Inc. 2003 Stock Option Plan,
effective as of June 1, 2003, as amended and restated hereby.
"Plan Year" means the calendar year.
"Restricted Stock Grant" means the right granted a Participant to purchase
Restricted Stock at a price determined by the Committee, and subject to such
restrictions and conditions as may be determined by the Compensation Committee.
"Restricted Stock" means stock sold to a Participant pursuant to a
Restricted Stock Grant.
"Stock" means the common stock of Knight, par value $0.01 per share.
"Stock Option" means any ISO or NSO granted to a Participant under this
Plan, which is evidenced by a writing executed by the Participant and by an
authorized member of the Committee.
"Stock Grant" means the award of a Stock Option or a Restricted Stock Grant
made under Article 5 or Article 6 of this Plan.
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"Stock Grant Agreement" means the written Agreement between the Company and
a Participant evidencing a Stock Grant.
ARTICLE 3.
SHARES RESERVED FOR GRANTS; ADJUSTMENT TO SHARES
3.1 SHARES RESERVED FOR STOCK GRANTS. There are reserved and available for
the Stock Grants pursuant to all provisions of this Plan 1,000,000 shares of the
Company's authorized but unissued Stock. Of the total number of shares reserved
for Stock Grants under this Plan, 50,000 shares of Stock are reserved for Stock
Grants made under the Independent Directors Plan set forth in Article 6. The
balance of the Shares are reserved for Stock Grants awarded under any other
provision of this Plan; provided, however, that in no event shall the aggregate
number of shares of Stock subject to all Stock Grants made under this Plan since
inception exceed 1,000,000 shares of Stock, adjusted as described in Section
3.2, below.
3.2 ADJUSTMENT TO SHARES. The aggregate number of shares of Stock which
may be issued pursuant to Stock Grants made under this Plan shall be
automatically adjusted, without further action by the Board or the shareholders
of the Company, to reflect changes in the capitalization of the Company, such as
stock dividends, stock splits, reverse stock splits, subdivisions,
reorganizations or reclassification, or any similar recapitalization that
affects or modifies the number of shares of Stock issued and outstanding at any
time. The adjustment of shares of Stock reserved for Stock Grants under this
Section shall not cause shares of Stock subject to a Stock Grant Agreement to be
automatically adjusted, unless the Stock Grant Agreement specifically requires
such an adjustment.
3.3 NUMBER OF STOCK GRANTS; PARTIAL EXERCISE. More than one Stock Grant
may be made to the same Participant, and Stock Grants may be subject to partial
exercise, as the Committee may in its discretion determine. If any Stock Grant
made under this Plan expires or is terminated without being exercised, or after
being partially exercised, the shares of Stock allocated to the unexercised
portion of a Stock Grant shall revert to the pool of shares reserved in Section
3.1 and shall again be available for Stock Grants made under this Plan.
ARTICLE 4.
PLAN ELIGIBILITY
4.1 GENERAL. The Committee, subject to the following limitations, shall
from time to time designate from among the Company's employees those persons who
will be Participants in this Plan, subject to the following rules:
4.2 STOCK OPTION PLAN. Only full-time employees of the Company, who, in
the sole judgment of the Committee, (i) are qualified by position, training,
ability, and responsibility to contribute substantially to the progress of the
Company; (ii) have a material, positive effect on the results of the operations
of the Company; or (iii) are key employees or critical line employees (as
determined by the Committee, in its discretion), shall be eligible to
participate in the Stock Option Plan described in Article 5.
4.3 INDEPENDENT DIRECTORS PLAN. Independent Directors of the Company shall
be automatically eligible to participate in the Independent Directors Plan
described in Article 6.
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ARTICLE 5.
STOCK OPTION PLAN
5.1 AWARD OF STOCK GRANT. The Committee may award Stock Grants to a
Participant in the form of Stock Options, including, without limitation, "ISOs,"
"NSOs," or Restricted Stock Grants under this Article 5, or any combination
thereof. At the time a Stock Grant is awarded under this Article 5, the
Committee shall designate the number of shares of Stock subject to the grant and
indicate whether such grant is an ISO, NSO or a Restricted Stock Grant.
5.2 ISOS. The following rules shall apply to any Stock Options granted as
ISOs, in addition to any other provisions of this plan that may be applicable.
(a) FAIR MARKET VALUE OF ISO. The aggregate fair market value of
Stock subject to an ISO granted under this Article 5 (determined without regard
to this Section 5.2) exercisable for the first time by any Participant during
any calendar year (under all plans of the Company) shall not exceed $100,000.
The preceding sentence shall be applied by taking ISOs into account in the order
in which they were granted hereunder. If any ISO is granted that exceeds the
limitations of this Section 5.2 at the first time it is exercisable, it shall
not be invalid, but shall constitute, and be treated as, an NSO to the extent of
such excess. For purposes of this Plan, the fair market value of the Stock
subject to any ISO shall be determined by the Committee without regard to any
restriction other than a restriction which, by its terms, will never lapse.
(b) DISPOSITION OF ISO STOCK. No Stock issued in connection with a
Participant's exercise of an ISO may be disposed of by the Participant within
two years from the date the option is granted nor within one year after the date
such Stock is issued to the Participant and be eligible for treatment as an ISO;
provided, however, unless otherwise provided in the Stock Grant Agreement, these
holding periods shall not apply if the Stock Option is exercised after the death
of a Participant by the estate of such Participant, or by a person who acquired
the right to exercise such option by bequest or inheritance or by reason of the
death of a deceased Participant.
(c) INSOLVENT PARTICIPANTS. A disposition of Stock described in
Section 422(c)(3) of the Code, which was acquired pursuant to the exercise of an
ISO, shall not constitute a disposition of Stock in violation of Section (b) of
this Article 5.
(d) CONSTRUCTION. Any ISO granted under this Plan shall be construed
to meet the requirements of Section 422 of the Code and the regulations
thereunder.
5.3 OPTION OR PURCHASE PRICE.
(a) Each Stock Option shall state the exercise price of the option,
which, in the case of an ISO, shall not be less than 100% of the fair market
value of the optioned Stock on the date the ISO is granted, as provided below.
Any Restricted Stock Grant shall state the price at which the Restricted Stock
may be purchased. In the case of a Participant who, at the time the ISO is
granted, owns shares of Stock possessing more than 10% of the total combined
voting power of all classes of stock of the Company (or any parent or
subsidiary), the exercise price of such ISO shall be not less than 110% of the
fair market value of Stock on the date the option is granted, and, in no event,
shall such option be exercisable after the expiration of five years from the
date such option is granted.
(b) The exercise price of an NSO, the purchase price under a
Restricted Stock Grant, or the exercise price of any Stock Option granted to a
director under Article 6 shall not be less than 85% of the fair market value of
a share of the Stock as of the date of grant. For purposes of this Plan, the
fair market value of a share of Stock shall equal the mean of the highest bid
and lowest selling prices for such stock on the day preceding the date of grant,
-4-
as reported by the National Association of Securities Dealers Automated
Quotation System (NASDAQ) (National Market). If for any reason the Company's
Stock is not publicly traded on a national securities market or not listed on
NASDAQ, the Committee shall evaluate all factors which the Committee believes
are relevant in determining the fair market value of a share of Stock and, the
Committee, in good faith and exercising its business judgment, shall establish
the fair market value of the Stock as of the date an option is granted.
5.4 LIMITATION ON PERIOD IN WHICH TO GRANT OR EXERCISE OPTIONS. No ISO
shall be granted under this Plan more than 10 years after the earlier of (i) the
date the Plan is initially adopted by the Board or (ii) the date the Plan is
approved by the shareholders of the Company. Any Stock Grant, other than an ISO,
made under the Plan may be exercised within any reasonable term and may be
granted any time prior to the termination or expiration of the Plan. In no event
shall an ISO granted under this Plan be exercised after the expiration of 10
years from the date such ISO is granted. Any provision of this Plan to the
contrary notwithstanding, the Committee may, in its sole discretion, grant any
Participant an NSO which, if provided in the Stock Grant Agreement, may be
exercised after the termination of the Participant's employment with the
Company.
ARTICLE 6.
INDEPENDENT DIRECTORS PLAN
6.1 AUTOMATIC GRANT; ANNUAL COMPENSATION; FORFEITURE. Any Independent
Director appointed to the Board after September 1, 1995, shall automatically
receive an NSO for 2,500 shares of the Company's Stock; the exercise price of
such option shall be 85% of the fair market value of the Company's Stock as of
that date. In addition, for calendar years beginning after December 31, 2002,
Independent Directors will receive an NSO for 500 shares, as described in the
next sentence, for each calendar year an Independent Director is a Director.
Such option grant shall be made on June 1 of each calendar year, beginning June
1, 2003, and continuing on the same day of each year thereafter, for each person
who is an Independent Director on that date. In addition, each Independent
Director who, as of December 31, 2002, has served as an Independent Director for
at least three calendar years, shall also be entitled to an NSO grant of 1,000
shares for service previously rendered to the Company; such option shall be
issued on June 1, 2003 and the exercise price shall be the fair market value of
the Company's stock as of that date, as provided in Section 5.3(b) above. Any
NSO granted to an Independent Director (other than the NSO grant for 1,000
shares described in the preceding sentence) will be forfeited if the director
resigns within one year of the date of the grant of such NSO.
6.2 TERMINATION OF INDEPENDENT DIRECTOR OPTION. Except as otherwise
provided in any written agreement between the Company and the Independent
Director, any NSO granted hereunder will expire on the earlier of (i) ten years
after the date of grant; (ii) one year after such independent director
terminates his services as a director of the Company; (iii) the expiration date
stated in the Stock Grant Agreement (as this term is defined in the Plan); or
(iv) any earlier date provided in this Article 6. An Independent Director may
also elect to receive the Director fees in Stock of the Company.
6.3 HOLDING PERIOD. Any Stock Option made to an Independent Director may
not be exercised for at least seven months following the date such Stock Option
is granted.
6.4 EXISTING OPTIONS. All Stock Options granted by the Company to
Independent Directors, including options issued prior to the date hereof, shall
be subject to the terms and conditions of this Article 6.
6.5 PAYMENT OF DIRECTORS FEES IN STOCK. With the consent of the
Independent Director, the Company may pay the director's fees due any
Independent Director in Stock of the Company. In such event, the Company shall
grant to each consenting Independent Director on February 15 and August 15 of
each calendar year the number of shares of Company Stock (disregarding any
-5-
fraudulent shares) equal to the director's fees due such Independent Director as
of the preceding December 31 and June 30, respectively, based on the fair market
value of the Company Stock, as provided in Section 5.3(b) above, as of the
trading day preceding each such February 15 and August 15.
ARTICLE 7.
ADMINISTRATION
7.1 COMPENSATION COMMITTEE. This Plan shall be administered by the
Committee. The Committee shall serve at the pleasure of the Board, and the Board
may, from time to time, remove members from, or add members to, the Committee.
The Committee shall include a minimum of two Independent Director members.
Vacancies on the Committee, however caused, shall be filled by the Board. No
member of the Committee shall participate in or take any action with respect to
any Stock Grant made with respect to such member, except as otherwise provided
herein. The Committee may appoint delegates to act for and on its behalf. The
Committee shall select one of its members as Chairman and shall hold meetings at
such times and places as it may determine. A majority of the Committee at a
meeting at which a quorum is present, or acts reduced to or approved in writing
by a majority of the members of the Committee, shall be valid acts of the
Committee. No member of the Board or the Committee shall be liable for any
action or determination made in good faith with respect to this Plan or any
option granted hereunder.
7.2 ADMINISTRATION OF THE PLAN.
(a) The Committee may adopt rules and procedures for administration
of the Plan, to the extent such rules and procedures are not inconsistent
herewith. Subject to the provisions of this Plan, the Committee shall have the
sole, final, and conclusive discretion and authority to construe and interpret
the Plan, including, without limitation, authority to determine:
(1) Those employees who will become Participants and the terms
and conditions of their eligibility;
(2) The nature and amount of such Stock Grants;
(3) All terms and conditions of each Stock Grant, including,
without limitation:
(i) The number of shares of Stock for which a Stock Grant
is made;
(ii) The price to be paid, if any, for Stock upon exercise
of a Stock Grant;
(iii) The terms and conditions of the exercise;
(iv) The terms of payment of the exercise price of a grant;
(v) Any conditions to which the grant or its exercise may
be subject;
(vi) Any vesting or forfeiture provisions applicable to any
Stock Grant; and
-6-
(vii) Any restrictions or limitations placed on Stock issued
pursuant to the exercise of a Stock Grant.
(b) The Committee may provide that any Stock Option may be exercised
as a "cashless" stock option, including any arrangement whereby any dealer
associated with the National Association of Securities Dealers, upon an
irrevocable election by a Participant to exercise any Stock Grant, either (i)
commits to loan the Participant the exercise price of the stock and forwards it
to the Company or (ii) establishes a margin commitment with the Participant to
pay the exercise price of the Stock Grant to the Company, except to the extent
any such arrangement is prohibited by the Sarbanes-Oxley Act of 2002 and the
Securities and Exchange Act of 1934.
ARTICLE 8.
GENERAL PROVISIONS
8.1 GRANT AGREEMENT. Each Stock Grant made under this Plan shall be
evidenced by a Stock Grant Agreement and shall be executed by the Company and
the Participant. The Stock Grant Agreement shall contain any terms and
conditions required by this Plan and such other terms and conditions as the
Committee, in its sole discretion, may require, including, without limitation,
restrictions on the transferability of any Stock which are not inconsistent with
the Plan.
8.2 MERGERS OR CONSOLIDATIONS. If the Company at any time dissolves or
undergoes a reorganization, including, without limitation, a merger or
consolidation with any other organization, in any manner or form whatsoever, and
the Company is not the surviving organization and the surviving organization
does not agree to assume the options granted pursuant to this Plan or to
substitute options in place thereof, the Stock Grants made under this Plan may
be terminated, subject to the procedures set forth in this Article 8. Prior to
any termination of this Plan or the Stock Grants made hereunder, each
Participant holding an outstanding Stock Grant not yet exercised shall be
notified of such termination and shall be provided a reasonable period of not
less than fifteen (15) days in which to exercise such Stock Option prior to its
termination, to the extent such option is then exercisable. The Committee may,
in its sole discretion, prescribe such terms and conditions as the Committee
deems appropriate and authorize the exercise of such Stock Grants with respect
to all shares covered in the event of a merger or consolidation. Any Stock Grant
not exercised in accordance with such prescribed terms and conditions shall
terminate as of the date specified by the Committee, and simultaneously, the
Plan itself shall be terminated without further order of the Company or the
Board of Directors.
8.3 TERMINATION OF EMPLOYMENT. Except as provided in Sections 5.4, 6.1 or
as otherwise permitted by this Plan (or any Stock Grant Agreement), any Stock
Grant made pursuant to this Plan shall immediately terminate upon a
Participant's termination of employment with the Company, unless such
termination of employment occurs by reason of the death or retirement (including
early retirement, if approved by the Committee) of the Participant, or on
account of the permanent and total disability of the Participant (as such term
is defined in Section 22(e)(3) of the Code and the regulations therein). Upon
retirement (including early retirement), a Participant (or the administrator or
conservator of the Participant's estate) may, subject to Section 5.4(a) of the
Plan, exercise any Stock Grant in full within three months of retirement or, if
the Participant retired or terminated employment on account of "permanent and
total disability" (as that term is defined in Section 22(e)(3) of the Code),
within one year of retirement. If a Participant dies while in the employment of
the Company or within three months after retirement, the Participant's personal
representative of his or her estate or other person who acquired the right to
exercise such Stock Grant by bequest or inheritance or by reason of the death of
the deceased Participant may, subject to Section 5.4 of the Plan or any contrary
provision of the Stock Grant Agreement, exercise the option in full within two
years from the date of the Participant's death, unless such exercise period
would disqualify such ISO as an incentive stock option under Section 422 of the
Code, but the Committee, with the consent of the Participant, may waive this
limitation.
8.4 PAYMENT FOR STOCK. The exercise price for any shares of Stock acquired
through the whole or partial exercise of any Stock Grant shall be paid in full
in cash or immediately available funds, or in Stock with a current market value
equal to all or a part of the exercise price, or both.
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8.5 COMPLIANCE WITH APPLICABLE LAWS AND REGULATIONS. Stock Grants made
under this Plan shall contain such provisions with respect to compliance with
applicable federal and state law as the Committee, with the advice of the
Company's counsel, may deem appropriate, including, without limitation, any
provision necessary to comply with state or federal securities laws.
8.6 NO RIGHT TO EMPLOYMENT. Designation of an employee as a Participant in
this Plan for any purpose shall not confer on the employee the right to continue
in the employment of the Company or any right to receive a Stock Grant for any
Plan Year.
8.7 TAXES. A Participant shall be responsible for paying any taxes with
respect to a Stock Grant. The Company is hereby authorized to deduct any taxes
that may be applicable from the dollar value of any Stock Grant to a
Participant, including, without limitation, FICA or FUTA, and the Company may
effect any such deduction by reducing the number of shares acquired upon the
exercise of Stock Grants by the amount of such FICA or FUTA tax liability, or
may make other reasonable arrangements for the payment of any such tax
liability.
8.8 EXPENSES. All expenses incurred in connection with the administration
of this Plan shall be borne by the Company, except as any Stock Grant Agreement
may otherwise provide.
8.9 UNFUNDED BENEFITS. Nothing in this Plan shall be construed as
requiring the Company to establish a trust or to fund this Plan, or to create a
trust of any kind or any fiduciary relationship between the Company and any
Participant, employee or Beneficiary.
8.10 TRANSFERABILITY. Except as otherwise expressly permitted by this Plan,
no Stock Grant made under this Plan shall be transferable by the Participant
other than by will or by the laws of descent and distribution. During a
Participant's lifetime, a Stock Grant made hereunder shall be exercisable only
by the Participant and only if at all times during the period of time beginning
on the date the Stock Grant is made and ending on the day three months (or one
year, in the case of an employee or Independent Director who retires on account
of becoming "permanently and totally disabled" within the meaning of that term
under section 22(e)(3) of the Code) before the date of exercise of such Stock
Grant, such Participant was an employee or director of the Company (or a
corporation or a parent corporation or subsidiary corporation of a corporation
assuming an option in a transaction to which section 424(a) of the Code
applies).
8.11 EXPIRATION DATE OF PLAN. If not earlier terminated, this Plan shall
expire on February 5, 2013. In no event shall any Stock Option be granted under
this Plan after February 5, 2013. In no event shall any ISO be granted under
this Plan after February 5, 2013.
8.12 CORPORATE ACTION. The issuance of a Stock Grant pursuant to this Plan
shall not affect in any way the right or power of the Company to make
adjustments, reclassifications, reorganizations, or changes of any kind to its
capital or business structure or to merge, consolidate, dissolve, liquidate,
sell or transfer all or any part of its business or assets.
8.13 RIGHTS AS A SHAREHOLDER. A Participant shall have no rights as a
shareholder of the Company with respect to any shares of Stock subject to a
Stock Grant made hereunder until the date of the issuance of a stock certificate
to the Participant for such shares pursuant to such Stock Grant. Except as
provided in Section 3.2, no adjustment shall be made for dividends (ordinary or
extraordinary, whether in cash, securities, or other property) or distributions
or other rights for which the record date precedes the date a stock certificate
is issued to a Participant upon exercise of a Stock Grant.
8.14 INVESTMENT PURPOSE. Unless the Stock received pursuant to a Stock
Grant issued under this Plan is registered with the Securities and Exchange
Commission, each Stock Grant is subject to the condition that the issuance of
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the Stock Grant and any Stock issued upon exercise of the Stock Grant is for
investment purposes only, and not with a view to the subsequent resale or
distribution of such Stock, unless such Stock is registered under the Securities
Act of 1933, as amended, or an exemption from registration is available.
8.15 INVESTMENT LETTER. Any Participant exercising a Stock Grant shall, as
a condition to such exercise, execute and deliver to the Company an investment
letter in such form as the Board of Directors or the Committee, with the advice
of the Company's legal counsel, may from time to time require.
8.16 TERMINATION OR AMENDMENT OF THE PLAN. The Board may terminate,
suspend, discontinue, modify or amend this Plan in any respect whatsoever,
except that, without approval of the shareholders of the Company, no such
revision or amendment shall change the number of shares of Stock of the Company
subject to the Plan, change the designation of the class of employees eligible
to receive options, decrease the price at which options may be granted or remove
the administration of the Plan from the Committee. The preceding sentence
notwithstanding, the Company may not terminate this Plan with respect to any
issued and outstanding Stock Grant unless it gives the Participant notice of
termination and not less than 15 days in which to exercise such Stock Grant, but
only if such Stock Grant is then exercisable.
8.17 APPLICATION OF FUNDS. The proceeds received by the Company from the
sale of shares of Stock pursuant to the exercise of Stock Grants shall be used
for general corporate purposes.
8.18 OBLIGATION TO EXERCISE GRANT. A Stock Grant made hereunder shall
impose no obligation on the Participant to exercise such grant.
8.19 APPROVAL OF SHAREHOLDERS; TERMINATION OF PLAN. This Plan, shall be
effective as of June 1, 2003, subject to the approval of the shareholders of the
Company, which approval must occur within the period beginning 12 months before
and ending 12 months after February 6, 2003. The Committee may cause Stock
Grants to be made under the Plan, subject to the Plan being approved by the
Company's shareholders within the period described above.
8.20 GOVERNING LAW. The Plan shall be governed by and construed under the
laws of the State of Arizona.
IN WITNESS WHEREOF, the foregoing Plan was approved by the Board of
Directors on February 6, 2003, and is executed by the undersigned officers of
the Company, each being duly authorized to do so.
KNIGHT TRANSPORTATION, INC.,
an Arizona corporation
By /s/ Kevin P. Knight By /s/ Timothy M. Kohl
--------------------------------- -------------------------------------
Kevin P. Knight, Timothy M. Kohl,
Chief Executive Officer Secretary and Chief Financial Officer
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CERTIFICATION OF KNIGHT TRANSPORTATION, INC.
IN WITNESS WHEREOF, this Plan was adopted by the Board of Directors of
Knight Transportation, Inc. ("Knight") on February 6, 2003.
DATED as of this 6th day of February, 2003.
KNIGHT TRANSPORTATION, INC.,
an Arizona corporation
By /s/ Timothy M. Kohl
-------------------------------------
Timothy M. Kohl,
Secretary and Chief Financial Officer
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EXHIBIT 2
KNIGHT TRANSPORTATION, INC.
AMENDED AND RESTATED AUDIT COMMITTEE CHARTER
AMENDED AND RESTATED
CHARTER OF THE AUDIT COMMITTEE
OF
THE BOARD OF DIRECTORS
OF
KNIGHT TRANSPORTATION, INC.
OCTOBER 1, 2002
RECITALS
In June 1994, the Board of Directors of Knight Transportation, Inc. (the
"Company") appointed an Audit Committee, and that committee, since July 26,
1994, has maintained a written Charter specifying its duties.
On December 14, 1999, the Securities and Exchange Commission (the
"Commission") issued Release No. 34-42231 (the "NASDAQ Release"), amending the
rules applicable to the qualification and responsibility of directors
participating on the audit committees of NASDAQ traded companies. On December
22, 1999, the Commission issued Release No. 34-42266 (the "SEC Release")
amending, among other rules, the rules applicable to audit committees for all
publicly traded companies.
Congress enacted the Sarbanes-Oxley Act of 2002 on July 30, 2002, which,
among other things, amended certain laws and regulations applicable to audit
committees of companies subject to the reporting requirements pursuant to
Section 13 (a) or 15(d) of the Securities Exchange Act of 1934.
The Board of Directors of the Company (the "Board") believes that it is
appropriate to amend and restate the Charter of the Audit Committee of the Board
of Directors of Knight Transportation, Inc. (the "Charter") to comply with the
applicable provisions of the NASDAQ Release, the SEC Release and the
Sarbanes-Oxley Act of 2002. Accordingly, the Charter is hereby amended and
restated, in its entirety, as follows, effective as of October 1, 2002, to
reflect the directives of the Company's Board.
CHARTER
1. PURPOSE OF AUDIT COMMITTEE. The purpose of the Audit Committee is to
provide independent and skilled guidance to the Board in fulfilling its
responsibility to ensure the fairness and accuracy of the Company's financial
statements; to ensure the existence of appropriate internal financial controls;
to ensure the independence of the independent public accounting firm engaged to
audit the Company's financial statements (the "external auditors"); to render
the reports required of the Audit Committee pursuant to Item 306 of Regulation
S-K; and to allow the Company to make the disclosures required by Item 7(d)(3)
of Schedule 14(A) and related Commission regulations.
2. QUALIFICATIONS OF AUDIT COMMITTEE. The Audit Committee shall consist
of not less than three directors nor more than five directors, each of whom
shall not accept any consulting, advisory, or other compensatory fee from the
Company or be affiliated with the Company or any of its subsidiaries, and
qualifies as an "independent director" as defined by Rule 4200 of the NASDAQ
Stock Market, Inc.'s listing requirements, unless exceptional circumstances
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exist that, under NASDAQ listing requirements, would allow the Audit Committee
to include one non-independent director member, who may not be either a current
employee or immediate family member of a current employee. Each member of the
Audit Committee shall be able to read and understand financial statements,
including the Company's balance sheet, income statement, and cash flow
statement. Additionally, at least one member of the Audit Committee shall be a
"financial expert" who, in accordance with Securities and Exchange Commission
rules, by education and experience as a public accountant or auditor or a
principal financial officer, comptroller, or principal accounting officer, or
from a position involving similar functions and has, in the judgment of the
Board, an understanding of generally accepted accounting principles and
statements and the application of such principles in connection with the
accounting for estimates, accruals, and reserves; experience in the preparation
of auditing of financial statements of generally comparable companies;
experience with internal accounting controls; and an understanding of audit
committee functions.
3. DUTIES OF THE AUDIT COMMITTEE. Subject to the second sentence of
Paragraph 10, below, the Audit Committee will perform the following duties in
the manner and priority the Audit Committee determines, in its discretion, to be
appropriate under the circumstances:
(a) Review the Company's earnings statements and forecasts, if any,
with management and with the Company's external auditors prior to the release of
such statements to the public;
(b) Assure that the Company's interim financial statements are
reviewed by the Company's external auditors, as required by Item 306 of
Regulation S-K prior to the filing of such interim financial statements with the
Commission as part of the Company's report on Form 10-K;
(c) Review and discuss the Company's audited financial statements
with management;
(d) Review and discuss the Company's audited financial statements
with the Company's external auditors and review those matters required to be
discussed by SAS-61, as modified or supplemented from time to time;
(e) Receive from the Company's external auditors, formal written
statements and disclosures and the letter from the Company's external auditors
required by Independent Standards Board's Standard No. 1, as modified or
supplemented, and discuss with the external auditors their independence, and
review all audit and other services performed by the external auditors for the
Company to assure that such services do not compromise the external auditors'
independence;
(f) Review and consider and, to the extent necessary, engage in
direct dialogue with the external auditors with respect to any relationships or
services provided by the external auditors to the Company or any other affiliate
of the Company or any party that may affect the objectivity or independence of
the external auditors and take, or recommend that the Board take, appropriate
action to ensure the independence of the external auditors;
(g) Review annually the scope of the external auditors' work,
including any non-auditing or consulting services;
(h) Review with the Company's external auditors all adjustments made
to the Company's audited financial statements, including a reconciliation of any
adjustments made in the audited financial statements from the Company's
quarterly interim financial statements;
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(i) Review with management and the Company's external auditors any
significant financial reporting issues or judgments called for in connection
with the preparation of the Company's financial statements, including the
adequacy and appropriateness of any reserves, policies relating to the
recognition of revenue, the quality and appropriateness of the Company's
accounting principles, and any other matters which, in the judgment of the
Committee or the Company's external auditors, could have a material impact on
the Company's financial statements;
(j) Meet with the Company's external auditors and with management to
review and assess any material financial risk exposure to the Company and the
steps management has or plans to take to monitor and control financial risk;
(k) Review with the Company's external auditors and management the
adequacy of the Company's internal financial controls and reporting systems;
(l) Confer with the Company's external auditors whether any matters
described in Section 10A of the Securities and Exchange Act of 1934 have come to
the attention of the external auditors;
(m) Review any major changes to the Company's auditing and accounting
policies and practices suggested by the Company's external auditors or by
management. (In undertaking the duties specified herein, the Audit Committee
will, in accordance with SAS-61, communicate with the external auditors with
respect to (1) methods used to account for significant or unusual transactions;
(2) the effect of significant accounting policies in controversial or emerging
areas for which there is a lack of authoritative guidance or consensus; (3) the
process used by management in formulating particularly sensitive accounting
estimates, and the basis for the auditors conclusions regarding the
reasonableness of those estimates; and (4) disagreements with management, if
any, over the application of accounting principles, the basis for management's
accounting estimates, and the disclosures in the Company's financial
statements);
(n) Recommend annually the selection and engagement of the Company's
external auditors and review their fees and the proposed scope and plan of the
annual audit;
(o) Review the external auditors' management letter and consider any
comments made by the external auditors with respect to improvements in the
internal accounting controls of the Company, consider any corrective action
recommended by the external auditors, and review any corrective action taken by
management;
(p) Review and devote attention to any areas in which management and
the Company's external auditors disagree and determine the reasons for such
disagreement;
(q) Review the performance of the external auditors and, if
appropriate, recommend that the Board replace any external auditor failing to
perform satisfactorily;
(r) Review the performance of the Company's Chief Financial Officer
and Controller;
(s) Review any difficulties any external auditor may have encountered
with respect to performance of an audit, including, without limitation, any
restrictions placed upon the scope of the audit on access to information, or any
changes in the proposed scope of the audit;
(t) Provide, as part of the Company's proxy filed pursuant to
Regulation 14A or 14C, as applicable, the report required by Item 306 of
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Regulation S-K, and cause a copy of that report to be included annually in the
Company's proxy solicitation materials;
(u) Review any and all complaints received by the Company regarding
accounting, internal accounting controls or auditing matters and determine in
its good faith business judgment the proper course of action to be taken by the
Audit Committee and the Company with respect to each individual complaint
received, including conducting investigations and taking corrective action, to
the extent necessary; and
(v) Periodically review the adequacy of this Charter and make
recommendations to the Board with respect to any changes in the Charter.
4. ACCESS TO INFORMATION. In order to perform its obligations, the Audit
Committee shall have unrestricted access to all relevant internal and external
Company information and to any officer, director or employee of the Company.
5. COMPLAINTS, EMPLOYEE ACCESS TO AUDIT COMMITTEE.
(a) The Audit Committee shall establish a procedure for the receipt,
retention and treatment of complaints received by the Company and Audit
Committee on issues regarding accounting, internal accounting controls or
auditing matters, and the confidential anonymous submission by employees of
issues or concerns regarding questionable accounting or auditing matters.
(b) Any person employed by the Company and any of the Company's
independent contractors will have access to the Audit Committee to report any
matter which such person believes would be of interest to the Audit Committee or
of general concern to the Audit Committee or the Board. Contacting a member of
the Audit Committee to report any irregularity, questionable activity, or other
matter will not subject the person making the report to discipline.
6. FREQUENCY OF MEETINGS. The Audit Committee will meet each quarter
prior to the release of the Company's earnings statements to review the earnings
release. In addition, the Audit Committee will convene if a meeting is noticed
by its Chairman, any member of the Audit Committee, any member of the Board, the
Chief Financial Officer, or the Chief Executive Officer.
7. ACCESS TO LEGAL COUNSEL. The Audit Committee, at its request, shall
have access to the Company's outside legal counsel, and, if requested, to its
own independent legal counsel. The Company will pay for the cost of any such
legal counsel.
8. MEETING PROCEDURES.
(a) Members of the Audit Committee shall endeavor to attend all
meetings of the Committee. The Audit Committee may meet telephonically or in
person and may take action, with the written consent of all members. A majority
of the Audit Committee will constitute quorum for all purposes.
(b) Written minutes will be maintained for each meeting of the Audit
Committee.
(c) The Audit Committee, at least once a year, will meet privately
with the Company's external and internal auditors, and no representative of the
Company's management shall attend such meetings.
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9. OTHER DUTIES. The Audit Committee will perform such other duties as
the Board may assign to it.
10. LIMITATION OF AUDIT COMMITTEE DUTIES. The Audit Committee is not an
investigative committee of the Board and shall have no investigative duties,
unless expressly assigned to the Audit Committee by the Board. The Audit
Committee will exercise its business judgment in performing its duties under
this Charter, including the duties outlined in Paragraph 3, and may emphasize
and prioritize those duties and responsibilities set forth above which the
Committee, in its discretion and judgment, believes are the most important,
given the particular circumstances. The external auditors shall remain
ultimately accountable to the Company's Board and the Audit Committee, as the
designated representatives of the Company's shareholders. Accordingly, it is not
the duty of the Audit Committee to undertake the audit of the Company itself, to
plan the audit, or to undertake any of the responsibilities of the Company's
internal or external auditors. The Audit Committee is not required to follow the
procedures required of auditors in performing reviews of interim financial
statements of audited financial statements. In performing its functions, the
Audit Committee may rely upon information provided to it by management, by the
Company's internal and external auditors, or by legal counsel. This Charter
imposes no duties on the Audit Committee or its members that are greater than
those duties imposed by law upon a director of an Arizona corporation under
Section 10-830 of the Arizona Revised Statutes or upon a director under
applicable Federal law, including the Sarbanes-Oxley Act of 2002. If any claim
is asserted against the Audit Committee, any of its members, or the Company by a
shareholder or any other person, nothing in this Charter shall be construed to
limit or restrict any defense available to the Audit Committee, to any of its
members, or to the Company.
DATED: October 1, 2002
/s/ Donald A. Bliss
----------------------------------
Don Bliss, Chairman and Member
Audit Committee
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