SCHEDULE 14A
(Rule 14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934
Filed by the Registrant
Filed by a Party other than the Registrant
Check the appropriate box:
x Preliminary Proxy Statement Confidential, for Use of the Commission Only
(as permitted by Rule 14a-6(e)(2))
Definitive Proxy Statement
Definitive Additional Materials
Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12
CANISCO RESOURCES, INC.
(Name of Registrant as Specified in Its Charter)
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
x No fee required.
Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
(1) Title of each class of securities to which transaction applies:
(2) Aggregate number of securities to which transaction applies:
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11
(Set forth the amount on which the filing fee is calculated and
state how it was determined):
(4) Proposed maximum aggregate value of transaction:
(5) Total fee paid:
Fee paid previously with preliminary materials.
Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for
which the offsetting fee was paid previously.
Identify the previous filing by registration statement number, or the
Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
(2) Form, Schedule or Registration Statement No.:
(3) Filing Party:
(4) Date Filed:
<PAGE>
CANISCO RESOURCES, INC.
300 Delaware Avenue, Suite 714
Wilmington, Delaware 19801
Wilmington, Delaware
May __, 1999
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD JUNE __, 1999
A Special Meeting of the Stockholders of Canisco Resources, Inc.
will be held at our offices at 300 Delaware Avenue, Suite 714,
Wilmington, Delaware on June __, 1999, at 10:00 AM, local time, to
consider and vote upon the following proposal described in greater
detail in the accompanying Proxy Statement:
1. Ratification of the Securities Purchase Agreement, dated as
of April 16, 1999, by and among SCC Investment I, L.P., a
Texas limited partnership, Sterling City Capital, LLC, a
Texas limited liability company, and Canisco and approval of
the obligations Canisco has assumed under the purchase
agreement including:
- the issuance of 80,000 shares of a newly created
series preferred stock and an investment
incentive warrant to SCC Investment I, L.P. for
an aggregate purchase price of $8,000,000 in the
initial closing under the purchase agreement and
the issuance of the shares of common stock that
will be issued on conversion of the shares of
preferred stock and exercise of the warrant,
- the change of control which will result as a
consequence of the voting rights of the preferred
stock and the adoption of a nine member board,
six members of which will be elected by the
preferred stock and three members of which will
be elected by the common stock, and
- the issuance of 20,000 additional shares of
preferred stock in one or more subsequent
closings for an aggregate purchase price of
$2,000,000 if and when Canisco elects and the
issuance of the shares of common stock that will
be issued on conversion of the shares of
preferred stock.
2. Transaction of other business that is properly raised at the
special meeting or any adjournment.
If a stockholder returns a proxy but does not specify a choice on
the proxy, the proxy will be voted FOR ratification of the purchase
agreement and FOR the change of control and issuances of securities it
contemplates.
The Board of Directors has fixed the close of business on May __,
1999, as the record date for determination of stockholders who are
entitled to notice of and to vote at the special meeting of
stockholders. Accordingly, only stockholders of record at the close
of business on that date will be entitled to vote at the special
meeting.
Management of Canisco extends a cordial invitation to all
stockholders to be present at the special meeting.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE FOR
RATIFICATION OF THE AGREEMENT.
YOUR VOTE IS VERY IMPORTANT. THE INVESTMENT DESCRIBED IN THE
ATTACHED PROXY STATEMENT WILL NOT TAKE PLACE WITHOUT STOCKHOLDER
APPROVAL.
By Order of the Board of Directors
Ralph A. Trallo
President and Chief Executive Officer
TO ASSURE YOUR REPRESENTATION AT THE MEETING, PLEASE FILL IN, DATE,
SIGN AND RETURN YOUR PROXY PROMPTLY IN THE POSTAGE PAID, PRE-ADDRESSED
ENVELOPE ENCLOSED FOR THAT PURPOSE. IF YOU ATTEND THE MEETING IN
PERSON, YOU MAY WITHDRAW YOUR PROXY AND VOTE IN PERSON.
<PAGE>
CANISCO RESOURCES, INC.
300 Delaware Avenue, Suite 714
Wilmington, Delaware 19801
PRELIMINARY PROXY STATEMENT
for
SPECIAL MEETING OF STOCKHOLDERS
To Be Held on June __, 1999
TABLE OF CONTENTS
=================
GENERAL INFORMATION . . . . . . . . . . . . . . . . . . . . . . . . .1
Introduction . . . . . . . . . . . . . . . . . . . . . . . . .1
Reasons For Seeking Stockholder Approval . . . . . . . . . . .2
The Investment Partnership . . . . . . . . . . . . . . . . . .2
Price of Canisco's Stock and Market Capitalization . . . . . .2
Canisco's Growth Strategy. . . . . . . . . . . . . . . . . . .3
The Preferred Stock. . . . . . . . . . . . . . . . . . . . . .4
The Warrant. . . . . . . . . . . . . . . . . . . . . . . . . .5
Conditions to Investment . . . . . . . . . . . . . . . . . . .5
Summaries Qualified. . . . . . . . . . . . . . . . . . . . . .5
Cost of Solicitation . . . . . . . . . . . . . . . . . . . . .6
Proxy Enclosed . . . . . . . . . . . . . . . . . . . . . . . .6
Directors' Recommendation and Intentions
Regarding the Voting of Their Own Shares. . . . . . . . .6
VOTING SHARES . . . . . . . . . . . . . . . . . . . . . . . . . . . .7
VOTE REQUIRED. . . . . . . . . . . . . . . . . . . . . . . . . . . .7
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT. . . .8
INVESTMENT PARTNERSHIP AND STERLING. . . . . . . . . . . . . . . . 11
Participation of Certain Members of Management as
Limited Partners of Investor . . . . . . . . . . . . . 11
CANISCO'S GROWTH STRATEGY AND THE INVESTMENT PARTNERSHIP'S PLANS
TO ASSIST CANISCO. . . . . . . . . . . . . . . . . . . . . . . . . . 12
National Operating Strategy . . . . . . . . . . . . . . . . . 13
Acquisition Strategy . . . . . . . . . . . . . . . . . . . . 15
RISKS RELATING TO ABILITY TO MEET GOALS;
RISKS RELATING TO FURTHER DILUTION ON FUTURE
ISSUANCES OF STOCK; FORWARD-LOOKING INFORMATION. . . . . . . . . . . 18
RATIFICATION OF THE AGREEMENT, APPROVAL OF THE CERTIFICATE OF
DESIGNATION AND ISSUANCE OF THE PREFERRED STOCK AND THE
WARRANT TO THE INVESTMENT PARTNERSHIP. . . . . . . . . . . . . . . . 20
Purchase Agreement. . . . . . . . . . . . . . . . . . . . . . 20
The Preferred Stock . . . . . . . . . . . . . . . . . . . . . 21
The Warrant . . . . . . . . . . . . . . . . . . . . . . . . . 25
Reasons For Seeking Stockholder Approval . . . . . . . . . . 26
Directors' Recommendation and Intentions
Regarding the Voting of Their Own Shares . . . . . . . . 27
INFORMATION ABOUT CURRENT DIRECTORS AND OFFICERS. . . . . . . . . . 28
Resignations of Messrs. Joe C. Quick, Dale L. Ferguson and
W. Lawrence Petcovic as Directors on the Occurrence of
the Initial Closing . . . . . . . . . . . . . . . . . . . . . 28
Committees and Meetings of the Board of Directors . . . . . . 28
Directors Stock Option Program . . . . . . . . . . . . . . . 29
Participation of Current Directors in Retirement Programs . . 29
Information Regarding Current Executive Officers . . . . . . 30
Compensation of Current Executive Officers . . . . . . . . . 30
Summary Compensation Table . . . . . . . . . . . . . . . . . 31
Aggregated Option/SAR Exercises in Last Fiscal Year and
Fiscal Year End Option/SAR Values . . . . . . . . . . . 32
Resignation of Mr. Trallo as President and Chief Executive
Officer . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
INFORMATION ABOUT PREFERRED STOCK DIRECTORS AND OFFICERS TO BE
APPOINTED AFTER THE INITIAL CLOSING. . . .. . . . . . . . . . . . . . 34
HISTORICAL PERFORMANCE OF CANISCO'S STOCK. . . .. . . . . . . . . . . 38
PERFORMANCE GRAPH. .. . . . . . . . . . . . . . . . . . . . . . . . . 39
STOCKHOLDER PROPOSALS FOR THE NEXT ANNUAL MEETING . . . . . . . . . . 40
OTHER MATTERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
<PAGE>
GENERAL INFORMATION
===================
Introduction
============
This proxy statement is furnished to you in connection with
the solicitation of proxies, by the Board of Directors of Canisco
Resources, Inc., for use at the special meeting of stockholders
to be held on June ___, 1999, at the principal executive offices
of Canisco at 300 Delaware Avenue, Suite 714, Wilmington,
Delaware, at 10:00 AM, local time, and at any adjournment or
postponement of the special meeting. This proxy statement and
the accompanying form of proxy will first be mailed to
stockholders on or about May __, 1999. The Board of Directors
fixed the record date for the special meeting as the close of
business on May __, 1999. Accordingly, stockholders registered
on the books of Canisco at the close of business on May __, 1999,
have a right to be notified of the special meeting and to vote at
the special meeting.
At the special meeting, stockholders of Canisco, who are
entitled to notice of and have a right to vote at the special
meeting, will be asked to ratify the Securities Purchase
Agreement, dated as of April 16, 1999, by and among SCC
Investment I, L.P., a Texas limited partnership, Sterling City
Capital, LLC, a Texas limited liability company, and Canisco and,
approve the obligations Canisco has assumed under the purchase
agreement, including:
- - the adoption of a certificate of designation creating
the 7 1/2% Series A Redeemable Convertible Preferred
Stock,
- - the adoption of the form of Investment Incentive
Warrant,
- - the issuance of 80,000 shares of preferred stock and
the warrant to SCC Investment I, L.P. for an aggregate
purchase price of $8,000,000 in the initial closing
under the purchase agreement and the issuance of the
shares of common stock that will be issued on
conversion of the shares of preferred stock and
exercise of the warrant,
- - the change of control which will result as a
consequence of the voting rights of the preferred stock
and the adoption of a nine member board, six members of
which will be elected by the preferred stock and three
members of which will be elected by the common stock,
and
- - the issuance of 20,000 additional shares of preferred
stock to SCC Investment I, L.P. in one or more
subsequent closings for an aggregate purchase price of
$2,000,000 if and when Canisco elects and the issuance
of the shares of common stock that will be issued on
conversion of the shares of preferred stock.
<PAGE>
Reasons For Seeking Stockholder Approval
========================================
The series of preferred stock being issued to the investment
partnership is part of the 5,000,000 shares of undesignated
preferred stock that were approved by Canisco's stockholders at
the last annual meeting of stockholders. We informed the
stockholders at the time it was approved that the preferred stock
would be issued to raise additional capital. We also informed
the stockholders that an issuance of preferred stock that upon
conversion increased the common stock outstanding by more than
twenty percent on a fully diluted basis would be submitted to
stockholders for their approval. Approval by the stockholders is
also required under Canisco's listing agreement with the NASDAQ
SmallCap Market.
If the proposed investment occurs, it will result in a
significant increase in Canisco's capital resources and will
provide financing for working capital and for Canisco's growth
strategy. It will also result in the investment partnership, by
virtue of its ownership of the preferred stock, having beneficial
ownership of a majority of the common stock, the right to elect a
majority of Canisco's directors and having a majority of the
votes with respect to all other matters submitted to a vote of
the stockholders and so will involve a change of control.
The Investment Partnership
==========================
SCC Investment I, L.P. is a newly created investment
partnership formed by Sterling and certain members of the
management of subsidiaries of Canisco. Sterling is a private
investment firm that focuses on selective investments in
companies which plan to execute consolidation strategies within
fragmented industries. Sterling and its Principal, C. Byron
Snyder, have founded or invested in several public and private
companies which are executing industry consolidation strategies,
including Integrated Electrical Services, Inc. (NYSE: IEE) and
Carriage Services, Inc. (NYSE: CSV).
Price of Canisco's Stock and Market Capitalization
==================================================
On April 16, 1999, the day the purchase agreement was
signed, Canisco's common stock (NASDAQ SmallCap: CANRC) closed at
$2.00 a share and the market capitalization of Canisco was
$5,053,130.
During the 12 months preceding the announcement of the
purchase agreement on April 19, 1999 Canisco's stock price
reached a high of $3 a share and a low of $1 1/4 a share. At the
12 month high Canisco's market capitalization was $9,474,618.75
and at the 12 month low Canisco's market capitalization was
$3,158,206.25.
On May __, 1999, Canisco's common stock closed at $____ a
share and the market capitalization of Canisco was $ ____.
Canisco's Prior Efforts to Raise Capital
========================================
Prior to entering into discussions with the investment
partnership and Sterling, Canisco's management made a series of
confidential presentations to institutional investors over the
last 15 months with a view to raising additional capital to
finance its growth strategy. On October 16, 1998, Mellon
<PAGE>
Ventures, L.P. and Morse Partners, Ltd. entered into a securities
purchase agreement with Canisco under which they were entitled to
purchase up to an aggregate of 75,000 shares of convertible
preferred stock for $7,500,000. On January 7, 1999, Canisco
terminated the securities purchase agreement in accordance with
its terms to allow it to pursue discussions with other investment
groups. Neither Mellon nor Morse will be investing in the
investment partnership.
Canisco's Growth Strategy
=========================
Canisco believes it is the largest company in the United
States specializing in painting and coating for industrial
facilities. Canisco also provides related services, including
surface preparation, specialty cleaning, decontamination,
insulation and roofing, asbestos abatement and related
maintenance services.
Canisco's goal of being the leading national painting,
coatings and related industrial services provider is dependent
upon its successful execution of national operating and
acquisition strategies.
Canisco and the investment partnership believe that industry
trends, such as the continued outsourcing of "non-core," but
essential functions, the consolidation occurring within the
customer base and Canisco's success in developing strategic
alliances with national customers support its plan to deliver a
diverse range of services on a nationwide basis. The key
elements of the national operating strategy include:
- - focusing on the industrial market,
- - executing a national sales and marketing program,
- - implementing best practices among acquired companies,
- - operating on a decentralized basis,
- - maintaining a separate integration team,
- - achieving operating efficiencies,
- - aligning management and shareholder interests, and
- - attracting and retaining qualified employees.
Canisco and the investment partnership believe that industry
trends dictate a need for a single-source provider of painting,
coatings and related services. This industry is highly
fragmented and many of the participants provide a limited range
of services and restrict their activities to a regional customer
base. A nationwide single-source provider of industrial services
will limit the opportunities for smaller companies that may not
be able to provide service to multiple locations simultaneously.
The acquisition strategy includes capitalizing on management's
industry relationships to pursue acquisition targets that:
- - further develop Canisco's geographic markets,
- - expand its existing markets, and
- - expand its service offerings.
<PAGE>
The investment partnership's and Canisco's plans to execute
the growth strategy are discussed below in the section entitled
Canisco's Growth Strategy and the Investment Partnership's Plans
to Assist Canisco. This should be read in conjunction with the
section entitled Risks Relating to Ability to Meet Goals; Risks
Relating to Further Dilution on Future Issuances of Stock;
Forward-Looking Information.
Although it is anticipated that a portion of the funds
received from the investment partnership will be used by Canisco
in future acquisitions, there are no pending acquisitions to
which these funds have been committed.
The Preferred Stock
===================
The preferred stock to be issued to the investment
partnership:
- - is voting,
- - carries a cumulative compound dividend of 7 1/2% per annum,
- - is required to be redeemed by Canisco on the fifth
- - anniversary of the closing date, and
- - is convertible into Canisco's common stock at an
initial conversion price of $3.00 a share.
After the third anniversary of the initial closing, if the price
of the common stock is $6.00 a share or more for a specified
period, Canisco may redeem or may force the conversion of the
preferred stock. The $6.00 a share target price is subject to
adjustment to account for stock splits and recapitalizations.
If converted on the day they are issued, the shares of
preferred stock to be issued in the initial closing would give
the investment partnership 2,666,666 shares of common stock, or
approximately 51.3% of the outstanding common stock, for a price
of $3.00 per share of common stock. After the initial closing
and issuance of the preferred stock, the investment partnership
will have the right to elect six directors on an expanded nine
member Board of Directors and will also have approximately 51.3%
of the votes on all matters submitted to the stockholders, other
than the election of directors and where class voting is required
by law.
The common stock will initially be entitled to elect three
directors. Of Canisco's current directors, Messrs. Donald E.
Lyons, Thomas P. McShane and Ralph A. Trallo will remain as
directors representing the common stockholders, while Messrs. Joe
C. Quick, Dale L. Ferguson and W. Lawrence Petcovic will resign
upon completion of the initial closing. Mr. Lyons has also
announced that he will resign as Chairman upon completion of the
initial closing and Mr. Trallo has announced that he will resign
as President and Chief Executive Officer of Canisco, but will
remain employed as Vice Chairman. Mr. Olson is expected to
resign from the position of Chief Financial Officer; however, the
investment partnership anticipates that Mr. Olson will remain as an
employee of Canisco pursuant to a written employment agreement, the terms
of which have not yet been negotiated. The investment partnership has
stated that after the initial closing Mr. C. Byron Snyder will be
appointed Chairman of the Board of Directors and Chief Executive
Officer and together with Messrs. Teddy L. Mansfield, Roger
Gossett, ____, ____, and ____ will represent the preferred
stockholders on the Board of Directors. Messrs. Mansfield, and
Gossett are currently employed as the presidents of Canisco's two
major operating subsidiaries. The investment partnership has
also stated that Roger Gossett will be appointed President and Chief
Operating Officer of Canisco and Mr. Mark Walz will be appointed Senior
Vice President and Chief Financial Officer.
<PAGE>
The Warrant
===========
The warrant will permit the investment partnership to
purchase 11% of the Fully Diluted Common Stock of Canisco, as
defined in the warrant, for a nominal price, once Canisco's
historical 12 month revenues exceed $200 million and earnings
before interest, taxes, depreciation and amortization exceed $12
million. The warrant may only be exercised on and after the date
the growth targets are first achieved and it expires, whether or
not it ever becomes exercisable, on the seventh anniversary of
the initial closing. At the current time 11% of the Fully
Diluted Common Stock of Canisco would represent approximately
304,000 shares.
The actual number of shares issuable upon conversion of the
preferred stock and exercise of the warrant and the percentage of
the shares outstanding they will represent will vary depending on
a number of factors, including the price and number of shares
issued prior to the date these securities are converted or
exercised. If the investment partnership follows its stated
plans with respect to assisting Canisco pursue its previously
announced growth strategy, more shares of common stock and
similar equity securities will be issued to acquire companies and
to provide financing. Each future issuance will increase the
number of shares the investment partnership is entitled to
receive under the warrant by 11% of the number of shares issued
or issuable as a result of the transaction and may also impact
the number of shares the investment partnership is entitled to
receive upon conversion of the preferred stock.
Conditions to Investment
========================
Even if the stockholders of Canisco ratify the purchase
agreement, the investment partnership has the discretion not to
complete the investment, unless the other conditions to the
initial closing under the purchase agreement are satisfied. The
principal conditions are a requirement that no Material Adverse
Effect, as defined in the purchase agreement, has occurred since
April 16, 1999, and that all of the representations and
warranties made by Canisco in the purchase agreement continue to
be true and correct.
Summaries Qualified
===================
All summaries and references to the purchase agreement in
this proxy statement are qualified in their entirety by reference
to the text of the actual purchase agreement which was filed with
Securities and Exchange Commission on May 11, 1999 as Exhibit 10.20 to
Canisco's Amended Report on Form 8-K, and which is incorporated by
reference into this proxy statement. Shareholder's may access the
purchase agreement by using the SEC's Edgar database or may request
a copy from Canisco. A more detailed description of the preferred stock and
the warrant are contained in the subsections entitled The
Preferred Stock and The Warrant below in the section entitled
Ratification of the Agreement, Approval of the Certificate of
<PAGE>
Designation and Issuance of the Preferred Stock and the Warrant
to the Investment Partnership. The summaries and references to
the preferred stock and warrant in this proxy statement are
qualified in their entirety by reference to the text of the form
of Certificate of Designation for the preferred stock and the
form of Investment Incentive Warrant which are Exhibits A and B
respectively to the purchase agreement.
Cost of Solicitation
====================
The cost of soliciting proxies will be borne by Canisco.
Canisco has entered into a contract with ____________ to assist
in the solicitation of proxies. Under the contract __________
will receive $__________. In addition to solicitation by mail,
proxies may be solicited by directors, officers, regular
employees of Canisco and employees of __________ personally or by
telephone or telegram. It is contemplated that brokerage houses,
nominees, and other custodians and fiduciaries will be requested
to send proxy material to their principals, and Canisco will
reimburse them for their charges and expenses in so doing.
Proxy Enclosed
==============
A proxy is enclosed for use at the special meeting. When
you complete and sign the enclosed proxy, date and return it,
your shares will be voted in accordance with the instructions you
have specified on the proxy. If you change your mind with regard
to the proxy, you may revoke that proxy by written notice
delivered to Canisco's Secretary at any time before it is voted.
If you return a proxy, but do not specify a choice on the
proxy, the proxy will be voted FOR ratification of the purchase
agreement and FOR the change of control and issuances of
securities it contemplates.
YOUR VOTE IS VERY IMPORTANT. THE INVESTMENT DESCRIBED IN
THIS PROXY STATEMENT WILL NOT TAKE PLACE WITHOUT STOCKHOLDER
APPROVAL.
Directors' Recommendation and Intentions Regarding the Voting of
Their Own Shares
================================================================
Each member of Canisco's Board of Directors has announced
his intention to vote the shares he personally holds for
ratification of the purchase agreement and for the change of
control and issuances of securities it contemplates.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE FOR
RATIFICATION OF THE PURCHASE AGREEMENT.
<PAGE>
VOTING SHARES
=============
The Board of Directors has fixed the close of business on
May __, 1999, as the record date for determination of the
stockholders entitled to notice of, and to vote at, the special
meeting of stockholders or at any adjournment or postponement of
the special meeting. Stockholders of record as of that date will
receive the notice of special meeting, the proxy statement and
the proxy. As of May __, 1999, there were 2,526,565 shares of
common stock outstanding and entitled to notice of and to vote at
the special meeting. Canisco has no other class of stock
outstanding. Each share of common stock is entitled to one vote
on each matter properly submitted to the common stockholders for
action at the special meeting.
VOTE REQUIRED
=============
In order for the special meeting to validly reach a
decision, stockholders representing a majority of the outstanding
shares must either be present at the special meeting or
represented at the special meeting by a proxy holder. In order
for the purchase agreement to be ratified and the investment
approved, the proposal must receive the affirmative vote of a
majority of the shares present in person or by proxy at the
special meeting and entitled to vote.
Under applicable NASDAQ rules, a broker holding shares of
record for customers is not entitled to vote on the proposal
unless it has received voting instructions from its customers.
Shares present at the special meeting in person or by proxy that
are held of record by a broker who has not received its
customers' instructions on the proposal will be considered to be
present for the purposes of establishing a quorum. However, a
broker who did not receive its customer's instructions on voting
will not be entitled to vote on the proposal and therefore its
non-vote will not affect the outcome of the stockholder vote.
Abstentions by non-broker stockholders present at the special
meeting in person or by proxy will have the effect of a vote
against the proposal.
<PAGE>
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
==============================================================
Canisco currently has 2,526,565 shares of common stock
outstanding. In addition 124,412 shares are reserved for
issuance upon the exercise of currently outstanding options held
by employees and directors and 110,000 shares are reserved for
the exercise of warrants held by Teddy L. and Dean Mansfield, who
are both part of the management of one of Canisco's subsidiaries,
and by others.
The shares reported in the following two tables may be
deemed to be beneficially owned under Rule 13d-3 promulgated by
the Securities and Exchange Commission under the Exchange Act,
but the inclusion of the shares in this table does not constitute
an admission of beneficial ownership. The preferred stock and
the underlying common stock to be beneficially owned by the
investment partnership as a consequence of the purchase agreement
have not been included in the table, as the shares of preferred
stock will not be issued until stockholder approval is obtained
at the special meeting. Sterling, C. Byron Snyder and certain
members of the management of Canisco's subsidiaries may be deemed
to beneficially own the shares of preferred and common stock
beneficially owned by the investment partnership and the shares
beneficially owned by these persons have not been included in the
tables for the same reason.
The following table shows information as of May __, 1998
(unless otherwise noted), with respect to each person with
beneficial ownership of more than 5% of Canisco's outstanding
common stock.
Shares Percentage
Name and Address Beneficially Owned of
Class Owned
ROI Capital Management, Inc.
17 E. Sir Francis Drake Blvd.
Larkspur, CA 94939 215,200(1) 8.52%
Teddy L. Mansfield
3251 E. Kingsfield Road
Pensacola, FL 32514 156,000(2) 6.17%
Joe C. Quick
83 Almond Avenue
Hershey, PA 17022 147,516(3) 5.84%
Ralph A. Trallo
2363 Sanibel Blvd.
St. James City, FL 33956 139,489(4) 5.46%
<PAGE>
(1) ROI Capital Management, Inc. and affiliates ROI Partners,
L.P., ROI & Lane, L.P., Mark T. Boyer and Mitchell
Soboleski, report shared voting and investment power over
212,200 shares. The information shown has been derived from
ROI Capital Management, Inc.'s Form 13G filed with the SEC
on or about February 19, 1999.
(2) 150,000 of these shares were part of the purchase
consideration paid by Canisco for the acquisition of
Mansfield Industrial Coatings, Inc. which occurred on April
22, 1998. Mr. Mansfield also received warrants to purchase
60,000 shares at a price of 2 5/8 a share as part of the
acquisition consideration, none of which are currently
exercisable and which have therefore not been included. Mr.
Mansfield will be a limited partner in the investment
partnership.
(3) The shares shown include 84,490 shares over which Mr. Quick
exerts sole voting and investment power. Mr. Quick shares
voting and investment power over the remaining shares which
are held by his spouse or certain relatives (excluding adult
children).
(4) The shares shown include 112,207 shares over which Mr.
Trallo exerts sole voting and investment power and 27,282
shares subject to stock options in favor of Mr. Trallo. If
the transactions contemplated by the purchase agreement are
approved and the initial closing occurs Mr. Trallo will
resign as President and Chief Executive Officer, but will
become the Vice Chairman and remain as a director, and will
receive stock options to purchase an additional 100,000
shares at the market price in effect on the initial closing
date, subject to vesting.
<PAGE>
The following table gives certain information as of May __,
1999, with respect to the beneficial ownership, direct or
indirect, of Canisco's common stock by each of the current
directors and executive officers and by all of the current
directors and executive officers as a group, as reported by them.
Shares held by a director or officer and his spouse and
certain relatives (excluding adult children) are included in the
table.
Sole Voting Shared
and Voting and Shares
Investment Investment subject of Aggregate Percentage
Name Power Power Options Total of Class
Joe C. Quick 84,490 63,026 -0- 147,516 5.84%
Ralph A. Trallo(1) 112,207 -0- 27,282 139,489 5.46%
Michael J. Olson(2) 36,834 -0- 15,000 51,834 2.04%
Dale L. Ferguson 19,000 30,000 -0- 49,000 1.94%
Donald E. Lyons 16,350 -0- 4,385 20,735 0.82%
Thomas P. McShane 18,300 -0- -0- 18,300 0.76%
W. Lawrence Petcovic 10,886 -0- 3,708 14,594 0.63%
All Directors and Executive
Officers as a Group
(7 Persons) 298,067 93,026 50,375 441,468 17.13%
(1) If the transactions contemplated by the purchase agreement are
approved and the initial closing occurs Mr. Trallo will resign as
President and Chief Executive Officer, but will become the
Vice Chairman and remain as a director, and will receive stock
options to purchase an additional 100,000 shares at the market price
in effect on the initial closing date, subject to vesting.
(2) Executive officer who is not a director. If the transactions
contemplated by the purchase agreement are approved and the initial
closing occurs Mr. Olson is expected to resign from the position of
Chief Financial Officer; however, the investment partnership
anticipates that Mr. Olson will remain as an employee of Canisco
pursuant to a written employment agreement, the terms of which have
not yet been negotiated.
<PAGE>
INVESTMENT PARTNERSHIP AND STERLING
===================================
The investment partnership, SCC Investment I, L.P., is
a Texas limited partnership formed in March, 1999. The general
partner of the investment partnership is SCC Investment II, LLC,
a Texas limited liability company, which is an affiliate of
Sterling. The investment partnership has advised Canisco that,
in addition to Sterling, a limited number of other investors and
certain employees and members of management of Canisco's
subsidiaries will be limited partners in the investment
partnership. All decisions on behalf of the investment
partnership with respect to the Canisco preferred stock, the
warrant (and the common stock issuable upon conversion or
exercise thereof), including decisions with respect to the
acquisition or disposition of Canisco securities will be made by
the general partner of the investment partnership.
Sterling is a Houston-based company that focuses on
selective investments in companies which plan to execute
consolidation strategies within fragmented industries. Mr.
Snyder is the President of Sterling. He was the owner and
President of Relco Refrigeration Co., a distributor of
refrigerator equipment, which he acquired in 1992 and which was
merged in February 1998 into Hospitality Companies, Inc. Mr.
Snyder is a director of Hospitality Companies, Inc., a supplier
of food equipment and heating/air conditioning products to the
hospitality industry. Prior to 1992, Mr. Snyder was the owner
and Chief Executive Officer of Southwestern Graphics
International, Inc., a holding company which owned Brandt &
Lawson Printing Co., a Houston-based general printing business,
and Acco Waste Paper Company, an independent recycling business.
Mr. Snyder is a director of Carriage Services, Inc. (NYSE:
CSV), a publicly held company following a consolidation strategy
in the death care industry and is Chairman of the Board of
Directors of Integrated Electrical Services, Inc. (NYSE: IEE), a
publicly held electrical contracting and maintenance services
consolidator. Mr. Snyder is also Chairman of the Board of
Directors of American Plumbing & Mechanical, Inc., a privately
held plumbing and mechanical services consolidator.
Participation of Certain Members of Management as Limited
Partners of Investor
=========================================================
The investment partnership has advised Canisco that, in
addition to Mr. Snyder and Sterling, members of the management of
Canisco's subsidiaries have agreed to purchase limited
partnership interests. The management investors in the
investment partnership range from Teddy Mansfield and Roger
Gossett, the Presidents of Canisco's Mansfield Industrial
Coatings and Cannon Sline, Inc. subsidiaries, to the
Administrative Assistant at Cannon Sline, Inc. and include
division managers and estimators.
<PAGE>
CANISCO'S GROWTH STRATEGY AND THE INVESTMENT PARTNERSHIP'S PLANS
TO ASSIST CANISCO
================================================================
Canisco believes it is the largest company in the United
States specializing in painting and coating for industrial
facilities. Canisco also provides related services, including
surface preparation, specialty cleaning, decontamination,
insulation and roofing, asbestos abatement and related
maintenance services.
Canisco's goal of being the leading national painting,
coatings and related industrial services provider is dependent
upon its successful execution of national operating and
acquisition strategies. The investment partnership has advised
Canisco as to how it intends to assist Canisco if the investment
is completed. If the transaction is approved and the investment
occurs, Canisco, with the investment partnership's assistance,
intends to further pursue and in some respects refine its growth
strategy as described in this section.
There are risks associated with the implementation of
Canisco's growth strategy. For example, if securities are issued
or issuable in connection with future acquisitions or as an
incentive to employees, the investment partnership will be
entitled to receive additional shares of common stock under the
warrant, if and when the warrant is exercised and may also be
entitled to receive additional shares upon conversion of the
preferred stock. Accordingly, the discussion of Canisco's growth
strategy and the investment partnership's plans to assist with
the strategy, set forth below, should be read in conjunction
with, and is qualified in its entirety by reference to, the
section entitled Risks Relating to Ability to Meet Goals; Risks
Relating to Further Dilution on Future Issuances of Stock;
Forward-Looking Information.
National Operating Strategy
===========================
The key elements of Canisco's national operating strategy
will be:
Focus on the Industrial Market. Canisco believes the industrial market
is attractive because of:
- - the number of large companies with multiple facilities
throughout the country,
- - the diverse customer base including power generation,
petrochemical and refining, pulp and paper, food and
drug and other manufacturing,
- - the opportunity to generate recurring revenue through
ongoing maintenance contracts,
- - the opportunity to generate incremental higher margin
revenue by performing specialty services to the
customer base, and
- - the trends of consolidation within the customer base
and outsourcing of services such as those provided by
Canisco.
<PAGE>
National Sales and Marketing Program. Management believes
that industry trends related to the outsourcing of "non-core,"
but essential, functions and consolidation of vendors by
industrial concerns creates significant opportunities for service
providers who can operate on a national basis. Canisco has
developed a national sales and marketing program to take
advantage of the customer relationships that Canisco has
established. This program emphasizes Canisco's ability to
deliver a diverse range of services on a nationwide basis through
its numerous operating locations. Canisco also believes that
significant demand exists for a single-source provider of
painting, coatings and related industrial services. This trend
limits the opportunities for smaller companies that may not be
able to provide service to multiple locations simultaneously.
Canisco currently provides services to national customers under
contracts that are structured to create a "strategic alliance"
between the customer and the service provider. Canisco's goal
of developing alliances is to foster long-term relationships with
multi-location industrial customers that recognize the value of
Canisco's strategic maintenance program. This program will
primarily target large, multi-location, industrial companies.
Implementing Best Practices. Canisco plans to establish a President's
Council comprised of key operating personnel from existing companies and
future acquisitions for sharing best practices and technical
competencies that can be successfully implemented throughout the
organization. For example, Canisco has developed proprietary
benchmarking and survey techniques as part of its strategic
maintenance program, which when implemented will increase the
effectiveness of facility maintenance and reduce the customer's
overall costs of maintenance on a system-wide basis. The council
will regularly meet to discuss business trends and opportunities,
marketing strategies and techniques, operational and financial
benchmarks and measures and share other business improvement
practices.
Operate on a Decentralized Basis. To retain the
entrepreneurial spirit of acquired companies, Canisco plans to
manage acquisitions on a decentralized basis, with local
management retaining responsibility of day-to-day operations,
profitability and internal growth of the business. Canisco will
maintain strong overall strategic and financial controls, but use
its decentralized operating structure to capitalize on the
considerable knowledge and customer relations possessed by local
management. Canisco's corporate management will have
responsibility for business strategy, acquisitions, centralized
vendor relationships to take advantage of volume discounts,
banking arrangements, insurance, shareholder relations and
employee benefit plans and also provide support to local
management in marketing, quality control, safety and risk
management and other training.
Maintain Separate Integration Team. Canisco plans to
establish an integration team consisting of operational and
financial personnel from the corporate and operating company levels.
The integration team will participate in Canisco's due diligence
process in order to identify realizable operating efficiencies
and make integration efforts for acquisitions as seamless as
possible from an operational standpoint. The integration team
will assist personnel of acquired companies in the rapid adoption
of Canisco's corporate standards and in the implementation of
policies and procedures designed to safeguard cash and other
assets as well as the establishment of standardized financial and
operational reporting guidelines and controls.
<PAGE>
Achieve Operating Efficiencies. Canisco believes that as it
implements its growth strategy, there will be opportunities to
achieve operating efficiencies as a result of combining certain
overlapping operational facilities and functions and centralizing
certain administrative functions. Canisco plans to take
advantage of its purchasing power to gain volume discounts for
items such as materials, equipment purchases and rentals,
workers' compensation and other insurance and employee benefits.
Provide Strong Incentives to Management. Canisco believes
it should continue to seek to acquire successful companies with
managers who are prepared to remain as employees of Canisco and
continue to operate their respective businesses on a local level.
Canisco believes these managers can be motivated and their
interests aligned with those of Canisco's shareholders by
utilizing common stock as a significant portion of the purchase
consideration with additional stock options being provided to key
personnel.
Attract and Retain Qualified Employees. Canisco believes it
can continue to attract and retain qualified employees because it
offers:
- - enhanced career choices as a multi-subsidiary company,
- - the opportunity to realize more stable income through
a public company, and
- - competitive employee benefits and opportunities to
participate in stock-based compensation programs.
Canisco believes its continuous improvement training program and
its commitment to workplace safety provide a competitive
advantage in attracting and retaining a qualified labor force;
however, each acquired company will be responsible for its own
labor relations policies which will vary from company to company.
Acquisition Strategy
====================
Canisco estimates that more than 1,000 companies provide
painting and coatings services to the domestic industrial
markets, with numerous additional companies providing related
industrial services. Most of these companies are smaller than
Canisco and are owner-operated businesses that service a limited
geographic area. To date, consolidation within the painting and
coatings services industry has been limited. Canisco executives
have substantial experience in the industry, are active in
industry trade associations and are personally acquainted with
the owners of numerous acquisition targets.
<PAGE>
Canisco believes it will be regarded by acquisition
candidates as an attractive acquirer because of:
- - Canisco's strategy for creating a national, single-
source provider of industrial services that emphasizes
the development of long-term strategic alliances and
customer relationships at the local, regional and
national levels,
- - Canisco's decentralized operating philosophy,
- - Canisco's successful acquisition and integration of
Mansfield Industrial Coatings,
- - the potential for increased profitability of the acquired
company due to purchasing economies, the adoption of "best practices"
and centralization of various administrative functions,
and
- - the opportunity for owners of the acquired companies to
participate in Canisco's planned growth while realizing
liquidity benefits.
Canisco believes it should seek to acquire companies with an
entrepreneurial attitude and whose management is committed to
Canisco's business strategy. Companies sharing this strategy
should be further evaluated based upon additional criteria,
including:
- - the quality of its management and supervisory personnel
and their willingness to share and learn best
practices,
- - the historical revenues, profitability and growth,
- - the geographic area served,
- - the candidate's reputation,
- - the composition of the customer base, and
- - the types of services provided.
As consideration for future acquisitions, the intent is to use
various combinations of Canisco's common stock and other equity
securities, cash and notes.
The key elements of Canisco's planned acquisition strategy
are:
Further Develop Geographic Markets. Further development of
geographic markets by acquiring one or more leading local or regional
companies that provide industrial painting, coatings and related services.
High priority targets will have the scale, customer base, expertise and
management necessary to be a platform into which Canisco can consolidate
other acquisitions in the geographic area. Special emphasis will
be placed on targeting geographic locations that have been
identified for penetration in Canisco's national sales and
marketing plan. Additionally, Canisco will seek to acquire
operations that will minimize the effect of seasonality in the
colder regions serviced by Canisco.
<PAGE>
Expand within Existing Markets. Development of Canisco's
network, in each of the markets it serves, by seeking to acquire
well-established painting, coatings and related services
businesses operating within that market. This will enable
Canisco to increase revenue by gaining access to an additional
customer base and leverage its overhead and improve labor and
equipment utilization. By acquiring smaller companies and
combining them with existing operations, Canisco will be able to
improve its overall cost structure.
Expand Service Offerings. Expansion of Canisco's existing
service lines by acquiring companies that provide specialty
services that can be marketed to the existing and future customer
base. The specialty services acquired can provide higher margins
and growth rates and grow into substantial business units for
Canisco. Canisco currently performs selected specialty services
such as insulation, roofing, tagging and identification and
scaffolding. These services are offered to customers on a
"packaged" service arrangement that can be delivered cost
efficiently while providing more flexibility to the customer.
Canisco intends to further develop its service offerings in order
to fully capitalize on its customer relationships and meet the
expanding requirements and expectations of its current and future
customers.
<PAGE>
RISKS RELATING TO ABILITY TO MEET GOALS;
RISKS RELATING TO FURTHER DILUTION ON FUTURE ISSUANCES OF STOCK;
FORWARD-LOOKING INFORMATION
================================================================
The markets currently serviced by Canisco, as well as some
of the service and geographic markets into which it will attempt
to expand are highly competitive. Competition is based on price,
quality and range of services provided and the ability to meet
the schedules of customers and to recruit qualified personnel to
perform the work. Canisco may also face competition in
attracting acquisition candidates. If future acquisitions are
completed and are paid for with common stock or other equity
securities, they will dilute the percentage of the equity held by
the current stockholders. It is possible that Canisco will be
unable to achieve its internal growth and acquisition goals.
Canisco has also incurred legal, accounting and
administrative expenses in its search for new investors and in
negotiating the purchase agreement and has committed to reimburse
the investment partnership up to $90,000 for expenses it has
incurred. If the investment occurs, Canisco has committed to pay
the investment partnership an annual administrative fee of
$100,000. Canisco has been advised by the investment partnership
that, while Mr. Snyder will not receive a salary as Chief
Executive Officer, overall salary expense for executive officers can be
expected to increase. Accordingly, sales and administrative expense can
be expected to increase over historical levels.
If the growth targets set forth in the warrant are met and
any additional equity securities have been issued or are issuable
at such time, whether in connection with future acquisitions, as
part of the purchase price, or in connection with equity
incentives issued to present or future employees or to provide
future financing, the investment partnership will be entitled to
receive under the warrant additional shares of common stock equal
to 11% of the number of shares that are then issued or issuable.
Furthermore, the investment partnership may also be entitled to
receive additional shares upon conversion of the preferred stock
as a consequence of the issuance of additional securities at an
effective price below the conversion price, if their issuance has
been approved by a majority of the Common Stock Directors, as
defined in the Certificate of Designation.
This proxy statement contains forward-looking statements,
including those statements that refer to the Canisco's,
management's or the investment partnership's intentions, hopes,
beliefs, expectations or predictions of the future. Forward-
looking statements involve known and unknown risks, uncertainties
or other factors that could cause the actual results to
materially differ from the results, performance, or other
expectations implied by these forward-looking statements.
Canisco's, management's and the investment partnership's
expectations regarding revenue growth, margins and profits
assume, among other things, completion of the investment
transaction, availability of suitable acquisitions, its ability
to expand the range of its services and the geographic areas
served, general economic conditions, continued demand for its
services, the availability of raw materials, retention of its key
management personnel and the availability of qualified operating
personnel.
<PAGE>
RATIFICATION OF THE AGREEMENT, APPROVAL OF THE CERTIFICATE OF
DESIGNATION AND ISSUANCE OF THE PREFERRED STOCK AND THE WARRANT
TO THE INVESTMENT PARTNERSHIP
================================================================
Purchase Agreement
==================
Canisco entered into the purchase agreement with the
investment partnership and Sterling on April 16, 1999. Under the
purchase agreement, at the initial closing, which is expected to
take place shortly after the meeting, if the stockholders ratify
the purchase agreement and approve the issuance of the preferred
stock, the investment partnership will invest $8,000,000 in
consideration for the issuance of 80,000 shares of preferred
stock and the warrant.
The investment partnership has also committed to invest up
to $2,000,000 to purchase 20,000 additional shares of preferred
stock at a price of $100.00 per share at such times as Canisco
may elect during the 12 month period following the initial
closing. Each subsequent investment may not be less than
$500,000 or the remaining balance of the commitment. The maximum
aggregate investment, assuming Canisco exercises its option in
full, will be $10,000,000.
The investment will be made only when and if the transaction
is approved by Canisco's stockholders and the other conditions in
the purchase agreement are satisfied. The principal conditions
are a requirement that no Material Adverse Effect, as defined in
the purchase agreement, has occurred since April 16, 1999, and
that all representations and warranties made by Canisco in the
purchase agreement continue to be true and correct. If all of
the conditions set forth in the purchase agreement are not
satisfied, the investment partnership has the discretion not to
complete the investment, even if stockholder approval of the
purchase agreement is obtained.
Decisions with respect to the purchase agreement following
the initial closing are to be taken by the Common Stock Directors
who are defined as the three directors elected by and
representing the common stockholders under the Certificate of
Designation for the preferred stock. The Common Stock Directors
will act as a committee of Canisco's Board of Directors. The
purchase agreement requires the Common Stock Directors to grant
the directors representing the preferred stock an opportunity to
be heard prior to making any election on behalf of Canisco to
require the investment partnership to invest any of the
additional $2,000,000 under the purchase agreement.
The purchase agreement provides that the investment
partnership and its designated assignees have the right to have
the shares issuable upon conversion of the preferred stock and
exercise of the warrant registered under U.S. and applicable
state securities laws at Canisco's expense. The investment
partnership has a one time right to require Canisco to file a
registration statement and may also require Canisco to include
the shares in any other registration statement it files.
<PAGE>
If the purchase agreement is terminated because of a
material breach by Canisco of this Agreement, or because Canisco
has received a superior proposal, then Canisco is required to pay
the investment partnership a termination fee of $300,000.
Canisco has also agreed to reimburse the investment partnership
up to $90,000 for its expenses, whether or not the transaction is
approved and the investment takes place.
At the initial closing, Canisco will enter into an
administration fee agreement with the investment partnership. It
requires Canisco to pay the investment partnership an annual fee
of $100,000. The fee is to be payable quarterly until the
preferred stock is converted or redeemed.
The investment partnership is a newly formed Texas limited
partnership the general partner of which is controlled by
Sterling. C. Byron Snyder, Sterling and two members of Canisco's
management team, Teddy Mansfield and Roger Gossett, have entered
into a letter agreement irrevocably agreeing that they or others
will purchase sufficient limited partnership interests in the
investment partnership to provide the investment partnership with
$8 million at the initial closing and up to a further $2 million
to fund any subsequent closings that occur. Canisco is an
express third party beneficiary of this letter agreement.
The Preferred Stock
===================
Under the Certificate of Designation creating the preferred
stock, on each matter properly submitted to the common
stockholders, other than the election of directors, each share of
preferred stock is entitled to the number of votes equal to the
number of shares of common stock into which the preferred share
is convertible. The 80,000 shares of preferred stock, to be
purchased by the investment partnership at the initial closing
would represent 2,666,666 shares of common stock, upon conversion
at the initial conversion price, or approximately 51.3% of the
voting power. If Canisco exercises its option in full with
respect to the additional investment, the investment partnership
would own, upon conversion at the initial conversion price,
3,333,333 shares of common stock representing approximately 56.9%
of the voting power.
Under the Certificate of Designation, Canisco will need the
consent of the holders of a majority of the preferred stock to:
- - authorize, create or issue any class or series of
capital stock that is senior to, or on a parity with,
the preferred stock as to voting rights, dividend
distributions or distributions upon liquidation,
winding up and dissolution of Canisco;
- - authorize, create or issue any class or series of
securities junior to the preferred stock with a
cumulative dividend that would be payable in cash at a
time when the dividend on the preferred stock is
payable in shares of preferred stock;
- - amend, alter or repeal, in a manner adverse to the
holders of preferred stock, any provision of the
Certificate of Incorporation of Canisco setting forth
the relative rights, preferences, qualifications,
limitations or restrictions of the preferred stock;
<PAGE>
- - issue any common stock or equivalent securities if the
amount to be issued exceeds 20% of the common stock
outstanding on the date the securities are issued;
- - incur indebtedness for money borrowed in excess of 20%
of the indebtedness outstanding on the date the debt is
incurred, with the undrawn portion of any existing
credit facility being considered outstanding debt for
the purpose of this calculation;
- - sell all or substantially all of the assets of Canisco;
- - voluntarily liquidate Canisco; or
- - take any other action on which the holders of preferred
stock are entitled by law to vote separately as a
class.
The holders of a majority, unless a higher percentage is
required by applicable law, of all outstanding shares of
preferred stock voting separately as a class may waive any or all
of the rights and privileges of preferred stock, including the
right to receive any dividend or liquidation preference otherwise
due.
At the initial closing Canisco's Board of Directors will be
expanded from six to nine members and the holders of preferred
stock will have the right to elect six directors as "Preferred
Stock Directors." Three directors will be designated as Common
Stock Directors. Certain of Canisco's existing directors have
agreed to resign as of the initial closing and the remaining
directors, Messrs. Lyons, McShane and Trallo, will be the initial
Common Stock Directors. The number of Preferred Stock Directors
will be subject to reduction based on the number of shares of
preferred stock outstanding. The following table sets forth the
number of Preferred Stock Directors the preferred stockholders
are entitled to elect based on the number of shares of preferred
stock outstanding.
Number of Shares of Preferred Stock Outstanding Number of Directors
=============================================== ===================
60,000 shares or more 6 directors
50,000 to 59,999 shares 5 directors
40,000 to 49,999 shares 4 directors
30,000 to 39,999 shares 3 directors
20,000 to 29,999 shares 2 directors
10,000 to 19,999 shares 1 director
Less than 10,000 shares no directors
In the event the number of Preferred Stock Directors are reduced
below six directors or the size of the Board of Directors is
increased above nine members, directors who are not classified as
Common Stock Directors or Preferred Stock Directors will be
elected by the holders of common stock and will be classified as
"Other Directors."
<PAGE>
At any meeting called for the purpose of electing directors,
in order for a quorum to exist the presence, in person or by
proxy of:
- - the holders of record of a majority of the shares of
preferred stock then outstanding is required in the
case of the election of the Preferred Stock Directors;
and
- - the holders of record of a majority of the shares of
common stock then outstanding is required in the case
of the election of the Common Stock Directors and Other
Directors
The nominations for Common Stock Directors presented by the
Board of Directors to the stockholders at any meeting following
the issuance of the preferred stock will be determined by the
Common Stock Directors and the nominations for Preferred Stock
Directors will be determined by the Preferred Stock Directors.
The nominations for Other Directors will be determined by a
majority of the entire Board of Directors.
A vacancy among the Preferred Stock Directors may be filled
only by the remaining Preferred Stock Directors or by vote of the
preferred stockholders. A vacancy among the Common Stock
Directors may only be filled by the remaining Common Stock
Directors or by vote of the common stockholders. A vacancy among
the Other Directors, whether created by an increase in the number
of directors on the Board of Directors or by a reduction in the
number of Preferred Stock Directors, may be filled by the whole
Board of Directors or by vote of the common stockholders. A
Common Stock Director may be removed from office only by the
common stockholders and a Preferred Stock Director only by the
preferred stockholders. Each Common Stock Director, each
Preferred Stock Director and each Other Director will be entitled
to one vote on all matters on which the entire Board of Directors
are entitled to vote.
During the first two years after the initial closing, each
share of preferred stock is entitled to a cumulative compound
annual dividend of $7.50 per share of preferred stock payable
quarterly when, as and if declared by the Board of Directors.
Dividends that are accrued but not paid as of the end of any
annual dividend period will accrue additional dividends of 7 1/2%
per annum compounded annually until paid. Dividends may be paid
in additional shares of preferred stock at the election of the
Common Stock Directors but the holders of the preferred stock
will have the right to require Canisco to pay up to 40% of any
dividend in cash.
Beginning in the third year after the initial closing, the
annual dividend will accrue and be payable only if the Common
Stock Market Price, as defined in the Certificate of Designation,
in the year in question reaches or exceeds a specified target
price for a period of forty consecutive trading days. The target
prices are $4.00 for the third, $5.00 for the fourth and $6.00
for the fifth year after the initial closing. Additional
dividends with respect to dividends that are already accrued but
still unpaid will continue to accrue in any year, whether or not
the target stock prices for that year are achieved.
<PAGE>
The preferred stock is convertible into Canisco's common
stock at an initial conversion price of $3.00 per common share.
If further shares of common stock are issued or deemed to have
been issued at a price of less than $3.00 per common share and
the issuance is approved by a majority of the Common Stock
Directors, the conversion price will be adjusted proportionately
downwards. The conversion price will be adjusted downwards for
each subsequent approved issue at less than the then current
conversion price. Subsequent approved issuances above the then
conversion price would result in an upward adjustment of the
conversion price. No adjustment of the conversion price will
result in a conversion price above $3.00, as adjusted, but any
deferred adjustment may be carried forward to offset any future
downward adjustment. The conversion price will also be adjusted
in the event of a stock split or recapitalization. Each
adjustment of the conversion price will change the number of
votes the preferred stock has on matters submitted to the common
stockholders.
The Common Stock Directors may require the holders to
convert the preferred stock at any time after the third
anniversary of the initial closing, if the Common Stock Market
Price, as defined in the Certificate of Designation, is more than
$6.00 a share for a period of forty consecutive trading days
during the preceding 12 months and on the date Canisco exercises
the option. This price is subject to adjustment in the event of
a stock split or recapitalization.
The preferred stock must be redeemed by Canisco, for the
Liquidation Preference of $100.00 per share, plus any accrued but
unpaid dividends, on the fifth anniversary of the initial
closing. The Common Stock Directors may elect to redeem the
preferred stock for the Liquidation Preference, plus any accrued
but unpaid dividends, at any time after the third anniversary of
the initial closing if the Common Stock Market Price, as defined
in the Certificate of Designation, is more than $6.00 a share for
a period of forty consecutive trading days during the preceding
12 months. This price is subject to adjustment in the event of a
stock split or recapitalization.
The preferred stock may not be assigned or transferred by
the investment partnership without the consent of the Common
Stock Directors. This restriction does not apply to:
- - the assignment or transfer of common stock issued upon
conversion of the preferred stock, or
- - the distribution of the proceeds of cash dividends on
the preferred stock or from any redemption of the
preferred stock.
Nothing in the Certificate of Designation would prevent the
transfer of limited partnership interests in the investment
partnership.
<PAGE>
In the purchase agreement, the investment partnership and
Sterling have agreed that:
- - the investment partnership will own all of the
preferred stock,
- - the general partner of the investment partnership will
have sole decision making authority with respect to the
preferred stock, and
- - the general partner of the investment partnership will
at all times be an entity wholly owned by Sterling,
either directly or indirectly.
These restrictions will apply until all outstanding shares of
preferred stock have been converted or redeemed and the warrant
has been exercised.
The Warrant
===========
The warrant will become exercisable as of the month ending
date of the internal financial statements of Canisco that first
evidence, for the 12 month period then ending, revenues exceeding
$200 million and earnings before charges for interest, taxes,
depreciation and amortization exceeding $12 million.
The warrant may be exercised for the number of shares that
represent 11% of the "Fully Diluted Common Stock" of Canisco on
the date the warrant first becomes exercisable. The exercise
price of the warrant per share of common stock is the par value
of the common stock, currently $0.0025 per share.
"Fully Diluted Common Stock" as used in the warrant means
the aggregate number of shares of common stock of any class of
Canisco outstanding at the time the warrant first becomes
exercisable, assuming and after giving effect to the full
exercise or conversion of all options, warrants, rights and
securities exercisable or convertible into common stock on that
date, but excluding all shares of common stock issued or issuable:
- - in connection with the Consulting Employee Agreement
with Ralph A. Trallo,
- - upon the exercise of the warrant, and
- - upon conversion of the preferred stock.
If, after the date the warrant first becomes exercisable and
prior to the date it is exercised, Canisco:
- - pays a dividend in or makes a distribution of shares of
common stock to the common stockholders,
- - subdivides its outstanding shares of common stock,
- - combines its outstanding shares of common stock into a
smaller number of shares of common stock, or
- - issues, by reclassification or reorganization, other
securities of Canisco or property to all holders of
common stock,
<PAGE>
an adjustment will be made in the number of shares issuable under
the warrant so that the holder is entitled to receive the number
and kind of shares of common stock or other securities of Canisco
as the holder would have owned or have been entitled to receive
if the shares issuable upon exercise had been issued to him
immediately prior to the event in question or the appropriate
record date for that event, whichever occurred first, and his
shares had participated in such event.
The warrant expires, whether or not it ever becomes
exercisable, on the seventh anniversary of the date of the
initial closing. The warrant may not be assigned or transferred
without the consent of Canisco. Nothing in the warrant would
prevent the transfer of limited partnership interests in the
investment partnership, although, as previously noted, there are
restrictions in the purchase agreement on ownership of the
limited partnership interests. All decisions of Canisco with
respect to the warrant are to be made by the Common Stock
Directors.
Reasons For Seeking Stockholder Approval
========================================
An issuance of securities that will result in a change of
control of the issuer must be submitted to stockholders for their
approval under NASDAQ rules. The Board also made a commitment at
the time the preferred stock was approved to submit issuances of
preferred stock that upon conversion represented more than twenty
percent of the common stock on a fully diluted basis to the
stockholders for approval.
If the investment occurs it will result in the investment
partnership having the right to elect a six of nine directors on
Canisco's Board of Directors and having a majority of the votes
with respect to all other matters submitted to the stockholders.
It will thus result in a change of control. It will also result
in the investment partnership holding preferred stock, which, if
converted on the date of issuance, would represent more than 51%
of the common stock outstanding and the warrant which will allow
the investment partnership to purchase an additional 11% of the
"Fully Diluted Stock" outstanding for a nominal amount. However,
it will also result in a significant increase in Canisco's
capital resources and will provide financing for working capital
and for Canisco's previously announced growth strategy. Although,
it is anticipated that a portion of the funds received from the
investment partnership will be used in future acquisitions, there
are no pending acquisitions to which these funds have been
committed.
Directors' Recommendation and Intentions Regarding the Voting of
Their Own Shares
================================================================
Each member of Canisco's current Board of Directors has
announced his intention to vote the shares he personally holds
for ratification of the purchase agreement and the proposed
investment.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE FOR
RATIFICATION OF THE PURCHASE AGREEMENT.
YOUR VOTE IS VERY IMPORTANT. THE INVESTMENT DESCRIBED ABOVE
WILL NOT TAKE PLACE WITHOUT STOCKHOLDER APPROVAL
<PAGE>
INFORMATION ABOUT CURRENT DIRECTORS AND OFFICERS
================================================
Resignations of Messrs. Joe C. Quick, Dale L. Ferguson and W.
Lawrence Petcovic as Directors on the Occurrence of the Initial
Closing
===============================================================
If the purchase agreement is ratified by Canisco's
stockholders and the initial closing occurs, Messrs. Joe C.
Quick, Dale L. Ferguson and W. Lawrence Petcovic have announced
their intention to resign as directors of Canisco. Messrs.
Donald E. Lyons, Thomas P. McShane and Ralph A. Trallo will
continue to serve as Common Stock Directors following the initial
closing until the next annual meeting and they or their
respective successors are elected and qualified.
Committees and Meetings of the Board of Directors
=================================================
The Board of Directors meets on a regularly scheduled basis
and, during the fiscal year ended March 31, 1999, met on eleven
occasions. During fiscal year 1999, each Director was present
for all of the meetings of the Board of Directors. Outside
directors of Canisco were paid an annual retainer of $7,500. All
non-employee directors except the Chairman of the Board, were
paid $800 for each meeting attended and the Chairman was paid
$1,200 for each meeting, employee directors receive no
compensation for meetings.
The Audit and Compensation committees were active in fiscal
year 1999. Each committee member was present for all the
meetings of the Board Committees on which such Director served.
Outside Board members appointed to serve on the Compensation and
Audit Committees were paid an annual retainer of $1,500. In
addition, outside Board members serving on Committees, except the
Committee Chairman, were paid $750 for each Committee meeting and
the Committee Chairman was paid $1,000.
The Audit Committee was created by the Board of
Directors in October 1986. The function of the Audit
Committee is to recommend an accounting firm to conduct an
annual audit and to review the scope and results of the
annual audit. The Audit Committee also reviews the adequacy
of internal controls, policies and procedures, and reports
its findings to the Board of Directors. The Audit Committee
met once during fiscal year 1999.
The Compensation Committee was created by the Board of
Directors in February 1989. The function of the
Compensation Committee is to administer Canisco's 1998 Stock
Option/Incentive Plan and 1990 Stock Option Plan and the
Director's Stock Option Program. The Compensation Committee
met twice during fiscal year 1999.
The Board of Directors does not have a nominating
committee or any other committee performing similar
functions.
<PAGE>
Directors Stock Option Program
==============================
The Directors' Stock Option Program, was approved by
stockholder vote at the annual meeting in February 1992.
The program provided a mechanism for compensating directors
for their services by means other than cash payment,
promoted Director stock ownership and increases the
incentive for those responsible for the long-range success
of Canisco. Pursuant to the Program, each Director could
elect to take non-qualified stock options for Canisco's
stock issued under the 1990 Stock Option Plan in lieu of all
or a portion of the normal cash retainer and/or fee for
Board or Committee meetings attended. Directors who
selected options pursuant to the Program made a standing
election to do so (or to rescind such election) at least six
(6) months in advance of the meeting for which the election
(or rescission) was to be effective. For the purpose of
this election, options were valued at 17% of the market
price of the stock on grant date (i.e., date set for payment
of retainer or meeting fees as the case may be) and applied
against the fees to be earned.
Canisco's 1990 Stock Option Program expired in December
1994, thus fees and retainers for Board and Committee
participation are now being paid to directors in cash. As
of May __, 1999, Messrs. Petcovic, Lyons and Trallo had
acquired options for 3,708; 4,385; and 2,282 shares,
respectively, pursuant to the program with an exercise price
of $4.13 per share. These options will expire in October
1999.
Participation of Current Directors in Retirement Programs
=========================================================
Dale Ferguson and Joe C. Quick received $50,000 and
$65,000, respectively, in fiscal year 1999 pursuant to
Canisco's Founders Retirement Plan.
<PAGE>
Information Regarding Current Executive Officers
================================================
The following table identifies Canisco's current
executive officers, sets forth their ages, principal
occupation or employment of each during the past five years,
positions and offices held with Canisco and the terms served
as such.
Name Age Principal Occupation or Employment
Ralph A. Trallo 54 President and CEO of Cannon Sline of
Philadelphia, PA; from 1987 to May 31,
1998. Named Senior Vice President of
Canisco in April 1994. Named President
and Chief Operating Officer of Canisco
in December 1994 and Chief Executive
Officer in October 1995. Mr. Trallo
has an employment contract with
Canisco. Director of Canisco since
1993.
Michael J. Olson 44 Vice President, Secretary/Treasurer and
Chief Financial Officer of Cannon
Sline, Inc. since 1986. Named Acting
Chief Financial Officer of Nuclear
Support Services, Inc. in January,
1995. Named Chief Financial Officer,
Vice President and Secretary/Treasurer
of Canisco in April, 1995. Mr. Olson
has an employment contract with
Canisco.
Compensation of Current Executive Officers
==========================================
The following table sets forth information concerning all
compensation paid or accrued by Canisco and its subsidiaries in
respect to the three fiscal years for 1997, 1998 and 1999 to or
for each of the executive officers of Canisco:
<PAGE>
Summary Compensation Table
==========================
Fiscal Year Long-Term
Compensation Compensation
Awards
Name and Principal Year Salary Bonus Other Securities
Position ($) ($) compensation Underlying
($) (1) Option/SARs
(#)
RALPH A. TRALLO 1999 185,000 115,000 134,794(2) -0-
President, Chief 1998 185,000 115,000 47,590(3) -0-
Executive Officer 1997 185,000 115,000 7,210 50,000(4)
and Director; also
President and CEO of
Cannon Sline
MICHAEL J. OLSON 1999 105,000 85,000 37,819(2) -0-
Vice President, 1998 105,000 85,000 37,820(3) -0-
Secretary/Treasurer 1997 105,000 44,100 5,469 30,000(4)
and
Chief Financial
Oficer
(1) Included in Other Compensation are automobile allowances and
excess life insurance benefits provided by Canisco and the value
of discretionary bonuses paid in stock.
(2) At the request of the Compensation Committee, Mr. Trallo and Mr.
Olson agreed to terminate the 1985 Long Term Compensation Plan
between themselves and Oliver B. Cannon & Son, Inc. (the former
name of Canisco's Cannon Sline, Inc. subsidiary). Mr. Trallo and
Mr. Olson each took stock in lieu of the cash due on termination
of the plan, issued at fair market value.
(3) Mr. Trallo and Mr. Olson were awarded discretionary bonuses in
1998. Their bonuses were in the form of Company stock issued at
fair market value.
(4) A Stock Appreciation Program for Key Executives was established
in fiscal year 1995. Mr. Trallo and Mr. Olson were awarded SAR's
under this Program in 1995 and 1996.
<PAGE>
Aggregated Option/SAR Exercises in Last Fiscal Year and Fiscal
Year End Option/SAR Values
==========================
Number of
securities Value of
underlying unexercised in-
Value unexercised the-money
Shares acquired realized options/SARs options/SARs
Name on exercise (#) ($) at FY end (#) at FY end ($)
exercisable/ exercisable/
unexercisable(1) unexercisable
RALPH A. TRALLO -0- -0- 97,282(2) $1,200/-0-
MICHAEL J. OLSON -0- -0- 65,000(3) $1,200/-0-
(1) Options include those granted under Canisco's Stock Option
Programs, the Directors Stock Option Program, and Canisco's Stock
Appreciation Plan.
(2) Mr. Trallo's options include 27,282 shares under Canisco's Stock
Option Programs and the Director's Stock Option Program and
70,000 shares under Canisco's Stock Appreciation Plan.
(3) Mr. Olson's options include 15,000 shares under Canisco's Stock
Option Programs and 50,000 shares under Canisco's Stock
Appreciation Plan.
Resignation of Mr. Trallo as President and Chief Executive
Officer
==========================================================
Mr. Trallo has announced his intention to resign as
President and Chief Executive Officer of Canisco, but not as a
director, effective as of the date of the initial closing. On
April 14, 1999, Mr. Trallo entered into a Consulting Employee
Agreement which will replace Mr. Trallo's existing employment
arrangements as of the initial closing. Mr. Trallo's existing
employment arrangements guarantee payment of an amount equal to
three times his highest recent annual cash compensation and
certain benefits in the event his employment is terminated
without cause after a change of control.
Under the Consulting Employee Agreement, Mr. Trallo will
continue to be employed as Vice Chairman for a period of 60
months following the initial closing at an annual salary of
$240,000. In his role of Vice Chairman, Mr. Trallo will be
expected to assist the Chairman, Mr. Snyder, with potential
acquisitions and to advise on operational issues. Mr. Trallo
will be required to devote at least 80% of his time to Canisco's
affairs for the first year of the agreement. Thereafter Mr.
Trallo's time commitment to Canisco will be reduced at a rate of
10% of a full time commitment per year. In addition to his
salary, Mr. Trallo will also receive options to purchase 100,000
shares of common stock at the market price on the initial closing
date as well as medical and disability and other fringe benefits.
Options to purchase 20,000 shares will be exercisable once the
initial closing takes place. The remaining options will become
exercisable at a rate of 20,000 shares per year on the first four
anniversaries of the initial closing date. Mr. Trallo's options
are to be issued pursuant to Canisco's 1998 Stock
Option/Incentive Plan.
<PAGE>
The Consulting Employee Agreement was reviewed and
recommended by the Compensation Committee and approved by the
Board of Directors. It has also been acknowledged by Mr. Snyder,
Sterling and the investment partnership.
In connection with the initial closing, it is expected that
Mr. Olson will resign from the position of Chief Financial Officer;
however, the investment partnership anticipates that Mr. Olson will
remain as an employee of Canisco pursuant to a written employment
agreement, the terms of which have not yet been negotiated.
<PAGE>
INFORMATION ABOUT PREFERRED STOCK DIRECTORS AND OFFICERS TO BE
APPOINTED AFTER THE INITIAL CLOSING
===================================
The investment partnership has advised Canisco that it
presently intends to appoint the following persons as Preferred
Stock Directors upon completion of the initial closing:
C. Byron Snyder. . . . . . . . .50 Chairman of the Board of
Directors
Roger Gossett. . . . . . . . . .43 Preferred Stock Director
Teddy L. Mansfield . . . . . . .37 Preferred Stock Director
_______________. . . . . . . . .? Preferred Stock Director
_______________. . . . . . . . . ? Preferred Stock Director
_______________. . . . . . . . . ? Preferred Stock Director
In addition the following persons will serve as executive
officers of Canisco upon the completion of the initial closing:
C. Byron Snyder. . . . . . . . . .50 Chief Executive Officer
Roger Gossett. . . . . . . . . . 43 President and Chief Operating
Officer
Mark F. Walz . . . . . . . . . . . 41 Senior Vice President, Chief
Financial Officer
Teddy L. Mansfield . . . . . . . . 37 President of Mansfield
Industrial Coatings
The investment partnership has provided Canisco with the
following information regarding the persons it intends to appoint
as Preferred Stock Directors and executive officers upon
completion of the initial closing:
C. Byron Snyder is the president of Sterling City Capital,
LLC. Sterling is a party to the purchase agreement and will
control the investment partnership through the general partner,
SCC Investment II, LLC. Mr. Snyder was previously the owner and
President of Relco Refrigeration Co., a distributor of
refrigerator equipment, which he acquired in 1992 and which was
merged in February 1998 into Hospitality Companies, Inc., a
supplier of food equipment and heating/air conditioning products
to the hospitality industry of which Mr. Snyder is now a
director. Prior to 1992, Mr. Snyder was the owner and Chief
Executive Officer of Southwestern Graphics International, Inc., a
holding company which owned Brandt & Lawson Printing Co., a
Houston-based general printing business, and Acco Waste Paper
Company, an independent recycling business. Mr. Snyder is a
director of Carriage Services, Inc. (NYSE: CSV), a publicly held
company following a consolidation strategy in the death care
industry and is Chairman of the Board of Directors of Integrated
Electrical Services, Inc. (NYSE: IEE), a publicly held electrical
contracting and maintenance services consolidator. Mr. Snyder is
also Chairman of the Board of Directors of American Plumbing &
Mechanical, Inc., a privately held plumbing and mechanical
services consolidator.
<PAGE>
Upon the occurrence of the initial closing Mr. Snyder will
be appointed a Preferred Stock Director and Chairman of the Board
of Directors. In addition, Mr. Snyder will be appointed Chief
Executive Officer of Canisco for which position he will not
receive a salary. Mr. Snyder may receive additional incentive
compensation, in the form of stock or options to purchase common
stock of Canisco both under existing benefit plans and under
plans that may be developed in the future as part of Canisco's
growth strategy. However, there are no plans currently in effect
with respect to these matters. Sterling has also committed to be
a limited partner in the investment partnership.
Roger Gossett has served as President and Chief Executive
Officer of Cannon Sline, Inc. since June 1, 1998. Mr. Gossett
was primarily responsible for initiating Canisco's strategic
growth strategy. From January 1995 to June 1998, Mr. Gossett
served the Cannon Sline subsidiary as Executive Vice President
and Chief Operating Officer. Mr. Gossett graduated with a B.S.E.
from the University of Central Arkansas in 1978. Pursuant to
existing contractual arrangements, Roger Gossett is paid an
annual salary of $175,000 and a cash bonus of approximately
$120,000. Mr. Gossett currently holds 42,000 shares of Canisco
common stock, 30,000 stock appreciation rights and options to purchase
30,000 shares of common stock, 30,000 of which are presently exercisable.
Upon the occurrence of the initial closing Mr. Gossett will
be appointed a Preferred Stock Director. In addition, Mr.
Gossett will be appointed President and Chief Operating Officer
of Canisco and will be paid $225,000 annually for his service,
pursuant to a written employment agreement to be entered into at
the initial closing. Pursuant to his employment agreement, Mr.
Gossett will be entitled to receive a cash bonus equal to a
minimum of $125,000 and may be entitled, in the event certain
growth targets are reached, to receive a maximum of $225,000.
Mr. Gossett is also entitled to receive options to purchase a
minimum of 50,000 shares of common stock per year at a price
equal to the average of the market price of the common stock for
the twenty trading days prior to March 31. Mr. Gossett may be
entitled to additional options, not to exceed options to purchase
200,000 shares of common stock, in the event the price of common
stock increases. All options vest at a rate of 20% each year.
Mr. Gossett will also be entitled to participate in Canisco
medical and disability benefit plans and may receive other fringe
benefits. It is currently anticipated that Mr. Gossett may
receive additional incentive compensation in the future, in the
form of cash, stock, options or appreciation rights, both under
existing benefit plans and under plans that may be developed in
the future as part of Canisco's growth strategy. However, there
are no plans currently in effect with respect to these matters.
Mr. Gossett has also committed to be a limited partner in the
investment partnership.
Teddy L. Mansfield has served as President and Chief
Executive Officer of Mansfield Industrial Coatings, Inc. since
1996. Mansfield Industrial Coatings, Inc. is the thirteenth
largest industrial services company in the United States and Mr.
Mansfield was its majority owner until it was acquired by Canisco
in 1998. Mr. Mansfield attended Louisiana State University in
Baton Rouge, Louisiana, with a major in Construction Management.
Mr. Mansfield began his career in the coatings industry at an
early age as a dedicated member of the staff of Bagwell Coatings,
a company founded by his grandfather. He has held various
positions in all aspects of the industrial coatings industry
ranging from field painting to project management. Mr. Mansfield
currently receives an annual salary of $110,000 for his services
as President and Chief Executive Officer of Mansfield Industrial
Coatings, Inc. and received a cash bonus of approximately
$120,000 for fiscal 1999.
<PAGE>
Pursuant to arrangements with the investment partnership,
upon the initial closing, Mr. Mansfield will be paid $150,000 for
these services pursuant to a written employment agreement to be
entered into at the initial closing and will be entitled to
receive a cash bonus under Canisco's current arrangements with
respect to the award of cash bonus compensation to its employees.
Teddy Mansfield will also be entitled to receive options to
purchase a minimum of 25,000 shares of common stock per year at a
price equal to the average of the market price of the common
stock for the twenty trading days prior to March 31. Teddy
Mansfield may be entitled to additional options, not to exceed
options to purchase 100,000 shares of common stock, in the event
the price of common stock increases. All options vest at a rate
of 20% each year. Mr. Mansfield may also be eligible to receive
additional incentive compensation in the future, in the form of
cash, stock, options or appreciation rights, both under existing
benefit plans and under plans that may be developed in the future
as part of Canisco's growth strategy. Mr. Mansfield has also
committed to be a limited partner in the investment partnership.
Mark F. Walz joined Sterling in April 1999. From January
1997 through January 1998, Mr. Walz served as Vice President and
Chief Financial Officer of Work International Corporation, a
company formed to consolidate temporary staffing companies. From
1994 through December 1997, Mr. Walz served Inliner Americas,
Inc., a company involved in pipeline rehabilitation processes,
first as Controller and then as Chief Financial Officer. Mr.
Walz graduated in 1980 from the University of Southwestern
Louisiana with a B.S.B.A. in accounting and is a certified public
accountant.
Upon the occurrence of the initial closing, Mr. Walz will be
appointed to the offices of Senior Vice President and Chief
Financial Officer of Canisco and is expected to receive annual
base compensation of $150,000, pursuant to an employment
agreement that will be entered into at the initial closing.
Pursuant to his employment agreement, it is anticipated that Mr.
Walz will also receive options to purchase 60,000 shares of
common stock, at the market price on the initial closing date, as
well as medical and disability and other fringe benefits. It is
currently anticipated that Mr. Walz may receive additional
incentive compensation in the future, in the form of cash, stock,
options or appreciation rights, both under existing benefit plans
and under plans that may be developed in the future as part of
Canisco's growth strategy. However, there are no plans currently
in effect with respect to these matters. Mr. Walz does not own
any shares of common stock of Canisco and does not hold any
options to purchase Canisco common stock. Mr. Walz intends to
invest in the investment partnership.
Compensation of Directors After the Initial Closing. The
investment partnership has no present intention to change the
manner in which directors of Canisco are compensated for their
service as members of the Board of Directors of Canisco.
The investment partnership has not yet selected the three
persons necessary to fill the vacancies among the Preferred Stock
Directors. This information will be included in the proxy
statement prior to the mailing to Canisco's stockholders.
<PAGE>
HISTORICAL PERFORMANCE OF CANISCO'S STOCK
=========================================
The common stock traded on the NASDAQ Stock Market under the
symbol "NSSI" until May 20, 1996 at which time as a result of the
merger of Nuclear Support Services, Inc. into Canisco Resources,
Inc., Canisco commenced trading on the NASDAQ SmallCap Market
under the symbol "CANR." On November 30, 1998 the symbol was
changed to "CANRC" to indicate that Canisco had been granted a
temporary waiver from its failure to meet the listing
requirements for the NASDAQ SmallCap Market. The following table
contains details concerning Canisco's stock price over the two
most recent fiscal years.
Fiscal Year 1998 Fiscal Year 1999
Quarter Ended High Low High Low
June 30 2 3/4 1 3/8 3 3/4 2 1/2
Sept 30 2 3/4 1 3/8 3 1/4 2 1/4
Dec 31 3 7/8 1 3/4 3 1/2 1 1/2
March 31 2 3/4 1 7/8 2 3/4 1 1/4
Fiscal Year 2000
Period High Low
April 1, 1999 through April 16, 1999 2 1/4 1 3/4
April 19, 1999* through May __, 1999 7 2
* Date the purchase agreement and the investment was announced.
<PAGE>
PERFORMANCE GRAPH
=================
The following graph compares the yearly percentage change in
Canisco's cumulative total stockholder return on its common stock
with the cumulative total return of the NASDAQ MARKET INDEX, a
broad market index, and the cumulative total return of the
Standard Industrial Classification Index, Code 1799 - Specialty
Contractors. Cumulative return for Canisco and both indices were
calculated assuming dividend reinvestment. For fiscal year 1999,
the Standard Industrial Classification Index, Code 1799 -
Specialty Contractors was comprised of the following nine (9)
publicly traded companies: Canisco Resources, Inc.; Cerbco Inc.
CL A; Chicago Bridge & Iron NV; Heist C.H. Corporation; IDM
Environmental Corp.; Insituform East, Inc.; Leak-X Environmental
CP; National Environ Service Co.; and U.S. Bridge Construction.
COMPARISON OF CUMULATIVE TOTAL RETURN
OF COMPANY, INDUSTRY INDEX AND BROAD MARKET
===========================================
Year Ending March 31,
1994 1995 1996 1997 1998 1999
Canisco Resources, Inc. 100 38.46 51.28 53.85 52.56 46.15
Industry Index 100 54.56 64.49 35.62 39.19 23.33
NASDAQ Market Index 100 106.09 142.70 159.64 241.26 315.28
<PAGE>
STOCKHOLDER PROPOSALS FOR THE NEXT ANNUAL MEETING
=================================================
All proposals of any stockholder of Canisco that any
stockholder wishes to be presented at the Annual Meeting of
Stockholders in 1999 were required to have been received by March
29, 1999 in order to be considered for inclusion in Canisco's
proxy statement and form of proxy relating to that meeting.
A stockholder of Canisco may wish to have a proposal
presented at the annual meeting of stockholders in 1999, without
having the proposal included in Canisco's proxy statement and
form of proxy relating to that meeting. If notice of any such
proposal is not received by Canisco prior to June 12, 1999, under
SEC Rule 14a-4(c) it will be deemed "untimely" and, therefore,
the proxies solicited by management of Canisco will have the
right to exercise discretionary voting authority with respect to
the proposal. Any such notice should be directed to the
President and Chief Executive Officer of Canisco at 300 Delaware
Avenue, Suite 714, Wilmington, Delaware.
OTHER MATTERS
=============
The Board of Directors does not intend to bring any matters
before the special meeting other than those specifically set
forth in the notice of the special meeting and knows of no
matters to be brought before the meeting by others. If any other
matters properly come before the meeting, it is the intention of
the persons named in the enclosed proxy, or their substitutes, to
vote the proxy in accordance with their best judgment on such
matters to the extent allowed by SEC Rule 14a-4(c) which limits
the purpose for which discretionary authority may be granted.
By Order of the Board of Directors
Ralph A. Trallo
President and Chief Executive Officer
Wilmington, Delaware
May __, 1999
<PAGE>
This Proxy is Solicited on Behalf of the Board of Directors
of
CANISCO RESOURCES, INC.
300 Delaware Avenue, Suite 714
Wilmington, Delaware 19801
The undersigned appoints Joe C. Quick, Dale L. Ferguson, or
Ralph A. Trallo as proxy (and if the undersigned is a proxy,
as substitute proxy), each with the power to appoint his
substitute, and authorizes any one of them to vote as
designated on the reverse side all the shares of common
stock of Canisco Resources, Inc., held of record by the
undersigned on May __, 1999, at the Special Meeting of
Stockholders to be held on Tuesday, June __, 1999, at 10:00
AM at the offices of Canisco, 300 Delaware Avenue, Suite
714, Wilmington, Delaware 19801, and at any adjournment or
postponement thereof.
IF A STOCKHOLDER RETURNS A PROXY BUT DOES NOT SPECIFY A
CHOICE ON THE PROXY, THE PROXY WILL BE VOTED FOR
RATIFICATION OF THE PURCHASE AGREEMENT AND FOR THE CHANGE OF
CONTROL AND ISSUANCES OF SECURITIES IT CONTEMPLATES.
(continued on reverse side)
============================================================
<PAGE>
ALL PROXIES WILL BE VOTED IN ACCORDANCE WITH THE INSTRUCTIONS NOTED BELOW.
1.
FOR RATIFICATION OF THE SECURITIES PURCHASE AGREEMENT: Ratification of
the Securities Purchase Agreement, dated as of April 16, 1999, by
and among SCC Investment I, L.P., a Texas limited partnership,
Sterling City Capital LLC, a Texas limited liability company and
Canisco and the obligations Canisco has assumed under the purchase
agreement including:
AGAINST
the issuance of 80,000 shares of a newly created series
of preferred stock and an investment incentive warrant to
SCC Investment I, L.P. for an aggregate purchase price of
$8,000,000 in the initial closing under the purchase
agreement and the issuance of the shares of common stock
that will be issued on conversion of the shares of
preferred stock and exercise of the warrant,
ABSTAIN
the change of control which will result as a consequence
of the voting rights of the preferred stock and the
adoption of a nine member board, six members of which
will be elected by the preferred stock and three
members of which will be elected by the common stock, and
the issuance of 20,000 additional shares of preferred
stock in one or more subsequent closings for an aggregate
purchase price of $2,000,000 if and when Canisco elects
and the issuance of the shares of common stock that will
be issued on conversion of the shares of preferred stock.
2.
OTHER BUSINESS: In their discretion, the proxies are
authorized to vote upon such other business as may properly
come before the meeting.
The undersigned acknowledges receipt of the Proxy Statement dated
May ___, 1999 and by signing this revokes any proxy or proxies previously given
to vote shares at the meeting or any adjournments.
Dated:______________________
[Printed Name of Shareholder]
_____________________________________
_____________________________________
Sign above exactly as name(s) appear on left.
When signing as attorney-in-fact, executor,
administrator, trustee or guardian, please
add your title. When signing as joint
tenants, all parties in the joint tenancy
must sign. If signer is a corporation,
please sign in full corporate name by duly
authorized officer or officers and affix the
corporate seal.
PLEASE DATE, SIGN AND RETURN THIS PROXY IN THE ENCLOSED, ADDRESSED ENVELOPE
