SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the
Securities and Exchange Act of 1934
Filed by Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the Appropriate Box:
[ ] Preliminary Proxy Statement
[ ] Confidential, for Use of the Commission Only (as permitted by
Rule 14a-6(e)(2))
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Materials Pursuant to Section 240.14a-12
COVENANT TRANSPORT, INC.
(Name of Registrant as Specified in its Charter)
N/A
(Name of Person(s) Filing Proxy Statement if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[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: N/A
(2) Aggregate number of securities to which transaction applies: N/A
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which
the filing fee is calculated and state how it was determined): N/A
(4) Proposed maximum aggregate value of transaction: N/A
(5) Total Fee paid: N/A
[ ] Fee paid previously with preliminary materials. N/A
[ ] 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: N/A
(2) Form, Schedule or Registration Statement No.: N/A
(3) Filing Party: N/A
(4) Date Filed: N/A
COVENANT TRANSPORT, INC.
400 Birmingham Highway
Chattanooga, Tennessee 37419
____________________________________
NOTICE AND PROXY STATEMENT
FOR ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON MAY 27, 2004
____________________________________
To Our Stockholders:
The 2004 Annual Meeting of Stockholders (the "Annual Meeting") of Covenant
Transport, Inc., a Nevada corporation (the "Company"), will be held at the
Company, 400 Birmingham Highway, Chattanooga, Tennessee 37419, at 10:00 a.m.
Eastern Time, on Thursday, May 27, 2004, for the following purposes:
1. To consider and act upon a proposal to elect seven (7) directors of
the Company;
2. To consider and act upon such other matters as may properly come
before the meeting and any adjournment thereof.
The foregoing matters are more fully described in the accompanying Proxy
Statement.
The Board of Directors has fixed the close of business on March 31, 2004,
as the record date for the determination of Stockholders entitled to receive
notice of and to vote at the Annual Meeting or any adjournment thereof. Shares
of Common Stock may be voted at the Annual Meeting only if the holder is present
at the Annual Meeting in person or by valid proxy. 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.
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. The prompt return of your proxy may save the Company additional expenses
of solicitation.
All Stockholders are cordially invited to attend the Annual Meeting.
By Order of the Board of Directors,
/s/ David R. Parker
David R. Parker
Chairman of the Board
Chattanooga, Tennessee 37419
April 19, 2004
COVENANT TRANSPORT, INC.
400 Birmingham Highway
Chattanooga, Tennessee 37419
____________________________________
PROXY STATEMENT
FOR ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD MAY 27, 2004
____________________________________
This Proxy Statement is furnished in connection with the solicitation of
proxies by the Board of Directors of Covenant Transport, Inc., a Nevada
corporation, to be used at the 2004 Annual Meeting of Stockholders of the
Company (the "Annual Meeting"), which will be held at the Company's
headquarters, 400 Birmingham Highway, Chattanooga, Tennessee 37419 on Thursday,
May 27, 2004, at 10:00 a.m. Eastern Time, and any adjournment thereof. The terms
"Company," "we," "us," and "our" refer to Covenant Transport, Inc. and its
subsidiaries. We will bear all costs of the solicitation. The approximate date
of mailing this Proxy Statement and the enclosed form of proxy is April 19,
2004.
The enclosed copy of our annual report for the fiscal year ended December
31, 2003, is not incorporated into this Proxy Statement and is not to be deemed
a part of the proxy solicitation material.
PROXIES AND VOTING
Only stockholders of record at the close of business on March 31, 2004
("Stockholders"), are entitled to vote, either in person or by valid proxy, at
the Annual Meeting. Holders of Class A Common Stock are entitled to one vote for
each share held. Holders of Class B Common Stock are entitled to two votes for
each share held. On March 31, 2004, there were issued and outstanding 12,327,693
shares of Class A Common Stock, par value one cent ($.01), entitled to cast an
aggregate 12,327,693 votes on all matters subject to a vote at the Annual
Meeting, and 2,350,000 shares of Class B Common Stock, par value one cent
($.01), entitled to cast an aggregate 4,700,000 votes on all matters subject to
a vote at the Annual Meeting. We have a total of 14,677,693 shares of Common
Stock outstanding, entitled to cast an aggregate 17,027,693 votes on all matters
subject to a vote at the Annual Meeting. The number of issued and outstanding
shares excludes approximately 1,229,390 shares of Class A Common Stock reserved
for issuance under our incentive stock plans, and other arrangements. Holders of
unexercised options are not entitled to vote at the Annual Meeting. We have no
other class of stock outstanding. Stockholders are not entitled to cumulative
voting in the election of directors.
All proxies that are properly executed and received by us prior to the
Annual Meeting will be voted in accordance with the choices indicated. Any
Stockholder may be represented and may vote at the Annual Meeting by a proxy or
proxies appointed by an instrument in writing. In the event that any such
instrument in writing shall designate two (2) or more persons to act as proxies,
a majority of such persons present at the meeting, or, if only one shall be
present, then that one shall have and may exercise all of the powers conferred
by such written instrument upon all of the persons so designated unless the
instrument shall otherwise provide. No such proxy shall be valid after the
expiration of six (6) months from the date of its execution, unless coupled with
an interest or unless the person executing it specifies therein the length of
time for which it is to continue in force, which in no case shall exceed seven
(7) years from the date of its execution. Any Stockholder giving a proxy may
revoke it at any time prior to its use at the Annual Meeting by filing with our
Secretary a revocation of the proxy, by delivering to us a duly executed proxy
bearing a later date, or by attending the meeting and voting in person.
Other than the election of Directors, which requires a plurality of the
votes cast, each matter to be submitted to the Stockholders requires the
affirmative vote of a majority of the votes cast at the meeting. For purposes of
determining the number of votes cast with respect to a particular matter, only
those cast "For" or "Against" are included. Proxies marked "Abstain" and broker
non-votes are counted only for purposes of determining whether a quorum is
present at the meeting. If no direction is specified by the Stockholder, the
proxy will be voted "For" the proposals as specified in this notice and, at the
discretion of the proxy holder, upon such other matters as may properly come
before the meeting or any adjournment thereof.
PROPOSAL 1
ELECTION OF DIRECTORS
At the Annual Meeting, the Stockholders will elect seven directors to serve
as the Board of Directors until our 2005 Annual Meeting of the Stockholders or
until their successors are elected and qualified. Upon the recommendation of the
Nominating and Corporate Governance Committee, our Board of Directors has
nominated for election as directors David R. Parker, William T. Alt, Robert E.
Bosworth, Hugh O. Maclellan, Jr., Bradley A. Moline, Niel B. Nielson, and Mark
A. Scudder, each of whom is presently serving as a director. In the absence of
contrary instructions, each proxy will be voted for the election of all the
proposed directors.
Information Concerning Directors and Executive Officers
Information concerning the names, ages, positions with the Company, tenure
as a director, and business experience of our current directors and other
executive officers is set forth below. All references to experience with us
include positions with our operating subsidiary, Covenant Transport, Inc., a
Tennessee corporation. All executive officers are elected annually by the Board
of Directors.
NAME AGE POSITION DIRECTOR SINCE
--------------------------------------------------------------------------------------------------------------------
David R. Parker 46 Chairman of the Board, President, and 1985
Chief Executive Officer
--------------------------------------------------------------------------------------------------------------------
Michael W. Miller 46 Executive Vice President, Chief Operating 1995
Officer, and Director(1)
--------------------------------------------------------------------------------------------------------------------
Joey B. Hogan 42 Executive Vice President, Chief Financial NA
Officer, and Assistant Secretary
--------------------------------------------------------------------------------------------------------------------
L. D. "Micky" Miller, III 51 Executive Vice President - Sales and NA
Marketing
--------------------------------------------------------------------------------------------------------------------
R. H. Lovin, Jr. 52 Senior Vice President - Administration, NA
and Secretary
--------------------------------------------------------------------------------------------------------------------
William T. Alt(3) 67 Director 1994
--------------------------------------------------------------------------------------------------------------------
Robert E. Bosworth(2) 56 Director 1998
--------------------------------------------------------------------------------------------------------------------
Hugh O. Maclellan, Jr.(2)(4) 64 Director 1994
--------------------------------------------------------------------------------------------------------------------
Mark A. Scudder(3) 41 Director 1994
--------------------------------------------------------------------------------------------------------------------
Bradley A. Moline(2) 37 Director 2003
--------------------------------------------------------------------------------------------------------------------
Niel B. Nielson(3)(4) 50 Director 2003
---------------------------------------------------------------------------------------------------------------------
-----------------------
(1) Mr. Michael W. Miller, who has been a member of our Board of Directors
since 1995, is not standing for re-election to the Board at the 2004 Annual
Meeting, although he will remain one of our officers.
(2) Member of the Audit Committee.
(3) Member of the Compensation Committee.
(4) Member of the Nominating and Corporate Governance Committee.
David R. Parker has served as President since our founding in 1985 and as
Chairman of the Board and Chief Executive Officer since 1994. Mr. Parker was
elected to the Board of Directors of the Truckload Carriers' Association in
1994.
Michael W. Miller has served as our Executive Vice President and Chief
Operating Officer since 1997. He previously served as our Vice President of
Operations from 1993 to 1997 and in various other positions from 1987 to 1993.
Mr. Miller has over 25 years of experience in the transportation industry. Mr.
Miller is not standing for re-election to the Board at the 2004 Annual Meeting,
although he will remain one of our officers.
Joey B. Hogan has served as our Chief Financial Officer since1997. Mr.
Hogan has been an Executive Vice President since May 2003 and was a Senior Vice
President from December 2001 to May 2003. From joining us in August 1997 through
December 2001, Mr. Hogan also served as our Treasurer. In 1996 and 1997, Mr.
Hogan served as Chief Financial Officer of The McKenzie Companies in Cleveland,
Tennessee, a group of privately owned companies. From 1986 to 1996, Mr. Hogan
served in various capacities, including three years as Director of Finance, with
Chattem, Inc., a publicly held company, headquartered in Chattanooga, Tennessee,
involved in the manufacturing and marketing of over-the-counter pharmaceuticals
and toiletries products.
L. D. "Micky" Miller, III, has served as our Executive Vice President -
Sales and Marketing since December 2002. Mr. Miller has 28 years of sales and
operations experience in the trucking industry. From January 1998 to November
2002, Mr. Miller was co-owner of, but was not involved in the day-to-day
management of, two privately owned trucking companies, one of which was a
truckload carrier and the other of which was a less-than-truckload carrier. From
1985 to 1995, Mr. Miller served as President and Chief Executive Officer of
Crown Transport Systems Inc., division of U.S. Xpress Enterprises, Inc. From
1995 to 1997, Mr. Miller served as Chairman of CSI/Crown division of U.S. Xpress
Enterprises, Inc. In March 2003, Ida-Tran Freight Systems, of which Mr. Miller
was an officer and co-owner, voluntarily filed a bankruptcy petition in the
United States District Court for the District of Idaho. In October 2003, a
petition was filed against Mr. Miller in the United States Bankruptcy Court for
the Northern District of Georgia.
2
R. H. Lovin, Jr. has served in several senior management positions since
joining us in 1986. Mr. Lovin has been our Senior Vice President -
Administration since February 2003, and Corporate Secretary since August 1995.
Mr. Lovin previously served as our Chief Financial Officer from 1986 to 1994, as
Vice President of Administration from May 1994 to May 2003, and as director from
May 1994 to May 2003.
William T. Alt has engaged in the private practice of law since 1962 and
has served as outside counsel to the Company since 1986. Mr. Alt has served as a
director since 1994.
Robert E. Bosworth has served as a director since 1998. Since February
2001, Mr. Bosworth has been the Vice President of Corporate Finance for the
Livingston Company, a merchant bank located in Chattanooga. From February 1998
until February 2001, Mr. Bosworth was a business and management consultant to
various corporations in the Chattanooga area. Prior to February 1998, Mr.
Bosworth served for more than five years as Executive Vice President and Chief
Financial Officer of Chattem, Inc. Mr. Bosworth is a director of Chattem, Inc.
Mr. Bosworth has served as a director since 1998.
Hugh O. Maclellan, Jr. is President of the Maclellan Foundation, Inc. and
serves on the Boards of UnumProvident Corporation and SunTrust Bank,
Chattanooga, N.A. Mr. Maclellan has served as a director since 1994.
Mark A. Scudder has been an attorney for more than ten years with Scudder
Law Firm, P.C., L.L.O., Lincoln, Nebraska, and has been President of the firm
since January 1, 2003. The firm is our outside corporate and securities counsel.
Mr. Scudder is a director of Knight Transportation, Inc., a publicly traded
truckload carrier, and Genesee & Wyoming Inc., a publicly traded, international
short-line railroad. Mr. Scudder has served as a director since 1994.
Bradley A. Moline has been President and Chief Executive Officer of Allo
Communications, LLC, a competitive local telephone company, since October 2002.
Mr. Moline also has been the owner and President of Imperial Super Foods, a
grocery store in Imperial, Nebraska, since February 2002. Mr. Moline was the
President of Forte Technologies, a contract manufacturer of high precision
parts, from February 2001 until February 2002. From 1997 to May 2001, Mr. Moline
was the Senior Vice President of Finance and Chief Financial Officer of Birch
Telecom, Inc., an integrated communications provider. Mr. Moline resigned from
his position at Birch Telecom, Inc. to take the position with Forte Technologies
more than sixteen months prior to Birch Telecom, Inc.'s filing of a petition
under the federal bankruptcy laws in September 2002. From 1994 to 1997, Mr.
Moline was our Treasurer and Chief Financial Officer. Mr. Moline has served as a
director since 2003.
Niel B. Nielson has been President of Covenant College since 2002. From
1997 until 2002, Dr. Nielson was the Associate Pastor of Outreach for College
Church in Wheaton, Illinois. Dr. Nielson was a partner and trader for Ritchie
Capital Markets Group, LLC from 1996 to 1997. Prior to 1996, Dr. Nielson served
as an executive officer in various companies, including serving for two years as
Senior Vice President of Chicago Research and Trading Group, Ltd., a company at
which he was employed for nine years. Dr. Nielson holds five investment company
directorships in the First Trust Fund Complex. Dr. Nielson has served as a
director since 2003.
CORPORATE GOVERNANCE
The Board of Directors and Its Committees
Board of Directors
Meetings and Compensation. Our Board of Directors held four regularly
scheduled meetings and two special meetings during the fiscal year ended
December 31, 2003. No director attended less than 75% of the meetings of the
Board of Directors or any committee on which he served, with the exception of
Mr. Moline and Dr. Nielson, who were elected on May 22, 2003. Mr. Moline and Dr.
Nielson attended all meetings of the Board of Directors, and all of the meetings
held by the committees on which they served, that were held in 2003, following
their election. In addition, we encourage the members of our Board of Directors
to attend our Annual Meetings of Stockholders. All seven of our then-current
directors attended the 2003 Annual Meeting of Stockholders. In February of 2003,
our Board of Directors approved an increase in the annual retainer provided to
directors who are not our employees to $15,000. Non-employee directors also
receive $1,000 per Board of Directors meeting attended in person, $500 per Board
of Directors meeting attended by telephone, and reimbursement of expenses
incurred in attending such Board meetings. An additional annual retainer of
$5,000 is paid to the Audit Committee Chairman, and an additional annual
retainer of $2,500 is paid to the Compensation Committee Chairman. The Board has
not established a retainer for the Nominating and Corporate Governance Committee
Chairman. In May 2003, the Board of Directors granted each non-employee director
an option to purchase 2,500 shares of our Class A Common Stock, under the
Outside Director Stock Option Plan, at $17.63 per share, the fair market value
on the date of the grant. The options immediately vested and must be exercised
within ten (10) years of the date of the grant.
Director Independence. The Company's Common Stock is listed on the Nasdaq
National Market, and therefore it is subject to the listing standards, including
standards relating to corporate governance, embodied in applicable rules
promulgated
3
by the National Association of Securities Dealers, Inc. (the "NASD"). Pursuant
to NASD Rule 4350(c)(1), the Board of Directors has determined that the
following directors and nominees are "independent" under NASD Rule 4200(a)(15):
Robert E. Bosworth, Hugh O. Maclellan, Jr., Bradley A. Moline, and Niel B.
Nielson. In accordance with NASD Rule 4350(c)(2), in 2003, the Company's
independent directors held two regularly scheduled meetings, referred to as
"executive sessions," at which only the independent directors were present. We
anticipate that the independent directors will continue to meet in executive
session at least twice per year.
Code of Conduct and Ethics. Our Board of Directors has adopted a Code of
Conduct and Ethics that applies to all directors, officers, and employees of the
Company. The Code of Conduct and Ethics includes provisions applicable to our
principal executive officer, principal financial officer, principal accounting
officer or controller, or persons performing similar functions, that constitute
a "code of ethics" within the meaning of Item 406(b) of Regulation S-K. A copy
of the Code of Conduct and Ethics will be available to stockholders on our
website located at http://www.covenanttransport.com, on May 4, 2004.
Stockholder Communications. Our Board of Directors has adopted procedures
by which our stockholders may communicate with our Board regarding matters of
substantial importance to the Company. Information concerning the manner in
which stockholders can communicate with the Board is available on the Company's
website, located at http://www.covenanttransport.com.
Committees of the Board of Directors
Compensation Committee. The Compensation Committee of the Board of
Directors met three times during 2003. This committee reviews all aspects of
compensation of our executive officers and makes recommendations on such matters
to the full Board of Directors. The Compensation Committee Report on Executive
Compensation for 2003 is set forth below. See "Compensation Committee Report on
Executive Compensation." A copy of the Compensation Committee Charter is
available to stockholders on our website, located at
http://www.covenanttransport.com.
Audit Committee and Audit Committee Report. The Audit Committee met nine
times during 2003. Messrs, Alt, Bosworth, and Maclellan served as the Audit
Committee until May 22, 2003, at which time Mr. Alt resigned from the Audit
Committee. For the balance of 2003, Messrs. Bosworth, Maclellan, and Moline
served as the Audit Committee. The responsibilities of the Audit Committee are
set forth in the Audit Committee Report, which appears below. Effective with the
date of our 2004 Annual Meeting, each member of the audit committee will satisfy
the independence and audit committee membership criteria set forth in NASD Rule
4350(d)(2). Specifically, each member of the audit committee:
o will be independent under NASD Rule 4200(a)(15);
o will meet the criteria for independence set forth in Rule 10A-3(b)(1)
under the Securities Exchange Act of 1934, as amended (the "Exchange
Act");
o will not have participated in the preparation of the financial
statements of the Company or any current subsidiary of the Company at
any time during the past three years; and
o will be able to read and understand fundamental financial statements,
including the Company's balance sheet, income statement, and cash flow
statement.
The Board of Directors has determined that at least one "audit committee
financial expert," as defined under Item 401(h) of Regulation S-K, currently
serves on the Audit Committee. The Board of Directors has identified Mr.
Bosworth as an audit committee financial expert. Mr. Bosworth is independent, as
independence for audit committee members is defined under applicable NASD rules.
The Audit Committee has been operated pursuant to a written charter detailing
its duties since May 18, 2000. In 2004, the Audit Committee amended and restated
its charter to comply with certain requirements of the NASD rules relating to
qualitative listing requirements for Nasdaq National Market issuers. A copy of
the Audit Committee Charter is included as Appendix A to the Proxy Statement,
and is available to stockholders on our website, located at
http://www.covenanttransport.com. 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 2003
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 the Company under the Securities Act of 1933
or the Exchange Act, notwithstanding any general statement contained in any such
filings incorporating this Proxy Statement by reference, except to the extent we
incorporate such report by specific reference.
4
Audit Committee Report for 2003
The primary purpose of the Audit Committee is to assist the Board of
Directors in fulfilling its oversight responsibilities relating to the quality
and integrity of the Company's financial reports and financial reporting
processes and systems of internal controls. The Company's management has primary
responsibility for the Company's financial statements and the overall reporting
process, including maintenance of the Company's system of internal controls. The
Company retains independent 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 management and the independent
public accountants. For the fiscal year ended December 31, 2003, the Audit
Committee (1) reviewed and discussed the audited financial statements with
management and KPMG LLP, the Company's independent auditors; (2) discussed with
the auditors the matters required to be disclosed by Statement on Auditing
Standards No. 61; (3) received and discussed with the independent auditors the
written disclosures and the letter from the independent auditors required by
Independence Standards Board Statement No. 1; and (4) has discussed with the
independent auditors the independent auditors' independence. The Audit Committee
met with representatives of the independent auditors without management or other
persons present on two occasions during 2003. Based on the foregoing reviews and
meetings, the Audit Committee recommended to the Board of Directors that the
audited financial statements be included in the Annual Report on Form 10-K for
the year ended December 31, 2003, for filing with the Securities and Exchange
Commission.
Audit Committee:
Robert E. Bosworth (Chairman)
Hugh O. Maclellan, Jr.
Bradley A. Moline
Nominating and Corporate Governance Committee. In February 2004 the Board
of Directors established a Nominating and Corporate Governance Committee to
recommend to the Board potential candidates for election to the Board of
Directors for 2004 and thereafter, and to make recommendations to the Board
concerning issues related to corporate governance, as more specifically detailed
in the written charter discussed below. The original members of the Nominating
and Corporate Governance Committee were Mr. Maclellan and Dr. Nielson. Mr.
Maclellan is the Chairman of the Nominating and Corporate Governance Committee.
All current members of the Nominating and Corporate Governance Committee are
independent, as independence for nominating committee members is defined under
applicable NASD rules. The Nominating and Corporate Governance Committee has
recommended that the Board of Directors nominate David R. Parker, William T.
Alt, Robert E. Bosworth, Hugh O. Maclellan, Jr., Bradley A. Moline, Niel B.
Nielson, and Mark A. Scudder for election at the Annual Meeting. Each nominee
for election as a director is an executive officer of the Company, standing for
reelection, or both.
Nominating and Corporate Governance Committee Charter. A written charter
for the Nominating and Corporate Governance Committee was adopted in April 2004.
A copy of the charter is available to stockholders on our website, located at
http://www.covenanttransport.com.
Process for Identifying and Evaluating Director Nominees. Director nominees
are chosen by the entire Board of Directors, after considering the
recommendations of the Nominating and Corporate Governance Committee. As a
matter of course, the members of the Nominating and Corporate Governance
Committee review the qualifications of various persons to determine whether they
might make candidates for consideration for membership on the Board of
Directors. The Nominating and Corporate Governance Committee has a policy to
consider suggestions received from stockholders regarding director nominees, in
accordance with any procedures adopted by the committee. The Nominating and
Corporate Governance Committee will review all candidate recommendations,
including those properly submitted by stockholders, in accordance with the
requirements of its charter. With regard to specific qualities and skills, the
Nominating and Corporate Governance Committee believes it necessary that: (i) at
least a majority of the members of the Board of Directors qualify as
"independent" under NASD Rule 4200(a)(15); (ii) at least three members of the
Board of Directors satisfy the audit committee membership criteria specified in
NASD Rule 4350(d)(2); and (iii) at least one member of the Board of Directors
eligible to serve on the Audit Committee has sufficient knowledge, experience,
and training concerning accounting and financial matters so as to qualify as an
"audit committee financial expert" within the meaning of Item 401(h) of
Regulation S-K. In addition to these specific requirements, the Nominating and
Corporate Governance Committee takes into account all factors it considers
appropriate, which may include experience, accomplishments, education,
understanding of our business and the industry in which we operate, specific
skills, general business acumen, and the highest personal and professional
integrity. Generally, the
5
Nominating and Corporate Governance Committee will first consider current Board
members because they meet the criteria listed above and possess knowledge of our
history, strengths, weaknesses, goals, and objectives. We do not pay a fee to
any third party to identify or evaluate or assist in identifying or evaluating
potential nominees.
Compensation Committee Interlocks and Insider Participation. Messrs. Alt,
Bosworth, Maclellan, and Scudder served as the Compensation Committee until May
22, 2003, at which time Messrs. Bosworth and Maclellan resigned from the
Compensation Committee. For the balance of 2003, Messrs. Alt and Scudder, and
Dr. Nielson served as the Compensation Committee. None of such individuals has
been an officer or employee of the Company. Mr. Scudder's law firm serves as our
corporate and securities counsel and earned approximately $434,289 in fees for
legal services during 2003. Mr. Alt has served as our outside counsel on various
matters since 1986, and his firm earned approximately $137,858 in fees for legal
services during 2003. Messrs. Alt and Scudder are not expected to continue on
the Compensation Committee after the 2004 Annual Meeting.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
We have adopted a policy that transactions with affiliated persons or
entities must be reviewed and pre-approved by our Audit Committee. In 2003, we
purchased equipment from Tennessee-Georgia Truck Equipment Sales, Inc.,
("Tenn-Ga") a corporation that was wholly owned by the estate of Clyde M.
Fuller, for approximately $286,000. We believe that the transactions represented
fair market value. The estate of Clyde M. Fuller held approximately 8.5% of our
outstanding Common Stock until November 13, 2003, and held less than 5% of our
outstanding Common Stock thereafter. The terms of all transactions were
negotiated by Elizabeth Fuller and Mr. Parker. During 2003, Tenn-Ga contracted
with us to make certain repairs to certain equipment owned by Tenn-Ga. The work
was prepaid by Tenn-Ga and amounted to approximately $223,000. We estimated the
rate charged based upon our costs and our available shop capacity at the time.
The terms of the repairs were negotiated by Mrs. Fuller and David R. Parker.
Mrs. Fuller is the administrator of the estate of Clyde M. Fuller, the
beneficiary under his will, and David Parker's mother. All transactions between
the Company and Tenn-Ga were approved by the Audit Committee.
A company wholly owned by Nancy Landreth operates a "Company Store" on a
rent-free basis in our headquarters building, and uses our service marks on its
products at no cost. We made purchases from this store totaling approximately
$350,000 in 2003. Ms. Landreth is Mr. Parker's step-sister. The Audit Committee
has approved a continuation of this relationship and has pre-approved a purchase
limit for 2004.
The Parker family has been involved in the transportation business for a
number of years and members of Mr. Parker's family have been employed by us
since our inception and are employed on the same terms and conditions as
non-related employees. During 2003, we employed and compensated in excess of
$60,000 in total compensation two individuals who are related to Mr. Parker. The
aggregate total compensation paid to these two individuals in 2003 was $138,446.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT STOCKHOLDERS VOTE "FOR"
THE NOMINEES FOR DIRECTOR PRESENTED IN PROPOSAL 1.
6
EXECUTIVE COMPENSATION
The following table sets forth information concerning the annual and
long-term compensation paid to our chief executive officer and the four other
named executive officers (the "Named Officers"), for services to us in all
capacities for the fiscal years ended December 31, 2003, 2002, and 2001.
Summary Compensation Table
-----------------------------------------------------------------------------------------------------------------------------------
Long Term Compensation
--------------------------------
Annual Compensation Awards Payouts
-------------------------------------------------- --------------------------------
Other Annual Restricted Securities
Name and Principal Compen- Stock Underlying LTIP All Other
Position Year Salary Bonus sation(2) Award(s) Options(#) Payouts Compensation(3)
---------------------------- ------- ----------- ------------ ------------------ ----------- ----------- -------- -----------------
David R. Parker 2003 $530,856 - (4) - 16,891 - $92,674
Chairman, President, and 2002 $525,000 $206,719(1) (4) - 10,000 - $23,007
Chief Executive Officer 2001 $525,000 - - - 10,000 - $5,987
-----------------------------------------------------------------------------------------------------------------------------------
Michael W. Miller 2003 $272,506 - $27,600 - 13,537 - -
Executive Vice President 2002 $248,770 $106,116(1) - - 10,000 - -
and Chief Operating 2001 $245,001 - $27,600 - 10,000 - -
Officer
-----------------------------------------------------------------------------------------------------------------------------------
Joey B. Hogan 2003 $194,647 - - - 12,612 - -
Executive Vice President 2002 $177,693 $78,374(1) - - 10,000 - -
and Chief Financial 2001 $175,000 - - - 10,000 - -
Officer
-----------------------------------------------------------------------------------------------------------------------------------
L. D. "Micky" Miller, III 2003 $169,874 - - - 7,500 - -
Executive Vice 2002 $ 11,631 - - - 15,000 - -
President-Sales and 2001 - - - - - - -
Marketing(5)
-----------------------------------------------------------------------------------------------------------------------------------
R. H. Lovin, Jr. 2003 $141,562 $31,705(6) - - 9,338 - -
Senior Vice President- 2002 $121,385 $55,125(1) - - 7,500 - -
Administration, 2001 $118,000 - $13,200 - 7,500 - -
Secretary
-----------------------------------------------------------------------------------------------------------------------------------
---------------------
(1) The amount reflects cash portion of bonus earned by the Named Officer
during 2002. The cash portion is equal to 75% of the bonus earned
under the Named Officers' compensation program. In accordance with the
program, the remaining 25% was paid through issuance of immediately
exercisable stock options at the rate of an option on 100 shares for
each $1,000 of bonus payment foregone. For 2002, the Named Officers
received options under the compensation program to purchase the
following number of shares of Class A Common Stock at the $17.30 fair
market value on February 20, 2003 (the date of the grant): David
Parker - 6,891; Michael Miller - 3,537; Joey Hogan - 2,612; and R. H.
Lovin, Jr. - 1,838. No bonus was paid in 2001 or 2003.
(2) For all Named Officers other than Michael W. Miller, other annual
compensation did not exceed 10% of such Named Officer's total salary
for 2003. The amount listed for Mr. Michael Miller reflects the amount
of the Company car allowance for him for 2003. For all Named Officers,
other annual compensation did not exceed 10% of such Named Officer's
total salary and bonus for 2002. In 2001, for all Named Officers other
than Michael W. Miller and R. H. Lovin, Jr., other annual compensation
did not exceed 10% of such Named Officer's total salary. The amounts
listed for Messrs. Michael Miller and Lovin reflect the amount of the
Company car allowance for each in 2001.
7
(3) Mr. Parker's other compensation in 2003 and 2002 includes the amount
of compensation he received to make payments on a split-dollar life
insurance policy, and to pay taxes on the amount of the bonus. Under
agreements entered into in December 1992 and December 2001, we are
obligated to provide split-dollar life insurance arrangements for Mr.
Parker. In years prior to 2002, we paid the premiums, were entitled to
receive repayment of the premiums advanced from the death benefit or
cash value, and Mr. Parker was deemed to have compensation equal to a
portion of the premium advanced. In response to the Sarbanes-Oxley Act
of 2002, we began to pay Mr. Parker, as compensation, amounts that Mr.
Parker uses to pay insurance premiums on the split-dollar life
insurance policy. We will not be entitled to receive reimbursement of
these amounts, but will retain the right to receive from the insurance
company an amount equal to the amount that we paid in premiums on the
split-dollar policy prior to 2002. In 2001, Mr. Parker's other
compensation included the reportable portion of premiums paid on
split-dollar life insurance policies.
(4) The amount reported as Mr. Parker's other compensation under the
column "All Other Compensation" includes amounts paid as reimbursement
for the payment of taxes.
(5) Mr. L. D. "Micky" Miller, III was hired in December 2002.
(6) 2003 Bonus to R.H. Lovin, Jr. reflects payment of deferred amounts
from 1998.
8
The following table lists stock options granted to the Named Officers
during the fiscal year ended December 31, 2003. We have not granted any stock
appreciation rights ("SARs").
---------------------------------------------------------------------------------------------------------------------------
Option/SAR Grants in Last Fiscal Year
---------------------------------------------------------------------------------------------------------------------------
Potential realizable
value at assumed annual
rates of stock price
appreciation for option
Individual Grants term
---------------------------------------------------------------------------------------------------------------------------
Number of
securities Percent of total Exercise
underlying options/SARs or base
options/SARs granted to employees price Expiration
Name granted (#) in fiscal year ($/Sh) Date 5%($) 10%($)
---------------------------------------------------------------------------------------------------------------------------
David R. Parker 6,891 9.3% 17.30 02/20/2013 74,973 189,997
10,000 17.63 05/22/2013 110,874 280,977
---------------------------------------------------------------------------------------------------------------------------
Michael W. Miller 3,537 7.5% 17.30 02/20/2013 38,482 97,521
10,000 17.63 05/22/2013 110,874 280,977
---------------------------------------------------------------------------------------------------------------------------
Joey B. Hogan 2,612 6.9% 17.30 02/20/2013 28,418 72,017
10,000 17.63 05/22/2013 110,874 280,977
---------------------------------------------------------------------------------------------------------------------------
L. D. "Micky" 7,500 4.1% 17.63 05/22/2013 83,156 210,733
Miller, III
---------------------------------------------------------------------------------------------------------------------------
R. H. Lovin, Jr. 1,838 5.1% 17.30 02/20/2013 19,997 50,677
7,500 17.63 05/22/2013 83,156 210,733
---------------------------------------------------------------------------------------------------------------------------
The following table demonstrates the options under the Plan that were
exercised during the fiscal year ended December 31, 2003, by the Named Officers.
---------------------------------------------------------------------------------------------------------------------------
Aggregated Option/SAR Exercises in Last Fiscal Year and FY-End Option/SAR Values
---------------------------------------------------------------------------------------------------------------------------
Number of securities underlying Value of unexercised
Shares unexercised options/SARs in-the-money
acquired at fiscal year end options/SARs at fiscal year
on Value (#) end(1)($)
exercise realized --------------------------------- -----------------------------------
Name (#) ($) Exercisable Unexercisable Exercisable Unexercisable
---------------------------------------------------------------------------------------------------------------------------
David R. Parker -0- -0- 306,098 19,999 2,011,037 45,330
---------------------------------------------------------------------------------------------------------------------------
Michael W. Miller 10,000 109,101 125,836 19,999 725,292 45,330
---------------------------------------------------------------------------------------------------------------------------
Joey B. Hogan 5,000 57,740 99,885 19,999 576,182 45,330
---------------------------------------------------------------------------------------------------------------------------
L. D. "Micky" -0- -0- 5,000 17,500 4,300 18,950
Miller, III
---------------------------------------------------------------------------------------------------------------------------
R. H. Lovin, Jr. 16,128 110,790 65,377 15,000 323,782 34,000
---------------------------------------------------------------------------------------------------------------------------
---------------------
(1) Based on the $19.01 closing price of our Class A Common Stock on
December 31, 2003.
We do not have a long-term incentive plan or a defined benefit or actuarial
plan and have never issued any stock appreciation rights.
9
Employment Agreements
We currently do not have any employment, severance, or change-in-control
agreements with any of our executive officers. However, under certain
circumstances in which there is a change of control, holders of outstanding
stock options granted under the Plan may be entitled to exercise such options
notwithstanding that such options may otherwise not have been fully exercisable.
The Board of Directors has the authority to extend similar rights to holders of
additional awards under the Plan.
The Compensation Committee Report on executive compensation, and the performance
graph appearing later in this Proxy Statement shall not be deemed to be
incorporated by reference into any filing made by the Company under the
Securities Act of 1933 or the Exchange Act, 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.
Compensation Committee Report on Executive Compensation
The Compensation Committee of the Board of Directors prepared the following
report on executive compensation.
The approach to determining executive compensation generally consists of
three elements: base salary, annual stock option grants, and an annual bonus.
For 2003, the Chief Executive Officer participated in the same program as the
other executive officers and was evaluated on the same basis as the other
executive officers. The Compensation Committee believes that the annual bonus
program directly links corporate performance to executive compensation. The
Compensation Committee also believes that the annual stock option grants and the
stock-based component of the annual bonus indirectly link executive compensation
to corporate performance to the extent corporate performance is reflected in the
Company's stock price.
The Compensation Committee has reviewed the base salaries of the Company's
executive officers and believes such salaries are generally comparable to those
earned by similarly-situated executives. Under the executive compensation
program, increases in base salaries are intended to slow after executives reach
target salaries identified by the Compensation Committee. The Compensation
Committee may adjust the targets as executives assume additional
responsibilities. Mr. Parker's salary, which was increased to $525,000 in May of
2000, remained the same until May of 2003, when he was given a cost-of-living
adjustment of approximately 2%. In view of financial results for the Company
that were below expectations, the Company's other executives received minimal
raises.
The annual stock option element of the compensation program provides that
each executive will be granted an annual stock option to purchase up to 10,000
shares of the Company's Class A Common Stock at the market price on the date of
the annual meeting under the Company's incentive stock plan. Stock options
granted since July of 2000 vest ratably over three years and expire ten years
from the date of grant. Certain options granted prior to 1998 vest ratably over
five years and expire ten years from the date of grant. The Compensation
Committee believes that a multi-year granting and vesting schedule will
encourage the executives to remain with the Company.
The annual bonus element of the compensation program permits the executives
to earn a percentage of their salary based upon the achievement of individual
and corporate goals for that year. For senior management, 60% to 75% of the
bonus is based upon attaining or exceeding the earnings per share target
established at the beginning of the year. The remainder of the bonus is based
upon achieving certain individual goals that are established at the beginning of
each year. The Board of Directors establishes the goals for the Chief Executive
Officer, and the Chief Executive Officer establishes the goals for the rest of
the executives.
The initial bonus amounts for the executives are adjusted up or down based
upon the Company's ranking among its peer group of companies in the following
performance measures: earnings per share growth, net margin, and return on
average equity. The peer group identified by the Compensation Committee consists
of Swift Transportation, Werner Enterprises, USA Truck, Inc., U.S. Xpress
Enterprises, and Celadon Group, Inc. The annual bonus for senior management is
limited to 75% of the executive's base salary. The Company must achieve its
earnings per share goal for any individual bonus to be paid. There is an
exception for individual goal bonuses to be paid if the Company achieves at
least a threshold percentage of the earnings per share goal and ranks first or
second in its peer group.
The executives currently must accept at least 25% of their annual bonus in
the form of stock-based compensation and may choose to receive up to 100% of the
bonus in the form of stock-based compensation. The Compensation Committee
believes that this bonus program provides incentives to grow earnings per share,
achieve individual goals, and perform at or above the level of peer companies.
For 2003, the Company was ranked tied for third of six by the Compensation
Committee among its peer group in the designated performance measures and each
of the Named Officer executives met at least 75% of his established personal
goals. However, the Company did not achieve the designated percentage of its
earnings per share goal. Accordingly, no bonuses were earned for 2003.
Compensation Committee
William T. Alt
Niel B. Nielson
Mark A. Scudder (Chairman)
10
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT
The following table sets forth, as of March 24, 2004, the number and percentage
of outstanding shares of Common Stock beneficially owned by each person known by
us to beneficially own more than 5% of such stock, by each of our directors and
Named Officers, and by all of our directors and executive officers as a group.
Share numbers and other information for Dimensional Fund Advisors Inc., Royce &
Associates, LLC, Strong Capital Management, Inc., and Barclays Global Investors,
NA; Barclays Global Fund Advisors included in the table and notes below are as
of December 31, 2003, and based solely upon the respective filing for each
referenced in the notes below. According to the Company's transfer agent, the
Company had outstanding 12,327,693 shares of Common Stock as of March 24, 2004.
------------------------------------------------------------------------------------------------------------------------------
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
------------------------------------------------------------------------------------------------------------------------------
Amount & Nature
of Beneficial
Title of Class Name of Beneficial Owner(1) Ownership (2) Percent of Class
------------------------------------------------------------------------------------------------------------------------------
25.17% of Class A
Class A & Class B David R. Parker & 100.0% of Class B
Common Jacqueline F. Parker(3) 5,532,652 36.90% of Total
------------------------------------------------------------------------------------------------------------------------------
1.09% of Class A
Class A Common Michael W. Miller(4) 135,836 0.92% of Total*
------------------------------------------------------------------------------------------------------------------------------
Class A Common Joey B. Hogan(5) 115,186 *
------------------------------------------------------------------------------------------------------------------------------
Class A Common L. D. "Micky" Miller, III(6) 7,500 *
------------------------------------------------------------------------------------------------------------------------------
Class A Common R. H. Lovin, Jr.(7) 72,877 *
------------------------------------------------------------------------------------------------------------------------------
Class A Common William T. Alt(8) 17,500 *
------------------------------------------------------------------------------------------------------------------------------
Class A Common Robert E. Bosworth(9) 31,500 *
------------------------------------------------------------------------------------------------------------------------------
Class A Common Hugh O. Maclellan, Jr.(10) 25,000 *
------------------------------------------------------------------------------------------------------------------------------
Class A Common Mark A. Scudder(11) 22,150 *
------------------------------------------------------------------------------------------------------------------------------
Class A Common Bradley A. Moline(12) 3,500 *
------------------------------------------------------------------------------------------------------------------------------
Class A Common Niel B. Nielson(13) 2,500 *
------------------------------------------------------------------------------------------------------------------------------
7.51% of Class A
Class A Common Dimensional Fund Advisors Inc.(14) 925,913 6.31% of Total
------------------------------------------------------------------------------------------------------------------------------
5.37% of Class A
Class A Common Royce & Associates, LLC(15) 662,000 4.51% of Total
------------------------------------------------------------------------------------------------------------------------------
10.09% of Class A
Class A Common Strong Capital Management, Inc.(16) 1,244,054 8.48% of Total
------------------------------------------------------------------------------------------------------------------------------
Barclays Global Investors, NA; 6.29% of Class A
Class A Common Barclays Global Fund Advisors(17) 775,325 5.28% of Total
------------------------------------------------------------------------------------------------------------------------------
Class A & Class B All directors and executive officers as a group
Common (11 persons) 5,966,201 38.75% of Total
------------------------------------------------------------------------------------------------------------------------------
------------------------
* Less than one percent (1%).
(1) The business address of Mr. and Mrs. Parker is 400 Birmingham Highway,
Chattanooga, TN 37419; the business address of Dimensional Fund Advisors
Inc., a Delaware corporation, is 1299 Ocean Avenue, 11th Floor, Santa
Monica, CA 90401; the business address of Royce & Associates, LLC is 1414
Avenue of the Americas, New York, NY 10019; the business address of Strong
Capital Management is 100 Heritage Reserve, Menomonee Falls, WI 53051; the
business address of Richard S. Strong is c/o Godfrey & Kahn S.C., 780 N.
Water Street, Milwaukee, WI 53202; the business address of Barclays Global
Investors, NA is 45 Fremont Street, San Francisco, CA 94105; the business
address of Barclays Global Fund Advisors is 45 Fremont Street, San
Francisco, CA 94105.
11
(2) In accordance with applicable rules under the Exchange Act, the number of
shares of Class A Common Stock beneficially owned includes the following
shares underlying stock options that are exercisable or will become
exercisable within 60 days following March 24, 2004: Mr. Parker - 316,098;
Mr. Michael Miller - 135,836; Mr. Hogan - 109,885; Mr. L. D. "Micky" Miller
- 7,500; Mr. Lovin - 72,877; Mr. Alt - 17,500; Mr. Bosworth - 17,500; Mr.
Maclellan - 17,500; Mr. Scudder - 17,500; Mr. Moline - 2,500; and Dr.
Nielson - 2,500. The beneficial ownership also includes the following
shares held by the Named Officer in our 401(k) Plan: Mr. Parker - 10,554;
Mr. Michael Miller - 0; Mr. Hogan - 1,901; Mr. L. D. "Micky" Miller - 0;
and Mr. Lovin - 0.
(3) Includes 2,756,000 shares of Class A Common Stock and 2,350,000 shares of
Class B Common Stock owned by Mr. and Mrs. Parker as joint tenants with
rights of survivorship, 100,000 shares of Class A Common Stock owned by the
Parker Family Limited Partnership, of which the Parkers are general
partners, 316,098 shares of Class A Common Stock underlying stock options,
and 10,554 shares held by Mr. Parker in our 401(k) Plan.
(4) Includes 135,836 shares of Class A Common Stock underlying stock options.
(5) Includes 3,400 shares of Class A Common Stock owned by Joey B. Hogan and
Melinda J. Hogan, as joint tenants, 109,885 shares of Class A Common Stock
underlying stock options, and 1,901 shares held by Mr. Hogan in our 401(k)
Plan.
(6) Includes 7,500 shares of Class A Common Stock underlying stock options.
(7) Includes 72,877 shares of Class A Common Stock underlying stock options.
(8) Includes 17,500 shares of Class A Common Stock underlying stock options.
(9) Includes 2,000 shares of Class A Common Stock owned directly, 1,000 shares
of Class A Common Stock held in an individual retirement account, 17,500
shares of Class A Common Stock underlying stock options, and 11,000 shares
of Class A Common Stock held by a charitable foundation for which Mr.
Bosworth serves as director and officer. Mr. Bosworth disclaims beneficial
ownership of all such shares held by the charitable foundation.
(10) Includes 7,500 shares of Class A Common Stock held directly, and 17,500
shares of Class A Common Stock underlying stock options.
(11) Includes 100 shares of Class A Common Stock held directly, 4,350 shares of
Class A Common Stock held in an individual retirement account, 17,500
shares of Class A Common Stock underlying stock options, and 200 shares of
Class A Common Stock held as custodian for a minor child, as to which
beneficial ownership is disclaimed.
(12) Includes 1,000 shares of Class A Common Stock held directly, and 2,500
shares of Class A Common Stock underlying stock options.
(13) Includes 2,500 shares of Class A Common Stock underlying stock options.
(14) As reported on Form 13G/A filed with the SEC February 6, 2004.
(15) As reported on Form 13G filed with the SEC January 30, 2004.
(16) As reported on Form 13G/A filed with the SEC February 17, 2004 by Strong
Capital Management, Inc. ("Strong") and Richard S. Strong. Each of Strong
and Mr. Strong report shared voting and dispositive power over the shares.
(17) As reported on Form 13G filed with the SEC February 17, 2004 by Barclays
Global Investors, NA ("Barclays"), and certain affiliates not a part of any
group. Represents 632,889 shares held by Barclays with sole voting and
dispositive power and 66,820 shares held by Barclays Global Fund Advisors
with sole voting and dispositive power.
12
STOCK PERFORMANCE GRAPH
COMPARISON OF FIVE-YEAR CUMULATIVE TOTAL RETURNS
PERFORMANCE GRAPH FOR COVENANT TRANSPORT, INC.
The following graph compares the cumulative total stockholder return of the
Company's Class A Common Stock with the cumulative total stockholder return of
the Nasdaq Stock Market (U.S. Companies) and the Nasdaq Trucking &
Transportation Stocks commencing December 31, 1998, and ending December 31,
2003.
GRAPH AND LEGEND WERE CENTERED HERE
IN PRINTED FORM
Prepared by CRSP (www.crsp.uchicago.edu), Center for Research in Security
Prices, Graduate School of Business, The University of Chicago. Used with
permission. All rights reserved.
The stock performance graph assumes $100 was invested on December 31, 1998.
There can be no assurance that the Company's stock performance will continue
into the future with the same or similar trends depicted in the graph above. The
Company will not make or endorse any predictions as to future stock performance.
The CRSP Index for Nasdaq Trucking & Transportation Stocks includes all publicly
held truckload motor carriers traded on the Nasdaq Stock Market, as well as all
Nasdaq companies within the Standard Industrial Code Classifications 3700-3799,
4200-4299, 4400-4599, and 4700-4799 US & Foreign. The Company will provide the
names of all companies in such index upon request.
13
SECTION 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Exchange Act requires our officers and directors, and
persons who own more than 10% of a registered class of our equity securities, to
file reports of ownership and changes in ownership with the SEC. Officers,
directors, and greater than 10% stockholders are required by SEC regulation to
furnish us with copies of all Section 16(a) forms they file. Based solely upon a
review of the copies of such forms furnished to us, we believe that our
officers, directors, and greater than 10% beneficial owners complied with all
Section 16(a) filing requirements applicable to them during our preceding fiscal
year. We will make available through our website at www.covenanttransport.com
copies of Section 16(a) forms that our directors and executive officers file
with the SEC.
RELATIONSHIP WITH INDEPENDENT PUBLIC ACCOUNTANTS
The principal independent public accounting firm utilized by the Company
during fiscal 2003 was KPMG LLP, independent accountants ("KPMG"). KPMG has
served as our independent accountants since September, 2001. The Company's
principal public accounting firm for fiscal 2004 has not yet been selected
because the Audit Committee is still in the process of reviewing KPMG's proposal
for 2004 and is not prepared to make a recommendation. Representatives of KPMG
LLP are expected to be present at the Annual Meeting and will have an
opportunity to make a statement, if they desire to do so, and to respond to
appropriate questions.
Principal Accounting Fees and Services
KPMG billed us the following amounts for services provided in the following
categories during the fiscal years ended December 31, 2002 and 2003:
Fiscal 2003 Fiscal 2002
Audit Fees(1) $217,500 $216,400
Audit-Related Fees(2) $25,575 $24,800
Tax Fees(3) $279,522 $304,660
All Other Fees(4) $0 $0
--------- ---------
Total $522,597 $545,860
-----------------------------
(1) Audit Fees represent fees billed for professional services rendered by the
principal independent public accountant for the audit of our annual
financial statements and review of financial statements included in our
quarterly reports on Form 10-Q, or services that are normally provided by
such accountant in connection with statutory or regulatory filings or
engagements for those fiscal years. For fiscal 2003, Audit Fees were
comprised of $143,000 in fees for the audit of our annual financial
statements and review of financial statements included in our quarterly
reports on Form 10-Q, $63,500 in fees for Form S-3 regulatory filings, and
$11,000 in fees for our Securitization. For fiscal 2002, Audit Fees were
comprised of $119,500 in fees for the audit of our annual financial
statements and review of financial statements included in our quarterly
reports on Form 10-Q, $86,900 in fees for regulatory filings and technical
advice for FAS 133, and $10,000 in fees for our Securitization.
(2) Audit-Related Fees represent fees billed for assurance and related services
by the principal independent public accountant that are reasonably related
to the performance of the audit or review of financial statements. For
fiscal 2003 and 2002, Audit-Related Fees were comprised of fees for
employee benefit plans.
(3) Tax Fees represent fees billed for professional services rendered by the
principal independent public accountant for tax compliance, tax advice, and
tax planning. For fiscal 2003, Tax Fees were comprised of $82,000 in fees
for tax compliance and $197,522 in fees for tax planning and advice. For
fiscal 2002, Tax Fees were comprised of $79,000 in fees for tax compliance
and $225,660 in fees for tax planning and advice.
(4) All Other Fees represent fees billed for products and services provided by
the principal independent public accountant, other than Audit Fees,
Audit-Related Fees, and Tax Fees. There were no such fees for fiscal 2003
or fiscal 2002.
Since April 14, 2003, our Audit Committee has maintained a policy pursuant
to which it pre-approves all audit services and permitted non-audit services to
be performed by our independent public accountants in order to assure that the
provision of such services is compatible with maintaining the accountant's
independence. Under this policy, the Audit Committee pre-approves, on an annual
basis, specific types or categories of engagements constituting audit,
audit-related, tax, or other permissible non-audit services to be provided by
the principal independent public accountant. Pre-approval of an engagement for a
specific type or category of services generally is provided for up to one year
and typically is subject to a
14
budget comprised of a range of anticipated fee amounts for the engagement.
Management and the independent public accountant are required to periodically
report to the Audit Committee regarding the extent of services provided by the
principal independent accountant in accordance with the annual pre-approval, and
the fees for the services performed to date. To the extent that management
believes that a new service or the expansion of a current service provided by
the principal independent accountant is necessary or desirable, such new or
expanded services are presented to the Audit Committee for its review and
approval prior to the engagement of the principal independent accountant to
render such services. No audit-related, tax, or other non-audit services were
approved by the Audit Committee pursuant to the de minimus exception to the
pre-approval requirement under Rule 2-01, paragraph (c)(7)(i)(C), of Regulation
S-X during the fiscal year ended December 31, 2003.
STOCKHOLDER PROPOSALS
To be eligible for inclusion in our proxy materials relating to the 2005
Annual Meeting of Stockholders, stockholder proposals intended to be presented
at that meeting must be received by us in writing on or before December 14,
2004. However, if the date of the 2005 Annual Meeting of Stockholders is more
than thirty days before or after May 27, 2005, then the deadline for submitting
any such stockholder proposal for inclusion in the proxy materials relating to
the 2005 Annual Meeting of Stockholders will be a reasonable time before we
begin to print or mail such proxy materials. The inclusion of any such
stockholder proposals in such proxy materials will be subject to the
requirements of the proxy rules adopted under the Exchange Act, including Rule
14a-8.
We must receive in writing any stockholder proposals to be considered at
our 2005 Annual Meeting of Stockholders, but not included in our proxy materials
relating to that meeting, by February 25, 2005. However, if the date of the 2005
Annual Meeting of Stockholders is more than thirty days before or after May 27,
2005, then the deadline for submitting any such stockholder proposal will be a
reasonable time before we mail the proxy materials relating to such meeting.
Under Rule 14(a)-4(c)(1) of the Exchange Act, the proxy holders designated by an
executed proxy in the form accompanying our 2005 proxy statement will have
discretionary authority to vote on any stockholder proposal that is not received
on or prior to the deadline described above.
Written copies of all stockholder proposals should be sent to our principal
executive offices at 400 Birmingham Highway, Chattanooga, Tennessee 37419 to the
attention of Joey B. Hogan, our Executive Vice President, Chief Financial
Officer, and Assistant Secretary.
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.
Covenant Transport, Inc.
/s/ David R. Parker
David R. Parker
Chairman of the Board
April 19, 2004
15
Appendix A
THIRD AMENDED AND RESTATED CHARTER OF THE AUDIT COMMITTEE
OF
THE BOARD OF DIRECTORS
OF
COVENANT TRANSPORT, INC.
April 6, 2004
Recitals.
On February 8, 1999, the Securities and Exchange Commission's Blue Ribbon
Committee on Improving the Effectiveness of Corporate Audit Committees (the
"Blue Ribbon Committee") issued a report containing recommendations for
improving the effectiveness of corporate audit committees. The Blue Ribbon
Committee directed its recommendations to the Securities and Exchange Commission
(the "Commission"), the New York Stock Exchange (the "NYSE"), the American Stock
Exchange (the "AMEX"), the National Association of Securities Dealers (the
"NASD"), and the Auditing Standards Board (the "ASB") (collectively, the "Market
Authorities"). In response to its recommendations, the Market Authorities
adopted rules pertaining to corporate audit committees. In 2002, the United
States Congress passed the Sarbanes-Oxley Act, which Act created additional
requirements for audit committees of publicly traded companies and directed the
Market Authorities to amend and supplement their rules with respect to such
committees. The United States Congress, the Market Authorities, and any other
regulatory bodies that from time to time may adopt rules pertaining to audit
committees are hereinafter referred to as the "Regulatory Authorities."
The Board of Directors (the "Board") of Covenant Transport, Inc., a Nevada
corporation (the "Company"), in response to actions taken by the Regulatory
Authorities, amended its First Amended and Restated Charter of the Audit
Committee in May 2000 and its Second Amended and Restated Charter of the Audit
Committee in April 2003. In light of additional guidance provided by the
Regulatory Authorities, the Company now adopts this Third Amended and Restated
Charter of the Audit Committee (the "Charter"). The Charter describes the duties
and responsibilities of the Company's audit committee (the "Audit Committee")
and grants the Audit Committee the authority necessary to perform its oversight
responsibility.
Charter.
1. Purposes of Audit Committee. The purposes of the Audit Committee are to
(a) oversee the accounting and financial reporting processes of the Company and
the audits of the Company's financial statements, and (b) in connection
therewith, assist the Board in fulfilling its responsibility to ensure the
fairness and accuracy of the Company's financial statements and to ensure the
existence of appropriate internal financial controls, and the independence of
the independent public accountants engaged to audit the Company's financial
statements (the "external auditors"), and to render the reports required of the
Audit Committee, and to allow the Company to make the disclosures required by
related Commission regulations.
2. Qualifications of Audit Committee. The Audit Committee shall consist of
not less than three members, each of whom shall (a) meet independence
requirements of the rules and regulation of the Nasdaq National Market listing
standards and any other applicable laws, rules, and regulations governing
independence of the Regulatory Authorities unless an exemption from the
requirement to meet such definition applies under the rules and regulations of
Regulatory Authorities; (b) qualify as a "non-employee director" as defined in
Section 16 of the Securities and Exchange Act of 1934; (c) not have participated
in the preparation of the financial statements of the Company or any current
subsidiary of the Company at any time during the past three years; (d) be able
to read and understand fundamental financial statements, including the Company's
balance sheet, income statement, and cash flow statement; (e) demonstrate all
other qualifications required by law or any Regulatory Authority, and (f) be
free of any relationship that, in the Board's discretion, would interfere with
the member's independent judgment. At least one member of the Audit Committee
shall in the judgment of the Board be an audit committee "financial expert" in
accordance with the rules and regulations of the Regulatory Authorities.
3. Duties and Authority of the Audit Committee. Subject to the second
sentence of Paragraph 10, the Audit Committee will perform the following duties
in the manner and priority the Audit Committee determines, in its discretion, to
be appropriate under the circumstances:
16
(a) Review the Company's earnings statements with management and with
the Company's external auditors prior to the release of such statements to the
public;
(b) Assure that the Company's interim financial statements are
reviewed by the Company's external auditors, as required by Commission rules,
prior to the filing of such interim financial statements with the Commission as
part of the Company's report on Form 10-Q;
(c) Review and discuss the Company's audited financial statements with
management, and recommend to the Board whether the audited financial statements
should be included in the Company's Form 10-K;
(d) Review and discuss the Company's audited financial statements with
the Company's external auditors and shall review those matters required to be
discussed by Statement of Auditing Standards No. 61, as modified or supplemented
from time to time;
(e) Receive the written disclosures and the letter from the Company's
external auditors required by the Independent Standards Board's Standard No. 1,
as modified or supplemented, discuss with the external auditors their
independence, and, as required by Commission rules, pre-approve all audit
services and permitted non-audit services to be performed by the external
auditor and establish policies and procedures for the engagement of the
independent external auditor to provide permitted non-audit services;
(f) Review annually the scope of the external auditors' work,
including any non-auditing or consulting services;
(g) Review with the Company's external auditors all adjustments made
to the Company's audited financial statements, including a reconciliation of any
adjustments made in the audited financial statements from the Company's
quarterly interim financial statements;
(h) Review with management and the Company's external auditors any
significant financial reporting issues or judgments called for in connection
with the preparation of the Company's financial statements, including the
adequacy and appropriateness of any reserves, policies relating to the
recognition of revenue, the quality and appropriateness of the Company's
accounting principles, and any other matters which, in its judgment, or the
judgment of the Company's external auditors, could have a material impact on the
Company's financial statements;
(i) Meet with the Company's external auditors and with management to
review and assess any material financial risk exposure to the Company and the
steps management has or plans to take to monitor and control financial risk;
(j) Review with the Company's external auditors and management the
adequacy of the Company's internal financial controls and reporting systems;
(k) Confer with the Company's external auditors about any audit
requirements as specified in the Securities and Exchange Act of 1934 that may
have come to the attention of the external auditors;
(1) Review any major changes to the Company's auditing and accounting
policies and practices suggested by the Company's external auditors or by
management. (In undertaking the duties specified herein, in communications with
the Company's external auditors, the Audit Committee will, in accordance with
Statement of Auditing Standards No. 61, communicate with the external auditors
with respect to (1) methods used to account for significant or unusual
transactions; (2) the effect of significant accounting policies in controversial
or emerging areas for which there is a lack of authoritative guidance or
consensus; (3) the process used by management in formulating particularly
sensitive accounting estimates, and the basis for the auditors' conclusions
regarding the reasonableness of those estimates; and (4) disagreements with
management, if any, over the application of accounting principles, the basis for
management's accounting estimates, and the disclosures in the Company's
financial statements);
(m) Take responsibility for the appointment, compensation, retention,
and oversight of the Company's external auditors, review the proposed scope and
plan of the annual audit, and recommend their selection and engagement;
17
(n) Review the external auditors' management letter and consider any
comments made by the external auditors with respect to improvements in the
internal accounting controls of the Company, consider any corrective action
recommended by the external auditors, and review any corrective action taken by
management;
(o) Review and devote attention to any areas in which management and
the Company's external auditors disagree and determine the reasons for such
disagreement;
(p) Review the performance of the external auditors and take direct
responsibility for hiring and, if appropriate, replacing any external auditor
failing to perform satisfactorily;
(q) Review the performance of the Company's Chief Financial Officer
and Controller;
(r) Review any difficulties any external auditor may have encountered
with respect to performance of an audit, including, without limitation, any
restrictions placed upon the scope of the audit on access to information, or any
changes in the proposed scope of the audit;
(s) Provide, as part of the Company's proxy filed pursuant to
Commission regulations, the report required by Commission regulations relating
to proxies and cause a copy of that report to be included annually in the
Company's proxy solicitation materials;
(t) Establish procedures for the receipt, retention, and treatment of
complaints received by the Company regarding accounting, internal accounting
controls, or auditing matters;
(u) Establish in accordance with law and the rules and regulations of
Regulatory Authorities procedures for the confidential, anonymous submission by
employees of the Company of concerns regarding questionable accounting or
auditing matters;
(v) Obtain the advice and assistance, as appropriate, of independent
counsel and other advisors as necessary to fulfill the responsibilities of the
Audit Committee;
(w) Establish policies for the hiring of employees and former
employees of the independent external auditor;
(x) Review and approve in advance all transactions between the Company
and its executive officers and directors;
(y) Review and approve in advance all non-audit related work performed
on behalf of the Company by the external auditor; and
(z) Periodically review the adequacy of this Charter and make
recommendations to the Board with respect to any changes in this Charter.
4. Access to Information. In order to perform its obligations, the Audit
Committee shall have unrestricted access to all relevant internal and external
Company information and to any officer, director, or employee of the Company.
5. Employee Access to Audit Committee. Any person employed by the Company
and any of the Company's independent contractors will have access to the Audit
Committee, pursuant to procedures adopted by the Audit Committee, to report any
matter which such person believes would be of interest to the Audit Committee or
of general concern to the Audit Committee or the Board. Contacting a member of
the Audit Committee to report any irregularity, questionable activity, or other
matter will not subject the person making the report to discipline.
6. Frequency of Meetings.
(a) The Audit Committee shall meet at such times as may be necessary
and shall meet each quarter prior to the release of the Company's earnings
statements to review the earnings release. It also is anticipated that the Audit
Committee
18
meetings will held in conjunction with selected Board meetings. Special meetings
of the Audit Committee may be called by any member of the Audit Committee, any
member of the Board, the Chief Financial Officer, or the Chief Executive
Officer.
(b) The Audit Committee, at least once a year, will meet privately
with the Company's external and, if applicable, internal auditors, and no
representative of the Company's management shall attend such meetings.
7. Access to Legal Counsel and Advisors. The Audit Committee shall have
full and free access to the Company's outside legal counsel, and if requested,
to engage its own independent legal counsel and other advisors. The Company will
pay for the cost of any such legal counsel and advisors.
8. Meeting Procedures.
(a) Members of the Audit Committee shall endeavor to attend all
meetings of the Audit Committee. The Audit Committee is governed by the same
rules regarding meetings (including meetings by telephone conference), action
without meetings, notice, waiver of notice, and quorum and voting requirements
as are applicable to the Board and is authorized to adopt its own rules of
procedure not inconsistent with any provision of this Charter, any provision of
the Company's Bylaws, or the laws of the state of Nevada.
(b) Written minutes will be maintained for each meeting of the Audit
Committee.
9. Other Duties. The Audit Committee will perform such other duties as the
Board may assign to it or as may be imposed by law or by rule or regulation of
Regulatory Authorities.
10. Limitation of Audit Committee Duties. The Audit Committee is not an
investigative committee of the Board and shall have no investigative duties
unless expressly assigned to the Audit Committee by the Board or pursuant to the
Company's Code of Conduct and Ethics and Reporting Procedures for Accounting
Matters. The Audit Committee will exercise its business judgment in performing
its duties under this Charter, including the duties outlined in Paragraph 3, and
may emphasize and prioritize those duties and responsibilities set forth above
which the Committee, in its discretion and judgment, believes are the most
important, given the particular circumstances. It is not the duty of the Audit
Committee to undertake the audit of the Company itself, to plan the audit, or to
undertake any of the responsibilities of the Company's internal or external
auditors. The Audit Committee is not required to follow the procedures required
of auditors in performing reviews of interim financial statements or audited
financial statements. In performing its functions, the Audit Committee may rely
upon information provided to it by management, by the Company's internal and
external auditors, or by legal counsel. This Charter imposes no duties on the
Audit Committee or its members that are greater than those duties imposed by law
upon a director of a Nevada corporation under Section 78.138 of the Nevada
General Corporation Law. If any claim is asserted against the Audit Committee,
any of its members or the Company by a stockholder or any other person, nothing
in this Charter shall be construed to limit or restrict any defense or
indemnification available to the Audit Committee, any of its members, or the
Company.
* * * * * * *
Adopted by the Board of Directors of Covenant Transport, Inc. on April 6, 2004.
19
PROXY
COVENANT TRANSPORT, INC.
PROXY FOR ANNUAL MEETING OF STOCKHOLDERS MAY 27, 2004
Solicited on Behalf of the Board of Directors of the Company
The undersigned holder(s) of Class A and/or Class B Common Stock
(individually or together referred to as "Common Stock") of Covenant Transport,
Inc., a Nevada corporation (the "Company"), hereby appoint(s) David R. Parker,
Michael W. Miller, and Joey B. Hogan, and each or any of them, attorneys and
proxies of the undersigned, with power of substitution, to vote all of the
Common Stock which the undersigned is (are) entitled to vote at the Annual
Meeting of Stockholders of the Company to be held at the Company's Corporate
Headquarters at 400 Birmingham Highway, Chattanooga, Tennessee, on Thursday, May
27, 2004, at 10:00 a.m., Eastern Time, and at any adjournment thereof, as
follows:
1. Election of Directors
[ ] FOR all nominees listed below [ ] WITHHOLD AUTHORITY to
(except as marked to the contrary below) vote for all nominees listed below
INSTRUCTION: To withhold authority to vote for any individual nominee, strike a line through the nominee's name below.
David R. Parker Robert E. Bosworth Bradley A. Moline William T. Alt
Hugh O. Maclellan,Jr. Mark A. Scudder Niel B. Nielson
2. In their discretion, the attorneys and proxies are authorized to vote upon such other matters as may properly come before
the meeting or any adjournment thereof.
[ ] GRANT AUTHORITY to vote [ ] WITHHOLD AUTHORITY to vote
(Continued and to be signed on reverse side)
20
(Continued from other side)
A vote FOR Proposal 1 and granting the proxies discretionary authority is recommended by the Board of Directors of the Company.
When properly executed, this proxy will be voted in the manner directed by the undersigned stockholder(s). If no direction is given,
this proxy will be voted FOR Proposal 1, and, at the discretion of the proxy holder, upon such other matters as may properly come
before the meeting or any adjournment thereof. Proxies marked "Abstain" and broker non-votes are counted only for purposes of
determining whether a quorum is present at the meeting.
The undersigned acknowledges receipt of the Notice and Proxy Statement for the 2004 Annual Meeting of Stockholders and the
Annual Report to Stockholders for the year ended December 31, 2003.
Date ______________________________, 2004
_________________________________________________________
_________________________________________________________
Signature(s)
Stockholders should date this proxy and sign here exactly
as name appears at left. If proxy is held jointly, both
owners should sign this proxy. Executors, administrators,
trustees, guardians, and others signing in a representative
capacity should indicate the capacity in which they sign.
21