SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the
Securities Exchange Act of 1934
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[ ] Definitive Additional Materials by Rule 14a-6(e)(2))
[ ] Soliciting Material Pursuant to
Rule 14a-11(c) or Rule 14a-12
KNIGHT TRANSPORTATION, INC.
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paid previously. Identify the previous filing by registration statement
number, or the form or schedule and the date of its filing.
1) Amount previously paid:
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NOTICE AND PROXY STATEMENT
FOR
MAY 8, 2002
ANNUAL MEETING OF SHAREHOLDERS
OF
KNIGHT TRANSPORTATION, INC.
APRIL 5, 2002
NOTICE AND PROXY STATEMENT
FOR
MAY 8, 2002
ANNUAL MEETING OF SHAREHOLDERS
OF
KNIGHT TRANSPORTATION, INC.
TO OUR SHAREHOLDERS:
You are cordially invited to attend the 2002 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 8, 2002, at The Wigwam Resort Hotel, 300
East Wigwam Boulevard, Litchfield Park, Arizona 85340. The purpose of the Annual
Meeting is to:
1. Elect three (3) Class I Directors, each director to serve a term of
three years;
2. Approve an amendment to the Articles of Incorporation, extending the
present super-majority provision in the Company's Articles of
Incorporation for three years;
3. Approve an amendment to the Company's Stock Option Plan (the "Plan")
adding 300,000 shares of the Company's common stock to the Plan for
the issuance of stock options; and
4. Transact such other business as may come before the Annual Meeting.
The Board of Directors has fixed the close of business on March 21, 2002,
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 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 2001 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 5, 2002
KNIGHT TRANSPORTATION, INC.
PROXY STATEMENT
TABLE OF CONTENTS
Page
----
PROXY STATEMENT................................................................1
RIGHT TO ATTEND ANNUAL MEETING; REVOCATION OF PROXY...........................1
COSTS OF SOLICITATION.........................................................1
VOTING SECURITIES OUTSTANDING.................................................1
ANNUAL REPORT.................................................................2
REQUIRED MAJORITY, CUMULATIVE VOTING..........................................2
HOW TO READ THIS PROXY STATEMENT..............................................2
PROPOSALS FOR SHAREHOLDER CONSIDERATION........................................3
ITEM NO. 1. ELECTION OF DIRECTORS............................................3
INFORMATION CONCERNING DIRECTORS AND NOMINEES.................................3
BIOGRAPHICAL INFORMATION CONCERNING DIRECTORS AND EXECUTIVE OFFICERS
OF THE COMPANY................................................................4
ITEM NO. 2. PROPOSAL TO AMEND ARTICLES OF INCORPORATION.......................6
ITEM NO. 3. APPROVAL OF ADDITIONAL SHARES FOR THE STOCK OPTION PLAN...........6
SELECTION OF INDEPENDENT PUBLIC ACCOUNTANTS...................................7
CORPORATE GOVERNANCE -- MEETINGS AND COMPENSATION OF THE BOARD OF DIRECTORS
AND ITS COMMITTEES.............................................................8
COMMITTEES OF THE BOARD OF DIRECTORS.........................................10
EXECUTIVE COMMITTEE..........................................................10
AUDIT COMMITTEE AND AUDIT COMMITTEE REPORT...................................10
REPORT OF THE AUDIT COMMITTEE OF KNIGHT TRANSPORTATION, INC..................10
COMPENSATION COMMITTEE.......................................................12
OTHER COMMITTEES.............................................................12
COMPLIANCE WITH SECTION 16(A) OF THE SECURITIES EXCHANGE ACT OF 1934.........12
EXECUTIVE COMPENSATION........................................................13
SUMMARY COMPENSATION TABLE...................................................13
LONG TERM INCENTIVE PLAN.....................................................14
EMPLOYMENT AGREEMENTS........................................................15
STOCK OPTION PLAN............................................................15
401(K) PLAN..................................................................15
COMPENSATION COMMITTEE, COMPENSATION COMMITTEE INTERLOCKS, REPORT ON
EXECUTIVE COMPENSATION.......................................................16
STOCK PERFORMANCE GRAPH......................................................18
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS................................19
COMPANY'S PURCHASE AND LEASE OF PROPERTIES...................................19
CONCENTREK INVESTMENT........................................................19
KNIGHT FLIGHT................................................................20
TRANSACTIONS WITH AFFILIATES.................................................20
CERTAIN BUSINESS RELATIONSHIPS...............................................20
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT................21
SHAREHOLDER PROPOSALS.........................................................23
OTHER MATTERS.................................................................23
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 8, 2002.
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 FOR the Director Nominees named below, and FOR the Amendment to our
Articles of Incorporation extending the present super-majority provision
required to approve a merger or consolidation or the sale of substantially all
of the Company's assets and FOR the addition of 300,000 shares of our common
stock par value $0.01 per share (the "Common Stock"), for issuance under our
Stock Option Plan. We also expect to ratify the selection of our independent
public accountants for 2002 at the Annual Meeting. At the time of the mailing of
this Proxy Statement, our Board of Directors had not selected the Company's
independent accountants for 2002. SEE "Selection of Independent Accountants,"
below.
The Proxy Statement, proxy card, and our Annual Report was first mailed on
or about April 5, 2002, to shareholders of record at the close of business on
March 21, 2002 (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 21, 2002, there were approximately 36,932,128 shares of our
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
1
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.
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 2001 Annual Report to Shareholders that was mailed
on or about April 5, 2002, 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 I 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 8, 2002. 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 2002 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.
Class I 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 I DIRECTORS
(THREE-YEAR TERM)
Donald A. Bliss
Timothy M. Kohl
Mark Scudder
Each nominee to the Board of Directors has consented to serve. Messrs.
Randy Knight, Kevin P. Knight, Gary J. Knight, and Keith T. Knight, who
collectively have voting power over approximately 36% 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.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE FOR THE ELECTION OF
THE BOARD OF 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) 69 Director
Timothy M. Kohl 54 Chief Financial Officer, Secretary, Director
Gary J. Knight(2)(4) 50 President, Director
Keith T. Knight(2) 47 Executive Vice President, Director
Kevin P. Knight (2)(4) 45 Chairman of the Board, Chief Executive
Officer, Director
Randy Knight(2) 53 Director
G.D. Madden (1) (3) 62 Director
Matt Salmon(1) 44 Director
Mark Scudder (3)(4) 39 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.
BIOGRAPHICAL INFORMATION CONCERNING DIRECTORS AND
EXECUTIVE OFFICERS OF THE COMPANY
DONALD A. BLISS was elected to our Board of Directors in 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, when he was selected by the Board to replace
Mr. Clark Jenkins, who had resigned from the Company to take another position.
Mr. Kohl served as Vice President of Human Resources for us 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 since 1989 and he resigned as an officer and Vice Chairman of the
Board of Directors on July 31, 1999. 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.
4
Prior to founding Madden Partners, he was President and Chief Executive Officer
of Innovative Computing Corporation, a subsidiary of Westinghouse Electric
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. Prior to joining APCO, 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. Mr. Salmon is currently a candidate for the
office of Governor of the State of Arizona.
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.
5
ITEM NO. 2. PROPOSAL TO AMEND ARTICLES OF INCORPORATION
Article XI of our Restated Articles of Incorporation ("Articles of
Incorporation") requires the approval by a sixty-seven percent (67%) majority
vote of our shareholders entitled to vote in order to effect the sale of all or
substantially all of our assets, any share exchange, plan of merger or
consolidation pursuant to which our outstanding Common Stock is converted into
cash or other consideration. This provision expires on December 31, 2002. The
proposed amendment to our Articles of Incorporation would extend this provision
until December 31, 2005, and require the approval of sixty seven percent (67%)
of our issued and outstanding shares to approve any offer to purchase
substantially all of our assets or any share exchange, plan of merger or
consolidation, or other transaction pursuant to which our outstanding common
stock is exchanged, acquired or converted into cash or other consideration. The
amendment does not require shareholder approval for us to acquire the stock or
assets of another entity by merger, share exchange or otherwise through the
issuance of our stock or payment of cash. This provision would expire December
31, 2005. If the proposed amendment is adopted, Messrs. Kevin P. Knight, Gary J.
Knight, Keith T. Knight and Randy Knight, collectively, owners of approximately
36% of our outstanding Common Stock, would have the ability to prevent any
change of control of the Company. A copy of the amendment language is set forth
in Exhibit 1 to this Proxy Statement.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT SHAREHOLDERS APPROVE
THIS AMENDMENT TO THE ARTICLES OF INCORPORATION.
ITEM NO. 3. PROPOSAL TO APPROVE THE AUTHORIZATION OF ADDITIONAL SHARES TO
BE RESERVED FOR ISSUANCE UNDER THE STOCK OPTION PLAN
We currently maintain a Stock Option Plan (the "Plan") to enable our
officers, directors and certain key and critical line employees, including
drivers and other employees, to participate in the ownership of the Company. The
Plan 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 Plan is administered by the Compensation Committee of our
Board of Directors (the "Compensation Committee"). The Plan allows the
Compensation Committee to grant incentive stock options ("ISOs") and
nonqualified stock options ("NSOs") to our employees as a form of incentive
compensation.
All stock grants made under the Plan are evidenced by a written agreement
between the Company and the participant. Stock options issued under the Plan are
at the fair market value of a share of Common Stock on the date of grant, except
for automatic options issued to directors upon their election to the Board,
which may be issued at 85% of fair market value as of the date of grant. 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 Plan will
expire on August 31, 2004. We have reserved the right to terminate, suspend,
discontinue, modify or amend the 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 Company stock 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 Compensation Committee. Notwithstanding this limitation, we will not
terminate the Plan with regard to any outstanding stock grant unless notice of
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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.
At the Annual Meeting, shareholders will be asked to approve the addition
of 300,000 more shares of our Common Stock to be available for stock grants made
under the Plan. These additional shares will be subject to the same terms and
conditions under the Plan as the current shares available for issuance under the
Plan.
The Plan was established in 1994 and 650,000 shares of Common Stock were
reserved for issuance thereunder. The Plan was amended and restated in 1998 to
increase the number of shares reserved for issuance to 1,000,000. Due to stock
splits, as of March 21, 2002, a total of 3,375,000 shares of our Common Stock
are currently available for stock grants, after giving effect to the Company's
three for two stock splits on December 28, 2001, June 1, 2001, and May 28, 1998.
Of these 3,375,000 shares, 2,819,281 shares are subject to issued and
outstanding option grants and 555,719 shares are available for new stock grants
as of March 21, 2002.
To assure the Plan's continuation and the continued availability of stock
options for employees and officers, in March 2002, our Board of Directors
authorized an additional 300,000 shares of Common Stock to be available for
stock grants made under the Plan, subject to approval of our shareholders. The
Board of Directors believes that our stock option program is an appropriate
vehicle for recognition of employee performance and providing incentives to
employees for continued performance and that the Plan has been effective in
aligning the interests of our employees with our shareholders. If the amendment
to the Stock Option Plan is approved by shareholders, ownership of our issued
and outstanding Common Stock would increase by as much as nine percent (9%), if
all issued and outstanding options are exercised and all shares of Common Stock
reserved for the issuance of stock options are in fact issued as stock options.
A copy of the amendment language is set forth in Exhibit 2 to this Proxy
Statement.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT SHAREHOLDERS APPROVE THE
ADDITION OF SHARES OF OUR COMMON STOCK TO THE PLAN.
SELECTION OF INDEPENDENT PUBLIC ACCOUNTANTS
Arthur Andersen LLP, independent public accountants ("Arthur Andersen"),
has served as our principal accounting firm during the year ended December 31,
2001. Arthur Andersen has served as our independent public accountant since
1994. A representative of Arthur Andersen 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.
The Board of Directors customarily asks that shareholders ratify and
approve the Board's selection of our independent public accountants. At the
mailing of this Proxy Statement, our Board of Directors, in order to evaluate
the cost of audit services, elected to solicit from the largest public
accounting firms requests for proposals to serve as our independent public
accountants and had not selected the Company's independent public accountants
for the current fiscal year. Our Board of Directors will review and consider the
proposals made by independent public accountants and will select the independent
public accounting firm for this year. The Board of Directors anticipates that it
will select one of the "Big Five" accounting firms to serve as our independent
public accountants for the fiscal year ended December 31, 2002; namely Arthur
Andersen, Deloitte & Touche, Ernst & Young LLP, KPMG LLP, or Pricewaterhouse
Coopers. The Board may ask that shareholders ratify its selection. We have no
disagreements with our current independent public accountant, Arthur Andersen,
and have been satisfied with all services rendered by Arthur Andersen to us to
date.
7
FISCAL YEAR 2001 AUDIT FEE SUMMARY
During fiscal year 2001, Arthur Andersen provided services in the following
categories to us and was paid the following amounts:
Audit Fees $110,295
Financial Information System Design and Implementation $ 0
Other
Other Audit Related Fees $ 63,000
All Other $ 12,776
The non-audit fees we paid Arthur Andersen related to our public stock
offering made in November 2001, pursuant to a registration statement filed with
the Securities and Exchange Commission.
The Audit Committee has considered whether the provisions of non-audit
services by Arthur Andersen, as our principal auditor for the fiscal year ending
December 31, 2001, 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, 2001, our Board of Directors met on six occasions,
including twice by telephonic meeting. Each of the directors attended 75% or
more of the meetings of the Board of Directors and the meetings held by all of
the committees of the Board on which he served.
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. Independent Directors appointed to the
Board of Directors also receive an automatic grant of a non-qualified stock
option ("NSO") 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. The exercise price
of a 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 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 at original exercise prices of $13.18, $20.19, $22.87 and $11.75,
respectively.
Members of the Board of Directors also have the option to accept shares of
our Common Stock in lieu of director's 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.
8
Mr. Randy Knight, who is one of our directors, also serves as a consultant
to us and receives $50,000 per year for his consulting services. The consulting
agreement with Mr. Knight is terminable at the election of either party.
COMMITTEES OF THE BOARD OF DIRECTORS
The Board of Directors has established three (3) committees, which are
authorized to act on behalf of the Board in their respective spheres: the
Executive Committee, the Audit Committee and the Compensation Committee. 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 Knight, Gary Knight, Don Bliss, and Mark Scudder. The
Executive Committee met once in 2001.
AUDIT COMMITTEE AND AUDIT COMMITTEE REPORT
The Audit Committee for 2001 was composed of Donald A. Bliss, G.D. Madden
and Matt Salmon. Mr. Bliss served as Chairman of the Audit Committee. The Audit
Committee met five times during 2001. Since 1994, the Audit Committee, has
operated pursuant to a written charter detailing its duties. The Audit
Committee's Charter is set forth in Exhibit 3, below. All of the members of the
Audit Committee are independent directors, as defined in the NASDAQ Stock
Market's Listing Rule 4200. 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 ON 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.
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.
For the fiscal year ending December 31, 2001, Donald Bliss, G.D.
Madden and Matt Salmon comprised the Audit Committee. Donald Bliss
acted as the Chairman. The Audit Committee meets periodically with
9
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.
The directors who serve on the Audit Committee are all
"independent" for purposes of the NASDAQ Stock Market listing
standards. That is, none of the members has 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. A copy of the Audit Committee's
charter may be found in Exhibit 3 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 auditing
standards and issuing a report thereon. In performing its duties, the
Audit Committee has discussed the Company's financial statements with
management and with 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 Company's independent
auditors.
Management of the Company has primary responsibility for the
Company's financial statements and the overall reporting process,
including maintenance of the Company's system of internal controls.
The 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
operation 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, 2001, the Audit
Committee:
(1) Reviewed and discussed the audited financial statements with
management of the Company;
(2) Discussed with Arthur Andersen 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) Reviewed and discussed the written disclosures and the letter
from the Company's independent auditors the matters relating to the
auditor's independence from the Company.
(4) Reviewed other matters with management and with the Company's
independent auditors that came to the attention of the Audit
Committee.
10
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, 2001, filed with the Securities and Exchange
Commission.
Donald Bliss, Chairman February 6, 2002
G.D. Madden, Member February 6, 2002
Matt Salmon, Member February 6, 2002
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 full Board of Directors. The Compensation
Committee also reviews and approves stock options granted by the Company. The
Compensation Committee met formally once in 2001 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.
OTHER COMMITTEES
We do not maintain a standing nominating committee or other committee
performing a similar function.
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. During the 2001 fiscal year, certain of
our officers were late in filing Section 16(a) forms with the SEC. In June 2001,
Keith Knight, Randy Knight, Gary Knight and Bruce Beck, Jr. failed to timely
file Section 16(a) forms as a result of the late receipt of information
concerning their respective transactions. Matt Salmon failed to timely file his
Form 3 as a result of an administrative oversight that caused a delay in the
issuance of paperwork for his automatic stock option grant upon his election to
our Board in May 2001. Mike Breton and Cory Webster were not timely in filing
Section 16(a) forms in November 2001 due to a delay in receiving information.
All reports have since been filed. 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 2001 fiscal year, all other
Section 16(a) filing requirements applicable to our directors, executive
officers and greater than 10% beneficial owners were complied with.
11
EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE
The table which follows sets forth information concerning compensation for
the fiscal years ended December 31, 2001, 2000, and 1999 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 $100,000 for the fiscal year ended December 31, 2001
(the "Named Executive Officers").
ANNUAL COMPENSATION LONG-TERM COMPENSATION
-------------------------------------------------------------------- -------------------------------------------------------
AWARDS PAYOUTS
--------------------- -------------------------------
RESTRICTED
NAME AND OTHER ANNUAL STOCK OPTIONS/ LTIP ALL OTHER
PRINCIPAL POSITION YEAR SALARY($) BONUS($) COMPENSATION($) AWARD(S)($) SARS(#) PAYOUTS($) COMPENSATION($)(1)
------------------ ---- --------- -------- --------------- ----------- ------- ---------- ------------------
Kevin P. Knight, 2001 265,000 0 0 0 0 0 1,725
Chairman, Chief 2000 260,000 0 0 0 0 0 2,220
Executive Officer 1999 250,000 0 0 0 0 0 2,220
Gary J. Knight, 2001 265,000 0 0 0 0 0 2,840
President 2000 260,000 0 0 0 0 0 2,840
1999 250,000 0 0 0 0 0 2,840
Keith T. Knight, 2001 265,000 0 0 0 0 0 1,865
Executive Vice 2000 250,000 0 0 0 0 0 2,460
President 1999 250,000 0 0 0 0 0 2,460
Timothy M. Kohl 2001 136,067 20,000 0 0 22,500 0 1,130
Chief Financial 2000 132,000 15,000 0 0 31,500 0 625
Officer, Secretary 1999 n/a
Cory Webster, Vice 2001 135,000 15,000 0 0 6,000 0 625
President 2000 120,000 15,000 0 0 9,000 0 625
1999 120,000 30,000 0 0 6,750 0 625
The following table sets forth stock options granted to Named Executive
Officers in 2001:
NUMBER OF PERCENT OF
SECURITIES TOTAL OPTIONS
UNDERLYING GRANTED TO EXERCISE OR
NAMED OPTIONS EMPLOYEES IN BASE PRICE EXPIRATION
OFFICER(1) GRANTED (#) 2001 ($/SH) DATE 5% ($) 10% ($)
---------- ----------- ---- ------ ---- ------ -------
Timothy M. Kohl 22,500 3.4 $11.00 9/17/11 196,178 217,305
Cory Webster 6,000 .93 $11.00 9/17/11 52,314 57,948
(1) In 2001, 2000 and 1999, 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 $1,000,000 policy for Mr. Kohl, during 2001, which will
be reimbursed to the Company upon termination or payment of the policy.
12
Except as set forth above, no stock appreciation rights (SARs) or other
options were granted during the 2001 fiscal year to any of the Named Executive
Officers.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND OPTION VALUES AS OF DECEMBER 31, 20011
The following table sets forth the information with respect to the exercise
of stock options during the fiscal year ended December 31, 2001.
NUMBER OF UNEXERCISED VALUE OF UNEXERCISED
SHARES OPTIONS AT FISCAL YEAR END IN-THE-MONEY OPTIONS AT
ACQUIRED ON VALUE 12/31/01(#)(2,3) 2001 FISCAL YEAR END ($)(2,3,4)
NAME EXERCISE(#) REALIZED($) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- ----------- ----------- ----------- ------------- ----------- -------------
Timothy M. Kohl 10,936 $178,380 6,750 64,125 $ 76,891 $648,333
Cory Webster 9,800 166,735 87,116 18,375 1,270,512 261,286
----------
(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 2001.
(2) Any option exercisable within 60 days of December 31, 2001, 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 $18.78 of our Common Stock on December 31,
2001.
13
LONG TERM INCENTIVE PLAN
Other than our Stock Option Plan in which none of our Named Executive
Officers, other than Mr. Timothy M. Kohl and Cory Webster, participate, we do
not have a long-term incentive plan and we have not issued any stock
appreciation rights.
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 (the "Plan"
or the "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. The Plan was amended and
restated during 1998 to authorize the grant of options for an additional 350,000
shares of Common Stock under the Plan, for a total of 1,500,000 shares of Common
Stock, after giving effect to our 1998 stock dividend. The Plan is designed to
attract and retain directors, executive officers, our key employees and critical
line employees, and to provide long-term incentives to those persons. In
authorizing stock grants under the 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 March 21, 2002, we had granted options to
employees and directors to purchase 2,819,281 shares of our Common Stock;
555,719 shares of Common Stock were reserved for the issuance of future stock
options and grants. SEE "Item No. 3, Proposed to Approve the Authorization of
Additional Shares to be Reserved for Issuance Under the Stock Option Plan,"
above, for additional information about the Stock Option 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 2001, our contribution was $625 per
participant. The 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, 2001, 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.
14
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.
We do not maintain a defined benefit plan.
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 2001 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 that links 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, without regard
to compensation. 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 M. Kohl, Chief
Financial Officer and Secretary, and Cory Webster, Vice President,
each of whom 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
15
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, which will reward executives, as long as the
Company continues to perform well. The Committee believes that the
Stock Option Plan is an effective tool for accomplishing this
objective.
In reviewing base salaries of senior management for 2001 and
salary compensation for 2001-2002, including the salary of Mr. Kevin
P. Knight, the Company's Chief Executive Officer, the Compensation
Committee reviewed and considered (i) compensation information
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.
COMPENSATION COMMITTEE
Mark Scudder, Chairman
G. D. Madden, Member
February 6, 2002
(Intentionally Left Blank)
16
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, 1997 to December 31, 2001. The
graph assumes that $100 of our Common Stock was purchased on December 31, 1997,
at a price of $8.22 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 12/31/1997 12/31/1998 12/31/1999 12/31/2000 12/31/2001
----------------- ---------- ---------- ---------- ---------- ----------
Knight Transportation, Inc. 100.00 144.26 92.57 104.05 228.45
NASDAQ Stock Market 100.00 140.91 254.57 474.16 374.33
NASDAQ Trucking &
Transportation Stocks
Index (the "peer" group) 100.00 90.36 86.12 78.28 99.62
17
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, 2001, 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 $81,000 to, or on behalf of, Total Warehousing
and Randy Knight for the year ended December 31, 2001. 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
$5,300 to Total Warehousing for these services for the year ended December 31,
2001.
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 $90,000 during 2001 for key employees' life insurance
premiums. The total premiums paid are included in "other assets" in the
consolidated balance sheet attached to our Form 10-K. 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.
CONCENTREK INVESTMENT
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. 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. Through a limited liability company, we have lent $824,500 to Concentrek
18
to fund start-up costs and are committed to loan an additional $110,500 under
this promissory note. The loan is evidenced by a promissory note that is
convertible after five years, at our option, into Concentrek's Class A Preferred
Stock and is secured by a first lien on Concentrek's assets. In October 2001, we
agreed to lend directly to Concentrek an additional $1.4 million on a secured
basis to provide additional working capital. This note is secured by a first
lien on Concentrek's assets. Our loans to Concentrek have priority over the
loans made by the Knights described below.
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 lent to Concentrek the sum
of $4,565,000. This loan is evidenced by a promissory note convertible into
Concentrek Class B Preferred Stock to fund Concentrek's start-up costs. Our
investment has been structured to limit our exposure to Concentrek start-up
losses and business risk.
KNIGHT FLIGHT
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 $8,942,700. We invested $1,717,700 in
Knight Flight in order to assure access to charter air travel for the Company's
employees. 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 to contribute
any capital required to meet any cash short falls. 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.
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.
CERTAIN BUSINESS RELATIONSHIPS
During 2001, we retained Scudder Law Firm to perform certain legal services
on our behalf. We paid Scudder Law Firm approximately $64,500 for services
during 2001. 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 2002.
19
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth, as of February 28, 2002, 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) 13,070 *
Gary J. Knight(4) 3,535,209 9.57%
Keith T. Knight(5) 3,306,148 8.95%
Kevin P. Knight(6) 3,291,365 8.91%
Randy Knight(7) 2,849,633 7.71%
G.D. Madden(8) 11,503 *
Matt Salmon(9) 5,625 *
Mark Scudder(10) 2,887 *
Wasatch Advisors, Inc.(11) 2,561,045 6.93%
FMR Corp.(12) 1,994,075 5.39%
All directors and executive officers as a group (nine persons) 13,029,643 35.28%
* 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 14, 2002. The address of FMR Corp. ("FMR") is 82
Devonshire Street, Boston, Massachusetts 02109. All information provided
with respect to FMR is based solely upon the Company's review of a Schedule
13G filed by FMR with the Securities and Exchange Commission on February
14, 2002.
(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 6,750 shares that Timothy M. Kohl has the right to acquire through
exercise of stock options and 6,320 shares owned outright.
(4) Includes 3,350,146 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.
20
(5) Includes 3,301,085 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, 31,050
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
6,188 shares owned by a minor child who shares the same household.
(7) Includes 2,165,408 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 2,561,045 shares and sole
dispositive power over 2,561,045 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 14, 2002.
(12) FMR Corp. is the beneficial owner of 1,994,075 shares and Edward C.
Johnson, III, Chairman of FMR Corp., has the sole power to direct the
voting of the shares owned directly by FMR. Mr. Johnson has shared voting
power and shared disposition power over no shares. FMR Corp. is the owner
of record and discloses beneficial ownership of such shares. The foregoing
is based solely on information provided by Form 13G, filed by FMR Corp.
with the Securities and Exchange Commission on February 14, 2002.
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SHAREHOLDER PROPOSALS
The Board of Directors will consider proposals from shareholders for
nominations of directors to be elected at the 2003 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 2003 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 2003 Annual Meeting must be received by the Company by December 6, 2002, 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
PROPOSED AMENDMENT TO THE
ARTICLES OF INCORPORATION OF KNIGHT TRANSPORTATION, INC.
Until December 31, 2005, the consent of those persons who hold sixty-seven
percent (67%) of the Corporation's issued and outstanding shares, voting as a
single class, shall be required to approve any offer to purchase substantially
all of the Corporation's assets or any share exchange, plan of merger or
consolidation, or other transaction, pursuant to which the outstanding common
stock of the Corporation is exchanged, acquired or converted into cash or other
consideration, given or issued by another person that is not controlled by the
Corporation; provided that nothing in this Article XI shall require that the
Corporation obtain shareholder approval to acquire, directly or indirectly, the
stock or assets of another entity, by merger, share exchange or otherwise,
through the issuance of the Corporation's common or preferred stock, the payment
of cash, or otherwise. For purposes of this Article, a person is controlled by
the Corporation only if the Corporation owns more than fifty percent (50%) of
the combined voting power of all classes of stock of such person, if such person
is a corporation or, if the person is not a corporation, the Corporation holds
more than fifty percent (50%) of the beneficial interest, capital, profits, or
voting rights of such person.
EXHIBIT 2
PROPOSED AMENDMENT TO
THE AMENDED AND RESTATED
KNIGHT TRANSPORTATION, INC. STOCK OPTION PLAN
2.1 Shares Reserved for Stock Grants. There are reserved and available for
the Stock Grants pursuant to all Divisions of this Plan 3,675,000 shares of the
Company's authorized but unissued Stock, including all shares subject to all
options previously issued under the Plan prior to May 8, 2002. The number of
shares reserved and available hereunder takes into account all adjustments made
to the total number of shares available for Stock Grants pursuant to the stock
dividend adjustments authorized by Section 2.2 from the adoption of this Plan
through May 8, 2002. Of this amount, 25,000 shares of Stock have been reserved
for Stock Grants made under the Independent Directors Plan. The balance of the
Shares are reserved for Stock Grants that have been made or may be awarded under
any other Division 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 3,675,000 shares of Stock, except as described in
Section 2.2, below. As of May 8, 2002, stock grants for 2,827,781 shares of
Stock have been issued under all divisions of the Plan.
EXHIBIT 3
KNIGHT TRANSPORTATION, INC.
AUDIT COMMITTEE CHARTER
AMENDED AND RESTATED
CHARTER OF THE AUDIT COMMITTEE
OF
THE BOARD OF DIRECTORS
OF
KNIGHT TRANSPORTATION, INC.
MAY 10, 2000
AMENDED AND RESTATED
CHARTER OF THE AUDIT COMMITTEE
OF
THE BOARD OF DIRECTORS
OF
KNIGHT TRANSPORTATION, INC.
MAY 10, 2000
TABLE OF CONTENTS
Page
----
1. Purpose of Audit Committee.................................................1
2. Qualifications of Audit Committee..........................................1
3. Duties of the Audit Committee..............................................2
4. Access to Information......................................................4
5. Employee Access to Audit Committee.........................................4
6. Frequency of Meetings......................................................4
7. Access to Legal Counsel....................................................4
8. Meeting Procedures.........................................................4
9. Other Duties...............................................................5
10. Limitation of Audit Committee Duties.......................................5
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.
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") in order to comply
with the applicable provisions of the NASDAQ Release and the SEC Release.
Accordingly, the Charter is hereby amended and restated, in its entirety, as
follows, effective as of May 10, 2000, 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 and to ensure the existence of appropriate internal financial
controls, and the independence of the independent public accounting firm engaged
to audit the Company's financial statements (the "external auditors"), and 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(e)(3) of Schedule 14(A) and related Commission regulations.
2. QUALIFICATIONS OF AUDIT COMMITTEE. The Audit Committee shall consist of
not less than two (and not later than June 14, 2001, three directors) nor more
than five directors, each of whom qualifies as an "independent director" under
Rule 4200 of the NASDAQ Stock Market, Inc.'s listing requirements, unless
exceptional circumstances 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 fundamental financial statements, including the Company's balance
sheet, income statement, and cash flow statement. Additionally, at least one
member of the Audit Committee shall, in the judgment of the Board, have
experience in finance or accounting, requisite professional certification in
accounting, or any other comparable experience or background in evaluating
financial statements, which may include past experience as a chief executive
officer, chief financial officer or other senior officer with financial
oversight responsibilities.
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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;
(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
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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, in communications with
the Company's external auditors, 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;
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(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
Regulation S-K, and cause a copy of that report to be included annually in the
Company's proxy solicitation materials; and
(u) 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. 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 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.
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(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.
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. If any claim is asserted against
the Audit Committee, any of its members or the Company by shareholder or any
other person, nothing in this Charter shall be construed to limit or restrict
any defense available to the Audit Committee, any of its members, or to the
Company.
DATED: May 10, 2000
/s/ Don Bliss
-------------------------------------
Don Bliss, Chairman and Member
Audit Committee
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