SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities and Exchange Act
of 1934
Filed by Registrant X
Filed by a Party other than the Registrant
Check the Appropriate Box:
Preliminary Proxy Statement
X Definitive Proxy Statement
Definitive Additional Materials
Soliciting Materials Pursuant to ss. 240.14a-11(c) or ss. 240.14a-12
COVENANT TRANSPORT, INC.
(Name of Registrant as Specified in its Charter)
The Covenant Transport, Inc. Board of Directors
(Name of Person(s) Filing Proxy Statement)
Payment of Filing Fee (Check the Appropriate Box):
X No fee required
Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11
(1) Title of each class of securities to which transaction applies: N/A
(2) Aggregate number of securities to which transaction applies: N/A
(3) Price per unit or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11: N/A
(4) Proposed maximum aggregate value of transaction: N/A
(5) Total Fee paid N/A
Fee paid previously with preliminary materials N/A
Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was
paid previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
(1) Amount previously paid: N/A
(2) Form, Schedule or Registration Statement No.: N/A
(3) Filing Party: N/A
(4) Date Filed: N/A
<PAGE>
COVENANT TRANSPORT, INC.
400 Birmingham Highway
Chattanooga, Tennessee 37419
NOTICE AND PROXY STATEMENT
FOR ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON MAY 20, 1999
To Our Stockholders:
The 1999 Annual Meeting of Stockholders (the "Annual Meeting") of Covenant
Transport, Inc., a Nevada Corporation (the "Company"), will be held at the
Company, 400 Birmingham Highway, Chattanooga, Tennessee 37419, at 10:00 a.m.,
Eastern Time, on Thursday, May 20, 1999, for the following purposes:
1. To consider and act upon a proposal to elect seven (7) directors of
the Company;
2. To consider and act upon a proposal to ratify the selection of
PricewaterhouseCoopers LLP as independent public accountants for
the Company for 1999;
3. To consider and act upon a proposal to amend the Company's
Incentive Stock Plan to reserve an additional 651,550 shares of the
Company's Class A common stock for issuance to participants; and
4. To consider and act upon such other matters as may properly come
before the meeting and any adjournment thereof.
The foregoing matters are more fully described in the accompanying Proxy
Statement.
The Board of Directors has fixed the close of business on March 26, 1999,
as the record date for the determination of Stockholders entitled to receive
notice of and to vote at the Annual Meeting or any adjournment thereof. Shares
of Common Stock may be voted at the Annual Meeting only if the holder is
present at the Annual Meeting in person or by valid proxy. YOUR VOTE IS
IMPORTANT. TO ENSURE YOUR REPRESENTATION AT THE ANNUAL MEETING, YOU ARE
REQUESTED TO PROMPTLY DATE, SIGN, AND RETURN THE ACCOMPANYING PROXY IN THE
ENCLOSED ENVELOPE. Returning your proxy now will not interfere with your right
to attend the Annual Meeting or to vote your shares personally at the Annual
Meeting, if you wish to do so. The prompt return of your proxy may save the
Company additional expenses of solicitation.
All Stockholders are cordially invited to attend the Annual Meeting.
By Order of the Board of Directors
David R. Parker
Chairman of the Board
Chattanooga, Tennessee 37419
April 16, 1999
<PAGE>
COVENANT TRANSPORT, INC.
400 Birmingham Highway
Chattanooga, Tennessee 37419
PROXY STATEMENT
FOR ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD MAY 20, 1999
This Proxy Statement is furnished in connection with the solicitation of
proxies by the Board of Directors of Covenant Transport, Inc., a Nevada
corporation (the "Company"), to be used at the 1999 Annual Meeting of
Stockholders of the Company (the "Annual Meeting"), which will be held at the
Company, 400 Birmingham Highway, Chattanooga, Tennessee 37419 on Thursday, May
20, 1999, at 10:00 a.m. Eastern Time, and any adjournment thereof. All costs of
the solicitation will be borne by the Company. The approximate date of mailing
this proxy statement and the enclosed form of proxy is April 16, 1999.
The enclosed copy of the Company's annual report for the fiscal year ended
December 31, 1998, is not incorporated into this Proxy Statement and is not to
be deemed a part of the proxy solicitation material.
PROXIES AND VOTING
Only stockholders of record at the close of business on March 26, 1999
("Stockholders"), are entitled to vote, either in person or by valid proxy, at
the Annual Meeting. Holders of Class A Common Stock are entitled to one vote
for each share held. Holders of Class B Common Stock are entitled to two votes
for each share held. On March 26, 1999, there were issued and outstanding
12,561,550 shares of Class A Common Stock, par value one cent ($.01), entitled
to cast an aggregate 12,561,550 votes on all matters subject to a vote at the
Annual Meeting, and 2,350,000 shares of Class B Common Stock, par value one
cent ($.01), entitled to cast an aggregate 4,700,000 votes on all matters
subject to a vote at the Annual Meeting. The Company has a total of 14,911,550
shares of Common Stock outstanding, entitled to cast an aggregate 17,261,550
votes on all matters subject to a vote at the Annual Meeting. The number of
issued and outstanding shares excludes (i) 648,450 shares of Class A Common
Stock reserved for issuance to key employees under the Company's Incentive
Stock Plan, of which 211,500 shares were at March 26, 1999, subject to vested
but unexercised options (and are not entitled to vote at the Annual Meeting),
(ii) 200,000 shares of Class A Common Stock reserved for issuance to
non-officer employees under the Company's Non-Officer Incentive Stock Plan,
of which no shares were at March 26, 1999, subject to vested but unexercised
options, and (iii) 40,000 shares of Class A Common Stock underlying options
granted by the Board of Directors of which none have vested. The Company has
no other class of stock outstanding. Stockholders are not entitled to
cumulative voting in the election of directors.
All proxies that are properly executed and received by the Company prior
to the Annual Meeting will be voted in accordance with the choices indicated.
Any Stockholder may be represented and may vote at the Annual Meeting by a
proxy or proxies appointed by an instrument in writing. In the event that
any such instrument in writing shall designate two (2) or more persons to act
as proxies, a majority of such persons present at the meeting, or, if only
one shall be present, then that one shall have and may exercise all of the
powers conferred by such written instrument upon all of the persons so
designated unless the instrument shall otherwise provide. No such proxy shall
be valid after the expiration of six (6) months from the date of its execution,
unless coupled with an interest or unless the person executing it specifies
therein the length of time for which it is to continue in force, which in no
case shall exceed seven (7) years from the date of its execution. Any
Stockholder giving a proxy may revoke it at any time prior to its use at the
Annual Meeting by filing with the Secretary of the Company a revocation of the
proxy, by delivering to the Company a duly executed proxy bearing a later date,
or by attending the meeting and voting in person.
Other than the election of Directors, which requires a plurality of the
votes cast, each matter to be submitted to the Stockholders requires the
affirmative vote of a majority of the votes cast at the meeting. For purposes
of determining the number of votes cast with respect to a particular matter,
only those cast "For" or "Against" are included. Proxies marked "Abstain" and
broker non-votes are counted only for purposes of determining whether a quorum
1
<PAGE>
is present at the meeting. If no direction is specified by the stockholder,
the proxy will be voted "For" the proposals as specified in this notice and,
at the discretion of the proxy holder, upon such other matters as may properly
come before the meeting or any adjournment thereof.
PROPOSAL 1
ELECTION OF DIRECTORS
At the Annual Meeting, the Stockholders will elect seven directors to
serve as the Board of Directors until the 2000 Annual Meeting of the
Stockholders of the Company or until their successors are elected and
qualified. The Company currently has seven directors -- David R. Parker,
Michael W. Miller, R.H. Lovin, Jr., William T. Alt, Robert E. Bosworth, Hugh
O. Maclellan Jr., and Mark A. Scudder. In the absence of contrary instructions,
each proxy will be voted for the election of the existing directors.
Information Concerning Directors and Executive Officers
Information concerning the names, ages, positions with the Company,
tenure as a director, and business experience of the Company's current
directors, director nominees, and other executive officers is set forth
below. All references to experience with the Company include positions with
the Company's operating subsidiary, Covenant Transport, Inc., a Tennessee
corporation. All executive officers are elected annually by the Board of
Directors.
NAME AGE POSITION DIRECTOR SINCE
David R. Parker 41 Chairman of the Board,
President, Chief Executive 1985
Officer
Michael W. Miller 41 Executive Vice President,
Chief Operating Officer, 1995
Director
R. H. Lovin, Jr. 47 Vice President -
Administration, Secretary, 1994
Director
Joey B. Hogan 37 Treasurer and Chief Financial
Officer NA
Ronald B. Pope 54 Vice President - Sales and
Marketing NA
William T. Alt (1)(2) 62 Director 1994
Robert E. Bosworth 52 Director
(1)(2) 1998
Hugh O. Maclellan, 59 Director
Jr.(1)(2) 1994
Mark A. Scudder(1)(2) 36 Director 1994
(1) Member of the Audit Committee.
(2) Member of the Compensation Committee.
David R. Parker has served as President since founding the Company in 1985
and as Chairman of the Board and Chief Executive Officer since 1994. He has
guided the Company's growth from $7.7 million in 1986 to $370 million in 1998.
Mr. Parker was elected to the Board of Directors of the Truckload Carriers'
Association in 1994.
Michael W. Miller has served as the Company's Executive Vice President and
Chief Operating Officer since 1997. He previously served as the Company's Vice
President-Operations from 1993 to 1997 and in various other positions with the
Company from 1987 to 1993. Prior to joining the Company, Mr. Miller operated
his own cartage company from 1982 to 1986, served as a terminal manager
for Interstate Systems from 1979 to 1982, and held the position of traffic
manager for Jackson Manufacturing from 1975 to 1979.
2
<PAGE>
R. H. Lovin, Jr. has served as the Company's Vice President -
Administration since May 1994 and Corporate Secretary since August 1995. Mr.
Lovin previously served as the Company's Chief Financial Officer from 1986 to
1994. Before joining the Company, Mr. Lovin served as a comptroller/accountant
for Perry Smith Company and Olin Chemical Co.
Joey B. Hogan, the Company's Treasurer and Chief Financial Officer, joined
Covenant in those capacities in August 1997. Prior to joining the Company, Mr.
Hogan served as Chief Financial Officer of The McKenzie Companies in Cleveland,
Tennessee, a group of privately-owned companies, including National Cash
Advance and certain investment and real estate concerns. From 1986 to 1996,
Mr. Hogan served in various capacities, including three years as Director of
Finance, with Chattem, Inc., a publicly-held company, headquartered in
Chattanooga, Tennessee, involved in the manufacturing and marketing of over-
the-counter pharmaceuticals and toiletries products.
Ronald B. Pope has served as Covenant's Vice President - Sales and
Marketing since October 1993, having previously served as Covenant's sales
manager for the western region since December 1990. Mr. Pope has over 25
years of sales and marketing experience in the trucking industry.
William T. Alt has engaged in the private practice of law since 1962 and
has served as outside counsel to the Company since 1986.
Robert E. Bosworth currently serves as business and management consultant
to various corporations in the Chattanooga area. Prior to February 1998, Mr.
Bosworth served for more than five years as Executive Vice President and Chief
Financial Officer of Chattem, Inc., a publicly-held company, headquartered in
Chattanooga, Tennessee, involved in the manufacturing and marketing of
over-the-counter pharmaceuticals and toiletries products.
Hugh O. Maclellan, Jr. has served as Chairman of the Executive Committee
of Provident Life and Accident Insurance Company, Chattanooga, Tennessee,
since 1988. Mr. Maclellan is President of the Maclellan Foundation and Chairman
of the Board of Trustees of King College, Bristol, Tennessee. Mr. Maclellan
also serves as a director of SunTrust Bank, Chattanooga, N.A.
Mark A. Scudder has been an attorney for more than five years with Scudder
Law Firm, P.C., Lincoln, Nebraska, the Company's outside corporate and
securities counsel. Mr. Scudder is also a director of UMB Bank Nebraska, N.A.,
a national bank subsidiary of UMB Financial Corporation, a publicly-traded
bank holding company. Another principal of Scudder Law Firm, P.C. serves as a
member of the board of directors of Swift Transportation Co., Inc., a
nationwide truckload carrier with common stock traded on the Nasdaq National
Market.
Meetings and Compensation
Board of Directors. The Board of Directors of the Company held four
regularly scheduled meetings during the fiscal year ended December 31, 1998.
Each of the directors attended all meetings of the Board of Directors and all
meetings held by committees of the Board on which they served. Directors who
are not employees of the Company received an annual retainer of $10,000 plus
$1,000 per regularly scheduled meeting of the Board of Directors paid in
quarterly payments and reimbursement of expenses incurred in attending such
Board meetings. Compensation for each of the non-employee directors in 1998
was $14,000 for each of Messrs. Alt, Maclellan, and Scudder and $10,500 for Mr.
Bosworth who became a director after the first quarter of 1998. In August 1998,
the Board of Directors granted each non-employee director an option to purchase
5,000 shares of the Company's Class A Common Stock at $12.375 per share, the
fair market value on the date of the grant. The options vest 20% on each
anniversary of the grant date. The option grant was in lieu of an increase in
cash compensation.
3
<PAGE>
Compensation Committee. The Compensation Committee of the Board of
Directors met twice during 1998. This committee reviews all aspects of
compensation of the Company's executive officers and makes recommendations on
such matters to the full Board of Directors. The Report of the Compensation
Committee for 1998 is set forth below. See "Report of the Compensation
Committee."
Audit Committee. The Audit Committee met twice during 1998. The Audit
Committee makes recommendations to the Board concerning the selection of
outside auditors, reviews the Company's financial statements, reviews and
discusses audit plans, audit work, internal controls, and the report and
recommendations of the Company's independent auditors, and considers such
other matters in relation to the external audit of the financial affairs of the
Company as may be necessary or appropriate in order to facilitate accurate and
timely financial reporting. The Audit Committee also reviews the Company's
progress toward Year 2000 compliance.
Nominating Committee. The Board does not maintain a standing nominating
committee or other committee performing similar functions.
Compensation Committee Interlocks and Insider Participation. Messrs. Alt,
Bosworth, Maclellan, and Scudder served as the Compensation Committee in 1998.
None of such individuals has been an officer or employee of the Company. Mr.
Scudder's law firm serves as the Company's corporate and securities counsel and
earned approximately $250,100 in fees for legal services during 1998. Mr. Alt
serves as the Company's counsel in certain other matters and earned
approximately $15,200 in fees for legal services during 1998.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
In 1998, the Company paid David R. and Jacqueline F. Parker approximately
$90,000 in rent for the Company's former headquarters in Chattanooga,
Tennessee, and approximately $6,000 in rent for a small terminal and trailer
drop-lot at Greer, South Carolina. Effective June 1998, these two leases were
terminated without any further obligation of either party.
In 1998, the Company engaged in several transactions with Clyde M. Fuller, a
holder of approximately 12.80% of the Company's outstanding Common Stock. He
is the stepfather of David R. Parker and is employed by the Company at a
nominal salary. In May 1998, Mr. Fuller paid the Company $445,497 in
satisfaction of a promissory note dated June 6, 1997. During 1998, the Company
paid Mr. Fuller $262,940 to charter an airplane owned by Mr. Fuller.The average
rate per hour was approximately $1,200. The Company believes the rental rate
represents fair market value. Tenn-Ga Truck Sales, Inc., a corporation wholly
owned by Mr. Fuller, purchased used tractors from the Company for approximately
$768,000 during 1998. The price per tractor was the same offer the Company had
received from the equipment manufacturer, and the Company believes it
represents fair market value. Mr. Parker and Mr.Fuller agreed on the price.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT STOCKHOLDERS VOTE "FOR"
THE NOMINEES FOR DIRECTOR PRESENTED IN PROPOSAL 1.
4
<PAGE>
EXECUTIVE COMPENSATION
The following table sets forth information concerning the annual and
long-term compensation paid to the chief executive officer and the four other
named executive officers of the Company (the "Named Officers"), for services in
all capacities to the Company for the fiscal years ended December 31, 1998,
1997, and 1996.
<TABLE>
<CAPTION>
Summary Compensation Table
Long Term Compensation
Annual Compensation Awards Payouts
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Restricted
Name and Principal Other Annual Stock Options LTIP All Other
Position Year Salary Bonus<F1> Compensation<F2> Award(s) # Payouts Compensation<F3>
David R. Parker
Chairman,
President, and 1998 $487,500 $172,813 - - 18,250 - $8,828
Chief Executive 1997 $487,500 $140,000 - - - - $8,217
Officer 1996 $487,500 - - - 133,750 - $7,819
Michael W. Miller
Executive Vice 1998 $179,210 $ 86,000 - - 10,000 - -
President and 1997 $142,716 $ 50,000 - - - - -
Chief Operating 1996 $134,270 $ 7,000 - - 25,000 - -
Officer
Ronald B. Pope 1998 $108,323 $ 39,926 - - 10,000 - -
Vice President - 1997 $ 97,600 $ 34,097 - - - - -
Sales/Marketing 1996 $ 81,645
1996 $ 81,645 $ 12,000 - - 10,000 - -
R. H. Lovin, Jr. 1998 $102,891 $ 39,414 - - 7,500 - -
Vice President- 1997 $ 95,573 $ 15,000 - - - - -
Administration 1996 $ 88,899 $ 12,000 - - 15,000 - -
Joey B. Hogan
Chief Financial 1998 $136,732 $ 56,250 - - 10,000 - -
Officer and 1997 $ 46,040 $ 34,097 - - 25,000 - -
Treasurer 1996 - - - - - - -
- -------------------------
<FN>
<F1> Reflects value of bonus earned by the Named Officer during the fiscal year
covered.
<F2> Other annual compensation did not exceed 10% of any Named Officer's total
salary for any reported year.
<F3> Reportable portion of premiums paid on split - dollar life insurance
policies.
</FN>
</TABLE>
5
<PAGE>
The following table lists options or SARs granted to the Named Officers
during the fiscal year ended December 31, 1998.
<TABLE>
<CAPTION>
Option/SAR Grants in Last Fiscal Year
(Individual Grants)
<S> <C> <C> <C> <C> <C> <C>
Potential realizable
value at assumed
Individual Grants annual rates of stock
price appreciation for
option term
Options/ Exercise
SAR's Percent of total options/SARs or base Expiration
Name granted granted to employees in fiscal price Date 5% ($) 10% ($)
(#) year ($/Sh)
David R. Parker 18,250 6.2% 12.375 August 31, 2008 142,032 359,937
Michel W. Miller 10,000 3.4% 12.375 August 31, 2008 77,826 197,226
Ronald B. Pope 10,000 3.4% 12.375 August 31, 2008 77,826 197,226
R.H. Lovin, Jr. 7,500 2.5% 12.375 August 31, 2008 58,369 147,919
Joey B. Hogan 10,000 3.4% 12.375 August 31, 2008 77,826 197,226
</TABLE>
The following table demonstrates that no options under the Plan were
exercised during the fiscal year ended December 31, 1998, by the Named
Officers.
<TABLE>
<CAPTION>
Aggregated Option Exercises in Last Fiscal Year and Option Value
as of December 31, 1998
<S> <C> <C> <C> <C> <C>
Number of Securities
Underlying Unexercised Value of Unexercised
Shares Options In-the-Money
Acquired Value at Fiscal Year End Options at Fiscal year End<F1>($)
Name on Realized (#)
Exercise ($)
Exercisable Unexercisable Exercisable Unexercisable
David R. Parker -0- -0- 53,500 98,500 127,063 100,375
Michael W. Miller -0- -0- 34,000 25,000 92,375 55,000
Ronald B. Pope -0- -0- 9,000 21,000 37,500 55,000
R. H. Lovin, Jr. -0- -0- 30,000 16,500 68,625 41,250
Joey B. Hogan -0- -0- 5,000 30,000 -0- 55,000
- ---------------------------
<FN>
<F1> Based on the $17.875 closing price of the Company's Class A Common Stock on
December 31, 1998.
</FN>
</TABLE>
6
<PAGE>
The Company does not have a long-term incentive plan or a defined benefit
or actuarial plan and has never issued any stock appreciation rights.
Employment Agreements
The Company currently does not have any employment, severance, or
change-in-control agreements with any of its executive officers. However, under
certain circumstances in which there is a change of control, holders of
outstanding stock options granted under the Plan may be entitled to exercise
such options notwithstanding that such options may otherwise not have been
fully exercisable. The Board of Directors has the authority to extend similar
rights to holders of additional awards under the Plan.
Compensation Committee Report on Executive Compensation
The Compensation Committee of the Board of Directors prepared the
following report on executive compensation.
During 1998, the Compensation Committee reviewed all aspects of the
Company's compensation policy for the CEO and other members of senior
management. The Compensation Committee considered a variety of factors,
including the compensation of executives at similar companies and the
suggestions of senior management concerning individual and corporate goals and
the Company's peer group of companies. In adopting the new compensation
program, the Compensation Committee established the following goals:
o To increase the percentage of total potential compensation that
comes from variable (incentive) compensation and to slow the growth
in base salary amounts after executives reach a target range.
o To require that a significant component of total compensation come
from stock-based compensation.
o To implement a regular program of stock option grants that will add
predictability and promote retention.
o To link the annual bonus pool with objective criteria, such as:
percentage of earnings per share goal obtained, performance of peer
companies, and achievement of individual goals.
As a result of this process, the Compensation Committee implemented a new
compensation program consisting of base salary, annual stock option grants, and
an annual bonus. The program will be effective in 1999, although the
executives' annual bonuses for 1998 were calculated using the new formula.
The Compensation Committee believes that the base salaries of its
executive officers generally are comparable to those earned by
similarly-situated executives. As part of the new compensation program,
increases in base salaries are expected to slow after executives reach target
salaries identified by the Compensation Committee. The Compensation Committee
may adjust the targets as executives assume additional responsibilities.
The Compensation Committee also adopted a five-year program under which
each executive would be granted an annual stock option to purchase up to 10,000
shares of the Company's Class A Common Stock at the market price on the date of
the annual meeting under the Company's incentive stock plan for key employees.
The options would vest 20% on the first through fifth anniversaries of each
grant. The ten-year grant and vesting schedule is intended to encourage the
executives to remain with the Company. The Compensation Committee believes this
portion of overall compensation will help align the interests of management and
the stockholders and encourage long-term thinking about the Company's strategic
goals.
7
<PAGE>
The Compensation Committee also adopted an annual bonus formula that
permits the executives to earn a percentage of their salary based upon the
achievement of individual and corporate goals for that year. For senior
management, 60% to 75% of the bonus is based upon attaining or exceeding the
earnings per share target established at the beginning of the year. The
remainder is based upon achieving certain individual goals that are established
at the beginning of each year. The Board of Directors establishes the goals for
the CEO, and the CEO establishes the goals for the rest of the executives. The
initial bonus pool for the executives is adjusted up or down based upon the
Company's ranking among its peer group of companies in the following
performance measures: revenue growth, earnings per share growth, pretax margin,
EBITDA margin, and return on average equity. The peer group identified
by the Compensation Committee consists of Swift Transportation, Werner
Enterprises, M.S. Carriers, U.S. Xpress Enterprises, and Transport Corp. of
America. The annual bonus for the senior management is limited to 75% of the
executive's base salary, and the Company must achieve its earnings per share
goal for any individual bonus to be paid except under circumstances in which
the Company achieves at least a threshold percentage of the earnings per share
goal and ranks first or second in its peer group. The executives must accept at
least 25% of the annual bonus in the form of immediately vested stock options
exercisable at market value on the grant date. The options are valued at 100
shares per $1,000 of cash bonus compensation foregone by the executive. The
executives may choose to receive up to 100% of the bonus in the form of stock
options. The committee believes that this bonus program provides incentives to
grow earnings per share, achieve individual goals, and perform at or above the
level of peer companies.
In 1998, the Company granted stock options to purchase the following
number of shares of Class A Common Stock to senior management at the fair
market value of the Class A Common Stock on the date of the grant, with a
vesting schedule of 20% per year commencing on the first anniversary of the
grant as follows: David Parker - 18,250; Michael Miller - 10,000; Ronald Pope
- - 10,000; R.H. Lovin, Jr. - 7,500; and Joey Hogan - 10,000.
Mr. Parker's base salary has not been changed since the Company's initial
public offering in 1994. The Compensation Committee believes it is reasonable
in relation to the base salaries of CEOs of comparable companies. The
Compensation Committee recommended a bonus of $172,813 for Mr. Parker primarily
because the Company exceeded management's earnings per share goal for the year.
Mr. Parker's beneficial ownership of more than 43% of the Company's outstanding
stock ensures that his net worth is linked to the Company's stock price
performance.
Compensation Committee
William T. Alt
Robert E. Bosworth
Hugh O. Maclellan, Jr.
Mark A. Scudder
8
<PAGE>
SECURITY OWNERSHIP OF PRINCIPAL STOCKHOLDERS
AND MANAGEMENT
The following table sets forth, as of March 23, 1999, the number and
percentage of outstanding shares of Common Stock beneficially owned by each
person known by the Company to beneficially own more than 5% of such stock, by
each director, director nominee, and Named Officer of the Company, and by all
directors and executive officers of the Company as a group.
<TABLE>
<CAPTION>
SECURITY OWNERSHIP OF PRINCIPAL STOCKHOLDERS AND MANAGEMENT
<S> <C> <C> <C>
Amount & Nature
of Beneficial
Title of Class Name of Beneficial Owner<F1> Ownership<F2> Percent of Class
32.28% of Class A
Class A & David R. Parker & 100.0% of Class B
Class B Common Jacqueline F. Parker 6,462,814<F3> 43.34% of Total
Class A Common Michael W. Miller 36,866 *
Class A Common R. H. Lovin, Jr. 31,680 *
Class A Common Joey B. Hogan 12,723 *
Class A Common Ronald B. Pope 10,637 *
No Securities William T. Alt
Beneficially 300 Forest Avenue
Owned Chattanooga, TN 37405 0 *
Class A Common Hugh O. Maclellan, Jr.
501 Provident Building
Chattanooga, TN 37402 5,700 *
Class A Common Mark A. Scudder<F4> 4,650 *
Class A Common Robert E. Bosworth
174 Meadow Pond Run
Lookout Mountain, GA 30750 1,000 *
Class A Common Clyde M. Fuller 1,607,500 12.80% of Class A
10.78% of Total
Class A Common Dresdner RCM Global Investors LLC
and Dresdner RCM Global Investors 9.33% of Class A
Holdings LLC(5) 1,171,450 7.86% of Total
Class A Common Dimensional Fund Advisors Inc.<F6> 6.91% of Class A
867,900 5.82% of Total
Class A Common First Union Corporation<F7>) 5.39% of Class A
677,000 4.54% of Total
Class A & All directors and executive officers
Class B Common as a group (9 persons) 6,566,070 44.03% of Total
- ---------------------
9
<PAGE>
* Less than one percent (1%).
<FN>
<F1> The business address of Mr. and Mrs. Parker, Mr. Lovin, Mr. Hogan, Mr.
Pope, Mr. Miller, and Mr. Fuller is 400 Birmingham Highway,
Chattanooga, TN 37419.
<F2> In accordance with applicable rules under the Securities Exchange Act of
1934, as amended, the number of shares of Class A Common Stock
beneficially owned includes the following shares underlying stock options
that are exercisable or will become exercisable within 60 days following
March 23, 1999: Mr. Parker - 53,500; Mr. Miller - 34,000; Mr. Lovin -
30,000; Mr. Pope. 9,000; Mr. Hogan -10,000. The beneficial ownership also
includes the following shares attributable to Named Officers invested in
the employer stock fund through the Company's 401(k) Plan, assuming (a)
all amounts allocated to such fund by Named Officers were fully invested,
and (b) that the number of shares is equivalent to the dollar amount
invested in such fund divided by the $14.125 closing price of the
Company's Class A Common Stock on March 23, 1999: Mr. Parker - 4,314;
Mr. Miller - 2,866; Mr. Lovin - 1,680; Mr. Hogan 1,473; and Mr. Pope -
1,537.
<F3> Includes 4,055,000 shares of Class A Common Stock; 2,350,000 shares of
Class B Common Stock of which are all owned by Mr. and Mrs. Parker as
Joint Tenants with Rights of Survivorship, except 200,000 shares of Class
A Common Stock owned by the Parker Family Limited Partnership, of which
Mr. and Mrs. Parker are general partners. Also includes 80,250 shares of
Class A Common Stock underlying stock options granted to Mr. Parker that
are exercisable or will become exercisable within 60 days of the date of
this proxy statement and 4,314 shares deemed held by Mr. Parker in the
Company's 401(k) Plan.
<F4> Mr. Scudder's business address is 411 S. 13th Street, Suite 200, Lincoln,
NE 68508. His holdings include 200 shares of Class A Common Stock held as
custodian for minor child under the Uniform Gifts to Minors Act, as to
which beneficial ownership is disclaimed.
<F5> Group of investors consisting of Dresdner RCM Global Investors LLC, a
Delaware limited liability company ("Dresdner RCM") and Dresdner RCM
Global Investors Holdings LLC, a Delaware limited liability company
("Dresdner Holdings"). As reported on Form 13G filed with the Securities
and Exchange Commission ("SEC") February 12, 1999, each of Dresdner RCM
and Dresdner Holdings have sole voting power of 785,950 shares; no shares
with shared voting power; and together have sole dispositive power of
1,171,450 shares; and no shared dispositive power. The address of
Dresdner RCM and Dresdner Holdings is Four Embarcadero Center, Suite
2900, San Francisco, CA 94111. Dresdner RCM is an investment adviser and
a wholly owned subsidiary of Dresdner Holdings. Dresdner Holdings is a
wholly owned subsidiary of Dresdner Bank AG, Jurgen-Ponto-Platz 1, 60301
Frankfurt, Germany.
<F6> As reported on Form 13G filed with the SEC February 11, 1999. The
business address of Dimensional Fund Advisors, a Delaware corporation,
is 1299 Ocean Avenue, 11th Floor, Santa Monica, CA 90401.
<F7> As reported on Form 13G filed with the SEC February 9, 1999. The business
address of First Union Corporation, a North Carolina corporation, is One
First Union Center, Charlotte, N.C. 28288-0137.
</FN>
</TABLE>
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STOCK PERFORMANCE GRAPH
COMPARISON OF FIVE-YEAR CUMULATIVE TOTAL RETURNS
PERFORMANCE GRAPH FOR COVENANT TRANSPORT, INC.
The following graph compares the cumulative total stockholder return of
the Company's Class A Common Stock with the cumulative total stockholder
return of the Nasdaq Stock Market U.S. Companies) and the Nasdaq Trucking
& Transportation Stocks commencing October 28, 1994, and ending December 31,
1998.
GRAPH WAS CENTERED HERE
IN PRINTED FORM
The stock performance graph assumes $100 was invested on October 28, 1994.
There can be no assurance that the Company's stock performance will continue
into the future with the same or similar trends depicted in the graph above.
The Company will not make or endorse any predictions as to future stock
performance. The CRSP Index for Nasdaq Trucking & Transportation Stocks
includes all publicly held truckload motor carriers traded on the Nasdaq Stock
Market, as well as all Nasdaq companies within the Standard Industrial Code
Classifications 3700-3799, 4200-4299, 4400-4499, and 4500-4599. The Company
will provide the names of all companies in such index upon request.
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COMPLIANCE WITH SECTION 16(a) OF THE SECURITIES EXCHANGE ACT OF 1934
Section 16(a) of the Securities Exchange Act of 1934 requires the
Company's officers and directors, and persons who own more than 10% of a
registered class of the Company's equity securities, to file reports of
ownership and changes in ownership with the SEC. Officers, directors, and
greater than 10% stockholders are required by SEC regulation to furnish the
Company with copies of all Section 16(a) forms they file. Based solely upon a
review of the copies of such forms furnished to the Company, or written
representations that no Forms 5 were required, the Company believes that its
officers, directors, and greater than 10% beneficial owners complied with all
Section 16(a) filing requirements applicable to them during the Company's
preceding fiscal year.
PROPOSAL 2
RATIFICATION OF SELECTION OF INDEPENDENT
PUBLIC ACCOUNTANTS
The Board of Directors has selected PricewaterhouseCoopers LLP as
independent public accountants for the Company for the 1999 fiscal year.
PricewaterhouseCoopers LLP has served as independent public accountants for the
Company since 1992. Representatives of PricewaterhouseCoopers LLP are expected
to be present at the Annual Meeting with an opportunity to make a statement, if
they desire to do so, and to respond to appropriate questions.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT STOCKHOLDERS VOTE
"FOR" PROPOSAL 2 TO RATIFY THE SELECTION OF PRICEWATERHOUSECOOPERS LLP AS
INDEPENDENT PUBLIC ACCOUNTANTS FOR THE COMPANY.
PROPOSAL 3
APPROVAL OF AMENDMENT TO INCENTIVE STOCK PLAN
Description of Plan
In August 1994, the Company's Board of Directors and stockholders adopted
an Incentive Stock Plan (the "Plan") to attract and retain executive personnel
and other key employees and motivate them through incentives that are aligned
with the Company's goals of increased profitability and stockholder value.
Awards may be in the form of incentive stock options, non-qualified stock
options, restricted stock awards, or any other awards of stock consistent with
the Plan's purpose. The Plan is administered by the Board of Directors or a
committee that may be appointed by the Board of Directors. All employees are
eligible for participation, and actual participants in the Plan are selected
from time-to-time by the administrator. The administrator may substitute new
stock options for previously granted options. No awards of incentive stock
options may be made after the period under applicable provisions of the
Internal Revenue Code. The Company originally reserved 670,000 shares of Class
A Common Stock for issuance pursuant to the Plan, and to date, 648,450 shares
remain reserved for stock issuance pursuant to the Plan. The Company has
awarded options and other grants (less cancellations) covering approximately
620,250 of such shares, including 332,500 shares underlying options and other
grants to its executive officers.
Plan Amendment
The proposed Amendment to the Plan (the "Amendment") would reserve an
additional 651,550 shares of Class A Common Stock for issuance, bringing the
total number of shares subject to the Plan to 1,300,000. The Board of Directors
has unanimously recommended approval of Proposal 3 and believes that the
ability to offer additional equity incentives is important to providing
compensation that aligns the interests of employees and stockholders. The
market price of the stock as of December 31, 1998, was $17.875, which results
in the stock underlying the entire 651,550 shares covered by the Amendment
having a market value of $11.6 million at such date.
Federal Income Tax Consequences for Incentive Stock Options
Options granted as an incentive stock option ("ISO") are intended to
qualify under Section 422 of the Internal Revenue Code of 1986, as amended (the
"Code") for special tax treatment. Neither the grant of the ISO nor the
exercise of the ISO by a participant ("Optionee") will result in the
recognition of taxable income to the Optionee. However, the exercise of an ISO
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<PAGE>
will result in an item of tax preference to an Optionee potentially subject to
the alternative minimum tax. The ultimate sale or other disposition by the
Optionee of the shares obtained upon exercise of the ISO will result in capital
gain or loss equal to the difference between the fair market value on the date
of sale and the exercise price. The Company will not have a deduction with
regard to the ISO at the time of the grant, the exercise or the ultimate sale
of the shares. Notwithstanding the foregoing, if an Optionee sells or disposes
of the shares prior to two years after the date of the grant of the ISO or one
year after the date of the exercise, the Optionee will recognize compensation
income on the sale to the extent the value on the date of exercise exceeded
the exercise price. The excess of the amount received on the sale over the
value on the date of exercise will be capital gain. In the case of such
a disqualifying disposition of shares, the Company may deduct the amount of
income recognized as compensation income. A person entitled to exercise the ISO
after the death of an Optionee may sell the stock obtained on the exercise of
an option at any time without regard to the normal holding requirements. In
addition to the foregoing federal tax considerations, the exercise of an ISO
and the ultimate sale or other disposition of the shares acquired thereby will
in most cases be subject to state income taxation.
Federal Income Tax Consequences for Nonstatutory Stock Options
An Optionee does not realize any compensation income upon the grant of a
Nonstatutory Stock Option ("NSO"). Additionally, the Company may not take a tax
deduction at the time of the grant. Upon exercise of an NSO, an Optionee
realizes and must report as compensation income an amount equal to the
difference between the fair market value of the securities on the date of
exercise and the exercise price. The Company is entitled to take a deduction at
the same time and in the same amount as the Optionee reports as compensation
income, provided the Company withholds federal income tax in accordance with
the Code and applicable Treasury regulations. In addition to the foregoing
federal tax considerations, the exercise of an Option and the ultimate sale or
other disposition of the shares of Common Stock acquired thereby will in most
cases be subject to state income taxation.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT STOCKHOLDERS VOTE "FOR"
PROPOSAL 3 TO AMEND THE INCENTIVE STOCK PLAN TO RESERVE AN ADDITIONAL 651,550
SHARES OF CLASS A COMMON STOCK FOR ISSUANCE TO PARTICIPANTS, FOR A TOTAL OF
1,300,000 SHARES.
STOCKHOLDER PROPOSALS
Stockholder proposals intended to be presented at the 2000 Annual Meeting
of the Stockholders of the Company must be received by the Corporate Secretary
of the Company at the Company's principal executive offices on or before
December 11, 1999, to be included in the Company's proxy material related to
that meeting.
OTHER MATTERS
The Board of Directors does not intend to present at the Annual Meeting
any matters other than those described herein and does not presently know of
any matters that will be presented by other parties.
Covenant Transport, Inc.
David R. Parker
Chairman of the Board
April 16, 1999
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