SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a)
of the Securities Exchange Act of 1934
Filed by the Registrant X
Filed by a Party other than the Registrant __
Check the appropriate box:
__ Preliminary Proxy Statement
__ Confidential, for Use of the Commission Only (as permitted by Rule
14a-6(e)(2)
X Definitive Proxy Statement
__ Definitive Additional Materials
__ Soliciting Material Pursuant to Section 140.14a-1(c) or Section
240.14a-12
CANNON EXPRESS, INC.
(Name of Registrant as Specified in Its Charter)
CANNON EXPRESS, INC.
(Name of Person(s) Filing Proxy Statement)
Payment of Filing Fee (Check the appropriate box):
__ $125 per Exchange Act Rules 0-11(c)(1)(ii), 14a-6(i)(1), 14a-6(i)(2) or
Item 22(a)(2) of Schedule 14A.
__ $500 per each party to the controversy pursuant to Exchange Act Rule
14a-6(i)(3).
__ 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:
________________________________________________________
X 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: $125.00
2) Form Schedule or Registration Statement No.: Schedule 14A.
3) Filing Party: Cannon Express, Inc.
4) Date Filed: January 29, 1996.
CANNON EXPRESS, INC.
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD ON April 10, 1996
TO THE SHAREHOLDERS OF CANNON EXPRESS, INC.:
Notice is hereby given that a Special Meeting of Shareholders of
Cannon Express, Inc., a Delaware corporation, will be held on Wednesday,
April 10 , 1996 at 10:00 a.m. local time, at the main meeting room,
Boatmen's National Bank, Springdale, Arkansas, for the following purposes:
1. To consider a proposal to amend Article Fourth of the Company's
Certificate of Incorporation to effect (A) a 1-for-500,000 reverse split
(the "Reverse Stock Split") of the Company's non-voting class B common
stock, par value $0.01 per share (the "Class B Common Stock") and
contemporaneous purchase, for cash, of all fractional shares of Class B
Common Stock at a price of $9.00 per share (prior to giving effect to the
Reverse Stock Split), (B) the conversion (the "Conversion") of each whole
share of Class B Common Stock outstanding after the Reverse Stock Split
into 493,150 shares of voting class A common stock, par value $0.01 per
share (the "Class A Common Stock") and (C) the amendment of the Certificate
of Incorporation to reclassify (the "Reclassification") the Class A Common
Stock and Class B Common Stock into a new, single class of common stock
(the "Common Stock") (the Reverse Stock Split, Conversion and
Reclassification are collectively referred to as the "Recapitalization
Plan").
2. To consider and act upon such other business as may properly come
before the meeting and any adjournments thereof.
The shareholders of Class A Common Stock and Class B Common Stock will
have the right to vote as separate classes on the approval of the
Recapitalization Plan. As a result, all shareholders of record of Class A
Common Stock and Class B Common Stock at the close of business on March
15 , 1996 will be entitled to vote at the Special Meeting.
The Company's Proxy Statement is submitted herewith.
BY THE ORDER OF THE BOARD OF
DIRECTORS
Dean G. Cannon
President and Chairman of the
Board of Directors
Springdale, Arkansas
March 19 , 1996
YOU ARE URGED TO DATE, SIGN AND PROMPTLY RETURN THE ENCLOSED FORM OF PROXY
SO THAT YOUR SHARES MAY BE VOTED IN ACCORDANCE WITH YOUR WISHES. THE
GIVING OF SUCH PROXY DOES NOT AFFECT YOUR RIGHT TO REVOKE IT LATER OR TO
VOTE YOUR SHARES IN PERSON IN THE EVENT YOU SHOULD ATTEND THE MEETING.
CANNON EXPRESS, INC.
1457 Robinson
Springdale, Arkansas 72765
___________________________
PROXY STATEMENT FOR SPECIAL MEETING OF SHAREHOLDERS
April 10 , 1996 AND ANY ADJOURNMENTS
___________________________
SOLICITATION AND REVOCATION OF PROXY
The enclosed proxy, for use only at the Special Meeting of Shareholders to
be held at the main meeting room, Boatmen's National Bank, Springdale,
Arkansas on Wednesday, April 10 , 1996 at 10:00 a.m. local time, and
any adjournments thereof, is solicited on behalf of the Board of Directors
of the Company. Such solicitation is being made primarily by mail, but may
also be made in person or by telephone or telegraph by officers, directors,
and regular employees of the Company. All expenses incurred in the
solicitation will be borne by the Company.
Any shareholder executing a proxy retains the right to revoke it at any
time prior to exercise at the Special Meeting. A proxy may be revoked at
any time before it is used, upon written notice to Rose Marie Cannon,
Secretary of the Company. If not revoked, all properly executed proxies
received will be voted at the meeting in accordance with the terms of the
proxy.
This proxy material is first being mailed to shareholders on or about
March 19 , 1996.
PURPOSE OF SPECIAL MEETING
The purpose of the Special Meeting is to consider and vote upon a
proposal to amend Article Fourth of the Company's Certificate of
Incorporation to effect (A) a 1-for-500,000 reverse split (the "Reverse
Stock Split") of the Company's non-voting class B common stock, par value
$0.01 per share (the "Class B Common Stock") and contemporaneous purchase,
for cash, of fractional shares of Class B Common Stock at a price of $9.00
per share (prior to giving effect to the Reverse Stock Split), (B) the
conversion (the "Conversion") of each whole share of Class B Common Stock
outstanding after the Reverse Stock Split into 493,150 shares of voting
class A common stock, par value $0.01 per share (the "Class A Common
Stock") and (C) the amendment of the Certificate of Incorporation to
reclassify (the "Reclassification") the Class A Common Stock and Class B
Common Stock into a new, single class of common stock (the "Common Stock")
(the Reverse Stock Split, Conversion and Reclassification are collectively
referred to as the "Recapitalization Plan"). The Recapitalization Plan was
recommended by a Special Committee of the Board of Directors (the "Special
Committee") and approved by the Board of Directors on January 26, 1996.
(text continued on next page)
THIS TRANSACTION HAS NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE COMMISSION PASSED UPON THE FAIRNESS OR
MERITS OF SUCH TRANSACTION NOR UPON THE ACCURACY OR ADEQUACY OF THE
INFORMATION CONTAINED IN THIS DOCUMENT. ANY REPRESENTATION TO THE CONTRARY
IS UNLAWFUL.
Shareholders who own fewer than 500,000 shares of Class B Common Stock
on the Effective Date (as defined) and immediately prior to the Reverse
Stock Split (the "Public B Holders") will receive $9.00 per share for each
share owned by such shareholders immediately prior to the Reverse Stock
Split, and will no longer be shareholders of the Company except to the
extent such shareholders otherwise own shares of Class A Common Stock.
Only Dean G. and Rose Marie Cannon (collectively the "Cannon Family"), each
of whom own at least 533,875 shares of Class B Common Stock, will receive
shares of Class A Common Stock as part of the Conversion. The number of
shares of Class A Common Stock to be received by the Cannon Family pursuant
to the Conversion was determined by multiplying the number of shares of
Class B Common Stock held by the Cannon Family prior to the Reverse Stock
Split by a fraction whose numerator is $9.00 (the same price per share
price to be paid to the Public B Holders) and denominator is $9.125 (the
fair market value of the Class A Common Stock on January 25, 1996).
As of December 31, 1995, there were approximately 1,500 holders of
record of Class B Common Stock. The Recapitalization Plan will constitute
a going private transaction as defined under Rule 13e-3 of the Securities
Exchange Act of 1934 (the "Exchange Act") with respect to the Class B
Common Stock, and the Company will deregister the Class B Common Stock
under the Exchange Act if the Recapitalization Plan is consummated. In
connection with the Recapitalization Plan, the Company has filed a Rule
13e-3 Transaction Statement on Schedule 13E-3 with the SEC. The Class A
Common Stock, as reclassified into the Common Stock, will continue to
remain outstanding and be registered under the Exchange Act, and the
Company will continue to file reports under the Exchange Act, including
Annual Reports on Form 10-K and Quarterly Reports on Form 10-Q.
OUTSTANDING STOCK AND VOTING RIGHTS
The outstanding shares of the Company as of December 31, 1995, totaled
2,161,352 shares of Class A Common Stock and 2,166,352 shares of Class B
Common Stock. The shareholders of Class A Common Stock and Class B Common
Stock will have the right to vote as separate classes on the approval of
the Recapitalization Plan. Accordingly, each shareholder will be entitled
to one vote, in person or by proxy, for each share of Class A Common Stock
or Class B Common Stock owned of record by such holder at the close of
business on March 15 , 1996 (the "Record Date"). The stock transfer
books of the Company will not be closed.
The affirmative vote, in person or by proxy, of the holders of a
majority of the outstanding shares of each of the Class A Common Stock and
Class B Common Stock as of the Record Date, voting as separate classes, is
required to approve the Recapitalization Plan. Although not required by
the provisions of the Delaware General Corporation Law ("DGCL"), the
Special Committee has reserved the right (the "Special Committee Veto
Power") to disallow the Recapitalization Plan if it does not receive the
affirmative vote of the majority of the holders of Class B Common Stock, as
of the Record Date, present in person or by proxy (other than the shares
held by the Cannon Family). The Special Committee Veto Power does not give
Public B Holders a separate or controlling vote, or any veto power or
special right, concerning approval of the Recapitalization Plan. See
"Special Factors - Recommendation of Special Committee." Accordingly,
even if such Public B Holders do not approve the transaction, the Special
Committee would still have the ability to cause the Recapitalization Plan
to be consummated.
2
Broker "non-votes" (i.e. a card returned by a broker on behalf of its
beneficial owner customer that is not voted on a particular matter because
voting instructions have not been received and the broker has no
discretionary authority to vote) are not counted for purpose of determining
whether the Recapitalization Plan has been approved, but will be counted
for quorum purposes. The enclosed form of proxy provides a method for
shareholders to abstain from voting on the Recapitalization Plan. By
abstaining, shares would be voted neither for nor against the
Recapitalization Plan, but would be counted for quorum purposes. While
there may be instances in which a shareholder may wish to abstain the Board
of Directors encourages all shareholders to vote their shares in their best
judgment and to participate in the voting process to the fullest extent
possible.
As of December 31, 1995, the Cannon Family beneficially owned
1,243,875 shares of Class A Common Stock and 1,103,875 shares of Class B
Common Stock, which represented 58% and 51% of the outstanding shares of
such classes, respectively. All such shares are expected to be voted in
favor of the Recapitalization Plan. See "Description of Transaction -
Interests of Certain Persons."
THE BOARD OF DIRECTORS, ACTING IN ACCORDANCE WITH THE RECOMMENDATION
OF THE SPECIAL COMMITTEE, HAS DETERMINED THAT THE RECAPITALIZATION PLAN IS
IN THE BEST INTERESTS OF THE COMPANY AND ITS SHAREHOLDERS. THE BOARD OF
DIRECTORS HAS APPROVED THE RECAPITALIZATION PLAN AND RECOMMENDS THAT
SHAREHOLDERS VOTE FOR APPROVAL THEREOF.
The Board of Directors is not aware of any other matter that will be
presented for consideration at the Special Meeting. However, if any other
matter should properly come before the Special Meeting, including but not
limited to any procedural matter relating to the conduct of the Special
Meeting, it is intended that proxies in the accompanying form will be voted
in respect thereof in accordance with the determination of a majority of
the Board of Directors.
3
TABLE OF CONTENTS
PAGE
SOLICITATION AND REVOCATION OF PROXY 1
PURPOSE OF SPECIAL MEETING 1
OUTSTANDING STOCK AND VOTING RIGHTS 2
SUMMARY 4
SPECIAL FACTORS 9
Background and Reasons for the Recapitalization Plan 9
Recommendation of Special Committee 15
Board of Directors' Approval 16
Opinion of Financial Advisor 17
DESCRIPTION OF TRANSACTION 20
The Recapitalization Plan 20
Conduct of the Company's Business After the Recapitalization
Plan 21
Comparison of Capital Stock Before and After Recapitalization
Plan 22
Federal Income Tax Consequences 24
Interests of Certain Persons 25
Dissenters' Appraisal Rights 26
Delivery of Certificates Representing Fractional Shares 26
Payment of Cash in Exchange for Fractional Shares 26
Source of Funds; Financing 27
HISTORICAL FINANCIAL INFORMATION 27
PRO FORMA FINANCIAL INFORMATION 27
SECURITY OWNERSHIP OF MANAGEMENT 35
PRINCIPAL SHAREHOLDERS; CLASS A DILUTION 35
MARKET FOR COMMON STOCK; DIVIDENDS 36
AVAILABLE INFORMATION 36
DOCUMENTS INCORPORATED BY REFERENCE 37
EXPERTS 37
EXPENSES 37
APPENDICES 38
Appendix A-1: Amended and Restated Article "FOURTH" to Certificate of
Incorporation
Appendix A-2: Existing Article "FOURTH" to Certificate of
Incorporation
Appendix B: Opinion of Llama Company, financial advisor to the
Special Committee.
Appendix C: Articles "FIFTH," "SEVENTH," "EIGHTH," "TENTH," and
"TWELFTH" to Certificate of Incorporation.
4
SUMMARY
The following is a summary of certain information contained elsewhere
or incorporated by reference in this Proxy Statement. This Summary is
necessarily incomplete and is qualified in its entirety by, and reference
is made to, the more detailed information in this Proxy Statement and the
documents referred to and incorporated herein by this reference.
The Company
Cannon Express, Inc., a Delaware corporation (the "Company") is an
irregular route, truckload carrier with headquarters located at 1457
Robinson, Springdale, Arkansas, 72765. The Company transports a wide range
of general commodities in the United States pursuant to nationwide
operating authorities granted by the Interstate Commerce Commission and in
Canada through operating authorities granted by the Canadian provinces.
The Recapitalization Plan
On January 26, 1996, the Special Committee of the Board of Directors
unanimously approved the Recapitalization Plan which consists of the
following components:
(A) a 1-for-500,000 reverse split of the Class B Common Stock and
contemporaneous purchase, for cash, of all fractional shares of non-voting
Class B Common Stock at a price of $9.00 per share (prior to giving effect
to the Reverse Stock Split);
(B) the conversion of each whole share of Class B Common Stock
outstanding after the Reverse Stock Split into 493,150 shares of voting
Class A Common Stock; and
(C) the reclassification of the Class A Common Stock and Class B
Common Stock into a new, single class of Common Stock.
The Recapitalization Plan will involve an amendment to and restatement
of Article "Fourth" of the Company's Certificate of Incorporation. Such
amendment is set forth in Appendix A-1 attached hereto (the "Restated
Article Fourth").
All Public B Holders will receive $9.00 per share for each share of
Class B Common Stock owned by such shareholders immediately prior to the
Reverse Stock Split, and will no longer be shareholders of the Company
except to the extent such shareholders otherwise own shares of Class A
Common Stock. Only the Cannon Family, each of whom own at least 533,875
shares of Class B Common Stock, will receive shares of Class A Common Stock
as part of the Conversion. The number of shares of Class A Common Stock to
be received by the Cannon Family pursuant to the Conversion was determined
by multiplying the number of shares of Class B Common Stock held by the
Cannon Family prior to the Reverse Stock Split by a fraction whose
numerator is $9.00 (the same price per share price to be paid to the Public
B Holders) and denominator is $9.125 (the fair market value of the Class A
Common Stock on January 25, 1996).
The Special Meeting.
The Special Meeting is scheduled to be held on Wednesday, April
10 , 1996 at 10:00 a.m. local time, at the main meeting room, Boatmen's
5
National Bank, Springdale, Arkansas to consider and vote on the
Recapitalization Plan and to transact such other business as may properly
come before the Special Meeting or any adjournments thereof. The
shareholders of Class A Common Stock and Class B Common Stock will have the
right to vote as separate classes on the approval of the Recapitalization
Plan. As a result, all shareholders of record of Class A Common Stock and
Class B Common Stock on the close of business on March 15 , 1996 will
be entitled to vote at the Special Meeting.
Vote Required
The outstanding shares of the Company as of December 31, 1995, totaled
2,161,352 shares of Class A Common Stock and 2,166,352 shares of Class B
Common Stock. The affirmative vote, in person or by proxy, of the holders
of a majority of the outstanding shares of each of the Class A Common Stock
and Class B Common Stock as of the Record Date, and voting as separate
classes, is required to approve the Recapitalization Plan. Although not
required by the provisions of the Delaware General Corporation Law
("DGCL"), the Special Committee has reserved the right to disallow the
Recapitalization Plan if it does not receive affirmative vote of the
majority of the holders of Class B Common Stock, as of the Record Date
,present in person or by proxy (other than the shares held by the Cannon
Family. The Special Committee Veto Power does not give Public B Holders a
separate or controlling vote, or any veto power or special right,
concerning approval of the Recapitalization Plan.
As of December 31, 1995, the Cannon Family beneficially owned
1,243,875 shares of Class A Common Stock and 1,103,875 shares of Class B
Common Stock, which represented 58% and 51% of the outstanding shares of
such classes, respectively. All such shares are expected to be voted in
favor of the Recapitalization Plan. See "Description of Transaction -
Interest of Certain Persons."
Effective Date
The Recapitalization Plan will become effective (the "Effective Date")
immediately upon the filing of the Restated Article Fourth with the
Secretary of State of Delaware. Such filing is expected to occur as soon
as practicable after the Special Meeting.
Advantages and Disadvantages of Transaction.
The Recapitalization Plan will present certain potential advantages
and disadvantages to the Company, holders of the Class A Common Stock and
Public B Holders, respectively.
Company and Class A Common Stockholders. The potential advantages
to the Company and the Class A Common Stock shareholders include the
following: (i) reduction in the number of shares outstanding of the
Company's capital stock (which would result in a pro forma increase in
earnings per share for the year ended June 30, 1995 of $.50 and for the
three month period ended September 30, 1995 of $.07(see "Special Factors -
Recommendation of Special Committee"); and (ii) elimination of perceived
negative market conditions resulting from the dual class structure (see
"Special Factors - Background and Reasons for the Recapitalization Plan").
The potential disadvantages of the Recapitalization Plan to the Company and
6
the Class A Common Stock shareholders include the following: (i) reduction
of the Company's working capital by $11,297,168 and the resulting reduction
in book value per share (see "Special Factors - Recommendation of Special
Committee" and "Pro Forma Financial Information") and (ii) increase of the
Cannon Family's ownership of voting stock of the Company from 58% to 71%,
which would enhance their control of the Company and their ability to
effect certain fundamental corporate changes. (see "Description of the
Transaction - Interests of Certain Persons").
Public B Holders. The primary advantage of the Recapitalization Plan
to the Public B Holders is their receipt of the purchase price, in cash, of
$9.00 per share (prior to giving effect to the Reverse Stock Split) which
represents a premium of 41% over the closing bid price of the Class
B Common Stock one day prior to the public announcement of the
Recapitalization Plan and, as of March 14, 1996 , constitutes a
6% premium over the closing bid price. See "Special
Factors - Recommendation of the Special Committee". The potential
disadvantages of the Recapitalization Plan to the Public B Holders are as
follows: (i) they will not participate in the Conversion and, accordingly,
will not have an opportunity to share the benefits of the Company's
potential future growth, cash flow and earnings, if any, except to the
extent that they otherwise own or purchase shares of Class A Common Stock
and (ii) their receipt of cash for fractional interests of Class B Common
Stock will constitute a taxable transaction for federal income tax purposes
and may be a taxable transaction under applicable state, local, foreign and
other tax laws. See "Description of Transaction - Federal Income Tax
Consequences".
Background and Reasons for the Recapitalization Plan
In December 1992, the Company effected a recapitalization proposal
(the "1992 Recapitalization Plan") to (i) reclassify the Company's existing
common stock as Class A Common Stock and authorize a new non-voting Class B
Common Stock, (iii) increase the authorized shares of capital stock from 10
million to 20 million, and (iv) establish the rights, powers and
limitations of the Class A Common Stock and Class B Common Stock. The 1992
Recapitalization Plan was adopted because it was believed that a dual class
structure could provide financial flexibility, stockholder flexibility and
continuity of the Company's management and its long-term plans and
objectives. It was believed that these advantages outweighed the potential
disadvantages of the dual class plan. However, many of the anticipated
advantages of the dual class structure did not occur and it is believed
that such structure may in fact have led to confusion in the marketplace,
including prices for the Class A and Class B Common Stock which have been
lower than industry averages. The foregoing market conditions were
exacerbated in mid-1995 when prices for stocks of most publicly-traded
truckload and less-than-truckload carriers declined due primarily to the
imbalance in shipping volume and capacity. During calendar year 1995, both
classes of the Company's stock traded in multiples ranging from 6 to 10
times earnings, both of which are substantially below historical and
industry averages. In February 1996, the Company was notified by the NASD
that the Class B Common Stock no longer qualifies for trading on NASDAQ's
National Market System due to the lack of market makers in the stock. It
advised the Company that it will seek removal of the Class B Common Stock
from the National Market System in the near future.
7
In an effort to identify and rectify the problems associated with the
Company's dual class structure, the Company's Board of Directors determined
in July 1995 that the elimination of the dual class structure, with a
return to a single, publicly-traded class of common stock was advisable.
At the Board's request, Company management, Llama Company, as the Company's
financial advisor, and legal counsel collected information and outlined
various alternatives including: (a) a "going private" transaction, whereby
both publicly traded classes of the Company's capital stock would be
repurchased or retired; (b) a redemption or repurchase of all outstanding
shares of Class B Common Stock, including those owned by the Cannon Family
and (c) a redemption or repurchase of all publicly traded shares of Class B
Common Stock, excluding those owned by the Cannon Family, who would be
permitted to exchange shares of Class B Common Stock owned by them for
shares of Class A Common Stock of the Company at an exchange rate to be
determined.
For various reasons outlined in more detail under "Special Factors -
Background and Reasons for the Recapitalization Plan," the Board determined
that the option of retiring, redeeming or repurchasing the publicly traded
shares of Class B Common Stock could accomplish the desired goal of dual
class consolidation without unduly burdening the Company with debt, so long
as the Cannon Family would be agreeable to exchanging shares of Class B
Common Stock owned by them in return for shares of Class A Common Stock, at
a fair exchange rate. The Board appointed the Special Committee to review,
evaluate and make a recommendation to the Board with respect to a potential
recapitalization transaction which would result in the repurchase and/or
conversion of all or a portion of the Class B Common Stock. Thereafter,
the Board and the Special Committee considered two basic alternatives for
effecting such a recapitalization: (i) a tender offer by the Company for
all publicly traded shares of its Class B Common Stock, followed by either
an exchange or reverse split/redemption for some or all of the remaining
Class B Common Stock and (ii) a reverse split of all shares of Class B
Common Stock, ultimately followed by a cash redemption of publicly held
fractional shares (and an exchange of shares of Class A Common Stock for
all remaining whole shares of Class B Common Stock held by the Cannon
Family).
After substantial consideration, the Board and Special Committee
determined that the reverse split/redemption proposal presently before
stockholders was in the best interests of the Company. This determination
was based upon a weight of the perceived advantages and disadvantages of
each alternative, including the fact that no assurance could be given that
certain advantages such as reduced number of total outstanding shares would
be available to the Company in the event of a tender offer. Although a
reverse split/redemption would be involuntary in nature in that once
approved by stockholders, minority holders of Class B Common Stock would
receive cash in return for their shares, even if such persons preferred to
hold such shares, a tender offer also contained an involuntary aspect, in
that Class B holders would also not have the choice of retaining ownership
of Class B shares. Assuming a fair price would be paid to the Class B
shareholders, the reverse split/redemption alternative, on the other hand,
was believed to be the most efficient method of consolidating the stock
classes of the Company while achieving two other goals of liquefying large
heretofore illiquid blocks of Class B Common Stock with excess working
capital and assuring a requisite reduction of the total number of shares
outstanding. See "Special Factors - Background and Reasons for the
Recapitalization Plan."
8
Recommendation of Special Committee
On January 26, 1996, the Special Committee held a meeting at which it
formally considered the Recapitalization Plan. Based upon a number of
factors, including those described below, the Special Committee concluded
that the Recapitalization Plan was fair to the Public B Holders and
recommended approval to the Board of Directors. The factors considered by
the Special Committee included: (a) the opinion of Llama Company, the
financial advisor to the Company and Special Committee to the effect that
$9.00 per share to be received in the Reverse Stock Split was fair to the
Public B Holders from a financial point of view; (b) the Special
Committee's review of financial and other information obtained from the
Company and the presentation of information, both orally and in writing, by
Llama Company; (c) the lack of a significant public trading market for the
Class B Common Stock and the relative illiquidity for the Public B Holders,
as well as, the likelihood that such market conditions will continue in the
future; (d) the process by which the redemption price to be received in the
Reverse Stock Split by the Public B Holders was determined.
Board of Directors' Approval
Upon receipt of the Special Committee's recommendation, the full Board
of Directors deliberated on whether to approve the Recapitalization Plan.
In its deliberations, the Board of Directors considered the following
factors in addition to the factors and analyses underlying the Special
Committee's recommendation: (i) the impact of the Recapitalization Plan on
the Company's liquidity, leverage, earnings per share and shareholder
return, both individually and in comparison to alternative structures and
(ii) the attractiveness of the investment to the Company, when compared to
the current market price of and premium paid for the Class B Common Stock.
The Board of Directors, upon completion of its deliberations and subject to
the reservation by the Special Committee of the Special Committee Veto
Power, unanimously voted to approve the Recapitalization Plan and to
recommend approval of said plan to the shareholders of the Company.
Opinion of Financial Advisor
On January 26, 1996, Llama Company delivered its oral opinion, which
was subsequently confirmed in writing, to the Special Committee to the
effect that, as of such date, the $9.00 per share in cash to be paid to the
Public B Holders owning less than 500,000 shares of Class B Common Stock
was fair, from a financial point of view, to such shareholders. The full
text of the written opinion of Llama Company, which sets forth the
assumptions made, procedures followed, matters considered and scope of
review, is attached hereto as Appendix B. Shareholders are urged to and
should read such opinion in its entirety. See "Special Factors - Opinion
of Financial Advisor."
Interests of Certain Persons
Dean G. Cannon is Chairman of the Board of Directors and President of
the Company, and Rose Marie Cannon is Secretary, Treasurer and a Director
of the Company. The Recapitalization Plan will increase the percentage of
outstanding common stock beneficially owned by the Cannon Family from
approximately 54% to approximately 71% and will increase their
voting control over the Company from approximately 58% to 71% . As a
result, the Cannon Family will be able to share a greater percentage of the
benefits
9
of the Company's potential future growth, cash flow and earnings, if any,
than their current equity holdings would afford. Furthermore, the Cannon
Family's receipt of shares of Class A Common Stock for their Class B Common
Stock as part of the Conversion will constitute a tax-free exchange for
federal income tax purposes. In contrast, the Public B Holders will not
participate in the Conversion and their receipt of cash for fractional
interests of Class B Common Stock will constitute a taxable transaction for
federal income tax purposes and may be a taxable transaction under
applicable state, local, foreign and other tax laws. See "Description of
Transaction - Federal Income Tax Consequences." The Public B Holders also
will not have an opportunity to share the benefits of the Company's
potential future growth, cash flow and earnings, if any, except to the
extent that they otherwise own or purchase shares of Class A Common Stock.
Source of Funds
The Company estimates that the total cost to be incurred by the
Company to complete the Recapitalization Plan, including cash payments to
shareholders for fractional shares of Class B Common Stock and
transactional expenses, will be approximately $11,297,168. The Company
intends to finance the Recapitalization Plan out of existing internal
working capital. Management believes that the use of existing working
capital for this purpose will not impair the Company's financial position.
However, following the Recapitalization Plan, the Company may procure a $5
million working capital credit facility with an unaffiliated lender.
Surrender of Class B Common Stock Certificates
Promptly following approval of the Recapitalization Plan,
Continental Stock Transfer and Trust Company , as exchange agent (the
"Exchange Agent"), will mail letters of transmittal and instructions to all
shareholders of Class B Common Stock on the Effective Date to be used in
surrendering their certificates representing shares of Class B Common Stock
in exchange for (a) cash, in the case of Public B Holders and (b)
certificates representing the number of shares of Common Stock to be
received for shares of Class B Common Stock after giving effect to the
Recapitalization Plan, plus cash for any fractional share interests, in the
case of the Cannon Family. Shareholders are requested not to send their
stock certificates until they receive instructions from the Exchange Agent.
As part of the Recapitalization Plan, all outstanding shares of Class
A Common Stock will be reclassified into shares of Common Stock. After the
Recapitalization Plan is consummated, certificates representing shares of
Class A Common Stock will automatically be deemed to represent an equal
number of shares of Common Stock, and no action will be required on the
part of shareholders of Class A Common Stock to exchange their certificates
representing shares of Class A Common Stock.
Federal Income Tax Consequences
The Recapitalization Plan will qualify as a tax-free reorganization of
the Company under Section 368 of the Internal Revenue Code of 1986, as
amended. Accordingly, the Company will not recognize any gain or loss as a
result of the Recapitalization Plan. The receipt of cash for fractional
shares of Class B Common Stock will be a taxable transaction for federal
10
income tax purposes, and may be a taxable transaction under applicable
state, local, foreign and other tax laws. For federal income tax purposes,
shareholders (other than the Cannon Family) who receive cash for fractional
shares of Class B Common Stock will generally recognize gain or loss equal
to the difference between the shareholder's tax basis in the shares of
Class B Common Stock and the amount of cash received. The Cannon Family,
who will receive shares of Class A Common Stock as part of the Conversion,
will not recognize any gain or loss with respect to the receipt of such new
shares, but their receipt of cash for any fractional shares of Class B
Common Stock will constitute a transaction taxable as a dividend.
Shareholders of Class B Common Stock are urged to consult their own tax
advisor as to the tax consequences of the Recapitalization Plan. See
"Description of Transaction--Federal Income Tax Consequences."
Dissenters' Appraisal Rights
No appraisal or dissenters' rights are available under the DGCL to
shareholders who dissent from the Recapitalization Plan. Stockholders will
be entitled to any other rights and remedies available under the DGCL or
federal or state securities laws in connection with the adoption of the
Recapitalization Plan. See "Description of Transaction -Dissenters'
Appraisal Rights."
Common Stock Information
The Company's Class A Common Stock and Class B Common Stock are traded
on the NASDAQ National Market System under the symbols CANXA and CANXB. As
of December 31, 1995, the Company had outstanding 2,161,352 shares Class A
Common Stock and 2,166,352 shares of Class B Common Stock. The Company has
not paid any dividends on its common stock. The present policy of the
Company is to retain cash earnings to provide funds for operations and
expansion of the Company's business. Following the Recapitalization Plan,
all authorized and outstanding shares of Class B Common Stock will be
cancelled and deregistered under the Exchange Act, each whole share of
Class B Common Stock outstanding after the Reverse Stock Split will be
converted into 493,150 shares of Class A Common Stock, each share of Class
A Common Stock will be reclassified into Common Stock, and the Common Stock
will be the Company's solely authorized class of capital stock. The Common
Stock will continue trading on the NASDAQ National Market System following
the Recapitalization Plan. See "Market for Common Stock; Dividends."
SPECIAL FACTORS
Background and Reasons for the Recapitalization Plan
In December 1992, the Company effected the 1992 Recapitalization Plan
whereby Article Fourth of the Company's Certificate of Incorporation was
amended to (i) reclassify the Company's existing common stock as Class A
Common Stock, (ii) authorize a new non-voting Class B Common Stock, (iii)
increase the authorized shares of capital stock from 10 million to 20
million, and (iv) establish the rights, powers and limitations of the Class
A Common Stock and Class B Common Stock. The 1992 Recapitalization Plan
had been approved by the Company's shareholders at the Annual Meeting of
Stockholders on November 19, 1992.
In considering the 1992 Recapitalization Plan, the Company's Board of
Directors discussed, among other things, the Company's capital structure,
11
concerns about voting power dilution resulting from possible issuances of
additional voting Common Stock, and a dual class capital structure. As a
result of such discussions, the Company's Board of Directors determined
that a dual class structure, subject to applicable regulatory limitations,
could offer the Company possible advantages that outweighed potential
disadvantages. The Board considered as particularly favorable to the
Company the attributes of a dual class stock plan that would provide
financial flexibility, stockholder flexibility and continuity of the
Company's management and its long-term plans and objectives. Specifically,
the advantages contemplated with respect to the dual class structure were:
(1) Increased flexibility in the future to issue common equity in
financings, acquisitions and incentive compensation plans without diluting
the voting power of any existing stockholder, including members of the
Cannon Family and management.
(2) Increased management continuity including a capital structure
permitting the Cannon Family and management, to dispose of up to 50% of
their equity holdings (through sales of Class B Common Stock) in the
Company without affecting their relative voting rights.
(3) Enhanced ability to attract and retain highly qualified key
employees.
However, notwithstanding efforts by the Company in adopting terms
designed to reduce or eliminate the economic reasons for the Class A and
Class B Common Stock to trade at disparate prices, the Class B Common Stock
had traded at prices and with volume substantially below that of the Class
A Common Stock.
The following tables set forth the (i) historical stock prices for the
Company's Class A Common Stock and Class B Common Stock and (ii) annual
trading volumes for the Class A Common Stock and Class B Common Stock for
the calendar years 1992 through 1995:
Cannon Express, Inc.
Stock Prices for Class A and Class B Common Stock
Calendar Year 1992 to 1995
THE FOLLOWING NARRATIVE DESCRIPTION OF GRAPHIC MATERIAL THAT HAS BEEN
OMITTED FROM THE ELECTRONIC FILING IS PROVIDED PURSUANT TO SECTION 304(A)
OF REGULATION S-T: The omitted graph depicts the average weekly trading
prices of Class A and Class B Common Stock from 1992 to 1995. The source
of the information was Bloomberg Financial Markets. The vertical axis of
the chart contains the stock price per share and it begins at two dollars
($2) and increases to sixteen dollars ($16) in one dollar ($1) increments.
The horizontal axis of the chart contains the calendar years and it begins
shortly before 1992 and continues into the middle of 1995. With a few
exceptions, the graph depicts that the Class B Common Stock has generally
traded at prices less than or equal to the Class A Common Stock. The graph
also depicts that the Class B Common Stock has frequently traded at prices
below the Class A Common Stock, with a price difference as high as
approximately two dollars ($2) per share at times.
12
Cannon Express, Inc.
Annual Trading Volume for Class A and Class B Common Stock
Calendar Year 1992 to 1995
THE FOLLOWING NARRATIVE DESCRIPTION OF GRAPHIC MATERIAL THAT HAS BEEN
OMITTED FROM THE ELECTRONIC FILING IS PROVIDED PURSUANT TO SECTION 304(A)
OF REGULATION S-T: The omitted graph depicts the annual trading volume for
the Class A and Class B Common Stock from 1992 to 1995. The source of the
information was Bloomberg Financial Markets. The vertical axis of the
chart contains trading volume and it begins at 500,000 shares and increases
to 3,500,000 in increments of 250,000. The horizontal axis contains the
calendar years and it begins in 1992 and ends in 1995. At the start of
each of the following years, the chart depicts the approximate trading
volume for the Class A and Class B Common Stock as follows:
<TABLE>
<CAPTION>
Class A Class B
Year Common Stock Common Stock
<S> <C> <C>
1992 Between 3,250,000 and 3,500,000 Not Applicable
1993 Between 1,250,000 and 1,500,000 Between 750,000 and 1,000,000
1994 Between 750,000 and 1,000,000 Between 750,000 and 1,000,000
1995 Between 500,000 and 750,000 Between 500,000 and 750,000
</TABLE>
Due to the foregoing market disparities, the Board of Directors of the
Company has not found that the issuance of Class B Common Stock in
connection with financings, acquisitions, and incentive compensation plans
would be advantageous to the Company. Moreover, due to the price
disparity, neither the Cannon Family nor management have elected to sell
any shares of Class B Common Stock owned by them. Accordingly, many of the
anticipated advantages of the dual class structure did not occur. In
addition, management of the Company increasingly believed that the dual
class structure led to some confusion in the marketplace, which confusion
was believed to contribute to prices for the Class A and Class B Common
Stock which were lower than industry averages.
The foregoing market conditions were exacerbated in mid-1995 when
prices for stocks of most publicly-traded truckload and less-than-truckload
carriers declined due primarily to the imbalance in shipping volume and
capacity. During calendar year 1995, both classes of the Company's stock
traded in multiples ranging from 6 to 10 times earnings, both of which are
substantially below historical and industry averages. In February 1996,
the Company was notified by the NASD that the Class B Common Stock no
longer qualifies for trading on NASDAQ's National Market System due to the
lack of market makers in the stock. It advised the Company that it will
seek removal of the Class B Common Stock from the National Market System in
the near future.
In an effort to identify and rectify the problems associated with the
dual class structure, the Company's Board of Directors at a special meeting
in July, 1995 met with Company management and legal counsel to
preliminarily discuss various structures as a means to enhance the
Company's ability to meet its long-term capital objectives and eliminate
perceived market problems. It was determined that the elimination of the
dual class structure, with a return to a single, publicly-traded class of
common stock was advisable. The board authorized management to discuss
these structures and market conditions with a financial advisor. During
the subsequent months, Company management, Llama Company, as the Company's
financial advisor, and legal counsel collected information and outlined
various alternatives.
13
On October 19, 1995, the Company's Board of Directors, their legal
counsel and representatives of Llama Company met in a special meeting to
discuss their findings. The Board of Directors of the Company outlined the
following structures as potentially in the best interests of the Company:
(a) a "going private" transaction, whereby both publicly traded
classes of the Company's capital stock would be repurchased or retired;
(b) a redemption or repurchase of all outstanding shares of Class B
Common Stock, including those owned by the Cannon Family; and
(c) a redemption or repurchase for cash of all publicly traded shares
of Class B Common Stock, excluding those owned by the Cannon Family, who
would be permitted to exchange shares of Class B Common Stock owned by them
for shares of Class A Common Stock of the Company at an exchange rate to be
determined.
Each of these alternatives achieved a portion of the desired result,
i.e., the consolidation of both classes of the Company's stock into a
single class. However, as noted, the Board also deemed it necessary to
choose an alternative that could best enhance the Company's ability to meet
its long-term capital objectives. The "going private" alternative was
initially dismissed by the Board as an attractive alternative because,
based on the advice of Llama Company, borrowings necessary to achieve a
"going private" transaction would not be available on favorable terms.
Further, management of the Company determined that having a publicly traded
class of equity stock benefits the Company's financing and employee
compensation programs. Such benefits would be lost in a "going private"
transaction. Although the Company presently has no plans to issue
additional equity securities in the near future (other than issuances
pursuant to employee stock options) the Special Committee believes the
ability to raise equity in public capital markets is a significant benefit
to the Company.
The Board of Directors initially determined that the most desirable
alternative which also achieved long-term capital objectives involved the
redemption or repurchase for cash of all outstanding shares of Class B
Common Stock, including those owned by the Cannon Family. This alternative
would have contemplated a reverse stock split or a tender offer for all
shares of Class B Common Stock at a fixed price. At the October 19, 1995
meeting of the Board, Llama Company provided the Board with information as
to the amount, kind and availability of financing that would be necessary
to accomplish this alternative. The Board unanimously adopted a resolution
authorizing and directing Company management, Llama Company and legal
counsel to pursue such financing and then report their findings to the
Board at a special meeting to be held in November, 1995.
After the October meeting, Llama Company prepared certain materials
with which investors could evaluate an investment in the Company for the
foregoing purposes and contacted numerous sources of potential financing,
each of which sources were large financial institutions with experience in
transactions of a similar nature. Eight potential investors elected to
review the written materials prepared by Llama Company. Several of these
sources promptly declined to pursue the transaction. Several remained
interested and continued negotiation over terms of potential financing.
Management of the Company expressed concern during this process that the
amount and cost of indebtedness necessary to retire all shares of Class B
Common Stock could impair the ability of the Company to finance its growth
in the future.
14
At a special meeting of the Company's Board on November 20, 1995, it
was determined by the Board that the retirement of all outstanding shares
of Class B Common Stock would not be in the Company's best interests in
light of the amount and cost of indebtedness and other financing to be
incurred by the Company in order to accomplish this end. The Board of
Directors authorized Llama Company to terminate all negotiations with third
parties with respect to the financing of a retirement of all shares of
Class B Common Stock. The Board authorized Llama Company and legal counsel
to pursue the option of retiring, redeeming or repurchasing the publicly
traded shares of Class B Common Stock. Based upon preliminary discussions
regarding this alternative, the Board expressed a belief that this
alternative could accomplish the desired goal of dual class consolidation
without unduly burdening the Company with debt, so long as the Cannon
Family would be agreeable to exchanging shares of Class B Common Stock
owned by them in return for shares of Class A Common Stock, at a fair
exchange rate. The Board also identified the illiquidity of the Class B
Common Stock as a factor in their analysis of the recapitalization
alternatives. Based on market data, it appeared to the Board that low
trading volumes made many Class B Common Stock holdings illiquid. Thus, an
option that used excess working capital to liquify larger Class B
stockholdings would be preferred.
On December 5, 1995, the Board of Directors of the Company established
the Special Committee to review, evaluate and make a recommendation to the
Board with respect to a potential recapitalization transaction which would
involve the repurchase and/or conversion of all or a portion of the Class B
Common Stock. See "- Recommendation of Special Committee."
At a special meeting of the Board on December 12, 1995, the Board and
Special Committee considered two basic alternatives (collectively, the
"Recapitalization Alternatives"):
(i) a tender offer by the Company for all publicly traded shares of
its Class B Common Stock, followed by either an exchange or reverse
split/redemption for some or all of the remaining Class B Common Stock; and
(ii) a reverse split of all shares of Class B Common Stock,
ultimately followed by a cash redemption of publicly held fractional shares
(and an exchange for shares of Class A Common Stock for all remaining whole
shares of Class B Common Stock) held by the Cannon Family.
After substantial discussion in which each of the Recapitalization
Alternatives was considered, the Board and Special Committee elected to
further evaluate the alternatives. The factors considered by the Board
were as follows:
(a) The Tender Offer Alternative. This alternative contemplated a
cash tender offer for all publicly traded Class B Common Stock,
approximately 49% (or 1,000,000 shares). The Class B shareholders would
receive a per share cash price to be determined by the Special Committee
after consultation with its financial advisor, which price presumably would
have involved a premium over the current market price of the Class B Common
Stock.
A tender offer involves a voluntary act on the part of the tendering
Class B stockholder and thus is perceived as less coercive than the reverse
stock split alternative discussed below. However, for various reasons, the
15
Board was concerned that a number of publicly held shares of Class B Common
Stock would not be tendered in a tender offer of the type described above.
Of course, the number of shares of Class B Common Stock ultimately tendered
would be substantially dependent upon the per share price offered therefor.
Failure to acquire a sufficient number of shares of Class B Common Stock
would have obviated the benefit to the Company of initiating a
recapitalization. However, the Company might also lose these benefits if
it offers an excessive premium for the shares of Class B Common Stock.
In all cases, however, some shares of Class B Common Stock would not
be tendered, and the Board must consider and adopt a mechanism for dealing
with these shares to complete a consolidation of the classes. There are
two basic alternatives: (i) reverse split for all remaining shares of Class
B Common Stock, with a cash redemption of all fractional shares of Class B
Common Stock, or (ii) exchange of remaining shares of Class B Common Stock
for shares of Class A Common Stock. The first alternative was effectively
the same as a reverse split/redemption option below. Depending upon the
number of shares tendered, permitting an exchange of remaining shares of
Class B Common Stock for remaining shares of Class A Common Stock could
eliminate or reduce many of the benefits of the class consolidation
including a reduced number of outstanding shares. Moreover, this
alternative would force those not agreeable to the Class B shares tender
price to exchange shares of Class B Common Stock for shares of Class A
Common Stock, and thus contained a level of involuntary participation. Any
involuntary mechanism for dealing with non-tendered shares would have, in
the Special Committee's view, undermined the voluntary nature of the
original tender offer proposal.
(b) The "Reverse Split/Redemption Alternative." This alternative
contemplates an amendment to the Company's Certificate of Incorporation
effecting a "reverse stock split," thereby reducing all but the Cannon
Family's shares to fractional interests. Fractional shares would be
contemporaneously redeemed by the Company for a fair cash price to be
determined by the Special Committee. Non-fractional interests would
ultimately be exchanged for shares of Class A Common Stock at an exchange
ratio determined by the Board. In this scenario, only the Cannon Family
would be permitted to receive shares of Class A Common Stock in exchange
for shares of Class B Common Stock.
At its December 18, 1995 special meeting, the Board and Special
Committee determined that the reverse split/redemption proposal presently
before stockholders was in the best interests of the Company. This
determination was based upon the weight of the perceived advantages and
disadvantages of each alternative, including the fact that no assurance
could be given that certain advantages such as reduced number of total
outstanding shares would be available to the Company in the event of a
tender offer.
Although a reverse split/redemption would be involuntary in nature in
that once approved by stockholders, minority holders of Class B Common
Stock would receive cash in return for their shares, even if such persons
preferred to hold their shares, a tender offer also contained an
involuntary aspect, in that Class B holders would also not have the choice
of retaining ownership of Class B shares. Assuming a fair price would be
paid to the Class B shareholders, the reverse split/redemption alternative,
on the other hand, was believed to be the most efficient method of
consolidating the stock classes of the Company while achieving two other
16
goals of liquefying large heretofore illiquid blocks of Class B Common
Stock with excess working capital and assuring a requisite reduction of the
total number of shares outstanding.
(c) Other Options. A total exchange of Class B Common Stock for
Class A Common Stock was also considered by the Board and Special
Committee. Although an exchange was thought to accomplish class
consolidation, it was not adopted due to (i) the involuntary nature of any
successful exchange, (ii) the failure of any such exchange to liquify
blocks of Class B Common Stock with working capital, and (iii) the failure
of any such exchange to reduce the total number of outstanding shares. A
purely involuntary transaction such as a mandatory exchange of stock was
not preferred by the Special Committee because it was believed that some
stockholders would view such an exchange as coercive in nature, since such
an exchange transaction could be accomplished without stockholder approval.
Recommendation of the Special Committee
On December 5, 1995, the Board of Directors of the Company established
the Special Committee, comprised of Uvalde R. Lindsey and Roy E. Stanley.
Messrs. Lindsey and Stanley were selected as members of the Special
Committee since they are the only directors of the Company who (i) do not
own a material amount of Class A or Class B Common Stock and (ii) have not
at any time been an officer or employee of the Company. The Special
Committee was established to review, evaluate and make a recommendation to
the Board with respect to a potential recapitalization transaction which
would result in the repurchase and/or conversion by the Company of all or a
portion of the Class B Common Stock. The Special Committee was also
authorized to utilize a financial advisor to review and evaluate any
proposed transaction and to advise the Special Committee whether such
transaction was fair, from a financial point of view, to the Public B
Holders. At the December 5, 1995 meeting, consideration was given by the
Special Committee to retaining Llama Company, an investment banking firm
who had representatives present at the meeting and who had advised the
Company in exploring the various alternative structures to the
Recapitalization Plan, to act as its financial advisor.
At a special meeting of the Board on December 12, 1995, the Board and
Special Committee considered the Recapitalization Alternatives described in
detail above and ultimately determined that the reverse split/redemption
alternative was in the best interest of the Company. Additionally, the
Special Committee formally retained Llama Company to review, evaluate and
render, solely on behalf of the Public B Holders, a fairness opinion with
respect to the transaction from a financial point of view. See "-Opinion
of Financial Advisor" for a description of certain relationships between
the Company and Llama Company.
On January 26, 1996, the Special Committee concluded that the
Recapitalization Plan was fair to the Public B Holders and recommended
approval thereof to the Board of Directors. In reaching this conclusion
and in making its recommendation to the Board, the Special Committee
considered a number of factors including:
- - The opinion of Llama Company to the effect that $9.00 per share to be
received in the Reverse Stock Split was fair to the Public B Holders.
17
- - The Special Committee's review of financial and other information
obtained from the Company and the presentation of information, both orally
and in writing, by Llama Company.
- - The lack of a public trading market for the Class B Common Stock and
the lack of liquidity for the Public B Holders, as well as, the prospect
that such conditions will continue in the future.
- - The procedure by which the price to be received in the Reverse Stock
Split by the Public B Holders was determined as fair to such Holders, which
procedure the Special Committee determined was undertaken in a manner that
was reasonably likely to lead to a fair price. See "Background and Reasons
for the Recapitalization Plan" and "-Opinion of Financial Advisor"
for a description of the deliberations involved in such procedure.
In view of the wide variety of factors considered in connection with
its evaluation of the Recapitalization Plan, the Special Committee did not
find it practical to, and did not, quantify or otherwise attempt to assign
relative weights to the specific factors considered in reaching its
determination. The Special Committee considered each of the factors listed
to be an integral basis of its determination to recommend the
Recapitalization Plan and was not able to assign importance to any one
factor over another factor.
The Special Committee also took into consideration the fact that the
Public B Holders will not participate in the Conversion and will not have
an opportunity to share the benefits of the Company's potential future
growth, cash flow and earnings, if any, except to the extent that they
otherwise own or purchase shares of Class A Common Stock. Although the
Cannon Family will receive Class A Common Stock pursuant to the Conversion
on an equivalent basis to the per share cash consideration received by the
Public B Holders pursuant to the Reverse Stock Split, the Special Committee
recognized that the Cannon Family will, as a result of the Conversion, be
able to share a greater percentage of the benefits of the Company's
potential future growth, cash flow and earnings, if any, than their current
equity holdings would afford. Furthermore, the Cannon Family's receipt of
shares of Class A Common Stock for their Class B Common Stock as part of
the Conversion will constitute a tax-free exchange for federal income tax
purposes, whereas the Public B Holders will not participate in the
Conversion and their receipt of cash for fractional interests of Class B
Common Stock will constitute a taxable transaction for federal income tax
purposes and may be a taxable transaction under applicable state, local,
foreign and other tax laws.
For the foregoing reasons, the Special Committee considered it
appropriate to obtain the opinion of a financial advisor to the effect that
the Recapitalization Plan is fair to the Public B Holders from a financial
point of view. As an additional safeguard to the Public B Holders, the
Special Committee specifically reserved the right to disallow the
Recapitalization Plan in the event it does not receive the affirmative
vote of the majority of the holders of Class B Common Stock, as of the
Record Date, present in person or by proxy (other than the shares held by
the Cannon Family). The Special Committee will request that the proxy
tabulator for the Special Meeting separately calculate whether such
approval has been obtained and report such findings to the Special
Committee. If such approval is not obtained, the Special Committee will
determine whether or not to exercise the Special Committee Veto Power
18
within thirty (30) days following the Special Meeting. In determining
whether or not to exercise the Special Committee Veto Power, the Special
Committee will consider, among other things: (i) the aggregate number of
Public B Holder shares voted (either in person or by proxy) at the Special
Meeting; (ii) the relative percentages of Public B Holder shares voting for
and against the transaction; and (iii) market conditions for the Class A
Common Stock and Class B Common Stock and (iv) other circumstances and
factors deemed appropriate by the Special Committee at the time of the
Special Meeting. The Special Committee Veto Power does not give Public B
Holders a separate or controlling vote, or any veto power or special right,
concerning approval of the Recapitalization Plan. Accordingly, even if
such Public B Holders do not approve the transaction, the Special Committee
would still have the ability to cause the Recapitalization Plan to be
consummated.
Board of Directors' Approval
Upon receipt of the Special Committee's recommendation, the full Board
of Directors deliberated on whether to approve the Recapitalization Plan.
In its deliberations, the Board of Directors considered the following
factors in addition to the factors and analyses underlying the Special
Committee's recommendation: (i) the impact of the Recapitalization Plan on
the Company's liquidity, leverage, earnings per share and shareholder
return, both individually and in comparison to alternative structures and
(ii) the attractiveness of the investment to the Company, when compared to
the current market price of and premium paid for the Class B Common Stock.
As part of its analysis, the Board of Directors considered the fact that
the Recapitalization Plan would result in a pro forma increase in earnings
per share for the year ended June 30, 1995 of $.50 and for the period ended
September 30, 1995, of $.07. Unlike the alternative structures explored by
the Board of Directors and the Special Committee, this result would be
achieved without a material impairment of the Company's liquidity or
leverage position. Although the Recapitalization Plan will reduce the
Company's working capital by approximately $11,297,268, management believes
that the Company will be able to adequately fund its operations through
existing cash flow and, if necessary, borrowings under credit facilities,
which the Company believes are available.
The Board of Directors, upon completion of its deliberations and
subject to the reservation by the Special Committee of the Special
Committee Veto Power, unanimously voted to approve the Recapitalization
Plan and to recommend approval of said plan to the shareholders of the
Company.
Opinion of Financial Advisor
The Special Committee retained Llama Company on December 12, 1995 to
act as its financial advisor and to render an opinion to the Special
Committee of the Board of Directors as to the fairness of the
Recapitalization Plan, from a financial point of view, to the Public B
Holders. In making the determination that the price to be received by the
Public B Holders was fair, the Special Committee considered the several
valuation analyses performed by Llama Company which are described below.
Based upon valuation ranges of the Class B Common Stock produced by Llama's
analyses, the Special Committee submitted a price of $9.00 per share to
Llama Company for its consideration. On January 26, 1996, Llama Company
rendered its opinion to the Special Committee that the cash consideration
of $9.00 per share of Class B Common Stock was fair, from a financial point
of view.
19
The full text of Llama Company's opinion, which sets forth certain
assumptions made, certain procedures followed and certain matters
considered by Llama Company, is attached as Appendix B to this Proxy
Statement. As set forth therein, Llama Company relied upon the accuracy
and completeness of the financial and other information provided to it by
the Company and further relied upon the assurances of management that it
was unaware of any facts that would make the information provided to it
incomplete or misleading. In arriving at its opinion, Llama Company did
not perform any independent appraisal of the assets of the Company. No
limitations were imposed by the Special Committee with respect to the
investigation made, or the procedures followed by, Llama Company in
rendering the opinion, and the Company's management cooperated fully with
Llama Company in connection therewith. Llama Company's opinion was based on
market, economic and other conditions as they existed and could be
evaluated at the date of the opinion. The discussion of the opinion in
this Proxy Statement is qualified in its entirety by reference to the full
text of such written opinion attached hereto. Shareholders are encouraged
to read Llama Company's opinion in its entirety.
In conducting it's analysis and arriving at its opinion, Llama
Company, among other things: (a) reviewed a draft of this Proxy Statement;
(b) reviewed the annual reports on Form 10-K for the fiscal years ended
June 30, 1991 through June 30, 1995, the Company's quarterly report on Form
10-Q for the three months ended September 30, 1995, and the earnings
release for the three months ended December 31, 1995; (c) discussed the
past and current business operations and financial condition and the future
prospects of the Company with management; (d) reviewed certain financial
projections of the Company prepared by management ; (e) visited the
Company's facilities and participated in discussions among representatives
of the Company and their advisors; (f) analyzed the pro-forma financial
impact of the Recapitalization Plan on the Company; (g) reviewed the Proxy
Statement in conjunction with the Recapitalization Plan; (h) reviewed
financial statements and research reports of companies comparable to the
Company and its industry; (i) reviewed the financial terms, to the extent
publicly available, of certain comparable transactions; (j) reviewed the
historical stock prices of companies which have a dual class of common
stock; and (k) reviewed other information on the Company that was provided
to Llama by the Company and conducted such other studies, analyses,
inquiries and investigations as Llama deemed appropriate.
In connection with its opinion, Llama Company, among other things,
performed the following analyses:
Analysis of Current and Historical Market Prices. Llama Company
reviewed the historical market price and volume relating to the Company's
Class B Common Stock which is traded on the NASDAQ National Market System
and noted the following: (a) The closing trade price of Class B Common
Stock prior to the public announcement of the Recapitalization Plan for the
period one day prior was $6.375, the average closing trade prices for each
trading day during the period one week prior was $6.72, the average closing
trade prices for each trading day during the period four weeks prior was
$6.77, and the average closing trade prices for each trading day during the
period ninety days prior was $7.32; (b) The shares of Class B Common Stock
traded prior to the public announcement of the Recapitalization Plan on
four of the last five trading days (one week prior), on seven of the last
nineteen trading days (four weeks prior), and on twenty-eight of the last
sixty-two trading days (ninety days prior); (c) The average weekly trading
volume and percent of the Company's outstanding publicly-held Class B
20
Common Stock shares traded prior to the public announcement of the
Recapitalization Plan were 89,400 shares and 9.56% for the period one week
prior, 38,550 shares and 4.12% for the period four weeks prior, and 13,467
shares and 1.44% for the period ninety days prior. This analysis, while
not conclusive when evaluated without consideration of all the analyses and
factors, indicated a valuation range of the Company's Class B Common Stock
of $6.375 to $9.25.
Analysis of Comparable Publicly-Traded Companies. Llama Company
reviewed and compared the financial and market performance of the Company
to the financial and market performance of the following companies in the
growth truckload segment of the trucking industry which Llama Company
deemed to be reasonably comparable to the Company: USA Truck, Inc.;
Transport Corp. of America; Heartland Express, Inc.; Frozen Food Express
Inc.; M.S. Carriers Inc.; Swift Transportation Co.; Werner Enterprises
Inc.; Landstar System Inc. Llama Company noted that it was difficult to
select publicly traded companies that could be used to establish direct
comparisons with the Company. All the comparable companies have a single
class of stock and most of them are considerably larger than the Company.
For each of the comparable companies, Llama Company examined certain
publicly-available financial data, including revenues, earnings before
interest and taxes (EBIT), earnings before interest, taxes, depreciation
and amortization (EBITDA), net income, earnings per share, profit margins
and annual compounded growth rates. Llama Company also examined key
operating statistics and selected balance sheet data for each of the
comparable companies. In addition, with respect to each of the comparable
companies, Llama Company calculated (a) the price to earnings ratio based
on the latest twelve months earnings per share, (b) the price to earnings
ratio based on estimated calendar year 1995 earnings per share, (c) the
price to EBITDA ratio based on the latest twelve months EBITDA; and (d) the
price to book value. This analysis, while not conclusive when evaluated
without consideration of all the analyses and factors, indicates a
valuation range of the Company's Class B Common Stock of $6.43 to $8.72.
Analysis of Other Going-Private Transactions. Llama Company analyzed
the premiums obtained by companies that have gone private over the past two
years. Llama Company noted that it was difficult to find transactions that
are identical to the Recapitalization Plan, not just in the same industry
but for all industries as a whole. The range of premiums paid for
transactions at various points of time prior to public announcement of the
transaction was approximately 32.72% to 42.22%. This analysis, while not
conclusive when evaluated without consideration of all the analyses and
factors, indicates a valuation range of the Company's Class B Common Stock
of $8.46 to $9.07.
Analysis of Stock Price Trading Variances of Companies with Dual
Classes of Stock. Llama Company analyzed the average monthly trading
variances (expressed as a percentage of the average monthly closing price
of the non-voting stock divided by the average monthly closing price of the
voting stock) for the Company and other companies which have a dual class
of stock. The average variances for the Company for the ninety day period
ended December 31, 1995 was 68.55%, for the one year period ended December
31, 1995 was 86.07%, and for the three year period ended December 31, 1995
was 87.58%. The variance of closing trade prices for the Company one day
prior was 69.86%. The range of average variances for other companies with
dual classes of stock for the ninety day period ended December 31, 1995 was
96.07%, for the one year period ended December 31, 1995 was 95.68%, and for
the three
21
year period ended December 31, 1995 was 95.54%. This analysis, while not
conclusive when evaluated without consideration of all the analyses and
factors, indicates a valuation range of the Company's Class B Common Stock
of $6.38 to $8.77.
Discounted Cash Flow Analysis. Llama Company performed a
discounted cash flow analysis based upon the Company's projections. The
weighted average cost of capital for the Company of 19.23% and for similar
public companies of 18%, were used in the analysis to discount the
Company's projected cash flows for five years and a terminal value. The
projections upon which the analysis was based include, but are not limited
to, the following: current assets of approximately $33,647,000,
$35,206,000, $37,488,000, $41,705,000 and $56,739,000; total assets of
approximately $95,559,000, $92,806,000, $113,187,000, $146,359,000 and
$199,010,000; and net income of approximately $4,505,000, $5,148,000,
$7,415,000, $9,798,000 and $9,990,000, for fiscal years 1996 through 2000,
respectively. The projected undiscounted free cash flows (net of capital
expenditures and proceeds from equipment retirements) generated by such
analysis for fiscal years 1996 through 2000 were approximately
($3,361,000), $13,889,000, ($4,580,000), ($9,051,000), and ($7,192,000),
respectively. The terminal value of $31,240 was determined using a range
of multiples of 5.2 times to 5.56 times the anticipated cash flow. Adding
net working capital and subtracting existing debt results in a net equity
valuation of $43.625 million to $51.807 million for the Company. This
analysis, while not conclusive, when evaluated without consideration of all
the analyses and factors, indicates an equity valuation range for each of
the Company's total outstanding shares of common stock of $10.08 to $11.97.
The foregoing analysis was based upon projections of the Company's
financial results for the periods set forth above, which projections were
derived significantly from the Company's historical performance and results
of operations. The Company's financial results are, and historically have
been, significantly dependent upon factors beyond the Company's control and
predictive ability, and, as such, there can be no assurance that past
results or trends will be indicative of future performance. Such factors
include, but are not limited to, general economic conditions, labor,
equipment and fuel costs and other operating and non-operating expenses as
well as industry capacity and competition. Accordingly, the Company's
actual cash flows, current assets, total assets and net income during the
periods which are the subject of the foregoing projections may vary
substantially from the amounts set forth above. For a discussion of the
factors influencing the Company's performance, Shareholders are urged to
review documents previously filed by the Company with the SEC listed herein
under the caption "Documents Incorporated by Reference."
Llama Company determined that a "liquidation value" analysis would not
be material or relevant with respect to the Recapitalization Plan since the
Recapitalization Plan contemplates the continued operation of the Company
as a going concern with no proposed or contemplated liquidation of a
significant portion of its assets. Further, Llama Company did not
consider as part of its analysis, prior purchases of Class B Common Stock
by Company affiliates, since no such purchases have occurred (except in
connection with the award or exercise of stock options granted at no
greater than fair market value) during the period in which the shares of
Class B Common Stock have been in existence.
The summary set forth above of the analyses performed by Llama Company
does not purport to be a complete description of its analyses. Llama
22
Company believes that its analyses must be considered as a whole and that
selecting portions of the factors considered and analyses performed by it,
without considering all factors and analyses, could create an incomplete
view of the processes underlying its analyses and fairness opinion. The
preparation of a fairness opinion is a complex process and is not
necessarily susceptible to partial analysis or summary description. In its
analyses, Llama Company made numerous assumptions which it and the Special
Committee considered reasonable with respect to the Company's industry,
general business and economic conditions and other matters, any of which
are beyond the Company's control. Any estimates contained in such analyses
are not necessarily indicative of actual value, which may be significantly
more or less favorable than as set forth therein. Estimates of value for
companies do not purport to be appraisals or necessarily reflect the prices
at which companies may actually be sold. Because such estimates are
inherently subject to uncertainty, neither Llama, the Special Committee,
nor any other third party assumes responsibility for their accuracy.
Llama Company is a nationally-recognized investment banking firm and
as part of its investment banking business, is engaged in: the valuation
of businesses and their securities in connection with mergers and
acquisitions; negotiated underwritings; competitive biddings, private
placements, brokerage and financial advisory services. The Special
Committee chose Llama Company as its financial advisor based upon Llama's
qualifications, expertise and reputation as well as its knowledge of the
Company. In this regard, in July , 1995, the Board of Directors
engaged Llama Company to provide general financial advisory services to the
Company, including suggestions for improving the Company's capital
structure. The Company's general engagement of Llama Company continued
until December 12, 1995 , when Llama was retained exclusively by the
Special Committee as described herein. For its services as financial
advisor to the Special Committee, the Company paid Llama Company a fee of
$100,000. The Company has also agreed to indemnify Llama Company against
certain liabilities. Llama Company may provide future services to the
Company or its Board of Directors.
Dean G. and Rose Marie Cannon and Ms. Alice L. Walton, Chairman and
general partner of Llama Company have discussed an arrangement whereby
after consummation of the proposed Recapitalization Plan, Ms. Walton would
acquire from Mr. and Mrs. Cannon shares of Common Stock representing
slightly less than 10% of the total number of shares then outstanding at a
price to be mutually agreed upon if and when a formal agreement is reached.
As of the date of this Proxy Statement no formal agreement had been
reached with respect to the purchase of these shares, and it is anticipated
that no such agreement will be reached, if at all, until after consummation
of the Recapitalization Plan. It is also anticipated that if such a stock
purchase is consummated, Ms. Walton would be nominated for membership on
the Board of Directors of the Company. Llama Company has advised the
Company that Ms. Walton's possible purchase of Class A Common Stock from
Mr. and Mrs. Cannon did not, in its judgment, create a conflict of interest
with respect to its rendering of its fairness opinion because (i) no
agreement or commitment has been entered into, between said persons, (ii)
Ms. Walton was not personally involved in and did not direct the analyses
on which the opinion was based and (iii) the analyses of Llama Company did
not consider, and the opinion does not address, the fairness of the
Recapitalization Plan from a financial point of view to persons who will
continue as stockholders of the Company after consummation of the
Recapitalization Plan.
23
THE FAIRNESS OPINION OF LLAMA COMPANY, ALONG WITH THE TEXT OF ITS
REPORTS TO THE SPECIAL COMMITTEE, SHALL BE AVAILABLE FOR INSPECTION AND
COPYING AT THE PRINCIPAL EXECUTIVE OFFICES OF THE COMPANY LOCATED AT 1457
ROBINSON, SPRINGDALE ARKANSAS 72765, DURING ITS REGULAR BUSINESS HOURS BY
ANY INTERESTED EQUITY SECURITY HOLDER OF THE COMPANY OR HIS REPRESENTATIVE
WHO HAS BEEN SO DESIGNATED IN WRITING.
DESCRIPTION OF THE TRANSACTION
The Recapitalization Plan
On January 26, 1996, the Special Committee unanimously approved the
Recapitalization Plan which consists of the following components:
(A) a 1-for-500,000 reverse split of the Class B Common Stock to
reduce the number of authorized shares of Class B Common Stock from 10
million to 20 shares and the contemporaneous purchase, for cash, of all
fractional shares of non-voting Class B Common Stock, at a price of $9.00
per share (prior to giving effect to the Reverse Stock Split);
(B) the conversion of each whole share of Class B Common Stock
outstanding after the Reverse Stock Split into 493,150 shares of voting
Class A Common Stock; and
(C) the reclassification of the Class A Common Stock and Class B
Common Stock into a new, single class of Common Stock.
The Recapitalization Plan will involve an amendment to Article
"Fourth" of the Company's Certificate of Incorporation. Such amendment is
set forth in Appendix A-1 attached hereto.
The Reverse Stock Split will reduce the number of authorized shares of
the Company's Class B Common Stock to 20 shares having a par value of $0.01
per share and will change and reclassify each share of Class B Common Stock
into 1/500,000 of a share of Class B Common Stock. The effect of the
Reverse Stock Split will be that (a) Public B Holders will have their
shares automatically be converted into a fractional share equal to
the number of their shares divided by 500,000, and each such fractional
share automatically will be converted into a right to receive cash in the
amount of $9.00 for each pre-split share; and (b) holders of 500,000 or
more shares of Class B Common Stock in one name or account on the Effective
Date will have their shares automatically converted into the number of
shares divided by 500,000, with cash paid in lieu of fractional shares. As
a result of the Reverse Stock Split, the Cannon Family will be the sole
shareholder of the Class B Common Stock, and the interests of all Public B
Holders will be terminated by the Company in exchange for the cash payment
of $9.00 per share. Pursuant to the Conversion, the Cannon Family's Class
B Common Stock will automatically be converted into the right to
receive 986,300 shares of Class A Common Stock. The number of shares of
Class A Common Stock to be received by the Cannon Family pursuant to the
Conversion was determined by multiplying the number of shares of Class B
Common Stock held by the Cannon Family prior to the Reverse Stock Split by
a fraction whose numerator is $9.00 (the same price per share price to be
paid to the Public B Holders) and denominator is $9.125 (the fair market
value of the Class A Common Stock on January 25, 1996).
24
Outstanding stock options to acquire shares of the Company's Class B
Common Stock shall on the effective date of the Recapitalization Plan
convert automatically to options to purchase shares of the Company's Class
A Common Stock on the basis of .9863 shares of Class A Common Stock for
each whole share of Class B Common Stock to which such options currently
relate. Except with respect to the foregoing changes in the number and
type of shares of Company common stock subject to these options, the terms
of the subject options (i.e., exercise price, vesting dates and expiration
dates) shall remain unchanged.
As of December 31, 1995, there were approximately 1,500 holders of
record of Class B Common Stock. The Recapitalization Plan will constitute
a going private transaction as defined under Rule 13e-3 of the Securities
Exchange Act of 1934 (the "Exchange Act") with respect to the Class B
Common Stock, and the Company will deregister the Class B Common Stock
under the Exchange Act if the Recapitalization Plan is consummated. In
connection with the Recapitalization Plan, the Company has filed a Rule
13e-3 Transaction Statement on Schedule 13E-3 with the SEC. The Class A
Common Stock, as reclassified into the Common Stock, will continue to be
registered under the Exchange Act, and the Company will continue to file
reports under the Exchange Act, including Annual Reports on Form 10-K and
Quarterly Reports on Form 10-Q.
Conduct of the Company's Business After the Recapitalization Plan
The Company expects to continue the ordinary course of its business
and operations once the Recapitalization Plan is consummated. The
Company's Class A Common Stock, as reclassified into the Common Stock, will
remain registered under the Exchange Act and the Company will continue to
file Exchange Act reports with the SEC, including the Annual Report on Form
10-K and Quarterly Reports on Form 10-Q. The Common Stock will also
continue trading on the NASDAQ National Market System following the
Recapitalization Plan. The Company currently has no plans to effect a
secondary offering of Common Stock following the Recapitalization Plan.
However, the Certificate of Incorporation, as amended, will provide for
sufficient authorized shares of Common Stock such that the Board of
Directors could effect such a secondary offering without seeking additional
shareholder approval thereof. In the event of a secondary offering, the
Cannon Family may be afforded the opportunity to participate therein.
Depending upon prevailing market conditions, sales of Common Stock effected
pursuant to any such secondary offering may be at prices greater than the
price per share to be paid to the Public B Holders pursuant to the
Recapitalization Plan.
Other than as described in this Proxy Statement, neither the Company
nor its management has any current plans or proposals to effect any
extraordinary corporate transactions, such as a merger, reorganization, or
liquidation; to sell or transfer any material amount of its assets, except
as may be needed to satisfy liabilities of the Company; to change its Board
of Directors or management; to change its dividend policy or indebtedness
or capitalization; or otherwise to effect any material change in its
corporate structure or business.
Comparison of Capital Stock Before and After Recapitalization Plan
The rights, powers and limitations of the Class A Common Stock and
Class B Common Stock are set forth in Article Fourth of the Company's
25
Certificate of Incorporation (the "Existing Article Fourth"), which is
attached to this Proxy Statement as Appendix A-2 and incorporated herein by
this reference. The rights, powers and limitations of the Common Stock to
be outstanding following the Recapitalization Plan will be set forth in a
Restated Article Fourth, a draft of which is attached to this Proxy
Statement as Appendix A-1 and incorporated herein by this reference. The
following summary should be read in conjunction with, and is qualified in
its entirety by reference to, such Appendices A-1 and A-2.
Voting
Each share of Class A Common Stock entitles the holder thereof to one
vote per share on all matters on which stockholders are entitled to vote,
including election of directors. The Class B Common Stock does not entitle
holders thereof to any vote except as otherwise provided or required by
law. After the Recapitalization Plan, the Company will have a single,
voting class of capital stock and each share of the Common Stock will
entitle the holder thereof to one vote per share on all matters on which
stockholders are entitled to vote, including election of directors. The
Recapitalization Proposal will increase the relative voting power of the
Cannon Family from 58 to 71 percent of the voting power of the outstanding
voting stock of the Company.
Class B Protection Features
The Existing Article Fourth contains the following provisions (the
"Class B Protection Features") which were designed to reduce or eliminate
the economic reasons for the Class A Common Stock and Class B Common Stock
to trade at disparate market prices:
Dividends. In the event the Board of Directors declares a regular
cash dividend on either class of existing common stock, the Board of
Directors must declare a dividend on the other class of common stock and
may in its discretion declare a dividend with respect to the Class B Common
Stock which is higher (but under no circumstances lower) than the dividend
declared with respect to the Class A Common Stock.
In all other respects, each share of Class A Common Stock and Class B
Common Stock have equal rights with respect to dividends and other
distributions in cash, stock or property (including distributions in
connection with any recapitalization and upon liquidation, dissolution or
winding up of the Company), except that dividends or other distributions
payable on common stock in shares of common stock may be made only as
follows: (i) in shares of Class B Common Stock to the holders of both
Class A Common Stock and Class B Common Stock, (ii) in shares of Class A
Common Stock to the holders of Class A Common Stock and in shares of
Class B Common Stock to the holders of Class B Common Stock, or (iii) in
any other authorized class or series of capital stock to the holders of
both classes of common stock.
Stock Splits, Subdivisions or Combinations. Neither the Class A
Common Stock nor the Class B Common Stock may be split, subdivided or
combined unless the other is proportionately split, subdivided or combined.
Class B Protection. If any person or group acquires (other than upon
issuance or sale by the Company, by operation of law, by will or the laws
of descent and distribution, by gift, or by foreclosure of a bona fide
26
loan) beneficial ownership of shares of Class A Common Stock constituting
10% or more of the then issued and outstanding shares of Class A Common
Stock (any person or group making such acquisition being defined as a
"Significant Stockholder"), and such person or group does not then own
shares of Class B Common Stock (acquired after the original issuance of
Class B Common Stock) constituting an equal or greater percentage of all
then issued and outstanding shares of Class B Common Stock (the "Required
Percentage"), such Significant Stockholder must, within a 90-day period
beginning the day after becoming a Significant Stockholder, commence a
public tender offer to acquire additional shares of Class B Common Stock
necessary to meet the Required Percentage. The penalty applicable to any
Significant Stockholder that fails to make an offer required by the terms
of the Existing Article Fourth, or to purchase shares validly tendered
(after proration, if any), would be to automatically suspend the voting
rights of the shares of Class A Common Stock owned by such Significant
Stockholder and acquired after the original issuance of Class B Common
Stock until consummation of an offer as required by the terms of the
Existing Article Fourth or until divestiture of the shares of Class A
Common Stock that triggered the offer requirement.
Mergers and Consolidations. Each holder of Class B Common Stock is
entitled to receive the same amount and form of consideration per share as
the per share consideration, if any, received by any holder of the Class A
Common Stock in a merger or consolidation of the Company (whether or not
the Company is the surviving corporation).
Convertibility. Except as described below, neither the Class A Common
Stock nor the Class B Common Stock is convertible into another class of
common stock or any other security of the Company. The Class B Common
Stock may be converted into Class A Common Stock on a share-for-share basis
by resolution of the Board of Directors if, as a result of the existence of
the Class B Common Stock, the Class A Common Stock or the Class B Common
Stock or both become excluded from quotation on NASDAQ, or, if such shares
are then listed on a national securities exchange, from trading on the
principal national securities exchange on which the shares are then traded.
Increase/Decrease in Number of Shares. The number of authorized
shares of Class B Common Stock may be increased or decreased (but not below
the number of shares then outstanding) by the affirmative vote of a
majority of the votes which may be collectively cast by holders of the
Class A Common Stock.
The Restated Article Fourth will not contain any Class B Protection
Features because they will be unnecessary when the Common Stock becomes the
only authorized capital stock of the Company. The Recapitalization Plan
will also effect certain changes which would otherwise be restricted or
prohibited by the Class B Protection Features. The Reverse Stock Split
will not apply proportionately to both classes of common stock but will
apply solely to the Class B Common Stock. Furthermore, the Conversion does
not satisfy the limited exception to the current prohibition on the
conversion of either class of common stock into any other class of capital
stock. One effect of the Recapitalization Plan will be to amend and modify
the Class B Protection Features to the extent they are inconsistent or
conflict with the Reverse Stock Split, Conversion or the Reclassification.
27
Authorized Common Stock
The Existing Article Fourth authorizes 10,000,000 shares of Class A
Common Stock and 10,000,000 shares of Class B Common Stock. As of December
31, 1995, the Company has outstanding approximately 2,161,352 shares of
Class A Common Stock and 2,166,352 shares of Class B Common Stock. The
Recapitalization Plan would reduce the authorized capital stock of the
Company from the aggregate of 20,000,000 shares of Class A Common Stock and
Class B Common Stock to 10,000,000 shares of Common Stock. After
implementation of the Recapitalization Plan, approximately 3,147,652 shares
of Common Stock will be issued and outstanding, including the 2,166,352
shares of Class A Common Stock which were outstanding prior to the
Recapitalization Plan and 1,000,000 (pre-split) shares of Class B Common
Stock which will be converted into 986,300 shares of Class A Common Stock
as part of the Conversion. Approximately 6,852,348 authorized but unissued
shares of Common Stock will be available for issuance from time to time by
the Company for any proper corporate purpose.
Federal Income Tax Consequences
THE FOLLOWING DISCUSSION SUMMARIZING CERTAIN FEDERAL INCOME TAX
CONSEQUENCES IS BASED ON CURRENT LAW AND IS INCLUDED FOR GENERAL
INFORMATION ONLY. SHAREHOLDERS SHOULD CONSULT THEIR OWN TAX ADVISORS AS TO
THE FEDERAL, STATE, LOCAL AND FOREIGN TAX EFFECTS OF THE RECAPITALIZATION
PLAN IN LIGHT OF THEIR INDIVIDUAL CIRCUMSTANCES.
The receipt of cash by a shareholder pursuant to the Recapitalization
Plan will be a taxable transaction for federal income tax purposes. Public
B Holders will receive only cash in the transaction. Those Public B
Holders who own no Class A Common Stock will have their entire stock
interest in the company redeemed and generally will recognize gain or loss
equal to the difference between the cash received and the shareholder's
adjusted tax basis in the surrendered Class B Common Stock. The gain or
loss recognized generally will be capital gain or loss if the Class B
Common Stock is held as a capital asset. Any such capital gain or loss
will be long-term capital gain or loss if the shareholder's holding period
for the Class B Common Stock exceeds one year as of the Effective Date.
Public B Holders who also own Class A Common Stock will receive cash
in the transaction for their Class B Common Stock and, after the
Conversion, their ownership percentage of the total outstanding shares of
Class A Common Stock will be diluted (See "Principal Shareholders; Class A
Dilution"). As a result of the dilution, such Stockholders generally will
recognize gain or loss equal to the difference between the cash received
and the shareholder's adjusted tax basis in the surrendered Class B Common
Stock as described above.
A shareholder who owns 500,000 or more shares of Class B Common Stock
and does not hold a number of shares of such stock that is evenly divisible
by 500,000 will receive in the Reverse Stock Split and subsequent
Conversion a share or shares of Class A Common Stock and cash in lieu of
fractional shares of Class B Common Stock. For federal income tax
purposes, the cash received by such shareholder will be treated as a
dividend to the extent of the shareholder's ratable share of the Company's
undistributed earnings and profits, and the balance of the cash, if any,
will be treated as received in exchange for property. Taxable gain or loss
on any such exchange for property will be realized equal to the difference
28
between the portion of the cash not treated as a dividend and the
shareholder's adjusted tax basis in the Class B Common Stock exchange for
cash.
Special taxation and withholding rules may apply to any shareholder
that is a nonresident alien or a foreign corporation. Those rules are
beyond the scope of this discussion and should be discussed with a personal
tax advisor. Shareholders will be required to provide their social
security or other taxpayer identification numbers (or, in some instances,
certain other information) to the Company in connection with the Reverse
Stock Split to avoid backup withholding requirements that might otherwise
apply. See "Description of Transaction - Delivery of Certificates
Representing Fractional Shares." Each shareholder should deliver such
information when the Class B Common Stock certificates are surrendered
following the Effective Date. Failure to provide such information may
result in backup withholding.
THE TAX DISCUSSION SET FORTH ABOVE IS INCLUDED FOR GENERAL INFORMATION
ONLY AND DOES NOT REFER TO THE PARTICULAR FACTS AND CIRCUMSTANCES OF ANY
SPECIFIC SHAREHOLDER. SHAREHOLDERS, PARTICULARLY THOSE WHO HAVE ACQUIRED
SHARES OF CLASS B COMMON STOCK IN COMPENSATION-RELATED TRANSACTIONS, ARE
URGED TO CONSULT THEIR OWN TAX ADVISORS FOR MORE SPECIFIC AND DEFINITIVE
ADVICE AS TO THE FEDERAL INCOME TAX CONSEQUENCES TO THEM OF THE
TRANSACTION, AS WELL AS ADVICE AS TO THE APPLICATION AND EFFECT OF STATE,
LOCAL AND FOREIGN INCOME AND OTHER TAX LAWS.
Interests of Certain Persons
Dean G. Cannon is Chairman of the Board of Directors and President of
the Company, and Rose Marie Cannon is Secretary, Treasurer and a Director
of the Company. The Recapitalization Plan will increase the percentage of
outstanding common stock beneficially owned by the Cannon Family from 58%
to 71% and will increase their voting control over the Company by an equal
percentage. As a result, the Cannon Family will be able to share a greater
percentage of the benefits of the Company's potential future growth, cash
flow and earnings, if any, than their current equity holdings would afford.
Furthermore, the Cannon Family's receipt of shares of Class A Common Stock
for their Class B Common Stock as part of the Conversion will constitute a
tax-free exchange for federal income tax purposes. In contrast, Public B
Holders will not participate in the Conversion and their receipt of cash
for fractional interests of Class B Common Stock will constitute a taxable
transaction for federal income tax purposes and may be a taxable
transaction under applicable state, local, foreign and other tax laws. The
Public B Holders also will not have an opportunity to share the benefits of
the Company's potential future growth, cash flow and earnings, if any,
except to the extent that they otherwise own or purchase shares of Class A
Common Stock.
The increase in the Cannon Family's voting control will also enhance
their ability to remove directors without cause, and to cause the Company
to effect certain fundamental corporate changes. In addition, the increase
in the Cannon Family's voting control of the Company will permit the Cannon
Family to amend, alter or repeal certain provisions of the Company's
Certificate of Incorporation. Article Fifth ("Article Fifth") of the
Company's Certificate of Incorporation in part provides that a director may
be removed without cause only upon the vote of two-thirds of the Company's
stockholders. As a result of the Recapitalization Plan, the Cannon Family
29
would have the ability to remove any directors of the Company without
cause. Article Seventh of the Company's Certificate of Incorporation
("Article Seventh") provides that any person who owns 10 percent or more of
the capital stock entitled to vote generally for the election of directors
(the "Voting Shares") may not engage in a wide range of major business
combinations (such as mergers, consolidations, certain substantial asset
sales and similar transactions) unless it is approved by the affirmative
vote of at least 66 2/3 percent of the Voting Shares. Thus, the Cannon
Family could be able to cause the Company to engage in such transactions as
a result of the Recapitalization Plan, even if the terms of such
transactions are inconsistent with the limitations and proscriptions of
Article Seventh. The Company's Certificate of Incorporation provides that
the foregoing two-thirds voting requirements do not apply if the business
combination is approved by a majority of the Company's "continuing
directors" or if its terms satisfy certain minimum ratios and thresholds
relating to the consideration to be received by the Company's shareholders.
The "continuing directors" are generally those directors elected by the
shareholders prior to the date on which the substantial stockholder
acquired 10 percent of the Voting Shares. Finally, Article Eighth of the
Company's Certificate of Incorporation currently provides that the Company
may not amend, alter or repeal Article Fifth, Seventh, Eighth, Tenth
(precluding shareholder action by informal consent), Twelfth (regarding
repeal or amendment of Bylaws) without the approval of either (a) a
majority of continuing directors or (b) holders of two-thirds of the
Company's voting power. Accordingly, as a result of the Recapitalization
Plan, the Cannon Family may amend, alter or repeal significant Articles
contained with the Company's Certificate of Incorporation without the
approval of a majority of Continuing Directors.
Members of the Cannon Family have advised the Company that they have
no intention of proposing a business combination of the type covered by
Article Seventh, or removing a director without cause. Moreover, members
of the Cannon Family have advised the Company that they do not intend to
seek amendment to the Company's Certificate of Incorporation (except as
necessary to effectuate the Recapitalization Plan).
Section 203 of the DGCL contains similar, but generally less
restrictive, limitations on business combinations with interested
stockholders which do not apply in the event that the combination is
approved by the board of directors and the affirmative vote of 66 2/3
percent of the shareholders who are not affiliated with the interested
stockholder. Accordingly, the increase in the Cannon Family's voting
control in the Company resulting from the Recapitalization Plan would only
affect stockholder approval requirements with respect to a covered
transaction in which the Cannon Family was not interested. Moreover, DGCL
Section 203 does not apply to public companies whose voting stock is held
of record by fewer than 2,000 shareholders. Management does not believe
that the Company satisfies this shareholder requirement and, accordingly,
that section 203 does not currently apply to the Company.
If the Recapitalization Plan is consummated, the Cannon Family would
own sufficient voting shares to cause the Company to approve transactions
otherwise subject to Article Seventh's restrictions on certain business
combinations and to remove directors without cause. Further, the
Cannon Family will possess voting power sufficient to amend or repeal any
provision of the Company's Certificate of Incorporation. As a result, the
Recapitalization Plan would enhance the Cannon Family's ability to cause
30
the Company to effect the fundamental corporate changes which are
restricted by the Certificate of Incorporation. This discussion is
necessarily incomplete and is qualified in its entirety by, and reference
is made to, the full text of Articles contained in Appendix C attached
hereto and incorporated herein by this reference.
Dissenters' Appraisal Rights
No appraisal or dissenters' rights are available under the DGCL to
shareholders who dissent from the Recapitalization Plan. There may exist
other rights or actions under the DGCL or federal or state securities laws
for shareholders who are aggrieved by the Recapitalization Plan generally.
Although the nature and extent of such rights or actions are uncertain and
may vary depending upon facts or circumstances, shareholder challenges to
corporate action in general are related to the fiduciary responsibilities
of corporate officers and directors and to the fairness of corporate
transactions.
Delivery of Certificates Representing Fractional Shares
Promptly following approval of the Recapitalization Plan,
Continental Stock Transfer and Trust Company , as Exchange Agent will
mail transmittal letters and instructions to all shareholders of Class B
Common Stock of record on the Record Date to be used in surrendering their
certificates representing shares of Class B Common Stock for (a) cash, in
the case of Public B Holders, or (b) certificates representing shares of
Common Stock, representing the number of shares of Class B Common Stock
after giving effect to the Reverse Stock Split and as adjusted to reflect
the conversion of such shares of Class B Common Stock into shares of Class
A Common Stock, plus cash for any fractional share interests, in the case
of the Cannon Family. Until such surrender, certificates representing
shares of Class B Common Stock will represent the right to receive cash, in
the case of Public B Holders, and the number of shares of Common Stock into
which such shares were converted as a result of the Recapitalization Plan,
in the case of the Cannon Family. Shareholders are requested not to send
in their stock certificates for the Class B Common Stock until they receive
instructions from the Exchange Agent.
As soon as practicable after the Special Meeting, the Company will
file its Restated Article Fourth with the Secretary of State of Delaware,
subject to the authority of the Special Committee to exercise the Special
Committee Veto Power, if applicable. The Company has not retained any
person to act as solicitor in connection with the consummation of the
Recapitalization Plan.
Payment of Cash in Exchange for Fractional Shares
On the Effective Date, in accordance with the terms of the
Recapitalization Plan, holders of certificates representing fractional
shares of Class B Common Stock will cease to have any rights as
shareholders of the Company and will have only the right to receive cash
for their fractional shares. No holder of fractional shares will be
entitled to receive cash until the certificates that evidence such
fractional shares are surrendered to the Exchange Agent and no interest
will accrue in respect thereof. Until so surrendered, all fractional
shares will be deemed to evidence the right to receive the amount of cash
into which the same has been converted in connection with the Plan. After
31
the Effective Date, there will be no further transfers on the records of
the Company of certificates representing fractional shares of Class B
Common Stock and, if such certificates are presented to the Company or the
Exchange Agent for transfer, they will be canceled against delivery of
certificates for cash. Within ten business days after receipt of a
certificate that evidences fractional shares, the Exchange Agent will
distribute cash with respect to the fractional shares that have been
properly surrendered and endorsed.
The Company will not be liable to any former holder of Class B Common
Stock for any amount delivered by the Company to any public official or
entity pursuant to applicable abandoned property, escheat or similar laws.
Source of Funds; Financing
The Company estimates that the total cost to be incurred by the
Company to complete the Recapitalization Plan, including cash payments to
shareholders for fractional shares of Class B Common Stock and
transactional expenses, will be approximately $11,297,168. The Company
intends to finance the Recapitalization Plan out of existing internal
working capital. Management believes that the use of existing working
capital for this purpose will not impair the Company's financial position.
However, following the Recapitalization Plan, the Company may procure a $5
million working capital credit facility with an unaffiliated lender secured
by the Company's accounts receivable. All fees and expenses will be borne
by the Company whether or not the Recapitalization Plan is approved or
consummated.
HISTORICAL FINANCIAL INFORMATION
The Company hereby incorporates by reference (i) the audited
consolidated financial statements and notes and schedules thereto,
contained on pages 16 through 31, Management's Discussion and Analysis of
Financial Condition and Results of Operation contained on pages 8 through
10, and the reports of independent certified public accountants contained
on pages 15 and 29 of the Company's Annual Report on Form 10-K for the
fiscal year ended June 30, 1995 and (ii) the unaudited consolidated
financial statements and notes thereto, contained on pages 2 through 5 and
Management's Discussion and Analysis of Financial Condition and Results of
Operation contained on pages 6 through 8 of the Company's Quarterly Report
on Form 10-Q for the fiscal period ended September 30, 1995, and (iii) the
unaudited consolidated financial statements and notes thereto, contained on
pages 1 through 4 and Management's Discussion and Analysis of Financial
Condition and Results of Operation contained on pages 6 through 9 of the
Company's Quarterly Report on Form 10-Q for the fiscal period ended
December 31, 1995. See "Documents Incorporated By Reference" and "Pro
Forma Financial Information."
PRO FORMA FINANCIAL INFORMATION
The following unaudited pro forma consolidated financial statements
set forth historical information of the Company adjusted to give effect to
the Recapitalization Plan, plus estimated fees and expenses. The pro forma
adjustments assume that the Recapitalization Plan occurred, for purposes of
the statements of income, as of the first day of each period presented, and
for purposes of the balance sheet, as of the date of said balance sheet.
32
The pro forma information does not purport to be indicative of the results
which may be obtained by the Company in the future or which would actually
have been obtained had the transaction occurred during the periods
indicated. The pro forma information should be read in conjunction with
the historical consolidated financial statements and notes thereto
contained in the Company's Annual Report on Form 10-K for the fiscal year
ended June 30, 1995 and Quarterly Report on Form 10-Q for the fiscal period
ended December 31, 1995. See "Available Information" and "Documents
Incorporated By Reference."
(Remainder of Page Intentionally Left Blank)
33
<TABLE>
CANNON EXPRESS, INC. AND SUBSIDIARIES
PRO FORMA CONSOLIDATED BALANCE SHEET (UNAUDITED)
<CAPTION>
As of June 30, 1995
Historical Adjustments Pro Forma
<S> <C> <C> <C>
Assets
Current assets:
Cash and cash equivalents $12,324,394 (11,297,168) $1,027,226
Marketable securities, net of allowance 3,493,187 3,493,187
Receivables, net of allowance for doubtful accounts
(September 30, 1995-$148,675; June 30, 1995-$141,175
Trade 9,084,562 9,084,562
Other 661,917 661,917
Prepaid expenses and supplies 1,680,448 1,680,448
__________ __________
Total current assets 27,244,508 (11,297,168) 15,947,340
__________ __________
Property and equipment:
Land, buildings and improvements 1,143,453 1,143,453
Revenue equipment 59,093,534 59,093,534
Service, office and other equipment 2,129,664 2,129,664
__________ __________
62,366,651 62,366,651
Less allowances for depreciation 14,478,734 14,478,734
__________ __________
47,887,917 47,887,917
__________ __________
Other assets:
Receivable from stockholders 23,406 23,406
Restricted cash 813,671 813,671
Other 1,293,757 1,293,757
__________ __________
Total other assets 2,130,834 2,130,834
__________ __________
$77,263,259 (11,297,168) $65,966,091
__________ __________
</TABLE>
34
<TABLE>
CANNON EXPRESS, INC. AND SUBSIDIARIES
PRO FORMA CONSOLIDATED BALANCE SHEET (UNAUDITED)
<CAPTION>
As of June 30, 1995
Historical Adjustments Pro Forma
<S> <C> <C> <C>
Liabilities and stockholders' equity
Current liabilities:
Trade accounts payable $ 459,319 $ 459,319
Accrued expenses:
Insurance reserves 1,337,331 1,337,331
Other 1,485,615 1,485,615
Federal and state income taxes payable 435,930 435,930
Deferred income taxes 29,000 29,000
Current portion of long-term debt 8,727,272 8,727,272
___________ __________
Total current liabilities 12,474,467 12,474,467
___________ __________
Long-term debt, less current portion 35,353,262 35,353,262
Deferred income taxes 3,833,000 3,833,000
Other liabilities 279,255 279,255
Stockholders' equity:
Class A common stock: $.01 par value, authorized
10,000,000 shares; issued 2,219,477 shares 22,195 9,863 32,058
(pro forma 3,205,777 shares)
Class B common stock: $.01 par value; authorized
10,000,000 shares; issued 2,224,477 shares 22,245 (22,245) 0
(pro forma -0- shares)
Additional paid-in capital 3,542,356 3,542,356
Retained earnings 21,181,034 (11,470,674) 9,710,360
Unrealized appreciation on marketable
securities, net of income taxes 927,220 927,220
___________ __________
25,695,050 (11,483,056) 14,211,994
___________ __________
Less treasury stock, at cost (116,250 shares; 371,775 (185,888) 185,887
pro forma 58,125)
___________ __________
25,323,275 (11,297,168) 14,026,107
___________ __________
$77,263,259 (11,297,168) 65,966,091
___________ __________
Book Value Per Common Share $5.85 (1.39) $4.46<F1>
___________ __________
_________________________________
<FN>
<F1> Amount computed based upon number of shares of Common Stock remaining after giving effect to the Recapitalization
Plan.
</TABLE>
35
<TABLE>
CANNON EXPRESS, INC. AND SUBSIDIARIES
PRO FORMA CONSOLIDATED BALANCE SHEET (UNAUDITED)
<CAPTION>
As of December 31, 1995
Historical Adjustments Pro Forma
<S> <C> <C> <C>
Assets
Current assets:
Cash and cash equivalents $18,384,944 (11,297,168) $7,087,776
Marketable securities, net of allowance 4,642,015 4,642,015
Receivables, net of allowance for doubtful accounts
(September 30, 1995-$148,675; June 30, 1995-$141,175
Trade 8,578,326 8,578,326
Other 58,358 58,358
Prepaid expenses and supplies 1,283,082 1,283,082
__________ __________
Total current assets 32,946,725 (11,297,168) 21,649,557
__________ __________
Property and equipment:
Land, buildings and improvements 1,143,453 1,143,453
Revenue equipment 69,076,700 69,076,700
Service, office and other equipment 2,158,288 2,158,288
__________ __________
72,378,441 72,378,441
Less allowances for depreciation 14,221,293 14,221,293
__________ __________
58,157,148 58,157,148
__________ __________
Other assets:
Receivable from stockholders 23,406 23,406
Restricted cash 814,974 814,974
Other 1,116,636 1,116,636
__________ __________
Total other assets 1,955,016 1,955,016
__________ __________
$93,058,889 (11,297,168) $81,761,721
__________ __________
</TABLE>
36
<TABLE>
CANNON EXPRESS, INC. AND SUBSIDIARIES
PRO FORMA CONSOLIDATED BALANCE SHEET (UNAUDITED)
<CAPTION>
As of December 31, 1995
Historical Adjustments Pro Forma
<S> <C> <C> <C>
Liabilities and stockholders' equity
Current liabilities:
Trade accounts payable $ 661,504 $ 661,504
Accrued expenses:
Insurance reserves 1,472,945 1,472,945
Other 1,822,340 1,822,340
Federal and state income taxes payable 1,384,639 1,384,639
Deferred income taxes 75,000 75,000
Current portion of long-term debt 12,822,744 12,822,744
___________ __________
Total current liabilities 18,239,172 18,239,172
___________ __________
Long-term debt, less current portion 43,640,227 43,640,227
Deferred income taxes 3,292,000 3,292,000
Other liabilities 569,632 569,632
Stockholders' equity:
Class A common stock: $.01 par value, authorized
10,000,000 shares; issued 2,219,477 shares 22,195 9,863 32,058
(pro forma 3,205,777 shares)
Class B common stock: $.01 par value; authorized
10,000,000 shares; issued 2,224,477 shares 22,245 (22,245) 0
(pro forma -0- shares)
Additional paid-in capital 3,542,356 3,542,356
Retained earnings 22,633,859 (11,470,674) 11,163,185
Unrealized appreciation on marketable
securities, net of income taxes 1,468,978 1,468,978
___________ __________
27,689,633 (11,483,056) 16,206,577
___________ __________
Less treasury stock, at cost (116,250 shares; 371,775 (185,888) 185,887
pro forma 58,125) ___________ __________
27,317,858 (11,297,168) 16,020,690
___________ __________
$93,058,889 (11,297,168) $81,761,721
___________ __________
Book Value Per Common Share $6.31 (1.22) $5.09<F1>
___________ __________
_________________________________
<FN>
<F1> Amount computed based upon number of shares of Common Stock remaining after giving effect to the Recapitalization
Plan.
</TABLE>
37
<TABLE>
CANNON EXPRESS, INC. AND SUBSIDIARIES
PRO FORMA CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
<CAPTION>
Three-Month Period Ended December 31, 1995
Historical Adjustments Pro Forma
<S> <C> <C> <C>
Operating revenue $22,205,240 $22,205,240
Operating expenses and costs:
Salaries, wages and fringe benefits 7,706,350 7,706,350
Operating supplies and expense 6,217,455 6,217,455
Insurance, taxes and licenses 2,604,719 2,604,719
Depreciation and amortization 2,511,208 2,511,208
Rents and purchased transportation 1,107,700 1,107,700
Other 427,901 427,901
__________ __________
20,575,333 20,575,333
__________ __________
Operating income 1,629,907 1,629,907
Other income 250,145 250,145
Interest expense 963,424 963,424
_________ __________
Income before income taxes 916,628 916,628
Federal and state income taxes
Current 580,000 580,000
Deferred (277,000) (277,000)
_________ __________
353,000 353,000
__________ __________
Net income 563,628 563,628
Earnings per share: __________ __________
Net income per share $0.13 .04 $ .17<F1>
__________ __________
Ratio of earnings to fixed charges 1.78 1.78
__________ __________
Average shares and share equivalents outstanding 4,420,122 (1,180,052) $3,240,070<F1>
__________ __________
____________________________
<FN>
<F1> Amount computed based upon number of shares of Common Stock to be remaining after giving effect to the
Recapitalization Plan.
</TABLE>
38
<TABLE>
CANNON EXPRESS, INC. AND SUBSIDIARIES
PRO FORMA CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
<CAPTION>
Six-Month Period Ended December 31, 1995
Historical Adjustments Pro Forma
<S> <C> <C> <C>
Operating revenue $43,832,825 $43,832,825
Operating expenses and costs:
Salaries, wages and fringe benefits 15,111,538 15,111,538
Operating supplies and expense 12,264,739 12,264,739
Insurance, taxes and licenses 4,913,009 4,913,009
Depreciation and amortization 4,899,283 4,899,283
Rents and purchased transportation 2,050,550 2,050,550
Other 725,626 725,626
__________ __________
39,964,745 39,964,745
__________ __________
Operating income 3,868,080 3,868,080
Other income 307,504 307,504
Interest expense 1,812,759 1,812,759
_________ _________
Income before income taxes 2,362,825 2,362,825
Federal and state income taxes
Current 1,101,000 1,101,000
Deferred (191,000) (191,000)
_________ __________
910,000 910,000
__________ __________
Net income 1,452,825 1,452,825
Earnings per share: __________ __________
Net income per share $0.33 .12 $ .45<F1>
__________ __________
Ratio of earnings to fixed charges 2.06 2.06
__________ __________
Average shares and share equivalents outstanding 4,430,637 (1,180,052) $3,250,585<F1>
__________ __________
____________________________
<FN>
<F1> Amount computed based upon number of shares of Common Stock to be remaining after giving effect to the
Recapitalization Plan.
</TABLE>
39
<TABLE>
CANNON EXPRESS, INC. AND SUBSIDIARIES
PRO FORMA CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
<CAPTION>
Year Ended June 30, 1995
Historical Adjustments Pro Forma
<S> <C> <C> <C>
Operating revenue $79,030,217 $79,030,217
Operating expenses and costs:
Salaries, wages and fringe benefits 24,905,286 24,905,286
Operating supplies and expense 22,217,898 22,217,898
Insurance, taxes and licenses 7,575,133 7,575,133
Depreciation and amortization 7,424,316 7,424,316
Rents and purchased transportation 3,929,384 3,929,384
Other 1,308,294 1,308,294
___________ __________
67,360,311 67,360,311
___________ __________
Operating income 11,669,906 11,669,906
Other income 299,711 299,711
Interest expense 2,187,475 2,187,475
___________ __________
Income before income taxes 9,782,142 9,782,142
Federal and state income taxes
Current (Credit) 4,278,816 4,278,816
Deferred (512,816) (512,816)
___________ __________
3,766,000 3,766,000
___________ __________
Net income 6,016,142 6,016,142
___________ __________
Earnings per share:
Net income per share $1.35 $.50 $1.85<F1>
___________ __________
Ratio of earnings to fixed charges <F2> 4.63 4.63
___________ __________
Average shares and share equivalents outstanding 4,440,089 (1,180,052) $3,260,037<F1>
___________ ____________
<FN>
<F1> Amount computed based upon number of shares of Common Stock to be remaining after giving effect to the
Recapitalization Plan.
<F2> Ratio of earnings to fixed charges for the fiscal year ended June 30, 1994 was 4.42.
</TABLE>
40
<TABLE>
SECURITY OWNERSHIP OF MANAGEMENT
The following table sets forth the name, age and ownership of the
Company's Class A and Class B Common Stock with respect to each member of
the Board of Directors, the named executive officers (as defined in Item
402 of Regulation S-K), and of the directors and executive officers of the
Company as a group.
<CAPTION>
Class A Class B
Shares Shares
Directors and Officers Age Owned Percentage<F2> Owned Percentage<F2>
<S> <C> <C> <C> <C> <C>
Dean G. Cannon<F1> 54 1,243,875 58% 1,103,875 51%
Rose Marie Cannon<F1> 54 1,243,875 58% 1,103,875 51%
Uvalde R. Lindsey 55 * * * *
Roy E. Stanley 51 * * * *
Larry L. Patrick 50 * * * *
All directors and executive
officers (6 persons) 1,266,882 59% 1,259,278 58%
___________________________
<FN>
<F1> See "Principal Shareholders; Class A Dilution"
<F2> Percentages are based upon 2,161,352 shares of the Company's Class A Common Stock and 2,166,352 shares of the
Company's Class B Common Stock outstanding as of December 31, 1995.
* Denotes ownership of less than 1% of the total outstanding shares of common stock.
No affiliates have purchased Class B Common Stock in the past two years.
</TABLE>
<TABLE>
PRINCIPAL SHAREHOLDERS; CLASS A DILUTION
The following table sets forth the ownership of the Cannon Family, the
only shareholders known to the Company to own directly or indirectly more
than 5% of the Company's Class A Common Stock and the Class A Shareholders
as a group (excluding the Cannon Family) (i) as of December 31, 1995 and
(ii) on a pro forma basis assuming the consummation of the Recapitalization
Plan.
<CAPTION>
Name and Address Class A Stock Owned Common Stock Owned
as of December 31 , 1995 Percent<F2> After Recapitalization Plan Percent<F3>
<S> <C> <C> <C> <C>
Cannon Family
1457 Robinson
Springdale,
Arkansas 72764 1,243,875<F1> 58% 2,230,175 71%
Class A Shareholders
as a Group (excluding
the Cannon Family) 917,477 42% 917,477 29%
<FN>
<F1> Includes 625,000 shares owned of record by Dean G. Cannon, 603,875 shares owned of record by Rose Marie Cannon, 2,500
shares held jointly by Dean and Rose Marie Cannon and presently exercisable options to purchase 12,500 shares.
<F2> Percentage based upon 2,161,352 shares of Class A Common Stock outstanding on December 31, 1995.
<F3> Percentage based upon 3,147,652 shares of Common Stock to be outstanding following consummation of the
Recapitalization Plan.
</TABLE>
41
<TABLE>
MARKET FOR COMMON STOCK; DIVIDENDS
The Company's Class A Common Stock and Class B Common Stock are traded
on the NASDAQ National Market System under the symbols CANXA and CANXB. As
of December 31, 1995, the Company had outstanding 2,161,352 shares Class A
Common Stock and 2,166,352 shares of Class B Common Stock. The Company has
not paid any dividends on its common stock. On January 25, 1996, the last
trade price of the Class A Common Stock was $9.125 per share and the Class
B Common Stock was $6.375 per share.
In February 1996, the Company was
notified by the NASD that the Class B Common Stock no longer qualifies for
trading on NASDAQ's National Market System due to the lack of market makers
in the stock. The present policy of the Company is to retain cash
earnings to provide funds for operations and expansion of the Company's
business. Following the Recapitalization Plan, all authorized and
outstanding shares of Class B Common Stock will be cancelled and
deregistered under the Exchange Act, each share of Class A Common Stock
will be reclassified into Common Stock, and the Common Stock will be the
Company's solely authorized class of capital stock. The Common Stock will
continue trading on the NASDAQ National Market System following the
Recapitalization Plan.
The range of the high and low sales prices for the last eight
fiscal quarters is as follows:
<CAPTION>
CLASS A COMMON STOCK CLASS B COMMON STOCK
HIGH LOW HIGH LOW
YEAR ENDED JUNE 30, 1994:
<S> <C> <C> <C> <C>
Second Quarter $14 $ 6 3/4 $11 3/4 $ 5 3/4
Third Quarter 16 12 14 10 1/2
Fourth Quarter 14 1/2 10 3/4 12 9 1/4
YEAR ENDED JUNE 30, 1995:
First Quarter $15 $10 3/4 $12 1/4 $ 8 1/2
Second Quarter 14 11 1/2 14 1/4 11
Third Quarter 16 11 3/4 15 1/4 12
Fourth Quarter 15 1/4 12 3/4 15 3/8 11 5/8
YEAR ENDED JUNE 30, 1996:
First Quarter 14 11 1/2 13 3/4 7 3/8
Second Quarter (ended December 31, 1995) 12 1/4 8 3/4 9 3/4 6 45/64
</TABLE>
42
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the
Exchange Act, and in accordance therewith files periodic reports, proxy
statements, and other information with the Securities and Exchange
Commission (the "SEC") relating to its business, financial statements, and
other matters. Such reports, proxy statements and other information filed
with the SEC by the Company under the Exchange Act, may be inspected and
copied at the Public Reference Section of the SEC at Room 1024, 450 Fifth
Street, N.W., Washington, D.C. 20549 and at the regional offices of the SEC
located in Chicago (Suite 1400, Citicorp Center, 500 West Madison Street,
Chicago, Illinois 60661) and in New York (Seven World Trade Center, Suite
1300, New York, New York 10048). Copies of such material may also be
obtained at prescribed rates by addressing written requests for such copies
to the Public Reference Section of the SEC at 450 Fifth Street, N.W.,
Washington, D.C. 20549. If the Recapitalization Plan is approved, the
Company will continue to be subject to the informational requirements of
the Exchange Act.
DOCUMENTS INCORPORATED BY REFERENCE
The following documents previously filed by the Company with the SEC
are incorporated by reference in this Proxy Statement and included
herewith:
1. Annual Report on Form 10-K for the year ended June 30, 1995.
2. Quarterly Reports on Form 10-Q for the quarters ended September
30, 1995 and December 31, 1995, respectively.
All documents filed by the Company with the SEC pursuant to Sections
13(a), 13(c), 14 or 15(d) of the Exchange Act after the date of this Proxy
Statement and prior to the date of the Special Meeting shall be deemed to
be incorporated by reference in this Proxy Statement and to be part hereof
from the date of filing of such documents.
Any statement incorporated or deemed to be incorporated herein by
reference shall be deemed to be modified or superseded for purposes of this
Proxy Statement to the extent that a statement contained herein modifies or
supersedes such statement. Any such statement so modified or superseded
should not be deemed, except as so modified or superseded, to constitute a
part of this Proxy Statement.
EXPERTS
The consolidated financial statements of the Company set forth in the
Company's Annual Report on Form 10-K for the fiscal year ended June 30,
1995, have been audited by Baird, Kurtz & Dobson, Independent Accountants,
as set forth in their reports thereon included therein and incorporated
herein by reference. Such financial statements are incorporated herein by
reference in reliance upon such reports given upon the authority of such
firm as experts in accounting and auditing.
43
EXPENSES
The following is an estimate of the costs and expenses incurred or
expected to be incurred by the Company in connection with the Plan.
Amounts shown below exclude the cost of paying for fractional shares after
the Reverse Stock Split is effected.
Legal fees and expenses $ 100,000
Accounting fees and expenses 10,000
Printing and mailing costs 20,000
Fees to Financial Advisor 100,000
Fees to Exchange Agent 2,000
Miscellaneous, including SEC filing fees 10,000
Total $ 242,000
44
APPENDIX A-1
PROPOSED AMENDED AND RESTATED ARTICLE FOURTH
OF THE
CERTIFICATE OF INCORPORATION OF CANNON EXPRESS, INC.
FOURTH: The total number of shares of capital stock of which the
Company shall have authority to issue is Ten Million (10,000,000) shares of
Common Stock having a par value of .01 cents per share.
Upon the Certificate of Amendment adding this provision to the
Restated Certificate of Incorporation becoming effective pursuant to the
General Corporation Law of the State of Delaware (the "Effective Date"),
and without any further action on the part of the Corporation or its
stockholders, each whole share of the Corporation's Class A Common Stock,
$0.01 par value per share, including (i) each share of the Corporation's
Class B Common Stock, $.01 par value per share, converted into Class A
Common Stock on the Effective Date and (ii) shares held in the treasury of
the Corporation (collectively the "Old Common Stock"), then issued shall
automatically be reclassified, changed and converted into one fully paid
and non-assessable share of Common Stock, and certificates previously
representing shares of Old Common Stock shall be deemed to represent the
same number of shares of Common Stock.
APPENDIX A-2
EXISTING ARTICLE FOURTH
OF THE
CERTIFICATE OF INCORPORATION OF CANNON EXPRESS, INC.
FOURTH: The aggregate number of shares of all classes of capital stock
which the Corporation shall have authority to issue is:
Twenty Million (20,000,000) shares of common stock ("Common Stock"),
consisting of Ten Million (10,000,000) shares of Class A Common Stock, par
value $0.01 per share ("Class A Common Stock"), and Ten Million
(10,000,000) shares of Class B Common Stock, par value $0.01 per share
("Class B Common Stock").
Upon the Certificate of Amendment adding this provision to the
Restated Certificate of Incorporation becoming effective pursuant to the
General Corporation Law of the State of Delaware (the "Effective Time"),
and without any further action on the part of the Corporation or its
stockholders, each whole share of the Corporation's Common Stock, $0.01 par
value (the "Old Common Stock"), then issued (including shares held in the
treasury of the Corporation) shall automatically be reclassified, changed
and converted into one fully paid and non-assessable share of Class A
Common Stock, and certificates previously representing shares of Old Common
Stock shall be deemed to represent the same number of shares of Class A
Common Stock.
Terms of the Class A Common Stock and Class B Common Stock. The
powers, preferences and rights of the Class A Common Stock and the Class B
Common Stock, and the qualifications, limitations or restrictions thereof,
shall be in all respects identical, except as otherwise required by law or
expressly provided in this Restated Certificate of Incorporation, as
amended.
(a) Voting. At each annual or special meeting of stockholders,
each holder of Class A Common Stock shall be entitled to one (1) vote in
person or by proxy for each share of Class A Common Stock standing in such
person's name on the stock transfer records of the Corporation in
connection with the election of directors and all other actions submitted
to a vote of stockholders; holders of Class B Common Stock shall not vote
on any matters except as otherwise provided by this Restated Certificate of
Incorporation, as amended, and the Delaware General Corporation Law.
(b) Dividends and Other Distributions. The record holders of the
Common Stock shall be entitled to receive such dividends and other
distributions in cash, stock or property of the Corporation as may be
declared thereon by the Board of Directors out of funds legally available
therefor. Each share of Class A Common Stock and each share of Class B
Common Stock shall have identical rights with respect to dividends and
distributions (including distributions in connection with any
recapitalization, and upon liquidation, dissolution or winding up of the
Corporation); provided, that in the case of regular cash dividends the
payment per share of Class B Common Stock may be higher (but in no event
less) than the payment per share of Class A Common Stock; and provided,
further, that dividends or other distributions payable on the Common Stock
in shares of Common Stock shall be made to all holders of Common Stock and
may be made only as follows: (i) in shares of Class B Common Stock to the
record holders of Class A Common Stock and to the record holders of Class B
Common Stock, (ii) in shares of Class A Common Stock to the record holders
of Class A Common Stock and in shares of Class B Common Stock to the record
holders of Class B Common Stock, or (iii) in any other authorized class or
series of capital stock to the holders of both classes of Common Stock.
(c) Convertibility. Except as described in (c)(1) below, neither
the Class A Common Stock nor the Class B Common Stock shall be convertible
into another class of Common Stock or any other security of the
Corporation.
(1) All outstanding shares of Class B Common Stock may be
converted into shares of Class A Common Stock on a share-for-share basis by
resolution of the Board of Directors if, as a result of the existence of
the Class B Common Stock, either the Class A Common Stock or Class B Common
Stock is, or both are, excluded from quotation on the National Association
of Securities Dealers, Inc. Automated Quotation System ("NASDAQ") or, if
such shares are listed on a national securities exchange, from trading on
the principal national securities exchange on which such securities are
traded.
(2) In the event of any conversion of the Class B Common
Stock pursuant to subsection (c)(1), certificates which formerly
represented outstanding shares of Class B Common Stock will thereafter be
deemed to represent a like number of shares of Class A Common Stock and all
shares of Common Stock authorized by this Restated Certificate of
Incorporation shall be deemed to be shares of Class A Common Stock.
(d) Class B Protection. (1) If, from and after the Effective
Time, any person or group acquires (other than upon issuance or sale by the
Corporation, by operation of law, by will or the laws of descent and
distribution, by gift, or by foreclosure of a bona fide loan) beneficial
ownership of shares of Class A Common Stock constituting 10% or more of the
then issued and outstanding shares of Class A Common Stock (such
acquisition making such person or group a "Significant Stockholder"), and
such person or group does not then own shares of Class B Common Stock
acquired after the initial distribution of Class B Common Stock by the
Corporation (the "Distribution") constituting an equal or greater
percentage of all then issued and outstanding shares of Class B Common
Stock, such Significant Stockholder must, within a 90-day period beginning
the day after becoming a Significant Stockholder, commence a public tender
offer in compliance with all applicable laws and regulations to acquire
additional shares of Class B Common Stock (a "Class B Protection
Transaction") as provided in this subsection (d) of this Article FOURTH.
(2) In a Class B Protection Transaction, the Significant
Stockholder must offer to acquire from the holders of the Class B Common
Stock that number of shares of additional Class B Common Stock (the
"Additional Shares") determined by (i) multiplying the percentage of issued
and outstanding shares of Class A Common Stock beneficially owned by such
Significant Stockholder which were acquired after the Effective Time by the
total number of shares of Class B Common Stock issued and outstanding on
the date such person or group became a Significant Stockholder, and (ii)
subtracting therefrom the total number of shares of Class B Common Stock
beneficially owned by such Significant Stockholder on such date which were
acquired after the Distribution (including shares acquired on such date at
or prior to the time such person or group became a Significant
Stockholder). The Significant Stockholder must acquire all shares validly
tendered; provided, however, that if the number of shares of Class B Common
Stock tendered to the Significant Stockholder exceeds the number of shares
required to be acquired pursuant to the formula set forth in this paragraph
(2), the number of shares of Class B Common Stock acquired from each
tendering holder shall be pro rata in proportion to the total number of
shares of Class B Common Stock tendered by all tendering holders.
(3) The offer price for any shares of Class B Common Stock
required to be purchased by the Significant Stockholder pursuant to a Class
B Protection Transaction is the greater of (i) the highest price per share
paid by the Significant Stockholder for any share of Class A Common Stock
in the six-month period ending on the date such person or group became a
Significant Stockholder or (ii) the highest bid price of a share of Class A
Common Stock or Class B Common Stock (whichever is higher) on the NASDAQ
national Market System (or such other quotation system or securities
exchange constituting the principal trading market for either class of
Common Stock) on the date such person or group became a Significant
Stockholder. For purposes of paragraph (4) below, the applicable date for
the calculations required by the preceding sentence shall be the date on
which the Significant Stockholder becomes required to engage in a Class B
Protection Transaction. In the event that the Significant Stockholder has
acquired Class A Common Stock in the six-month period ending on the date,
such person or group becomes a Significant Stockholder for consideration
other than cash, the value of such consideration per share of Class A
Common Stock shall be as determined in good faith by the Board of
Directors.
(4) A Class B Protection Transaction shall also be required
to be effected each time a Significant Stockholder acquires shares of Class
A Common Stock constituting an additional 10% or more of the then issued
and outstanding Class A Common Stock (other than upon issuance or sale by
the Corporation, by operation of law, by will or the laws of descent and
distribution, by gift, or by foreclosure of a bona fide loan) subsequent to
the last acquisition of Class A Common Stock which triggered the
requirement for a Class B Protection Transaction, if such Significant
Stockholder does not then beneficially own shares of Class B Common Stock
acquired after the Distribution constituting an equal or greater percentage
of all issued and outstanding shares of Class B Common Stock. Such
Significant Stockholder shall be required to offer to buy through a public
tender offer that number of Additional Shares prescribed by the formula set
forth in paragraph (2) above, and must acquire all shares validly tendered
or a pro rata portion thereof, as specified in such paragraph (2) above, at
the price determined pursuant to paragraph (3) above, even if a previous
Class B Protection Transaction resulted in, fewer shares of Class B Common
Stock being tendered than such previous offer included.
(5) The requirement to engage in a Class B Protection
Transaction is satisfied by making the requisite offer and purchasing
validly tendered shares, even if the number of shares tendered is less than
the number of shares included in the required offer.
(6) If any Significant Stockholder fails to make an offer
required by this subsection (d) of Article FOURTH, or to purchase shares
validly tendered and not withdrawn (after proration, if any), such
Significant Stockholder shall not be entitled to vote any shares of Class A
Common Stock beneficially owned by such Significant Stockholder and
acquired by such Significant Stockholder after the Effective Time unless
and until such requirements are complied with or unless and until all
shares of Class A Common Stock causing such offer requirement to be
effective are no longer beneficially owned by such Significant Stockholder.
To the extent that the voting power of any shares of Class A Common Stock
is so suspended, such shares will not be included in the determination of
aggregate voting shares for any purpose under this Restated Certificate of
Incorporation or the Delaware General Corporation Law.
(7) The Class B Protection Transaction requirement shall not
apply to any increase in percentage ownership of Class A Common Stock
resulting solely from a change in the total amount of Class A Common Stock
outstanding, provided, that any acquisition after such change which results
in any person or group owning 10% or more of the Class A Common Stock (or
an additional 10% or more of the Class A Common Stock subsequent to the
last acquisition which triggered the requirement for a Class B Protection
Transaction) excluding, with respect to the numerator but not the
denominator for the calculation of such percentage, shares of Class A
Common Stock held by such Significant Stockholder immediately after the
Effective Time (or immediately after the last acquisition which triggered
the requirement for a Class B Protection Transaction as the case may be),
shall be subject to any Class B Protection Transaction requirement that
would be imposed with respect to a Significant Stockholder pursuant to this
subsection (d) of Article FOURTH.
(8) All calculations with respect to percentage ownership of
issued and outstanding shares of either class of Common Stock will be based
upon the numbers of issued and outstanding shares reported by the
Corporation on the last filed of (i) the Corporation's most recent Annual
Report on Form 10-K, (ii) its most recent Quarterly Report on Form 10-Q, or
(iii) if any, its most recent Current Report on Form 8-K.
(9) For purposes of this subsection (d) of Article FOURTH,
the term "person" means a natural person, company, government, or political
subdivision agency or instrumentality of a government, or other entity.
"Beneficial ownership" shall be determined pursuant to Rule 13d-3
promulgated under the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), or any successor Rule or regulation. The formation or
existence of a "group" shall be determined pursuant to Rule 13d-5(b) under
the Exchange Act or any successor Rule or regulation.
(e) Merger and Consolidation. In the event of a merger or
consolidation of the Corporation with or into another entity (whether or
not the Corporation is the surviving entity), the holders of Class B Common
Stock shall be entitled to receive the same amount and form of
consideration per share as the per share consideration, if any, received by
any holder of the Class A Common Stock in such merger or consolidation.
(f) Subdivision of Shares. If the Corporation shall in any manner
split, subdivide or combine the outstanding shares of Class A Common Stock
or Class B Common Stock, the outstanding shares of the other such class of
Common stock shall be proportionally split, subdivided or combined in the
same manner and on the same basis as the outstanding shares of the other
class of Common Stock have been split, subdivided or combined.
(g) Power to Sell and Purchase Shares. The Board of Directors
shall have the power to cause the Corporation to issue and sell all or any
part of any class of stock herein or hereafter authorized to such persons,
firms, associations or corporations, and for such consideration, as the
Board of Directors shall from time-to time, in its discretion, determine,
whether or not greater consideration could be received upon the issue or
sale of the same number of shares of another class, and as otherwise
permitted by law. The Board of Directors shall have the power to cause the
Corporation to purchase any class of stock herein or hereafter authorized
from such persons, firms, associations or corporations, and for such
consideration, as the Board of Directors shall from time to time, in its
discretion, determine, whether or not less consideration could be paid upon
the purchase of the same number of shares of another class, and as
otherwise permitted by law.
(h) Increase or Decrease in Number of Shares. The number of
authorized shares of Class B Common Stock may be increased or decreased
(but not below the number of shares then outstanding) by the affirmative
vote of a majority of the votes which may be collectively cast by holders
of the Class A Common Stock.
APPENDIX B
OPINION OF LLAMA COMPANY
FINANCIAL ADVISOR TO THE SPECIAL COMMITTEE
LLAMA COMPANY
One McIlroy Plaza, Suite 302
Fayetteville, Arkansas 72701
(501) 444-4000
FAX (501) 444-4042
January 26, 1996
Special Committee of the Board of Directors
Cannon Express, Inc.
1457 Robinson
Springdale, Arkansas 72765
Gentlemen:
We understand that Cannon Express, Inc. (the "Company") intends to
recapitalize the Class A and Class B common stock of the Company by means
of a reverse stock split whereby the Company intends to purchase the
fractional shares of Class B common stock for cash and convert the whole
shares of Class B common stock remaining into Class A common stock and to
reclassify the Class A and Class B common stock into a new single class of
common stock (the "Transaction"). We understand that the Transaction will
be submitted to the Company's shareholders for approval at a Special
Meeting of the Shareholders. You have supplied us with a January 25, 1996
draft preliminary copy of the proxy statement which describes the
Transaction in substantially the form to be sent to the Company's
shareholders (the "Proxy Statement").
The special committee has asked Llama Company for our opinion as investment
bankers as to the fairness from a financial point of view of the price to
be paid in cash to the fractional Class B common stock shareholders. Llama
Company is a nationally recognized investment banking firm and, as part of
its investment banking business, is engaged in: the valuation of businesses
and their securities in connection with mergers and acquisitions;
negotiated underwritings; competitive biddings; private placements;
brokerage and financial advisory services.
In the course of our analysis for rendering the opinion set forth herein,
we have, among other considerations:
(i) Reviewed the annual reports on Form 10-K for the fiscal
years ended June 30, 1991 through June 30, 1995, the
Company's quarterly report on Form 10-Q for the three
months ended September 30, 1995, and the earnings release
for the three months ended December 31, 1995;
Special Committee of the Board of Directors
January 26, 1996
Page 2
(ii) Discussed the past and current business operations and
financial condition and the future prospects of the Company
with management;
(iii) Reviewed certain financial projections of the Company prepared by
management;
(iv) Visited the Company's facilities and participated in discussions
among representatives of the Company and their advisors;
(v) Analyzed the pro-forma financial impact of the Transaction on the
Company;
(vi) Reviewed the Proxy Statement in conjunction with the Transaction;
(vii) Reviewed financial statements and research reports of companies
comparable to the Company and its industry;
(viii) Reviewed the financial terms, to the extent publicly available, of
certain comparable transactions;
(ix) Reviewed the historical stock prices of companies which have a
dual class of common stock; and
(x) Reviewed other information on the Company that has been provided
to us by the Company and conducted such other studies, analyses,
inquiries and investigations as we deemed appropriate.
We have assumed and relied upon, without independent verification, the
accuracy and completeness of the information reviewed by us for purposes of
this opinion. With respect to the financial projections used in our
analysis, we have assumed that they have been reasonably prepared on a
basis reflecting the best currently available estimates and judgments of
senior management of the Company as to the future financial performance of
the Company. We have not prepared any independent evaluation or appraisal
of the assets of the Company.
In conducting our investigation and analysis and in arriving at our opinion
expressed herein, we have taken into account such accepted financial and
investment banking procedures and considerations as we have deemed
relevant, including (i) the history and business of the Company; (ii) the
outlook for the industry in which the Company operates; (iii) the Company's
historical revenues, earnings capacity and capitalization; (iv) the current
and prospective financial positions, results of operations and cash flows
of the Company; (v) the market prices and trading volumes of the Company's
common stock; (vi) the economics, performance and market valuations of
publicly held companies engaged in relatively similar businesses with
relatively similar investment characteristics; (vii) the prices and
multiples at which other companies have gone private during the last five
years; (viii) the trading discount between the prices of the stock of dual
class companies; and (ix) the discounted cash flow analysis. Our opinion
is necessarily based on the economic, market, and other conditions as in
effect on, and the information made available to us as of the date hereof.
Special Committee of the Board of Directors
January 26, 1996
Page 3
On the basis of, and subject to the foregoing, it is our opinion that as of
the date hereof, the price of $9.00 per share to be paid to each holder of
shares of Class B common stock holding less than 500,000 shares is fair,
from a financial point of view.
Very truly yours,
D. LYNN DEVAULT REID C. GIBSON
/s/ D. Lynn DeVault /s/ Reid C. Gibson
_____________________ _____________________
D. Lynn DeVault Reid C. Gibson
Senior Managing Director Senior Vice President
APPENDIX C
ARTICLES FIFTH, SEVENTH, EIGHTH, TENTH, AND TWELFTH
OF THE
CERTIFICATE OF INCORPORATION OF CANNON EXPRESS, INC.
FIFTH: The business and affairs of the Company shall be managed by
the Board of Directors consisting of not less than two (2) nor more than
ten (10) persons. The exact number of directors within the limitations
specified in the preceding sentence shall be fixed from time to time by the
Board of Directors pursuant to a resolution adopted by a majority of the
entire Board of Directors.
The Board of Directors shall be natural persons of full age. The
initial term of office of each director shall expire at the Annual Meeting
of Stockholders in 1987. At each annual election commencing at the Annual
Meeting of Stockholders of 1987, the successors to the directors shall be
elected to hold office for a term of one year. Each director shall hold
office until the next annual meeting of stockholders and until his
successor shall be elected and qualified or until his death, or until he
shall resign.
Newly created directorships resulting from any increase in the
authorized number of directors or any vacancies in the Board of Directors
resulting from the death, resignation, retirement, disqualification,
removal from office or other cause shall be filled by a majority vote of
the directors then in office, and directors so chosen shall hold office for
a term expiring at the annual meeting of stockholders. No decrease in the
number of directors constituting the Board of Directors shall shorten the
term of any incumbent director.
During his term of office any director may be removed from his office
as a director for cause or otherwise by the vote of 66 2/3% of the
stockholders.
SEVENTH:
A.1. In addition to any affirmative vote required by law or under any
other provision of this Certificate of Incorporation, and except as
otherwise expressly provided in subparagraph B:
a. any merger or consolidation of the Company or any subsidiary (as
hereinafter defined) with or into (i) any Substantial Stockholder (as
hereinafter defined), or (ii) any other corporation (whether or not itself
a Substantial Stockholder) which, after such merger or consolidation, would
be an Affiliate (as hereinafter defined) of a Substantial Stockholder, or
b. any sale, lease, exchange, mortgage, pledge, transfer or other
disposition (in one transaction or a series of related transactions) to or
with (i) any Substantial Stockholder, or (ii) an Affiliate of a Substantial
Stockholder of any assets of the Company or any subsidiary having an
aggregate fair market value of $4,000,000 or more, or
c. the issuance or transfer of the Company or any Subsidiary (in one
transaction or a series of related transaction) of any securities of the
Company or any Subsidiary to (i) any Substantial Stockholder or (ii) any
other Company (whether or not itself a Substantial Stockholder) which,
after such issuance or transfer, would be an Affiliate of a Substantial
Stockholder in exchange for cash, securities or other property (or a
combination thereof) having an aggregate fair market value of $4,000,000 or
more, or
d. the adoption of any plan or proposal for the liquidation or
dissolution of the Company proposed by or on behalf of a Substantial
Stockholder or an Affiliate of a Substantial Stockholder, or
e. any reclassification of securities (including any reverse stock
split), recapitalization, reorganization, merger or consolidation of the
Company with any of its Subsidiaries or any similar transaction (whether or
not with or into or otherwise involving a Substantial Stockholder or an
Affiliate of a Substantial Stockholder) which has the effect, directly or
indirectly, of increasing the proportionate share of the outstanding shares
of any class of equity or convertible securities of the Company or any
Subsidiary which is directly or indirectly owned by any Substantial
Stockholder or by an Affiliate of a Substantial Stockholder, shall require
the affirmative vote of the holders of at least 66 2/3% of the voting power
of the then outstanding shares of capital stock of the Company entitled to
vote generally in the election of directors, considered for the purpose of
this Article Seventh as one class ("Voting Shares"). Such affirmative vote
shall be required notwithstanding the fact that no vote may be required, or
that some lesser percentage may be specified, by law or in any agreement
with any national securities exchange or otherwise.
2. The term "business combination" as used in this Article Seventh
shall mean any transaction which is referred to in any one or more clauses
(a) through (e) of Section 1 of this subparagraph A.
B. The provisions of subparagraph A of this Article Seventh shall not
be applicable to any particular business combination, and such business
combination shall required only such affirmative vote as is required by law
and any other provision of this Certificate of Incorporation, if all of the
conditions specified in either of the following paragraphs 1 and 2 are met:
1. The business combination shall have been approved by a majority of
the "Continuing Directors" (as hereinafter defined).
2. All of the following conditions shall have been met:
a. The ratio of:
(1) the aggregate amount of the cash and the fair market
value of other consideration to be received per share of holders of common
stock of the Company ("Common Stock") in such business combination,
to
(2) the market price of the Common Stock immediately prior
to the public announcement of the proposal of such business combination, is
at least as great as the ratio of
(i) the highest per share price (including brokerage
commissions, transfer taxes and soliciting dealers' fees) which such
Substantial Stockholder has paid for any shares of Common Stock acquired by
it within the five year period prior to the business combination.
to
(ii) the market price of the Common Stock immediately
prior to the initial acquisition by such Substantial Stockholder of any
Common Stock;
b. The aggregate amount of cash and fair market value of other
consideration to be received per share by holders of Common Stock in such
business combination:
(1) is not less than the highest per share price (including
brokerage commissions, transfer taxes and soliciting dealers' fees) paid by
Substantial Stockholder in acquiring any of its holdings of Common Stock,
and
(2) is not less than the earnings per share of Common Stock
for the four full consecutive fiscal quarters immediately preceding the
record date for solicitation of votes on such business combination
multiplied by the then price/earnings multiple (if any) of such Substantial
Stockholder as customarily computed and reported in the financial
community;
c. The aggregate amount of the cash and the fair market value as
of the date of the consummation of the business combination of
consideration other than cash to be received per share by holders of shares
of any other class of outstanding capital stock of the Company shall be at
least equal to the highest of the following (it being intended that the
requirements of this paragraph B.2.c. shall be required to be met with
respect to every class of outstanding capital stock of the Company whether
or to the Substantial Stockholder has previously acquired any shares of a
particular class of capital stock):
(1) (if applicable) the highest per share (including any
brokerage commission, transfer taxes and soliciting dealers' fees) paid by
the Substantial Stockholder for any shares of such class of capital stock
acquired by it (1) within the five year period immediately prior to the
first public announcement of the proposal of the business combination (the
"Announcement Date") or (2) in the transaction in which it became a
Substantial Stockholder, whichever is higher;
(2) (if applicable) the highest preferential amount per
share to which the holders of shares of such class of capital stock are
entitled in the event of any voluntary or involuntary liquidation,
dissolution or winding up of the Company;
(3) the fair market value per share of such class of
capital stock (which may be determined by a majority of the Continuing
Directors) on the Announcement Date or on the date on which the Substantial
Stockholder became a Substantial Shareholder (the "Determination Date"),
whichever is higher; and
(4) (if applicable) the price per share equal to the fair
market value per share of such class of capital stock determined pursuant
to paragraph B.2.c. (3) above, multiplied by the ratio of (1) the highest
per share price (including any brokerage commissions, transfer taxes and
soliciting dealers' fees) paid by the Substantial Stockholder for any
shares of such class of capital stock acquired by it within the five-year
period immediately prior to the Announcement Date to (2) the fair market
value per share of such class of capital stock on the first day in such
five-year period upon which the Substantial Stockholder acquired any shares
of such class of Voting Shares.
d. The consideration to be received by holders of the capital
stock of the Company in such business combination shall be in cash or in
the same form and of the same kind as the consideration paid by the
Substantial Stockholder in acquiring the shares of Stock already owned by
it;
e. After such Substantial Stockholder has acquired ownership of
not less than 10% of the then outstanding Voting Shares (a "10% Interest")
and prior to the consummation of such business combination;
(1) the Substantial Stockholder shall have taken steps to
ensure that the Company's Board of Directors included at all times
representation by Continuing Director(s) (as hereinafter defined)
proportionate to the ratio that the Voting Shares which from time to time
are owned by persons other than the Substantial Stockholder ("Public
Holders") bear to all Voting Shares outstanding at such respective times
(with a Continuing Director to occupy any resulting fractional Board
position);
(2) there shall have been no reduction in the rate of
dividends payable on the Common Stock except as may have been approved by a
majority vote of the Continuing Directors;
(3) such Substantial Stockholder shall not have acquired
any newly issued shares of capital stock of the Company, directly or
indirectly, from the Company (except upon conversion of convertible
securities acquired by it prior to obtaining a 10% Interest or as a result
of a pro rata stock dividend or stock split; and
(4) such Substantial Stockholder shall not have acquired
any additional shares of the Company's outstanding Common Stock or
securities convertible into or exchangeable for Common Stock except as part
of the transaction which results in such Substantial Stockholder acquiring
its 10% Interest.
f. Prior to the consummation of such business combination, such
Substantial Stockholder shall not have (i) received the benefit, directly
or indirectly (except proportionately as a stockholder), of any loss,
advances, guarantees, pledges or other financial assistance or tax credits
provided by the Company, or (ii) made any major change in the Company's
business or equity capital structure without the approval of a majority of
the Continuing Directors; and
g. A proxy statement responsive to the requirements of the
Securities Exchange Act of 1934 shall have been mailed to all holders of
Voting Shares for the purpose of soliciting stockholder approval of such
business combination. Such proxy statement shall contain at the front
thereof, in a prominent place, any recommendations as to the advisability
(or inadvisability) of the business combination which the Continuing
Directors, or any of them, may have furnished in writing and, if deemed
advisable by a majority of the Continuing Directors, an opinion of a
reputable investment banking firm as to the fairness (or lack of fairness)
of the terms of such business combination, from the point of view of the
holders of Voting Shares other than the Substantial Stockholder (such
investment banking firm to be selected by a majority of the Continuing
Directors, to be furnished with all information it reasonably requests and
to be paid a reasonable fee for its services upon receipt by the Company of
such opinion.)
C. For the purposes of this Article Seventh:
1. A "person" shall mean any individual, firm, corporation or
other entity.
2. "Substantial Stockholder" shall mean, in respect of any
business combination, any person (other than the Company or any subsidiary)
who or which as of the record date for the determination of stockholders
entitled to notice of and to vote on such business combination, or as of
the time of the vote on such business combination, or immediately prior to
the consummation of any such transaction,
(a) is the beneficial owner, directly or indirectly, of not
less than 10% of the Voting Shares, or,
(b) is an Affiliate of the Company and at any time within
five years prior thereto was the beneficial owner, directly or indirectly,
of not less than 10% of the then outstanding Voting Shares, or
(c) is an assignee of or has otherwise succeeded to any
shares of capital stock of the company which were at any time within five
years prior thereto beneficially owned by any Substantial Stockholder, and
such assignment or succession shall have occurred in the course of a
transaction or series of transactions not involving a public offering
within the meaning of the Securities Act of 1933.
3. A person shall be the "beneficial owner" of any Voting
Shares:
(a) which such person or any of its Affiliates and
Associates (as hereinafter defined) beneficially own, directly or
indirectly, or
(b) which such person or any of its Affiliates or
Associates has (i) the right to acquire (whether such right is exercisable
immediately or only after the passage of time), pursuant to any agreement,
arrangement or understanding or upon the exercise of conversion rights,
exchange rights, warrants, or options, or otherwise, or (ii) the right to
vote pursuant to any agreement, arrangement or understanding or
(c) which are beneficially owned, directly or indirectly,
by any other person with which such first mentioned person or any of its
Affiliates or Associates has any agreement, arrangement or understanding
for the purpose of acquiring, holding, voting or disposing of any shares of
capital stock of the Company.
4. The outstanding Voting Shares shall include shares deemed
owned through application of section 3 above but shall not include any
other Voting Shares which may be issuable pursuant to any agreement, or
upon exercise of conversion rights, warrants or options, or otherwise.
5. "Continuing Director" shall mean a person who was a director
prior to October 1, 1986 or who was a member of the Board of Directors of
the Company elected by the Public Holders prior to the date as of which the
Substantial Stockholder acquired 10% of the then outstanding Voting Shares,
or a person designated (before his initial election as a director) as a
Continuing Director by a majority of the then Continuing Directors.
6. "Other consideration to be received" shall mean Common Stock
of the Company retained by its Public Holders in the event of a business
combination in which the Company is the surviving corporation.
7. "Affiliate" and "Associate" shall have the respective
meanings given those terms in Rule 12b-2 of the General Rules and
Regulations under the Securities Exchange Act of 1934, as in effect on
January 1, 1982.
8. "Subsidiary" means any corporation of which a majority of any
class of equity security (as defined in Rule 3a11-1 of the General Rules
and Regulations under the Securities Exchange Act of 1934; as in effect on
January 1, 1984) which is owned, directly or indirectly, by the Company;
provided, however, that for the purposes of the definition of Substantial
Stockholders set forth in section 2 of this subparagraph C, the term
"Subsidiary" shall mean only a corporation of which a majority of each
class of equity security is owned, directly or indirectly, by the Company.
D. A majority of the Continuing Directors shall have the power and
duty to determine for the purposes of this Article Seventh, on the basis of
information known to them, (a) the number of Voting Shares beneficially
owned by any person, (b) whether a person is an Affiliate or Associate of
another, (c) whether a person has an agreement, arrangement or
understanding with another as to the matters referred to in section 3 of
subparagraph C, or (d) whether the assets subject to any business
combination have an aggregate fair market value of $4,000,000 or more.
E. Nothing contained in Article Seventh shall be construed to relieve
any Substantial Stockholder from any fiduciary obligation imposed by law.
EIGHTH:
The Company reserves the right to amend, alter, change or repeal any
provision contained in this Certificate of Incorporation, in the manner now
or hereafter prescribed by statute, and all rights conferred upon
stockholders herein are granted subject to this reservation.
Notwithstanding anything to the contrary contained in this Certificate of
Incorporation or the bylaws of the Corporation (and notwithstanding the
fact that a lesser percentage may be specified by law, this Certificate of
Incorporation or the bylaws of the Corporation), the affirmative vote of
the holders of at least 66 2/3% of the voting power of the then outstanding
Voting Shares shall be required to amend, alter, change or appeal, or to
adopt any provision inconsistent with, Articles Fifth, Seventh, Tenth,
Twelfth and this Article Eighth of this Certificate of Incorporation,
provided that such 66 2/3 vote shall not be required for, any amendment,
alteration, change or repeal recommended to the stockholders by a majority
of the Continuing Directors, as defined in Article Seventh.
TENTH:
Any action required or permitted to be taken by the stockholders of
the Company must be effected at a duly called annual or special meeting of
stockholders of the Company and may not be effected by any consent in
writing by such stockholders. Special meetings of stockholders of the
Company may be called only by the Board of Directors pursuant to a
resolution approved by a majority of the entire Board of Directors or by
the Chairman of the Board or President, upon not less than 10 nor more than
60 days' written notice.
TWELFTH:
The bylaws of the Company may be amended or repealed, or new bylaws
may be adopted (a) by the affirmative vote of seventy-five percent of the
voting power of the then outstanding Voting Shares; provided that the
notice of such meeting of stockholders, whether regular or special, shall
specify as one of the purposes thereof the making of such amendment or
repeal; or (b) by the affirmative vote of the majority of the Board of
Directors at any regular or special meeting.
APPENDIX D
FORM OF PROXY
CANNON EXPRESS, INC.
PROXY SOLICITED BY THE BOARD OF DIRECTORS FOR THE
SPECIAL MEETING OF SHAREHOLDERS, APRIL 10 , 1996
CLASS A COMMON STOCK
The undersigned shareholder(s) of Cannon Express, Inc. hereby appoint Dean
G. Cannon and Rose Marie Cannon, and each or either of them, the true and
lawful agents and attorneys-in-fact for the undersigned, with the power of
substitution, to attend the meeting and to vote the stock owned by or
registered in the name of the undersigned, as instructed below, at the
Special Meeting of Shareholders to be held on Wednesday, April 10 ,
1996 at 10:00 a.m., local time, and at any adjournments thereof, for the
transaction of the following business.
____ FOR ____ AGAINST ___ ABSTAIN
To adopt a proposal (the "Recapitalization Plan") to amend Article
Fourth of the Company's Certificate of Incorporation to effect (A) a 1-for-
500,000 reverse split (the "Reverse Stock Split") of the Company's non-
voting class B common stock, par value $0.01 per share (the "Class B Common
Stock") and contemporaneous purchase, for cash, of all fractional shares of
Class B Common Stock at a price of $9.00 per share (prior to giving effect
to the Reverse Stock Split), (B) the conversion of each whole share of
Class B Common Stock outstanding after the Reverse Stock Split into 493,150
shares of voting class A common stock, par value $0.01 per share (the
"Class A Common Stock") and (C) the amendment of the Certificate of
Incorporation to reclassify the Class A Common Stock and Class B Common
Stock into a new, single class of common stock.
UNLESS OTHERWISE INSTRUCTED HEREON, IT IS INTENDED THAT THE PROXIES WILL
VOTE THESE SHARES FOR THE FOREGOING PROPOSALS. The proxies will vote in
their sole discretion upon such other business as may properly come before
the meeting.
Please sign, date and return this proxy as soon as possible.
Dated ______________________, 1996
_____________________________________
Signature
_____________________________________
Signature
Please sign exactly as name(s) appear at left. If stock is in the name of
two or more persons, each should sign. Persons signing as attorney,
executor, administrator, trustee, guardian or other fiduciary, please give
full title as such. If a corporation, then signature should be by
president or other authorized officer. If a partnership, please sign in
partnership name by authorized person.
FORM OF PROXY
CANNON EXPRESS, INC.
PROXY SOLICITED BY THE BOARD OF DIRECTORS FOR THE
SPECIAL MEETING OF SHAREHOLDERS, APRIL 10, 1996
CLASS B COMMON STOCK
The undersigned shareholder(s) of Cannon Express, Inc. hereby appoint Dean
G. Cannon and Rose Marie Cannon, and each or either of them, the true and
lawful agents and attorneys-in-fact for the undersigned, with the power of
substitution, to attend the meeting and to vote the stock owned by or
registered in the name of the undersigned, as instructed below, at the
Special Meeting of Shareholders to be held on Wednesday, April 10, 1996 at
10:00 a.m., local time, and at any adjournments thereof, for the
transaction of the following business.
____ FOR ____ AGAINST ___ ABSTAIN
To adopt a proposal (the "Recapitalization Plan") to amend Article
Fourth of the Company's Certificate of Incorporation to effect (A) a 1-for-
500,000 reverse split (the "Reverse Stock Split") of the Company's non-
voting class B common stock, par value $0.01 per share (the "Class B Common
Stock") and contemporaneous purchase, for cash, of all fractional shares of
Class B Common Stock at a price of $9.00 per share (prior to giving effect
to the Reverse Stock Split), (B) the conversion of each whole share of
Class B Common Stock outstanding after the Reverse Stock Split into 493,150
shares of voting class A common stock, par value $0.01 per share (the
"Class A Common Stock") and (C) the amendment of the Certificate of
Incorporation to reclassify the Class A Common Stock and Class B Common
Stock into a new, single class of common stock.
UNLESS OTHERWISE INSTRUCTED HEREON, IT IS INTENDED THAT THE PROXIES WILL
VOTE THESE SHARES FOR THE FOREGOING PROPOSALS. The proxies will vote in
their sole discretion upon such other business as may properly come before
the meeting.
Please sign, date and return this proxy as soon as possible.
Dated ______________________, 1996
_____________________________________
Signature
_____________________________________
Signature
Please sign exactly as name(s) appear at left. If stock is in the name of
two or more persons, each should sign. Persons signing as attorney,
executor, administrator, trustee, guardian or other fiduciary, please give
full title as such. If a corporation, then signature should be by
president or other authorized officer. If a partnership, please sign in
partnership name by authorized person.
