-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, EqmGKM4sR51UWJcPEj9Z9PFkY59oIHKh79f4s+VpjKA7KFyHyCbrwemaOuc0duD0 j68EwbTDEfYlGpDsPzyA7A== 0000039273-02-000008.txt : 20020416 0000039273-02-000008.hdr.sgml : 20020416 ACCESSION NUMBER: 0000039273-02-000008 CONFORMED SUBMISSION TYPE: DEF 14A PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 20011231 FILED AS OF DATE: 20020410 FILER: COMPANY DATA: COMPANY CONFORMED NAME: FROZEN FOOD EXPRESS INDUSTRIES INC CENTRAL INDEX KEY: 0000039273 STANDARD INDUSTRIAL CLASSIFICATION: TRUCKING (NO LOCAL) [4213] IRS NUMBER: 751301831 STATE OF INCORPORATION: TX FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: DEF 14A SEC ACT: 1934 Act SEC FILE NUMBER: 001-10006 FILM NUMBER: 02607027 BUSINESS ADDRESS: STREET 1: 1145 EMPIRE CENTRAL PLACE CITY: DALLAS STATE: TX ZIP: 75247 BUSINESS PHONE: 2146308090 DEF 14A 1 prxy02.txt PROXY STATEMENT FROZEN FOOD EXPRESS INDUSTRIES, INC. NOTICE OF ANNUAL MEETING OF SHAREHOLDERS To Be Held May 8, 2002 TO THE SHAREHOLDERS OF FROZEN FOOD EXPRESS INDUSTRIES, INC.: Notice is hereby given that the Annual Meeting of Shareholders (the "Annual Meeting") of Frozen Food Express Industries, Inc. (the "Company"), a Texas corporation, will be held on Wednesday, May 8, 2002, at 3:30 p.m., Dallas, Texas time, at the offices of Strasburger & Price, LLP, 901 Main Street, 43rd Floor, Dallas, Texas 75201 for the following purposes: 1. To elect two Class I directors for a three-year term, and until their respective successors are elected and qualified; 2. Considering and voting upon the approval of the Frozen Food Express Industries, Inc. 2002 Incentive and Nonstatutory Option Plan; and 3. Transacting such other business as may properly be brought before the Annual Meeting or any adjournment thereof. You are encouraged to attend the Annual Meeting in person. Whether or not you plan to attend the Annual Meeting, please complete, date, sign and return the accompanying proxy at your earliest convenience. A reply envelope is provided for this purpose, which needs no postage if mailed in the United States. Your immediate attention is requested in order to save your Company additional solicitation expense. Information regarding the matters to be acted upon at the Annual Meeting is contained in the Proxy Statement attached to this Notice. Only shareholders of record at the close of business on March 14, 2002 are entitled to notice of and to vote at such meeting or any adjournment thereof. By Order of the Board of Directors /s/ Leonard W. Bartholomew Dallas, Texas LEONARD W. BARTHOLOMEW April 12, 2002 Secretary FROZEN FOOD EXPRESS INDUSTRIES, INC. 1145 Empire Central Place P. O. Box 655888 Dallas, Texas 75265-5888 Telephone: (214) 630-8090 PROXY STATEMENT FOR ANNUAL MEETING OF SHAREHOLDERS TO BE HELD MAY 8, 2002 SOLICITATION OF PROXIES - ----------------------- The accompanying proxy is solicited by the management of Frozen Food Express Industries, Inc. (the "Company") for use at the Annual Meeting of Shareholders to be held at offices of Strasburger & Price, LLP, 901 Main Street, 43rd Floor, Dallas, Texas, on the 8th day of May, 2002 (the "Annual Meeting"), and at any adjournment thereof, for the purposes set forth in the accompanying Notice of Annual Meeting of Shareholders. This Proxy Statement and accompanying proxy are being mailed or delivered to shareholders on or about April 12, 2002. Solicitations of proxies may be made by personal interview, mail, telephone, facsimile, electronic mail or telegram by directors, officers and regular employees of the Company. The Company may also request banking institutions, brokerage firms, custodians, trustees, nominees and fiduciaries to forward solicitation material to the beneficial owners of the Company's $1.50 par value Common Stock (the "Common Stock") held of record by such persons and may reimburse such forwarding expenses. All costs of preparing, printing, assembling and mailing the form of proxy and the material used in the solicitation thereof and all clerical and other expenses of solicitation will be borne by the Company. ANNUAL REPORT - ------------- The Company's Annual Report to Shareholders, covering the fiscal year ended December 31, 2001, including audited financial statements, is also being mailed to the shareholders entitled to notice of and vote at the Annual Meeting in the envelope containing this Proxy Statement. The Annual Report does not form any part of the material for solicitation of proxies. SIGNATURES OF PROXIES IN CERTAIN CASES - -------------------------------------- If a shareholder is a corporation, the accompanying proxy should be signed in its full corporate name by the President or another authorized officer, who should indicate his title. If a shareholder is a partnership, the proxy should be signed in the partnership name by an authorized person. If stock is registered in the name of two or more trustees or other persons, the proxy should be signed by each of them. If stock is registered in the name of a decedent, the proxy should be signed by an executor or an administrator. The executor or administrator should attach to the proxy appropriate instruments showing his or her qualification and authority. Proxies signed by a person as agent, attorney, administrator, executor, guardian or trustee should indicate such person's full title following his or her signature. REVOCATION OF PROXY - ------------------- All shares represented by a valid proxy will be voted. A proxy may be revoked at any time before it is voted by the giving of written notice to that effect to the Secretary of the Company, by executing and delivering a later- dated proxy or by attending the Annual Meeting and voting in person. QUORUM AND VOTING - ----------------- The presence, in person or by proxy, of the holders of a majority of the outstanding shares of Common Stock entitled to vote is necessary to constitute a quorum at the Annual Meeting. Abstentions and broker non-votes will be counted in determining the presence of a quorum. A "broker non-vote" occurs when a nominee holding shares for a beneficial owner has voted on certain matters at the Annual Meeting pursuant to discretionary authority or instructions from the beneficial owner but may not have received instructions or exercised discretionary voting power with respect to other matters. Each shareholder will be entitled to one vote, in person or by proxy, for each share of such stock owned of record at the close of business on March 14, 2002. A shareholder may, by checking the appropriate box on the proxy: (i) vote for both director nominees as a group; (ii) withhold authority to vote for both director nominees as a group; or (iii) vote for either director nominees as an individual. Cumulative voting for directors is not permitted. OUTSTANDING CAPITAL STOCK; PRINCIPAL SHAREHOLDERS - ------------------------------------------------- At the close of business on the 14th day of March, 2002, the record date for determination of shareholders entitled to notice of, and to vote at, the Annual Meeting, there were outstanding and entitled to be voted 16,624,936 shares of Common Stock. The following table sets forth certain information, as of March 14, 2002, with respect to each person known to the management of the Company to be a beneficial owner of more than five percent of the outstanding Common Stock. Amount and Nature of Percent Name and Address Of Beneficial Owner Beneficial Ownership <1> of Class - ------------------------------------ ------------------------ -------- Frozen Food Express Industries, Inc 401(k) Savings Plan 4,320,099 25.99% The Charles Schwab Trust Company 425 Market Street, 7th Floor San Francisco, CA 94105 Royce & Associates, Inc. 1,482,292 <2> 8.92% 1414 Avenue of the Americas New York, NY 10019 Sarah M. Daniel <3> 1,449,560 8.72% 612 Linda El Paso, TX 79922 Stoney M. Stubbs, Jr. <4> 1,465,698 <5> 8.70% 158 Jellico Circle Southlake, TX 76092 Dimensional Fund Advisors, Inc. 1,326,586 <6> 7.98% 1299 Ocean Avenue, 11th Floor Santa Monica, CA 90401 Lucile B. Fielder <3> 1,326,102 7.98% 104 South Commerce St. Lockhart, TX 78644 ________________________________ <1> Except as otherwise noted, each beneficial owner has sole voting and investment power with respect to all shares owned by him or her, and all shares are directly held by the person named. <2> Information concerning the number of shares owned by Royce & Associates, Inc. is as of December 31, 2001 and was obtained from a Schedule 13G dated February 8, 2002. <3> Ms. Daniel has sole voting and dispositive power over 66,597 shares, of which 5,280 shares are held as custodian for her daughter, and joint voting and dispositive power with her husband over 59,631 shares, and shared voting and dispositive power with Ms. Fielder over 1,323,332 shares owned by Weller Investment, Ltd. Ms. Fielder has sole voting and dispositive power over 2,770 shares, of which 730 shares are held as custodian for her daughter, and shared voting and dispositive power with Ms. Daniel over 1,323,332 shares owned by Weller Investment Ltd. <4> Mr. Stubbs holds, and has held for the past twenty-two years, the offices of Chairman of the Board, President and Chief Executive Officer of the Company and FFE. Mr. Stubbs is the nephew of Edgar O. Weller, a director of the Company. <5> Includes 227,326 shares which Mr. Stubbs has the right to acquire pursuant to options exercisable within 60 days, 202,217 shares allocated to his account in the Frozen Food Express Industries, Inc. 401(k) Savings Plan, 17,709 shares allocated to his account in the FFE Transportation Services, Inc. 401(k) Wrap Plan, and 769,387 shares held in family partnerships controlled by Mr. Stubbs. <6> Information concerning the number of shares owned by Dimensional Fund Advisors, Inc. is as of December 31, 2001 and was obtained from a Schedule 13G dated January 30, 2002. ACTION TO BE TAKEN UNDER THE PROXY - ---------------------------------- Properly executed and returned proxies will be voted, unless otherwise specified thereon, (i) FOR the election of the two nominees named in the following table as Class I directors of the Company, (ii) unless otherwise specified thereon, FOR the approval of the Frozen Food Express Industries, Inc. 2002 Incentive and Nonstatutory Stock Option Plan, and (iii) in the transaction of such other business as may properly come before the Annual Meeting or any adjournment thereof in accordance with the judgment of the proxies. The management of the Company does not know of any such other matter or business. If any nominee is unable or be unwilling to accept nomination, the persons acting under the proxy will vote for the election, in his stead, of such other person as the management of the Company may recommend. The management of the Company has no reason to believe that any of the nominees will be unable or unwilling to serve if elected to office. To be elected, each director must receive the affirmative vote of the holders of a plurality of the issued and outstanding shares of Common Stock represented in person or by proxy at the Annual Meeting. Abstentions and broker non-votes will have no effect in the election of directors. NOMINEES FOR DIRECTORS - ---------------------- The Company's Board of Directors currently consists of eight members and is divided into three classes. Each year, the directors in one of the three classes are elected to serve a three-year term. At the 2002 Annual Meeting, two directors, comprising Class I, will be nominated for election to serve until the year 2005 Annual Meeting of Shareholders or until their successors are elected and qualified. Class II and Class III directors will not be elected this year. The amended By-Laws provide that the Board of Directors shall consist of nine directors including three Class I directors. Presently, there are eight directors. Management is attempting to identify qualified candidates to stand for election at the 2003 annual meeting. Accordingly, management has nominated two persons to be elected as Class I directors at this annual meeting. The table below presents information regarding the names, occupation, term as a director of the Company and beneficial ownership of the Company's common stock for both of the Class I director nominees for election at this meeting and the Class II and Class III directors presently serving on the Board of Directors. Each director has served continuously since the date he first became a director. Principal Class, Occupation Amount and During Past First Term Nature of Percent Five Years Became a Expiration Beneficial of Name and (Age) & Directorships Director Date Ownership<1> Class - -------------- --------------- ------- ---- ------------ ----- Nominees For Election - --------------------- Edgar O. Weller (84) Vice Chairman 1969 2005 I 548,560<2> 3.30% of the Board of the Company Leroy Hallman (86) Attorney, 1975 2005 I 28,525<3> * Retired Continuing Directors - -------------------- Brian R. Blackmarr (60) CEO, 1990 2003 II 33,125<4> * Fusion Laboratories, Inc. since January 2001, President, eBus Link, Inc. from August 1999 until January 2001, and previously President B.R. Blackmarr & Associates Inc. W. Mike Baggett (55) Chairman, 1999 2003 II 8,723<5> * President and CEO Winstead Sechrest & Minick, P.C. F. Dixon McElwee, Senior Vice 1999 2003 II 37,980<7> * Jr. (55) <6> President of the Company and FFE since September 1998 and, prior thereto, Executive Vice President and Chief Financial Officer for Cameron-Ashley Building Products Stoney M. (Mit) Chairman 1977 2004 III 1,465,698<8> 8.70% Stubbs, Jr. (65) of the Board, President and Chief Executive Officer of the Company Charles G. Executive 1982 2004 III 575,807<9> 3.43% Robertson (60) <6> Vice President of the Company T. Michael Chief 1992 2004 III 13,125<10> * O'Connor (47) Executive Officer, Ecosource, Inc., Managing Partner T. J. O'Connor Cattle Co. __________________________________________ --------- ----- All directors and executive officers, as a group (8 people) 2,711,543<11>15.88% ========= ===== * less than 1% <1> Except as otherwise noted, all shares are held directly, and the owner has sole voting and investment power. <2> Includes 3,750 shares issuable pursuant to options to options exercisable by Mr. Weller within 60 days. <3> Includes 7,500 shares issuable pursuant to options exercisable by Mr. Hallman within 60 days and 7,475 shares held by a trust of which Mr. Hallman is the Trustee. <4> Includes 13,125 shares issuable pursuant to options exercisable by Mr. Blackmarr within 60 days. <5> Includes 8,573 shares issuable pursuant to options exercisable by Mr. Baggett within 60 days. <6> Mr. Robertson is also Executive Vice President and a director of FFE. Mr. McElwee is also Senior Vice President and a director of FFE. <7> Includes 24,225 shares issuable pursuant to options exercisable by Mr. McElwee within 60 days, 5,059 shares allocated to Mr. McElwee's account in the Frozen Food Express Industries, Inc. 401(k) Savings Plan and 8,696 shares allocated to his account in the FFE Transportation Services, Inc. 401(k) Wrap Plan. <8> Includes 227,326 shares issuable pursuant to options exercisable by Mr. Stubbs within 60 days, 202,217 shares allocated to his account in the Frozen Food Express Industries, Inc. 401(k) Savings Plan, 17,709 shares allocated to his account in the FFE Transportation Services, Inc. 401(k) Wrap Plan, and 769,387 shares held in family partnerships controlled by Mr. Stubbs. <9> Includes 157,034 shares issuable pursuant to options exercisable by Mr. Robertson within 60 days, 133,184 shares allocated to his account in the Frozen Food Express Industries, Inc. 401(k) Savings Plan, 15,738 shares allocated to his account in the FFE Transportation Services, Inc. 401(k) Wrap Plan, and 192,236 shares held by a family partnership controlled by Mr. Robertson. <10> Represents 13,125 shares issuable pursuant to options exercisable by Mr. O'Connor within 60 days. <11> Includes 454,658 shares issuable pursuant to options exercisable within 60 days, 340,460 shares allocated to the accounts of executive officers pursuant to the Frozen Food Express Industries, Inc. 401(k) Savings Plan, 42,143 shares allocated to the accounts of executive officers pursuant to the FFE Transportation Services, Inc, 401(k) Wrap Plan and 961,623 shares held by family partnerships controlled by directors and executive officers, and 7,475 shares held by a trust of which a Director is Trustee. The Board of Directors held a total of five regularly scheduled and special meetings in 2001. Each incumbent Director, with the exception of Mr. Hallman and Mr. O'Connor who attended 71% and 57%, respectively, attended at least 75% of the total of all meetings of the Board of Directors held during the period for which he was a Director and all meetings of the committees during the periods he served on such committees. The Compensation Committee consists of Messrs. Blackmarr, Chairman, and Baggett and did not meet during 2001. It is charged with recommending compensation arrangements for the directors and executive officers of the Company and recommending compensation programs for FFE. Stock options are long- term incentive compensation and accordingly must be approved by this committee prior to the grant of an option. Prior to April 3, 2002, the Audit Committee consists of Messrs. Hallman, Chairman, Weller and O'Connor. On April 3, 2002, the Board of Directors elected W. Mike Baggett to replace Edgar O. Weller on the Audit Committee. During 2001, the Committee held two meeting at which it reviewed with representatives of Arthur Andersen LLP the results of its 2000 annual audit, plans for the 2001 annual audit and other services provided by the Independent Public Accountants. DIRECTOR COMPENSATION - --------------------- Directors who are not employees of the Company receive $1,000 for each meeting attended, $500 for each telephonic meeting attended and $500 for each committee meeting attended that is not on the same day as a Board meeting. The 1995 Non-Employee Director Stock Option Plan (the "Director Plan") is intended to advance the interests of the Company and its shareholders by attracting and retaining experienced and able independent Directors. Upon a non-employee director's initial appointment or election to the Board, he or she is granted an option to purchase 9,375 shares of Common Stock. Upon reelection such Directors are granted an option to purchase 1,875 shares of Common Stock. Each such director was granted an option to purchase 1,875 shares with an exercise price of $1.50 per share on April 26, 2001. Exercise prices are the greater of $1.50 or fifty percent (50%) of the fair market value of the Common Stock at the close of business on the day prior to the date of grant. The exercise price may be paid in cash, check or shares of the Company's Common Stock. No option may be granted pursuant to the Director Plan after March 3, 2005. Grants are subject to adjustments to reflect certain changes in capitalization. If a non-employee director has served for one or more years prior to the grant of an option, the option is immediately exercisable for one-seventh of the number of shares subject to the option for each full year such non-employee director has served. On each anniversary thereafter, one-seventh of the number of shares subject to the option become exercisable. Options expire if not exercised before the tenth anniversary of grant. Upon death options become fully exercisable and may be exercised by the beneficiary under the option holder's will or the executor of such option holder's estate at any time prior to the second anniversary of his or her death. If an option holder ceases to be a director for any other reason, the vested options may be exercised at any time prior to the second anniversary of the date he or she ceases to be a director. In no event, however, shall the period during which options may be exercised extend beyond the tenth anniversary of an option's grant. No shares from the options may be sold by a director until the expiration of six months after the date of grant. FIVE-YEAR SHAREHOLDER RETURN COMPARISON - --------------------------------------- The following table compares the cumulative total shareholder return on the Company's Common Stock for the last five years to the S&P 500 Index and the Media General Industry Group Index #774 - Trucking Companies, consisting of the Company and 31 other trucking companies (assuming the investment of $100 in the Company's Common Stock, the S&P 500 Index and the Media General Index on December 31, 1997, and reinvestment of all dividends). 1997 1998 1999 2000 2001 ---- ---- ---- ---- ---- Frozen Food Express Industries, Inc. $100 $ 88 $ 43 $ 22 $ 24 MG Industry Group Index 100 94 90 95 118 S&P 500 Index 100 127 151 136 118 EXECUTIVE COMPENSATION - ---------------------- Summary Compensation Table: Set forth below is information with respect to the compensation paid by the Company for services rendered during 2001, 2000, and 1999, to each executive officer (collectively, the "Executive Officers"): Long-Term Compensation Awards ---------------------- Securities Underlying Name and Annual Options/ All Other Principal Compensation Stock Total Awards SARs # Compensation Position Year Salary Bonus <1> $<2> <3> <4> - -------- ---- ------ ----- ----- ------ ----- ------------ Stoney M. Stubbs, Jr. 2001 $317,613 - $317,613 $25,531 - $19,736 Chairman of 2000 $317,613 - $317,613 $22,636 222,299 $20,265 the Board 1999 $317,613 - $317,613 $18,713 3,500 $20,819 President and Chief Executive Officer of the Company and FFE Charles G. Robertson 2001 $247,595 - $247,595 $17,980 - $10,618 Executive 2000 $247,595 - $247,595 $21,854 154,489 $11,310 Vice 1999 $247,595 - $247,595 $19,225 3,500 $12,018 President and Executive Officer of the Company and FFE F. Dixon McElwee, Jr. 2001 $184,263 - $184,263 $13,478 - - Senior Vice 2000 $209,043 - $209,043 $11,921 24,225 - President 1999 $184,263 - $184,263 $ 188 3,500 $ 3,753 of the Company and FFE <1> Personal benefits provided to each of the named individuals under various Company programs do not exceed the disclosure thresholds established under SEC rules and are not included in this total. <2> Includes restricted phantom stock units awarded pursuant to the FFE Transportation Services, Inc. 2000 Executive Bonus and Phantom Stock Plan (the "Executive Plan") or in accordance with the Company's Supplemental Executive Retirement Plan (the "SERP") or common stock issued to a trust for benefit of participants in the FFE Transportation Services, Inc. 401(k) Wrap Plan (the "Wrap Plan"). Phantom stock units generally will be adjusted to prevent dilution in the event of any cash and non-cash dividends, recapitalizations and similar transactions affecting the Common Stock. An officer may elect to cash out any number of the phantom stock units between December 1 and December 15 of any year. In that event an amount equal to product of the greater of (i) the Fair Market Value of a share of Common Stock as of the last business day of the calendar year in which such election is made and (ii) the average of the Fair Market Values of a share of Common Stock as of the last business day of each calendar month of the calendar year in which such election is made multiplied by the number of units that the officer elected to cash out shall be paid to the officer. In the event of certain mergers, the sale of all or substantially all of the Company's assets and certain similar transactions (a "Reorganization") within six months after the date an officer has been paid for units and as a result of such Reorganization the holders of Common Stock receive cash for each share so held in an amount in excess of the amount paid to such officer for such units, then such excess shall be paid to the officer. The following table sets forth the total number of phantom stock unit and common stock issued to a trust awarded under the Executive Plan, the SERP and the Wrap Plan for 2001, 2000 and 1999, to each executive officer of the Company: 2001 2000 1999 ---- ---- ---- Mr. Stubbs 11,930 11,497 4,829 Mr. Robertson 8,402 11,100 4,961 Mr. McElwee 5,282 6,055 48 During 2000, a "grantor" trust was established in connection with the Wrap Plan to hold Company assets to satisfy obligations under the Plan. As of December 31, 2001, the total number of phantom stock units allocated to the accounts of Messrs. Stubbs, Robertson, and McElwee was 108,964; 73,965 and 11,337, respectively. The total value of such accounts, based upon the market price of a share of Common Stock on December 31, 2001 was $233,183; $158,284 and $24,261, respectively, for Messrs. Stubbs, Robertson, and McElwee. <3> Options to acquire shares of the Company's Common Stock. <4> Company contributions to the Frozen Food Express Industries, Inc. 401(k) Savings Plan (the "Savings Plan") and the value of benefits, as determined under a methodology required by the United States Securities and Exchange Commission ("SEC"), ascribed to life insurance policies whose premiums are paid by the Company for the benefit of the persons in the amounts indicated below: Split Dollar Name Year Savings Plan Life Insurance ---- ---- ------------ -------------- Mr. Stubbs 2001 - $19,736 2000 - $20,265 1999 - $20,819 Mr. Robertson 2001 - $10,618 2000 - $11,310 1999 - $12,018 Mr. McElwee 2001 - - 2000 - - 1999 $3,753 - Aggregated Option/SAR Exercises in Last Fiscal Year & Year-End Option/SAR Values - -------------------------------------------------------------------------------- The following table provides information, with respect to each Executive Officer, concerning the exercise of options during the last fiscal year and unexercised options held as of the end of the fiscal year ending December 31, 2001: Securities Value of Underlying Unexercised Unexercised In-the-Money Options/SARs Options/SARs at Fiscal at Fiscal Shares Yearend Yearend Acquired Value (#) Exercisable/ ($)Exercisable/ On Exercise Realized Unexercisable Unexercisable Name (#) <1> <2> <3> - -------------- ----------- -------- -------------- ------------- Mr. Stubbs - $ - 227,326 / - $ - /$ - Mr. Robertson - $ - 157,034 / - $ - /$ - Mr. McElwee - $ - 24,225 / - $ - /$ - <1> Calculated on the basis of the difference between the closing price for the Company's Common Stock on the date of exercise and the option exercise price multiplied by the number of shares of Common Stock underlying the option exercised. <2> On February 13, 2002, Messrs. Stubbs, Robertson and McElwee were granted an option to purchase 214,027, 147,164 and 22,500 shares of common stock, respectively. These options have been excluded from the above summary. <3> The closing price for the Company's Common Stock as reported by the Nasdaq Stock Market on December 31, 2001, was $2.14. Value is calculated on the basis of the difference between $2.14 and the option exercise price of an "in-the-money" option multiplied by the number of shares of Common Stock underlying the option. Change in Control Agreements - ---------------------------- The Company has entered into Change in Control Agreements ("Agreements") with the Executive Officers, pursuant to which each Executive Officer is entitled to severance benefits in the event of a "change in control" of the Company during the term of his employment. Under the terms of the Agreements, if an Executive Officer (i) is terminated by the Company without cause during the six month period following a change in control ("Transition Period"), (ii) resigns for "good reason" (as defined in the Agreements) during the Transition Period, or (iii) resigns for any reason during the ten day period following a change in control or during the thirty day period following the Transition Period, then the Company is required to provide the Executive Officer with certain payments and benefits. Such payments and benefits include (a) payment of accrued and unpaid base salary, car allowance, plus accrued and unpaid bonus, if any, for the prior fiscal year plus a pro-rated bonus (as defined in the Agreements) for the year during which such Executive Officer's employment is terminated; (b) payment of a lump sum amount equal to the sum of 2.9 times the Executive Officer's annual pay (as defined in the Agreement); (c) payment of the unvested account balance under the Company's 401(k) Savings Plan and 401(k) Wrap Plan; (d) continued participation, at the same premium rate charged when actively employed, in the Company's employee welfare plans, until the expiration of two years following the change in control or cash equivalent; (e) vesting of all stock options on change of control; and (f) "gross-up" payments, if applicable, in the amount necessary to satisfy any excise tax imposed on the Executive Officer by the Internal Revenue Code of 1986, as amended the ("Code"). REPORT OF THE AUDIT COMMITTEE - ----------------------------- We the Audit Committee operate under a written charter adopted by the Board of Directors which is attached to and made a part of this Proxy Statement as Appendix A. We have reviewed and discussed with management the Company's audited financial statements as of and for the year ended December 31, 2001. We have discussed with Arthur Andersen LLP, the Company's independent public accountants, the matters required to be discussed by Statement of Auditing Standards No. 61, Communication with Audit Committees, as amended by the Auditing Standards Board of the American Institute of Certified Public Accountants. We have received and reviewed the written disclosures and the letter from the independent public accountants required by Independent Standard No. 1, Independence Discussions with Audit Committees, as amended, by the Independent Standards Board, and have discussed with the independent public accountants their independence. Based on the reviews and discussions referred to above, we recommend to the Board of Directors that the financial statements referred to above be included in the Company's Annual Report on Form 10-K for the year ended December 31, 2001. For the year 2001, the Company paid Arthur Andersen LLP $105,000 for audit services and $9,000 for non-audit and consulting services. /s/ Leroy Hallman, Chairman of the Audit Committee /s/ Edgar O. Weller, Member of the Audit Committee until April 3, 2002 /s/ T. Michael O'Connor, Member of the Audit Committee /s/ W. Mike Baggett, Member of the Audit Committee since April 3, 2002 COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION - ------------------------------------------------------- This report has been prepared by Messrs. Brian R. Blackmarr, Chairman, and W. Mike Baggett, serving as the Company's Compensation Committee during 2001. We are responsible for overseeing the development and administration of all compensation policies and programs for executive officers of the Company. We seek to design compensation programs that align the interests of such officers with the Company's shareholders. We have implemented compensation programs we believe will enhance the profitability of the Company, and reward such officers for efforts to achieve enhanced profitability. We believe the compensation programs allow the Company to attract, motivate, and retain the services of its executive officers. The executive compensation package is designed to retain senior management by providing total compensation comparable to the Company's competitors. To align the interests of the Company's executives with the interests of shareholders, a substantial portion of each executive's compensation is provided through annual and long-term incentive plans. Such plans place a substantial portion of the executives' compensation packages at risk and serve as an integral component of the Company's executive compensation philosophy. We believe the executives' attentions are better balanced between achieving short- term business goals and increasing the long-term value of the Company with a "pay-at-risk" policy. The programs reward executive officers for successful leadership when certain levels of Company performance are achieved. The Company's executive officer compensation program also provides base salary, supplemental retirement benefits and other benefits, including medical and retirement plans generally available to all Company employees. We periodically retain the services of an outside consulting firm to review the Company's executive compensation practices. Such a review was completed in April 1999, and recommendations for base salary, short-term bonus, and long- term incentive were developed. These reviews also cover retirement benefits for the Company's executive officers as measured against the competitive pay practices of a peer group of publicly-traded trucking companies. The major components of executive compensation are detailed below. Base Salary - ----------- As part of the review performed by outside consultants, base salary levels of the executives are reviewed to ensure comparability with other publicly- traded trucking companies. Base salary levels of executive officers have been set below the market median of the amounts paid to such peer group executives in the past. We believe that many of the 45 companies included in the market index for the five-year shareholder return comparison differ from the Company in size and nature of services provided. Therefore, we directed our outside consultants to compare compensation practices with a peer group of ten publicly traded companies with operations most similar to the Company's. Annual Incentive/Bonus Compensation - ----------------------------------- The Company's shareholders reapproved the incentive compensation program in 1999. The program is designed to reward key employees for the Company's performance based on the achievement of performance goals established prior to the particular year. Components of annual incentive compensation include an Incentive Bonus Plan (the "Incentive Plan") covering all full-time FFE employees (including executive officers) and the FFE Transportation Services, Inc. 1999 Executive Bonus and Phantom Stock Plan (the "Executive Plan"), which covers only the key executive leadership. Both plans focus on operational efficiencies. An executive officer's total cash compensation rises above the peer group market median as the Company's performance rises above the median performance of the Company's peer group. For 2000 and 2001, reflecting Company performance, no cash bonuses were awarded. Long-Term Incentive Compensation - -------------------------------- The Company's long-term incentive compensation is comprised of stock options and phantom equity programs. These serve to align the interests of the executive officers and other key employees' with shareholder interests by linking executive pay with shareholder return. These programs also act as a counter-balance to the short-term goals and responsibilities of the Incentive Plan and Executive Plan. The 1992 Incentive and Nonstatutory Stock Option Plan, (the "1992 Plan") as approved by shareholders, provides the exercise price for incentive stock options may not be less than the fair market value of the Common Stock on the date of grant. We or the Board determines the exercise price of nonstatutory stock options under the 1992 Plan. The exercise price may not be less than 50% of the fair market value of a share of the Common Stock on the date of grant. Options granted under the 1992 Plan may not be outstanding for more than ten years. On February 13, 2002, Mr. Stubbs was granted an option to purchase 214,027 shares of common stock under the 1992 Plan. The 1992 Plan expires in April 2002. The Board of Directors has approved and proposed that the shareholders approve a 2002 Stock Option Plan. See "Proposal to Approve Adoption of the 2002 Incentive and Nonstatutory Stock Option Plan". Supplemental Executive Retirement And 401(k) Wrap Plans - ------------------------------------------------------- To provide supplemental retirement benefits to members of the key management, the Company maintains the SERP and Wrap Plans, respectively. The SERP provides benefits limited by the Code by awarding phantom stock units. The Wrap Plan supplements the Company's 401(k) Plan by allowing benefits supplemental to those limited by the Code. Both the SERP and the Wrap Plan are unfunded deferred compensation arrangements not subject to the annual reporting and disclosure requirements of the Employee Retirement Income Security Act of 1974. Awards under both the SERP and the Wrap Plan for fiscal year 2001 are disclosed in the Summary Compensation Table. Compensation For The Chief Executive Officer - -------------------------------------------- During 2001, Mr. Stubbs served as the Chairman of the Board, President, and Chief Executive Officer. For 2001, 2000 and 1999, Mr. Stubbs' base salary was $317,613. For 2001, Mr. Stubbs did not receive payments under the Company's Incentive Plan or Executive Plan. We evaluate Mr. Stubbs' performance by the same criteria established for all Company executives. We made an assessment of Mr. Stubbs' contributions to enhancing the Company's performance, his individual performance, and the compensation paid to chief executive officers of the Company's peer group to determine Mr. Stubbs' total compensation. Deductibility Of Executive Compensation - --------------------------------------- The Company has entered into Change in Control Agreements ("Agreements") with certain executive officers whereby such individuals will be entitled to receive payments if they are terminated without cause or resign with good reason within specified periods following the occurrence of certain events deemed to involve a change in control of the Company. See "Change in Control Agreements". Under Section 162(m) of the Code, the federal income tax deduction for certain types of compensation paid to the chief executive officer and up to four of the other most highly compensated executive officers of publicly-held companies is limited to $1 million per officer per fiscal year unless such compensation meets certain requirements. In determining the amount of compensation paid to the chief executive officer or the four other most highly "performance-based compensation" under Section 162(m) of the Code is disregarded. Additionally, Section 280G of the Code disallows a deduction for certain compensation paid upon a change in control of the Company. We are aware of the limitations of Section 162(m) and 280G of the Code and believe that no compensation paid by the Company will exceed these limitations, except possibly a portion of the sums payable pursuant to the Agreements in the event of a change in control of the Company, if paid. /s/ Brian R. Blackmarr, Chairman of the Compensation Committee /s/ W. Mike Baggett, Member of the Compensation Committee Members of the Compensation Committee TRANSACTIONS WITH MANAGEMENT AND DIRECTORS - ------------------------------------------ A subsidiary of the Company leases certain tractors from Mr. Stubbs, Mr. Robertson, and a family partnership controlled by Mr. Stubbs. Lease terms are for three years and lease payments were determined by reference to amounts the subsidiary pays to unaffiliated lessors for similar equipment leased under similar terms. Because the terms of these leases with related parties are more flexible than those governing tractors we lease from unaffiliated lessors, we pay the officers a modest premium over the rentals we pay to unaffiliated lessors. The subsidiary also rents certain trailers from these officers, on a month-to-month basis, at rates that are generally less than market-rate monthly trailer rentals. The Company and the related-party lessors have agreed, should the month to month leases be terminated within twelve months following a change in control of the Company, then the Company is required to pay to the lessors a lump sum payment in cash equal to 24 times the most recent monthly rental. Rentals paid during 2001 by the subsidiary for tractors and trailers pursuant to the lease agreements were as follows: Mr. Stubbs and the family partnership - $1,289,000 and Mr. Robertson - $690,000. The subsidiary has an option to purchase the tractors at the end of the lease term for fair market value. During 2001, the Company purchased (for market value) tractors valued at $860,000 from Mr. Stubbs and the family partnership and $344,000 from Mr. Robertson. The Company subsequently sold these tractors to unrelated third parties and did not incur a gain or loss on such transactions. The aggregate future minimum lease payments to Mr. Stubbs and the family partnership and Mr. Robertson under the tractor leases are approximately $712,000 and $411,000, respectively, in 2002, and $307,000 and $147,000, respectively, in 2003. EQUITY COMPENSATION PLAN INFORMATION - ------------------------------------ The following table provides information concerning all equity compensation plans of the Company, specifically, the number of shares of common stock subject to outstanding options, warrants and rights and the exercise price thereof, as well as the number of shares of common stock available for issuance under all of the Company's equity compensation plans. Number of securities remaining available for future issuance under Number of Weighted-average equity securities to exercise compensation be issued upon price of plans exercise of outstanding (excluding outstanding options, securities options, warrants warrants reflected in Plan Category and rights and rights column (a)) - ------------- ---------- ---------- ----------- Equity compensation plans approved by security holders 1,120,595 $3.70 1,052,400 Equity compensation plans not approved by security holders 1,295,500 $8.87 1,695,500 --------- --------- Total 2,416,095 $6.47 2,747,900 ========= ========= COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION - ----------------------------------------------------------- The Compensation Committee consists of Messrs. Blackmarr and Baggett and is charged with recommending compensation arrangements for the directors and executive officers of the Company and recommending compensation programs for the Company. No payments other than director fees were made to Compensation Committee members during 2001, and neither had any relationships requiring disclosure according to applicable rules and regulations of the Securities and Exchange Commission. PROPOSAL TO APPROVE ADOPTION OF THE 2002 INCENTIVE AND NONSTATUTORY OPTION PLAN - ------------------------------------------------------------------------------- GENERAL The Board of Directors of the Company has approved, and proposed that the shareholders approve at the Annual Meeting, the adoption of the Frozen Food Express Industries, Inc. 2002 Incentive and Nonstatutory Option Plan (the "2002 Plan"). An aggregate of 850,000 shares of Common Stock has been reserved for issuance upon the exercise of options granted under the Plan. The market value of the Common Stock as of March 25, 2002 was $2.41 per share. The objective of the 2002 Plan is to provide an incentive for key employees, including officers and directors who may be employees, and certain non-employees of the Company or its subsidiaries to remain in the service of the Company by providing them with opportunities to acquire an economic interest in the future success and prosperity of the Company and its subsidiaries. The 2002 Plan is intended to replace the Company's current stock option plan, the Frozen Food Express Industries, Inc. 1992 Incentive Stock Option Plan (the "1992 Plan"), which expires by its terms in April of 2002. Upon the expiration of the 1992 Plan, the Company's ability to grant options to its key employees, consultants and advisors will no longer be available unless the 2002 Plan is adopted. The 2002 Plan provides for the granting of incentive stock options, for which option holders may receive favorable tax treatment under the Code, and nonstatutory options, for which option holders do not receive special tax treatment. For further information regarding the tax treatment of options granted under the 2002 Plan, see "Tax Treatment" below. The Company is seeking the shareholders' approval for the 2002 Plan. Shareholder approval is required under the requirements of the NASDAQ Stock Exchange which are applicable to the Company and is also required to receive favorable tax treatment for incentive stock options granted under the 2002 Plan, and to qualify the stock options for the performance-based compensation exception of Section 162(m) of the Code. Options granted under the 2002 Plan will be evidenced by a written option agreement, the terms and provisions of which will be determined by the Committee (as hereinafter defined) or by the Board of Directors at the time an option is granted. The exercise price for incentive stock options granted under the Plan and for non-statutory options intended to qualify for the performance- based compensation exception of Section 162(m) of the Code will not be less than 100% of the fair market value of a share of the Company's Common Stock at the time of the grant. The exercise price for nonstatutory stock options granted under the Plan and not intended to qualify for the performance-based compensation exemption of Section 162(m) of the Code will be determined by the Committee or Board of Directors at the time of the grant, but will not be less than the greater of the par value of the Common Stock ($1.50 per share) or 50% of the fair market value of a share of the Company's Common Stock at the time of the grant. The term of the options granted under the 2002 Plan will be determined by the Committee or the Board of Directors, but may not exceed ten years. In the case of incentive stock options granted to a 5% or more shareholder of the Company, such options may not have an exercise price of less than 110% of the fair market value of a share of the Company's Common Stock at the time of grant and may not have a term of more than five years. In addition, in order to comply with the performance-based compensation exception of Section 162(m) of the Code, the Plan provides that options with respect to no more than 100,000 shares may be granted to any individual option holder in any fiscal year of the Company. Except as may be included in a particular option agreement and then only to the extent permitted by applicable law, options granted under the 2002 Plan shall be exercisable during the option holder's lifetime only by that holder or such holder's legal guardian or legal representative. Except as provided in an option agreement, and then only to the extent permitted by applicable law, options granted under the 2002 Plan will not be transferable other than by will or the laws of descent and distribution, except that nonstatutory options may be transferable, in the discretion of the Committee, by gift or sale to certain family members or trusts or other entities for the benefit of family members of the option holder. Options will automatically terminate upon the severance of the option holder's relationship with the Company or its Subsidiaries; provided that the portion of the option that is exercisable at the time of such severance may be exercised for a period the lesser of the remainder of the term of the option or (a) in the case of an employee, (i) for a period of 90 days after (A) the severance of the employment relationship or (B) the employee's retirement, or (ii) for a period of one year after the death of such employee during the employment relationship or within 90 days of such employee's retirement; or (b) in the case of a non-employee, (i) for a period of 90 days after the severance of the relationship between such non-employee and the Company, or (ii) for a period of one year after the death of such non-employee. The option price may be paid in cash or, at the discretion of the Committee or the Board of Directors, or if the related option agreement so provides, partially or entirely in issued and outstanding Common Stock of the Company owned by the option holder, which shall be valued at the fair market value of such Common Stock on the date the option is exercised. In addition, any resulting withholding tax may be paid with such Common Stock acquired pursuant to the exercise of the options. ADMINISTRATION The 2002 Plan will be administered by the Board of Directors or by a committee (the "Committee") consisting of two or more directors who are non- employee directors of the Company within the meaning of Rule 16b-3 under the Securities Exchange Act of 1934, as amended, and who meet the requirements for being "outside directors" within the meaning of the performance-based compensation exception of Section 162(m) of the Code. The members of the Committee are appointed by and serve at the pleasure of the Board of Directors. The Committee has full authority, subject to the provisions of the 2002 Plan, to determine the individuals to whom options are to be granted, the number of shares of Common Stock represented by each option, the time or times at which options shall be granted and exercisable, and the exercise price of the options. TERMINATION If approved by the shareholders, the 2002 Plan will expire by its terms in April, 2012. The Board of Directors has the right to revise, amend, or terminate the 2002 Plan; provided, however, that shareholder approval is necessary to the extent required by law, regulation or rule, including those relating to incentive stock options and to securities exchanges or associations. ACCOUNTING TREATMENT Because the 2002 Plan permits the exercise price of nonstatutory options granted under the Plan to be less than the fair market value of the Company's Common Stock on the date of grant, charges to earnings will be made at the time of the grant of any options to the extent, if any, that the fair market value of the Common Stock on the date of grant exceeds the exercise price. The Company applies APB Opinion 25 and related interpretations to account for its stock options. Accordingly for options that are granted to employees with an exercise price equal to or greater than the fair market value of the Common Stock on the date of such grant, and which are not subsequently amended in certain respects constituting a substantial change or, in substance, a reissuance, no compensation expense will be recorded by the Company upon the grant or exercise of such option. TAX TREATMENT Under current Federal tax law, upon the grant of a nonstatutory stock option, no taxable income will be realized by a participant in the 2002 Plan and the Company will not be entitled to any tax deduction. Upon exercise of a nonstatutory stock option, a participant will realize ordinary taxable income on the date of exercise. Such taxable income will equal the difference between the option price and the fair market value of the Common Stock on the date of exercise (the "Spread at Exercise"). The Company will be entitled to a corresponding tax deduction. Upon the grant of an incentive stock option, no taxable income will be realized by a participant and the Company will not be entitled to any tax deduction. If a participant exercises the option, without having ceased to be an employee of the Company or any of its subsidiaries at any time during the period from the grant of the option until three months before its exercise, then generally, no such taxable income or deduction will result at the time of the exercise of such option. If no "disqualifying disposition" of the stock transferred to a participant upon exercise of the option is made by the option holder (i.e., no disposition occurs within the period that ends on the later to occur of one year after such stock is so transferred and two years after the grant of the option), any profit (or loss) realized by a participant from a sale or exchange of such stock will be treated under the Code as long-term capital gain (or loss), and no tax deduction will be allowable to the Company with respect thereto. When a participant exercises an incentive stock option, he or she will realize an item of tax preference for purposes of the alternative minimum tax provisions of the Code equal to the amount by which the fair market value of the Common Stock at the time of exercise exceeds the option price. If a disqualifying disposition of such stock is made by an option holder, the disposition will result in ordinary income at the time of the disposition in an amount equal to the lesser of (1) the gain on the sale or (2) the Spread at Exercise. If the gain exceeds the Spread at Exercise, the excess is a short-term or long-term capital gain depending upon how long the shares are held prior to the sale. If the stock is sold for less than the exercise price, failure to meet the holding period requirement generally will result in a short-term or long-term capital loss, depending upon how long the shares have been held before the sale, equal to the difference between the exercise price and the sale price. INDEPENDENT PUBLIC ACCOUNTANTS - ------------------------------ Arthur Andersen LLP served as independent public accountants for 2001. Representatives of Arthur Andersen LLP may be present at the Annual Meeting, with the opportunity to make a statement if they so desire, and will be available to respond to appropriate questions. The Company intends to select its independent public accountants for 2002 after receiving the recommendation of the Audit Committee expected at the Audit Committee's May 2002 meeting. COMPLIANCE WITH SECTION 16(a) OF THE SECURITIES EXCHANGE ACT OF 1934 - -------------------------------------------------------------------- Rules promulgated under Section 16(a) of the Securities Exchange Act of 1934, as amended, require the Company's executive officers and directors and person who own more than ten percent of a registered class of the Company's equity securities to file reports of ownership and changes in ownership with the Securities and Exchange Commission ("SEC") and Nasdaqr. Such persons are required by SEC regulations to furnish the Company with copies of such forms they file. The Company believes that, during 2001, all section 16(a) filing requirements applicable to such persons were complied with except that the annual reports on beneficial ownership on Form 5 which were due February 14, 2001 were not filed until February 15, 2001. SHAREHOLDER PROPOSALS AT 2003 ANNUAL MEETING - -------------------------------------------- Shareholders intending to present proposals at the 2003 Annual Meeting and desiring to have those proposals included in the Company's proxy statement and form of proxy relating to that meeting must submit such proposals, in compliance with Rule 14A-8 of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), to the Secretary of the Company on or before November 30, 2002. For proposals that shareholders intend to present at the 2002 Annual Meeting of Shareholders outside the processes of Rule 14A-8 of the Exchange Act, unless the shareholder notifies the Secretary of the Company of such intent by February 10, 2003, any proxy solicited by the Company for such Annual Meeting will confer on the holder of the proxy discretionary authority to vote on the proposal so long as such proposal is properly presented at the Annual Meeting. By Order of the Board of Directors Dallas, TX /s/ LEONARD W. BARTHOLOMEW April 12, 2002 Secretary A copy of the Company's Annual Report on Form 10-K for 2001, may be obtained without charge upon written request to the Secretary of the Company, P.O. Box 655888, Dallas, Texas 75265-5888. EXHIBIT A --------- FROZEN FOOD EXPRESS INDUSTRIES, INC. Charter of the Audit Committee of the Board of Directors I. Audit Committee Purpose The Audit Committee is appointed by the Board of Directors to assist the Board in fulfilling its oversight responsibilities. The Audit Committee's primary duties and responsibilities are to: 1. Monitor the integrity of the Company's financial reporting process and systems of internal controls regarding finance, accounting, and legal compliance. 2. Monitor the independence and performance of the Company's independent auditors and internal auditing department. 3. Provide an avenue of communication among the independent auditors, management, the internal auditing department, and the Board of Directors. 4. Report to the Board of Directors. 5. Encourage adherence to, and continuous improvement of, the Company's policies, procedures, and practices at all levels. 6. Review areas of potential significant financial risk to the Company. 7. Monitor compliance with legal and regulatory requirements including but not limited to SEC, FASB and Nasdaq? rules and pronouncements. The Audit Committee has the authority to conduct any investigation appropriate to fulfilling its responsibilities, and it has direct access to the independent auditors as well as anyone in the organization. The Audit Committee has the ability to retain, at the Company's expense, special legal, accounting, or other consultants or experts it deems necessary in the performance of its duties. II. Audit Committee Composition and Meetings Audit Committee members shall meet the requirements of the Nasdaq? Stock Market, Inc. The Audit Committee shall be comprised of three or more directors as determined by the Board, each of whom shall be independent nonexecutive directors, free from any relationship that would interfere with the exercise of his or her independent judgment. All members of the Committee shall have a basic understanding of finance and accounting and be able to read and understand fundamental financial statements, and at least one member of the Committee shall have accounting or related financial management expertise. Audit Committee members shall be appointed by the Board on recommendation of the Nominating Committee. If an audit committee Chair is not designated or present, the members of the Committee may designate a Chair by majority vote of the Committee membership. The Committee shall meet in person, by telephone or by videoconference, at least 2 times annually, or more frequently as circumstances dictate. The Audit Committee Chair shall prepare and/or approve an agenda in advance of each meeting. The Committee should meet privately in executive session at least annually with management, the director of the internal auditing department, the independent auditors, and as a committee to discuss any matters that the Committee or each of these groups believe should be discussed. In addition, the Committee, or at least its Chair, should communicate with management and the independent auditors quarterly to review the Company's financial statements and significant findings based upon the auditors limited review procedures. III. Audit Committee Responsibilities and Duties Review Procedures 1. Review and reassess the adequacy of this Charter at least annually. Submit the charter to the Board of Directors for approval and have the document published at least every three years in accordance with SEC regulations. 2. Review the Company's annual audited financial statements prior to filing or distribution. Review should include discussion with management and independent auditors of significant issues regarding accounting principles, practices, and judgments. 3. In consultation with the management, the independent auditors, and the internal auditors, evaluate the integrity of the Company's financial reporting processes and controls. Discuss significant financial risk exposures and the steps management has taken to monitor, control, and report such exposures. Review significant findings prepared by the independent auditors and the internal auditing department together with management's responses, including the status of previous recommendations. 4. Review with financial management and the independent auditors the company's quarterly financial results. Discuss any significant changes to the Company's accounting principles and any items required to be communicated by the independent auditors in accordance with SAS 61 (see item 9). The Chair of the Committee may represent the entire Audit Committee for purposes of this review. Independent Auditors 5. The independent auditors are ultimately accountable to the Audit Committee and the Board of Directors. The Audit Committee shall review the independence and performance of the auditors and annually recommend to the Board of Directors the appointment of the independent auditors or approve any discharge of auditors when circumstances warrant. 6. Approve the fees and other significant compensation to be paid to the independent auditors. Review and approve requests for significant management consulting engagements to be performed by the independent auditors' firm and be advised of any other significant study undertaken at the request of management that is beyond the scope of the audit engagement letter. 7. On an annual basis, the Committee will review and discuss with the independent auditors all significant relationships they have with the Company that could impair the auditors' independence. 8. Review the independent auditors' engagement letter and audit plan - discuss scope, staffing, locations, reliance upon management, and internal audit and general audit approach. 9. Prior to releasing the year-end earnings, discuss the results of the audit with the independent auditors. Discuss certain matters required to be communicated to audit committees in accordance with AICPA SAS 61. SAS No. 61 requires that auditors discuss certain matters with audit committees of all SEC engagements. The communication may be in writing or oral and may take place before or after the financial statements are issued. Items to be communicated include: A. The auditor's responsibility under Generally Accepted Auditing Standards (GAAS); B. Significant accounting policies; C. Management judgments and accounting estimates; D. Significant audit adjustments; E. Other information in documents containing audited financial statements; F. Disagreements with management - including accounting principles, scope of audit, disclosures; G. Consultation with other accountants by management; H. Major issues discussed with management; and I. Difficulties encountered in performing the audit. 10. Consider the independent auditors' judgments about the quality and appropriateness of the Company's accounting principles as applied in its financial reporting, including: A. Discuss with management and the independent auditors the quality of the accounting principles and underlying estimates used in the preparation of the Company's financial statements. B. Discuss with the independent auditors the financial disclosure practices used or proposed by the Company. C. Inquire as to the independent auditors' views about whether management's choices of accounting principles appear reasonable from the perspective of income, asset and liability recognition, and whether those principles are common practices or are unusual practices. Internal Audit Department and Legal Compliance - ---------------------------------------------- 11. Review the budget, plan, changes in plan, activities, organizational structure, and qualifications of the internal audit department, as needed. The internal audit department shall be responsible to senior management, but have a direct reporting responsibility to the Board of Directors through the Committee. Changes in the senior internal audit executive shall be subject to committee approval. 12. Review the appointment, performance, and replacement of the senior audit executive. 13. Review significant reports prepared by the internal audit department together with management's response and follow-up to these reports. 14. On at least an annual basis, review with management and, if appropriate, the Company's counsel, any legal matters that could have a significant impact on the organization's financial statements, the Company's compliance with applicable laws and regulations, and inquiries received from regulators or governmental agencies. Other Audit Committee Responsibilities - -------------------------------------- 16. Annually prepare a report to shareholders as required by the Securities and Exchange Commission (SEC). The report should be included in the Company's annual proxy statement. The SEC requires that the Audit Committee issue a report to shareholders stating whether they have: A. Reviewed and discussed the audited financial statements with management; B. Discussed with Independent auditors the matters required to be discussed by SAS 61; and C. Received certain disclosures from the auditors regarding their independence as required by the ISB and then include a statement if based on this review if the audit committee recommended to the board to include the audited financial statements in the annual report filed with the SEC. 17. Perform any other activities consistent with this Charter, the Company's by-laws, and governing law, as the Committee or the Board deems necessary or appropriate. 18. Maintain minutes of meetings and periodically report to the Board of Directors on significant results of the foregoing activities. 19. Have committee meeting agendas prepared by the Committee Chair with input from committee members. It is expected that the Chair would also ask for management and key committee advisors, and perhaps others, to participate in this process. 20. Report at least semi-annually, or as deemed necessary, to the full board. In addition, summarized minutes from Committee meetings shall be distributed to each board member prior to the subsequent Board of Directors meeting. 21. Review financial and accounting personnel succession planning within the company. 22. Annually review policies and procedures as well as audit results associated with directors' and officers expense accounts and perquisites. Annually review a summary of director and officers' related party transactions and potential conflicts of interests. III. Ratification This Charter was originally ratified by the Board of Directors on May 10, 2000 and re-ratified by the Board of Directors on August 8, 2001. EX-1 3 ex1.txt 2002 INCENTIVE AND NONSTATUTORY OPTION PLAN EXHIBIT 1 --------- FROZEN FOOD EXPRESS INDUSTRIES, INC. 2002 INCENTIVE AND NONSTATUTORY OPTION PLAN SCOPE AND PURPOSE OF PLAN Frozen Food Express Industries, Inc., a Texas corporation (the "Corporation"), has adopted this 2002 Incentive and Nonstatutory Option Plan (the "Plan") to provide for the granting of: (a) Incentive Options (hereafter defined) to certain Key Employees (hereafter defined) and (b) Nonstatutory Options (hereafter defined) to certain Key Employees and other persons. The purpose of the Plan is to provide an incentive for Key Employees, including Key Employees who may be officers and directors of the Corporation, and certain consultants and advisors of the Corporation or its Subsidiaries (hereafter defined) to remain in the service of the Corporation or its Subsidiaries, to extend to them the opportunity to acquire a proprietary interest in the Corporation so that they will apply their best efforts for the benefit of the Corporation, and to aid the Corporation in attracting able persons to enter the service of the Corporation and its Subsidiaries. SECTION 1. DEFINITIONS 1.1 "Award" means the grant of any form of Option, under the Plan, whether granted singly, in combination, or in tandem, to a Holder pursuant to the terms, conditions, and limitations that the Committee may establish in order to fulfill the objectives of the Plan. 1.2 "Award Agreement" means the written agreement between the Corporation and a Holder evidencing the terms, conditions, and limitations of the Award granted to that Holder. 1.3 "Board of Directors" means the board of directors of the Corporation. 1.4 "Business Day" means any day other than a Saturday, a Sunday, or a day on which banking institutions in the State of Texas are authorized or obligated by law or executive order to close. 1.5 "Change in Control" means the event that is deemed to have occurred if: (a) any "person" (as such term is used in Sections 13(d) and 14(d) of the Exchange Act) that does not currently own a five percent (5%) or greater equity interest in the Corporation or in any Related Corporation becomes the "beneficial owner" (as determined pursuant to Rule 13d-3 under the Exchange Act), directly or indirectly, of securities of the Corporation or of any Related Corporation representing fifteen percent (15%) or more of the combined voting power of the Corporation's or Related Corporation's, as the case may be, then outstanding voting securities; or (b) a change in the composition of the Board of Directors occurring within a two (2) year period, as a result of which members of the Incumbent Board cease to constitute at least a majority of the Board of Directors; or (c) the Corporation or any Related Corporation shall merge with or consolidate into any other corporation, other than a merger or consolidation which would result in the holders of the Voting Securities of the Corporation or any Related Corporation, as the case may be, outstanding immediately prior thereto holding immediately thereafter securities representing more than sixty percent (60%) of the combined voting power of the Voting Securities of the Corporation or any Related Corporation, as the case may be, or such surviving entity (or its ultimate parent, if applicable) outstanding immediately after such merger or consolidation; or (d) the stockholders of the Corporation or any Related Corporation approve a plan of complete liquidation of the Corporation or any Related Corporation or the consummation of an agreement for the sale or disposition by the Corporation or any Related Corporation of all or substantially all of the Corporation's or Related Corporation's assets and such plan or agreement becomes effective, other than a liquidation or sale which would result in the Corporation directly or indirectly owning such interest or assets. 1.6 "Code" means the Internal Revenue Code of 1986, as amended. 1.7 "Committee" means the committee appointed pursuant to Section 3 by the Board of Directors to administer this Plan. 1.8 "Corporation" means Frozen Food Express Industries, Inc., a Texas corporation. 1.9 "Date of Grant" has the meaning given it in Paragraph 4.3. 1.10 "Disability" has the meaning given it in Paragraph 7.5. 1.11 "Effective Date" means the first date that the Plan has been approved by both the Board of Directors and the stockholders of the Corporation, as provided in Paragraph 8.1. 1.12 "Eligible Individual" means (a) a Key Employee or (b) any other Person that the Committee designates as eligible for an Award (other than for Incentive Options) because the Person performs bona fide consulting or advisory services for the Corporation or any of its Subsidiaries (other than services in connection with the offer or sale of securities in a capital-raising transaction) and the Committee determines that the Person has a direct and significant effect on the financial development of the Corporation or any of its Subsidiaries. 1.13 "Employee" means any employee of the Corporation or of any of its Subsidiaries, including officers and directors of the Corporation who are also employees of the Corporation or of any of its Subsidiaries. 1.14 "Exchange Act" means the Securities Exchange Act of 1934, or any successor law, as it may be amended from time to time. 1.15 "Exercise Notice" has the meaning given it in Paragraph 5.5. 1.16 "Exercise Price" has the meaning given it in Paragraph 5.4. 1.17 "Fair Market Value" means, for a particular day, the market price of the Stock, determined by the Committee in good faith on such basis as it deems appropriate. Whenever possible, the determination of Fair Market Value by the Committee shall be based on the prices reported in the Wall Street Journal. Such determination shall be conclusive and binding on all persons. 1.18 "Holder" means an Eligible Individual to whom an Award has been granted or such Eligible Individual's Permitted Transferee. 1.19 "Incentive Option" means an incentive stock option as defined under Section 422 of the Code and regulations thereunder. 1.20 "Incumbent Board" means the individuals who, as of the Effective Date, constitute the Board of Directors and any other individual who becomes a director of the Corporation after that date and whose election or appointment by the Board of Directors or nomination for election by the Corporation's stockholders was approved by a vote of at least a majority of the directors then comprising the Incumbent Board. 1.21 "Key Employee" means any Employee whom the Committee identifies as having a direct and significant effect on the performance of the Corporation or any of its Subsidiaries. 1.22 "Non-Employee Director" has the meaning given it in Rule 16b-3. 1.23 "Nonstatutory Option" means a stock option that does not satisfy the requirements of Section 422 of the Code or that is designated at the Date of Grant or in the applicable Award Agreement to be an option other than an Incentive Option. 1.24 "Non-Surviving Event" means an event of Restructure as described in either subparagraph (b) or (c) of Paragraph 1.32. 1.25 "Normal Retirement" means the separation of the Holder from employment with the Corporation and its Subsidiaries on account of retirement at any time on or after the date on which the Holder reaches age sixty-five. 1.26 "Option" means either an Incentive Option or a Nonstatutory Option, or both. 1.27 "Outside Director" has the meaning given it under Section 162(m) of the Code. 1.28 "Permitted Transferee" means an Eligible Individual's spouse, children, or grandchildren, a trust established by the Eligible Individual for the benefit of the Eligible Individual and/or his or her spouse, children, or grandchildren, a family partnership or limited liability company whose partners or members are the Eligible Individual, his or her spouse, children, or grandchildren, and/or a trust that would be a Permitted Transferee, or any other Person, the transfer to whom has been approved by the Committee in its sole discretion. 1.29 "Person" means any person or entity of any nature whatsoever, specifically including (but not limited to) an individual, a firm, a company, a corporation, a partnership, or a trust or other entity. A Person, together with that Person's affiliates and associates (as those terms are defined in Rule 12b-2 under the Exchange Act for purposes of this definition only), and any Persons acting as a partnership, limited partnership, joint venture, association, syndicate or other group (whether or not formally organized), or otherwise acting jointly or in concert or in a coordinated or consciously parallel manner (whether or not pursuant to any express agreement), for the purpose of acquiring, holding, voting or disposing of securities of the Corporation with that Person, shall be deemed a single "Person." 1.30 "Plan" means the Corporation's 2002 Incentive and Nonstatutory Option Plan, as it may be amended from time to time. 1.31 "Related Corporation" shall mean FFE, Inc., a Delaware corporation and wholly-owned subsidiary of the Corporation, and FFE Transportation Services, Inc., a Delaware corporation and wholly-owned subsidiary of FFE, Inc. 1.32 "Restructure" means the occurrence of any one or more of the following: (a) The merger or consolidation of the Corporation with any Person, whether effected as a single transaction or a series of related transactions, with the Corporation remaining the continuing or surviving entity of that merger or consolidation and the Stock remaining outstanding and not changed into or exchanged for stock or other securities of any other Person or of the Corporation, cash, or other property; (b) The merger or consolidation of the Corporation with any Person, whether effected as a single transaction or a series of related transactions, with (i) the Corporation not being the continuing or surviving entity of that merger or consolidation or (ii) the Corporation remaining the continuing or surviving entity of that merger or consolidation but all or a part of the outstanding shares of Stock of the Corporation being changed into or exchanged for stock or other securities of any other Person or of the Corporation, or into cash or other property; or (c) The transfer, directly or indirectly, of all or substantially all of the assets of the Corporation (whether by sale, merger, consolidation, liquidation or otherwise) to any Person whether effected as a single transaction or a series of related transactions. 1.33 "Rule 16b-3" means Rule 16b-3 under Section 16(b) of the Exchange Act, or any successor rule, as it may be amended from time to time. 1.34 "Securities Act" means the Securities Act of 1933, or any successor law, as it may be amended from time to time. 1.35 "Stock" means the Corporation's authorized common stock, par value $1.50 per share, as described in the Corporation's Articles of Incorporation as it exists at the Effective Date, or any other securities that are substituted for the Stock as provided in Section 6. 1.36 "Subsidiary" means, with respect to any Person, any corporation or other entity of which a majority of the voting power of the voting equity securities or equity interest is owned, directly or indirectly, by that Person. 1.37 "Total Shares" has the meaning given it in Paragraph 6.2. 1.38 "Voting Securities" means any securities that are entitled to vote generally in the election of directors, in the admission of general partners, or in the selection of any other similar governing body. SECTION 2. SHARES OF STOCK SUBJECT TO THE PLAN - ----------------------------------------------- 2.1 Maximum Amount of Shares. Subject to the provisions of Paragraph 2.6 and Section 6 of the Plan, the aggregate number of shares of Stock that may be issued, transferred or exercised pursuant to Awards under the Plan shall be 850,000 shares. 2.2 Reduction in Available Shares. In computing the total number of shares available at a particular time for Awards under the Plan, there shall be counted against the limitations stated in Paragraph 2.1 the number of shares of Stock subject to issuance upon exercise or settlement of Awards and the number of shares of Stock that have been issued upon exercise or settlement of Awards (except as otherwise provided in Paragraph 2.3). 2.3 Restoration of Unused and Surrendered Shares. If Stock subject to any Award is not issued or transferred, or ceases to be issuable or transferable for any reason, including (but not exclusively) because an Award is forfeited, terminated, expires unexercised, or is exchanged for other Awards, the shares of Stock that were subject to that Award shall no longer be charged against the number of available shares provided for in Paragraph 2.2 and shall again be available for issue, transfer, or exercise pursuant to Awards under the Plan to the extent of such forfeiture, termination, expiration, or other cessation of its subjection to an Award. 2.4 Description of Shares. The shares to be delivered under the Plan shall be made available from (a) authorized but unissued shares of Stock, (b) Stock held in the treasury of the Corporation, or (c) previously issued shares of Stock reacquired by the Corporation, including shares purchased on the open market, in each situation as the Board of Directors or the Committee may determine from time to time in its sole discretion. 2.5 Registration and Listing of Shares. From time to time, the Board of Directors and appropriate officers of the Corporation shall and are authorized to take whatever actions are necessary to file required documents with governmental authorities, stock exchanges, and other appropriate Persons to make shares of Stock available for issuance pursuant to Awards. 2.6 Reduction in Outstanding Shares of Stock. Nothing in this Section 2 shall impair the right of the Corporation to reduce the number of outstanding shares of Stock pursuant to repurchases, redemptions, or otherwise; provided, however, that no reduction in the number of outstanding shares of Stock shall (a) impair the validity of any outstanding Award, whether or not that Award is fully exercisable or fully vested or (b) impair the status of any shares of Stock previously issued pursuant to an Award or thereafter issued pursuant to a then- outstanding Award as duly authorized, validly issued, fully paid, and nonassessable shares. SECTION 3. ADMINISTRATION OF THE PLAN - -------------------------------------- 3.1 Committee. The Committee shall administer the Plan with respect to all Eligible Individuals who are subject to Section 162(m) of the Code. The Board of Directors may administer the Plan with respect to all other Eligible Individuals or may delegate all or part of that duty to the Committee. Except for references in Paragraphs 3.1, 3.2, and 3.3 and unless the context otherwise requires, references herein to the Committee shall also refer to the Board of Directors. The Committee shall be constituted so that, as long as Stock is registered under Section 12 of the Exchange Act, each member of the Committee shall be both a Non-Employee Director and an Outside Director and so that the Plan in all other applicable respects will qualify transactions related to the Plan for the exemptions from Section 16(b) of the Exchange Act provided by Rule 16b-3, to the extent exemptions thereunder may be available, and for the performance-based compensation exception under Section 162(m) of the Code. If the Committee is nevertheless not so constituted, then the Plan shall be administered, and each grant of Options to Eligible Individuals who are subject to Section 16(b) of the Exchange Act shall be approved, by the Board of Directors. No discretion regarding Awards to Eligible Individuals who are subject to Section 16(b) of the Exchange Act or Section 162(m) of the Code shall be afforded to a person who is not both a Non-Employee Director and an Outside Director. The number of persons that shall constitute the Committee shall be determined from time to time by a majority of all the members of the Board of Directors, but shall be no less than two persons. 3.2 Duration, Removal, Etc. The members of the Committee shall serve at the pleasure of the Board of Directors, which shall have the power, at any time and from time to time, to remove members from or add members to the Committee. Removal of a member from the Committee may be with or without cause. Any individual serving as a member of the Committee shall have the right to resign from membership in the Committee by at least three days prior written notice to the Board of Directors. The Board of Directors, and not the remaining members of the Committee, shall have the power and authority to fill vacancies on the Committee, however caused. The Board of Directors shall promptly fill any vacancy that causes the number of members of the Committee to be below two or any other number that Rule 16b-3 or Section 162(m) may require from time to time. 3.3 Meetings and Actions of Committee. The Board of Directors shall designate which of the Committee members shall be the chairman of the Committee. If the Board of Directors fails to designate a Committee chairman, the members of the Committee shall elect one of the Committee members as chairman, who shall act as chairman until he ceases to be a member of the Committee or until the Board of Directors elects a new chairman. The Committee shall hold its meetings at those times and places as the chairman of the Committee may determine. At all meetings of the Committee, a quorum for the transaction of business shall be required, and a quorum shall be deemed present if at least a majority of the members of the Committee are present. At any meeting of the Committee, each member shall have one vote. All decisions and determinations of the Committee shall be made by the majority vote or majority decision of all of its members present at a meeting at which a quorum is present; provided, however, that any decision or determination reduced to writing and signed by all of the members of the Committee shall be as fully effective as if it had been made at a meeting that was duly called and held. The Committee may make any rules and regulations for the conduct of its business that are not inconsistent with the provisions of the Plan, the Certificate of Incorporation, the By-laws of the Corporation, Rule 16b-3 and the performance-based compensation exception under Section 162(m) of the Code, so long as either is applicable, as the Committee may deem advisable. 3.4 Committee's Powers. Subject to the express provisions of the Plan, Rule 16b-3 and the performance-based compensation exception under Section 162(m) of the Code, the Committee shall have the authority, in its sole and absolute discretion, (a) to adopt, amend, and rescind administrative and interpretive rules and regulations relating to the Plan; (b) to determine the Eligible Individuals to whom, and the time or times at which, Awards shall be granted; (c) to determine the number of shares of Stock that shall be the subject of each Award; (d) to determine the terms and provisions of each Award Agreement (which need not be identical), including provisions defining or otherwise relating to (i) the term and the period or periods and extent of exercisability of the Options, (ii) the extent to which the transferability of shares of Stock issued or transferred pursuant to any Award is restricted, (iii) the effect of termination of employment on the Award, and (iv) the effect of approved leaves of absence (consistent with any applicable regulations of the Internal Revenue Service); (e) to accelerate, pursuant to Section 6, the time of exercisability of any Option that has been granted; (f) to construe the respective Award Agreements and the Plan; (g) to make determinations of the Fair Market Value of the Stock pursuant to the Plan; (h) to delegate its duties under the Plan to such agents as it may appoint from time to time, provided that the Committee may not delegate its duties with respect to making Awards to Eligible Individuals who are subject to Section 16(b) of the Exchange Act or take any action that would disqualify an award for the performance-based compensation exception under Section 162(m) of the Code; and (i) to make all other determinations, perform all other acts, and exercise all other powers and authority necessary or advisable for administering the Plan, including the delegation of those ministerial acts and responsibilities as the Committee deems appropriate. Subject to Rule 16b-3 and the performance- based compensation exception under Section 162(m) of the Code, the Committee may correct any defect, supply any omission or reconcile any inconsistency in the Plan, in any Award, or in any Award Agreement in the manner and to the extent it deems necessary or desirable to carry the Plan into effect, and the Committee shall be the sole and final judge of that necessity or desirability. The determinations of the Committee on the matters referred to in this Paragraph 3.4 shall be final and conclusive. SECTION 4. ELIGIBILITY AND PARTICIPATION - ----------------------------------------- 4.1 Eligible Individuals. Awards may be granted pursuant to the Plan only to persons who are Eligible Individuals at the time of the grant thereof. 4.2 Grant of Awards. Subject to the express provisions of the Plan, the Committee shall determine which Eligible Individuals shall be granted Awards from time to time. In making grants, the Committee shall take into consideration the contribution the potential Holder has made or may make to the success of the Corporation or its Subsidiaries and such other considerations as the Board of Directors may from time to time specify. The Committee shall also determine the number of shares subject to each of the Awards and shall authorize and cause the Corporation to grant Awards in accordance with those determinations; provided, however, that no Eligible Individual shall be granted Awards in any single fiscal year of the Corporation the total number of shares subject to which shall exceed 100,000 shares. 4.3 Date of Grant. The date on which the Committee completes all action resolving to offer an Award to an individual, including the specification of the number of shares of Stock to be subject to the Award, shall be the date on which the Award covered by an Award Agreement is granted (the "Date of Grant"), even though certain terms of the Award Agreement may not be determined at that time and even though the Award Agreement may not be executed until a later time. In no event shall a Holder gain any rights in addition to those specified by the Committee in its grant, regardless of the time that may pass between the grant of the Award and the actual execution of the Award Agreement by the Corporation and the Holder. 4.4 Award Agreements. Each Award granted under the Plan shall be evidenced by an Award Agreement that is executed by the Corporation and the Eligible Individual to whom the Award is granted incorporating those terms that the Committee shall deem necessary or desirable. More than one Award may be granted under the Plan to the same Eligible Individual and be outstanding concurrently. In the event an Eligible Individual is granted both one or more Incentive Options and one or more Nonstatutory Options, those grants shall be evidenced by separate Award Agreements, one for each of the Incentive Option grants and one for each of the Nonstatutory Option grants. 4.5 Limitation for Incentive Options. Notwithstanding any provision contained herein to the contrary, (a) a person shall not be eligible to receive an Incentive Option unless he is an Employee of the Corporation or a corporate Subsidiary (but not a partnership Subsidiary), and (b) a person shall not be eligible to receive an Incentive Option if, immediately before the time the Option is granted, that person owns (within the meaning of Sections 422 and 425 of the Code) stock possessing more than ten percent of the total combined voting power or value of all classes of stock of the Corporation or a Subsidiary. Nevertheless, subparagraph 4.5(b) shall not apply if, at the time the Incentive Option is granted, the Exercise Price of the Incentive Option is at least one hundred and ten percent of Fair Market Value and the Incentive Option is not, by its terms, exercisable after the expiration of five years from the Date of Grant. 4.6 No Right to Award. The adoption of the Plan shall not be deemed to give any person a right to be granted an Award. SECTION 5. TERMS AND CONDITIONS OF OPTIONS - ------------------------------------------- All Options granted under the Plan shall comply with, and the related Award Agreements shall be deemed to include and be subject to, the terms and conditions set forth in this Section 5 (to the extent each term and condition applies to the form of Option) and also to the terms and conditions set forth in Section 6 and Section 7; provided, however, that the Committee may authorize an Award Agreement that expressly contains terms and provisions that differ from the terms and provisions set forth in Paragraphs 6.2, 6.3, and 6.4 and any of the terms and provisions of Section 7 (other than Paragraph 7.10). 5.1 Number of Shares. Each Award Agreement shall state the total number of shares of Stock to which it relates. 5.2 Vesting. Each Award Agreement shall state the time or periods in which or the conditions upon satisfaction of which, the right to exercise the Option or a portion thereof shall vest and the number of shares of Stock for which the right to exercise the Option shall vest at each such time, period, or fulfillment of condition. 5.3 Expiration of Options. Nonstatutory Options and Incentive Options may be exercised during the term determined by the Committee and set forth in the Award Agreement; provided that no Option shall be exercised after the expiration of a period of ten years commencing on the Date of Grant of such Option. 5.4 Exercise Price. Each Award Agreement shall state the exercise price per share of Stock (the "Exercise Price"). The Exercise Price per share of Stock subject to an Incentive Option shall not be less than the greater of (a) the par value per share of the Stock or (b) 100% of the Fair Market Value per share of the Stock on the Date of Grant of the Option. The Exercise Price per share of Stock subject to a Nonstatutory Option shall not be less than the greater of (a) the par value per share of the Stock or (b) fifty percent of the Fair Market Value per share of the Stock on the Date of Grant of the Option, except that in the case of any Award intended to satisfy the performance-based compensation exception under Section 162(m) of the Code, the Exercise Price must not be less than 100% of the Fair Market Value per share of the Stock on the Date of Grant of the Option. 5.5 Method of Exercise. The Option shall be exercisable only by written notice of exercise (the "Exercise Notice") delivered to the Corporation during the term of the Option, which notice shall (a) state the number of shares of Stock with respect to which the Option is being exercised, (b) be signed by the Holder of the Option or, if the Holder is dead or Disabled, by the person authorized to exercise the Option pursuant to Paragraphs 7.3, 7.5 or 7.7, (c) be accompanied by the Exercise Price for all shares of Stock for which the Option is exercised, and (d) include such other information, instruments, and documents as may be required to satisfy any other condition to exercise contained in the Award Agreement. The Option shall not be deemed to have been exercised unless all of the requirements of the preceding provisions of this Paragraph 5.5 have been satisfied. 5.6 Incentive Option Exercises. During the Holder's lifetime, only the Holder may exercise an Incentive Option. 5.7 Medium and Time of Payment. The Exercise Price of an Option shall be payable in full upon the exercise of the Option (a) in cash or by an equivalent means acceptable to the Committee, (b) on the Committee's prior consent (expressed in the original Award Agreement in the case of any Incentive Option), by surrendering or attesting to ownership of shares of Stock owned by the Holder (including shares received upon exercise of the Option or restricted shares already held by the Holder) and having a Fair Market Value equal to the aggregate Exercise Price payable in connection with such exercise, or (c) by any combination of clauses (a) and (b). If the Committee elects to accept shares of Stock in payment of all or any portion of the Exercise Price, then (for purposes of payment of the Exercise Price) those shares of Stock shall be deemed to have a cash value equal to their aggregate Fair Market Value determined as of the date of the delivery of the Exercise Notice. If the Committee elects to accept shares of restricted Stock in payment of all or any portion of the Exercise Price, then an equal number of shares issued pursuant to the exercise shall be restricted on the same terms and for the restriction period remaining on the shares used for payment. 5.8 Payment with Sale Proceeds. In addition, at the request of the Holder and to the extent permitted by applicable law, the Committee may (but shall not be required to) approve arrangements with a brokerage firm under which that brokerage firm, on behalf of the Holder, shall pay to the Corporation the Exercise Price of the Option being exercised, and the Corporation shall promptly deliver the exercised shares to the brokerage firm. To accomplish this transaction, the Holder must deliver to the Corporation an Exercise Notice containing irrevocable instructions from the Holder to the Corporation to deliver the stock certificates directly to the broker. Upon receiving a copy of the Exercise Notice acknowledged by the Corporation, the broker shall sell that number of shares of Stock or loan the Holder an amount sufficient to pay the Exercise Price and any withholding obligations due. The broker shall then deliver to the Corporation that portion of the sale or loan proceeds necessary to cover the Exercise Price and any withholding obligations due. The Committee shall not approve any transaction of this nature if the Committee believes that the transaction would give rise to the Holder's liability for short-swing profits under Section 16(b) of the Exchange Act. 5.9 Payment of Taxes. The Committee may, in its discretion, require a Holder to pay to the Corporation (or the Corporation's Subsidiary if the Holder is an employee of a Subsidiary of the Corporation), at the time of the exercise of an Option, the amount that the Committee deems necessary to satisfy the Corporation's or its Subsidiary's current or future obligation to withhold federal, state or local income or other taxes that the Holder incurs by exercising an Option. Upon the exercise of an Option requiring tax withholding, a Holder may (a) direct the Corporation to withhold from the shares of Stock to be issued to the Holder the number of shares necessary to satisfy the Corporation's minimum statutory obligation to withhold taxes, that determination to be based on the shares' Fair Market Value as of the date on which tax withholding is to be made; (b) deliver to the Corporation sufficient shares of Stock (based upon the Fair Market Value at date of withholding) to satisfy the Corporation's tax withholding obligations, based on the shares' Fair Market Value as of the date of exercise; or (c) deliver sufficient cash to the Corporation to satisfy its tax withholding obligations. Holders who elect to use such a stock withholding feature must make the election at the time and in the manner that the Committee prescribes. The Committee may, in its sole discretion, deny any Holder's request to satisfy withholding obligations through Stock instead of cash. In the event the Committee subsequently determines that the aggregate Fair Market Value (as determined above) of any shares of Stock withheld as payment of any tax withholding obligation is insufficient to discharge that tax withholding obligation, then the Holder shall pay to the Corporation, immediately upon the Committee's request, the amount of that deficiency. 5.10 Limitation on Aggregate Value of Shares That May Become First Exercisable During Any Calendar Year Under an Incentive Option. Except as is otherwise provided in Paragraph 6.2, with respect to any Incentive Option granted under this Plan, the aggregate Fair Market Value of shares of Stock subject to an Incentive Option and the aggregate Fair Market Value of shares of Stock or stock of any Subsidiary (or a predecessor of the Corporation or a Subsidiary) subject to any other incentive stock option (within the meaning of Section 422 of the Code) of the Corporation or its Subsidiaries (or a predecessor corporation of any such corporation) that first become purchasable by a Holder in any calendar year may not (with respect to that Holder) exceed $100,000, or such other amount as may be prescribed under Section 422 of the Code or applicable regulations or rulings from time to time. As used in the previous sentence, Fair Market Value shall be determined as of the date the Incentive Option is granted. For purposes of this Paragraph 5.10 "predecessor corporation" means (a) a corporation that was a party to a transaction described in Section 425(a) of the Code (or which would be so described if a substitution or assumption under that Section had been effected) with the Corporation, (b) a corporation which, at the time the new incentive stock option (within the meaning of Section 422 of the Code) is granted, is a Subsidiary of the Corporation or a predecessor corporation of any such corporations, or (c) a predecessor corporation of any such corporations. Failure to comply with this provision shall not impair the enforceability or exercisability of any Option, but shall cause the excess amount of shares to be reclassified in accordance with the Code. 5.11 No Fractional Shares. The Corporation shall not in any case be required to sell, issue, or deliver a fractional share with respect to any Option. In lieu of the issuance of any fractional share of Stock, the Corporation shall pay to the Holder an amount in cash equal to the same fraction (as the fractional Stock) of the Fair Market Value of a share of Stock determined as of the date of the applicable Exercise Notice. 5.12 Modification. Extension and Renewal of Options. Subject to the terms and conditions of and within the limitations of the Plan, Rule 16b-3, the performance-based compensation exception of Section 162(m) of the Code, and any consent required by the last sentence of this Paragraph 5.12, the Committee may (a) modify, vest, extend or renew outstanding Options granted under the Plan, (b) accept the surrender of Options outstanding hereunder (to the extent not previously exercised) and authorize the granting of new Options in substitution for outstanding Options (to the extent not previously exercised), and (c) amend the terms of an Incentive Option at any time to include provisions that have the effect of changing the Incentive Option to a Nonstatutory Option. Nevertheless, without the consent of the Holder, the Committee may not modify any outstanding Options so as to specify a higher or lower Exercise Price or accept the surrender of outstanding Incentive Options and authorize the granting of new Options in substitution therefor specifying a higher or lower Exercise Price. In addition, no modification of an Option granted hereunder shall, without the consent of the Holder, alter or impair any rights or obligations under any Option theretofore granted hereunder to such Holder under the Plan except, with respect to Incentive Options, as may be necessary to satisfy the requirements of Section 422 of the Code or as permitted in clause (c) of this Paragraph 5.12. 5.13 Other Agreement Provisions. The Award Agreements authorized under the Plan shall contain such provisions in addition to those required by the Plan (including, without limitation, restrictions or the removal of restrictions upon the exercise of the Option and the retention or transfer of shares thereby acquired) as the Committee may deem advisable. Each Award Agreement shall identify the Option evidenced thereby as an Incentive Option or Nonstatutory Option, as the case may be, and no Award Agreement shall cover both an Incentive Option and a Nonstatutory Option. Each Award Agreement relating to an Incentive Option granted hereunder shall contain such limitations and restrictions upon the exercise of the Incentive Option to which it relates as shall be necessary for the Incentive Option to which such Award Agreement relates to constitute an incentive stock option, as defined in Section 422 of the Code. SECTION 6. ADJUSTMENT PROVISIONS - --------------------------------- 6.1 Adjustment of Awards and Authorized Stock. The terms of an Award and the number of shares of Stock authorized pursuant to Paragraph 2.1 for issuance under the Plan shall be subject to adjustment, from time to time, in accordance with the following provisions: (a) If at any time or from time to time, the Corporation shall subdivide as a whole (by reclassification, by a Stock split, by the issuance of a distribution on Stock payable in Stock or otherwise) the number of shares of Stock then outstanding into a greater number of shares of Stock, then (i) the maximum number of shares of Stock available for the Plan as provided in Paragraph 2.1 shall be increased proportionately, and the kind of shares or other securities available for the Plan shall be appropriately adjusted, (ii) the number of shares of Stock (or other kind of shares or securities) that may be acquired under any Award shall be increased proportionately, (iii) the maximum number of shares of Stock subject to Options that may be granted to any Eligible Individual in any single fiscal year of the Corporation shall be increased proportionately, and (iv) the price (including Exercise Price) for each share of Stock (or other kind of shares or unit of other securities) subject to then outstanding Awards shall be reduced proportionately, without changing the aggregate purchase price or value as to which outstanding Awards remain exercisable or subject to restrictions. (b) If at any time or from time to time, the Corporation shall consolidate as a whole (by reclassification, reverse Stock split, or otherwise) the number of shares of Stock then outstanding into a lesser number of shares of Stock, (i) the maximum number of shares of Stock available for the Plan as provided in Paragraph 2.1 shall be decreased proportionately, and the kind of shares or other securities available for the Plan shall be appropriately adjusted, (ii) the number of shares of Stock (or other kind of shares or securities) that may be acquired under any Award shall be decreased proportionately, (iii) the maximum number of shares of Stock subject to Options that may be granted to any Eligible Individual in any single fiscal year of the Corporation shall be decreased proportionately, and (iv) the price (including Exercise Price) for each share of Stock (or other kind of shares or unit of other securities) subject to then outstanding Awards shall be increased proportionately, without changing the aggregate purchase price or value as to which outstanding Awards remain exercisable or subject to restrictions. (c) Whenever the number of shares of Stock subject to outstanding Awards and the price for each share of Stock subject to outstanding Awards are required to be adjusted as provided in this Paragraph 6.1, the Committee shall promptly prepare a notice setting forth, in reasonable detail, the event requiring adjustment, the amount of the adjustment, the method by which such adjustment was calculated, and the change in price and the number of shares of Stock, other securities, cash or property purchasable subject to each Award after giving effect to the adjustments. The Committee shall promptly give each Holder such a notice. (d) Adjustments under subparagraphs 6.1(a) and (b) shall be made by the Committee, and its determination as to what adjustments shall be made and the extent thereof shall be final, binding and conclusive. No fractional interest shall be issued under the Plan on account of any such adjustments. 6.2 Changes in Control. Any Award Agreement may provide that, upon the occurrence of a Change in Control, all outstanding Options shall immediately become fully vested and exercisable in full, including that portion of any Option that pursuant to the terms and provisions of the applicable Award Agreement had not yet become exercisable (the total number of shares of Stock as to which an Option is exercisable upon the occurrence of a Change in Control is referred to herein as the "Total Shares"). If a Change in Control involves a Restructure or occurs in connection with a series of related transactions involving a Restructure and if such Restructure is in the form of a Non-Surviving Event and as a part of such Restructure shares of stock, other securities, cash or property shall be issuable or deliverable in exchange for Stock, then the Holder of an Award shall be entitled to purchase (in lieu of the Total Shares that the Holder would otherwise be entitled to purchase) the number of shares of stock, other securities, cash or property to which that number of Total Shares would have been entitled in connection with such Restructure (and at an aggregate Exercise Price equal to the Exercise Price that would have been payable if that number of Total Shares had been purchased on the exercise of the Option immediately before the consummation of the Restructure). 6.3 Restructure and No Change in Control. In the event a Restructure should occur at any time while there is any outstanding Award hereunder and that Restructure does not occur in connection with a Change in Control or in connection with a series of related transactions involving a Change in Control, then: (a) no outstanding Option shall immediately become fully vested and exercisable in full merely because of the occurrence of the Restructure; and (b) at the option of the Committee, the Corporation may (but shall not be required to) take any one or more of the following actions: (i) accelerate in whole or in part the time of the vesting and exercisability of any one or more of the outstanding Options so as to provide that those Options shall be exercisable before, upon, or after the consummation of the Restructure; (ii) if the Restructure is in the form of a Non-Surviving Event, cause the surviving entity to assume in whole or in part any one or more of the outstanding Awards upon such terms and provisions as the Committee deems desirable; or (iii) redeem in whole or in part any one or more of the outstanding Awards (whether or not then exercisable) in consideration of a cash payment, as such payment may be reduced for tax withholding obligations as contemplated in Paragraph 5.9 in an amount equal to the excess of (1) the Fair Market Value, determined as of a date immediately preceding the consummation of the Restructure, of the aggregate number of shares of Stock subject to the Award and as to which the Award is being redeemed over (2) the Exercise Price for that number of shares of Stock; The Corporation shall promptly notify each Holder of any election or action taken by the Corporation under this Paragraph 6.3. In the event of any election or action taken by the Corporation pursuant to this Paragraph 6.3 that requires the amendment or cancellation of any Award Agreement, as may be specified in any notice to the Holder thereof, that Holder shall promptly deliver that Award Agreement to the Corporation in order for that amendment or cancellation to be implemented by the Corporation and the Committee. The failure of the Holder to deliver any such Award Agreement to the Corporation as provided in the preceding sentence shall not in any manner effect the validity or enforceability of any action taken by the Corporation and the Committee under this Paragraph 6.3, including, without limitation, any redemption of an Award as of the consummation of a Restructure. Any cash payment to be made by the Corporation pursuant to this Paragraph 6.3 in connection with the redemption of any outstanding Awards shall be paid to the Holder thereof currently with the delivery to the Corporation of the Award Agreement evidencing that Award; provided, however, that any such redemption shall be effective upon the consummation of the Restructure notwithstanding that the payment of the redemption price may occur subsequent to the consummation. If all or any portion of an outstanding Award is to be exercised or accelerated upon or after the consummation of a Restructure that is in the form of a Non-Surviving Event and as a part of that Restructure shares of stock, other securities, cash or property shall be issuable or deliverable in exchange for Stock, then the Holder of the Award shall thereafter be entitled to purchase (in lieu of the number of shares of Stock that the Holder would otherwise be entitled to purchase) the number of shares of stock, other securities, cash or property to which such number of shares of Stock would have been entitled in connection with the Restructure (and, for Options, at an aggregate Exercise Price equal to the Exercise Price that would have been payable if that number of Total Shares had been purchased on the exercise of the Option immediately before the consummation of the Restructure). 6.4 Notice of Change in Control or Restructure. The Corporation shall attempt to keep all Holders informed with respect to any Change in Control or Restructure or of any potential Change in Control or Restructure to the same extent that the Corporation's stockholders are informed by the Corporation of any such event or potential event. SECTION 7. ADDITIONAL PROVISIONS - --------------------------------- 7.1 Termination of Employment. Subject to the last sentence of Paragraph 6.2, if a Holder is an Eligible Individual because the Holder is an Employee and if that employment relationship is terminated for any reason other than the Holder's death or Disability (hereafter defined), then any and all Awards held by that Holder in the Holder's capacity as an Employee as of the date of the termination shall become null and void as of the date of the termination; provided, however, that the portion, if any, of any and all Awards held by the Holder that are exercisable as of the date the Holder's employment is terminated shall be exercisable by that Holder for a period of the lesser of (a) the remainder of the term of the Award or (b) ninety (90) days following the date of the Holder's termination. Any portion of an Award not exercised upon the expiration of the periods specified in (a) or (b) shall be null and void. 7.2 Other Loss of Eligibility. If a Holder is an Eligible Individual because the Holder is serving in a capacity other than as an Employee and if that capacity is terminated for any reason other than the Holder's death, then any and all Awards held by the Holder that were granted because of that capacity as of the date of the termination shall become null and void as of the date of the termination; provided, however, that the portion, if any, of any and all Awards held by the Holder that are exercisable as of the date of the Holder ceases to serve in such capacity shall be exercisable by that Holder for a period of the lesser of (a) the remainder of the term of the Award or (b) ninety (90) days following the date of the Holder ceases to serve in such capacity. Any portion of an Award not exercised upon the expiration of the periods specified in (a) or (b) shall be null and void. 7.3 Death. Upon (a) the death of a Holder, who is an Eligible Individual because the Holder is an Employee, during the Holder's employment or within the ninety (90) days following the Holder's retirement described in Paragraph 7.4 below, or (b) the death of a Holder who is an Eligible Individual because the Holder is serving in a capacity other than as an Employee, then any and all Awards held by the Holder that are not yet exercisable as of the date of the Holder's death shall become null and void as of the date of death; provided, however, that the portion, if any, of any and all Awards held by the Holder that are exercisable as of the date of death shall be exercisable by that Holder's legal representatives, legatees or distributees for a period of the lesser of (a) the remainder of the term of the Award or (b) one year following the date of the Holder's death. Any portion of an Award not exercised upon the expiration of the periods specified in (a) or (b) shall be null and void. Except as expressly provided in this Paragraph 7.3, no Award held by a Holder shall be exercisable after the death of that Holder. 7.4 Retirement. If a Holder is an Eligible Individual because the Holder is an Employee and that employment relationship is terminated by reason of the Holder's Normal Retirement, then the portion, if any, of any and all Awards held by the Holder that are not yet exercisable as of the date of that retirement shall become null and void as of the date of retirement; provided, however, that the portion, if any, of any and all Awards held by the Holder that are exercisable as of the date of that retirement shall be exercisable for a period of the lesser of (a) the remainder of the term of the Award or (b) 90 days following the date of retirement. 7.5 Disability. If a Holder is an Eligible Individual because the Holder is an Employee and if that employment relationship is terminated by reason of the Holder's Disability, then the portion, if any, of any and all Awards held by the Holder that are not yet exercisable as of the date of that termination for Disability shall become null and void as of the date of termination; provided, however, that the portion, if any, of any and all Awards held by the Holder that are exercisable as of the date of that termination shall survive the termination for the lesser of (a) the original term of the Award or (b) one year following the date of termination, and the Award shall be exercisable by the Holder, his guardian, or his legal representative. "Disability" shall have the meaning given it in the employment agreement of the Holder; provided, however, that if that Holder has no employment agreement, "Disability" shall mean a physical or mental impairment of sufficient severity that, in the opinion of the Corporation, either the Holder is unable to continue performing the duties he performed before such impairment or the Holder's condition entitles him to disability benefits under any insurance or employee benefit plan of the Corporation or its Subsidiaries and that impairment or condition is cited by the Corporation as the reason for termination of the Holder's employment. 7.6 Leave of Absence. With respect to an Award, the Committee may, in its sole discretion, determine that any Holder who is on leave of absence for any reason will be considered to still be in the employ of the Corporation, provided that rights to that Award during a leave of absence will be limited to the extent to which those rights were earned or vested when the leave of absence began. 7.7 Transferability of Awards. Except as otherwise provided in a particular Award Agreement, and then only to the extent permitted by applicable law, an Award requiring exercise shall be exercisable during a Holder's lifetime only by that Holder or by that Holder's guardian or legal representative. Except as otherwise provided in a particular Award Agreement, and then only to the extent permitted by applicable law, an Award requiring exercise shall not be transferrable other than by will or the laws of descent and distribution, except that with the Committee's consent, a Nonstatutory Option may be transferred by sale, gift or other transfer to a Permitted Transferee. 7.8 Forfeiture and Restrictions on Transfer. Each Award Agreement may contain or otherwise provide for conditions giving rise to the forfeiture of the Stock acquired pursuant to an Award or otherwise and may also provide for those restrictions on the transferability of shares of the Stock acquired pursuant to an Award or otherwise that the Committee in its sole and absolute discretion may deem proper or advisable. The conditions giving rise to forfeiture may include, but need not be limited to, the requirement that the Holder render substantial services to the Corporation or its Subsidiaries for a specified period of time. The restrictions on transferability may include, but need not be limited to, options and rights of first refusal in favor of the Corporation and stockholders of the Corporation other than the Holder of such shares of Stock who is a party to the particular Award Agreement or a subsequent holder of the shares of Stock who is bound by that Award Agreement. 7.9 Delivery of Certificates of Stock. Subject to Paragraph 7.10, the Corporation shall promptly issue and deliver a certificate representing the number of shares of Stock as to which an Option has been exercised after the Corporation receives an Exercise Notice and upon receipt by the Corporation of the Exercise Price and any tax withholding as may be requested. The value of the shares of Stock transferable because of an Award under the Plan shall not bear any interest owing to the passage of time, except as may be otherwise provided in an Award Agreement. If a Holder is entitled to receive certificates representing Stock received for more than one form of Award under the Plan, separate Stock certificates shall be issued with respect to Incentive Options and Nonstatutory Options. 7.10 Conditions to Delivery of Stock. Nothing herein or in any Award granted hereunder or any Award Agreement shall require the Corporation to issue any shares with respect to any Award if that issuance would, in the opinion of counsel for the Corporation, constitute a violation of the Securities Act or any similar or superseding statute or statutes, any other applicable statute or regulation, or the rules of any applicable securities exchange or securities association, as then in effect. At the time of any exercise of an Option, the Corporation may, as a condition precedent to the exercise of such Option, require from the Holder of the Award (or in the event of his death, his legal representatives, heirs, legatees, or distributees) such written representations, if any, concerning the Holder's intentions with regard to the retention or disposition of the shares of Stock being acquired pursuant to the Award and such written covenants and agreements, if any, as to the manner of disposal of such shares as, in the opinion of counsel to the Corporation, may be necessary to ensure that any disposition by that Holder (or in the event of the Holder's death, his legal representatives, heirs, legatees, or distributees), will not involve a violation of the Securities Act or any similar or superseding statute or statutes, any other applicable state or federal statute or regulation, or any rule of any applicable securities exchange or securities association, as then in effect. 7.11 Securities Act Legend. Certificates for shares of Stock, when issued, may have the following legend, or statements of other applicable restrictions, endorsed thereon, and may not be immediately transferable: THE SHARES OF STOCK REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY STATE SECURITIES LAWS. THE SHARES MAY NOT BE OFFERED FOR SALE, SOLD, PLEDGED, TRANSFERRED, OR OTHERWISE DISPOSED OF UNTIL THE HOLDER HEREOF PROVIDES EVIDENCE SATISFACTORY TO THE ISSUER (WHICH, IN THE DISCRETION OF THE ISSUER, MAY INCLUDE AN OPINION OF COUNSEL SATISFACTORY TO THE ISSUER) THAT SUCH OFFER, SALE, PLEDGE, TRANSFER, OR OTHER DISPOSITION WILL NOT VIOLATE APPLICABLE FEDERAL OR STATE LAWS. This legend shall not be required for shares of Stock issued pursuant to an effective registration statement under the Securities Act. 7.12 Legend for Restrictions on Transfer. Each certificate representing shares issued to a Holder pursuant to an Award granted under the Plan shall, if such shares are subject to any transfer restriction, including a right of first refusal, provided for under this Plan or an Award Agreement, bear a legend that complies with applicable law with respect to the restrictions on transferability contained in this Paragraph 7.12, such as: THE SHARES OF STOCK REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO RESTRICTIONS ON TRANSFERABILITY IMPOSED BY THAT CERTAIN INSTRUMENT ENTITLED "FROZEN FOOD EXPRESS INDUSTRIES, INC. 2002 INCENTIVE AND NONSTATUTORY OPTION PLAN" AS ADOPTED BY FROZEN FOOD EXPRESS INDUSTRIES, INC. (THE "CORPORATION") ON __________, 2002, AND AN AGREEMENT THEREUNDER BETWEEN THE CORPORATION AND (HOLDER) DATED ____________________ 20__, AND MAY NOT BE TRANSFERRED, SOLD, OR OTHERWISE DISPOSED OF EXCEPT AS THEREIN PROVIDED. THE CORPORATION WILL FURNISH A COPY OF SUCH INSTRUMENT AND AGREEMENT TO THE RECORD HOLDER OF THIS CERTIFICATE WITHOUT CHARGE ON REQUEST TO THE CORPORATION AT ITS PRINCIPAL PLACE OF BUSINESS OR REGISTERED OFFICE. 7.13 Rights as a Stockholder. A Holder shall have no right as a stockholder with respect to any shares covered by his Award until a certificate representing those shares is issued in his name. No adjustment shall be made for dividends (ordinary or extraordinary, whether in cash or other property) or distributions or other rights for which the record date is before the date that certificate is issued, except as contemplated by Section 6. Nevertheless, dividends and dividend equivalent rights may be extended to and made part of any Award denominated in Stock or units of Stock, subject to such terms, conditions, and restrictions as the Committee may establish. The Committee may also establish rules and procedures for the crediting of interest on deferred cash payments and dividend equivalents for deferred payment denominated in Stock or units of Stock. 7.14 Furnish Information. Each Holder shall furnish to the Corporation all information requested by the Corporation to enable it to comply with any reporting or other requirement imposed upon the Corporation by or under any applicable statute or regulation. 7.15 Obligation to Exercise. The granting of an Award hereunder shall impose no obligation upon the Holder to exercise the same or any part thereof. 7.16 Remedies. The Corporation shall be entitled to recover from a Holder reasonable attorneys' fees incurred in connection with the enforcement of the terms and provisions of the Plan and any Award Agreement whether by an action to enforce specific performance or for damages for its breach or otherwise. 7.17 Information Confidential. As partial consideration for the granting of each Award hereunder, the Holder shall agree with the Corporation that he will keep confidential all information and knowledge that he has relating to the manner and amount of his participation in the Plan; provided, however, that such information may be disclosed as required by law and may be given in confidence to the Holder's spouse, tax and financial advisors, or to a financial institution to the extent that such information is necessary to secure a loan. In the event any breach of this promise comes to the attention of the Committee, it shall take into consideration that breach in determining whether to recommend the grant of any future Award to that Holder, as a factor militating against the advisability of granting any such future Award to that individual. 7.18 Consideration. No Option shall be exercisable with respect to a Holder unless and until the Holder shall have paid cash or property to, or performed services for, the Corporation or any of its Subsidiaries that the Committee believes is equal to or greater in value than the par value of the Stock subject to such Award. SECTION 8. EFFECTIVENESS, DURATION AND AMENDMENT OF PLAN - --------------------------------------------------------- 8.1 Effectiveness. The Plan shall not be effective unless and until it has been approved by both the Board of Directors and the holders of a majority of the shares of Stock of the Corporation present or represented by proxy and entitled to vote at the meeting of the stockholders of the Corporation at which the Plan is presented for stockholder approval. No Awards may be granted prior to the Effective Date. 8.2 Duration. No Awards may be granted hereunder after the date that is ten (10) years from the earlier of (a) the Effective date and (b) the date the Plan is approved by the stockholders of the Corporation. 8.3 Amendment and Termination. The Board of Directors may, insofar as permitted by law, with respect to any shares which, at the time, are not subject to Awards, suspend or discontinue the Plan or revise or amend it in any respect whatsoever, and may amend any provision of the Plan or any Award Agreement to make the Plan or the Award Agreement, or both, comply with Section 16(b) of the Exchange Act and the exemptions from that Section in the regulations thereunder, or the performance-based compensation exception of Section 162(m) of the Code. The Board of Directors may also amend, modify, suspend or terminate the Plan for the purpose of meeting or addressing any changes in other legal requirements applicable to the Corporation or the Plan or for any other purpose permitted by law. The Plan may not be amended without the consent of the holders of a majority of the shares of Stock then outstanding to (a) increase materially the aggregate number of shares of Stock that may be issued under the Plan or the maximum number of shares subject to Options that may be granted to any Eligible Individual in any single fiscal year of the Corporation (except for adjustments pursuant to Section 6 of the Plan), (b) increase materially the benefits accruing to Eligible Individuals under the Plan, or (c) modify materially the requirements about eligibility for participation in the Plan; provided, however, that such amendments may be made without the consent of stockholders of the Corporation if changes occur in law or other legal requirements (including 16b-3) that would permit otherwise. SECTION 9. GENERAL - ------------------- 9.1 Application of Funds. The proceeds received by the Corporation from the sale of shares pursuant to Awards may be used for any general corporate purpose. 9.2 Right of the Corporation and Subsidiaries to Terminate Employment. Nothing contained in the Plan, or in any Award Agreement, shall confer upon any Holder the right to continue in the employ of the Corporation or any Subsidiary, or interfere in any way with the rights of the Corporation or any Subsidiary to terminate the Holder's employment at any time. 9.3 No Liability for Good Faith Determinations. Neither the members of the Board of Directors nor any member of the Committee shall be liable for any act, omission, or determination taken or made in good faith with respect to the Plan or any Award granted under it, and members of the Board of Directors and the Committee shall be entitled to indemnification and reimbursement by the Corporation in respect of any claim, loss, damage, or expense (including attorneys' fees, the costs of settling any suit, provided such settlement is approved by independent legal counsel selected by the Corporation, and amounts paid in satisfaction of a judgment, except a judgment based on a finding of bad faith) arising therefrom to the full extent permitted by law and under any directors and officers liability or similar insurance coverage that may from time to time be in effect. This right to indemnification shall be in addition to, and not a limitation on, any other indemnification rights any member of the Board of Directors or the Committee may have. 9.4 Other Benefits. Participation in the Plan shall not preclude the Holder from eligibility in any other stock or stock option plan of the Corporation or any Subsidiary or any old age benefit, insurance, pension, profit sharing retirement, bonus, or other extra compensation plans that the Corporation or any Subsidiary has adopted, or may, at any time, adopt for the benefit of its Employees. Neither the adoption of the Plan by the Board of Directors nor the submission of the Plan to the stockholders of the Corporation for approval shall be construed as creating any limitations on the power of the Board of Directors to adopt such other incentive arrangements as it may deem desirable, including, without limitation, the granting of stock options and the awarding of stock and cash otherwise than under the Plan, and such arrangements may be either generally applicable or applicable only in specific cases. 9.5 Exclusion From Pension and Profit-Sharing Compensation. By acceptance of an Award (whether in Stock or cash), as applicable, each Holder shall be deemed to have agreed that the Award is special incentive compensation that will not be taken into account in any manner as salary, compensation or bonus in determining the amount of any payment under any pension, retirement or other employee benefit plan of the Corporation or any Subsidiary. In addition, each beneficiary of a deceased Holder shall be deemed to have agreed that the Award will not affect the amount of any life insurance coverage, if any, provided by the Corporation or a Subsidiary on the life of the Holder that is payable to the beneficiary under any life insurance plan covering employees of the Corporation or any Subsidiary. 9.6 Execution of Receipts and Releases. Any payment of cash or any issuance or transfer of shares of Stock to the Holder, or to his legal representative, heir, legatee, or distributee, in accordance with the provisions hereof, shall, to the extent thereof, be in full satisfaction of all claims of such persons hereunder. The Committee may require any Holder, legal representative, heir, legatee, or distributee, as a condition precedent to such payment, to execute a release and receipt therefor in such form as it shall determine. 9.7 Unfunded Plan. Insofar as it provides for Awards of cash and Stock, the Plan shall be unfunded. Although bookkeeping accounts may be established with respect to Holders who are entitled to cash, Stock or rights thereto under the Plan, any such accounts shall be used merely as a bookkeeping convenience. The Corporation shall not be required to segregate any assets that may at any time be represented by cash, Stock or rights thereto, nor shall the Plan be construed as providing for such segregation, nor shall the Corporation nor the Board of Directors nor the Committee be deemed to be a trustee of any cash, Stock or rights thereto to be granted under the Plan. Any liability of the Corporation to any Holder with respect to a grant of cash, Stock or rights thereto under the Plan shall be based solely upon any contractual obligations that may be created by the Plan and any Award Agreement; no such obligation of the Corporation shall be deemed to be secured by any pledge or other encumbrance on any property of the Corporation. Neither the Corporation nor the Board of Directors nor the Committee shall be required to give any security or bond for the performance of any obligation that may be created by the Plan. 9.8 No Guarantee of Interests. Neither the Committee nor the Corporation guarantees the Stock of the Corporation from loss or depreciation. 9.9 Payment of Expenses. All expenses incident to the administration, termination, or protection of the Plan, including, but not limited to, legal and accounting fees, shall be paid by the Corporation or its Subsidiaries; provided, however, the Corporation or a Subsidiary may recover any and all damages, fees, expenses, and costs arising out of any actions taken by the Corporation to enforce its rights under this Plan. 9.10 Corporation Records. Records of the Corporation or its Subsidiaries regarding the Holder's period of employment, termination of employment and the reason therefor, leaves of absence, re-employment, and other matters shall be conclusive for all purposes hereunder, unless determined by the Committee to be incorrect. 9.11 Information. The Corporation and its Subsidiaries shall, upon request or as may be specifically required hereunder, furnish or cause to be furnished, all of the information or documentation which is necessary or required by the Committee to perform its duties and functions under the Plan. 9.12 Corporation Action. Any action required of the Corporation shall be by resolution of its Board of Directors or by a person authorized to act by resolution of the Board of Directors. 9.13 Severability. If any provision of this Plan is held to be illegal or invalid for any reason, the illegality or invalidity shall not affect the remaining provisions hereof, but such provision shall be fully severable and the Plan shall be construed and enforced as if the illegal or invalid provision had never been included herein. If any of the terms or provisions of this Plan conflict with the requirements of Rule 16b-3 (as those terms or provisions are applied to Eligible Individuals who are subject to Section 16(b) of the Exchange Act) or Section 422 of the Code (with respect to Incentive Options), then those conflicting terms or provisions shall be deemed inoperative to the extent they so conflict with the requirements of Rule 16b-3 or Section 422 of the Code. With respect to Incentive Options, if this Plan does not contain any provision required to be included herein under Section 422 of the Code, that provision shall be deemed to be incorporated herein with the same force and effect as if that provision had been set out at length herein; provided, further, that, to the extent any Option that is intended to qualify as an Incentive Option cannot so qualify, that Option (to that extent) shall be deemed a Nonstatutory Option for all purposes of the Plan. 9.14 Notices. Whenever any notice is required or permitted hereunder, such notice must be in writing and personally delivered or sent by mail. Any notice required or permitted to be delivered hereunder shall be deemed to be delivered on the date on which it is personally delivered, or, whether actually received or not, on the third Business Day after it is deposited in the United States mail, certified or registered, postage prepaid, addressed to the person who is to receive it at the address which such person has theretofore specified by written notice delivered in accordance herewith. The Corporation or a Holder may change, at any time and from time to time, by written notice to the other, the address which it or he had previously specified for receiving notices. Until changed in accordance herewith, the Corporation and each Holder shall specify as its and his address for receiving notices the address set forth in the Award Agreement pertaining to the shares to which such notice relates. 9.15 Waiver of Notice. Any person entitled to notice hereunder may waive such notice. 9.16 Successors. The Plan shall be binding upon the Holder, his legal representatives, heirs, legatees, and distributees, and Permitted Transferees, upon the Corporation, its successors, and assigns, and upon the Committee, and its successors. 9.17 Headings. The titles and headings of Sections and Paragraphs are included for convenience of reference only and are not to be considered in construction of the provisions hereof. 9.18 Governing Law. All questions arising with respect to the provisions of the Plan shall be determined by application of the laws of the State of Texas except to the extent Texas law is preempted by federal law. Questions arising with respect to the provisions of an Award Agreement that are matters of contract law shall be governed by the laws of the state specified in the Award Agreement, except to the extent Texas corporate law conflicts with the contract law of such state, in which event Texas corporate law shall govern. The obligation of the Corporation to sell and deliver Stock hereunder is subject to applicable laws and to the approval of any governmental authority required in connection with the authorization, issuance, sale, or delivery of such Stock. 9.19 Word Usage. Words used in the masculine shall apply to the feminine where applicable, and wherever the context of this Plan dictates, the plural shall be read as the singular and the singular as the plural. IN WITNESS WHEREOF, Frozen Food Express Industries, Inc., acting by and through its officer hereunto duly authorized, has executed this instrument, this the 3 day of April, 2002. FROZEN FOOD EXPRESS INDUSTRIES, INC. - ------------------------------------ By: /s/ Stoney M. Stubbs, Jr. President -----END PRIVACY-ENHANCED MESSAGE-----