FORWARD AIR CORP

Summary of the Proposal

The Board is asking shareholders to approve, in accordance with Nasdaq Listing Rule 5635(a), (i) the issuance of Company Common Stock (as defined below) upon the conversion of the outstanding Company Series C Preferred Units (as defined below) that were issued in connection with our acquisition of Omni Newco, LLC (the “Omni Acquisition”) and (ii) the issuance of Company Series B Preferred Units (as defined below) upon the conversion of Opco Series C-2 Preferred Units (as defined below) that were issued in connection with the Omni Acquisition into Opco Class B Units (as defined below) and the issuance of Company Common Stock upon the exchange of such Company Series B Preferred Units (together with corresponding Opco Class B Units).

Overview of the Omni Acquisition

On January 25, 2024, the Company, Omni Newco LLC, a Delaware limited liability company (“Omni”), and certain other parties completed the Omni Acquisition. Pursuant to the Agreement and Plan of Merger, dated as of August 10, 2023 (as amended by Amendment No. 1, dated as of January 22, 2024, the “Merger Agreement”), among the Company, Omni and the other parties thereto, the Company, through a series of transactions involving the Company’s direct and indirect subsidiaries, acquired Omni for a combination of (a) $20 million in cash and (b) (i) Common Equity Consideration (as defined below) representing 5,135,008 shares of the common stock of the Company, par value $0.01 per share (“Company Common Stock”) on an as-converted and as-exchanged basis and (ii) Convertible Preferred Equity Consideration (as defined below) representing, if the Company’s shareholders approve the Conversion Proposal, an additional 8,880,010 shares of Company Common Stock on an as-converted and as-exchanged basis.

As described below, prior to the consummation of the Omni Acquisition and to facilitate the issuance of the consideration in connection therewith, the Company completed a restructuring (the “Restructuring”), pursuant to which, among other things, the Company contributed all of its operating assets to Clue Opco LLC, a newly formed subsidiary of the Company that is a Delaware limited liability company (“Opco”). The limited liability company interests of Opco are represented by units (collectively, the “Opco Units”), comprised of Opco Units designated as: “Class A Units” (“Opco Class A Units”); “Class B Units” (“Opco Class B Units”); “Series C-1 Preferred Units” (“Opco Series C-1 Preferred Units”); and “Series C-2 Preferred Units” (“Opco Series C-2 Preferred Units”).

The “Common Equity Consideration” consists of (i) Company Common Stock and (ii) Opco Class B Units and corresponding fractional units of Company Series B Preferred Stock (as defined below), each representing one one-thousandth of a share of Company Series B Preferred Stock (“Company Series B Preferred Units”) which, together, are exchangeable into Company Common Stock. The “Convertible Preferred Equity Consideration” consists of (i) fractional units of Company Series C Preferred Stock (as defined below) each representing one one-thousandth of a share of Company Series C Preferred Stock (“Company Series C Preferred Units”) that will be converted into Company Common Stock upon receipt of the shareholder approval of the Conversion Proposal and (ii) Opco Series C-2 Preferred Units that will be converted into Opco Class B Units and corresponding Company Series B Preferred Units upon receipt of the shareholder approval of the Conversion Proposal and will then be exchangeable into Company Common Stock.

The Common Equity Consideration represents, as of the closing of the Omni Acquisition (the “Closing”) and before shareholder approval of the Conversion Proposal, approximately 16.5% of Company Common Stock and common stock equivalents, on a fully diluted, as-exchanged basis. If the Company’s shareholders approve the Conversion Proposal, the Convertible Preferred Equity Consideration will (i) in the case of Company Series C Preferred Units, convert into Company Common Stock and (ii) in the case of Opco Series C-2 Preferred Units, convert into Opco Class B Units and corresponding Company Series B Preferred Units (which together are exchangeable into Company Common Stock), which, together and together with the Common Equity Consideration will represent, as of the Closing, 35.0% of Company Common Stock and common stock equivalents on a fully diluted and as-exchanged basis.

Pursuant to the Merger Agreement, the Company is required to use its reasonable best efforts to obtain approval of the Conversion Proposal and to include in this Proxy Statement the Board’s recommendation that the Company’s shareholders vote in favor of the Conversion Proposal. At a meeting of the Board held on April 2, 2024, the Board (i) determined that the Conversion Proposal is in the best interests of the Company’s shareholders and (ii) recommended that the Company’s shareholders vote in favor of the Conversion Proposal. Each of Michael B. Hodge, Christopher H. Schmachtenberger, Charles L. Anderson and Robert L. Edwards, Jr. (comprising all of the directors designated by the Major Shareholders pursuant to the Merger Agreement and the Shareholders Agreements, with the Major Shareholders having received substantial Convertible Preferred Equity Consideration subject to this Conversion Proposal in connection with the Omni Acquisition) recused himself from the Board’s consideration of the Conversion Proposal and from the recommendation made by the Board with respect to the Conversion Proposal.

Omni Litigation

On September 26, 2023, Rodney Bell, Michael A. Roberts and Theresa Woods, three shareholders of Forward Air, filed a complaint (the “Shareholder Complaint”) against us and certain of its directors and officers in the Third District Chancery Court sitting in Greeneville, Tennessee. The Shareholder Complaint alleges, among other things, that our shareholders have the right to vote on certain transactions contemplated by the Merger Agreement and sought an injunction against the consummation of the transaction until a shareholder vote was held. The court initially granted a temporary restraining order enjoining the transactions contemplated by the Merger Agreement but later dissolved it on October 25, 2023 on the basis that monetary damages, if appropriate, would provide the plaintiffs an adequate remedy and thereby preclude injunctive relief. The case remains pending. The Company disagrees with the allegations of the Shareholder Complaint and will continue to defend the matter. The Company will continue to update its disclosure in its periodic reports with respect to the status of the Shareholder Complaint. The Company believes that in no event will the resolution of the Shareholder Complaint have any impact on the already completed Omni Acquisition and related issuance of the Convertible Preferred Equity Consideration or on the Conversion Proposal or the solicitation of shareholder votes thereon.

Restructuring of the Company

General

Prior to the consummation of the Omni Acquisition, the Company completed the Restructuring, pursuant to which, among other things, the Company contributed all of its operating assets to Opco. Opco is structured as an umbrella partnership C corporation through which former direct and certain former indirect equity holders of Omni (“Former Omni Holders”) hold a portion of the Common Equity Consideration and Convertible Preferred Equity Consideration in the form of Opco Units that are exchangeable for Company Common Stock and Company Series C Preferred Units.

The following diagrams depict the Company’s current organizational structure which reflects the closing of the Omni Acquisition and its organizational structure following approval of the Conversion Proposal.

Prior to Conversion:

After Conversion:

The portion of the transaction consideration paid to the Former Omni Holders that is Common Equity Consideration consists of (a) shares of Company Common Stock and (b) Opco Class B Units and corresponding Company Series B Preferred Units, which together are exchangeable at the option of the holders thereof into shares of Company Common Stock pursuant to the Opco LLCA (as defined below).

The portion of the transaction consideration paid to the Former Omni Holders that is Convertible Preferred Equity Consideration consists of (a) Company Series C Preferred Units, which will automatically convert into shares of Company Common Stock upon shareholder approval of the Conversion Proposal and (b) Opco Series C-2 Preferred Units, which are economically equivalent to the Company Series C Preferred Units and will automatically convert into Opco Class B Units and corresponding Company Series B Preferred Units upon the receipt of shareholder approval for the Conversion Proposal pursuant to the Opco LLCA. The Opco Class B Units and corresponding Company Series B Preferred Units issued upon the conversion of the Opco Series C-2 Preferred Units will be exchangeable at the option of the holders thereof into shares of Company Common Stock pursuant to the Opco LLCA.

The Company Common Stock issued at Closing and prior to any shareholder approval of the Conversion Proposal represents 19.99% of the voting power of the Company as of immediately prior to the Closing. The Convertible Preferred Equity Consideration has an aggregate liquidation preference of $976,801,100 (based on a liquidation preference per unit of $110.00) that, as described above, will convert if the Company’s shareholders approve the Conversion Proposal into (i) Company Common Stock and (ii) Opco Class B Units and corresponding Company Series B Preferred Units, which are exchangeable into Company Common Stock.

Opco LLCA

Effective as of the Closing, the Company operates its business through Opco, which indirectly holds all the assets and operations of the Company and Omni and is governed by an operating agreement (the “Opco LLCA”). Opco is managed by and under the direction of the Company, as the manager of Opco.

The limited liability company interests of Opco are represented by units (collectively, the “Opco Units”), comprised of Opco Class A Units, Opco Class B Units, Opco Series C-1 Preferred Units and Opco Series C-2 Preferred Units. All Opco Units are non-voting unless otherwise required by law and except for certain amendments and a limited number of other matters.

As of the date of this Proxy Statement, (a) the Company and Clue Parent Merger Sub LLC, a subsidiary of the Company, hold all of the Opco Class A Units and all of the Opco Series C-1 Preferred Units and (b) the Former Omni Holders hold (i) a portion of the Common Equity Consideration in the form of Opco Class B Units and corresponding Company Series B Preferred Units and (ii) a portion of the Convertible Preferred Equity Consideration in the form of units of Opco designated as Opco Series C-2 Preferred Units.

Subject to certain exceptions permitted under the Opco LLCA, the number of Opco Class A Units outstanding from time to time will equal the number of shares of Company Common Stock outstanding, the number of Opco Class B Units held by the Former Omni Holders from time to time will equal the number of Company Series B Preferred Units outstanding and the number of Opco Series C-1 Preferred Units from time to time will equal the number of Company Series C Preferred Units outstanding. An Opco Class B Unit, together with a corresponding Company Series B Preferred Unit, generally is equivalent economically and in respect of voting power to one share of Company Common Stock. The Opco Series C-2 Preferred Units have substantially the same terms as the Company Series C Preferred Units described below, except Opco Series C-2 Preferred Units will automatically convert upon shareholder approval of the Conversion Proposal into Opco Class B Units and corresponding Company Series B Preferred Units instead of Company Common Stock (but which are then, together, exchangeable for Company Common Stock pursuant to the Opco LLCA as further described herein). In addition, the Opco Series C-1 Preferred Units, which are held solely by Clue Parent Merger Sub, LLC, a subsidiary of the Company, will automatically convert to Opco Class A Units upon receipt of the shareholders’ approval of the Conversion Proposal.

Pursuant to the Opco LLCA, (a) Opco Class A Units are not exchangeable or convertible and (b) a holder of Opco Class B Units (other than the Company or its affiliates) has the right to exchange all or a portion of its Opco Class B Units (together with a corresponding number of Company Series B Preferred Units) for, at the Company’s option (in its capacity as the manager of Opco), an equal number of shares of Company Common Stock or cash. Prior to shareholder approval of the Conversion Proposal, Opco Series C-2 Preferred Units are exchangeable by the holders thereof for an equivalent number of Company Series C Preferred Units. Immediately after shareholder approval of the Conversion Proposal, Opco Series C-2 Preferred Units will automatically convert to Opco Class B Units based on liquidation preference of such units and the same Conversion Price as the Company Series C Preferred Units (as increased by any accrued and unpaid dividends on such Opco Series C-2 Preferred Units) and the Company will issue the holder thereof corresponding Company Series B Preferred Units on a one-for-one basis for each such Opco Class B Unit. As of the date of the Annual Meeting, there will be no such accrued and unpaid dividends.

Description of Company Series B Preferred Units

Issuance and Conversion

Pursuant to the Articles of Amendment to the Restated Charter of the Company filed with the Secretary of State of the State of Tennessee at the Closing (the “Charter Amendment”), at the Closing the Company issued a new series of preferred stock of the Company designated as “Series B Preferred Stock” (the “Company Series B Preferred Stock”), and, also at the Closing, certain Former Omni Holders received Company Series B Preferred Units, each representing one one-thousandth of a share of Company Series B Preferred Stock. Each Company Series B Preferred Unit, together with a corresponding Opco Class B Unit, is exchangeable at the option of the holder thereof into one share of Company Common Stock, or, at the Company’s election, cash.

Voting Rights

Holders of Company Series B Preferred Units and holders of Company Common Stock vote together as a single class on all matters to be voted on by the Company’s shareholders, subject to limited exceptions (as described in the section titled “Shareholder Vote Requirement” below). Each holder of record of Company Series B Preferred Units is entitled to cast one vote for each such unit.

Dividends

Company Series B Preferred Units are not entitled to receive any dividends independent of their corresponding Opco Class B Units.

Liquidation Preference

Pursuant to the Charter Amendment, the Company Series B Preferred Units have a liquidation preference of $0.01 per unit.

Transfer

A Company Series B Preferred Unit and its corresponding Opco Class B Unit may only be transferred together as a single, combined unit.

Description of Company Series C Preferred Units

Issuance and Conversion

Pursuant to the Charter Amendment, the Company issued convertible preferred stock of the Company designated as “Series C Preferred Stock” (the “Company Series C Preferred Stock”), and, at the Closing, certain Former Omni Holders received Company Series C Preferred Units each representing one one-thousandth of a share of Company Series C Preferred Stock.

If the Conversion Proposal is approved, each Company Series C Preferred Unit will automatically convert into a number of shares of Company Common Stock equal to the quotient of the aggregate Liquidation Preference (defined below) of such Company Series C Preferred Unit ($110.00 at Closing) and a conversion price of $110.00 (subject to certain customary anti-dilution adjustments, the “Conversion Price”). If the Conversion Proposal is approved prior to the first anniversary of the Closing, each Company Series C Preferred Unit is expected to automatically convert into one share of Company Common Stock.

The Company Series C Preferred Units are perpetual and rank senior to Company Common Stock with respect to dividend rights and with respect to rights on liquidation, winding-up and dissolution.

Voting Rights

The Company Series C Preferred Units are generally non-voting, except that certain matters adversely affecting the rights and privileges of the Company Series C Preferred Units require the consent of the holders of a majority of the outstanding Company Series C Preferred Units, voting as a separate class.

Dividends

The Company Series C Preferred Units are entitled to receive dividends declared or paid on Company Common Stock on an as-converted basis.

In addition, the Company Series C Preferred Units accrue on each anniversary of issuance a cumulative annual dividend (without any interim accrual) equal to the product of (a) 14.0% multiplied by (b) the Liquidation Preference (the “Series C Annual Coupon”). The Series C Annual Coupon will be paid, at the Company’s option, in cash or in-kind by automatically increasing the Liquidation Preference in an equal amount. For so long as the Company Series C Preferred Units remain outstanding, subject to certain limited exceptions, the Company will not be able to declare, make or pay dividends or distributions unless all accrued and unpaid dividends have been paid in cash or in kind on the Company Series C Preferred Units.

Liquidation, Dissolution and Call Option

The liquidation preference of a Company Series C Preferred Unit is equal to $110.00 per unit, subject to adjustment for any in-kind payment of the Series C Annual Coupon as described above (the “Liquidation Preference”).

In the event of any liquidation, dissolution or winding-up of the Company, each holder of Company Series C Preferred Units will be entitled to receive an amount equal to the sum of (a) the greater of (i) the aggregate Liquidation Preference attributable to such holder’s Company Series C Preferred Units, and (ii) the product of (x) the amount per share that would have been payable upon such liquidation, dissolution or winding-up to the holders of shares of Company Common Stock or such other class or series of securities into which such holder’s Company Series C Preferred Units is then convertible (assuming the conversion of each Company Series C Preferred Unit), multiplied by (y) the number of shares of Company Common Stock or such other securities into which the Company Series C Preferred Units are then convertible, plus (b) an amount of all declared and unpaid dividends with respect thereto. A Reorganization (as defined below) will not constitute a liquidation, dissolution or winding-up of the Company for the purposes of the immediately preceding sentence.

Commencing on the sixth anniversary of the Closing (and, thereafter, only during the 60-day period following any anniversary of Closing), the Company Series C Preferred Units will be callable at the Company’s option in whole (and not in part), at a call price per Company Series C Preferred Unit equal to (a) the product of (i) the greater of (A) the outstanding liquidation preference of such Company Series C Preferred Unit and (B) the product of (x) the number of shares of Company Common Stock into which such Company Series C Preferred Unit would be convertible upon receipt of shareholder approval of the Conversion Proposal, and (y) the 20-day volume-weighted average price per share of Company Common Stock during a defined period prior to the call, and (ii) 103%, plus (b) the amount of all declared and unpaid dividends in respect of such Company Series C Preferred Unit.

Certain Reorganization Transactions

In the event that the Company (i) consolidates with or merges into any other person or conveys, transfers or leases all or substantially all its assets to any person or permits any person to consolidate with or merge into, or transfer or lease all or substantially all its properties to, the Company or (ii) engages in any statutory share exchange of the Company’s securities with another person (other than in connection with a merger or acquisition described in the immediately preceding clause (i)) or any recapitalization, reclassification or change in Company Common Stock (other than a change in par value, or from par value to no par value, or from no par value to par value, or changes resulting from a subdivision or combination), in each case, as a result of which Company Common Stock would be converted into, or exchanged for, stock, other securities or other property or assets (including cash or any combination thereof) (any of the foregoing, a “Reorganization”), then, at the election of each holder of Company Series C Preferred Units (as to itself) pursuant to procedures reasonably instituted by the Company either (A) the Company Series C Preferred Units will become the kind and amount of securities of such successor, transferee or lessee, cash and other property receivable by a holder of the number of shares of Company Common Stock into which such Company Series C Preferred Units were convertible immediately prior to such Reorganization (including, for the avoidance of doubt, an amount equal to the sum of all declared and unpaid dividends in respect of such shares or units) or (B) such holders will receive in cash upon the consummation of such Reorganization, for each Company Series C Preferred Unit, an amount equal to the greater of (x) the outstanding Liquidation Preference of such Company Series C Preferred Unit plus an amount equal to the sum of all declared and unpaid dividends in respect of such Company Series C Preferred Unit (with adjustments to Liquidation Preferences deemed to be payment of dividends) and (y) the value of such Company Series C Preferred Unit as if immediately prior to the Reorganization, Company Series C Preferred Units then outstanding were converted into shares of Company Common Stock pursuant to the conversion.

Why Shareholder Approval is Required for Conversion

The Company Common Stock is listed on Nasdaq, and as a result, we are subject to Nasdaq’s listing rules, including Nasdaq Listing Rule 5635. Pursuant to Nasdaq Listing Rule 5635(a), shareholder approval is required prior to the issuance of common stock of an acquiror (or securities convertible into or exercisable for common stock of an acquiror) in connection with the acquisition of the stock or assets of another company if such securities are not issued in a public offering for cash and (i) have, or will have, voting power equal to or in excess of twenty percent (20%) of the voting power outstanding before the issuance of such common stock (or securities convertible into or exercisable for common stock); or (ii) the number of shares of common stock to be issued is, or will be, equal to or in excess of twenty percent (20%) of the number of shares of common stock outstanding before the issuance of common stock or securities. If the conversion of the Company Series C Preferred Units and Opco Series C-2 Preferred Units is completed, the total number of shares of Company Common Stock (or securities convertible into or exchangeable for Company Common Stock) issued under the Merger Agreement in connection with the Omni Acquisition will (x) constitute more than twenty percent (20%) of the voting power outstanding prior to such issuance and (y) exceed twenty percent (20%) of the total number of shares of Company Common Stock issued and outstanding prior to such issuance.

Effects if the Conversion Proposal is Approved

If the Conversion Proposal is approved, the issuance of shares of Company Common Stock and Company Series B Preferred Units would dilute, and thereby reduce, each existing shareholder’s proportionate voting power in Company Common Stock on an as-converted, as-exchanged basis. In addition, the sale into the public market of the shares of Company Common Stock could materially and adversely affect the market price of Company Common Stock. Such issuances could also dilute the voting power of a person seeking control of us, thereby deterring or rendering more difficult a merger, tender offer, proxy contest or an extraordinary corporate transaction opposed by us.

The Conversion Price is $110 per share of Company Common Stock, which exceeded the closing price of a share of Company Common Stock of $15.40 on May 16, 2024.

Effects if the Conversion Proposal is Not Approved

If shareholders do not approve the Conversion Proposal prior to January 25, 2025 (one year after the Closing), then the Company will be required to pay the Series C Annual Coupon, which will continue to accrue on each subsequent anniversary of the Closing, and we will not be able to declare, make or pay dividends or distributions unless all accrued and unpaid dividends have been paid in cash or in kind on the Company Series C Preferred Units.

If the Company does not obtain shareholder approval for the Conversion Proposal at this Annual Meeting, then, so long as any Company Series C Preferred Units or the Opco Series C-2 Preferred Units remain outstanding, the Company will be required to continue to use its reasonable best efforts to obtain shareholder approval for the Conversion Proposal at each annual meeting of shareholders hereafter until the Conversion Proposal is approved, which will be costly and time-consuming and would also divert management’s time and attention away from managing the business.

In addition, if the Company does not obtain shareholder approval for the Conversion Proposal at this Annual Meeting, the consideration payable to holders of Company Common Stock in connection with the consummation of a Reorganization could be adversely affected, because so long as any Company Series C Preferred Units or Opco Series C-2 Preferred Units remain outstanding, the holders thereof would be entitled to receive upon the consummation of a Reorganization the greater of (x) the outstanding Liquidation Preference of such Company Series C Preferred Units or Opco Series C-2 Preferred Units plus an amount equal to the sum of all declared and unpaid dividends in respect thereof and (y) the value of such Company Series C Preferred Units and Opco Series C-2 Preferred Units as if immediately prior to the Reorganization, Company Series C Preferred Units and Opco Series C-2 Units were converted into shares of Company Common Stock pursuant to the conversion.

Beneficial Ownership Limitations

We are not seeking shareholder approval of a potential “change in control” under Nasdaq Listing Rule 5635(b), which generally prohibits Nasdaq-listed companies, without shareholder approval, from issuing Company Common Stock to a shareholder in a transaction that would cause the holder to beneficially own 20% or more of the then-outstanding Company Common Stock or otherwise result in change of control (subject to certain exceptions). At the Closing, the Company entered into the Shareholders Agreements. The Shareholders Agreements provide the Major Shareholders the right to nominate their respective director nominees, subject to terms and conditions related to ongoing ownership of equity securities of the Company by each respective Major Shareholder. Each Shareholders Agreement, among other things, (a) requires the applicable Major Shareholders to vote such Major Shareholders’ voting securities of the Company in favor of directors nominated by the Board and against any other nominees, (b) provides that each of the applicable Major Shareholders is subject to standstill restrictions, subject to certain exceptions, and (c) prohibits the applicable Major Shareholders from transferring equity securities of the Company, subject to certain exceptions, to certain competitors of the Company and to other shareholders of the Company beneficially owning more than 10% of the Company’s voting power. REP and the EVE Related Holders are anticipated to beneficially own, on a fully-diluted basis and assuming the receipt of the Conversion Approval, equity securities following the Closing each representing approximately 13% and 5%, respectively, of the Company’s voting power. Certain other indirect holders of Omni, which will represent approximately 7% of the Company’s voting power assuming receipt of the Conversion Approval, are also subject to the voting obligations, standstill restrictions and transfer restrictions of the EVE Shareholders Agreement until the first anniversary of Closing.

In addition, at the Closing, the Company entered into a separate investor rights agreement (the “Investor Rights Agreement”) with the Major Shareholders and certain other Former Omni Holders, pursuant to which the Major Shareholders and such other Former Omni Holders have customary registration rights, including certain demand and piggyback registration rights, and are subject to a lock-up preventing transfers of the Company’s equity securities, subject to certain exceptions, for up to one year following the Closing. Assuming that shareholders approve the Conversion Proposal, certain transfer restrictions provided in the Shareholders Agreements and the Investor Rights Agreement, including restrictions on transfers made by the Major Shareholders, will continue to apply.

Based on the foregoing, a “change of control” under Nasdaq Listing Rule 5635(b) did not occur by virtue of the Omni Acquisition and, accordingly, we are not seeking shareholder approval for such purpose under Nasdaq Listing Rule 5635(b).

The approval of the Conversion Proposal will be approved by a majority of the votes cast. For the Conversion Proposal, you may vote “FOR” or “AGAINST” or “ABSTAIN” from voting. Abstentions and broker non-votes in respect of the Conversion Proposal will have no effect on the vote. In accordance with Nasdaq listing rules, votes in favor of or against the Conversion Proposal that correspond to shares of Company Common Stock or Company Series B Preferred Units issued by the Company as consideration for the Omni Acquisition (as defined herein) will not count as votes cast with respect to the Conversion Proposal. To comply with Nasdaq listing rules, we will instruct the inspector of elections to conduct a separate tabulation that subtracts the votes represented by such shares of Company Common Stock and Company Series B Preferred Units from the total number of shares voted on the Conversion Proposal to determine whether the Conversion Proposal has been adopted in accordance with Nasdaq listing rules.

Recommendation of the Board of Directors

The Board recommends a vote “FOR” the Conversion Proposal.