AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON OCTOBER 2, 1996
REGISTRATION NO. 333-06799
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
----------------------------
AMENDMENT NO. 5 TO
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
-------------------------------------
CITATION CORPORATION
(Exact name of registrant as specified in its charter)
DELAWARE 3320 63-0828225
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification
No.)
2 OFFICE PARK CIRCLE, SUITE 204, BIRMINGHAM, ALABAMA 35223
(205) 871-5731
(Address, including zip code, and telephone number, including
area code, of registrant's principal executive offices)
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T. MORRIS HACKNEY, CHAIRMAN
CITATION CORPORATION
2 OFFICE PARK CIRCLE, SUITE 204, BIRMINGHAM, ALABAMA 35223
(205) 871-5731
(Name, address, including zip code, and telephone number,
including area code, of agent for service)
-----------------------------------------------------------
COPIES TO:
CAROLYN L. DUNCAN, ESQUIRE PATRICK M. RYAN, ESQUIRE
RITCHIE & REDIKER, L.L.C. QUARLES & BRADY
312 NORTH 23RD STREET 411 EAST WISCONSIN AVENUE
BIRMINGHAM, ALABAMA 35203 MILWAUKEE, WISCONSIN 53202
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Approximate date of commencement of proposed sale of the securities to the
public: As soon as practicable after the Registration Statement becomes
effective and all conditions prerequisite to the merger of Citation Forging
Corporation ("Sub") with and into Interstate Forging Industries, Inc.
("Interstate") (the "Merger") have been satisfied or waived.
If the securities being registered on this Form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box. [ ]
CALCULATION OF REGISTRATION FEE
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Title of Amount Proposed maximum Proposed maximum Amount of
each class of securities to be offering price aggregate registration
to be registered registered per unit offering price fee
Contingent Payment Rights 1,496,474 rights (1) $ 0.00 (2) $ 0.00 (2) $ 100
---------------- -------- ---------- --------
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(1) Based on 1,313,524 issued and outstanding shares of Interstate Common Stock
and stock options for an additional 182,950 shares of Interstate Common
Stock that will be converted into, in addition to cash payable at the
effective time of the Merger, Contingent Payment Rights of the Registrant
on a one share for one right basis pursuant to the Agreement and Plan of
Merger, among the Registrant, Sub and Interstate, to which this
Registration Statement relates. The Contingent Payment Rights represent
cash consideration which may be payable by the Registrant in the future to
the former shareholders of Interstate should Interstate's average annual
net earnings before interest and income and franchise taxes during the
three year period ending December 31, 1998 exceed $10,000,000.
(2) The proposed maximum aggregate offering price is estimated pursuant to Rule
457(f)(2) under the Securities Act of 1933 solely for the purpose of
calculating the registration fee, based on $22.45 per share, the book value
for a share of Interstate Common Stock at July 31, 1996, the latest
practicable date prior to the date of filing this Registration Statement.
Pursuant to Rule 457(f)(3), the proposed maximum aggregate offering price
has been reduced to $0.00 reflecting the estimated $32.5239 cash payment
per share of Interstate Common Stock to be made by the Registrant at the
effective time of the transaction, assuming the transaction were to close
on October 29, 1996. The proposed maximum offering price per unit has been
determined by dividing the proposed maximum aggregate offering price by the
number of rights being registered, rounded to the nearest cent.
The registrant hereby amends this registration statement on such date or
dates as may be necessary to delay its effective date until the registrant shall
file a further amendment which specifically states that this registration
statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until the registration statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
CITATION CORPORATION
CROSS-REFERENCE SHEET FOR REGISTRATION STATEMENT ON FORM S-4
ITEM NUMBER IN FORM S-4 PROSPECTUS CAPTION OR LOCATION
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A. INFORMATION ABOUT THE TRANSACTION
1. Forepart of Registration Statement and Outside Facing Page of Registration Statement; Outside
Front Cover Page of Prospectus Front Cover Page of Proxy Statement-Prospectus
2. Inside Front and Outside Back Cover Pages of Available Information; Incorporation of Documents
Prospectus by Reference; Table of Contents
3. Risk Factors, Ratio of Earnings to Fixed Charges and Summary; Risk Factors
Other Information
4. Terms of the Transaction Summary; The Proposed Merger; Description of
Interstate Capital Stock; Description of Contingent
Payments
5. Pro Forma Financial Information Pro Forma Condensed Consolidated Financial
Statements
6. Material Contracts with the Company Being Summary; The Proposed Merger
Acquired
7. Additional Information Required for Reoffering by Inapplicable
Persons and Parties Deemed to Be Underwriters
8. Interests of Named Experts and Counsel Legal Matters
9. Disclosure of Commission Position on Inapplicable
Indemnification for Securities Act Liabilities
B. INFORMATION ABOUT THE REGISTRANT
10. Information with Respect to S-3 Registrants Inapplicable
11. Incorporation of Certain Information by Reference Inapplicable
12. Information with Respect to S-2 or S-3 Registrants Incorporation of Documents by Reference;
Summary; Certain Information Concerning Citation;
Pro Forma Condensed Consolidated Financial
Statements
13. Incorporation of Certain Information by Reference Incorporation of Documents by Reference
14. Information with Respect to Registrants Other Than Inapplicable
S-3 or S-2 Registrants
C. INFORMATION ABOUT THE COMPANY BEING ACQUIRED
15. Information with Respect to S-3 Companies Inapplicable
16. Information with Respect to S-2 or S-3 Companies Inapplicable
17. Information with Respect to Companies Other Than Summary; Market Prices of Interstate Stock and
S-3 or S-2 Companies Dividends; Selected Financial Information of
Interstate; Management's Discussion and Analysis
of Financial Condition and Results of Operations of
Interstate; Business of Interstate; Financial
Statements of Interstate
D. VOTING AND MANAGEMENT INFORMATION
18. Information if Proxies, Consents or Authorizations Notice of Special Meeting of Shareholders; Outside
are to be Solicited Front Cover Page of Proxy Statement-Prospectus;
Incorporation of Documents by Reference;
Summary; The Special Meeting; The Proposed
Merger; Certain Information Concerning Citation;
Principal Shareholders of Interstate; Interstate
Executive and Director Compensation
19. Information if Proxies, Consents or Authorizations Inapplicable
are not to be Solicited or in an Exchange Offer
[INTERSTATE LETTERHEAD]
October 3, 1996
Dear Fellow Shareholder:
You are cordially invited to attend a Special Meeting of Shareholders of
Interstate Forging Industries, Inc. ("Interstate") to be held on October 29,
1996 in the 25th Floor Conference Center at the Offices of Quarles & Brady, 411
East Wisconsin Avenue, Milwaukee, Wisconsin (the "Special Meeting"). The
Special Meeting will begin at 10:00 a.m., local time. At the Special Meeting,
you will be asked to approve an Agreement and Plan of Merger, including the
related Plan of Merger, as amended (together, the "Merger Agreement"), which
provides for the merger (the "Merger") of Citation Forging Corporation ("Sub"),
a wholly-owned subsidiary of Citation Corporation ("Citation"), with and into
Interstate.
The Merger Agreement provides that, upon consummation of the Merger, each
outstanding share of Interstate Common Stock (other than shares for which
dissenters' rights are perfected), and each share of Interstate Common Stock
underlying an outstanding Interstate stock option, will be converted into the
right to receive, without interest thereon: (i) a cash amount payable at the
effective time of the transaction from total aggregate closing consideration of
$45,409,000, plus the SAR Difference (as defined on page 29 of the accompanying
Proxy-Statement Prospectus) of approximately $48,000, plus $9,952.66 per day
from April 15, 1996 to and including the closing date of the Merger,
less Interstate Merger expenses and (ii) certain additional contingent cash
payments should Interstate's average annual net earnings before interest and
income and franchise taxes during the three year period ending December 31, 1998
exceed $10,000,000, all as more fully described in the accompanying Proxy
Statement-Prospectus. For example, if the Merger were to become effective on
October 29, 1996, and assuming transaction costs of the Merger incurred by
Interstate total $425,000 (actual transaction costs could be higher or lower),
each share of Interstate Common Stock outstanding on that date would be
converted into the right to receive $32.5239 in cash as of such date. Since the
future net earnings of Interstate are subject to a number of factors, many of
which are beyond the control of Interstate, there can be no assurance that
Interstate shareholders will receive any contingent cash payments after the
effective time of the Merger.
The Board of Directors of Interstate believes that the Merger is in the
best interests of Interstate and its shareholders and unanimously recommends
that the shareholders vote FOR the approval of the Merger Agreement. Even
without consideration of the possible contingent cash payments in the future,
shareholders of Interstate will receive cash per share at the effective time of
the Merger representing a significant premium to Interstate's book value per
share at the time the transaction was announced. Robert W. Baird & Co.
Incorporated has issued its opinion to the effect that, as of the date of such
opinion and based upon the factors and assumptions described therein, the
consideration to be paid to holders of Interstate Common Stock pursuant to the
terms of the Merger Agreement is fair, from a financial point of view, to such
holders (other than Citation, Sub and their respective affiliates).
The attached Proxy Statement-Prospectus will provide you with a detailed
description of the Merger Agreement and the transactions contemplated thereby.
The Merger Agreement is itself attached as Appendix A to the Proxy Statement-
Prospectus. Information concerning Interstate, Citation and Sub is also
provided in the Proxy Statement-Prospectus or documents delivered herewith, or
incorporated by reference and available upon request.
Consummation of the Merger is subject to the satisfaction of certain
conditions, including the receipt of required regulatory approvals and the
approval of the Merger Agreement by the shareholders of Interstate. After the
Merger is consummated, you will receive instructions concerning the exchange of
your Interstate Common Stock. Please do not send in your stock certificates at
this time.
The affirmative vote of a majority of all the votes entitled to be cast at
the Special Meeting by holders of the outstanding shares of Interstate Common
Stock is required for approval of the Merger Agreement. The failure to execute
and return the accompanying proxy card or to vote in person at the Special
Meeting will have the effect of a vote cast against approval of the Merger
Agreement. Furthermore, abstentions will have the same effect as votes cast
against approval of the Merger Agreement. To assure that your shares are
represented in voting on this very important matter, please complete, sign and
promptly return the accompanying proxy card in the enclosed envelope, whether or
not you plan to attend the Special Meeting. If you do attend, you may, if you
wish, revoke your proxy and vote your shares in person at the Special Meeting.
Very truly yours,
Franklyn Esenberg
Chairman of the Board
INTERSTATE FORGING INDUSTRIES, INC.
4051 North 27th Street
Milwaukee, Wisconsin 53216-1883
(414) 444-0911
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD ON OCTOBER 29, 1996
To the Shareholders of Interstate Forging Industries, Inc.:
Notice is hereby given that a Special Meeting of Shareholders of Interstate
Forging Industries, Inc., a Wisconsin corporation ("Interstate"), will be held
on Tuesday, October 29, 1996, at 10:00 a.m., local time, in the 25th Floor
Conference Center at the Offices of Quarles & Brady, 411 East Wisconsin Avenue,
Milwaukee, Wisconsin (the "Special Meeting") for the following purposes:
1. To consider and vote upon a proposal to approve the Agreement and Plan
of Merger, dated as of May 16, 1996, as amended, among Citation Corporation, a
Delaware corporation ("Citation"), Citation Forging Corporation, a Wisconsin
corporation and a wholly-owned subsidiary of Citation ("Sub"), and Interstate,
including the related Plan of Merger between Interstate and Sub (together, the
"Merger Agreement"), a copy of which is attached as Appendix A to the
accompanying Proxy Statement-Prospectus, pursuant to which, among other things,
(a) Sub would be merged with and into Interstate (the "Merger"), with Interstate
surviving the Merger as a wholly-owned subsidiary of Citation, the separate
existence of Sub ceasing; and (b) each outstanding share of Interstate Common
Stock (other than shares for which dissenters' rights are perfected), and each
share of Interstate Common Stock underlying an outstanding Interstate stock
option, will be converted into the right to receive, without interest thereon:
(i) a cash amount payable at the effective time of the Merger from total
aggregate closing consideration of $45,409,000, plus the SAR Difference of
approximately $48,000, plus $9,952.66 per day from April 15, 1996 to and
including the closing date of the Merger, less Interstate Merger expenses, and
(ii) certain additional contingent cash payments should Interstate's average
annual net earnings before interest and income and franchise taxes during the
three year period ending December 31, 1998 exceed $10,000,000, all as more
fully described in the accompanying Proxy Statement-Prospectus; and
2. To act upon such other matters as may properly be brought before the
Special Meeting or any adjournments or postponements thereof.
INTERSTATE'S BOARD OF DIRECTORS HAS APPROVED THE MERGER AS BEING IN THE
BEST INTERESTS OF INTERSTATE AND ITS SHAREHOLDERS AND UNANIMOUSLY RECOMMENDS
THAT YOU VOTE FOR APPROVAL OF THE MERGER AGREEMENT.
Only holders of record of Interstate Common Stock at the close of business
on September 16, 1996, the record date fixed by the Board of Directors, will be
entitled to notice of, and to vote at, the Special Meeting and any adjournments
or postponements thereof.
Registered and beneficial shareholders are entitled to assert dissenters'
rights as to the Merger under Sections 180.1301 to 180.1331 of the Wisconsin
Business Corporation Law. A copy of those Sections is attached as Appendix B to
the accompanying Proxy Statement-Prospectus.
Whether or not you plan to attend the Special Meeting, please complete,
sign and date the accompanying proxy card and return it promptly in the enclosed
prepaid envelope. If you attend the Special Meeting, you may revoke such proxy
and vote in person if you wish, even if you have previously returned your proxy
card. If you do not attend the Special Meeting, you may still revoke such proxy
at any time prior to the Special Meeting of Shareholders by providing written
notice of such revocation to Constance J. Janikowski, Secretary of Interstate.
By Order of the Board of Directors,
Constance J. Janikowski
SECRETARY
October 3, 1996
YOUR VOTE IS IMPORTANT REGARDLESS OF THE NUMBER OF SHARES YOU OWN. TO ASSURE
YOUR REPRESENTATION AT THE SPECIAL MEETING, PLEASE COMPLETE, SIGN AND DATE YOUR
PROXY CARD AND RETURN IT PROMPTLY IN THE ENCLOSED ENVELOPE, WHICH REQUIRES NO
POSTAGE IF MAILED IN THE UNITED STATES. DO NOT SEND ANY STOCK CERTIFICATES WITH
THE ENCLOSED PROXY CARD. THE
PROCEDURE FOR THE EXCHANGE OF YOUR SHARES AFTER THE MERGER IS CONSUMMATED IS SET
FORTH IN THE ATTACHED PROXY STATEMENT-PROSPECTUS.
INTERSTATE FORGING INDUSTRIES, INC.
PROXY STATEMENT
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CITATION CORPORATION
PROSPECTUS
1,496,474 CONTINGENT PAYMENT RIGHTS
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This Proxy Statement-Prospectus is being furnished by Interstate
Forging Industries, Inc., a Wisconsin corporation ("Interstate"), to holders
of common stock, par value $1.00 per share, of Interstate (the "Interstate
Common Stock"), in connection with the solicitation of proxies by the Board
of Directors of Interstate (the "Interstate Board") for use at a Special
Meeting of Shareholders of Interstate to be held on Tuesday, October 29,
1996, in the 25th Floor Conference Center at the Offices of Quarles & Brady,
411 East Wisconsin Avenue, Milwaukee, Wisconsin, commencing at 10:00 a.m.,
local time, and at any adjournment or postponement thereof (the "Special
Meeting").
The Special Meeting has been called to consider and vote upon a
proposal to approve the Agreement and Plan of Merger, dated as of May 16,
1996, as amended, among Interstate, Citation Corporation, a Delaware
corporation ("Citation") and Citation Forging Corporation, a Wisconsin
corporation and a direct, wholly-owned subsidiary of Citation ("Sub"),
including the related Plan of Merger between Interstate and Sub (together,
the "Merger Agreement"), pursuant to which Interstate would be acquired by
Citation by means of a statutory merger of Sub with and into Interstate (the
"Merger"). If the Merger is consummated, Interstate will become a
wholly-owned subsidiary of Citation, and each share of Interstate Common
Stock issued and outstanding (other than shares for which dissenters' rights
have been perfected) or underlying an outstanding Interstate stock option,
whether vested or unvested (the "Option Stock"), immediately prior to the
Effective Time (as defined herein) of the Merger will be converted into the
right to receive, without interest thereon: (i) a cash amount payable at the
Effective Time from total aggregate Closing (as defined herein) consideration
of $45,409,000, plus the SAR Difference (as defined on page 29) of
approximately $48,000, plus $9,952.66 per day from April 15, 1996 to and
including the Closing Date (as defined herein) of the Merger, less certain
costs and expenses incurred by Interstate in connection with the Merger (the
"Interstate Transaction Costs"), and (ii) certain additional contingent cash
payments, if any, should Interstate's average annual net earnings before
interest and income and franchise taxes during the three year period ending
December 31, 1998 exceed $10,000,000 (the "Contingent Payments"), as more
fully described herein. For a description of certain significant terms of
the Merger, see THE PROPOSED MERGER. For all of the terms of the Merger,
see the Merger Agreement (attached hereto as Appendix A).
This Proxy Statement-Prospectus also constitutes a prospectus of
Citation with respect to the Contingent Payments which may be payable to the
holders of Interstate Common Stock and Option Stock following consummation of
the Merger. The pro rata right to a portion of the Contingent Payments is a
cash only right and does not constitute any equity or ownership interest in
Citation, Sub or Interstate. The holders of rights to Contingent Payments
may not receive any payments in respect thereof depending on a variety of
factors described in this Proxy Statement-Prospectus. For a description of
the terms of the Contingent Payments, as well as the significant
considerations associated therewith, see THE PROPOSED MERGER--OPINION OF
ROBERT W. BAIRD & CO. INCORPORATED and DESCRIPTION OF CONTINGENT PAYMENTS.
SEE RISK FACTORS BEGINNING ON PAGE 13 FOR A DISCUSSION OF CERTAIN
FACTORS THAT SHOULD BE CONSIDERED IN CONNECTION WITH THE PROPOSED ISSUANCE OF
CONTINGENT PAYMENTS OFFERED HEREBY.
Citation has supplied all information contained in this Proxy
Statement-Prospectus relating to Citation and Sub, and Interstate has
supplied all information contained in this Proxy Statement-Prospectus
relating to Interstate.
This Proxy Statement-Prospectus and the accompanying form of proxy
are first being mailed to shareholders of Interstate on or about
October 3, 1996.
THE CONTINGENT PAYMENTS THAT MAY BE PAYABLE WITH RESPECT TO THE
MERGER HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE
COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROXY STATEMENT-PROSPECTUS. ANY REPRESENTATION
TO THE CONTRARY IS A CRIMINAL OFFENSE.
THE DATE OF THIS PROXY STATEMENT-PROSPECTUS IS OCTOBER 3, 1996.
THIS PROXY STATEMENT-PROSPECTUS DOES NOT CONSTITUTE A PROSPECTUS FOR SALE OF
CITATION COMMON STOCK NOR FOR THE RESALE OF THE CONTINGENT PAYMENTS. NO
PERSON IS AUTHORIZED TO MAKE ANY USE OF THIS PROXY STATEMENT-
PROSPECTUS FOR THE SALE OF CITATION COMMON STOCK OR THE
RESALE OF THE CONTINGENT PAYMENTS.
No person is authorized to give any information or to make any
representation other than those contained or incorporated by reference in
this Proxy Statement-Prospectus, and, if given or made, such information or
representation should not be relied upon as having been authorized. This
Proxy Statement-Prospectus does not constitute an offer to sell, or a
solicitation of an offer to purchase, the Contingent Payments offered by this
Proxy Statement-Prospectus, or the solicitation of a proxy, in any
jurisdiction, to or from any person to whom or from whom it is unlawful to
make such offer, solicitation of an offer or proxy solicitation in such
jurisdiction. Neither the delivery of this Proxy Statement-Prospectus nor
any distribution of Contingent Payments pursuant to this Proxy
Statement-Prospectus shall, under any circumstances, create an implication
that there has been no change in the affairs of Interstate, Citation or Sub
or in the information set forth herein since the date of this Proxy
Statement-Prospectus.
AVAILABLE INFORMATION
Citation has filed with the Securities and Exchange Commission (the
"Commission") a Registration Statement on Form S-4 (the "Registration
Statement") under the Securities Act of 1933 (the "Securities Act") with
respect to the offering of the Contingent Payments which may be paid in
connection with the Merger. This Proxy Statement-Prospectus constitutes a
part of the Registration Statement and, in accordance with the rules of the
Commission, omits certain of the information contained in the Registration
Statement. For such omitted information, reference is made to the
Registration Statement and the exhibits thereto, which are available for
inspection and copying as set forth below.
Citation is subject to the informational requirements of the
Securities Exchange Act of 1934 (the "Exchange Act") and in accordance
therewith files reports, proxy statements and other information with the
Commission. The Registration Statement, as well as such reports, proxy
statements and other information, can be inspected and copied at the public
reference facilities maintained by the Commission at Room 1024, 450 Fifth
Street, N.W., Washington, D.C. 20549, and at the Commission's regional
offices at Citicorp Center, 500 West Madison Street, Suite 1400, Chicago,
Illinois 60661-2511, and at Seven World Trade Center, Suite 1300, New York,
New York 10048. Copies of such material also can be obtained from the Public
Reference Section of the Commission at 450 Fifth Street, N.W., Washington,
D.C. 20549, at prescribed rates.
INCORPORATION OF DOCUMENTS BY REFERENCE
This Proxy Statement-Prospectus incorporates documents by reference
which are not presented herein or delivered herewith. Citation hereby
undertakes to provide without charge to each person, including any beneficial
owner, to whom a copy of this Proxy Statement-Prospectus is delivered, upon
written or oral request of such person, by first class mail or other equally
prompt means within one business day of receipt of such request, a copy of
any and all documents and information that have been incorporated by
reference herein (not including exhibits thereto unless such exhibits are
specifically incorporated by reference into the information incorporated
herein). Such documents and information are available upon request from
Citation Corporation, 2 Office Park Circle, Suite 204, Birmingham, Alabama
35223, Attention: Investor Relations; telephone: (205) 871-5731. In order to
ensure timely delivery of any such documents and information, any request
should be made by October 15, 1996.
The following documents filed by Citation with the Commission are
hereby incorporated by reference in this Proxy Statement-Prospectus: (1)
Citation's Annual Report on Form 10-K for the year ended October 1, 1995; (2)
Citation's Quarterly Reports on Form 10-Q for the quarters ended December 31,
1995, March 31, 1996 and June 30, 1996; (3) Citation's Current Reports
on Form 8-K dated January 5, 1996, and March 1, 1996, as amended by Form
8-K/A dated May 4, 1996 (and certain exhibits thereto); and (4)
-2-
Citation's Proxy Statement for its 1996 Annual Meeting of Shareholders.
Copies of Citations's Annual Report on Form 10-K for the fiscal year
ended October 1, 1995, its Quarterly Report on Form 10-Q for the period ended
June 30, 1996, and its current Report on Form 8-K/A dated May 4, 1996 (and
certain exhibits thereto) are being provided to the Shareholders of
Interstate herewith.
All documents filed by Citation pursuant to Sections 13(a), 13(c), 14
or 15(d) of the Exchange Act after the date of this Proxy
Statement-Prospectus and before the date of the Special Meeting shall be
deemed to be incorporated by reference herein and to be a part hereof from
the date of filing thereof. Any statement contained herein or in any
document incorporated or deemed to be incorporated by reference herein shall
be deemed to be modified or superseded for purposes of this Proxy
Statement-Prospectus to the extent that a statement contained herein or in
any other subsequently filed document that also is or is deemed to be
incorporated by reference herein, modifies or supersedes such statement. Any
such statement so modified or superseded shall not be deemed to constitute a
part of this Proxy Statement-Prospectus, except as so modified or superseded.
-3-
TABLE OF CONTENTS
PAGE
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AVAILABLE INFORMATION. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .2
INCORPORATION OF DOCUMENTS BY REFERENCE. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .2
SUMMARY. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .6
The Parties. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .6
Special Meeting. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .6
Record Date and Required Vote. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .6
Interstate Board Approval. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .7
Opinion of Robert W. Baird & Co. Incorporated. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .7
The Proposed Merger. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .7
Per Share Data . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .9
Market Price Data. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
Selected Financial Information of Citation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
Recent Developments. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
RISK FACTORS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .13
Risk Factors Applicable to Interstate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .13
Risk Factors Applicable to Citation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .15
THE SPECIAL MEETING. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
General. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
Purpose of the Special Meeting . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
Board of Directors' Recommendation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
Record Date, Voting Rights and Shareholder Approval. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
Proxies. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
THE PROPOSED MERGER. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
Background of the Merger . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
Reasons for the Merger; Recommendation of the Interstate Board . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
Opinion of Robert W. Baird & Co. Incorporated. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
Principal Terms of the Merger. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
Conditions to Closing. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
Waiver, Amendment and Termination. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
Representations and Warranties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
Rights of Dissenting Shareholders. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
Certain Federal Income Tax Consequences. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
Conduct of Business Pending the Merger . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
Competing Transactions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
Indemnification. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
Fees and Expenses. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
Accounting Treatment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
Regulatory Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
Management and Operations of Interstate After Closing. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
Interests of Certain Persons in the Merger . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
Stockholders Agents. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
Exchange of Stock Certificates and Option Agreements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
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Dispute Resolution. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .43
DESCRIPTION OF INTERSTATE CAPITAL STOCK. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
General. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
Common Stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
Certain Anti-Takeover Provisions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
DESCRIPTION OF CONTINGENT PAYMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
General. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
Description of Interstate EBIT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
Protective Provisions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
Procedures to Determine Any Contingent Payments Due. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
Payment of Contingent Payments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
Comparison of Contingent Payments to Interstate Common Stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
CERTAIN INFORMATION CONCERNING CITATION. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
Business of Citation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
Additional Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
MARKET PRICES OF INTERSTATE COMMON STOCK AND DIVIDENDS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
SELECTED FINANCIAL INFORMATION OF INTERSTATE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS OF INTERSTATE. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52
General. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52
Operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52
Liquidity and Capital Resources. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54
BUSINESS OF INTERSTATE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55
PRINCIPAL SHAREHOLDERS OF INTERSTATE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55
INTERSTATE EXECUTIVE AND DIRECTOR COMPENSATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 57
Summary Compensation Table . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 57
Option Exercises and Year-End Values . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 58
Director Compensation. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 59
Compensation Committee Interlocks and Insider Participation. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 59
EXPERTS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 59
LEGAL MATTERS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 59
PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .F-1
FINANCIAL STATEMENTS OF INTERSTATE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .F-7
APPENDIX A--Agreement and Plan of Merger, as amended by Amendment to Agreement and
Plan of Merger (including Articles of Merger and Plan of Merger) . . . . . . . . . . . . . . . . . . . . . . . . . . . .A-1
APPENDIX B--Wisconsin Statutes Concerning Rights of Dissenting Shareholders. . . . . . . . . . . . . . . . . . . . . . . . . . .B-1
APPENDIX C--Fairness Opinion of Robert W. Baird & Co. Incorporated . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .C-1
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SUMMARY
THE FOLLOWING IS A SUMMARY OF CERTAIN SIGNIFICANT MATTERS DISCUSSED
ELSEWHERE IN THIS PROXY STATEMENT-PROSPECTUS. THIS SUMMARY DOES NOT PURPORT
TO BE COMPLETE AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE MORE
DETAILED INFORMATION APPEARING ELSEWHERE IN THIS PROXY STATEMENT-PROSPECTUS
AND THE APPENDICES HERETO. SHAREHOLDERS ARE URGED TO READ THE ENTIRE PROXY
STATEMENT-PROSPECTUS, INCLUDING THE APPENDICES HERETO. CERTAIN CAPITALIZED
TERMS USED IN THIS SUMMARY AND ELSEWHERE IN THIS PROXY STATEMENT-PROSPECTUS
ARE USED AS DEFINED IN THE SUMMARY OR ELSEWHERE IN THIS PROXY
STATEMENT-PROSPECTUS.
THE PARTIES
Citation: Citation is a Delaware corporation which is in the
business of manufacturing, machining and assembling precision ductile, gray,
and high-alloy iron, steel and aluminum castings for various industrial
markets. Citation's principal executive offices are located at 2 Office Park
Circle, Suite 204, Birmingham, Alabama 35223, telephone (205) 871-5731. See
CERTAIN INFORMATION CONCERNING CITATION--BUSINESS OF CITATION.
Interstate: Interstate is a Wisconsin corporation which produces
custom closed die forgings of carbon, alloy and stainless steel for the
construction machinery, petroleum services, automotive, truck and bus,
aircraft, railroad, material handling, mining and power generation
industries. Interstate's principal executive offices are located at 4051
North 27th Street, Milwaukee, Wisconsin 53216, telephone (414) 444-0911. See
BUSINESS OF INTERSTATE.
Sub: Sub is a Wisconsin corporation and wholly-owned subsidiary of
Citation. Sub was recently formed for the purposes of effecting the Merger
with Interstate, will not engage in any business prior to the Merger and will
not survive the Merger. Sub's principal executive offices are located at 2
Office Park Circle, Suite 204, Birmingham, Alabama 35223, telephone (205)
871-5731.
SPECIAL MEETING
The Special Meeting of Shareholders of Interstate will be held in the
25th Floor Conference Center at the Offices of Quarles & Brady, 411 East
Wisconsin Avenue, Milwaukee, Wisconsin on Tuesday, October 29, 1996, at
10:00 a.m., local time. See THE SPECIAL MEETING--GENERAL. At the Special
Meeting, holders of Interstate Common Stock will be asked to consider and
vote upon a proposal to approve the Merger Agreement. See THE SPECIAL
MEETING--PURPOSE OF THE SPECIAL MEETING.
RECORD DATE AND REQUIRED VOTE
Only holders of record of Interstate Common Stock at the close of
business on September 16, 1996 (the "Record Date") are entitled to notice of
and to vote at the Special Meeting. Approval of the Merger Agreement will
require the affirmative vote of a majority of all the votes entitled to be
cast at the Special Meeting by the holders of the 1,313,524 outstanding
shares of Interstate Common Stock on the Record Date. At the Record Date,
directors and executive officers of Interstate beneficially owned
approximately 30.6% of the outstanding shares of Interstate Common Stock
entitled to vote at the Special Meeting. See THE SPECIAL MEETING--RECORD
DATE, VOTING RIGHTS AND SHAREHOLDER APPROVAL.
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INTERSTATE BOARD APPROVAL
The Interstate Board has adopted and approved the Merger Agreement
and believes that the terms of the proposed Merger are fair to, and in the
best interests of, the Interstate shareholders. For discussion of the
circumstances surrounding the Merger and the factors considered by the
Interstate Board in making its recommendation, see THE PROPOSED
MERGER--BACKGROUND OF THE MERGER and --REASONS FOR THE MERGER; RECOMMENDATION
OF THE INTERSTATE BOARD.
OPINION OF ROBERT W. BAIRD & CO. INCORPORATED
Robert W. Baird & Co. Incorporated ("Baird") has issued its opinion
to the effect that, as of August 23, 1996, based upon the factors and
assumptions described therein, the consideration to be paid to the holders of
Interstate Common Stock pursuant to the terms of the Merger Agreement is
fair, from a financial point of view, to such holders (other than Citation,
Sub and their respective affiliates). A copy of Baird's opinion, which sets
forth the assumptions made, general procedures followed, matters considered
and limitations on the scope of review undertaken by Baird in rendering its
opinion, is attached as Appendix C to this Proxy Statement-Prospectus and
should be read by Interstate shareholders carefully and in its entirety.
Interstate's obligation to consummate the Merger is expressly conditioned on
Baird's opinion not having been withdrawn as of the date of the Special
Meeting. See THE PROPOSED MERGER--OPINION OF ROBERT W. BAIRD & CO.
INCORPORATED and --CONDITIONS TO CLOSING.
THE PROPOSED MERGER
Subject to Interstate shareholder approval and satisfaction or waiver
of certain other conditions, Sub will be merged with and into Interstate at
the Effective Time, with Interstate surviving the Merger (the "Surviving
Corporation"). The Surviving Corporation will become a wholly-owned
subsidiary of Citation. See THE PROPOSED MERGER--PRINCIPAL TERMS OF THE
MERGER--EFFECT OF THE MERGER.
MERGER CONSIDERATION. Each issued and outstanding share of Interstate Common
Stock (except shares owned by shareholders who perfect dissenters' rights),
and each share of Option Stock, will be converted into the right to receive,
without interest thereon, (i) an amount in cash payable at the Effective Time
from total aggregate Closing consideration of $45,409,000, plus the SAR
Difference (as defined on page 29) of approximately $48,000, plus $9,952.66
per day from April 15, 1996 to and including the Closing Date of the Merger,
less the Interstate Transaction Costs, and (ii) a pro rata portion of the
aggregate amount of any Contingent Payments made for the three year period
ending December 31, 1998. For example, assuming that the Effective Time
occurs on October 29, 1996 and that the Interstate Transaction Costs total
$425,000 (actual Interstate Transaction Costs could be higher or lower): (i)
each share of Interstate Common Stock outstanding at the Effective Time (and
for which dissenters' rights have not been perfected) would be converted into
the right to receive, without interest thereon, an amount in cash equal to
$32.5239 at the Effective Time; and (ii) each share of Option Stock would be
converted into an amount in cash equal to $32.5239 less the per share
exercise price of the related option (and less any required withholding
taxes) at the Effective Time; and each SAR will be settled in cash by
Interstate at the Effective Time based on a $32.5239 per share value for
Interstate Common Stock. The registered holders of Interstate Common Stock
and the holders of Option Stock at the Effective Time shall herein be
referred to as the "Closing Stockholders." See THE PROPOSED
MERGER--PRINCIPAL TERMS OF THE MERGER--MERGER CONSIDERATION.
In addition to the consideration to be paid to the Closing
Stockholders upon the Effective Time, the Closing Stockholders will also be
entitled to their pro rata share of Contingent Payments, if any, consisting
of aggregate additional cash consideration equal to five (5) times the amount
by which (x) the average annual net earnings of Interstate before interest
and income and franchise taxes during the three year period from January 1,
1996 through December 31, 1998 exceeds (y) $10,000,000.
Such Contingent Payments shall be payable over such three year period on the
dates and in the increments described herein. See DESCRIPTION OF CONTINGENT
PAYMENTS.
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CONDITIONS TO CLOSING AND EFFECTIVE TIME. The parties' respective
obligations to consummate the Merger are subject to Interstate shareholder
approval of the Merger Agreement and a number of other conditions, each of
which may be waived either before or after the Special Meeting. If all such
conditions are met or waived, then the Effective Time of the Merger will be
upon filing the Articles of Merger with the Wisconsin Department of Financial
Institutions. See THE PROPOSED MERGER--CONDITIONS TO CLOSING and --PRINCIPAL
TERMS OF THE MERGER--EFFECT OF THE MERGER.
WAIVER, AMENDMENT AND TERMINATION. Each party may, at any time before the
Effective Time, whether before or after the Special Meeting, waive any of the
terms or conditions of the Merger Agreement, or agree to any amendment to the
Merger Agreement, as long as the amendment does not have a material adverse
effect on the Closing Stockholders. The Merger Agreement may be terminated
at any time before the Effective Time, whether before or after the Special
Meeting, (i) by the mutual consent of Citation and Interstate, (ii) by
written notice from either Citation or Interstate to the other party if the
conditions required of the other party shall not have been fulfilled by
November 15, 1996, (iii) by Interstate, if it agrees to a competing offer or
transaction, or (iv) by written notice from either Citation or Interstate to
the other party if the Closing has not occurred on or before November 30,
1996. See THE PROPOSED MERGER--WAIVER, AMENDMENT AND TERMINATION.
REPRESENTATIONS AND WARRANTIES; CONDUCT OF BUSINESS BEFORE CLOSING. The
Merger Agreement contains certain customary representations and warranties of
Interstate, Citation and Sub relating to the organization and operations of
such entities. See THE PROPOSED MERGER--REPRESENTATIONS AND WARRANTIES. In
the Merger Agreement, Interstate has made certain covenants with respect to
the conduct of its business pending the Merger and Citation, Interstate and
Sub have agreed to take certain actions between the date of the Merger
Agreement and the Effective Time. See THE PROPOSED MERGER--CONDUCT OF
BUSINESS PENDING THE MERGER.
RIGHTS OF DISSENTING SHAREHOLDERS. Subject to consummation of the Merger,
under the Wisconsin Business Corporation Law (the "WBCL") holders of record
and beneficial owners of the Interstate Common Stock are entitled to
dissenters' rights to object to the Merger and demand payment of the "fair
value" of their shares in cash. The dissenters' rights provisions under the
WBCL require strict compliance. Any shareholder who wishes to object to the
Merger and demand payment for such shareholder's shares should consult his or
her own attorney or advisor. If a shareholder fails to perfect dissenters'
rights by not strictly complying with the applicable statutory requirements,
such shareholder will be bound by the terms of the Merger Agreement. See THE
PROPOSED MERGER--RIGHTS OF DISSENTING SHAREHOLDERS and the statutory
provisions set forth in APPENDIX B to this Proxy Statement-Prospectus.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES. The receipt of cash and the right to
Contingent Payments in exchange for shares of Interstate Common Stock
pursuant to the terms of the Merger Agreement (or the receipt of cash
pursuant to the exercise of dissenters' rights) will be a taxable transaction
for federal income tax purposes, and may also be a taxable transaction under
applicable state, local, foreign and other tax laws. Interstate shareholders
are urged to consult their own tax advisors as to the specific tax
consequences to them of the Merger. See THE PROPOSED MERGER--CERTAIN FEDERAL
INCOME TAX CONSEQUENCES.
FEES AND EXPENSES. Whether or not the Merger is consummated, each party will
pay all fees and expenses incurred by it in connection with the Merger
Agreement. See THE PROPOSED MERGER--FEES AND EXPENSES.
ACCOUNTING TREATMENT. The Merger will be accounted for by Citation under the
purchase method of accounting. See THE PROPOSED MERGER--ACCOUNTING TREATMENT.
REGULATORY MATTERS. Other than certain filings which have been made
pursuant to the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as
amended (the "HSR Act"), and certain filings to be made and approvals
obtained under certain federal and state securities or "blue sky" laws, there
are no federal or
-8-
state regulatory requirements or authorities that must be
complied with or whose approval must be obtained, respectively, in connection
with the Merger. See THE PROPOSED MERGER--REGULATORY MATTERS.
MANAGEMENT AND OPERATIONS OF INTERSTATE AFTER CLOSING. After the Effective
Time, Interstate will be a wholly-owned subsidiary of Citation and will
continue to own and operate the business conducted by Interstate before the
Effective Time. Citation intends that the operations of Interstate after the
Effective Time will be conducted substantially the same as those of
Interstate before the Effective Time, with present Interstate management
personnel retained except that Franklyn Esenberg, Chairman of the Board of
Interstate, will resign from that position effective as of the Effective Time
and will be appointed as the Vice-Chairman of Interstate. See THE PROPOSED
MERGER--MANAGEMENT AND OPERATIONS OF INTERSTATE AFTER CLOSING.
INTERESTS OF CERTAIN PERSONS IN MERGER. Interstate and Citation have entered
into an Employment Agreement with James Mitchell, President and Chief
Executive Officer of Interstate, pursuant to which Mr. Mitchell will serve as
President and Chief Executive Officer of Interstate for a term beginning at
the Effective Time and continuing for a period of three years thereafter,
which term is subject to extension unless terminated by Mr. Mitchell or
Interstate. Interstate has also entered into an Employment Agreement with
Franklyn Esenberg, pursuant to which Mr. Esenberg will serve as Vice Chairman
of the Board of Interstate for a term beginning on the date of the Effective
Time and continuing until December 31, 2001. Citation has also agreed to
appoint Mr. Esenberg to its Board of Directors at the Effective Time. In
connection with the Merger, all outstanding Interstate SARs for a total of
32,600 underlying shares of Interstate Common Stock granted to 20 key
employees of Interstate will be settled in cash by Interstate at the
Effective Time based on the amount of cash that shareholders will receive at
the Effective Time. Holders of SAR's will not participate in the payment of
the Contingent Payments, if any. In addition, pursuant to the terms of the
Merger Agreement, Citation will make an aggregate award of 43,500 shares of
restricted Citation Common Stock to 25 executive officers and key employees
of Interstate at the Effective Time. At the Record Date, Interstate and its
executive officers and directors owned approximately 72,500 shares of the
common stock, par value $0.01 per share, of Citation (the "Citation Common
Stock"). See THE PROPOSED MERGER--INTERESTS OF CERTAIN PERSONS IN THE
MERGER.
EXCHANGE OF STOCK CERTIFICATES AND OPTION AGREEMENTS. As of the Effective
Time, each holder of Interstate Common Stock (other than shareholders who
perfect dissenters' rights) and each holder of Option Stock will be entitled
to receive, upon surrender of their stock certificates formerly representing
shares of Interstate Common Stock or option agreements giving rise to their
right to Option Stock (the "Option Agreements"), respectively, the amount of
cash into which the shares of Interstate Common Stock represented by their
certificates or Option Agreements have been converted pursuant to the terms
of the Merger Agreement and the right to receive the Contingent Payments.
Instructions for surrendering Interstate stock certificates and Option
Agreements will be forwarded to the former Interstate shareholders and
holders of Option Stock as soon as practicable after the Effective Time. See
THE PROPOSED MERGER--EXCHANGE OF STOCK CERTIFICATES AND OPTION AGREEMENTS.
PER SHARE DATA
The following table presents certain historical and pro forma per
share data of Citation based upon the historical financial statements of
Citation and Interstate. As a private company, Interstate is not required to
report per share data in its separate financial statements. Calculating such
per share amounts for purpose of inclusion in this Proxy Statement-Prospectus
is not deemed necessary by Interstate management because (a) historical
Interstate per share amounts are not materially relevant to the understanding
of the effects of the proposed acquisition on Citation's results of
operations and financial condition (rather, reference should be made to the
pro forma financial information provided elsewhere in this Proxy
Statement-Prospectus); and (b) historical Interstate per share data is not
materially relevant to Interstate shareholders' comparison of the fair value
of their Interstate shares to the proposed consideration for such shares.
The unaudited pro forma information of Citation gives effect to (i) the
Merger, (ii) the purchase by Citation of all other fiscal 1995 and 1996
acquisitions, and (iii) Citation's secondary public
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offering of Citation Common Stock on September 18, 1995, as if these events
had occurred at the beginning of the periods presented. The unaudited pro
forma information is provided for illustrative purposes only and is not
necessarily indicative of the results of operations that actually would have
been obtained if the Merger had been effected on the date indicated or the
results that may be obtained in the future. The following information should
be read in conjunction with the other unaudited pro forma financial
information that is included in this Proxy Statement-Prospectus (see PRO
FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS), the consolidated
financial statements of Citation that are incorporated by reference in this
Proxy Statement-Prospectus (see INCORPORATION OF DOCUMENTS BY REFERENCE), and
the separate financial statements of Interstate that are included in this
Proxy Statement-Prospectus (see FINANCIAL STATEMENTS OF INTERSTATE).
Citation did not declare any dividends during the periods presented.
Interstate Historical
------------------------------
Fully Book Citation Pro Forma
Primary Diluted Value Historical Combined
------- ------- ----- ---------- --------
NET INCOME PER COMMON SHARE:
Nine months ended:
June 30, 1996. . . . . . . . . . . . . 2.69 2.68 -- $0.87 $0.93
July 2, 1995 . . . . . . . . . . . . . 3.12 3.09 -- 0.93 --
Year ended:
October 1, 1995. . . . . . . . . . . . 4.00 3.97 -- 1.27 1.48
BOOK VALUE PER COMMON SHARE:
As of:
June 30, 1996. . . . . . . . . . . . . -- -- 17.44 8.35 8.35
October 1, 1995. . . . . . . . . . . . -- -- 14.95 7.49 --
MARKET PRICE DATA
Citation Common Stock trades on the National Market System of The
Nasdaq Stock Market ("Nasdaq") under the symbol CAST. There is no
established public trading market for Interstate Common Stock. The last sale
price per share of Citation Common Stock, as reported by Nasdaq on January
26, 1996, the last full trading day before public announcement of the Merger,
was $10.875. The last sale transaction of Interstate Common Stock not
pursuant to an Interstate employee benefit plan occurring before public
announcement of the Merger, of which the Company has knowledge, was on
October 23, 1995 at $11.00 per share. See MARKET PRICE OF INTERSTATE
COMMON STOCK AND DIVIDENDS.
On September 27, 1996, the last sale price per share of Citation
Common Stock, as reported by Nasdaq, was $11.00.
SELECTED FINANCIAL INFORMATION OF CITATION
The following table sets forth selected historical and pro forma
financial data for Citation and should be read in conjunction with the
consolidated financial statements and notes related thereto included in
Citation's Annual Report on Form 10-K (see INCORPORATION OF DOCUMENTS BY
REFERENCE) and the pro forma financial statements and notes related thereto
included elsewhere in this Proxy Statement-Prospectus (see PRO FORMA
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS). The selected historical
financial data as of and for the five years ended October 1, 1995 and the
nine months ended July 2, 1995 have been derived from Citation's Consolidated
Financial Statements, which were audited by Coopers
& Lybrand L.L.P., Citation's independent accountants. The historical
financial data for the nine month period ended June 30, 1996 are derived from
Citation's unaudited consolidated financial statements. The unaudited
historical consolidated financial statements for the nine months ended June
30, 1996 includes all adjustments, consisting only of normal recurring
accruals, which Citation considers necessary for a fair presentation of the
consolidated financial position and the consolidated results of operations
for this period. Pro forma selected financial data as of and for the year
ended October 1, 1995 and the nine months ended
-10-
June 30, 1996 are derived from the financial statements of Citation after
giving effect to certain transactions described in the notes following the
table. Historical and pro forma operating results for the nine months ended
June 30, 1996 are not necessarily indicative of the results that may be
expected for the entire year ending September 29, 1996.
Pro Forma
Fiscal Year Ended (1) Pro Forma Nine Months Ended Nine Months
----------------- Ended
September 29, September 27, October 3, October 2, October 1, October 1, July 2, June 30, June 30,
1991 1992 1993 1994 1995 1995(2) 1995 1996 1996(3)
------------- ------------- ---------- ---------- ---------- ---------- ------- -------- --------
(Dollars in thousands, except per share amounts) (Unaudited) (Unaudited) (Unaudited)
Statement of Income Data:
Sales $ 117,279 $ 125,735 $ 150,318 $ 191,566 $ 307,681 $ 613,972 $ 215,585 $ 356,136 $ 471,863
Operating income $ 2,046 $ 4,628 $ 9,040 $ 19,995 $ 31,491 $ 56,941 $ 22,171 $ 30,399 $ 38,619
Pro forma net income
(loss) (4) $ (1,177) $ 1,195 $ 3,577 $ 10,668 $ 17,079 $ 26,179 $ 12,276 $ 15,328 $ 16,513
Pro forma net income per
share(5) $ 0.36 $ 1.02 $ 1.27 $ 1.48 $ 0.93 $ 0.87 $ 0.93
Weighted average number
of shares outstanding
(in thousands)(5) 9,933 10,486 13,438 17,676 13,261 17,687 17,687
Balance Sheet Data
(at end of period):
Total Assets $ 71,418 $ 69,751 $ 82,223 $ 113,449 $ 271,871 $ 380,189 $ 478,842
Long-term debt, excluding
current portion $ 30,866 $ 25,794 $ 24,387 $ 29,703 $ 71,254 $ 146,274 $ 217,353
(1) Citation operates on a 52- or 53-week fiscal year ending on the Sunday
closest to September 30. Fiscal years 1991, 1992, 1994 and 1995 were
52-week fiscal years and fiscal year 1993 was a 53-week fiscal year.
(2) Gives effect to (i) the Merger, (ii) the purchase of all other fiscal 1995
and 1996 acquisitions, and (iii) Citation's secondary public offering of
common stock on September 18, 1995, as if each of these events had occurred
on October 3, 1994. See INCORPORATION OF DOCUMENTS BY REFERENCE, PRO FORMA
CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS and FINANCIAL STATEMENTS OF INTERSTATE.
(3) Gives effect to (i) the Merger, and (ii) the purchase of all other fiscal
1996 acquisitions: (a) as if each of these events had occurred on
October 2, 1995, with respect to statement of income data; and (b) as if
each of these events had occurred as of June 30, 1996, with respect to
balance sheet data. See INCORPORATION OF DOCUMENTS BY REFERENCE, PRO FORMA
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS and FINANCIAL STATEMENTS OF
INTERSTATE.
(4) The Company elected S corporation status effective September 28, 1987.
The Company's S corporation status was terminated concurrent with the
August 2, 1994 initial public offering. The Company has been subject
to corporate income taxes for periods after August 2, 1994. Accordingly,
pro forma net income reflects federal and state income taxes as if the
Company had been a C Corporation based on the tax rates that were in effect
during the periods reported.
(5) The weighted average number of shares outstanding, for the year ended
October 3, 1993, gives effect to the estimated number of shares
(1,002,500) of Common Stock that would be required to be sold (at an
assumed initial public offering price of $8.00 per share) to fund the
$8.0 million S Corporation Distribution to existing stockholders.
-11-
RECENT DEVELOPMENTS
CITATION. During May 1996, Citation experienced a brief strike at
its Mansfield Foundry subsidiary located in Mansfield, Ohio. The local 9365
of the United Steelworkers of America (the "Union") went on strike as of
midnight May 18, 1996 when the Union's contract expired without a new
agreement. On May 28, 1996, the Union ratified a modified agreement which
ended the strike.
On June 18, 1996, Citation announced that it will immediately begin
idling its steel casting production at the steel division located at its
Texas Foundries plant in Lufkin, Texas. The division, which has approximately
125 employees, had sales of $13.3 million in fiscal year 1995 and showed a
loss of $2.1 million. Citation had raised prices on products produced by the
steel division effective March 1, 1996 in an attempt to make the plant
profitable. However, most customers of the division opted to move work
elsewhere. Steel casting customers remaining after the facility is idled
will be offered the opportunity to purchase their products from Citation's
other steel divisions; Texas Steel Company at Fort Worth, Texas or
Pennsylvania Steel Foundry & Machine Company of Hamburg, Pennsylvania. Some
of the equipment of the steel division will be transferred to other divisions
and some is expected to be used in iron production at Texas Foundries. At
this time, Citation intends to operate the facility and equipment for other
products, rather than to write off these assets.
On July 17, 1996, Citation announced that Frederick F. Sommer has
been named President and Chief Operating Officer of Citation. T. Morris
Hackney is continuing as Chairman and Chief Executive Officer of Citation.
Mr. Sommer was formally appointed to these positions by the Board of
Directors of Citation at the Board's quarterly meeting on August 15, 1996.
On September 17, 1996, Citation announced that based upon preliminary
results, its earnings per share for its fiscal year ending September 29, 1996
are expected to be approximately 15 to 20 percent below published analyst
forecasts, due to an expected shortfall in its fourth fiscal quarter.
INTERSTATE. Preliminary financial data indicate that sales for the
months of July and August, 1996 amounted to $14.3 million, which was $3
million in excess of plan and $2.0 million greater than the same period in
1995.
Preliminary reports of earnings for July and August were $439,000,
which was $263,000 below plan and $178,000 less than the same period in 1995.
Margins continue to be pressured by rising material costs and are negatively
affected by start-up costs (higher scrap rates and lower efficiency) on new
customer programs.
Order intake during July and August resulted in new orders amounting
to $14.1 million. At August 31, 1996, the unshipped backlog was $50.7
million, of which $47.3 million is scheduled for shipment in the following
six months.
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RISK FACTORS
Whether any Contingent Payments will be due to Interstate shareholders and
holders of Option Stock in the future will be based solely on Interstate's
financial performance during the period of January 1, 1996 through December 31,
1998. See DESCRIPTION OF CONTINGENT PAYMENTS. Pursuant to the terms of the
Merger Agreement, any Contingent Payments actually due are to be paid by
Citation. The ability of Interstate to achieve the average annual net earnings
before interest and income and franchise taxes necessary to cause the Contingent
Payments to be made, and the ability of Citation to pay any Contingent Payments
actually due, will depend in part on economic and other conditions beyond the
control of Interstate and Citation. Accordingly, there can be no assurance that
Interstate shareholders and holders of Option Stock will receive any Contingent
Payments. In addition to the other information contained in, or delivered
with, or incorporated by reference into, this Proxy Statement-Prospectus,
Interstate shareholders should carefully consider the following factors relating
to Interstate and Citation which could bear on whether Interstate shareholders
and holders of Option Stock will receive any Contingent Payments.
RISK FACTORS APPLICABLE TO INTERSTATE
SALES CONCENTRATION. Although Interstate has substantially diversified its
markets in recent years, its sales are still relatively concentrated both by
customer and by industry group. In 1995, its largest customer (Caterpillar,
Inc. and its subcontractors) and its largest five customers accounted for
approximately 24% and 55% of the dollar amount of gross shipments, respectively.
Shipments to customers in the construction machinery, petroleum services and
auto, truck and bus industries accounted for approximately 27%, 27% and 18% of
the dollar amount of 1995 gross shipments, respectively. A substantial portion
of Interstate's sales are likely to be concentrated within a few industries and
with a few customers within those industries for the immediate future.
Interstate will continue to be subject to changes in the economic vitality of
those customers and industries. If Interstate's customers require fewer
forgings or are unable to pay for the forgings they purchase, the adverse effect
on Interstate's net earnings would also adversely impact the rights of
Interstate shareholders and holders of Option Stock to the Contingent Payments
described elsewhere herein.
LOSS OF CUSTOMER. Under the terms of a contractual agreement, a customer
of Interstate has the right to terminate its relationship with Interstate if
the transaction with Citation is consummated. Sales to such customer in 1995
constituted approximately 7% of Interstate's total sales and the net earnings
before interest and taxes from such sales in 1995 constituted approximately 10%
of Interstate's total net earnings before interest and taxes. The potential
loss of this customer was known at the time that the Interstate Board considered
the Merger. See THE PROPOSED MERGER--BACKGROUND OF THE MERGER. The sole
product supplied to this customer is a front wheel spindle for Ford. Ford has
announced that the vehicle platform on which the part is used will be phased
out. The customer has agreed to purchase this product, at approximately 80%
of its current volume, through September 30, 1997. No assurance can be given
that Interstate will not lose this or other customers during the period in which
the right to Contingent Payments is determined. The loss of customers during
that period could adversely affect Interstate's net earnings and so adversely
affect the rights of Interstate shareholders and holders of Option Stock to
receive Contingent Payments.
COMPETITION. The United States iron and steel forging industry is
characterized by many producers, both independent and captive, and by excess
capacity. Partly as a result, industry profit margins are relatively low. The
companies within the industry compete on the basis of price, quality, service
and engineering. A few other independent forging companies are larger and have
greater technical resources than Interstate, although Interstate believes those
companies operate primarily in different market segments. In addition, there is
a tendency for foreign producers to enter the U.S. market when exchange rates
permit. Dirona (Mexico) has recently announced that it will install a 14,000
ton mechanical forging press in direct competition with Interstate for the North
American front axle forging market. There can be no assurance that Interstate
will be able to maintain or improve its competitive position in its markets.
Adverse competitive developments could reduce Interstate's earnings and
therefore reduce any Contingent Payments to Interstate shareholders and holders
of Option Stock.
-13-
DEPENDENCE ON SALES TO THE CAPITAL GOODS SECTOR. As a manufacturer of
steel components for the capital goods sector, Interstate is subject to the
economic cycles that affect its customers. The industries which Interstate
serves are often greatly affected by swings in the overall economic cycle.
Accordingly, Interstate's revenues and profitability are subject to variations
and are likely to remain so even if it is successful in continuing to reduce its
dependence upon particular customers and industries. If the economic cycle
affecting the capital goods sector is adverse for all or part of the period in
which the right to Contingent Payments is determined, the amount of such
payments to Interstate shareholders and holders of Option Stock could be
adversely affected.
COSTS DURING DOWNTURNS. The forging industry is capital intensive, with
substantial repair and maintenance requirements, and it relies upon skilled die
sinkers and other workers in its operations. These and other factors make it
difficult for Interstate to cut certain costs quickly when sales decline, lest
its equipment or work force deteriorate and cause lost opportunities when orders
improve. As a result, Interstate's profitability is subject to greater
variation than might be true if its costs were more variable. If sales decline
during the period in which the right to Contingent Payments is determined and
costs are not reduced as quickly, profits will be lower and the amount of any
Contingent Payments to the Interstate shareholders and holders of Option Stock
will be adversely affected.
KEY PERSONNEL. The operations of Interstate are the responsibility of
James Mitchell (age 49), President and Chief Executive Officer, David P. Lauer
(age 36), Chief Financial Officer and Treasurer, Everett Johnson (age 43), Vice
President and General Manager - Southwest Division, David A. Boettcher (age 47),
Vice President - Sales and Louis Zietz (age 43), Vice President and Technical
Manager -Southwest Division. Franklyn Esenberg (age 63), Chairman of the Board,
participates in decision-making at the Interstate Board level. Messrs. Mitchell
and Esenberg have entered into employment agreements with Interstate, the terms
of which will commence upon consummation of the Merger and will extend for a
period of three years thereafter, in the case of Mr. Mitchell, and until
December 31, 2001, in the case of Mr. Esenberg. See THE PROPOSED MERGER--
INTERESTS OF CERTAIN PERSONS IN THE MERGER. Interstate's success, including its
success during the period in which the right to Contingent Payments is
determined, depends upon its continued ability to attract and retain these and
other qualified management and technical personnel, including die sinkers and
other skilled laborers. Interstate maintains a key person life insurance policy
on the life of Franklyn Esenberg in the amount of approximately $2,250,000, but
does not have such insurance on the lives of its other executives.
ENVIRONMENTAL MATTERS. Forging operations have been conducted at
Interstate's Milwaukee, Wisconsin facility since 1920 and at its Navasota, Texas
facility since 1972. Companies in the forging industry must comply with
numerous federal, state and local environmental laws and regulations. Federal
laws, such as the Clean Air Act, Clean Water Act and Resource Conservation and
Recovery Act, each as amended, and similar state and local laws impose
recordkeeping and notification requirements as well as regulate emissions and
waste products generated by forging operations. Substantial sanctions are
imposed for violations of these laws. In addition, federal laws such as the
Comprehensive Environmental Response, Compensation and Liability Act, as
amended, and other similar federal, state and local laws impose liabilities
associated with the release of hazardous substances to the environment. These
types of laws can be used to hold the owner or operator of contaminated property
or the generator of hazardous substances liable for environmental contamination.
The chief environmental issues for Interstate's operations are soil
contamination from underground storage tanks at both plant facilities, and
potential contamination from an abandoned land fill and steam filtration ponds
at the Navasota, Texas facility. Interstate has implemented substantial
recordkeeping, management procedures and practices for the purpose of complying
with environmental laws and regulations. However, Interstate's practices in
the past have, in certain instances, resulted in required environmental
remediation of certain sites. Due to the nature of forging operations,
environmental concerns are likely to arise from time to time in the future. No
assurance can be given that the cost of compliance with environmental laws and
regulations in the future will not have a material effect on the results of
operations of Interstate. If such
-14-
an adverse impact occurs during the period in which the right to Contingent
Payments is determined, the amount of those payments would be adversely
affected.
PRODUCT LIABILITY INSURANCE. Interstate maintains general liability and
umbrella insurance (including product liability) in the aggregate amount of
$12,000,000. The policy excludes coverage of claims arising in respect of parts
manufactured for nuclear powered vehicles or facilities, or for aircraft of any
kind. Although Interstate has never been required to pay claims in excess of
its insurance coverage and has never paid any claims in respect of aircraft or
nuclear forgings, uninsured losses could occur and they could be material. If
material uninsured losses occur during the period in which the right to
Contingent Payments is determined, they will adversely affect the amount of
those payments to the former Interstate shareholders and holders of Option
Stock. Interstate believes that most companies in the forging industry follow a
similar insurance practice.
INTERESTS OF CERTAIN PERSONS IN THE MERGER. Certain key personnel and
significant shareholders of Interstate have interests differing from those of
other Interstate shareholders in the Merger. See THE PROPOSED MERGER--INTERESTS
OF CERTAIN PERSONS IN THE MERGER.
RISK FACTORS APPLICABLE TO CITATION
GENERAL. The ability of Citation to pay any Contingent Payments actually
due will depend in part on economic conditions beyond the control of Citation,
and, more specifically, upon the business risks summarized below.
CUSTOMER AND SALES CONCENTRATION. Citation derives a substantial portion
of its sales from customers in the domestic automotive/light truck industry
(26.4% in fiscal 1994 and 30.5% in fiscal 1995) and domestic heavy truck
industry (21.0% in fiscal 1994 and 23.5% in fiscal 1995). During fiscal 1995,
Citation's top ten customers represented 26.5% of sales and its largest customer
represented 7.8% of sales. A significant reduction of purchases by its largest
customers could have a material adverse effect on Citation's consolidated
financial condition or results of operations.
CYCLICALITY. Citation's business is subject to cyclical fluctuations based
on general economic conditions and economic conditions in specific industries
served, particularly the domestic automotive/light truck and heavy truck
industries. Future recessions or a decline in the domestic markets for
automobiles, light trucks, heavy trucks or other durable goods could have a
material adverse effect on Citation's consolidated financial condition or
results of operations.
POSSIBLE ACQUISITIONS. A significant component of Citation's historical
growth has come through acquisitions of other foundries, and Citation's growth
strategy for its business includes making additional acquisitions. There can be
no assurance that acquisitions will not have an adverse effect upon Citation's
consolidated financial condition or results of operations. For example,
Citation's operating results may be adversely affected for several fiscal
quarters following the consummation of such acquisitions while the operations of
the acquired businesses are integrated into Citation's operations and Citation's
costing and other management information systems are implemented at the newly
acquired businesses. There can be no assurance that Citation will be able to
consummate any acquisitions in the future.
Although Citation may, from time to time, receive information from other
parties regarding possible acquisitions, Citation currently has no contracts,
arrangements, agreements or understandings to acquire any other business.
ENVIRONMENTAL MATTERS. Companies in the manufacturing industries must
comply with numerous federal, state and local environmental laws and
regulations. The Clean Air Act, as amended, the Clean Water Act, as amended,
and similar state and local counterparts of these federal laws regulate air
and water emissions and discharges into the environment, respectively. The
Resource Conservation and
-15-
Recovery Act, as amended, and the Comprehensive Environmental Response,
Compensation and Liability Act, as amended, ("CERCLA"), among other laws,
address the generation, storage, treatment, transportation and disposal of
solid and hazardous waste, and releases of hazardous substances into the
environment, respectively. Citation's manufacturing operations require
compliance with the above specified environmental laws, among other laws, as
well as the workplace safety and health standards established by the
Occupational Safety and Health Act. Citation believes that it is in material
compliance with these laws and regulations.
The chief environmental issues for Citation's foundries are air emissions
and solid waste disposal. Air emissions, primarily dust particles, are handled
by dust collection systems. The solid waste generated by these foundries is
generally sand, which is recycled and reused in the foundry or disposed of as
non-hazardous waste in landfills on Citation property or in permitted off-site
landfills. Citation has closed certain of the landfills on its properties
without incurring material expenditures and expects to close other such
landfills in the future without incurring material expenditures. However, there
can be no assurance that future federal, state or local laws, regulations,
enforcement policies or other actions will not require Citation to incur
additional and potentially material costs related to its past or present
environmental practices.
Although Citation's practices have, in certain instances, resulted in non-
compliance with environmental laws and regulations and in non-material fines
and expenses related thereto, Citation currently does not anticipate any
environmentally related costs that would have a material adverse effect on its
operations. However, it cannot be assured that Citation's activities will not
give rise to actions by governmental agencies or private parties, which could
cause Citation to incur fines, penalties, operational shutdowns, damages, clean-
up costs or other similar expenses. Citation currently estimates that routine
capital expenditures related to pollution control and compliance at all of its
facilities will average $2.5 million per year during the next five fiscal years.
Citation has implemented a source removal and shallow groundwater
remediation project at its Castwell Products foundry for purposes of removing
excessive levels of trichloroethylene ("TCE") which were detected at this
facility. These excessive levels of TCE resulted from previous leakage into the
groundwater from a parts washing area located on the premises. The need for the
remediation was identified in connection with Citation's acquisition of Castwell
Products in 1995, and Citation assumed an accrued liability in the amount of
$1.2 million related to the estimated costs of the remediation. Of this amount,
approximately $700,000 is expected to be paid from fiscal 1995 through fiscal
1997 in connection with soil removal, groundwater remediation measures and
testing expenses. Thereafter, Citation estimates that it will incur
approximately $30,000 annually for an estimated 20 to 30 years for ongoing
monitoring and periodic sampling tests. There can be no assurance, however,
that the costs and expenses related to this remediation project will not be
materially greater than currently estimated.
In August 1995, Citation received an information request from the United
States Environmental Protection Agency ("EPA") regarding superfund sites (the
"Sites") of PCB Treatment, Inc., an entity not affiliated with Citation.
Similar requests were sent to all potentially responsible parties ("PRPs")
which allegedly sent materials containing polychlorinated biphenyls ("PCBs")
to the Sites. The PRPs (of which there are approximately 1,300) may be
required to pay for remediation of the Sites pursuant to CERCLA. Based upon
the review of its records and inquiries to EPA representatives, Citation
believes that it sent no more than four drums of materials containing PCBs to
the Sites. The EPA has informally advised Citation that the total
remediation costs may approximate $1.5 million, but it has not yet determined
the expense contribution amounts it would seek from each PRP. Courts have
interpreted CERCLA to impose strict, joint and several liability upon PRPs if
the harm at a site is indivisible, but remediation costs are typically
allocated among PRPs on an equitable basis. Because it sent an insignificant
amount of material to the Sites, Citation believes that this matter will not
result in liability having a material adverse effect on Citation's financial
position or results of operations. However, the EPA's investigation is at an
early stage and there
-16-
can be no assurance that Citation will not be held liable to pay for a
significant portion of the remediation expense or that such expense will not
be materially greater than currently estimated.
Citation's facilities capacity levels, or increases thereof, are dependent
upon Citation's ability to maintain, or obtain increases in, such levels in its
permits for air emissions. It cannot be assured that Citation will be able to
maintain its current permits, or obtain appropriate increases in capacity levels
under such permits, so as to maintain its current level of operations or
increase capacity as it may desire in the future.
The 1990 amendments to the Clean Air Act may have a major impact on the
compliance costs of many U.S. companies, including foundries. Many of the
regulations that will implement the Clean Air Act amendments have not yet been
promulgated. Until such regulations are issued, it is not possible to estimate
the costs Citation may need to incur to comply with them.
POTENTIAL WARRANTY LIABILITY. Citation's standard warranty is to replace
defective castings. While to date the costs associated with Citation's warranty
policy have been insignificant, an increase in the incidence of product warranty
claims and the costs associated therewith could have a material adverse effect
on Citation's consolidated financial condition or results of operations.
DEPENDENCE ON KEY PERSONNEL. Citation's growth has been dependent
primarily upon the skills and efforts of T. Morris Hackney, Chairman of the
Board, Chief Executive Officer; R. Conner Warren, Executive Vice President of
Finance and Administration and Treasurer; and other key employees. In addition,
on August 15, 1996, the Board of Directors of Citation appointed Frederick F.
Sommer to the position of President and Chief Operating Officer of Citation.
Although Citation has been successful in hiring qualified and experienced
personnel, the loss of services of any of these executive officers or other key
personnel could have a material adverse effect on Citation's consolidated
financial condition or results of operations. In addition, Citation's future
growth and development will require it to continue to attract and retain
additional qualified personnel. There can be no assurance that Citation will be
able to attract and retain personnel with the skills and experience needed to
successfully manage Citation's business and operations.
COMPETITION. The markets for Citation's products are highly competitive.
The companies within the industry compete on the basis of price, quality,
delivery, service and engineering. Citation also competes with manufacturers
whose products are made using other materials, processes and technologies. The
industry consolidation that has occurred over the past two decades has resulted
in a significant reduction in the number of smaller foundries and a rise in the
share of production held by larger foundry companies. Some of Citation's
competitors may have greater financial resources than Citation, may have lower
production costs than Citation, or both. There can be no assurance that
Citation will be able to maintain or improve its competitive position in its
markets.
THE SPECIAL MEETING
GENERAL
This Proxy Statement-Prospectus and the accompanying form of proxy is
being furnished to the shareholders of Interstate in connection with the
solicitation of proxies by the Interstate Board for use at the Special
Meeting to be held on Tuesday, October 29, 1996, at 10:00 a.m., local time,
in the 25th Floor Conference Center at the Offices of Quarles & Brady, 411
East Wisconsin Avenue, Milwaukee, Wisconsin and any adjournments or
postponements thereof. This Proxy Statement-Prospectus, the attached Notice
of Special Meeting and the accompanying form of proxy are first being mailed
to Interstate shareholders on or about October 3, 1996.
-17-
PURPOSE OF THE SPECIAL MEETING
The purpose of the Special Meeting is to:
1. Consider and vote upon a proposal to approve the Merger Agreement,
pursuant to which, among other things, (a) Sub would be merged with and into
Interstate, with Interstate surviving the Merger as a wholly-owned subsidiary of
Citation, the separate existence of Sub ceasing, and (b) each share of
Interstate Common Stock (other than shares for which dissenters' rights are
perfected) and Option Stock outstanding immediately prior to the Effective Time
will be converted into the right to receive, without interest thereon: (i) a
cash amount payable at the Effective Time from total aggregate Closing
consideration of $45,409,000, plus the SAR Difference of approximately $48,000,
plus $9,952.66 per day from April 15, 1996 to and including the Closing Date,
less Interstate Transaction Costs, and (ii) a pro rata portion of the aggregate
amount of the Contingent Payments, if any; and
2. Act upon such other matters, if any, as may properly be brought before
the Special Meeting or any adjournments or postponements thereof.
The Interstate Board is not aware, as of the date of this Proxy Statement-
Prospectus, of any other matters which may properly be brought before the
Special Meeting. The WBCL provides that only business described in the Notice
of Special Meeting may be conducted at the Special Meeting. If any other matter
properly comes before the Special Meeting, including, among other things,
consideration of a motion to postpone or adjourn the Special Meeting to another
time or place, the persons named in the enclosed form of proxy and acting
thereunder will have discretion to vote on such matters in accordance with their
best judgment.
BOARD OF DIRECTORS' RECOMMENDATION
THE INTERSTATE BOARD HAS UNANIMOUSLY ADOPTED AND APPROVED THE MERGER
AGREEMENT AS ADVISABLE AND IN THE BEST INTERESTS OF INTERSTATE AND ITS
SHAREHOLDERS AND UNANIMOUSLY RECOMMENDS THAT INTERSTATE SHAREHOLDERS VOTE FOR
APPROVAL OF THE MERGER AGREEMENT.
RECORD DATE, VOTING RIGHTS AND SHAREHOLDER APPROVAL
The Interstate Board has fixed the close of business on September 16, 1996
as the Record Date for the Special Meeting. Only holders of record of
Interstate Common Stock, the only class of voting stock of Interstate
outstanding, on the Record Date are entitled to notice of and to vote at the
Special Meeting. On the Record Date, there were 1,313,524 shares of Interstate
Common Stock issued and outstanding. Holders of record of Interstate Common
Stock on the Record Date are entitled to one vote per share on any matter that
may properly come before the Special Meeting. A list of shareholders of record
entitled to vote at the Special Meeting will be available for inspection by
Interstate shareholders at Interstate's principal business office at 4051 North
27th Street, Milwaukee, Wisconsin, prior to the Special Meeting. The list will
also be available on the day of the Special Meeting at the meeting site.
A majority of the votes entitled to be cast by shares entitled to vote,
represented in person or by proxy, will constitute a quorum of Interstate
shareholders at the Special Meeting. Abstentions and broker non-votes (i.e.,
proxies from brokers or nominees indicating that such persons have not
received instructions from the beneficial owners or other persons entitled to
vote shares as to a matter with respect to which the brokers or nominees do
not have discretionary power to vote) will be considered present for the
purpose of establishing a quorum. The affirmative vote of a majority of all
the votes entitled to be cast at the Special Meeting by the holders of the
outstanding shares of Interstate Common Stock is required for approval of the
Merger Agreement. Abstentions and broker non-votes will have the same effect
as votes cast against approval of the Merger Agreement.
-18-
At the Record Date, the directors and the executive officers of Interstate
and their affiliates beneficially owned approximately 401,930 shares of
Interstate Common Stock, representing 30.6% of the outstanding shares of
Interstate Common Stock entitled to vote at the Special Meeting. All of the
directors and executive officers of Interstate have indicated their intention to
vote their shares for approval of the Merger Agreement.
PROXIES
Holders of Interstate Common Stock may vote either in person or by properly
executed proxy. All shares of Interstate Common Stock represented at the
Special Meeting by properly executed proxies received prior to or at the Special
Meeting, and not revoked, will be voted at the Special Meeting in accordance
with the instructions indicated on such proxies. If no instructions are
indicated, such proxies will be voted FOR approval of the Merger Agreement.
If an individual beneficially owns shares of Interstate Common Stock
through Interstate's Savings and Retirement Plan (the "Interstate Retirement
Plan"), the proxy will serve as voting instructions for such participant's
shares held in the Interstate Retirement Plan. Shares of Interstate Retirement
Plan participants will be voted by the trustee of the Interstate Retirement Plan
in accordance with each participants' voting instructions. If a participant in
the Interstate Retirement Plan does not return a proxy, the trustee will direct
the vote of the shares held in such participant's account.
Any proxy given pursuant to this solicitation may be revoked by the person
giving it at any time before it is voted. Proxies may be revoked by (i) filing
with the Secretary of Interstate, at or before the taking of the vote at the
Special Meeting, a written notice of revocation bearing a later date than the
proxy, (ii) duly executing a later dated proxy relating to the same shares and
delivering it to the Secretary of Interstate before the taking of the vote at
the Special Meeting, or (iii) attending the Special Meeting and voting in person
(although attendance at the Special Meeting will not in and of itself constitute
a revocation of a proxy).
The Special Meeting may be postponed or adjourned from time to time without
notice other than such notice as may be given at the Special Meeting or any
postponement or adjournment thereof, including, without limitation, if a quorum
is not obtained, or if fewer shares are likely to be voted in favor of approval
of the Merger Agreement than the number required for approval. Any business for
which notice has been given may be transacted at any such postponed or adjourned
meeting. If the Special Meeting is postponed or adjourned for the purpose of
obtaining additional proxies or votes or for any other purpose, at any
subsequent reconvening of the Special Meeting, all proxies will be voted in the
same manner as such proxies would have been voted at the original convening of
the Special Meeting (except for any proxies which have theretofore effectively
been revoked or withdrawn), notwithstanding that they may have been effectively
voted on the same or any other matter at a previous meeting.
Interstate will bear the cost of solicitation of proxies for the Special
Meeting. In addition to use of the mails, proxies may be solicited
personally or by telephone, facsimile or other means of communication by
directors, officers and employees of Interstate, who will not be specially
compensated for such activities, but may be reimbursed for their
out-of-pocket expenses. Arrangements will be made with custodians, nominees
and fiduciaries for the forwarding of proxy solicitation materials to
beneficial owners of shares of Interstate Common Stock held of record by such
custodians, nominees and fiduciaries, and Interstate will reimburse such
custodians, nominees and fiduciaries for reasonable expenses incurred in
connection therewith.
SHAREHOLDERS SHOULD NOT SEND ANY STOCK CERTIFICATES WITH THEIR PROXY CARDS. THE
PROCEDURE FOR THE EXCHANGE OF YOUR SHARES AFTER THE MERGER IS CONSUMMATED IS SET
FORTH ELSEWHERE IN THIS PROXY STATEMENT-PROSPECTUS. SEE THE PROPOSED MERGER--
EXCHANGE OF STOCK CERTIFICATES AND OPTION AGREEMENTS.
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THE PROPOSED MERGER
THE FOLLOWING INFORMATION CONCERNING THE MERGER, INSOFAR AS IT RELATES TO
THE MERGER AGREEMENT, IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE MERGER
AGREEMENT WHICH IS ATTACHED AS APPENDIX A TO THIS PROXY STATEMENT-PROSPECTUS AND
INCORPORATED HEREIN BY REFERENCE. YOU ARE URGED TO CAREFULLY READ THE ENTIRE
MERGER AGREEMENT.
BACKGROUND OF THE MERGER
The Interstate Board has long recognized that, given the nature and size of
Interstate's shareholder base, Interstate shareholders have only limited
opportunities to sell all or a portion of their Interstate Common Stock, since
there is no ready secondary market. During the last five years, several holders
of significant blocks of Interstate Common Stock have expressed to the
Interstate Board their desire for liquidity of their investment in the
Interstate Common Stock. During that period, the Interstate Board and
management have actively pursued a number of possible transactions with a view
to providing liquidity to the Interstate shareholders.
During 1992, the Interstate Board actively explored the possibility of an
initial public offering of Interstate stock. The purposes of the offering were
to raise capital for Interstate to assist in Interstate's continuing capital
needs and to provide the Interstate shareholders with improved liquidity. That
transaction was not consummated.
During late 1993, Interstate conducted extensive, but unsuccessful,
discussions with an unrelated third party regarding a sale of Interstate. In
April 1994, Interstate effected a self tender offer for 750,006 shares of
Interstate Common Stock and shares underlying Interstate vested stock options at
a price of $14 per share. This represented approximately 34% of the then fully
diluted Interstate Common Stock.
During the years in the period of January 1, 1992 through December 31,
1995, Interstate purchased 9,236 shares, 21,955 shares, 12,178 shares and 11,260
shares, respectively, from participants in the Interstate Retirement Plan at
prices ranging from $11.25 per share in 1992 to $18.00 in 1995 (there being no
such purchases between December 31, 1995 and July 31, 1996). SEE MARKET PRICES
OF INTERSTATE COMMON STOCK AND DIVIDENDS.
In early November 1995, Mr. Franklyn Esenberg, Chairman of Interstate, was
approached by Mr. Alan T. Craft concerning a possible transaction between
Interstate and Citation. Mr. Craft is a manufacturer's representative for
Interstate and a Director Emeritus of Interstate and was formerly a member of
the Interstate Board from 1988 to 1991. Mr. Craft's firm, Craft Associates, is
a sales representative for a subsidiary of Citation, Mabry Foundry Company, Ltd.
Mr. Craft will receive a finders fee of $500,000 to be paid by Citation for the
acquisition of Interstate. Mr. Craft discussed with Mr. Esenberg the history
and current status of Citation, Mr. Craft's relationship with Mr. T. Morris
Hackney, Chairman of Citation, Citation's recent acquisitions and Mr. Craft's
belief that there was the possibility of a mutually beneficial transaction
between Interstate and Citation.
Messrs. Hackney, Esenberg and Craft met in early November 1995. The
meeting included a general discussion of Interstate's history, business,
management, assets, liabilities, performance, financial condition and prospects.
The meeting also included a discussion of Citation's acquisition practices and
business. The meeting concluded with a sense that further discussions between
the two organizations should continue.
On December 12, 1995, Mr. Esenberg and Mr. James Mitchell, a Director and
President and Chief Executive Officer of Interstate, together with a
representative of Baird, met with Mr. Hackney and R. Conner Warren, a Director
and Executive Vice President of Finance and Administration and Treasurer of
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Citation. Baird has had a longstanding relationship with Interstate and
attended the meeting as an observer and in anticipation that Baird might be
requested to provide a fairness opinion to the Interstate Board. The meeting
included a detailed discussion of Interstate's business, management, strategy,
performance and prospects. The meeting also included a discussion concerning
Citation's business. The meeting concluded with commitments by Citation to
review the information concerning Interstate and by both parties to meet again
in the near future.
The Interstate Board met on December 19, 1995. Mr. Esenberg briefed the
Interstate Board on the discussions with Citation. Quarles & Brady, counsel for
Interstate, discussed the legal responsibilities of the Board in connection with
such a potential transaction. Baird was present at the Board meeting and
advised the Interstate Board on the process that Baird would go through to
evaluate such a transaction in order to provide an opinion as to whether or not
the consideration proposed to be paid in such a transaction is fair to
Interstate's shareholders from a financial point of view. The Board unanimously
authorized Messrs. Esenberg and Mitchell, together with counsel, to continue the
discussions with Citation.
On January 3 and 4, 1996, Messrs. Hackney, Esenberg and Mitchell met to
continue the discussions. Following a discussion of various matters relating to
Interstate's business and financial condition, Mr. Hackney made a proposal by
which Citation would acquire all of the outstanding capital stock of Interstate
for a cash purchase price of $40,000,000. Citation's offer was based, in part,
on a multiple of the projected 1995 EBIT of Interstate, less the long-term debt
of Interstate at its 1995 fiscal year end. After discussion concerning the
proposal, Messrs. Esenberg and Mitchell stated that they would meet with the
Interstate Board to further discuss the overall matter and the specific
proposal.
The Interstate Board met again on January 11, 1996. The Board formally
engaged Baird to evaluate and render an opinion as to whether or not the
consideration to be paid in a possible transaction with Citation is fair to the
Interstate shareholders from a financial point of view. The Interstate Board
considered Citation's proposal, the current business and financial condition of
Interstate, the prospects for Interstate, the publicly available information
concerning Citation, the interests of Interstate's shareholders and the effect
of such a transaction on Interstate's employees and customers. The Interstate
Board unanimously approved proceeding with a transaction with Citation at terms
that were greater than those offered by Citation. The Interstate Board
instructed Messrs. Esenberg and Mitchell to meet again with Citation to discuss
the new terms and, if such new terms were agreeable to Citation, to execute a
letter of intent.
Messrs. Esenberg and Mitchell, together with assistance from counsel,
then conducted a series of negotiations and discussions with representatives
of Citation. The negotiation centered on a disagreement between the two
parties concerning the proper EBIT multiple to be used when computing the
purchase price for the shares of Interstate. Citation asserted the use of a
lower multiple based on the past growth rate of Interstate. Interstate
negotiated for the use of a higher EBIT multiple based on its projected
future growth. The increased future growth projected by Interstate was
attributable to the expected future sales resulting from Interstate's new
14,000 ton mechanical forging press. To bridge the gap between the two
parties, a compromise was reached for the payment of contingent consideration
based on the future performance of Interstate. Such contingent consideration
would, in effect, compensate the Interstate shareholders if Interstate's
projected growth rate was actually achieved. A letter of intent was signed
on January 19, 1996 providing for the purchase of all of the outstanding
capital stock of Interstate by Citation for a total cash purchase price of
$43,600,000 at closing plus the payment of certain contingent cash payments.
SEE DESCRIPTION OF CONTINGENT PAYMENTS.
During the following months, Citation and Interstate executed a
Confidentiality Agreement and representatives of Citation and Interstate and
their respective counsel engaged in numerous discussions and conducted several
meetings in order to negotiate and prepare the definitive Merger Agreement.
Citation also conducted due diligence on Interstate. All of the material
matters discussed at all substantive meetings, the conclusions reached and the
actions taken are summarized herein.
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The Interstate Board met on February 7, 1996 and March 7, 1996 and
received updates on the status of the Citation transaction. During this period,
counsel for Interstate continued the telephone negotiations with counsel for
Citation concerning the price. The Interstate Board refused to authorize the
transaction unless approximately $2,000,000 was added to the Letter of Intent
cash purchase price. After further telephone discussions, Citation agreed to an
increased purchase price. In addition, Citation agreed to increase the purchase
price based on a per diem amount to compensate the Interstate shareholders for
the loss of dividend income from April 1, 1996 through the date of Closing. The
per diem amount of $9,952.66 was determined based on a number of factors which
included the daily net income of Interstate, dividends paid in prior years,
prevailing interest rates and the merger consideration as a whole. These
negotiations resulted in a transaction (the "Prior Transaction") with: (a) a
cash price at Closing of $45,409,000, less Interstate's transaction costs, and
plus a per diem accrual of $9,952.66 per day from April 1, 1996 through the date
of Closing (b) the payment of certain contingent cash payments and, (c) the
payment of cash for Interstate's outstanding stock appreciation rights ("SARs")
without any reduction in the cash price. See DESCRIPTION OF CONTINGENT
PAYMENTS. The Interstate Board also considered other possible transactions
for Interstate, including a possible redemption of certain Interstate Common
Stock, a sale of all of the outstanding Interstate Common Stock to an unrelated
third party and a sale of all of the Interstate Common Stock to a group headed
by Interstate management. All of these other proposed transactions would have
included proposed consideration that was significantly less than the proposed
consideration to be received by Interstate shareholders in the Prior
Transaction. The Interstate Board also considered the possibility of creating
liquidity for Interstate shareholders through an initial public offering of
Interstate stock, but believed that a public offering would be less attractive
for Interstate and its shareholders because (a) the anticipated initial
public offering price and public market trading value would probably be lower
than would be received by shareholders under the Merger Agreement, (b) such a
transaction would not necessarily create sufficient liquidity to permit sales
by all of the Interstate shareholders interested in liquidating their
investment, and (c) the costs of attaining and maintaining public company
status would be substantial.
On May 8, 1996, the Interstate Board met with representatives of Baird and
legal counsel. Baird reviewed financial and other information concerning
Interstate and Citation and the proposed consideration to be received by
Interstate shareholders in the Prior Transaction. Counsel outlined in detail
the terms and conditions of the proposed Merger Agreement, the respective
employment agreements between Interstate and Messrs. Esenberg and Mitchell and
related documents. The Interstate Board was informed at this meeting that a
customer of Interstate, who was unwilling to consent to the Merger, would have
the right to terminate its relationship with Interstate based on the change in
Interstate ownership that would result from the Merger. The Interstate Board
directed management and counsel to discuss this matter with the customer and
directed management and Baird to consider the effects (as reflected in revised
projections to be prepared by Interstate management) of a termination of
Interstate's relationship with the customer on the consideration to be received
in the Citation transaction.
On May 13, 1996, the Interstate Board met with representatives of Baird
and legal counsel. Interstate management informed the Interstate Board that
the customer had continued to state that he would not consent to the Merger.
The Interstate Board considered the effect of the possible termination of
Interstate's relationship with the customer. Baird reviewed various
financial and other information and rendered to the Interstate Board its
opinion to the effect that, as of the date of said opinion, the consideration
to be received by the holders of Interstate Common Stock in the Prior
Transaction was fair, from a financial point of view, to such holders (other
than Citation, Sub and their respective affiliates). Legal counsel reviewed
the final forms of the Merger Agreement, the respective employment agreements
between Interstate and Messrs. Esenberg and Mitchell and related documents.
The Interstate Board discussed the advice they had received at the various
Interstate Board meetings and the price that would be paid to Interstate
shareholders in the Prior Transaction. The Interstate Board also considered
and discussed the effects of the Prior Transaction on Interstate's customers
and employees.
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After such discussions, the Interstate Board unanimously adopted and
approved the Merger Agreement, the respective employment agreements between
Interstate and Messrs. Esenberg and Mitchell and related documents. Following
the Interstate Board meeting, on May 16, 1996 the Merger Agreement, the
employment agreement between Interstate and Franklyn Esenberg and the employment
agreement between Interstate and James Mitchell were executed.
In mid July of 1996, management of Interstate learned of certain issues
relating to Interstate's inventories, arising from a conversion of internal
accounting systems, internal controls and an apparent difference between the
book to physical inventory of Interstate. On July 24, 1996, the Interstate
Board met in the ordinary course and received an update on the Citation
transaction. Management informed the Interstate Board of the inventory issues,
that a physical inventory was being conducted, that the financial statements of
Interstate for 1995 and for the six months ended on June 30, 1996 were being
reviewed, and that a modification of such financial statements would be
necessary.
The Interstate Board instructed management to continue the investigation
and report back to the Board. At this meeting, the Interstate Board approved
amendments to: (a) the Merger Agreement which extended to November 30, 1996 the
date for termination of the Merger Agreement; and (b) the Employment Agreements
with Franklyn Esenberg and James Mitchell which extended to November 30, 1996
the dates on which such Employment Agreements would terminate if the
transactions described in the Merger Agreement had not been closed. The
Amendments to the Employment Agreements were executed on July 27, 1996 but the
Amendment to the Merger Agreement was not executed.
In early August of 1996, Interstate management completed its review of the
inventory matters and the 1995 and interim 1996 financial statements of
Interstate. The effect of the review was: (a) a restatement of Interstate's
1995 financial statements to reflect a $505,000 inventory accumulation error
which resulted in a $320,000 decrease in Interstate's net income for 1995 from
that which had been previously reported; and (b) a restatement of Interstate's
interim 1996 financial statements through June 30, 1996 to reflect a $500,000
inventory error which resulted in a $324,000 decrease in Interstate's net income
for the six months ended on June 30, 1996 from that which had been previously
reported.
On August 16, 1996, Messrs. Esenberg and Hackney met to discuss the
inventory issues and their effect on Prior Transaction. After extensive
discussions and negotiations, Messrs. Esenberg and Hackney agreed, in each
case subject to the approval of the respective Boards of Directors of
Interstate and Citation, that the terms of the Merger Agreement and the Prior
Transaction would remain as stated in the original Merger Agreement, except
that the following changes would be made to the Prior Transaction: (a) the
base average EBIT for calculating the contingent cash payments would be
changed from $9,500,000 to $10,000,000; (b) the date from which the daily
accrual of $9,952.66 runs would be changed from April 1, 1996 to April 15,
1996; (c) the per share price at which Interstate's SARs would be cashed out
would be changed from $34 to the same cash amount which Interstate
shareholders would receive in the Merger at Closing, which is estimated to be
approximately $32.5239; (d) the Basic Merger Payment to the Interstate
shareholders would be increased by the amount of the decreased payment to the
holders of Interstate's SARs; (e) the termination date in the Merger
Agreement would be extended to November 30, 1996; and (f) the Merger
Agreement would incorporate the revised financial statements of Interstate
for 1995 and for the interim period of 1996. As used herein, the term
"Current Transaction" means the Prior Transaction as amended to reflect the
changes described above.
On August 20, 1996, the Interstate Board met and received a report
concerning the inventory matters. Mr. Esenberg briefed the Interstate Board on
the discussions with Citation. Legal counsel for Interstate discussed the
proposed changes to the Merger Agreement. The Interstate Board preliminarily
approved the Current Transaction, subject to reviewing a form of the Amendment
to the Merger Agreement and reviewing and receiving an opinion of Baird
concerning the fairness of the Current Transaction.
On August 23, 1996, the Interstate Board met with representatives of Baird
and legal counsel. Legal counsel reviewed the form of Amendment to the Merger
Agreement. Baird rendered to the Interstate Board its opinion to the effect
that, as of the date of said opinion, the consideration to be received by the
holders of Interstate Common Stock in the Current Transaction was fair, from a
financial point of view, to such holders (other than Citation, Sub and their
respective affiliates). See OPINION OF ROBERT W. BAIRD & CO. INCORPORATED and
APPENDIX C hereto. The Interstate Board discussed the advice they had received
at the various Interstate Board meetings and the price that would be paid to
Interstate shareholders in the
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Current Transaction. The Interstate Board also considered and discussed the
effects of the Current Transaction on Interstate's customers and employees.
After such discussions, the Interstate Board unanimously adopted and approved
the Amendment to the Merger Agreement.
REASONS FOR THE MERGER; RECOMMENDATION OF THE INTERSTATE BOARD
CITATION. Citation's business strategy is to be a broad-based components
supplier to the durable goods industry. A significant element of that strategy
has been growth through acquisitions, as well as expansion of markets and
customer bases, and expansion into other casting and related technologies.
Citation historically has expanded its business primarily through the
acquisition of other ductile, gray and high-alloy iron, aluminum and steel
casting foundries. Recent acquisitions have introduced it to additional
technologies including aluminum permanent and semi-permanent molding methods,
high-alloy casting metallurgy, intricate design casting and gray, ductile and
high-alloy iron shell sand molding processes. In line with its growth strategy,
Citation believes the acquisition of Interstate will allow Citation to broaden
its product offerings in a product line which is technologically similar to
Citation's expertise and is used in primarily the same markets, thus
complementing Citation's existing operations.
INTERSTATE. The Interstate Board believes that the terms of the Merger,
which are the result of arm's length negotiations between representatives of
Interstate and Citation, are fair to, and in the best interests of, Interstate
and its shareholders. The Interstate Board believes that, based on the factors
described below, the Merger is the best available means for Interstate
shareholders to receive liquidity for their shares of Interstate Common Stock at
a price which the Interstate Board believes to be a fair price. The Interstate
Board believes that the transaction with Citation is an attractive one for the
Interstate shareholders, since the nature of Interstate's business is cyclical,
capital intensive and subject to other risk factors. See RISK FACTORS--RISK
FACTORS APPLICABLE TO INTERSTATE. The Board believes that the Citation
transaction provides a fair cash payment at closing and the opportunity to earn
additional cash consideration in the future based on the financial performance
of Interstate. See DESCRIPTION OF CONTINGENT PAYMENTS.
While the Interstate Board did not assign specific or relative weights
to any factors, the Board considered the following factors in reaching its
decision to adopt and approve the Merger Agreement.
THE CONSIDERATION TO BE RECEIVED BY INTERSTATE SHAREHOLDERS. The
Interstate Board believed that the consideration to be received by Interstate
shareholders in the Merger is fair and supports its recommendation in favor of
the Merger.
(1) The amount of Merger Consideration to be received is higher than any
appraisal Interstate has ever received for its Common Stock, is higher than
recent offers and other transactions in Interstate Stock, and is believed to be
higher than any other reasonably available alternatives (such as a public
offering or Interstate repurchase). See--PRINCIPAL TERMS OF THE MERGER.
(2) Interstate shareholders have had no ready secondary market for their
stock, and some of them have expressed a desire for liquidity. The Merger
Consideration is payable entirely in cash, mostly at Closing, thus providing a
method for Interstate shareholders to convert their investment into cash.
(3) The Merger affords Interstate shareholders the opportunity to receive
the Contingent Payments and thereby to participate in Interstate's potential
success over the next three years without exposing them to additional risk if
Interstate is not successful during that period.
(4) The Interstate Board also considered the analysis and opinion of Baird
to the effect that, as of August 23, 1996, the consideration to be received by
the holders of Interstate Common Stock was fair, from a financial point of view,
to such holders (other than Citation, Sub and their respective affiliates) (See-
OPINION OF ROBERT W. BAIRD & CO. INCORPORATED and APPENDIX C hereto). While the
Interstate Board did not adopt the Baird fairness opinion, it did conclude,
based on the terms of the Merger Agreement, the Baird fairness opinion and the
other factors described herein, that the terms of the Merger are fair to the
Interstate shareholders.
THE MERGER TERMS. The Interstate Board believed that the overall terms of
the Merger Agreement supported its recommendation in favor of the Merger because
it is in the best interests of Interstate and its shareholders.
(1) Interstate makes only limited representations and warranties in the
Merger Agreement, which means there are only limited circumstances under which
there can be any liability to Citation in connection with the Merger Agreement.
See -- REPRESENTATIONS AND WARRANTIES.
(2) The Merger Agreement imposes liability for any breach of Interstate's
representations and warranties only if the damages or injury to Citation from
such breaches exceeds $750,000. See -- INDEMNIFICATION.
(3) Even if damages from Interstate's breaches of representations and
warranties exceed $750,000, Citation can recover the excess only from its
future obligations to make the Contingent Payments; under no circumstances can
Interstate shareholders be required to return any funds previously paid to them
by Citation. See -- INDEMNIFICATION.
OTHER BUSINESS CONSIDERATIONS. The Interstate Board also believed that
other business considerations supported its conclusion that the Merger is in the
best interests of Interstate and its shareholders.
(1) In the judgement of the Board, considering Interstate's business,
results of operations, financial condition and prospects if Interstate were to
remain independent, Interstate's growth over the near future may not match the
growth experienced over the past several years. Interstate was able to
substantially increase its production capacity during the past five years, and
sales have been made from that capacity, but competitive conditions and the
outlook for further increased sales may not justify a further investment in
additional capacity in the near future.
(2) The Merger is desirable in the judgment of Interstate's Board partly
because it helps Interstate shareholders avoid risks arising from the fact that
Interstate's business is both competitive and vulnerable to economic downturns
in the demand for capital goods due to fluctuations in the business cycle. The
current economic expansion is now over four years old, and while Interstate
cannot predict how long it may last, experience suggests that an economic
contraction in the demand for capital goods could begin within the next several
years. A severe economic contraction in the demand for capital goods could
adversely affect Interstate and the value of its stock.
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(3) In the judgement of the Interstate Board the risks inherent in
Interstate's business impose limitations on the amount that Interstate can
prudently borrow to finance ongoing operations and business growth, particularly
as an independent company with limited access to the public debt and equity
markets. Because of the capital intensive nature of its business, these
limitations hamper Interstate's growth opportunities.
(4) The Merger can be expected to have a favorable impact on Interstate
employees and customers. Citation has historically operated acquired businesses
as independent business units, and is entering the Merger in order to expand
into forging operations. The Interstate Board considered it unlikely that
Citation would voluntarily choose to reduce Interstate operations for the
foreseeable future, and its greater financial resources and access to the
capital markets offer greater stability of operations for both employees and
customers. Interstate employees would also benefit from the opportunity to
diversify their retirement plan investments, since 20% of Interstate's
outstanding Common Stock is owned by an Interstate retirement plan.
THE INTERSTATE BOARD HAS UNANIMOUSLY ADOPTED AND APPROVED THE MERGER
AGREEMENT AND BELIEVES THAT THE TERMS OF THE MERGER ARE FAIR TO, AND IN THE BEST
INTERESTS OF, INTERSTATE SHAREHOLDERS. THE INTERSTATE BOARD UNANIMOUSLY
RECOMMENDS THAT THE SHAREHOLDERS OF INTERSTATE VOTE FOR THE APPROVAL OF THE
MERGER AGREEMENT.
OPINION OF ROBERT W. BAIRD & CO. INCORPORATED
On January 25, 1996, Interstate entered into an engagement letter agreement
with Baird pursuant to which Baird was retained to render its opinion as to
whether or not the Consideration (consisting of the Company Stock Price (as
defined herein under --PRINCIPAL TERMS OF THE MERGER--MERGER CONSIDERATION) and
the per share Contingent Payments, if any (as defined herein under DESCRIPTION
OF CONTINGENT PAYMENTS)) is fair, from a financial point of view, to the holders
of Interstate Common Stock (other than Citation, Sub and their respective
affiliates). On August 23, 1996, Baird rendered its opinion to the Interstate
Board to the effect that, as of such date, the Consideration was fair, from a
financial point of view, to the holders of Interstate Common Stock (other than
Citation, Sub and their respective affiliates).
THE FULL TEXT OF BAIRD'S OPINION, DATED AUGUST 23, 1996, WHICH SETS
FORTH THE ASSUMPTIONS MADE, GENERAL PROCEDURES FOLLOWED, MATTERS CONSIDERED
AND LIMITATIONS ON THE SCOPE OF REVIEW UNDERTAKEN BY BAIRD IN RENDERING ITS
OPINION, IS ATTACHED AS APPENDIX C TO THIS PROXY STATEMENT-PROSPECTUS AND IS
INCORPORATED HEREIN BY REFERENCE. BAIRD'S OPINION IS DIRECTED ONLY TO THE
FAIRNESS, AS OF AUGUST 23, 1996 AND FROM A FINANCIAL POINT OF VIEW, OF THE
CONSIDERATION TO THE HOLDERS OF INTERSTATE SHARES (OTHER THAN CITATION, SUB
AND THEIR RESPECTIVE AFFILIATES) AND DOES NOT CONSTITUTE A RECOMMENDATION TO
ANY INTERSTATE SHAREHOLDER AS TO HOW SUCH SHAREHOLDER SHOULD VOTE WITH
RESPECT TO THE MERGER AGREEMENT. BAIRD DID NOT MAKE RECOMMENDATIONS TO
INTERSTATE CONCERNING THE AMOUNT OF CONSIDERATION TO BE PAID TO INTERSTATE
SHAREHOLDERS OR PARTICIPATE IN THE NEGOTIATION OF THE MERGER CONSIDERATION
(AS DEFINED HEREIN UNDER --PRINCIPAL TERMS OF THE MERGER--MERGER
CONSIDERATION). THE SUMMARY OF BAIRD'S OPINION SET FORTH BELOW IS QUALIFIED
IN ITS ENTIRETY BY REFERENCE TO THE FULL TEXT OF SUCH OPINION ATTACHED AS
APPENDIX C. SHAREHOLDERS ARE URGED TO READ THE OPINION CAREFULLY IN ITS
ENTIRETY.
In conducting its investigation and analysis in arriving at its opinion
attached as Appendix C, Baird reviewed such information and took into account
such financial and economic factors as it deemed relevant under the
circumstances. In that connection, Baird among other things (i) reviewed
certain internal information, primarily financial in nature, including
projections, concerning the business and operations of Interstate furnished to
Baird by Interstate for purposes of its analysis, as well as historical
financial information relating to Interstate's financial position and operating
results; (ii) reviewed certain publicly available information, including but not
limited to, Citation's recent filings with the Commission and equity analyst
research reports prepared by various investment banking firms; (iii) reviewed a
draft of the Merger
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Agreement in the form presented to the Interstate Board; (iv) compared the
financial position and operating results of Interstate with those of publicly
traded companies Baird deemed relevant; and (v) compared the proposed
financial terms of the Merger with the financial terms of certain other
business transactions that it considered relevant to its inquiry. Baird held
discussions with certain members of Interstate's and Citation's respective
senior management concerning Interstate's and Citation's historic and current
financial condition and operating results, as well as the future prospects of
Interstate and Citation, respectively. Baird also considered such other
information, financial studies, analysis and investigations and financial,
economic and market criteria which it deemed relevant for the preparation of
its opinion. Baird was not requested to, and did not, solicit third party
indications of interest in acquiring all or any part of Interstate. The
Merger Consideration was determined by Interstate and Citation in arm's
length negotiations. Interstate did not place any limitation upon Baird with
respect to the procedures followed or factors considered by Baird in
rendering its opinion.
The internal Interstate forecasts reviewed by Baird assume that net
sales increase to $95,000,000 and $105,000,000 for 1996 and 1997,
respectively, and by $5,000,000 per year thereafter. Interstate management
expects this sales growth to come primarily from Interstate's new 14,000 ton
forging press line, which has just begun to affect sales during 1996 and
eventually is expected to account for up to about $30,000,000 of sales
capacity. The internal forecasts also assume that Interstate's cost of goods
sold as a percentage of sales increases from 81% in 1995 to 82.9% for 1996
and 82% for 1997 and then declines by one-half percent per year thereafter.
Interstate's cost of goods sold as a percentage of sales is higher than
historical averages during 1996, primarily because of higher scrap rates and
other inefficiencies associated with initial operations of the 14,000 ton
forging press line. Consistent with its experience with other new equipment
installation, Interstate expects these production inefficiencies to decline
over time as its production experience with the new line improves. The
projections assume that selling and administrative expenses as a percentage
of sales in the future are consistent with Interstate's historical
experience. Interstate management estimated interest expense based on current
interest rates and the borrowing levels resulting from the foregoing
assumptions. Although these assumptions reflect a lower average growth rate
for the years 1996 to 2000 than has been the case for the period 1991-1995,
they reflect Interstate management's best estimates given the opportunities
currently available, the cyclical and competitive nature of Interstate's
business, and the risk factors affecting Interstate's revenues and margins.
In addition Interstate Management attributes the higher growth rates
experienced from 1991 through 1996 to the addition of six press lines during
that period. Interstate does not anticipate additional investment at that level
during the next five years, because the market opportunities which would
require such investment have not currently been identified.
Based on these assumptions Interstate's earnings and earnings per
share would be expected to decline in 1996 compared with 1995 and then to
increase gradually thereafter. These internal forecasts were prepared by
Interstate, and provided to Baird, solely to assist Baird in its analysis.
Future operating results are inherently uncertain for various reasons,
including those described under "Risk Factors - Risk Factors Applicable to
Interstate," and the forecasts should not be relied upon as indicating that
particular results will actually be achieved in the future.
In arriving at its opinion, Baird assumed and relied upon the accuracy and
completeness of all of the financial and other information provided to it by or
on behalf of Interstate and Citation, or publicly available, and was not
engaged, and did not attempt, to verify any such information. Baird assumed
that all material assets and liabilities (contingent or otherwise, known or
unknown) were as set forth on Interstate's financial statements. With respect
to projections, Baird assumed that they had been reasonably prepared and
represented the best available estimates and good faith judgments of Interstate
management as to the future performance of Interstate. In conducting its
review, Baird did not make nor obtain an independent valuation or appraisal of
any of the assets or liabilities (contingent or otherwise) of Interstate, nor
did Baird make a physical inspection of the properties or facilities of
Interstate. Baird's opinion was based upon economic, monetary and market
conditions as they existed on and to the extent they could be evaluated as of
the date of such opinion and did not predict or take into account any changes
which may occur or information which may become available thereafter.
In connection with preparing its opinion on August 23, 1996, Baird
conducted a variety of financial analyses summarized below with respect to
Interstate and Citation.
IMPLIED VALUE OF CONSIDERATION. Based on an assumed Effective Time of
October 29, 1996 and assumed transaction costs of $425,000, Baird calculated
the estimated value of the Consideration (the "Implied Value of
Consideration") to be between $33.97 and $35.06 per share, consisting of an
estimated Company Stock Price of $32.52 per share and, using a range of
discount rates from 15 to 40 percent and based on the assumed realization of
the projections prepared by Interstate management of future financial
performance of Interstate, an implied present value of the Contingent
Payments between $1.45 and $2.54 per share. The actual Contingent Payment
amounts are dependent upon a number of factors, including the actual
financial results of Interstate after completion of the Merger. Accordingly,
no assurance can be given that the actual Contingent Payment amounts will be
as estimated.
ANALYSIS OF INTERSTATE'S VALUATION MULTIPLES. Baird calculated multiples of
the Implied Value of the Consideration to Interstate's latest twelve months
ended July 31, 1996 ("LTM") net income and its projected net income for
calendar years 1996 and 1997 (based on management's estimates) and multiples
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of Interstate's Enterprise Value (defined as the Implied Value of the
Consideration multiplied by the number of fully diluted shares of Interstate
Common Stock, plus (i) the book value of total debt pro forma for redemption
of all SARs, less (ii) cash and cash equivalents, including cash surrender
value of life insurance and cash which would be received by Interstate if all
outstanding stock options were exercised) to its LTM revenues, its LTM
operating income before depreciation and amortization, interest and taxes
("EBITDA") and its LTM operating income ("EBIT"). The calculations resulted
in ratios of the Implied Value of the Consideration to net income ("P/E
Ratios") of 10.0x to 10.3x based on LTM results; 10.0x to 10.4x based on
projected 1996 results; and 8.1x to 8.4x based on projected 1997 results.
The ratio of Enterprise Value to LTM revenues was 0.76x to 0.78x, the ratio
of Enterprise Value to LTM EBITDA was 5.4x to 5.5x and the ratio of
Enterprise Value to LTM EBIT was 7.5x to 7.6x.
ANALYSIS OF SELECTED PUBLICLY TRADED INTERSTATE COMPARABLE COMPANIES.
Baird reviewed certain publicly available financial information as of the most
recently reported period and stock market information as of August 20, 1996 for
certain selected publicly traded companies which Baird deemed relevant.
Although Interstate is a private company, Baird noted that the analysis of
comparative publicly traded companies is relevant to an assessment of
fairness, from a financial point of view, of the consideration. Such
comparable companies consisted of: Amcast Industrial Corporation, Atchison
Casting Corporation, Fansteel Inc., Intermet Corporation, Sifco Industries,
Inc., Sinter Metals, Inc. and Wescast Industries. For each comparable
company, Baird calculated multiples as of August 20, 1996 of Enterprise Value
(defined as the market value of the common equity plus the book value of
total debt and preferred stock, less excess cash and cash equivalents) to LTM
revenues, LTM EBITDA and LTM EBIT. Baird then compared these multiples to the
relevant Interstate multiples based on the Enterprise Value implied by the
Implied Value of the Consideration. An analysis of the multiples of
Enterprise Value to LTM revenues, LTM EBITDA and LTM EBIT yielded 0.76x to
0.78x, 5.4x to 5.5x, and 7.5x to 7.6x, respectively, for Interstate compared
to low, mean, median and high multiples, respectively, of 0.40x, 0.88x, 0.69x
and 1.60x LTM revenues; 4.1x, 6.5x, 6.8x and 8.8x LTM EBITDA; and 6.2x,
10.0x, 9.9x and 14.2x LTM EBIT for Interstate's comparable companies. Baird
also calculated P/E Ratios based on the Implied Value of the Consideration
for Interstate and as of August 20, 1996 for each comparable company based on
market stock prices as of such date and LTM earnings per share and estimated
earnings per share (based on median Firstcall estimates) for calendar years
1996 and 1997. An analysis of the P/E Ratios for Interstate yielded 10.0x to
10.3x LTM net earnings, 10.0x to 10.4x projected 1996 net earnings, and 8.1x
to 8.4x projected 1997 net earnings, compared to low, mean, median and high
multiples, respectively, of 8.8x, 14.7x, 15.1x and 24.7x LTM earnings per
share; 9.2x, 11.4x, 10.0x and 16.1x estimated 1996 earnings per share; and
7.9x, 9.6x, 8.4x and 13.6x estimated 1997 earnings per share for Interstate's
comparable companies. Baird noted that the Implied Value of the
Consideration was generally consistent with the low and median multiples of
the comparable companies, due to the historical and projected financial
performance of Interstate and the dynamics of the forging industry relative
to the comparable companies.
ANALYSIS OF SELECTED COMPARABLE ACQUISITION TRANSACTIONS. Baird reviewed
selected transactions involving the acquisition of all or part of companies
in businesses which Baird deemed relevant. Such comparable acquisition
transactions, which were consummated between May 1994 and August 1996
consisted of (acquiror/acquired company): Wyman-Gordon Company/Cameron Forged
Products Company; Citation Corporation/Iroquois Foundry Company; Citation
Corporation/Oberdorfer Industries; Citation Corporation/Berlin Foundry
Corporation; Citation Corporation/Pennsylvania Steel Foundry and Machine
Company; Citation Corporation/Castwell Products Company; Johnstown American
Industries, Inc./Truck Components, Inc.; Bar Technologies, Inc. (formerly
known as BRW Steel Corporation)/Bliss & Laughlin Industries and Citation
Corporation/Southern Aluminum Castings Company. Such transactions were
chosen based on a review of acquired companies which possessed general
business, operating and financial characteristics representative of companies
which supply metal products and components to the original equipment
manufacturing market. For each comparable transaction where the relevant data
was available, Baird calculated the multiples of Enterprise Value (based on
the actual consideration paid for the equity of the acquired company plus the
book value of total debt assumed, less cash and cash equivalents) to LTM
revenues, LTM EBITDA and LTM EBIT; and calculated P/E Ratios based on LTM net
earnings. Baird then compared those multiples to the relevant Interstate
multiples based on the Implied Value of the Consideration. For the
transactions selected, these calculations yielded multiples of Enterprise
Value to
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LTM revenues, LTM EBITDA and LTM EBIT of 0.76x to 0.78x, 5.4x to 5.5x, and
7.5x to 7.6x, respectively, for Interstate, compared to low, mean, median
and high multiples, respectively, of 0.32x, 0.57x, 0.47x and 0.96x LTM
revenues; 3.3x, 4.5x, 4.6x and 5.4x LTM EBITDA; and 4.0x, 5.3x, 5.7x and 6.0x
LTM EBIT for the comparable acquisition transactions. An analysis of the P/E
Ratios based on LTM results yielded 10.0x to 10.3x for Interstate compared
to low, mean, median and high multiples, respectively, of 5.9x, 10.0x, 10.0x
and 15.5x, respectively, for the comparable acquisition transactions. Baird
noted that the Interstate multiples implied by the Implied Value of the
Consideration were generally near or above the corresponding high multiples
for the comparable acquisition transactions.
DISCOUNTED CASH FLOW ANALYSIS. Baird performed a discounted cash flow
analysis of Interstate on a stand alone basis using Interstate management's
projections of future EBIT and free cash flow without taking into account cost
savings and synergies which may be realized following the Merger. In such
analysis, Baird assumed terminal value multiples of 5.0x to 7.0x EBIT in the
year 2000 and discount rates of 13.0% to 15.0%. Such analyses produced
implied values of Interstate ranging from $28.93 to $44.20 per share with a
median value of $36.29 per share. Baird noted that the Implied Value of the
Consideration was generally within the range of the Discounted Cash Flow
Analysis.
LEVERAGED TRANSACTION ANALYSIS. Baird performed an analysis of the maximum
price an acquiror would be likely to pay for Interstate in a leveraged
transaction, based on the achievement of benchmark returns for debt and equity
investors and financing terms generally available in the current market
environment. This analysis did not take into account cost savings and/or
synergies that might be available to a new owner of Interstate. Such analysis
assumed that a leveraged transaction would involve the incurrence of senior
debt at an interest rate of 9.25 percent per annum and subordinated debt at
an interest rate of 12 percent per annum (with an associated equity
component equal to 10 percent of the fully diluted equity of the company
after giving effect to the acquisition). Based on the forecasted cash flows
of Interstate's management and assumed targeted return on investment of
approximately 30 to 45 percent per annum for equity investors and 18 to 21
percent per annum for subordinated debt investors, Baird estimated a
leveraged transaction purchase price of approximately $37.0 million to
$42.0 million, or $25 to $28 per share of Interstate Common Stock. Baird
noted that the Implied Value of the Consideration exceeded the values
generated by this analysis.
The preparation of financial analyses and a fairness opinion is a complex
process and is not necessarily susceptible to partial analysis or summary
description. Baird believes that its analyses (and the summary set forth above)
must be considered as a whole, and that selecting portions of such analyses and
of the factors considered by Baird, without considering all of such analyses and
factors, could create an incomplete view of the processes underlying the
analyses conducted by Baird and its opinion. Baird did not attempt to assign
specific weights to particular analyses. Any estimates contained in Baird's
analyses are not necessarily indicative of actual values, which may be
significantly more or less favorable than as set forth therein. Estimates of
values of companies do not purport to be appraisals or necessarily to reflect
the prices at which companies may actually be sold.
Interstate selected Baird to render its opinion as to the fairness, from a
financial point of view, of the Consideration, because of its experience and
expertise in the valuation of businesses and their securities in connection with
mergers and acquisitions and based on Baird's prior experience with and
knowledge of Interstate. Baird, as part of its investment banking business, is
continually engaged in the evaluation of businesses and their securities in
connection with mergers and acquisitions, negotiated underwritings, competitive
biddings, secondary distributions of listed and unlisted securities, private
placements, and valuations for estate, corporate and other purposes. In the
ordinary course of business, Baird may from time to time trade equity securities
of Interstate and Citation for its own account and for accounts of its customers
and, accordingly, may at any time hold a long or short position in such
securities. In addition, the President and Chief Executive Officer of Baird is
a director of Interstate and the beneficial owner of shares of Interstate Common
Stock.
Pursuant to the January 25, 1996 engagement letter agreement, as amended,
Interstate agreed to pay Baird a retainer fee of $25,000, a fairness opinion
fee of $87,500, payable upon delivery of its opinion on May 13, 1996, and a
fairness opinion fee of $12,500, payable upon delivery of its opinion on
August 23, 1996, in each case regardless of the conclusions reached by Baird in
such opinions and regardless of whether any transaction is consummated.
Interstate has also agreed to reimburse Baird or its reasonable out-of-pocket
expenses, including reasonable fees and disbursements of counsel. Interstate
has also agreed to indemnify Baird, its affiliates and their respective
directors, officers, partners, employees
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and agents and controlling persons against certain liabilities relating to or
arising out of its engagement, including liabilities under the federal
securities laws. Baird has rendered from time to time various investment
banking and other financial advisory services to Interstate for which it has
received its customary compensation.
PRINCIPAL TERMS OF THE MERGER
EFFECT OF THE MERGER. If the Merger is approved by at least a majority of
all the votes entitled to be cast at the Special Meeting by the holders of the
outstanding shares of Interstate Common Stock and the other conditions to
consummation of the Merger specified in the Merger Agreement are satisfied or
waived, then Sub will be merged with and into Interstate, with Interstate being
the Surviving Corporation in the Merger. The closing to consummate the Merger
(the "Closing") will occur at a date and time mutually agreed to by the parties
to the Merger Agreement that is no later than the fifth business day after
satisfaction of the conditions to consummation of the Merger set forth in the
Merger Agreement (the "Closing Date"). The Merger will be effective upon filing
the Articles of Merger with the Wisconsin Department of Financial Institutions,
such filing to occur as soon as practicable on or after the Closing Date (the
"Effective Time"). It is currently anticipated that, subject to the receipt of
all requisite regulatory approvals and other factors, the Effective Time will be
the same date as the Special Meeting. At and after the Effective Time, the
shareholders of Interstate will no longer have an equity interest in the
Surviving Corporation. The Surviving Corporation will be a wholly-owned
subsidiary of Citation. As of the Effective Time, by operation of law, the
separate corporate existence of Sub will cease and the Surviving Corporation
will succeed to all of the assets and liabilities of Sub.
MERGER CONSIDERATION. As of the Effective Time, and without any action
on the part of the holders thereof, each issued and outstanding share of
Interstate Common Stock, except shares owned by shareholders who perfect
dissenters' rights, will be converted into the right to receive, without
interest thereon, an amount in cash equal to the Company Stock Price (as
defined below) plus a pro rata portion of the aggregate amount of any
Contingent Payments, each of which is further described herein. In addition,
each share of Option Stock will be converted into the right to receive an
amount in cash equal to the Company Stock Price less the per share exercise
price of the related option (and less any required withholding taxes) (the
"Option Stock Price"), plus a pro rata portion of the aggregate amount of any
Contingent Payments. The consideration to be paid to the holders of
Interstate Common Stock and the holders of Option Stock shall herein be
referred to as the "Merger Consideration."
The Company Stock Price (which will be rounded to four decimal places)
shall be equal to the sum of the Closing Merger Payment (as defined below) and
the aggregate amount of the combined option exercise prices of all Option Stock
of $1,668,404 (the "Option Stock Exercise Price"), divided by 1,496,474, which
represents the total number of shares of Interstate Common Stock and Option
Stock that will be outstanding as of the Effective Time (collectively, the
"Closing Stock"). The Closing Merger Payment shall be equal to $45,409,000,
less the Interstate Transaction Costs, plus the SAR Difference as defined below,
plus a per diem accrual equal to $9,952.66 multiplied by the number of calendar
days from April 15, 1996 to and including the Closing Date. The "SAR
Difference" means the amount by which the aggregate payment required to settle
the outstanding Interstate SARs (based on a stock value equal to the Company
Stock Price) is less than $608,200. If the Company Stock Price is $32.5239, the
SAR Difference will be $48,121, as illustrated below. Interstate Transaction
Costs will include only costs and expenses directly associated with the
transactions contemplated by the Merger Agreement, including, without
limitation, Interstate's attorneys and accountants' fees (including fees
associated with the preparation and filing of this Registration Statement); fees
and expenses of the Paying Agent (as defined herein) and Baird; costs of
providing certain real estate surveys and title insurance as required by the
Merger Agreement; distributions to dissenting shareholders in excess of the
Company Stock Price; and prohibited shareholder distributions.
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For example, if the Closing were to occur on October 29, 1996, and the
Interstate Transaction Costs were equal to $425,000 (actual Interstate
Transaction Costs could be higher or lower), the Company Stock Price would be
equal to $32.5239 per share as follows:
1. Closing Merger Payment = $47,002,748
Starting Point of Closing Merger Payment Calculation $45,409,000
Less: Interstate Transaction Costs (425,000)
Plus: SAR Difference (estimated) 48,121
Plus: Per Diem of $9,952.66
multiplied by 198 days ($9,952.66 X 198) 1,970,627
Closing Merger Payment $47,002,748
2. Company Stock Price = $32.5239
Closing Merger Payment $47,002,748
Plus: Option Stock Exercise Price 1,668,404
Total $48,671,152
Divided by Total Number of Shares
of Closing Stock DIVIDED BY 1,496,474
Company Stock Price $ 32.5239
Promptly upon surrender of their Interstate Common Stock certificates,
Interstate shareholders of record as of the Effective Time will be entitled
to receive a cash amount equal to the number of shares of Interstate Common
Stock surrendered multiplied by the Company Stock Price. Promptly upon
surrender of their Option Agreements, holders of Option Stock will be
entitled to receive a cash amount equal to the number of shares of Option
Stock surrendered multiplied by the applicable Option Stock Price. See
- --EXCHANGE OF STOCK CERTIFICATES AND OPTION AGREEMENTS.
Each of the Closing Stockholders will also be entitled to their pro rata
share of the aggregate amount of any Contingent Payments based on the combined
total number of shares of Interstate Common Stock and Option Stock outstanding
at the Effective Time. Pursuant to the terms of the Merger Agreement, the
Contingent Payments, if any, that will be made to the Closing Stockholders,
consist of an aggregate amount equal to five (5) times the amount by which (x)
the average annual net earnings of Interstate before interest and income and
franchise taxes during the three year period from January 1, 1996 through
December 31, 1998 exceeds (y) $10,000,000. The calculation and payment of any
Contingent Payments that may be due in the future are described in detail herein
under DESCRIPTION OF CONTINGENT PAYMENTS. Reference should also be made to
Section 1.9(d) of the Merger Agreement, a copy of which is attached hereto as
Appendix A.
CONDITIONS TO CLOSING
The respective obligations of the parties to consummate the Merger are
subject to the fulfillment or waiver on or before the Closing Date of certain
conditions specified in the Merger Agreement. The conditions include (among
others): (1) the representations and warranties made by the respective parties
in the Merger Agreement shall be true and correct in all material respects on
and as of the date of the Merger Agreement and the Closing Date, and all of the
terms and conditions of the Merger Agreement to be performed or complied with by
the Closing by the respective parties shall have been performed or complied with
in all material respects, including the delivery of all required Closing
documents and payments; (2) the consents and approvals of all persons or
entities, including governmental agencies whose consent is required to
consummate the transactions contemplated by the Merger Agreement, shall have
been obtained, including the expiration of all applicable waiting periods under
the HSR Act; (3) at the Closing Date there shall be no litigation or
governmental investigation in which an injunction or other order or decree has
been obtained against the transactions contemplated by the Merger Agreement;
(4) there
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shall not have been any material casualty loss affecting the respective
parties, and there shall not have been any material adverse change in the
financial condition of the respective parties between their respective fiscal
year ends and the Closing Date; (5) holders of Interstate Common Stock
exercising dissenters' rights under the WBCL shall hold shares convertible
into the right to receive an aggregate of less than 10% of the Closing Merger
Payment; (6) the Merger Agreement must have been approved by the affirmative
vote of the holders of Interstate Common Stock constituting at least a
majority of all votes entitled to be cast on the Merger Agreement; (7) the
Registration Statement shall have become effective under the Securities Act,
no stop order suspending its effectiveness shall be in effect, and no stop
order with respect thereto shall be pending; (8) the Contingent Payments
shall have been qualified under all applicable state securities laws without
unreasonable effort or expense; and (9) the opinion of Baird attached hereto
as Appendix C shall not have been withdrawn as of the date of the Special
Meeting. No assurance can be given as to when, if ever, all of the
conditions to Closing will be satisfied or waived.
WAIVER, AMENDMENT AND TERMINATION
At any time before the Effective Time, whether before or after the Merger
is approved by Interstate shareholders at the Special Meeting, each party to the
Merger Agreement (by action taken by their respective Board of Directors) may
waive any of the terms or conditions of the Merger Agreement, or agree to any
amendment of the Merger Agreement, without seeking further approval of
Interstate shareholders, as long as any such amendment does not materially
adversely affect the Closing Stockholders. Any such waiver or amendment must be
executed in writing.
At any time before the Effective Time, whether before or after the
Merger is approved by Interstate shareholders at the Special Meeting, the
Merger Agreement may be terminated, and the Merger abandoned, by (1) the
mutual consent of Citation and Interstate, (2) written notice from either
Citation or Interstate to the other party if the conditions required of the
other party shall not have been fulfilled by November 15, 1996, (3) by
Interstate, if it agrees to a competing offer or transaction (see --COMPETING
TRANSACTIONS), or (4) by written notice from either Interstate or Citation to
the other party if the Closing has not occurred on or before November 30,
1996.
REPRESENTATIONS AND WARRANTIES
The Merger Agreement contains certain customary representations and
warranties (some of which are subject to specified exceptions) of each of
Interstate, Citation and Sub, relating to, among other things: as to
Interstate, (a) due organization, power and existence; (b) the validity,
legality and enforceability of the Merger Agreement; (c) the absence of any
governmental, regulatory or other authorization, consent or approval necessary
to consummate the Merger; (d) the absence of any conflict with its articles of
incorporation or bylaws, with applicable law or with certain contracts; (e) its
capital structure; (f) compliance with applicable laws; (g) accuracy of certain
financial statements of Interstate; (h) absence of material changes to the
business of Interstate since December 31, 1995; (i) material leases; (j) valid
title to and ownership of assets; (k) good operating condition of equipment; (l)
material contracts; (m) assets necessary for the conduct of business; (n)
insurance coverages; (o) absence of judgments and decrees; (p) absence of
material pending or threatened litigation; (q) absence of foreseeable material
adverse changes in business; (r) intellectual property rights; (s) matters
involving employee benefit plans; (t) employees, consultants and agents; (u)
conduct of business in the ordinary course since December 31, 1995; (v) validity
and collectability of accounts receivable; (w) administration of books and
records in accordance with generally accepted accounting principles ("GAAP");
(x) customers' toolings and dies; (y) absence of environmental law violations;
(z) indebtedness; (aa) taxes; and (bb) accurate disclosure of statements of fact
in the Merger Agreement and related schedules: as to Citation and Sub, (a) due
organization, power and existence; (b) authorization, validity, legality and
enforceability of the Merger Agreement; (c) the absence of any governmental,
regulatory or other authorization, consent or approval necessary to consummate
the Merger; (d) the absence of any conflict with their certificate/articles of
incorporation or bylaws, with applicable law or with certain contracts; (e) the
filing of all required reports and other
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documents with the Commission, and the accuracy of the information contained
therein; (f) absence of material changes, except as publicly disclosed, since
October 1, 1995; (g) absence of foreseeable material adverse changes in
business; (h) absence of judgments and decrees; (i) absence of material
pending or threatened litigation; and (j) accurate disclosure of statements
of fact in the Merger Agreement. Each of Interstate, Citation and Sub have
also made certain representations and warranties regarding the accuracy of
the information provided by it for use in this Proxy Statement-Prospectus and
the Registration Statement.
RIGHTS OF DISSENTING SHAREHOLDERS
SUBJECT TO CONSUMMATION OF THE MERGER, INTERSTATE SHAREHOLDERS MAY DEMAND
TO BE PAID THE FAIR VALUE OF THEIR SHARES OF INTERSTATE COMMON STOCK IN CASH, IF
THEY FOLLOW THE PROCEDURES SPECIFIED Sections 180.1301 THROUGH 180.1331 OF THE
WBCL ("SUBCHAPTER XIII"). THE FOLLOWING SUMMARY OF SUBCHAPTER XIII IS QUALIFIED
IN ITS ENTIRETY BY REFERENCE TO THE FULL TEXT THEREOF CONTAINED IN APPENDIX B TO
THIS PROXY STATEMENT-PROSPECTUS, WHICH IS INCORPORATED HEREIN BY REFERENCE.
SINCE THE FOLLOWING SUMMARY IS NOT A COMPLETE DESCRIPTION OF THE PROVISIONS OF
SUBCHAPTER XIII, ANY SHAREHOLDER WHO MAY BE CONSIDERING EXERCISING HIS OR HER
RIGHTS AS A DISSENTER IS URGED TO REFER TO THE FULL TEXT OF SUCH SUBCHAPTER IN
APPENDIX B. THE PROVISIONS OF SUBCHAPTER XIII REQUIRE STRICT COMPLIANCE. ANY
SHAREHOLDER WHO WISHES TO OBJECT TO THE MERGER AND DEMAND PAYMENT FOR HIS OR HER
SHARES SHOULD CONSULT HIS OR HER OWN ATTORNEY OR ADVISOR. IF A SHAREHOLDER
FAILS TO PERFECT DISSENTERS' RIGHTS BY NOT STRICTLY COMPLYING WITH THE
APPLICABLE STATUTORY REQUIREMENTS, SUCH SHAREHOLDER WILL BE BOUND BY THE TERMS
OF THE MERGER AGREEMENT.
Pursuant to Section 180.1302 of the WBCL, any registered holder of the
Interstate Common Stock, or any beneficial owner of shares of such stock held
by a nominee as the shareholder of record, has the right to object to the
Merger and demand payment of the "fair value" of his or her shares in cash.
For purposes of Subchapter XIII, the "fair value" of Interstate's shares is
determined immediately before the consummation of the Merger, excluding any
appreciation or depreciation in anticipation of the Merger unless such
exclusion would be inequitable.
Any Interstate registered or beneficial shareholder electing to dissent to
the Merger must file with Interstate, before the Merger vote is taken, a written
notice of intent to demand payment that complies with Section 180.0141 of the
WBCL. A vote against approval of the Merger Agreement, in person or by proxy,
will not in and of itself constitute a notice of objection satisfying Section
180.0141. Furthermore, such Interstate shareholder or beneficial shareholder
may not vote his or her shares in favor of the Merger Agreement. Because an
executed proxy on which no voting direction is made will be voted FOR approval
of the Merger Agreement, a dissenting shareholder who wishes to have his or her
shares represented by a proxy at the Special Meeting but preserve his or her
dissenters' rights must mark such proxy either to vote against the Merger
Agreement or to abstain from voting thereon, in addition to complying with the
other requirements as described herein.
Any Interstate shareholder may assert dissenters' rights as to fewer than
all shares registered in his or her name only if the shareholder dissents with
respect to all shares beneficially owned by any one person and notifies
Interstate in writing of the name and address of each person on whose behalf he
or she asserts dissenters' rights. In order to assert dissenters' rights, a
beneficial shareholder must submit to Interstate the shareholder's written
consent to the dissent not later than the time that the beneficial shareholder
asserts dissenters' rights, which consent should be with respect to all shares
of which he or she is the beneficial shareholder.
If the Merger Agreement is approved by the requisite vote at the Special
Meeting, Interstate will send within 10 days after such approval to any
dissenting shareholder who has preserved his or her dissenters' rights by filing
such intent to demand payment and refraining from voting his or her shares in
favor of the Merger Agreement, a dissenters' notice including or having attached
a form for demanding
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payment that requires the registered or beneficial shareholder asserting
dissenters' rights to certify whether he or she acquired beneficial ownership
of the shares before the first announcement to the news media or to
shareholders of the terms of the Merger, a statement indicating where the
shareholder or beneficial shareholder must send the payment demand and where
and when certificates for the shares of Interstate Common Stock must be
deposited, a date by which Interstate must receive the payment demand and a
copy of Subchapter XIII. Persons receiving a dissenters' notice must demand
payment in writing within the requisite time and certify whether they
acquired beneficial ownership of the shares before the date specified in the
dissenters' notice. The dissenter's certificates for shares of such stock
must also be deposited in accordance with the terms of the notice.
As soon as the Merger is consummated or upon receipt of a payment demand,
whichever is later, Interstate will pay each shareholder who has perfected his
or her dissenters' rights the amount that Interstate estimates to be the fair
value of his or her shares plus accrued interest. The payment shall be
accompanied by Interstate's latest available audited financial statements, a
statement of Interstate's estimate of the fair value of the shares, an
explanation of the calculation of interest, a statement of the dissenter's right
to demand payment if the dissenter is dissatisfied with Interstate's payment and
a copy of Subchapter XIII.
Interstate may elect to withhold payment from a dissenter who was not the
beneficial owner of shares before the date specified in the dissenters' notice.
To the extent Interstate elects to withhold such payment after consummating the
Merger, Interstate shall estimate the fair value of the shares plus accrued
interest and shall pay that amount to each dissenter who agrees to accept it in
full satisfaction of his or her demand. Interstate shall send with its offer of
payment a statement of its estimate of the fair value of the shares, an
explanation of how interest was calculated and a statement of the dissenter's
right to demand payment if he or she is dissatisfied with the offer.
A dissenter, within 30 days after Interstate has made or offered payment
for his or her shares, shall notify Interstate in writing in accordance with
Section 180.0141 of the WBCL if he or she is dissatisfied with the payment or
offer. The notice shall state the dissenter's estimate of the fair value of his
or her shares and the amount of interest due and demand payment of that estimate
less the payment already received from Interstate, or for dissenters whose
payments have been withheld, reject the offer of payment and demand payment of
the fair value of his or her shares and interest due if certain conditions are
satisfied.
If a dissenter's demand for payment remains unsettled, Interstate may bring
a special proceeding within 60 days after receiving the payment demand and
petition a court to determine the fair value of Interstate shares and accrued
interest. If this special proceeding is not brought within the 60-day period,
Interstate must pay each dissenter whose demand remains unsettled the amount
demanded.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
Quarles & Brady, counsel to Interstate, is giving its opinion, dated as of
September 24, 1996, regarding the material tax consequences of the
transaction to shareholders of Interstate. Those consequences are summarized
below.
The following discussion, which is included solely for the general
information of Interstate shareholders, summarizes certain federal income tax
consequences to holders of Interstate Common Stock that receive cash and rights
to Contingent Payments in exchange for shares of Interstate Common Stock
pursuant to the terms of the Merger Agreement (or that receive cash pursuant to
the exercise of dissenters' rights). This summary is based upon the statutes,
regulations, rulings and decisions in effect on the date hereof, all of which
are subject to change, possibly with retroactive effect. This summary does not
discuss all aspects of federal income taxation that may be relevant to a
particular shareholder in light of the
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shareholder's personal investment circumstances, or to certain types of
shareholders subject to special treatment under the federal income tax laws
(for example, financial institutions, life insurance companies, tax-exempt
organizations and foreign persons), and it does not discuss any aspects of
state, local or foreign tax laws. This summary does not discuss the tax
consequences that may be applicable to shareholders who acquired their shares
of Interstate Common Stock through the exercise of stock options or otherwise
as compensation or to Interstate shareholders that own or will own shares of
Citation. This summary assumes that shareholders hold their shares of
Interstate Common Stock as a "capital asset" (generally property held for
investment) under the Internal Revenue Code of 1986, as amended (the "Code"),
and that the Company Stock Price will be paid in 1996. No rulings have been
or will be requested from the Internal Revenue Service (the "IRS") as to the
federal income tax consequences of the Merger. Because the tax consequences
for any particular shareholder may be affected by matters not taken into
account in this summary or a decision to elect out of installment reporting
as discussed below, each shareholder is urged to consult his or her own tax
advisor as to the specific tax consequences to him or her of the Merger,
including the application and effect of federal, state, local and foreign
income and other tax laws.
The receipt of cash and the right to Contingent Payments in exchange for
shares of Interstate Common Stock pursuant to the terms of the Merger Agreement
(or the receipt of cash pursuant to the exercise of dissenters' rights) will be
a taxable transaction for federal income tax purposes, and may also be a taxable
transaction under applicable state, local, foreign and other tax laws.
SHAREHOLDERS THAT DO NOT ELECT OUT OF INSTALLMENT REPORTING. If a
taxpayer does not elect out of installment reporting, Treasury Regulations
governing contingent debt instruments will require the shareholder to
allocate in equal annual increments the basis of his or her shares of
Interstate Common Stock to the taxable years in which payments (including the
Company Stock Price and Contingent Payments) may be received. Because the
Company Stock Price will be received in 1996 and Contingent Payments, if any,
may be received in each of the years 1997, 1998 and 1999, twenty-five percent
(25%) of the shareholder's basis would be allocated to each of the years 1996
through 1999. Gain will be recognized to the extent that the Company Stock
Price or principal component of a Contingent Payment (computed as described
below) received in a taxable year exceeds the basis allocated to that year.
If in 1997 or 1998 no Contingent Payment is received or if the principal
component of such payment is less than the basis allocated to that year, the
unrecovered portion of basis allocated to that year will be carried forward
to the next year. No loss will be allowed until 1999, the final taxable year
in which a Contingent Payment may be received (or, if earlier, the taxable
year in which it is determined that the right to Contingent Payments is
worthless). As a result of the basis allocation rules, unless an Interstate
shareholder elects out of installment reporting, the shareholder will
generally be able to offset only twenty-five percent (25%) of the
shareholder's basis in shares of Interstate Common Stock against the payment
of the Company Stock Price received in 1996, even though that payment could
well be the majority of total payments to be received by the shareholder
pursuant to the Merger. Therefore, a shareholder may wish to consider
electing out of installment reporting with respect to the Merger.
Pursuant to temporary Treasury Regulation Section 15A.453-1(c)(7), a
taxpayer may request a private letter ruling from the IRS to use an
alternative method of basis recovery if the taxpayer is able to demonstrate,
prior to the due date of the return (including extensions) for the taxable
year in which the first payment is received (1996), that application of the
normal basis recovery rule described above will substantially and
inappropriately defer recovery of basis. To meet this test the taxpayer must
show (i) that the alternative method is a reasonable method of ratably
recovering basis, and (ii) that, under such method, it is reasonable to
conclude over time the taxpayer likely will recover basis twice as fast as
the taxpayer would under the otherwise applicable normal basis recovery rule.
The request must be filed before the due date for filing the return. The
taxpayer must receive the ruling prior to using the alternative method of
basis recovery.
A shareholder that does not elect out of installment reporting may be
required to pay interest on the deferred tax. Section 453A of the Code
generally requires that interest be paid on the deferred tax
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with respect to an obligation arising from the installment sale of property
if (i) the sales price is over $150,000 and (ii) the face amount of all such
obligations that arose during the taxable year and that are outstanding as of
the close of the taxable year exceeds $5 million. If interest must be paid
with respect to an obligation that arises during a year, interest must also
be paid for any subsequent year if any part of that obligation remains
outstanding at the end of that subsequent year. It is not clear how the
interest charge will be computed when the installment obligation involves
rights such as rights to the Contingent Payments.
SHAREHOLDERS THAT ELECT OUT OF INSTALLMENT REPORTING. If an
Interstate shareholder elects out of installment reporting of the receipt of
the Company Stock Price and Contingent Payments, it is likely that at the
Effective Time the shareholder will recognize capital gain or loss for
federal income tax purposes equal to the difference between (i) the tax basis
of the shares of Interstate Common Stock converted in the Merger and (ii) the
sum of the Company Stock Price plus the fair market value at the Effective
Time of the right to Contingent Payments for such shares. To elect out of
installment reporting, a shareholder should report the full amount of the
gain or loss on a timely filed federal tax return (including extensions).
Generally, once a taxpayer reports a gain under the installment method, the
taxpayer cannot later elect out of installment reporting. However, if the
original federal tax return of the taxpayer was filed on time, the taxpayer
may make the election on an amended return filed no more than six months
after the due date of the return, excluding extensions.
If an Interstate shareholder elects out of installment reporting, the
shareholder will recognize additional gain if the total of the principal
components of the Contingent Payments (computed as described below) exceeds
the fair market value of the right to Contingent Payments at the Effective
Time. Such a shareholder will recognize a capital loss in 1999 (the last
year in which a Contingent Payment could be received) if the total of the
principal components of such actual Contingent Payments is less than such
fair market value.
On occasion, taxpayers have argued that if installment reporting does
not apply to the sale or exchange of an asset (e.g., because the taxpayer
elects out of installment reporting), the taxpayer should be permitted to
postpone taxation of the contingent portion of the sale price until the
contingent portion is actually paid. Under this method, the so-called "open
transaction method," taxpayers have argued that they are entitled to recover
tax basis before reporting any gain. However, temporary Treasury Regulation
Section 15A.453-1(d) severely limits the availability of the open transaction
method. The Regulation provides that if a taxpayer elects not to report on
the installment method, then "[r]eceipt of an installment obligation shall be
treated as the receipt of property, in an amount equal to the fair market
value of the installment obligation, whether or not such obligation is the
equivalent of cash. An installment obligation is considered to be property
and is subject to valuation . . . without regard to whether the obligation is
embodied in a note, an executory contract, or other instrument . . . ." The
Regulation also states that if a taxpayer elects out the installment method
"[t]he fair market value of a contingent payment obligation may be
ascertained from, and in no event shall be considered to be less than, the
fair market value of the property sold (less the amount of any other
consideration received in the sale). Only in those rare and extraordinary
cases involving sales for a contingent payment obligation in which the fair
market value of the obligation (determinable under the preceding sentences)
cannot reasonably be ascertained will the taxpayer be entitled to assert that
the transaction is 'open.'" Thus, it is likely that the IRS would challenge
any attempt to use the open transaction method, and no assurance can be given
that the IRS would not be successful in such a challenge.
DISSENTING SHAREHOLDERS. A shareholder that exercises dissenters'
rights will recognize gain or loss equal to the difference between the basis
of the shares of Interstate Common Stock held by the shareholder and the
amount of cash received pursuant to the exercise of such rights.
CAPITAL LOSS LIMITATION. If an individual recognizes a capital loss
in a taxable year, such a loss is deductible only to the extent of capital
gains recognized in that taxable year plus $3,000 ($1,500 for a
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married individual filing a separate return). Any excess capital loss may be
carried forward indefinitely until exhausted under the rules of the preceding
sentence, but may not be carried back. Thus, as an example of the effect of
the basis allocation rules discussed above, an Interstate shareholder that
does not elect out of installment reporting could have a capital gain in 1996
and a capital loss in 1999, which loss could not be used to offset the
capital gain. A corporation may deduct a capital loss only to the extent of
capital gains. A corporation may generally carry a capital loss back three
years and forward five years.
COMPUTATION OF PRINCIPAL AND INTEREST COMPONENTS OF CONTINGENT
PAYMENTS. A certain portion of any cash received by a former Interstate
shareholder in connection with a subsequent cash payment made by Citation as
a Contingent Payment will constitute interest income to the shareholder. The
amount of any Contingent Payment that will be characterized as interest
income is a function of the amount of cash actually received by the former
Interstate shareholder and the applicable federal interest rate. The Merger
Agreement provides that the applicable federal interest rate shall be the
applicable federal mid-term rate, compounded semi-annually. In effect, any
cash received as a Contingent Payment will be discounted by the applicable
rate to determine both a principal component and an interest component. The
interest component will be taxed as interest income, while the principal
component will be taxed in accordance with the provisions of the Code
described above.
CONDUCT OF BUSINESS PENDING THE MERGER
The Merger Agreement provides that, between May 16, 1996 (the date of
the Merger Agreement) and the Closing, except with Citation's consent,
Interstate will use reasonable efforts to: (a) maintain all of the material
assets presently being used in the operation of its business in good
operating condition and repair subject to ordinary wear and tear; (b)
maintain insurance upon the assets of its business in amounts comparable to
that in effect on the date of the Merger Agreement; (c) preserve its present
business organization intact, and refrain from firing or terminating any of
its present officers or key employees, except upon prior notice to Citation;
(d) maintain its books, accounts and records in the usual, regular and
ordinary manner, on a basis consistent with prior years, endeavor to comply,
in all material respects, with all laws applicable to it and to the conduct
of its business, and perform all of its material obligations without default;
(e) not sell or voluntarily dispose of any of the assets of its business,
except in the ordinary course of business; (f) not incur any accounts
payable with respect to the operation of its business except in the ordinary
course of business; (g) not grant any increase in pay to employees nor
increase any salary, commission, bonus or management fee to any employee, nor
pay any bonus or institute any bonus or pension or profit-sharing plan or
program, other than in the ordinary course of business; (h) not enter into
any contract or commitment or engage in any transaction which is not in the
ordinary course of business, nor permit any material change in the character
of its business; (i) prevent the occurrence of any event which would result
in any of its representations and warranties contained in the Merger
Agreement not being true and correct; (j) keep its business intact and
preserve its relationship with suppliers, customers and others with whom
Interstate has business relations; (k) not amend or propose to amend its
articles of incorporation or bylaws except as required by law; (l) not issue
any additional stock options, stock appreciation rights or similar rights;
(m) not remove any inventory or equipment from its business premises, except
for the sale of inventory and equipment in the ordinary course of business;
and (n) not pay or declare any distributions to shareholders. Interstate
has also agreed not to make or institute any material change in its method of
purchase, sale, lease, management, marketing, accounting or operations
without the prior consent of Citation.
Citation and Sub and, subject to the approval of the Merger by
Interstate's shareholders, Interstate each agreed to take such action as is
required to consummate the Merger and the other transactions contemplated
thereby as of the earliest practicable date and to refrain from taking any
action that would impair the prospect of completing the Merger, except that
Interstate may agree to a competing offer or transaction. See --COMPETING
TRANSACTIONS. Citation is not prevented under the Merger Agreement from
proceeding with other mergers or acquisitions, regardless of whether or not
Citation Common Stock or other securities are used as the consideration.
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COMPETING TRANSACTIONS
Interstate has agreed in the Merger Agreement that neither it nor its
officers, directors, employees, agents or other representatives will solicit,
initiate, facilitate, encourage, negotiate with respect to, discuss or agree
to any Competing Transaction (as defined below) or Competing Offer (as
defined below), except (i) to the extent required by the fiduciary duties of
the Interstate Board and its officers under applicable law if so advised by
advice of counsel, and (ii) Competing Offers by officers, directors,
employees and shareholders of Interstate. Interstate is obligated to notify
Citation within 48 hours following receipt of any Competing Offer and must
give Citation 48 hours prior notice and an opportunity to negotiate with
Interstate before entering into, executing or agreeing to, any Competing
Offer or Competing Transaction. Interstate may, by notice to Citation at any
time prior to the Effective Time, terminate the Merger Agreement if it enters
into, executes or agrees to, a Competing Offer or Competing Transaction
following a determination by the Interstate Board on advice of counsel that
such action is required by its fiduciary duties under applicable laws.
For purposes of the Merger Agreement, Competing Transaction is
defined to mean any of the following transactions occurring prior to the
Effective Time, other than the Merger: (a) a merger, consolidation, exchange
of securities, reorganization, business combination or similar transaction
involving Interstate; (b) a disposition of all or substantially all of the
assets of Interstate in a single or series of related transactions; (c) a
sale of, or a tender offer or exchange offer for, or acquisition by any
person or group of beneficial ownership of, 10% or more of the outstanding
capital stock of Interstate in a single or series of related transactions; or
(d) a public announcement of a proposal, plan, intention or agreement to do
any of the foregoing. Under the Merger Agreement, a Competing Offer means
any inquiry, proposal or offer relating to a Competing Transaction.
INDEMNIFICATION
Interstate has agreed to indemnify Citation and the Surviving
Corporation and their respective officers, directors, and/or agents
(collectively, the "Citation Indemnified Parties") and hold them harmless
from any liability, loss, cost, expense, damage, claim or deficiency
(including reasonable legal expenses), which the Citation Indemnified Parties
may suffer, sustain or become subject to, (i) as a result of any
misrepresentation by Interstate in the Merger Agreement, breach of any of the
warranties of Interstate contained in the Merger Agreement, or any breach or
failure to perform by Interstate of any of its covenants, duties or
obligations set forth in the Merger Agreement, (ii) related to delinquent or
underpaid taxes, including any interest and penalties thereon, with respect
to fiscal year 1995 and prior years and not included as a liability on the
December 31, 1995 Balance Sheet of Interstate, (iii) related to or arising
out of any administrative, civil or criminal action or proceedings relating
to any securities law matters, including but not limited to any inquiry or
investigation, whether formal or informal, with respect to any conduct by
Interstate relating thereto, or (iv) related to or arising out of a claim of
stock ownership (and/or options or other rights to purchase the capital stock
of Interstate) in Interstate to the extent such claimant is not recognized by
Interstate as of the Effective Time as being entitled to a portion of the
Merger Consideration (collectively, the "Citation Losses"). It should be
noted that, in the opinion of the Securities and Exchange Commission,
indemnification of officers, directors and controlling persons of registrants
for liabilities arising under the Securities Act of 1933 is against public
policy and is, therefore, unenforceable.
The indemnification provided by Interstate in the Merger Agreement
will be satisfied solely from a set-off by Citation against the final
installment of the Contingent Payments, if any. See DESCRIPTION OF
CONTINGENT PAYMENTS. Citation will be entitled to such set-off (i) only if
Citation promptly notifies in writing the Stockholders Agents (as defined
herein), specifying the nature and amount of the Citation Losses related to
such claim or claims, (ii) only for a particular matter if it exceeds $10,000
and the amount of any reserves on Interstate's books at December 31, 1995,
and (iii) only if the aggregate amount of all such Citation Losses exceeds
$750,000 (the "Basket Amount"), in which case Interstate shall be obligated
to indemnify the Citation Indemnified Parties only for the excess of the
aggregate amount of all such Citation
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Losses over the Basket Amount, except that indemnification for (i) securities
law matters, (ii) stock ownership matters, and (iii) Interstate Transaction
Costs in excess of those disclosed at Closing shall be made without reference
to the Basket Amount. The maximum amount that can be recovered by Citation
through the exercise of the right of set-off against the final installment of
the Contingent Payments, if any, is $10,000,000.
Citation has agreed to indemnify the Closing Stockholders and their
agents, and the directors, officers and agents of Interstate (collectively,
the "Interstate Indemnified Parties") and hold them harmless from any
liability, loss, cost, expense, damage, claim or deficiency (including
reasonable legal expenses), which the Interstate Indemnified Parties may
suffer, sustain or become subject to, (i) as a result of any
misrepresentation by Citation or Sub in the Merger Agreement, breach of any
of the warranties of Citation or Sub contained in the Merger Agreement, or
any breach or failure to perform by Citation or Sub of any of their
covenants, duties or obligations set forth in the Merger Agreement, or (ii)
arising in connection with, or resulting from, the operation of Interstate on
or after the Closing Date (collectively, the "Interstate Losses"). The
Interstate Indemnified Parties will be entitled to indemnification for any
claim resulting in Interstate Losses only if they promptly notify Citation in
writing of the nature and amount of the Interstate Losses related to such
claim. All Interstate Losses are subject to indemnification by Citation
regardless of the dollar amount.
Prior to asserting any claim for indemnification for Citation Losses
or Interstate Losses, the indemnitee must exhaust all remedies with respect
to such losses against all other sources, including applicable insurance
policies. The rights of the Citation Indemnified Parties and the Interstate
Indemnified Parties set forth in the Merger Agreement are exclusive of all
other rights of indemnity or contribution, whether created by law or
otherwise, either before or after the Effective Time, relating in any way to
the terms of the Merger Agreement.
For a period of at least eight years after the Effective Time,
Citation will, and will cause Interstate to, maintain in effect: (a) charter
provisions or other agreements indemnifying present or former directors and
officers of Interstate, and former, present or future fiduciaries of any
employee benefit plan of Interstate, who serve or served as such at or prior
to the Effective Time; and (b) policies of insurance: (i) insuring such
officers and directors of Interstate against certain matters which arose at
or prior to the Effective Time; and (ii) insuring such plan fiduciaries
against certain matters which arose at or prior to, or which arise after, the
Effective Time. All such indemnification and insurance shall cover the same
matters and be on terms no less favorable than such charter documents,
agreements and insurance policies of Interstate as are in effect at the
Effective Time.
FEES AND EXPENSES
Whether or not the Merger is consummated, each party will pay all
fees and expenses incurred by it in connection with the Merger Agreement.
The Interstate Transaction Costs will be deducted from the amount otherwise
payable by Citation at Closing. See --PRINCIPAL TERMS OF THE MERGER--MERGER
CONSIDERATION.
ACCOUNTING TREATMENT
Citation intends to treat the Merger as a "purchase" under generally
accepted accounting principles. Under the purchase method of accounting, the
assets and liabilities of Interstate will be, as of the Effective Time,
recorded at their respective fair values. Additionally, amounts related to
the Contingent Payments, if any, will be recorded when the contingency is
resolved and the additional consideration is distributable. The expected
excess of the consideration including Contingent Payments, if any, paid by
Citation over the fair value of Interstate's assets and liabilities will be
recorded as property, plant and equipment up to its fair value with any
remaining amount recorded as goodwill. The additional costs of affected
assets,
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property, plant and equipment and goodwill, relating to the payment
of Contingent Payments, if any, will be amortized over the remaining lives of
the affected assets .
All unaudited pro forma financial information contained or
incorporated by reference in this Proxy Statement-Prospectus has been
prepared using the purchase method to account for the Merger. See PRO FORMA
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS and INCORPORATION OF DOCUMENTS BY
REFERENCE.
REGULATORY MATTERS
The HSR Act and the rules and regulations thereunder provide that
certain acquisition transactions (including the Merger) may not be
consummated unless certain information has been furnished to the Antitrust
Division of the Department of Justice ("Justice") and the Federal Trade
Commission (the "FTC") and certain waiting period requirements have been
satisfied. The required information was furnished to Justice and the FTC by
Citation on July 24, 1996 and by Interstate on July 24, 1996. The waiting
period under the HSR Act terminated on August 2, 1996. The expiration or
termination of the HSR Act waiting period does not preclude Justice, the FTC
or others from challenging the Merger on antitrust grounds. Neither Citation
nor Interstate believes that the Merger would violate the federal antitrust
laws. See --CONDITIONS TO CLOSING. Other than certain filings with
regulatory agencies under certain federal securities laws and certain state
securities or "blue sky" laws, there are no other federal or state regulatory
requirements or authorities that must be complied with or whose approval must
be obtained, respectively, in connection with the Merger.
MANAGEMENT AND OPERATIONS OF INTERSTATE AFTER CLOSING
POST-CLOSING MANAGEMENT. Interstate will be the Surviving
Corporation in the Merger and, after the Effective Time, will continue to own
and operate the business conducted by Interstate before the Effective Time.
Citation intends that the operations of the Surviving Corporation after the
Effective Time will be conducted substantially in the same manner as those of
Interstate before the Effective Time, with present Interstate management
personnel retained except that Franklyn Esenberg, Chairman of the Board of
Interstate, will resign from that position effective as of the Effective Time
and will be appointed Vice-Chairman of the Board of Interstate.
It is anticipated that after the Effective Time the Board of
Directors of the Surviving Corporation will consist of T. Morris Hackney, R.
Conner Warren, Stanley B. Atkins, Franklyn Esenberg and James Mitchell. The
officers of the Surviving Corporation after the Effective Time are expected
to consist of the current officers of Interstate, James Mitchell, President
and Chief Executive Officer, David P. Lauer, Chief Financial Officer and
Treasurer, Everett Johnson, Vice President and General Manager-Southwest
Division, David A. Boettcher, Vice President-Sales, and Louis Zietz, Vice
President and Technical Manager-Southwest Division, plus T. Morris Hackney,
who will become Chairman of the Board, R. Conner Warren and Thomas W.
Burleson, who will each become Vice President and Assistant Secretary, and
Stanley B. Atkins, who will become Vice President and Secretary.
EMPLOYEES. Other than Messrs. Esenberg and Mitchell (see --INTERESTS
OF CERTAIN PERSONS IN THE MERGER), employees of Interstate as of the
Effective Time will be employed by the Surviving Corporation after the
Effective Time on an "at-will" basis and for the same salaries or wages in
effect as of the Effective Time. Collective bargaining agreements between
Interstate and its employees in effect immediately prior to the Effective
Time will continue in effect after the Effective Time.
EMPLOYEE BENEFIT PLANS. After the Effective Time, Interstate's
existing group benefit plans will continue in effect unchanged, except where
cost factors or unusual circumstances dictate otherwise. In addition,
Interstate will adopt Citation's employee stock purchase plan. All Interstate
retirement plans will also continue in effect after the Effective Time.
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INTERESTS OF CERTAIN PERSONS IN THE MERGER
In considering the recommendation of the Interstate Board with
respect to the Merger, shareholders should be aware that certain members of
Interstate's management and the Interstate Board have certain interests in
the Merger that are in addition to the interests of shareholders of
Interstate generally. The Interstate Board was aware of these interests and
considered them, among other matters, in adopting and approving the Merger
Agreement.
JAMES MITCHELL EMPLOYMENT AGREEMENT. Citation and Interstate have
entered into an employment agreement with James Mitchell dated May 16, 1996,
as amended (the "Mitchell Employment Agreement"), which will become effective
as of the Effective Time, pursuant to which Mr. Mitchell will serve as
President and Chief Executive Officer of Interstate for a term beginning at
the Effective Time and continuing for a period of three years thereafter,
which term is subject to extension unless terminated by Mr. Mitchell or
Interstate. Pursuant to the terms of the Mitchell Employment Agreement, Mr.
Mitchell shall receive an annual base salary of $225,000, incentive
compensation from incentive compensation programs of Interstate in place from
time to time and fringe benefits customarily provided to executives of
Interstate. The Mitchell Employment Agreement may be terminated by
Interstate prior to the expiration of the three year term or any extension in
the event of Mr. Mitchell's death, retirement or total disability; upon the
bankruptcy, receivership, dissolution or cessation of business of Citation;
or after written notice and an opportunity for Mr. Mitchell to respond, in
the event that Mr. Mitchell commits an act of personal dishonesty or willful
misconduct, breaches a fiduciary duty involving personal profit or
intentionally fails to perform stated duties, related to his position with
Interstate. Should Interstate terminate Mr. Mitchell prior to the expiration
of his employment term for reasons other than those set forth above, Mr.
Mitchell would be entitled to all compensation and the value of all benefits
provided for under the Mitchell Employment Agreement for the unexpired
portion of the Mitchell Employment Agreement. Mr. Mitchell has also agreed
not to compete with Interstate, except that he may acquire an equity interest
of 5% or less of the total equity interests in any company, partnership,
joint venture or similar entity which may compete with Interstate.
FRANKLYN ESENBERG EMPLOYMENT AGREEMENT AND RELATED CITATION GUARANTY.
Interstate and Franklyn Esenberg have entered into an employment agreement
dated May 16, 1996, as amended (the "Esenberg Employment Agreement"),
pursuant to which Mr. Esenberg will serve as Vice Chairman of the Board of
Interstate for a term beginning on the date of the Effective Time and
continuing until December 31, 2001. Pursuant to the terms of the Esenberg
Employment Agreement, Mr. Esenberg will receive an annual salary of $67,000
plus customary fringe benefits. During the term of the Esenberg Employment
Agreement, Mr. Esenberg has agreed not to compete with Interstate, except
that he may invest in publicly traded companies which may compete with
Interstate. In the event of Mr. Esenberg's death, Interstate shall continue
to pay Mr. Esenberg's salary through the term of the Esenberg Employment
Agreement.
Pursuant to the terms of the Merger Agreement, Citation will
guarantee at Closing the performance of and payment by Interstate under the
Esenberg Employment Agreement. In addition, under the terms of the guaranty,
Mr. Esenberg will be appointed to the Citation Board of Directors at the
Effective Time and will be nominated by Citation management for election as a
director at each annual meeting thereafter until at least the 1999 annual
meeting of Citation.
SETTLEMENT OF STOCK APPRECIATION RIGHTS. On January 1, 1994,
Interstate granted SARs for 29,600 underlying shares of Interstate Common
Stock at a $14.00 per share grant price to seventeen non-executive officer
key employees. On January 1, 1996, Interstate granted additional SARs for
3,000 underlying shares of Interstate Common Stock at $28.60 per share to
three additional non-executive officer key employees. Pursuant to the terms
of the Merger Agreement, all outstanding Interstate SARs for a total of
32,600 underlying shares of Interstate Common Stock will be settled in cash
by Interstate at the Effective Time based on a per share value for
Interstate Common Stock equal to the Company Stock Price. The aggregate
payment by Interstate in full settlement of the SARs is expected to be
approximately
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$558,000 (based on a Company Stock Price of $32.5239 per Interstate share).
This SAR payment will be excluded from the calculation of average annual net
earnings of Interstate before interest and income and franchise taxes for
purposes of determining the amount of Contingent Payments, if any, due to the
Closing Stockholders. See DESCRIPTION OF CONTINGENT PAYMENTS.
RESTRICTED STOCK ARRANGEMENT FOR MANAGEMENT OF INTERSTATE. Pursuant
to the terms of the Merger Agreement, Citation has agreed to make awards of
an aggregate of 43,500 shares of restricted Citation Common Stock (the
"Restricted Stock") to Messrs. Mitchell, Lauer, Johnson, Boettcher and Zietz
and 20 other Interstate key employees whose SARs will be settled at the
Effective Time. See --SETTLEMENT OF STOCK APPRECIATION RIGHTS. The 43,500
shares of Citation Common Stock to be used for the Restricted Stock awards
were acquired for that purpose by Interstate in anticipation of the execution
of the Merger Agreement. The Citation Common Stock was acquired by
Interstate in open market purchases for an aggregate amount of approximately
$500,000. No new Citation Common Stock will be issued in connection with the
Restricted Stock awards. See --CITATION COMMON STOCK OWNERSHIP. The awards
shall be made as of the Effective Time and shall be subject to restrictions
whereby the awardee shall forfeit the Restricted Stock if he or she does not
remain an employee of Interstate (or Citation or one of Citation's other
subsidiaries) until December 31, 1998 (the "Restricted Period"). The
Restricted Stock will vest in whole upon the recipient's death, permanent
total disability or involuntary discharge (except for cause) during the
Restricted Period. If any of such Restricted Stock is forfeited, it shall be
returned to Citation and immediately awarded pro rata to the remaining
employees in the group of executive officers or former SAR recipients, as the
case may be, from which the forfeited stock originated. The restrictions on
any such forfeited stock newly-awarded to an employee shall expire at the
same time the Restricted Period of the Restricted Stock awarded at the
Effective Time to such employee expires. During the Restricted Period,
recipients of Restricted Stock shall have the right to vote their Restricted
Stock, but all cash dividends, stock dividends, stock rights or other
securities issued with respect to the Restricted Stock shall be forfeitable
and subject to the same restrictions as exist regarding the original shares
of Restricted Stock. The Restricted Stock is nontransferable during the
Restricted Period, except by will or the laws of descent and distribution.
CITATION COMMON STOCK OWNERSHIP. At the Record Date, the directors
and executive officers of Interstate beneficially owned approximately 29,000
shares of Citation Common Stock. At that date Interstate also held 43,500
shares of Citation Common Stock to be used for the Restricted Stock awards.
See --RESTRICTED STOCK ARRANGEMENT FOR MANAGEMENT OF INTERSTATE. Such shares
of Citation Common Stock held by Interstate and its directors and executive
officers constitute less than 1% of the outstanding Citation Common Stock.
STOCKHOLDERS AGENTS
Upon the approval of the Merger Agreement by the Interstate
shareholders, each Closing Stockholder shall be deemed to have irrevocably
constituted and appointed Franklyn Esenberg, James Mitchell and David P.
Lauer, and each of them (the "Stockholders Agents"), as their agents and
attorneys in fact with full power of substitution to act from and after the
Effective Time to do any and all things and execute any and all documents
which may be necessary, convenient or appropriate to facilitate the
consummation of the transactions contemplated by the Merger Agreement,
including but not limited to: (i) execution of documents and certificates
pursuant to the Merger Agreement; (ii) receipt of payments under or pursuant
to the Merger Agreement and disbursement thereof to the Closing Stockholders
and others, as contemplated by the Merger Agreement; (iii) receipt and
forwarding of notices and communications pursuant to the Merger Agreement;
and (iv) administration and enforcement of the provisions of the Merger
Agreement relating to the calculation and payment of the Contingent Payments.
See Section 2.1 of the Merger Agreement, attached hereto as Appendix A.
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EXCHANGE OF STOCK CERTIFICATES AND OPTION AGREEMENTS
As soon as is practicable after the Effective Time (but not later
than 15 days following such date), instructions for surrendering outstanding
certificates that immediately before the Effective Time represented shares of
Interstate Common Stock or Option Agreements relating to Option Stock will be
mailed to each Closing Stockholder of record. A summary of the exchange
procedures is provided immediately below.
PAYING AGENT. A bank or trust company that is eligible for
appointment as a trustee under the Trust Indenture Act of 1939, as amended
(the "Indenture Act") will act as paying agent (the "Paying Agent") for the
payment of the Closing Merger Payment on surrender of certificates
representing Interstate Common Stock and upon receipt of the applicable
Option Agreement for each holder of Option Stock. Firstar Trust Company,
Milwaukee, Wisconsin, will initially act as Paying Agent unless it is
ineligible to do so under the Indenture Act, in which case the Paying Agent
shall be mutually acceptable to Interstate, Citation and Sub.
SUB AND CITATION TO PROVIDE FUNDS. Before the Effective Time, Sub
will provide to the Paying Agent the Closing Merger Payment. Citation will
provide to the Paying Agent prior to the respective annual installment
payment dates for the Contingent Payments the funds necessary to pay the
Contingent Payments then due pursuant to the Merger Agreement.
EXCHANGE PROCEDURE FOR INTERSTATE COMMON STOCK. The Paying Agent
will mail to each holder of record of a certificate or certificates that
immediately before the Effective Time represented outstanding shares of
Interstate Common Stock (the "Certificates") (i) a letter of transmittal
specifying that delivery will be effected, and risk of loss and title to the
Certificates will pass, only on delivery of the Certificates to the Paying
Agent, and in such form and having such other provisions as Citation may
reasonably specify, and (ii) instructions for use in effecting the surrender
of the Certificates in exchange for the Company Stock Price plus the right to
receive a pro rata portion of the aggregate amount of Contingent Payments, if
any. On surrender of a Certificate for cancellation to the Paying Agent,
together with such letter of transmittal, duly executed, and such other
documents as may be reasonably required by the Paying Agent, the holder of
such Certificate will be entitled to receive in exchange, and the Paying
Agent will pay as soon as practicable to such holder, the amount of cash into
which the shares of Interstate Common Stock represented by the Certificate so
surrendered have been converted pursuant to the Merger Agreement, and the
Certificate so surrendered will forthwith be canceled. No interest will be
paid or will accrue on the cash payable on the surrender of any Certificate.
Any holder whose Certificates have been lost or destroyed may nevertheless
obtain the amount of cash into which the shares of Interstate Common Stock
represented by such Certificates have been converted pursuant to the
provisions of the Merger Agreement, provided such holder delivers to Citation
and the Paying Agent a statement certifying such loss or destruction and
providing for indemnity reasonably satisfactory to Citation and the Paying
Agent indemnifying Citation and the Paying Agent against any loss or expense
either of them may incur as a result of such lost or destroyed Certificates
being thereafter surrendered to the Paying Agent. In the event of a
transfer of ownership of Interstate Common Stock which is not registered in
the transfer records of Interstate, a check in payment of the proper amount
of cash may be issued to a transferee if the Certificate representing such
Interstate Common Stock is presented to the Paying Agent, accompanied by all
documents required to evidence and effect such transfer and by evidence that
any applicable stock transfer taxes have been paid. Until surrendered as
contemplated by the Merger Agreement, each Certificate after the Effective
Time will represent only the right to receive on such surrender in exchange
for each share of Interstate Common Stock represented thereby the Company
Stock Price and its pro rata portion of the aggregate amount of Contingent
Payments, if any. Any funds deposited with the Paying Agent that remain
unclaimed by the former holders of Interstate Common Stock for four years
after the Effective Time will be paid to the Surviving Corporation on demand,
and any former holders of Interstate Common Stock who have not then complied
with the instructions for exchanging their Certificates may look only to the
Surviving Corporation for payment.
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EXCHANGE PROCEDURE FOR HOLDERS OF OPTION STOCK. The procedure for
holders of Option Stock at the Effective Time to receive the Option Stock
Price from the Paying Agent shall be the same procedure as that specified
above for payment of the Company Stock Price for shares of Interstate Common
Stock (as reasonably modified pursuant to the discretion of the Paying Agent,
as necessary), except that the holders of Option Stock shall be required to
deliver their Option Agreements to the Paying Agent, rather than being
required to deliver the Certificates as in the case of holders of Interstate
Common Stock.
PAYMENT OF CONTINGENT PAYMENTS. If any amount of Contingent Payments
is due to the Closing Stockholders pursuant to the provisions of the Merger
Agreement, Citation will make payment of such Contingent Payments to the
Paying Agent, and the Paying Agent shall deliver the payment due to all
Closing Stockholders (other than dissenting shareholders) who have delivered
their Certificates or Option Agreements, as applicable, to the Paying Agent,
in accordance with the terms of the Merger Agreement. See DESCRIPTION OF
CONTINGENT PAYMENTS.
NO FURTHER OWNERSHIP RIGHTS IN CLOSING STOCK. All cash paid on the
surrender of shares of Interstate Common Stock (or rights to shares for
Option Stock) plus the right to the payment of any Contingent Payments due in
accordance with the terms of the Merger Agreement will be deemed to have been
made and given in full satisfaction of all rights pertaining to such shares
of Interstate Common Stock and Option Stock, and there will be no further
registration of transfers on the stock transfer books of the Surviving
Corporation of the shares of Interstate Common Stock. If, after the
Effective Time, Certificates are presented to the Surviving Corporation for
any reason, they will be canceled and exchanged as provided in the Merger
Agreement.
PLEASE DO NOT SEND IN ANY CERTIFICATES FOR YOUR INTERSTATE COMMON
STOCK AT THIS TIME.
DISPUTE RESOLUTION
The Merger Agreement establishes certain procedures to resolve any
dispute or disagreement (other than with respect to calculation of the
Contingent Payments (see DESCRIPTION OF CONTINGENT PAYMENTS--PROCEDURES TO
DETERMINE ANY CONTINGENT PAYMENTS DUE) between Interstate or the Stockholders
Agents and Citation relating to the Merger Agreement. If any such dispute is
not resolved within 30 days of one party giving the other notice of a
dispute, the Stockholders Agents and Citation must attempt in good faith to
resolve the dispute by non-binding mediation. If such mediation fails to
resolve the dispute and 100 days have passed since the first notice of the
dispute, any party may bring an action or proceeding in state or federal
court which has jurisdiction over the parties. The parties to the Merger
Agreement have agreed that any proceeding relating to the Merger Agreement
must be brought in a court of competent jurisdiction sitting in Milwaukee
County, Wisconsin.
DESCRIPTION OF INTERSTATE CAPITAL STOCK
GENERAL
At the Record Date, the authorized capital stock of Interstate
consisted of 6,000,000 shares of Common Stock, $1.00 par value per share, of
which 1,313,524 shares were issued and outstanding. The following summary of
Interstate Common Stock does not purport to be complete and is qualified in
its entirety by reference to Interstate's Articles of Incorporation and
Bylaws, as well as applicable statutory or other law.
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COMMON STOCK
Holders of Interstate Common Stock: (i) have equal and ratable
rights to dividends from funds legally available therefor, when, as and if
declared by the Interstate Board, subject to any contractual restrictions on
the payment of dividends, as discussed below; (ii) are entitled to share
ratably in any distribution to holders of Interstate Common Stock upon
liquidation, dissolution or winding-up of Interstate, after payment in full
of all creditors; and (iii) do not have preemptive rights. Interstate Common
Stock is not redeemable or convertible, and each holder is entitled to one
vote per share on all matters presented to shareholders.
The outstanding shares of Interstate Common Stock are fully paid and
non-assessable. However, shareholders are subject to personal liability under
Section 180.0622(2)(b) of the WBCL, as judicially interpreted, for debts
owing to employees of Interstate for services performed, but not exceeding
six months service in any one case.
Interstate's lending arrangements with its bank place certain
restrictions on Interstate's ability to pay dividends or make other
distributions to shareholders. See MARKET PRICES OF INTERSTATE COMMON STOCK
AND DIVIDENDS.
Except as may otherwise be required by law, under Interstate's
Articles of Incorporation the vote required to approve a plan of merger, sale
of substantially all assets not in the ordinary course of business or
dissolution is a majority of all the votes entitled to be cast by those
shareholders who have a right to vote.
The registrar and transfer agent for Interstate Common Stock is
Firstar Trust Company, Milwaukee, Wisconsin.
CERTAIN ANTI-TAKEOVER PROVISIONS
Sections 180.1140 to 180.1144 of the WBCL prohibit certain "business
combinations" between a "resident domestic corporation," such as Interstate,
and a person beneficially owning 10% or more of the voting power of the
outstanding voting stock of Interstate (an "interested stockholder") within
three years after the date such person became a 10% beneficial owner, unless
the business combination or the acquisition of such stock has been approved
before the stock acquisition date by the Interstate Board. After such
three-year period, a business combination with the interested stockholder may
be consummated only if the Interstate Board approved such stock acquisition
before the stock acquisition date or the holders of a majority of the voting
stock not beneficially owned by the interested stockholder approve the
business combination at a meeting called for that purpose, unless the
business combination satisfies certain adequacy-of-price standards intended
to provide a fair price for shares held by disinterested shareholders.
DESCRIPTION OF CONTINGENT PAYMENTS
THE CONTINGENT PAYMENTS, IF ANY, ARE PAYABLE PURSUANT TO THE
PROVISIONS OF THE MERGER AGREEMENT, A COPY OF WHICH IS ATTACHED AS APPENDIX A
TO THIS PROXY STATEMENT-PROSPECTUS. THE FOLLOWING DESCRIPTION SUMMARIZES
CERTAIN GENERAL TERMS AND PROVISIONS OF THE CONTINGENT PAYMENTS AS PROVIDED
FOR IN THE MERGER AGREEMENT AND DOES NOT PURPORT TO BE COMPLETE AND IS
SUBJECT TO, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO, PROVISIONS OF
THE MERGER AGREEMENT.
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GENERAL
Pursuant to the terms of the Merger Agreement, Citation has agreed to
deliver to the Closing Stockholders aggregate Contingent Payments equal to
five (5) times the amount by which (x) the average annual net earnings of
Interstate before interest and income and franchise taxes ("Interstate EBIT")
during the three year period from January 1, 1996 through December 31, 1998
(the "Payout Period") exceeds (y) $10,000,000. For example, if the
aggregate Interstate EBIT during the Payout Period is $39,000,000, then the
aggregate amount of Contingent Payments payable to the Closing Stockholders
would be $15,000,000 ($39,000,000 DIVIDED BY 3 = $13,000,000 - $10,000,000
= $3,000,000 x 5 = $15,000,000), subject to the making of partial progress
payments as described below. Any Contingent Payments due are payable to the
Closing Stockholders on a pro rata basis, based on the combined aggregate
outstanding shares of Interstate Common Stock and Option Stock as of the
Effective Time. As partial progress payments, Citation has agreed to make
annual payments equal to 50% of the estimated final Contingent Payments due
based on the actual first and second year's Interstate EBIT, as discussed
below. Such partial progress payments shall be deemed fully earned by the
Closing Stockholders even though the subsequent year Interstate EBIT may be
less than $10,000,000. Any such Contingent Payments shall be paid in cash
on the dates indicated below, and shall be deemed to include interest
compounded semiannually at the applicable federal mid-term rate as determined
in accordance with provisions of Section 1274(d) of the Code.
DESCRIPTION OF INTERSTATE EBIT
The Merger Agreement further defines the term "Interstate EBIT" to
mean the consolidated net earnings (or losses), before all interest, income
(federal and state) and franchise taxes, of Interstate, computed on the
accrual basis of accounting in accordance with GAAP consistently applied and
consistent with the accounting principles applied by Interstate in its prior
fiscal years. The following provisions further govern the computation of
Interstate EBIT for purposes of the Merger Agreement:
(i) Any loss, charge or expense agreed to by Citation and the
Stockholders Agents to be (a) not related to the ordinary
business operations of Interstate, or (b) paid, incurred or
charged in connection with expansion of the business
operations presently conducted by Interstate as a result of
the making of acquisitions or the opening and staffing of new
offices, or any income or revenues directly derived therefrom,
shall be excluded from such computation.
(ii) Any charge or expense for the amortization of goodwill arising
out of the Merger, or that the purchase price thereof is in
excess of the net worth thereof, shall be excluded from such
computation.
(iii) Any payments, charges or expenses for allocation of home
office, executive, general and administrative expenses or
other payments, charges or expenses of Citation and the Sub
and/or its affiliates shall be excluded from such computation.
(iv) Such computation (including, without limitation, the
determination of the basis for depreciation and the reflection
of intercompany transactions) shall be made as though the
Merger had not occurred and Interstate were a single
corporation with all of the Interstate Common Stock owned by
persons who are neither directly or indirectly related to or
affiliated with Citation or any of its affiliates.
(v) Interstate shall maintain plant and equipment consistent with
past practices, and if such maintenance is determined to be
inconsistent, an appropriate adjustment shall be made to
Interstate EBIT. Inventory practices including maintenance and
spare parts inventories, and capitalization policies for fixed
assets shall be consistent with prior practices. There
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will be deducted from Interstate EBIT any material savings in
expenses and/or reduction in costs of goods and services
purchased that would not have resulted if Interstate had not
been affiliated with Citation. Interest will be deducted from
Interstate EBIT that is related to equipment being purchased
by Interstate after March 1, 1996 that was leased prior to
March 1, 1996.
(vi) Payments made in settlement for outstanding Interstate SARs as
provided by the Merger Agreement shall be excluded from the
computation of Interstate EBIT. See THE PROPOSED
MERGER--INTERESTS OF CERTAIN PERSONS IN THE MERGER--SETTLEMENT
OF STOCK APPRECIATION RIGHTS.
(vii) No effect shall be given to: (a) any tax or financial
statement write-up of the assets of Interstate based on the
consummation of the transactions described in the Merger
Agreement; (b) Interstate's payment of the Interstate
Transaction Costs; (c) any recapture income or recapture taxes
resulting from the consummation of the Merger; (d) any
additional depreciation or amortization of intangibles
associated with a write-up of assets upon or following the
consummation of the Merger; (e) the payments of, or accrual
for, the Contingent Payments; or (f) the payments of, or
accrual for, any prepayment penalties based on the prepayment
of any indebtedness of Interstate existing as of the Effective
Time.
(viii) To the extent that Interstate EBIT for calendar year 1996,
1997 or 1998 is reduced as a result of an event for which
Interstate has indemnified Citation and the Sub pursuant to
the Merger Agreement (and is recoverable because all
indemnifiable breaches exceed $750,000 or such breaches relate
to Interstate securities law or stock ownership matters), the
amount of such reduction shall be added back to Interstate
EBIT.
(ix) The grant of Restricted Stock shall be excluded from the
computation of Interstate EBIT. See THE PROPOSED
MERGER--INTERESTS OF CERTAIN PERSONS IN THE MERGER--RESTRICTED
STOCK ARRANGEMENT FOR MANAGEMENT OF INTERSTATE.
PROTECTIVE PROVISIONS
The Merger Agreement sets forth certain provisions intended to ensure
that Interstate will continue to operate its business during the Payout
Period as it did prior to the Effective Time. In particular, Citation has
agreed, subject to certain exceptions specified in the Merger Agreement, to:
(a) not cause or permit Interstate to (i) sell all or substantially all of
its assets, (ii) merge or consolidate with any other person; (iii) liquidate
or dissolve; or (iv) purchase all or substantially all of the assets or
capital stock of any person; (b) cause all transactions between it and its
affiliates, on the one hand, and Interstate, on the other hand, to be
conducted on an arm's length basis on terms and conditions at least as
favorable to Interstate as Interstate could obtain from persons other than
Citation or its affiliates; (c) permit the Stockholders Agents and their
representatives to have reasonable access to all books and records of
Interstate; (d) cause Interstate to maintain accounting books and records
which are the basis for the calculation of Interstate EBIT and the Contingent
Payments for calendar years 1996, 1997 and 1998; (e) cause Interstate not to
enter into the ownership, active management or operation of any business
other than the business of Interstate on the date of the Merger Agreement;
(f) cause James Mitchell to be the principal executive officer of Interstate,
having the right to manage the business and affairs of Interstate and direct
the formulation and execution of both short- and long-term corporate plans;
(g) cause Interstate to make all capital expenditures described in
Interstate's 1996 business plan; and (h) not own (other than through
Interstate), directly or indirectly, any other forging operation without
first consulting with the Stockholders Agents.
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PROCEDURES TO DETERMINE ANY CONTINGENT PAYMENTS DUE
The Merger Agreement establishes certain procedures that must be
complied with in determining whether any Contingent Payments are due and
payable during the Payout Period. Generally, by March 1, 1997, 1998 and 1999,
Citation must deliver to the Stockholders Agent (i) audited financial
statements of Interstate for the preceding calendar year; (ii) a statement
setting forth Citation's calculation of Interstate EBIT for the preceding
calendar year or years; (iii) a statement setting forth Citation's
calculation of the amount of the Contingent Payments due for the preceding
calendar year or years and the amount payable for the preceding calendar
year; and (iv) a special report by the auditors regarding Citation's
calculation of Interstate EBIT and the Contingent Payments for the preceding
calendar year or years. With respect to the final calendar year in the
Payout Period, Citation must also deliver a statement setting forth the
amount of any setoff by Citation against the Contingent Payments and the
basis therefor. See THE PROPOSED MERGER--INDEMNIFICATION. The Merger
Agreement also contains provisions intended to resolve any disagreement with
respect to the calculation of Interstate EBIT or the Contingent Payments. If
Citation and the Stockholders Agents are unable to resolve any disagreement
involving any such calculation, the disagreement may be submitted to a firm
of independent certified public accountants of national standing with an
office in Chicago, Illinois which is not affiliated with Citation, as agreed
to in writing by Citation and the Stockholders Agents. The independent
accountants will render a decision on the disagreement in writing, such
decision being final and binding on the parties. The independent accountants
will determine the proportion of their fees and expenses to be paid by
Citation and the Stockholders Agents (out of the Contingent Payments), based
on the degree to which they have accepted the position of a party. Citation
will be responsible for certain fees and expenses of the Stockholders Agents
and the independent accountants and interest on the Contingent Payments in
dispute should the independent accountants determine that the amount of
Contingent Payment due is $25,000 or more than the amount of the Contingent
Payments originally calculated by Citation.
PAYMENT OF CONTINGENT PAYMENTS
All payments of the Contingent Payments, if any, shall be made by
Citation to the Closing Stockholders by delivery of such amounts to the
Paying Agent. The Paying Agent shall: (i) pay all expenses of the
Stockholders Agents incurred in connection with the administration and
enforcement of the Merger Agreement; and (ii) distribute the balance of the
Contingent Payments to the Closing Stockholders pro rata.
Any Contingent Payments shall be payable by Citation in annual
installments as follows: (i) on or before March 1, 1997, Citation will
deliver to the Paying Agent an amount equal to 50% of the amount by which the
1996 calendar year Interstate EBIT exceeds $10,000,000, multiplied by
five; (ii) on or before March 1, 1998, Citation will deliver to the Paying
Agent an amount equal to 50% of the amount by which the combined 1996 and
1997 calendar year Interstate EBIT exceeds $20,000,000, divided by two and
multiplied by five, less the amount of Contingent Payments previously made;
and (iii) on or before March 1, 1999, Citation will deliver to the Paying
Agent an amount equal to the amount by which the combined 1996, 1997 and 1998
calendar year Interstate EBIT exceeds $30,000,000, divided by three and
multiplied by five, less the amount of Contingent Payments previously made.
Examples of these calculations are set forth in Section 1.12(b) of the Merger
Agreement, attached hereto as Appendix A.
The Closing Stockholders will have no obligation to return any prior
payments of Contingent Payments made, even though the lack of Interstate EBIT
in a subsequent year or years results in an amount of Contingent Payments
being made in excess of that which would otherwise be due at the end of the
Payout Period.
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COMPARISON OF CONTINGENT PAYMENTS TO INTERSTATE COMMON STOCK
Unlike the Interstate Common Stock, which Interstate shareholders
will surrender in connection with the Merger, the right to a pro rata portion
of the aggregate amount of any Contingent Payments will not constitute or
represent any equity or ownership interest in Interstate, nor in Citation or
Sub. As distinguished from Interstate Common Stock, each such right to any
Contingent Payments: (i) will not be represented by any form of certificate
or instrument; (ii) will not be transferable, whether by sale, assignment,
pledge or other transfer, except by operation of law or the laws of descent
and distribution; and (iii) will not entitle the holder thereof to any voting
or dividend rights or any other rights common to shareholders. The pro rata
right to a portion of the Contingent Payments is a cash only right. See
DESCRIPTION OF INTERSTATE CAPITAL STOCK.
CERTAIN INFORMATION CONCERNING CITATION
BUSINESS OF CITATION
Citation is a major components supplier to the durable goods
industry. It manufactures, machines and assembles precision ductile, gray
and high-alloy iron, steel and aluminum castings. It serves the
automotive/light truck, heavy truck, electrical, railroad, pump, valve,
fittings, waterworks, agriculture, aircraft and other industrial markets.
Citation maintains a diverse base of approximately 1,900 customers with no
one customer accounting for more than 7.8% of sales in the twelve months
ended October 1, 1995. In fiscal 1994 and 1995 the Company produced and
shipped 131,984 and 206,295 tons of castings, respectively.
Citation currently operates 18 manufacturing facilities in nine
states and employs more than 5,000 employees. Citation's manufacturing
facilities are divided into the following three operating groups based on
customer base, length of production runs and technological processes: High
Volume, Medium Volume, Special Products. In fiscal year 1995, Citation's
total revenues were $307.7 million.
ADDITIONAL INFORMATION
Information regarding the names, ages, positions and business
backgrounds of the executive officers and directors of Citation, as well as
additional information, including executive compensation, security ownership
of certain beneficial owners and management and certain relationships and
related transactions, is incorporated by reference to Items 10, 11, 12 and 13
of Citation's Annual Report on Form 10-K for the fiscal year ended October 1,
1995 (which incorporates portions of Citation's Proxy Statement for its 1996
Annual Meeting of Shareholders).
MARKET PRICES OF INTERSTATE COMMON STOCK AND DIVIDENDS
As of the Record Date, there were approximately 150 holders of record
of Interstate Common Stock. There is no established public trading market
for Interstate Common Stock. Trading in shares of Interstate Common Stock is
infrequent and Interstate has not necessarily tracked the sales prices of
such shares in those transactions. As a result, the market value for shares
of Interstate Common Stock is not readily ascertainable. However, since
January 3, 1994, Interstate is aware of the following purchase and sale
transactions of Interstate Common Stock not involving Interstate employee
benefit plans: Pursuant to a stock redemption program commenced in January
1994, in April 1994 Interstate completed the repurchase, at $14.00 per share,
of 750,006 shares and options to purchase shares of Interstate Common Stock.
In conjunction with the redemption program, Interstate also repurchased
50,000 shares of stock, based on the $14.00 per share price, from two
shareholders in exchange for the termination of their stock repurchase and
sale agreements and received from one of its executive officers 21,668 shares
of already-
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owned stock valued at the $14.00 per share price in payment for an option
exercise for 86,181 shares of Interstate Common Stock. Additionally,
concurrent with the redemption, all outstanding interest free loans made from
time to time to certain officers of Interstate to enable them to purchase
Interstate Common Stock from Interstate were repaid by the delivery of
Interstate Common Stock valued at $14.00 per share. Two transactions for a
total of 5,255 shares were also completed after announcement of the
redemption program but before its completion at the $14.00 per share price.
In December 1994, approximately 30,000 shares of Interstate Common Stock were
traded at $14.00 per share. In October 1995, approximately 5,000 shares of
such stock were traded at $11.00 per share.
The Interstate Retirement Plan provides a put option to participants
who hold Interstate Common Stock distributed from the Retirement Plan.
Participants have 15 months from the date of distribution to "put" their
distributed shares to Interstate at the fair market value of such stock. In
order to establish the fair market value of the stock for purposes of the put
option under the Interstate Retirement Plan, each year Interstate obtains an
independent appraisal of such shares. At December 31, 1995, Valuation
Research Corp. ("Valuation") valued Interstate Common Stock for purposes of
the put option under the Interstate Retirement Plan at $28.60 per share,
reflecting a minority interest discount but no liquidity discount. At that
date, Valuation also valued the shares of Interstate Common Stock for
purposes of transactions outside of the Interstate Retirement Plan at $22.90
per share, applying a minority discount and a 20% liquidity discount.
During the first six months of fiscal 1996, Interstate declared and
paid a dividend totalling $90,703 on the Interstate Common Stock. During
fiscal years 1995 and 1994, Interstate declared and paid aggregate dividends
on the Interstate Common Stock of $441,505 and $404,311, respectively.
Pursuant to Interstate's credit agreement with its bank, Interstate is
prohibited from making dividend payments or other distributions to its
shareholders in any fiscal year in excess of an amount equal to the lesser of
60% of Interstate's net earnings (as defined in the credit agreement) earned
on a cumulative basis after January 1, 1993 or $650,000. If in any fiscal
year Interstate has negative net earnings, the amount available under the
credit agreement to make dividends or other distributions to its shareholders
must be reduced on a cumulative basis by 100% of the negative net earnings.
SELECTED FINANCIAL INFORMATION OF INTERSTATE
The following table sets forth selected historical financial data for
Interstate and should be read in conjunction with the Interstate financial
statements and notes thereto appearing elsewhere in this Proxy
Statement-Prospectus. See FINANCIAL STATEMENTS OF INTERSTATE. The selected
historical financial data as of and for the five years ended December 31,
1995 have been derived from the financial statements of Interstate, which
were audited by Ernst & Young LLP, Interstate's independent auditors. The
selected historical financial data as of and for the six month periods ended
June 30, 1996 and July 2, 1995 are derived from unaudited financial
statements. In the opinion of Interstate management, such unaudited data
include all adjustments, consisting only of normal recurring accruals,
necessary for a fair presentation of the financial position, results of
operations and changes in cash flows for these periods. Operating results for
the six months ended June 30, 1996 are not necessarily indicative of the
results that may be expected for the entire year ending December 29, 1996.
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(In Thousands)
At or for the six
At or for the fiscal year ended (1) months ended
------------------------------------------------------------------ -----------------
December 29, January 3, January 2, January 1, December 31, July 2, June 30,
1991 1993 1994 1995 1995 1995 1996
------------ ---------- ---------- ---------- ------------ ------- --------
Statement of Income Data:
Net Sales $60,172 $55,479 $59,324 $81,526 $86,333 $44,574 $50,036
Cost of products sold 48,490 45,169 48,142 64,644 69,918 35,756 41,768
------------ ---------- ---------- ---------- ------------ ------- --------
Gross margin 11,681 10,310 11,182 16,882 16,415 8,817 8,268
Expenses:
Selling & administrative 6,093 5,605 5,406 6,442 6,672 3,357 2,938
------------ ---------- ---------- ---------- ------------ ------- --------
Operating income 5,588 4,705 5,777 10,439 9,743 5,461 5,330
Interest 1,341 679 613 1,150 1,296 637 865
Other expense (2) 932 869 159 1,774 130 56 91
------------ ---------- ---------- ---------- ------------ ------- --------
Income before income taxes and cumulative
effect of change in accounting principle 3,315 3,157 5,004 7,515 8,317 4,768 4,374
Income taxes 1,241 1,151 1,818 2,770 2,971 1,754 1,696
------------ ---------- ---------- ---------- ------------ ------- --------
Income before cumulative effect of change
in accounting principle 2,074 2,006 3,186 4,745 5,346 3,014 2,678
Cumulative effect of change in
accounting principle (3) -- (1,303) -- -- -- -- --
------------ ---------- ---------- ---------- ------------ ------- --------
Net income $ 2,074 $ 703 $ 3,186 $ 4,745 $ 5,346 $ 3,014 $ 2,678
------------ ---------- ---------- ---------- ------------ ------- --------
------------ ---------- ---------- ---------- ------------ ------- --------
Earnings per share:
Primary $ .90 $ .30 $ 1.46 $ 2.81 $ 3.86 $ 2.17 $ 1.90
Fully diluted $ .90 $ .30 $ 1.45 $ 2.81 $ 3.83 $ 2.15 $ 1.89
Weighted Average Outstanding Shares:
Primary 2,299,913 2,322,701 2,187,478 1,688,940 1,384,819 1,387,314 1,410,841
Fully Diluted 2,312,154 2,327,424 2,195,089 1,688,940 1,396,247 1,398,742 1,416,963
Balance Sheet Data:
Current assets $15,624 $13,783 $19,399 $21,299 $25,003 $22,374 $27,039
Current liabilities 9,448 10,021 13,251 17,420 21,143 16,717 17,822
Working capital 6,176 3,762 6,148 3,879 3,860 5,657 9,717
Property, plant and equipment (net) 32,254 32,857 32,418 37,037 43,276 41,510 43,810
Total assets 50,172 47,609 54,314 60,228 70,326 65,848 73,342
Notes payable/ current portion of
long-term debt 2,175 1,969 2,128 4,087 4,067 4,034 4,157
Long-term debt, less current portion 10,001 6,850 7,366 14,291 15,756 18,335 19,359
Stockholders' equity 20,997 21,597 24,054 17,285 19,813 20,182 22,909
-50-
- ---------------------
(1) Interstate operates on a 52 or 53 week fiscal year ending on the Sunday
closest to December 31. Fiscal year 1992 was a 53 week year, all others
were 52 weeks.
(2) Includes nonrecurring compensation expense of $1,180,247 in 1994 and
$454,000 in 1992, loss on disposal of property and equipment of $327,035
in 1994 and loss on curtailment of Interstate's pension plans of
$472,468 in 1991.
(3) The cumulative effect of change in accounting principle for the fiscal
year ended January 3, 1993 relates to the adoption of Statement of
Financial Accounting Standards No.106, "Employers' Accounting for
Postretirement Benefits Other Than Pensions."
-51-
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS OF INTERSTATE
GENERAL
The following discussion and analysis provides information regarding the
historical results of operations and financial condition of Interstate for
the six months ended June 30, 1996 and July 2, 1995 and for the years
ended December 31, 1995, January 1, 1995 and January 2, 1994. This
discussion and analysis should be read in conjunction with the related
financial statements and notes thereto and other financial information of
Interstate contained elsewhere in this Proxy Statement-Prospectus.
This Management's Discussion and Analysis contains forward looking
statements that involve a number of risks and uncertainties. Such
statements are based on management's current expectations. Interstate
cautions that such statements are further qualified by important factors,
such as automotive/truck and capital goods markets; its relative sales
concentration by both customer and industry group; the potential loss of a
significant customer constituting approximately 7% of Interstate's total
sales and 10% of Interstate's total net earnings before interest and taxes in
1995; industry profit margins that are relatively low as a result of
significant competition and excess capacity; a competitor's announcement that
it will install a 14,000 ton mechanical forging press in direct competition
with Interstate for the North American front axle forging market; the
cyclical nature of the capital goods market; the capital intensive nature of
its business, which makes it difficult to reduce costs quickly when sales
decline; its dependence on certain key personnel; environmental costs
incident to its business; and potential uninsured product liability losses in
respect of parts manufactured for nuclear powered vehicles or facilities or
for aircraft of any kind. Each of these factors could cause actual results
to differ materially from those in the forward looking statements See RISK
FACTORS--RISK FACTORS APPLICABLE TO INTERSTATE.
OPERATIONS
Six Months Ended June 30, 1996 Compared to Six Months Ended July 2,
1995
Net sales for the six months ended June 30, 1996 increased $5.5
million, or 12.3%, over net sales for the first six months of 1995. Tons
shipped were 18,907 in the first six months of 1996 compared to 18,160 in
the first six months of 1995. The increase in sales resulted from the higher
tonnage shipped combined with the shipment of product with more value-added
services (heat treatment, machining, painting, etc.).
Gross profit was down despite the increase in sales. Gross profit
margin as a percentage of sales declined to 16.5% in the first six months
of 1996 from 19.8% in the comparable period last year as a result of a
change in product mix and start up costs (higher scrap rates, more labor
input, etc.) related to new programs on the 14,000 ton press for Dana,
General Electric, Caterpillar and Eaton. In the first six months start up
costs amounted to approximately $1,000,000. These costs are being expensed
as incurred as they do not have any future economic benefit.
Selling and administrative expenses were 5.9% of sales in the first six
months of 1996 compared to 7.5% in the same period in 1995. The decline, as
a percentage of sales, was due to fewer sales by outside sales
representatives who are paid a commission of approximately 3.5% of sales, and
lower incentive compensation costs.
Interest expense was higher in the first six months of 1996 as compared
to 1995 primarily due to higher borrowing levels required to support the
working capital requirements of the business, offset by slightly lower market
interest rates.
-52-
FISCAL YEAR 1995 COMPARED TO FISCAL YEAR 1994
Net income for the year increased from $4.7 million in 1994 to $5.3
million in 1995. This increase is principally due to a $1.2 million
nonrecurring compensation charge, related to the settlement of stock options,
which occurred in 1994 that was not present in 1995.
Net sales increased $4.8 million for fiscal 1995, or 5.9%, over net
sales for fiscal 1994. Tons shipped remained at 35 million. The increase in
sales resulted primarily from the shipment of product with more value-added
services (heat treatment, machining, painting, etc.). In addition, a price
increase of approximately 3% was implemented in February, 1995.
Gross profit decreased $0.5 million in fiscal 1995 although there was
an increase in sales. Raw material (steel) costs increased approximately 10%
from the previous year. Gross profit margin as a percentage of sales
declined to 19.0% in 1995 from 20.7% in 1994 as a result of higher material
costs, and a change in product mix (i.e., more automotive product which has
lower margins). Management expects this declining margin trend to continue
into 1996.
Selling expenses were 2.15% of sales in 1995 compared to 2.3% in 1994.
The decline, as a percentage of sales, was due to fewer sales by outside
sales representatives who are paid a commission of approximately 3.5% of
sales.
Administrative expenses increased $235,000 from 1994, but were 5.6% of
sales in both 1995 and 1994. The increase in expenses was primarily related
to wage increases for administrative personnel.
Interest expense was higher in 1995 as compared to 1994 due primarily to
higher borrowing levels required for capital expenditures and a full year of
interest expense, in 1995, related to the financing of the stock redemption
versus nine months in 1994.
FISCAL YEAR 1994 COMPARED TO FISCAL YEAR 1993
Net income for the year increased from $3.2 million in 1993 to $4.7
million in 1994. This increase is principally due to the increase in sales
as described below.
Net sales in fiscal 1994 increased $22.2 million, or 37.4%, over net
sales for fiscal 1993. Tons shipped increased to 35 million from 25 million.
The increase in sales resulted from the addition of new customers, and
increased shipments to existing customers due to a general strengthening of
the economy.
Gross profit increased $5.7 million as a result of the increase in
sales. Gross profit margin as a percentage of sales increased to 20.7% in
1994 from 18.8% in 1993 as a result of higher levels of productivity
associated with the higher production volumes and the spreading of fixed
costs over a larger production base.
Selling expenses increased by $336,000 from 1993, but were 2.3% of
sales in 1994 compared to 2.6% in 1993. The increase in selling expenses was
attributable to the higher sales volumes.
Administrative expenses increased $701,000 from 1993, but were 5.6% of
sales in 1994 compared to 6.5% in 1993. The increase in expenses was
primarily related to incentive compensation and other expenses attributable
to the higher level of shipments.
Interest expense was higher in 1994 as compared to 1993 due to higher
market interest rates and higher borrowing levels associated primarily with a
repurchase of approximately $9.8 million of Interstate's stock.
-53-
The nonrecurring compensation charge reflects the settlement of certain
stock options in connection with the stock repurchase referred to above.
LIQUIDITY AND CAPITAL RESOURCES
Working capital was $9.2 million at June 30, 1996, and $3.9 million,
$3.9 million and $6.2 million at the end of fiscal years 1995, 1994, and
1993, respectively. The increase between December 31, 1995 and June 30,
1996 is principally to support new programs for the 14,000 ton press, as
previously described, which are expected to contribute to sales in the third
and fourth quarters of 1996. The decline from 1993 to 1994 was due to an
increase in short-term borrowings related to the redemption of Interstate's
stock, as described below.
Cash provided by operating activities was negative $0.5 million for the
first six months of 1996 compared to $2.9 million for the first six months
of 1995. The decrease in cash flow was due to an increase in accounts
receivable (due to higher sales) and inventory (tooling, raw materials and
work-in-process for the new programs for the 14,000 ton press, identified
previously, as well as a general increase in inventory to meet customer
requirements) and a decrease in accounts payable due to timing of payments.
Interstate anticipates that cash flow will improve as the year progresses.
Cash flow from operations was $9.0 million for fiscal 1995, $8.8 million for
fiscal 1994, and $4.3 million for fiscal 1993. The increase from fiscal 1993
to 1994 was related to the increase in net income during fiscal 1994 combined
with working capital reductions resulting from inventory management programs.
At June 30, 1996, Interstate had $3.6 million available under its line
of credit, which provides for $14.0 million of borrowings (subject to
collateral availability). Interstate believes that cash generated from
operations, combined with its credit facilities, will provide it with
adequate liquidity to meet the needs of operations and capital expenditure
programs for the foreseeable future.
Capital expenditures (including certain tooling costs) amounted to $2.7
million in the first six months of 1996 compared to $6.5 million in the same
period in 1995. A significant portion of the $2.7 million is to be paid for
by customers in the form of tooling reimbursements in the second six months
of 1996. Interstate has projected capital expenditures of $6.4 million for
1996 which is down from the levels of the two previous years. Expenditures in
the previous two years were unusually high by historical standards due to the
installation of the 14,000 ton press. Expenditures in 1996 are anticipated
to be primarily for the completion of the 14,000 ton press and the expansion
of die making, heat-treat and machining capacity.
Capital expenditures for fiscal years 1995 and 1994 amounted to $10.3
million and $8.4 million, respectively, and were primarily for the
installation of the 14,000 ton mechanical forging press, the largest of its
kind in the Western Hemisphere. Interstate believes this press will allow it
to be a leading producer for the heavy truck front axle market. The press
will produce approximately $30 million of sales per year once it is in full
production, anticipated to be in 1999. Contracts have been entered into with
customers that will utilize approximately 70% of the press' capacity.
At January 1, 1995, the Company had commitments, under a letter of
credit, for $2.2 million of equipment related to the 14,000 ton press.
In April 1994, Interstate repurchased $9.8 million of its outstanding
common stock under a redemption program designed to provide liquidity for its
shareholders. Certain vested stock options (112,619) were settled for the
difference between the redemption value ($14.00 per share) and the exercise
price of the options ($3.52 per share). The cost of the redemption of the
options of
$1.2 million was expensed as compensation in 1994. Funds for this repurchase
were provided by $9.0 million of long-term bank borrowings and $2.0 million
of short-term borrowings.
-54-
BUSINESS OF INTERSTATE
Interstate manufactures and markets forged carbon, alloy and stainless
steel parts for various applications requiring high strength, durability and
impact resistance. Interstate operates facilities in Milwaukee, Wisconsin
(the Midwest division) and Navasota, Texas (the Southwest division).
Interstate's sales are concentrated in three primary industries: construction
machinery, petroleum services, and auto, truck and bus. These industries
accounted for approximately 72% of fiscal 1995 sales. Interstate also sells
to the aircraft, railroad, material handling, mining and power generation
industries. Approximately 60% of Interstate's sales result from long-term
contracts with its customers. Based on information available publicly and
through the Forging Industry trade association, Interstate believes that it
is among the largest independent multi-purpose forger of ferrous alloys in
the United States and that it is one of the lowest cost, technologically
sophisticated producers of steel forgings of the type that it manufactures
which weigh between one pound and 2,500 pounds. Based on feedback from
customers and suppliers, management believes that Interstate's success is
largely attributable to its commitment (i) to technical excellence within its
core business, (ii) to selective diversification of its target markets, and
(iii) to continuous improvement of its quality and delivery times.
Interstate uses the closed-die method of hot plastic deformation of
ferrous alloys (i.e., carbon, alloy and stainless steel). Interstate forges
its products utilizing one or more of its eight forging presses (which range
in size from 700 to 14,000 tons), its two upsetters and its ten forging
hammers (from 2,000 lbs. to 50,000 lbs.). Interstate has acquired two
additional 3,000 ton presses and one 7,000 ton press, which will be installed
when market demands dictate.
In addition to producing the forging itself, Interstate performs a
variety of other operations which support its objective of providing prompt
delivery of high-quality forged parts to its customers. Interstate
manufactures the majority of its own dies (tooling) in-house. It also cuts
the steel stock to the appropriate length for each forging and provides all
or nearly all of its own heat treatment, shot blast cleaning and Magnaflux
inspection of the completed forgings. Interstate also machines and paints
certain forgings, and can pick up steel or deliver forgings when necessary
using its fleet of seven leased Class 8 trucks. Interstate is expanding its
capabilities in the machining area and currently provides one customer with a
fully machined, painted and assembled component. Interstate management
believes that its ability to offer this combination of services for forgings
throughout the one to 2,500 pound range allows it to produce and deliver high
quality ferrous forgings to customers more quickly and efficiently than would
be possible otherwise.
Interstate was organized as a Wisconsin corporation under the name
"Interstate Drop Forge Company" in 1920. It has maintained its headquarters
and plant operations in Milwaukee, Wisconsin, for the past 76 years. In 1974
it acquired Interstate Southwest Forge Company, a Texas corporation formed in
1972 by certain Interstate shareholders, which was merged into Interstate in
1979 and now operates as the Southwest division at Navasota, Texas.
PRINCIPAL SHAREHOLDERS OF INTERSTATE
The following table sets forth, as of the Record Date, certain
information with respect to the beneficial ownership of Interstate Common
Stock by (i) each person who is the beneficial owner of more than 5% of the
outstanding Interstate Common Stock, (ii) each director of Interstate, (iii)
each executive officer of Interstate, and (iv) all directors and executive
officers as a group. Except as otherwise noted, the named beneficial owner
has sole voting and/or investment power over the shares of Interstate Common
Stock indicated.
-55-
BENEFICIAL OWNER NUMBER OF SHARES PERCENT OF CLASS
- ---------------- ---------------- ----------------
Marshall & Ilsley Trust Company 286,898(1) 21.8%
1000 North Water Street
Milwaukee, Wisconsin 53202
Franklyn Esenberg 178,329(2)(3)(4) 13.5%
Interstate Forging Industries, Inc.
4051 North 27th Street
Milwaukee, Wisconsin 53216-1883
James Mitchell 159,284(3)(4) 11.9%
Interstate Forging Industries, Inc.
4051 North 27th Street
Milwaukee, Wisconsin 53216-1883
Everett Smith Holdings Inc.
800 North Marshall Street
Milwaukee, Wisconsin 53202-3911 115,760(5) 8.8%
G. Frederick Kasten 12,500(4)(6) .9%
Dennis J. Kuester 17,500(4) 1.3%
Frederick G. Luber 33,586(4) 2.5%
Lawrence F. Schuetz 49,064(4)(7) 3.7%
William C. Smith 22,000(4) 1.7%
David A. Boettcher 6,181(3)(4) .5%
Everett Johnson, III 10,186(3)(4)(8) .8%
David P. Lauer 6,508(3)(4) .5%
Louis Zietz 5,184(3)(4) .4%
All directors and executive 765,587(9) 54.2%
officers as a group (11 persons)
____________________
(1) Represents shares held as trustee of the Interstate Retirement Plan and
Interstate's two pension plans.
(2) Includes 7,482 shares held by Mr. Esenberg's spouse, as to which voting
and investment power is shared.
(3) Includes the following number of shares in the named person's Savings and
Retirement Plan account, as to which voting power is shared:
Mr. Esenberg--5,967; Mr. Mitchell--6,826; Mr. Boettcher--2,408;
Mr. Johnson--3,451; Mr. Lauer--480; and Mr. Zietz--2,411.
(4) Includes unissued shares deemed to be beneficially owned by the named
persons pursuant to unexercised stock options which may be exercised
within 60 days of the Record Date. Each person holds the following number
of option shares which are deemed to be beneficially owned:
Mr. Esenberg--10,000; Mr. Mitchell--28,400; Mr. Kasten--10,000;
Mr. Kuester--10,000; Mr. Luber--10,000; Mr. Schuetz--10,000;
-56-
Mr. Smith--10,000; Mr. Boettcher--2,600; Mr. Johnson--3,300;
Mr. Lauer--2,400; and Mr. Zietz--1,600.
(5) Includes 20,280 shares held by Everett Smith Investment Company Ltd. of
Delaware, an affiliate of the named party.
(6) Includes 2,500 shares held as co-trustee of four trusts, as to which
voting and investment power is shared.
(7) Does not include 14,482 shares held by Mr. Schuetz' spouse, as to which he
disclaims beneficial ownership.
(8) Includes 1,173 shares held jointly with Mr. Johnson's spouse, as to which
voting and investment power is shared.
(9) Includes 8,655 shares as to which voting and investment power is shared
with the named persons' spouses, 2,500 shares as to which voting and
investment power is shared with a co-trustee, 98,300 shares subject to
options deemed beneficially owned, 247,649 shares held in the Interstate
Retirement Plan, as to which Interstate has shared voting and investment
power, and 39,249 shares held in Interstate's two pension plans, wherein
Interstate has shared investment power.
The above beneficial ownership information is determined in accordance
with Rule 13d-3 under the Exchange Act, as required for purposes of this
Proxy Statement-Prospectus. It is not necessarily to be construed as an
admission of beneficial ownership for other purposes.
INTERSTATE EXECUTIVE AND DIRECTOR COMPENSATION
SUMMARY COMPENSATION TABLE
The following table sets forth information concerning the total
compensation of Franklyn Esenberg, Chairman of the Board of Interstate,
during the last three fiscal years. Mr. Esenberg, who is 63 years of age,
joined Interstate in 1951. He has served in a number of executive
capacities, including President from 1971 to 1979, when he became Chairman of
the Board. Mr. Esenberg remained Chief Executive Officer of Interstate
until January 1, 1991. Mr. Esenberg has been a director of Interstate since
1969 and is a member of the Interstate Board's Executive Committee, Audit
Committee and Committee on Salary and Supplemental Compensation. Pursuant to
the terms of the Merger Agreement, Mr. Esenberg will serve as Vice Chairman
of Interstate and become a director of Citation upon consummation of the
Merger. See THE PROPOSED MERGER--INTERESTS OF CERTAIN PERSONS IN THE
MERGER--FRANKLYN ESENBERG EMPLOYMENT AGREEMENT.
-57-
ANNUAL COMPENSATION
-----------------------------
OTHER ANNUAL ALL OTHER
NAME AND PRINCIPAL COMPENSATION COMPENSATION
POSITION YEAR SALARY($)(1) ($) ($)
- -----------------------------------------------------------------------------
Franklyn Esenberg 1995 $169,500 $4,851(2) $5,245(3)
CHAIRMAN OF THE BOARD 1994 $171,500 0 $1,616
1993 $170,000 0 $1,642
_________________
(1) Includes Interstate Board fees paid to the individual.
(2) Reflects tax gross up in connection with Interstate's contribution on
behalf of the individual under Interstate's self-insured supplemental
medical plan for officers.
(3) Reflects Interstate's contribution to self-insured supplemental
medical plan for officers.
OPTION EXERCISES AND YEAR-END VALUES
The table below sets forth information concerning the number and value
of options outstanding at the end of the last fiscal year for Franklyn
Esenberg. Mr. Esenberg did not exercise any stock options during the last
fiscal year.
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION/SAR VALUES
- -------------------------------------------------------------
Value of
Unexercised
Number of In-the-Money
Securities Underlying Options/SARs
Unexercised at
Options/SARs at Fiscal Year-
Fiscal Year-End (#)(1) End ($)(2)
-------------------------------------------
Exercisable/ Exercisable/
Name Unexercisable Unexercisable
- -------------------------------------------------------------
Franklyn Esenberg 10,000/0 $146,000/$0
_________________
(1) Represents a stock option.
-58-
(2) There is no established public trading market for Interstate Common Stock.
The value of the option for purposes of this table is based on the $28.60
per share valuation at December 31, 1995 rendered by Valuation Research
Corp. with respect to shares of Interstate Common Stock acquired pursuant
to a put option under Interstate's Savings and Retirement Plan.
DIRECTOR COMPENSATION
As a director of Interstate, Mr. Esenberg receives a monthly retainer of
$500 and a meeting fee of $1,000 per Interstate Board or committee meeting
attended, as compensation for his services. As a director of Interstate, Mr.
Esenberg was awarded on June 1, 1994 an option for 10,000 shares of
Interstate Common Stock at $14.00 per share under Interstate's 1994 Directors
and Key Employees Non-Qualified Stock Option Plan. Mr. Esenberg's option was
immediately exercisable. The option expires ten years from the date of
grant. This option will be converted into cash at the Effective Time and
will give Mr. Esenberg the right to a pro rata portion of the aggregate
amount of any Contingent Payments. See THE PROPOSED MERGER--PRINCIPAL TERMS
OF THE MERGER--MERGER CONSIDERATION.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Franklyn Esenberg, an executive officer of Interstate, served on the
Interstate Board's Salary and Supplemental Compensation Committee during the
last fiscal year.
In order to provide funds for operations at favorable rates, the
Interstate Board previously adopted a policy permitting directors and
officers to make loans to Interstate from time to time. Such loans pay
interest at 1/4 of 1% below Interstate's cost of funds. At June 30, 1996,
Mr. Esenberg and his spouse had outstanding loans to Interstate in aggregate
principal amount of $763,000. Such other outstanding loans at June 30,
1996 were $1,694,362 in aggregate principal amount. In fiscal 1995,
Interstate paid Mr. Esenberg and his spouse $69,104 in interest on their
loans outstanding during that period. It is anticipated that all loans
outstanding under this policy will be paid off, and the policy will
terminate, upon consummation of the Merger.
EXPERTS
The consolidated balance sheets of Citation and subsidiaries as of
October 1, 1995 and October 2, 1994 and the related consolidated statements
of income, stockholders' equity and cash flows for each of the years in the
three-year period ended October 1, 1995 have been incorporated by reference
in this Proxy Statement-Prospectus and in the Registration Statement in
reliance upon the report of Coopers & Lybrand L.L.P., independent certified
public accountants, given on the authority of that firm as experts in
accounting and auditing.
The financial statements of Interstate at December 31, 1995 and January
1, 1995, and for each of the years in the three year period ended December
31, 1995, appearing in this Proxy Statement-Prospectus and in the
Registration Statement, have been audited by Ernst & Young LLP, independent
auditors, as set forth in their report appearing elsewhere herein, and are
included in reliance upon such report given upon the authority of such firm
as experts in accounting and auditing.
LEGAL MATTERS
Certain legal matters in connection with the Merger will be passed upon
by Ritchie & Rediker, L.L.C., Birmingham, Alabama, counsel for Citation, and
Quarles & Brady, Milwaukee, Wisconsin, counsel for Interstate. Members of
the firm of Ritchie & Rediker, L.L.C. own an aggregate of 432,500 shares of
Citation Common Stock.
-59-
PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
INTRODUCTION
The following unaudited pro forma condensed consolidated financial statements
reflect the consolidated financial position of Citation Corporation and
Subsidiaries (Citation) as of June 30, 1996, and the results of its consolidated
operations for the year ended October 1, 1995, and for the nine months ended
June 30, 1996. The pro forma condensed consolidated financial statements give
effect to (i) the purchase of the stock of Southern Aluminum Castings Company
and (ii) the purchase of all other fiscal 1995 and 1996 acquisitions: (a) as if
the acquisitions had occurred as of October 3, 1994 with respect to statement of
income data and (b) as if the acquisitions had occurred at the balance sheet
date, with respect to balance sheet data. Additionally, the pro forma condensed
consolidated financial statements give effect to (i) Citation's secondary public
offering of common stock on September 18, 1995 and (ii) the Merger: (a) as if
these events had occurred as of October 3, 1994 with respect to statement of
income data and (b) as if these events had occurred at the balance sheet date,
with respect to balance sheet data. The pro forma condensed consolidated
financial statements should be read in conjunction with the financial statements
of Interstate, appearing elsewhere in this Proxy Statement - Prospectus, the
consolidated financial statements of Citation on Form 10-K for the year ended
October 1, 1995 and Citation's Form 10-Q for the quarter ended June 30, 1996.
The pro forma condensed consolidated financial statements are not necessarily
indicative of the actual consolidated financial position or consolidated results
of operations had the above adjustments taken place on the dates indicated, nor
do they purport to indicate the future consolidated financial position or
consolidated results of operations of Citation.
F-1
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF INCOME (UNAUDITED)
FOR THE YEAR ENDED OCTOBER 1, 1995
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
CITATION CORPORATION SOUTHERN ALUMINUM OTHER
AND SUBSIDIARIES CASTINGS COMPANY BUSINESS ACQUISITIONS
FOR THE YEAR ENDED FOR THE YEAR ENDED COMBINATION AND
OCTOBER 1, 1995 DECEMBER 31, 1995 ADJUSTMENTS ADJUSTMENTS
ACTUAL ACTUAL (A) (B)
------------------------ -------------------- --------------- ----------------
Net sales $ 307,681 $ 41,774 $ 178,184
Cost of sales 243,493 38,816 147,428
------------------------ -------------------- ---------------
Gross profit 64,188 2,958 30,756
Selling, general, and
administrative expenses 32,697 646 $ 279 14,931
------------------------ -------------------- --------------- ---------------
Operating income 31,491 2,312 (279) 15,825
Other expense (income):
Interest expense, net 3,974 1,529 900 2,434
Other, net (581) 7 54
------------------------ -------------------- --------------- ---------------
3,393 1,536 900 2,488
------------------------ -------------------- --------------- ---------------
Income before provision
for income taxes 28,098 776 (1,179) 13,337
Provision for income taxes 11,019 (158) 5,228
------------------------ -------------------- --------------- ---------------
Net income $ 17,079 $ 776 $ (1,021) $ 8,109
------------------------ -------------------- --------------- ---------------
------------------------ -------------------- --------------- ---------------
Net income per share $ 1.27
------------------------
------------------------
Weighted average shares
outstanding 13,437,900
------------------------
------------------------
CITATION CORPORATION
AND SUBSIDIARIES INTERSTATE FORGING
FOR THE YEAR ENDED INDUSTRIES, INC. BUSINESS FOR THE YEAR
OCTOBER 1, 1995 FOR THE YEAR ENDED COMBINATION ENDED
PRO FORMA DECEMBER 31, 1995 ADJUSTMENTS OCTOBER 1, 1995
COMBINED ACTUAL (C) PRO FORMA
------------------------ -------------------- ---------------- ---------------
Net sales $ 527,639 $ 86,333 $ 613,972
Cost of sales 429,737 69,918 $ 2,151 501,806
------------------------ -------------------- --------------- ---------------
Gross profit 97,902 16,415 (2,151) 112,166
Selling, general and
administrative expenses 48,553 6,672 55,225
------------------------ -------------------- --------------- ---------------
Operating income 49,349 9,743 (2,151) 56,941
Other expense (income):
Interest expense, net 8,837 1,296 3,567 13,700
Other net (520) 130 (390)
------------------------ -------------------- --------------- ---------------
8,317 1,426 3,567 13,310
------------------------ -------------------- --------------- ---------------
Income before provision
for income taxes 41,032 8,317 (5,718) 43,631
Provision for income taxes 16,089 2,971 (1,608) 17,452
------------------------ -------------------- --------------- ---------------
Net income $ 24,943 $ 5,346 $ (4,110) $ 26,179
------------------------ -------------------- --------------- ---------------
------------------------ -------------------- --------------- ---------------
Net income per share $ 1.41 $ 1.48
------------------------ ---------------
------------------------ ---------------
Weighted average shares
outstanding 17,675,540(d) 17,675,540(d)
------------------------ ---------------
------------------------ ---------------
SEE NOTES TO PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.
F-2
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF INCOME (UNAUDITED)
FOR THE NINE MONTHS ENDED JUNE 30, 1996
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
CITATION CORPORATION SOUTHERN ALUMINUM
AND SUBSIDIARIES CASTINGS COMPANY OTHER
FOR THE NINE FOR THE FIVE BUSINESS ACQUISITIONS
MONTHS ENDED MONTHS ENDED COMBINATION AND
JUNE 30, 1996 FEBRUARY 29, 1996 ADJUSTMENTS ADJUSTMENTS
ACTUAL ACTUAL (A) (B)
------------------------ -------------------- --------------- ---------------
Net sales $ 356,136 $ 16,729 $ 28,090
Cost of sales 291,678 14,744 25,492
------------------------ -------------------- ---------------
Gross profit 64,458 1,985 2,598
Selling, general, and
administrative expenses 34,059 369 $ 116 1,643
------------------------ -------------------- --------------- ---------------
Operating income 30,399 1,616 (116) 955
Other expense (income):
Interest expense, net 5,210 964 375 868
Other, net (358) 7 (41)
------------------------ -------------------- --------------- ---------------
4,852 971 375 827
------------------------ -------------------- --------------- ---------------
Income before provision
for income taxes 25,547 645 (491) 128
Provision for income taxes 10,219 61 52
------------------------ -------------------- --------------- ---------------
Net income $ 15,328 $ 645 $ (552) $ 76
------------------------ -------------------- --------------- ---------------
------------------------ -------------------- --------------- ---------------
Net income per share $ 0.87
------------------------
------------------------
Weighted average shares
outstanding 17,686,639
------------------------
------------------------
CITATION CORPORATION INTERSTATE FORGING
AND SUBSIDIARIES INDUSTRIES, INC
FOR THE NINE FOR THE NINE
MONTHS ENDED MONTHS ENDED BUSINESS FOR THE NINE
JUNE 30, 1996 JUNE 30, 1996 COMBINATION MONTHS ENDED
PRO FORMA ACTUAL ADJUSTMENTS JUNE 30, 1996
COMBINED (C) (D) PRO FORMA
------------------------ -------------------- --------------- ---------------
Net sales $ 400,955 $ 70,908 $ 471,863
Cost of sales 331,914 58,753 $ 1,613 392,280
------------------------ -------------------- --------------- ---------------
Gross profits 69,041 12,155 (1,613) 79,583
Selling, general, and
administrative expenses 36,187 4,777 40,964
------------------------ -------------------- --------------- ---------------
Operating income 32,854 7,378 (1,613) 38,619
Other expense (income):
Interest expense, net 7,417 1,307 2,675 11,399
Other, net (392) 91 (301)
------------------------ -------------------- --------------- ---------------
7,025 1,398 2,675 11,098
------------------------ -------------------- --------------- ---------------
Income before provision
for income taxes 25,829 5,980 (4,288) 27,521
Provision for income taxes 10,332 2,196 (1,520) 11,008
------------------------ -------------------- --------------- ---------------
Net income $ 15,497 $ 3,784 $ (2,768) $ 16,513
------------------------ -------------------- --------------- ---------------
------------------------ -------------------- --------------- ---------------
Net income per share $ 0.88 $ 0.93
------------------------ ---------------
------------------------ ---------------
Weighted average shares
outstanding 17,686,639 17,686,639
------------------------ ---------------
------------------------ ---------------
SEE NOTES TO PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.
F-3
PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET (UNAUDITED)
JUNE 30, 1996
(IN THOUSANDS)
CITATION INTERSTATE
CORPORATION FORGING BUSINESS
AND INDUSTRIES, INC. COMBINATION
SUBSIDIARIES ACTUAL ADJUSTMENTS
ACTUAL (A) (B) PRO FORMA
--------------- --------------- --------------- ----------------
ASSETS
Current assets:
Cash and cash equivalents $ 1,600 $ 1,600
Accounts receivable 81,937 $ 15,387 97,324
Inventories 42,105 10,889 52,994
Prepaids and other current assets 10,017 763 $ (500) 10,280
--------------- --------------- --------------- ---------------
Total current assets 135,659 27,039 (500) 162,198
Property, plant, and equipment 201,389 43,810 25,811 271,010
Other assets 43,141 2,493 45,634
--------------- --------------- --------------- ---------------
Total assets $ 380,189 $ 73,342 $ 25,311 $ 478,842
--------------- --------------- --------------- ---------------
--------------- --------------- --------------- ---------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt $ 2,170 $ 4,157 $ (4,157) $ 2,170
Accounts payable 37,154 8,261 45,415
Accrued expenses 32,184 5,403 37,587
--------------- --------------- --------------- ---------------
Total current liabilities 71,508 17,821 (4,157) 85,172
Long-term debt, less current portion above 146,274 19,359 51,720 217,353
Deferred income taxes and other deferred
liabilities 14,484 6,678 7,232 28,394
--------------- --------------- --------------- ---------------
Total liabilities 232,266 43,858 54,795 330,919
--------------- --------------- --------------- ---------------
Stockholders' equity:
Preferred stock
Common stock 177 2,054 (2,054) 177
Additional paid-in capital 107,105 1,190 (1,190) 107,105
Retained earnings 40,641 26,240 (26,240) 40,641
--------------- --------------- --------------- ---------------
Total stockholders' equity 147,923 29,484 (29,484) 147,923
--------------- --------------- --------------- ---------------
Total liabilities and stockholders'
equity $ 380,189 $ 73,342 $ 25,311 $ 478,842
--------------- --------------- --------------- ---------------
--------------- --------------- --------------- ---------------
SEE NOTES TO PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.
F-4
NOTES TO PRO FORMA CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS (UNAUDITED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
The unaudited pro forma condensed consolidated statements of income of Citation
Corporation and Subsidiaries (Citation) for the year ended October 1, 1995, and
the nine-month period ended June 30, 1996, give effect to the consolidated
results of operations as if the Merger, the March 1, 1996 purchase of the stock
of Southern Aluminum Castings Company and all other fiscal 1995 and 1996
acquisitions had occurred at the beginning of the periods presented. The fiscal
1995 and 1996 acquisitions are as follows: Oberdorfer Industries acquired
effective January 1, 1995; Iroquois Foundry Company acquired on February 24,
1995; Berlin Foundry Corporation acquired on May 8, 1995; Pennsylvania Steel
Foundry and Machine Company, Inc. acquired on June 12, 1995; Castwell Products
acquired on August 1, 1995; Texas Steel Company acquired effective January 5,
1996; Hi-Tech Corporation acquired on February 4, 1996; and Bohn Aluminum
Corporation acquired on April 1, 1996 (the Companies). For periods subsequent to
those dates, the actual results of the Companies have been included in the
historical results of operations of Citation. For periods prior to those dates,
PRO FORMA effects have been included. The consolidated results of operations of
the other acquisitions for the periods presented include certain adjustments for
additional depreciation, interest expense on acquisition debt, amortization of
intangible assets, and income tax effects to reflect the impact of the purchase
transactions. Additionally, the pro forma condensed consolidated statement of
income for the year ended October 1, 1995 gives effect to Citation's secondary
public offering of common stock, effective September 18, 1995, as if the
offering had occurred on October 3, 1994. The unaudited pro forma condensed
consolidated statement of income for the nine-month period ended June 30, 1996
also gives effect to the consolidated results of operations for the nine-month
period as if the purchase of all other fiscal 1996 acquisitions had occurred on
October 2, 1995. Those results are not necessarily indicative of the
consolidated financial results of Citation as they may be in the future, or as
they might have been had these events been effective as of October 3, 1994. The
unaudited pro forma condensed consolidated balance sheet gives effect to the
consolidated financial position at June 30, 1996, as if the Merger and the
purchase of all other fiscal 1996 acquisitions had occurred as of June 30, 1996.
Such financial position is not necessarily indicative of the consolidated
financial position of Citation as it may be in the future, or as it might have
been had the Merger been effective as of June 30, 1996. The pro forma
information should be read in conjunction with the financial statements of
Interstate, appearing elsewhere in this Proxy Statement - Prospectus, the
consolidated financial statements of Citation on Form 10-K for the year ended
October 1, 1995 and Citation's Form 10-Q for the quarter ended June 30, 1996.
Pro forma adjustments for the condensed consolidated statement of income for the
year ended October 1, 1995 are as follows:
(a) Reflects (i) the increase in interest expense ($900) resulting from
additional debt incurred by Citation of approximately $12,000 to fund the
acquisition of Southern Aluminum Castings Company on March 1, 1996 with
interest at a weighted average rate of 7.5%, (ii) the increase in
amortization expense ($279) due to the allocation of the excess purchase
price to goodwill ($5,580), and (iii) the applicable income tax effects of
the above adjustments.
(b) Reflects (i) the actual results of operations for the 1995 and 1996
acquisitions, except the acquisition of Southern Aluminum Castings Company,
which include certain adjustments for additional depreciation, interest
expense on acquisition debt and amortization of intangible assets, (ii) the
reduction in interest expense ($4,623) resulting from the application of
the net proceeds of Citation's secondary public offering of 4,250,000
shares of common stock to repay $69,000 of indebtedness having a weighted
average interest rate of 6.7%, and (iii) the applicable income tax effects
of the above adjustments.
F-5
NOTES TO PRO FORMA CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
(c) Reflects (i) the increase in depreciation expense ($2,151) due to the
allocation of the excess acquisition purchase price over the book value of
the assets acquired to property, plant, and equipment, (ii) the increase in
interest expense ($3,567) resulting from additional debt incurred by
Citation of approximately $47,563 to fund the acquisition with interest at
a weighted average rate of 7.5%, and (iii) the applicable income tax
effects of the above adjustments.
(d) Reflects the weighted average number of shares outstanding as if the
4,250,000 shares of common stock issued in conjunction with Citation's
September 18, 1995 secondary public offering were outstanding for the
entire year.
Pro forma adjustments for the condensed consolidated statement of income for the
nine months ended June 30, 1996 are as follows:
(a) Reflects (i) the increase in interest expense ($375) resulting from
additional debt incurred by Citation of approximately $12,000 to fund the
acquisition of Southern Aluminum Castings Company on March 1, 1996 with
interest at a weighted average rate of 7.5%, (ii) the increase in
amortization expense ($116) due to the allocation of the excess purchase
price to goodwill ($5,580), and (iii) the applicable income tax effects of
the above adjustments.
(b) Reflects the actual results of operations for the 1996 acquisitions,
except for the acquisition of Southern Aluminum Castings Company, which
include certain adjustments for additional depreciation, interest expense
on acquisition debt, amortization of intangible assets and the applicable
income tax effects of the above adjustments.
(c) The income statement for the nine months ended June 30, 1996 was
derived from Interstate's unaudited internal financial statements.
(d) Reflects (i) the increase in depreciation expense ($1,613) due to the
allocation of the excess acquisition purchase price over the book value of
the assets acquired to property, plant, and equipment, (ii) the increase in
interest expense ($2,675) resulting from additional debt incurred by
Citation of approximately $47,563 to fund the Interstate acquisition with
interest at a weighted average interest rate of 7.5%, and (iii) the
applicable income tax effects of the above adjustments.
Pro forma adjustments for the condensed consolidated balance sheet as of June
30, 1996, are as follows:
(a) The balance sheet at June 30, 1996 was derived from Interstate's unaudited
internal financial statements.
(b) Gives effect for the Merger including the additional debt incurred by
Citation to fund the acquisition ($47,563), the allocation of the excess
purchase price to property, plant, and equipment ($25,811) (based on
preliminary allocation estimates), the issuance of the Citation shares of
common stock purchased by Interstate ($500) to satisfy the restricted stock
award to Interstate management, and the recording of a deferred tax
liability related to the difference between the book and tax basis of
property, plant, and equipment resulting from the Merger ($7,232).
F-6
FINANCIAL STATEMENTS OF INTERSTATE
Index to Financial Statements of Interstate
PAGE
----
AUDITED FINANCIAL INFORMATION:
Report of Independent Auditors . . . . . . . . . . . . . . . . . . . . . F-8
Balance Sheets at December 31, 1995 and January 1, 1995. . . . . . . . . F-9
Statements of Income for the years ended December 31, 1995, January 1,
1995 and January 2, 1994. . . . . . . . . . . . . . . . . . . . F-11
Statements of Stockholders' Equity for the years ended December 31,
1995, January 1, 1995 and January 2, 1994. . ... . . . . . . F-12
Statements of Cash Flows for the years ended December 31, 1995,
January 1, 1995 and January 2, 1994 . . . . . . . . . . . . . . F-13
Notes to Financial Statements. . . . . . . . . . . . . . . . . . . . . . F-14
UNAUDITED INTERIM PERIOD FINANCIAL INFORMATION:
Condensed Balance Sheets at June 30, 1996 and December 31, 1995. . . . . F-24
Condensed Statements of Income for the six months ended
June 30, 1996 and July 2, 1995. . . . . . . . . . . . . . . . . F-25
Condensed Statements of Cash Flows for the six months ended
June 30, 1996 and July 2, 1995. . . . . . . . . . . . . . . . . F-26
Notes to Condensed Financial Statements. . . . . . . . . . . . . . . . . F-27
F-7
Report of Independent Auditors
Board of Directors
Interstate Forging Industries, Inc.
We have audited the accompanying balance sheets of Interstate Forging
Industries, Inc. (the Company) as of December 31, 1995 and January 1, 1995, and
the related statements of income, stockholders' equity and cash flows for each
of the three years in the period ended December 31, 1995. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Interstate Forging Industries,
Inc. at December 31, 1995 and January 1, 1995, and the results of its operations
and its cash flows for each of the three years in the period ended December 31,
1995, in conformity with generally accepted accounting principles.
/s/ Ernst & Young LLP
Milwaukee, Wisconsin
February 2, 1996, except for Note 10,
as to which the date is August 7, 1996
F-8
Interstate Forging Industries, Inc.
Balance Sheets
DECEMBER 31 JANUARY 1
1995 1995
-----------------------------------------
(RESTATED, NOTE 10)
ASSETS
Current assets:
Accounts receivable, less allowance for doubtful
accounts of $225,000 in 1995 and $175,000 in 1994 $14,746,497 $12,472,042
Inventories:
Work in process--forgings 4,757,102 3,695,705
Raw materials 3,943,630 4,261,247
Other 920,097 56,289
-----------------------------------------
Total inventories 9,620,829 8,013,241
Deferred income tax benefits (NOTE 4) 361,000 618,000
Prepaid expenses 275,070 195,482
-----------------------------------------
Total current assets 25,003,396 21,298,765
Other assets:
Cash value of life insurance (net of policy loans)
and other assets (NOTE 2) 2,046,903 1,892,477
Equity in customers' dies 2 2
Property, plant and equipment:
Land 186,766 367,948
Buildings and improvements 12,548,089 12,650,115
Machinery and equipment 60,183,916 57,632,820
Construction in progress 13,728,985 6,945,784
-----------------------------------------
86,647,756 77,596,667
Less allowance for depreciation 43,372,020 40,560,023
-----------------------------------------
43,275,736 37,036,644
-----------------------------------------
$70,326,037 $60,227,888
-----------------------------------------
-----------------------------------------
F-9
DECEMBER 31 JANUARY 1
1995 1995
-----------------------------------------
(RESTATED, NOTE 10)
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Notes payable to stockholders (NOTE 3) $ 2,367,385 $ 2,061,850
Trade payables 10,911,074 8,838,460
Employee compensation 2,537,415 2,369,970
Accrued retirement plan costs 1,102,996 517,234
Accrued postretirement benefits other than pensions 125,000 125,000
Interest and property taxes 756,952 703,609
Other accrued expenses and current liabilities 1,642,068 778,568
Current portion of long-term debt (NOTE 3) 1,700,000 2,025,000
-----------------------------------------
Total current liabilities 21,142,890 17,419,691
Long-term debt, less current portion (NOTE 3) 15,756,114 14,291,006
Unfunded pension liabilities (NOTE 5) 1,203,766 1,664,356
Accrued postretirement benefits other than pensions,
less current portion (NOTE 7) 2,548,445 2,440,445
Deferred income taxes (NOTE 4) 3,287,000 2,930,000
-----------------------------------------
Total liabilities 43,938,215 38,745,498
Common stock subject to repurchase (NOTE 5) 6,574,482 4,197,276
Stockholders' equity (NOTES 3, 5, 6 AND 8)
Common stock, $1.00 par value:
Authorized shares--6,000,000; issued shares--
1,824,123--1995 and 1,820,818--1994; outstanding
shares--1,065,875--1995 and 1,065,894--1994, net
of shares subject to repurchase 1,824,123 1,820,818
Retained earnings 29,011,988 26,456,273
Equity component of pension liabilities, net of
income tax benefit (672,550) (733,474)
Cost of common stock in treasury (10,350,221) (10,258,503)
-----------------------------------------
19,813,340 17,285,114
-----------------------------------------
$70,326,037 $60,227,888
-----------------------------------------
-----------------------------------------
SEE ACCOMPANYING NOTES.
F-10
Interstate Forging Industries, Inc.
Statements of Income
YEAR ENDED
---------------------------------------------
DECEMBER 31 JANUARY 1 JANUARY 2
1995 1995 1994
---------------------------------------------
(RESTATED, NOTE 10)
-------------------
Net sales:
Forgings $ 83,428,616 $ 79,446,454 $ 57,880,309
Dies 2,904,628 2,079,354 1,444,013
------------ ----------- ------------
86,333,244 81,525,808 59,324,322
Cost of products sold 69,918,245 64,644,131 48,142,086
------------ ----------- ------------
16,414,999 16,881,677 11,182,236
Expenses:
Selling 1,857,867 1,862,702 1,527,291
Administrative 4,814,126 4,579,616 3,878,269
(Gain) loss on disposal of property and
equipment (67,921) 327,035 (94,516)
Interest, net of interest capitalized of
$504,000 in 1995 and $146,000 in 1994 1,295,858 1,150,411 613,239
Nonrecurring compensation charge (NOTE 6) - 1,180,247 -
Other, net 198,002 266,889 253,942
------------ ----------- ------------
8,097,932 9,366,900 6,178,225
------------ ----------- ------------
Income before income taxes 8,317,067 7,514,777 5,004,011
Income taxes (NOTE 4) 2,971,000 2,770,000 1,818,000
------------ ----------- ------------
Net income $ 5,346,067 $ 4,744,777 $ 3,186,011
------------ ----------- ------------
------------ ----------- ------------
Earnings per share:
Primary $ 3.86 $ 2.81 $ 1.46
Fully diluted $ 3.83 $ 2.81 $ 1.45
SEE ACCOMPANYING NOTES.
F-11
INTERSTATE FORGING INDUSTRIES, INC.
STATEMENTS OF STOCKHOLDERS' EQUITY
Common Stock ESOP
----------------------------- Retained Loan
Shares Balance Earnings Guarantee
-----------------------------------------------------------------
Balance at January 3, 1993 1,790,638 $1,790,638 $21,340,894 $(1,142,699)
Net income - - 3,186,011 -
Net change in common stock subject
to repurchase 21,628 21,628 (298,233) -
Dividends declared ($0.20 per share) - - (399,899) -
Reduction of ESOP loan guarantee - - - 400,331
Purchase of common stock for treasury - - - -
Minimum liability adjustment for
pension plans (NOTE 5) - - - -
-----------------------------------------------------------------
Balance at January 2, 1994 1,812,266 1,812,266 23,828,773 (742,368)
Net income - - 4,744,777 -
Net change in common stock subject to
repurchase 8,552 8,552 (821,552) -
Dividends declared ($0.29 per share) - - (404,311) -
Reduction of ESOP loan guarantee - - - 742,368
Purchase of common stock for
treasury (NOTE 8) - - - -
Issuance of common stock from treasury - - (891,414) -
Minimum liability adjustment for
pension plans (NOTE 5) - - - -
-----------------------------------------------------------------
Balance at January 1, 1995 1,820,818 1,820,818 26,456,273 -
Net income (RESTATED - NOTE 10) - - 5,346,067 -
Net change in common stock subject to
repurchase 3,305 3,305 (2,380,511) -
Dividends declared ($0.34 per share) - - (441,505) -
Purchase of common stock for treasury - - - -
Issuance of common stock from treasury - - 31,664 -
Minimum liability adjustment for
pension plans (NOTE 5) - - - -
-----------------------------------------------------------------
Balance at December 31, 1995 1,824,123 $1,824,123 $29,011,988 $ -
-----------------------------------------------------------------
-----------------------------------------------------------------
Equity
Component Treasury Stock Total
of Pension -------------------------------- Stockholders'
Liabilities Shares Cost Equity
---------------------------------------------------------------
Balance at January 3, 1993 $ (26,797) 45,667 $ (365,438) $ 21,596,598
Net income - - - 3,186,011
Net change in common stock subject
to repurchase - - - (276,605)
Dividends declared ($0.20 per share) - - - (399,899)
Reduction of ESOP loan guarantee - - - 400,331
Purchase of common stock for treasury - 21,955 (259,069) (259,069)
Minimum liability adjustment for
pension plans (NOTE 5) (193,487) - - (193,487)
---------------------------------------------------------------
Balance at January 2, 1994 (220,284) 67,622 (624,507) 24,053,880
Net income - - - 4,744,777
Net change in common stock subject to
repurchase - - - (813,000)
Dividends declared ($0.29 per share) - - - (404,311)
Reduction of ESOP loan guarantee - - - 742,368
Purchase of common stock for
treasury (NOTE 8) - 757,070 (10,598,980) (10,598,980)
Issuance of common stock from treasury - (69,768) 964,984 73,570
Minimum liability adjustment for
pension plans (NOTE 5) (513,190) - - (513,190)
---------------------------------------------------------------
Balance at January 1, 1995 (733,474) 754,924 (10,258,503) 17,285,114
Net income (RESTATED - NOTE 10) - - - 5,346,067
Net change in common stock subject to
repurchase - - - (2,377,206)
Dividends declared ($0.34 per share) - - - (441,505)
Purchase of common stock for treasury - 11,260 (202,680) (202,680)
Issuance of common stock from treasury - (7,936) 110,962 142,626
Minimum liability adjustment for
pension plans (NOTE 5) 60,924 - - 60,924
---------------------------------------------------------------
Balance at December 31, 1995 $(672,550) 758,248 $(10,350,221) $ 19,813,340
---------------------------------------------------------------
---------------------------------------------------------------
See accompanying notes.
F-12
Interstate Forging Industries, Inc.
Statements of Cash Flows
YEAR ENDED
---------------------------------------------
DECEMBER 31 JANUARY 1 JANUARY 2
1995 1995 1994
---------------------------------------------
(RESTATED, NOTE 10)
OPERATING ACTIVITIES
Net income $ 5,346,067 $ 4,744,777 $ 3,186,011
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation and amortization 3,568,909 3,398,483 3,677,675
(Gain) loss on disposal of property,
plant and equipment (67,921) 327,035 (94,516)
Deferred income taxes 281,000 349,000 (15,000)
Changes in operating assets and
liabilities:
Accounts receivable (2,274,455) (1,321,779) (2,337,651)
Inventories (1,607,588) (690,156) (3,231,522)
Prepaid expenses (79,588) (60,946) 82,101
Trade payables 2,072,614 1,415,940 2,568,185
Accrued expenses 1,729,052 688,028 477,956
Unfunded pension liabilities (60,382) (269,353) (185,634)
Accrued postretirement benefits other
than pensions 108,000 215,483 128,083
-------------------------------------------------
Net cash provided by operating activities 9,015,708 8,796,512 4,255,688
INVESTING ACTIVITIES
Purchases of plant and equipment (10,272,288) (8,424,576) (3,238,343)
Proceeds from disposal of property, plant
and equipment 532,208 20,027 94,516
Increase in other assets (154,426) (140,902) (1,528,292)
-------------------------------------------------
Net cash used in investing activities (9,894,506) (8,545,451) (4,672,119)
FINANCING ACTIVITIES
Net borrowings on notes payable to stockholders 305,535 1,378,015 12,895
Net proceeds from revolving line of credit 900,000 800,000 800,000
Payments on long-term debt (1,901,667) (1,510,833) (1,160,477)
Proceeds from long-term debt 2,141,775 8,959,454 1,422,981
Dividends paid (506,791) (288,893) (399,899)
Purchases of common stock for treasury (202,680) (9,793,874) (259,069)
Proceeds from sale of treasury stock 142,626 73,570 -
-------------------------------------------------
Net cash provided by (used in)
financing activities 878,798 (382,561) 416,431
-------------------------------------------------
Net change in cash - (131,500) -
Cash at beginning of year - 131,500 131,500
-------------------------------------------------
Cash at end of year $ - $ - $ 131,500
-------------------------------------------------
-------------------------------------------------
Supplemental information:
Cash paid during the year for interest $ 1,688,000 $ 1,131,000 $ 648,000
Cash paid during the year for income taxes 1,875,000 2,729,000 1,805,000
Noncash transactions -
Tender of 57,507 shares by stockholders in
exchange for amounts owed on notes to
Company - 805,107 -
SEE ACCOMPANYING NOTES.
F-13
Interstate Forging Industries, Inc.
Notes to Financial Statements
December 31, 1995
1. SIGNIFICANT ACCOUNTING POLICIES
NATURE OF OPERATIONS AND CONCENTRATIONS
Interstate Forging Industries, Inc. (the Company) produces custom closed die
forgings of carbon, alloy and stainless steel for construction equipment,
aircraft, off-road equipment, material handling equipment, outboard motors, and
trucks and trailers. The Company's customers are located throughout North
America, but are concentrated in the Midwest and Southwest U. S.
The Company sells its products principally to the automotive/truck, oilfield
services and construction machinery industries. Sales to these industries
accounted for approximately 73% of sales in 1995, 81% of sales in 1994 and 77%
of sales in 1993. Sales to four large customers in these industries represented
24%, 9%, 7% and 7% of sales in 1995; 19%, 7%, 7% and 5% of sales in 1994; and
27%, 10%, 10% and 2% of sales in 1993.
The Company performs periodic credit evaluations of its customers' financial
condition and generally does not require collateral. Receivables are generally
due within 30 days. Credit losses historically have not been significant and
management anticipates no significant change in future collection experience.
FISCAL YEAR
The Company's fiscal year ends on the Sunday closest to December 31. The fiscal
years ended December 31, 1995, January 1, 1995 and January 2, 1994 were
comprised of 52 weeks.
EARNINGS PER SHARE
Primary earnings per share are based on the weighted average number of shares
outstanding during each year and the assumed exercise of dilutive stock
options less the number of treasury shares assumed to be purchased from the
proceeds using the average market price of the Company's common stock. Fully
diluted earnings per share are computed in the same manner except that the
year-end market price of the Company's common stock is used rather than the
average market price.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the amounts reported in the financial statements and accompanying notes.
Actual results could differ from those estimates.
INVENTORIES
Inventories are stated at the lower of actual cost, determined using the first-
in, first-out (FIFO) method, or market. Adequate provision has been made for
obsolete or slow moving inventories.
F-14
Interstate Forging Industries, Inc.
Notes to Financial Statements (continued)
1. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment is stated at cost and includes expenditures for
new facilities and other items that substantially increase the useful lives of
existing plant and equipment. The Company capitalizes costs, including labor and
overhead, incurred by its employees in the construction of plant and equipment.
Interest costs are capitalized on assets which have a construction period
greater than one year. Depreciation of plant and equipment is provided on the
straight-line method for financial reporting purposes and on accelerated methods
for income tax purposes over the useful economic lives of the assets.
REVENUE RECOGNITION
Revenue from sales of forging and dies is recognized upon delivery to the
customer.
STOCK COMPENSATION
The Company accounts for employee stock compensation (e.g., stock appreciation
rights and stock options) in accordance with APB Opinion No. 25 (APB No. 25),
"Accounting for Stock Issued to Employees." Under APB No. 25, the total
compensation expense recognized is equal to the difference between the award's
exercise price and the underlying stock's market price (referred to as
"intrinsic value") at the measurement date, which is the first date that both
the exercise price and number of shares to be issued is known.
Statement of Financial Accounting Standards (SFAS) No. 123, "Accounting for
Stock-Based Compensation," is effective January 1, 1996. SFAS No. 123 allows
companies to account for stock-based awards based on the fair value of the award
at the date of grant or, alternatively, allows companies to continue following
the accounting rules under APB No. 25 with certain pro forma and other
disclosure requirements. The Company has not yet decided which alternative it
will adopt.
IMPAIRMENT
The Company is required to adopt SFAS No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed of," on January 1,
1996. The adoption of SFAS No. 121 will not have a material effect on the
Company's financial position.
F-15
Interstate Forging Industries, Inc.
Notes to Financial Statements (continued)
2. OTHER ASSETS
Included in other assets is $1,898,825 and $1,778,656 of cash surrender value of
life insurance policies at December 31, 1995 and January 1, 1995, respectively,
net of policy loans of $28,321 and $26,454.
3. NOTES PAYABLE AND LONG-TERM DEBT
Notes payable consist of advances from certain stockholders. These advances are
due on demand and bear interest at the Company's average borrowing cost less
.25% (7.65% at December 31, 1995).
Long-term debt consisted of the following:
DECEMBER 31 JANUARY 1
1995 1995
---------------------------------
Loans from bank under revolving credit agreement (A) $ 5,900,000 $ 5,000,000
Note payable to bank, due in quarterly installments of
$200,000, plus interest at 7.63%, with a final principal
payment due March 31, 1999 6,800,000 7,600,000
Construction loan payable to bank (B) 3,000,000 925,000
Note payable to bank, due in quarterly installments of
$175,000 commencing January 31, 1996, plus interest
at 7.65%, with a final principal payment due April 30,
1998 (C) 1,570,000 -
Note payable to bank (C) - 1,450,000
Note payable to bank (C) - 980,000
City of Milwaukee industrial revenue bonds, paid in full
in September 1995 - 235,000
Noninterest-bearing unsecured notes payable, repaid in 1995 - 6,667
Other notes payable bearing interest at 2% above the prime
rate 186,114 119,339
---------------------------------
17,456,114 16,316,006
Less current portion 1,700,000 2,025,000
---------------------------------
$15,756,114 $14,291,006
---------------------------------
---------------------------------
(A) The revolving credit agreement, as amended on January 5, 1996, provides for
a commitment of $14,000,000 (subject to collateral availability). This
agreement matures on April 30, 1998.
Revolving credit advances accrue interest, at the Company's option, at
either a Bankers Acceptance rate (up to a $5 million limit), LIBOR plus
1.90% (LIBOR) or the prime rate. These rates, at December 31, 1995, were as
follows: Bankers Acceptance--7.59%; LIBOR--7.84%; prime rate--8.50%. The
weighted-average interest rate was 7.93% for amounts outstanding on the
revolver at December 31, 1995.
F-16
Interstate Forging Industries, Inc.
Notes to Financial Statements (continued)
3. NOTES PAYABLE AND LONG-TERM DEBT (CONTINUED)
The revolving credit agreement requires, among other things, that the
Company maintain compliance with certain covenants, including minimum net
worth, financial leverage and fixed charge ratios, and limits capital
expenditures and dividends. The Company was in compliance with all
covenants at December 31, 1995.
(B) The construction loan has a $5 million limit and may be converted to a
fixed-rate term loan on October 1, 1996. Interest currently accrues at
LIBOR plus 2.15%. The principal is due in quarterly payments of $250,000
beginning December 31, 1996, with a final payment due on September 30,
2001.
(C) The two notes payable to bank were combined into one note as described in
the above table.
The revolving credit loans, the construction loan, and the notes payable to bank
are secured by a general business security agreement covering substantially all
of the Company's assets.
Maturities of long-term debt in the years subsequent to December 31, 1995, are
as follows:
Years
---------
1996 $ 1,700,000
1997 2,500,000
1998 7,870,000
1999 5,386,114
--------------
$17,456,114
--------------
--------------
The carrying value of all notes payable and long-term debt approximates their
estimated fair value at December 31, 1995 (based on discounted analyses).
4. INCOME TAXES
The provision for income taxes consisted of the following:
1995 1994 1993
-------------------------------------------
Current expense:
Federal $2,678,000 $2,290,000 $1,600,000
State 12,000 131,000 110,000
Deferred expense -
Federal and state 281,000 349,000 108,000
-------------------------------------------
$2,971,000 $2,770,000 $1,818,000
-------------------------------------------
-------------------------------------------
F-17
Interstate Forging Industries, Inc.
Notes to Financial Statements (continued)
4. INCOME TAXES (CONTINUED)
A reconciliation between the U.S. federal statutory rate and the effective tax
rate follows:
1995 1994 1993
------------------------------------------------------
Income tax computed using the federal
statutory rate $2,828,000 $2,555,000 $1,701,000
Increase (decrease) in income tax expense
resulting from:
State income taxes, net of federal
income tax benefit 17,000 82,000 73,000
Other 126,000 133,000 44,000
------------------------------------------------------
$2,971,000 $2,770,000 $1,818,000
------------------------------------------------------
Significant components of the Company's deferred tax liabilities and assets
are as follows:
DECEMBER 31 JANUARY 1
1995 1995
-----------------------------------
Deferred tax liabilities:
Accelerated depreciation $4,863,000 $4,651,000
Inventory valuation 105,000 -
-----------------------------------
4,968,000 4,651,000
Deferred tax assets:
Pension accrual 428,000 592,000
Postretirement benefits other than pensions 951,000 909,000
Vacation accrual 289,000 290,000
Inventory valuation - 215,000
State sales tax credit carryforwards, expiring
at various dates through 2007 90,000 219,000
Other 284,000 114,000
-----------------------------------
2,042,000 2,339,000
-----------------------------------
Net deferred tax liability $2,926,000 $2,312,000
-----------------------------------
-----------------------------------
Classification in the financial statements:
Current asset $ (361,000) $ (618,000)
Noncurrent liability 3,287,000 2,930,000
-----------------------------------
$2,926,000 $2,312,000
-----------------------------------
-----------------------------------
At December 31, 1995, the Company believes, based on future projected
profitability, that all gross deferred tax assets will be realized and that a
valuation allowance is not required.
F-18
Interstate Forging Industries, Inc.
Notes to Financial Statements (continued)
5. RETIREMENT PLANS
The Company sponsors two defined benefit pension plans covering Milwaukee union
employees. Pursuant to its collective bargaining agreements, the Company amended
these defined benefit plans in 1991 and 1990, to cease further benefit accruals
and to freeze the current benefit rates.
The Company's funding policy is to contribute the amounts necessary to satisfy
the requirements of the Employee Retirement Income Security Act of 1974,
including amortization of past service cost. Benefits are determined based on an
employee's credited service, as defined in the plan agreements. At December 31,
1995 and December 1, 1995, the pension plans collectively owned 39,249 shares of
Company stock, with a fair value (based on an independent appraisal) of $903,000
and $565,000, respectively.
Net pension cost included the following components:
1995 1994 1993
---------------------------------------------------
Interest cost on projected benefit obligation $ 382,113 $ 383,096 $ 377,115
Actual return on plan assets (263,857) (249,088) (250,895)
Unrecognized loss 25,286 28,556 -
---------------------------------------------------
$ 143,542 $ 162,564 $ 126,220
---------------------------------------------------
---------------------------------------------------
The following table sets forth the plans' funded status and amounts recognized
in the Company's financial statements for its pension plans:
DECEMBER 31 JANUARY 1
1995 1995
--------------------------------
Actuarial present value of benefit obligations:
Vested benefit obligation $ 4,922,197 $ 5,256,115
Nonvested benefit obligation 1,254 3,696
--------------------------------
Accumulated and projected benefit obligations 4,923,451 5,259,811
Plan assets at fair value, principally common stock
of the Company, money market funds and listed
U.S. corporate bonds 3,211,483 3,093,537
--------------------------------
Projected benefit obligations in excess of plan assets 1,711,968 2,166,274
Unrecognized net loss (1,049,550) (1,145,480)
Adjustment required to recognize minimum liability 1,049,550 1,145,480
--------------------------------
Accrued pension cost - current 1,711,968 2,166,274
Less amount included in accrued retirement plan costs 508,202 501,918
--------------------------------
Unfunded pension liability - noncurrent $ 1,203,766 $ 1,664,356
--------------------------------
--------------------------------
F-19
Interstate Forging Industries, Inc.
Notes to Financial Statements (continued)
5. RETIREMENT PLANS (CONTINUED)
The assumptions used in determining the pension expense and, in the case of the
discount rate, the actuarial present values at the end of the year were as
follows:
1995 1994 1993
----------------------------------
Discount rate 8% 7.5% 8.5%
Long-term rate of return on plan assets 9 9 9
In addition to those benefits provided by the frozen defined benefit plans
described above, the Company's union workforce participates in multi-employer
pension plans sponsored by two labor unions. The Company's contribution to these
plans (and expense) was $150,000 in 1995, $161,000 in 1994 and $147,000 in 1993.
The Company has a defined contribution 401(k) plan covering non-union employees.
Participating employees may contribute up to 15% of their compensation. Matching
contributions by the Company are discretionary. In 1995, the Company matched
100% of the employee's contribution, up to 4% of their compensation, in Company
stock, and matched in cash 25% of the employee's contribution from 5% to 8% of
their compensation. In 1994, matching contributions equal to 100% of the
employee's contribution up to 4% of compensation were made in shares of the
Company's common stock. The Company recorded expense of $723,000 in 1995,
$314,000 in 1994 and $255,000 in 1993 related to its contributions to the plan.
The 401(k) plan (including the Company's Employee Stock Ownership Plan (ESOP),
which was merged into the 401(k) plan on December 31, 1994), provides a put
option to participants who hold the Company's common stock. Participants have 15
months from the date of distribution to "put" their distributed shares to the
Company at the fair market value on the date they exercise the put. At December
31, 1995 and 1994, this plan held 229,877 and 233,182 shares of the Company's
common stock which, when distributed, would represent an aggregate potential
liability to the Company of $6,574,482 and $4,197,276 based on independent fair
value appraisals of the Company's common stock at December 31, 1995 and 1994,
respectively. These amounts are excluded from total stockholders' equity in the
Company's balance sheet.
Prior to 1995, the Company sponsored an ESOP covering substantially all
employees. The Company recorded expense of $196,000 in 1994 and $134,000 in 1993
related to the ESOP.
F-20
Interstate Forging Industries, Inc.
Notes to Financial Statements (continued)
6. STOCK COMPENSATION PLANS
In 1987, the Board of Directors approved an incentive stock option plan (which
was approved by the stockholders in February 1988) (the 1987 Plan) under which
options for 568,000 shares of Common Stock could be granted through October
1997. All options were granted in 1987 at 100% of market value ($3.52), expire
ten years from date of grant and are exercisable at the rate of 10% per year.
In connection with the April 1994 stock redemption (see Note 8), the Company
repurchased 112,619 options granted under the 1987 Plan for $1,180,247 in cash.
This cost is reflected as a nonrecurring compensation charge in the accompanying
1994 income statement. The original granting of these options resulted in no
compensation charge to the Company. The cash repurchase price of $10.48 per
option was equal to the estimated fair value of the underlying Company common
stock at the repurchase date ($14 per share) less the option exercise price
($3.52 per share); thus, the repurchase price (and expense) represented the
intrinsic value of the options. Options for 85,200 shares are currently
outstanding under the 1987 Plan, of which 28,400 are exercisable at December 31,
1995.
In 1994, the Board of Directors and Stockholders approved the 1994 Directors and
Key Employees Non Qualified Stock Option Plan (the 1994 Plan). Under this plan,
options for 120,000 shares of common stock may be granted through December 31,
1997. Options for 97,750 shares were granted during 1994 at 100% of fair market
value ($14.00 per share). These options expire ten years from the date of grant.
Options for 70,000 shares were immediately exercisable. The remaining 27,750
options granted under the 1994 Plan become exercisable at a rate of 20% per
year. At December 31, 1995, 75,550 options are exercisable under the 1994 Plan.
A total of 205,200 shares of the Company's stock is reserved for potential
issuance under the 1987 Plan and the 1994 Plan.
Also in 1994, the Company implemented a Stock Appreciation Rights (SAR) plan,
under which SARs may be granted until December 31, 1997. During 1994, 29,600
rights were granted at a price of $14.00. Participants vest 20% per year
beginning five years from the grant date. Compensation expense of $330,000 and
$120,000 was recognized with respect to the SARs in 1995 and 1994, respectively.
F-21
Interstate Forging Industries, Inc.
Notes to Financial Statements (continued)
7. POSTRETIREMENT BENEFITS OTHER THAN PENSIONS
The Company provides postretirement benefits other than pensions, including
health care and life insurance, to certain employee groups. The Company
currently funds the cost of providing these benefits as they are incurred.
Employees governed by collective bargaining agreements receive the following
benefits:
- - Health insurance coverage to age 65 if they retire after age 62.
- - Life insurance coverage, in varying amounts, for the remainder of their
lives.
Certain salaried employees receive health care and life insurance benefits for
the remainder of their lives if they retire after age 60.
The net periodic postretirement benefit cost is as follows:
1995 1994 1993
---------------------------------
Service cost $ 94,000 $ 93,000 $ 77,001
Interest cost 158,000 187,000 172,516
Amortization of unrecognized gain (21,000) - -
---------------------------------
$231,000 $280,000 $249,517
---------------------------------
---------------------------------
A reconciliation of the funded status of the plans is as follows:
DECEMBER 31 JANUARY 1
1995 1995
----------------------------------
Accumulated postretirement benefit obligation:
Retirees $ 806,000 $ 864,000
Other active plan participants 1,368,445 1,181,445
----------------------------------
2,174,445 2,045,445
Unrecognized net gain 499,000 520,000
----------------------------------
Net postretirement benefit liability
recognized in the balance sheet 2,673,445 2,565,445
Less current portion 125,000 125,000
----------------------------------
Long-term postretirement benefit liability $2,548,445 $2,440,445
----------------------------------
----------------------------------
F-22
Interstate Forging Industries, Inc.
Notes to Financial Statements (continued)
7. POSTRETIREMENT BENEFITS OTHER THAN PENSIONS (CONTINUED)
Assumptions affecting the calculation of the accumulated obligation are as
follows:
- - Health care cost trend rate 10.5% for 1995 (11.0% for 1994 and
11.5% for 1993). This rate
decreases until it levels out at 7%
for the year 2006 and thereafter.
- - Discount rate 8%--December 31, 1995 benefit
obligation; 8%--1995 expense and
January 1, 1995 benefit obligation;
7.5%--1994 and 1993 expense.
The effect of a one-percentage-point increase in the assumed health care cost
trend rate would have increased the 1995 expense by $55,000 and would have
increased the accumulated postretirement benefit obligation by $276,000 at
December 31, 1995.
8. STOCK REDEMPTION
In 1993, the Company's Board of Directors approved a plan to repurchase up to
750,000 shares of its common stock at $14 per share, including certain vested
stock options (see Note 6). The repurchase was completed in April 1994. In
conjunction with this plan, the Company also repurchased 50,000 shares of stock
from two significant shareholders in exchange for the termination of their stock
repurchase and sale agreements with the Company. Additionally, all of the
interest-free loans were repaid by the delivery of Company stock at $14 per
share.
9. SUBSEQUENT EVENT
The Company has reached an agreement in principle to be acquired by Citation
Corporation. This transaction is subject to a definitive agreement, the approval
of both companies' Boards of Directors and the approval of the shareholders of
the Company. The accompanying financial statements do not reflect any effects of
this transaction.
10. RESTATEMENT
The financial statements as of and for the year ended December 31, 1995, have
been restated to reflect a $505,000 inventory accumulation error discovered
subsequent to the original issuance of these financial statements. The effect of
the restatement was a $320,000 decrease to net income.
F-23
INTERSTATE FORGING INDUSTRIES, INC.
CONDENSED BALANCE SHEETS
June 30, 1996 December 31, 1995
------------- -----------------
(UNAUDITED)
ASSETS
------
Accounts receivable, net $ 15,386,851 $ 14,746,497
Inventory 10,888,860 9,620,829
Other current assets 763,197 636,070
------------ ------------
Current Assets 27,038,908 25,003,396
Other assets 2,493,899 2,046,905
Property, plant & equipment 89,305,534 86,647,756
Less accumulated depreciation 45,496,020 43,372,020
------------ ------------
Net property, plant and equipment 43,809,514 43,275,736
------------ ------------
TOTAL ASSETS $ 73,342,321 $ 70,326,037
------------ ------------
------------ ------------
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
Notes payable $ 2,457,362 $ 2,367,385
Trade payables 8,261,395 10,911,074
Accrued expenses and income taxes 5,402,802 6,164,431
Current portion of long-term debt 1,700,000 1,700,000
------------ ------------
Current liabilities 17,821,559 21,142,890
Long-term debt 19,359,308 15,756,114
Unfunded pension and
post-retirement benefits 3,752,211 3,752,211
Deferred income taxes 2,926,000 3,287,000
Common stock subject to repurchase 6,574,482 6,574,482
Stockholders' equity:
Common Stock, $1.00 par value; 6,000,000
shares authorized; 1,824,123 issued;
1,083,647 and 1,065,875 outstanding at
June 30, 1996 and December 31, 1995,
respectively, net of 229,877 shares
subject to repurchase in both periods. 1,824,123 1,824,123
Retained earnings 31,332,831 29,011,988
Cost of common stock in treasury (10,248,193) (10,350,221)
------------ ------------
Stockholders' equity 22,908,761 19,813,340
------------ ------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 73,342,321 $ 70,326,037
------------ ------------
------------ ------------
F-24
Interstate Forging Industries, Inc.
Condensed Statements of Income
(UNAUDITED)
SIX MONTHS ENDED
----------------------------------
June 30, 1996 July 2, 1995
------------- --------------
Net sales $ 50,035,829 $ 44,573,585
Cost of products sold 41,768,180 35,756,463
---------- ----------
Gross profit 8,267,649 8,817,122
Selling and administrative expenses 2,937,993 3,356,599
---------- ----------
Operating income 5,329,656 5,460,523
Other expenses:
Interest 865,089 636,862
Other, net 90,723 56,028
---------- ----------
Income before provision for income taxes 4,373,844 4,767,633
Provision for income taxes 1,696,000 1,754,000
---------- ----------
Net income $2,677,844 $3,013,633
---------- ----------
---------- ----------
Earnings per share:
Primary $ 1.90 $ 2.17
Fully diluted $ 1.89 $ 2.15
F-25
Interstate Forging Industries, Inc.
Condensed Statements of Cash Flows
(UNAUDITED)
SIX MONTHS ENDED
------------------------------------
June 30, 1996 July 2, 1995
------------- ------------
OPERATING ACTIVITIES
Net income $ 2,677,844 $ 3,013,633
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation 2,124,000 1,984,504
Changes in operating assets and liabilities:
Receivables (640,354) (2,801,372)
Inventories (1,268,031) 1,067,658
Prepaid expenses (488,127) 40,438
Trade payables (2,649,679) (560,493)
Accrued expenses (253,349) 158,323
------------ ------------
Net cash provided by (used in) operating activities (497,696) 2,902,691
INVESTING ACTIVITIES
Purchases of plant and equipment (2,657,778) (6,457,972)
Decrease in other assets (446,994) (71,431)
------------- -----------
Net cash used in investing activities (3,104,772) (6,529,403)
FINANCING ACTIVITIES
Net borrowings under short-term obligations 89,977 37,505
Borrowings (payments) on revolving line of credit 4,300,000 1,800,000
Payments on other long-term debt (696,806) (831,367)
Proceeds from long-term debt 3,075,000
Dividends paid (90,703) (325,096)
Purchases of common stock of treasury (129,330)
----------- ---------
Net cash provided by financing activities 3,602,468 3,626,712
NET CHANGE IN CASH -- --
Cash at beginning of period -- --
----------- ---------
CASH AT END OF PERIOD -- --
----------- ---------
----------- ---------
F-26
Interstate Forging Industries, Inc.
Notes to Condensed Financial Statements
NOTE 1 -- BASIS OF PRESENTATION
The accompanying condensed financial statements of Interstate Forging
Industries, Inc. ("Interstate") have been prepared in accordance with
generally accepted accounting principles for interim financial reporting and
with the instructions of Form 10-Q and Article 10 of Regulation S-X.
Accordingly, they do not include all of the information and footnotes
required by generally accepted accounting principles for complete financial
statements.
In the opinion of management, the accompanying unaudited condensed financial
statements contain all adjustments, representing normal recurring accruals,
considered necessary for a fair presentation of the financial position,
results of operations, and changes in cash flows for the periods presented.
The interim results are not necessarily indicative of results for a full year.
NOTE 2 -- INVENTORIES
The components of inventory at June 30, 1996 and December 31, 1995 are
summarized as follows:
June 30, 1996 December 31, 1995
------------- -----------------
Raw materials $ 4,749,037 $ 3,943,630
Work-in-process-forgings 5,271,780 4,757,102
Other 868,045 920,097
----------- -----------
$10,888,860 $ 9,620,829
----------- -----------
----------- -----------
Inventory is carried at the lower of cost or market using the first-in,
first-out method of valuation.
NOTE 3 -- SUBSEQUENT EVENT
On May 16, 1996, Interstate entered into an Agreement and Plan of Merger (the
"Merger Agreement") with Citation Corporation ("Citation") and Citation
Forging Corporation ("Sub"), a wholly-owned subsidiary of Citation. Pursuant
to the terms of the Merger Agreement, as amended, Citation will acquire
Interstate pursuant to a statutory merger of Sub into Interstate. Outstanding
shares of Interstate Common Stock will be converted into the right to receive
a cash payment upon consummation of the transaction, and certain additional
contingent cash payments should Interstate's average annual net earnings
before interest and income and franchise taxes during the three year period
ending December 31, 1998 exceed $10,000,000.
F-27
APPENDIX A
AGREEMENT AND PLAN OF MERGER
BY AND AMONG
CITATION CORPORATION,
CITATION FORGING CORPORATION
AND
INTERSTATE FORGING INDUSTRIES, INC.
DATED AS OF
MAY 16, 1996
TABLE OF CONTENTS
ARTICLE I: THE MERGER . . . . . . . . . . . . . . . . . . . . . . . . . . . A-7
1.1 THE MERGER. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-7
1.2 EFFECTIVE TIME OF THE MERGER. . . . . . . . . . . . . . . . . . . . . . A-7
1.3 CLOSING . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-7
1.4 EFFECTS OF THE MERGER . . . . . . . . . . . . . . . . . . . . . . . . . A-8
1.5 ARTICLES OF INCORPORATION OF SURVIVING CORPORATION. . . . . . . . . . . A-8
1.6 BYLAWS OF SURVIVING CORPORATION . . . . . . . . . . . . . . . . . . . . A-8
1.7 DIRECTORS AND OFFICERS OF SURVIVING CORPORATION . . . . . . . . . . . . A-8
1.8 CALCULATION OF COMPANY STOCK PRICE. . . . . . . . . . . . . . . . . . . A-8
1.9 EFFECT ON CAPITAL STOCK . . . . . . . . . . . . . . . . . . . . . . . . A-9
1.10 PROTECTIVE PROVISIONS . . . . . . . . . . . . . . . . . . . . . . . . .A-11
1.11 PROCEDURES. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .A-12
1.12 PAYMENTS OF CONTINGENT PAYMENTS . . . . . . . . . . . . . . . . . . . .A-13
1.13 SHARES OF DISSENTING STOCKHOLDERS . . . . . . . . . . . . . . . . . . .A-14
1.14 EXCHANGE OF CERTIFICATES. . . . . . . . . . . . . . . . . . . . . . . .A-14
1.15 PAYMENTS TO HOLDERS OF STOCK APPRECIATION RIGHTS. . . . . . . . . . . .A-16
ARTICLE II: OTHER AGREEMENTS. . . . . . . . . . . . . . . . . . . . . . . .A-16
2.1 STOCKHOLDERS AGENTS . . . . . . . . . . . . . . . . . . . . . . . . . .A-16
2.2 COMPETING TRANSACTION . . . . . . . . . . . . . . . . . . . . . . . . .A-17
2.3 DISPUTE RESOLUTION MECHANISMS . . . . . . . . . . . . . . . . . . . . .A-18
2.4 SCHEDULES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .A-20
2.5 DIRECTORS, OFFICERS AND FIDUCIARY INDEMNIFICATION. . . . . . . . . . .A-20
2.6 TAX TREATMENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . .A-20
2.7 ATTORNEYS' FEES . . . . . . . . . . . . . . . . . . . . . . . . . . . .A-20
2.8 JURISDICTION AND VENUE. . . . . . . . . . . . . . . . . . . . . . . . .A-20
ARTICLE III: REPRESENTATIONS AND WARRANTIES . . . . . . . . . . . . . . . .A-20
3.1 CORPORATE EXISTENCE AND POWER . . . . . . . . . . . . . . . . . . . . .A-20
3.2 BINDING AGREEMENT . . . . . . . . . . . . . . . . . . . . . . . . . . .A-20
3.3 EFFECT OF AGREEMENT . . . . . . . . . . . . . . . . . . . . . . . . . .A-21
3.4 OWNERSHIP OF CAPITAL STOCK OF THE COMPANY . . . . . . . . . . . . . . .A-21
3.5 OPERATION OF BUSINESS . . . . . . . . . . . . . . . . . . . . . . . . .A-21
3.6 FINANCIAL STATEMENTS. . . . . . . . . . . . . . . . . . . . . . . . . .A-21
3.7 MATERIAL CHANGES. . . . . . . . . . . . . . . . . . . . . . . . . . . .A-22
3.8 LEASES. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .A-22
3.9 REAL ESTATE; TITLE TO ASSETS. . . . . . . . . . . . . . . . . . . . . .A-22
3.10 CONDITION OF EQUIPMENT. . . . . . . . . . . . . . . . . . . . . . . . .A-23
3.11 CONTRACTS AND COMMITMENTS . . . . . . . . . . . . . . . . . . . . . . .A-23
3.12 ALL ASSETS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .A-23
3.13 INSURANCE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .A-23
3.14 JUDGMENTS AND DECREES . . . . . . . . . . . . . . . . . . . . . . . . .A-23
3.15 LITIGATION AND ADMINISTRATIVE PROCEEDINGS . . . . . . . . . . . . . . .A-23
3.16 NO ADVERSE CHANGE . . . . . . . . . . . . . . . . . . . . . . . . . . .A-23
3.17 NAME, TRADEMARKS AND TRADE NAMES, LICENSES, ETC. . . . . . . . . . . .A-23
3.18 EMPLOYEE PLANS. . . . . . . . . . . . . . . . . . . . . . . . . . . . .A-24
3.19 EMPLOYEES AND AGENTS. . . . . . . . . . . . . . . . . . . . . . . . . .A-24
3.20 ORDINARY COURSE OF BUSINESS . . . . . . . . . . . . . . . . . . . . . .A-24
3.21 ACCOUNTS RECEIVABLE . . . . . . . . . . . . . . . . . . . . . . . . . .A-24
3.22 BOOKS AND RECORDS . . . . . . . . . . . . . . . . . . . . . . . . . . .A-24
3.23 CUSTOMERS' TOOLINGS AND DIES . . . . . . . . . . . . . . . . . . . . .A-25
3.24 PREPARATION OF SCHEDULES. . . . . . . . . . . . . . . . . . . . . . . .A-25
3.25 HAZARDOUS MATERIALS . . . . . . . . . . . . . . . . . . . . . . . . . .A-25
3.26 INDEBTEDNESS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .A-26
A-2
3.27 TAXES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .A-26
3.28 SURVIVAL. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .A-26
ARTICLE IV: REPRESENTATIONS AND WARRANTIES OF CITATION AND SUB. . . . . . .A-26
4.1 CORPORATE EXISTENCE AND POWER . . . . . . . . . . . . . . . . . . . . .A-26
4.2 AUTHORITY RELATIVE TO AGREEMENT . . . . . . . . . . . . . . . . . . . .A-26
4.3 EFFECT OF AGREEMENT . . . . . . . . . . . . . . . . . . . . . . . . . .A-27
4.4 REPORTS AND FINANCIAL STATEMENTS. . . . . . . . . . . . . . . . . . . .A-27
4.5 NO ADVERSE CHANGE. . . . . . . . . . . . . . . . . . . . . . . . . . .A-27
4.6 JUDGMENTS AND DECREES . . . . . . . . . . . . . . . . . . . . . . . . .A-27
4.7 LITIGATION AND ADMINISTRATIVE PROCEEDINGS . . . . . . . . . . . . . . .A-27
4.8 DISCLOSURE. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .A-28
4.9 SURVIVAL. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .A-28
ARTICLE V: CONDUCT OF BUSINESS PENDING CLOSING. . . . . . . . . . . . . . .A-28
5.1 FULL ACCESS AND INVESTIGATION . . . . . . . . . . . . . . . . . . . . .A-28
5.2 CONTINUE BUSINESS IN REGULAR COURSE . . . . . . . . . . . . . . . . . .A-28
5.3 CONSENTS OF CITATION. . . . . . . . . . . . . . . . . . . . . . . . . .A-29
5.4 REGISTRATION STATEMENT. . . . . . . . . . . . . . . . . . . . . . . . .A-29
5.5 COMPANY STOCKHOLDER APPROVAL. . . . . . . . . . . . . . . . . . . . . .A-30
5.6 REPRESENTATIONS OF THE COMPANY AS TO THE REGISTRATION STATEMENT . . . .A-30
5.7 CITATION'S AND SUB'S REPRESENTATIONS AS TO REGISTRATION STATEMENT. . .A-30
5.8 STATE SECURITIES FILINGS. . . . . . . . . . . . . . . . . . . . . . . .A-30
ARTICLE VI: TITLE INSURANCE; SURVEYS. . . . . . . . . . . . . . . . . . . .A-30
6.1 DEFINITIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .A-30
6.2 DELIVERIES PRIOR TO CLOSING.. . . . . . . . . . . . . . . . . . . . . .A-31
6.3 DELIVERIES AT CLOSING . . . . . . . . . . . . . . . . . . . . . . . . .A-31
6.4 EXPENSES. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .A-31
ARTICLE VII: HART-SCOTT-RODINO. . . . . . . . . . . . . . . . . . . . . . .A-31
ARTICLE VIII: CONDITIONS TO OBLIGATIONS OF CITATION AND SUB . . . . . . . .A-31
8.1 REPRESENTATIONS AND WARRANTIES TRUE AT CLOSING. . . . . . . . . . . . .A-31
8.2 OBLIGATIONS PERFORMED . . . . . . . . . . . . . . . . . . . . . . . . .A-32
8.3 CONSENTS AND APPROVALS. . . . . . . . . . . . . . . . . . . . . . . . .A-32
8.4 DELIVERY OF CLOSING DOCUMENTS . . . . . . . . . . . . . . . . . . . . .A-32
8.5 NO LITIGATION OR GOVERNMENT INVESTIGATIONS. . . . . . . . . . . . . . .A-32
8.6 NO MATERIAL CHANGE. . . . . . . . . . . . . . . . . . . . . . . . . . .A-32
8.7 DISSENTING STOCKHOLDERS . . . . . . . . . . . . . . . . . . . . . . . .A-32
8.8 COMPANY STOCKHOLDER APPROVAL. . . . . . . . . . . . . . . . . . . . . .A-32
8.9 EFFECTIVENESS OF REGISTRATION STATEMENT . . . . . . . . . . . . . . . .A-32
8.10 BLUE SKY QUALIFICATION. . . . . . . . . . . . . . . . . . . . . . . . .A-32
ARTICLE IX: CONDITIONS TO COMPANY'S OBLIGATIONS . . . . . . . . . . . . . .A-32
9.1 REPRESENTATIONS AND WARRANTIES TRUE AT CLOSING. . . . . . . . . . . . .A-32
9.2 OBLIGATIONS PERFORMED . . . . . . . . . . . . . . . . . . . . . . . . .A-33
9.3 DELIVERY OF CLOSING DOCUMENTS . . . . . . . . . . . . . . . . . . . . .A-33
9.4 COMPANY STOCKHOLDER APPROVAL. . . . . . . . . . . . . . . . . . . . . .A-33
9.5 CONSENTS AND APPROVALS. . . . . . . . . . . . . . . . . . . . . . . . .A-33
9.6 NO LITIGATION OR GOVERNMENT INVESTIGATIONS. . . . . . . . . . . . . . .A-33
9.7 EFFECTIVENESS OF REGISTRATION STATEMENT . . . . . . . . . . . . . . . .A-33
9.8 BLUE SKY QUALIFICATION. . . . . . . . . . . . . . . . . . . . . . . . .A-33
9.9 OPINION OF FINANCIAL ADVISOR. . . . . . . . . . . . . . . . . . . . . .A-33
9.10 NO MATERIAL CHANGE. . . . . . . . . . . . . . . . . . . . . . . . . . .A-33
ARTICLE X: DELIVERIES AT CLOSING. . . . . . . . . . . . . . . . . . . . . .A-33
10.1 DELIVERIES BY THE COMPANY AT CLOSING. . . . . . . . . . . . . . . . . .A-33
10.2 DELIVERIES BY CITATION AND THE SUB AT CLOSING. . . . . . . . . . . . .A-34
ARTICLE XI: INDEMNIFICATION . . . . . . . . . . . . . . . . . . . . . . . .A-35
11.1 INDEMNIFICATION . . . . . . . . . . . . . . . . . . . . . . . . . . . .A-35
11.2 LIMITS OF INDEMNIFICATION . . . . . . . . . . . . . . . . . . . . . . .A-35
A-3
11.3 METHOD OF ASSERTING CLAIMS AGAINST THE COMPANY. . . . . . . . . . . . A-36
11.4 PAYMENT OF CLAIMS . . . . . . . . . . . . . . . . . . . . . . . . . A-37
11.5 INDEMNIFIED CLAIMS BY CITATION. . . . . . . . . . . . . . . . . . . . A-37
11.6 METHOD OF ASSERTING CLAIM AGAINST CITATION. . . . . . . . . . . . . . A-37
11.7 EXCLUSIVITY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-37
11.8 DEFINITION OF LOSS. . . . . . . . . . . . . . . . . . . . . . . . . . A-37
11.9 INSURANCE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-37
ARTICLE XII: TERMINATION, AMENDMENT AND WAIVER . . . . . . . . . . . . . . A-38
12.1 TERMINATION. . . . . . . . . . . . . . . . . . . . . . . . . . . . A-38
12.2 EFFECT OF TERMINATION . . . . . . . . . . . . . . . . . . . . . . . . A-38
12.3 AMENDMENT.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-38
12.4 EXTENSION; WAIVER. . . . . . . . . . . . . . . . . . . . . . . . . . A-38
12.5 PROCEDURE FOR TERMINATION, AMENDMENT, EXTENSION OR WAIVER . . . . . . A-38
ARTICLE XIII: MISCELLANEOUS . . . . . . . . . . . . . . . . . . . . . . . A-38
13.1 NOTICES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-38
13.2 BINDING AGREEMENT; ASSIGNMENT . . . . . . . . . . . . . . . . . . . . A-40
13.3 ENTIRE AGREEMENT. . . . . . . . . . . . . . . . . . . . . . . . . . . A-40
13.4 COUNTERPARTS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-40
13.5 EXPENSES. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-40
13.6 BROKERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-41
13.7 FURTHER ASSURANCES. . . . . . . . . . . . . . . . . . . . . . . . . . A-41
13.8 CONSTRUCTION. . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-41
13.9 INCORPORATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-41
13.10 COOPERATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-41
13.11 CAPTIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-41
13.12 GOVERNING LAW . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-41
13.13 PUBLICITY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-41
Signatures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-41
List of Schedules . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-43
A-4
INDEX TO DEFINED TERMS
TERM AGREEMENT SECTION
- ---- -----------------
1933 Act 4.4
1934 Act 4.4
ADA 3.5
ADEA 3.5
Agreement Preface
Articles of Merger 1.2
Basic Merger Payment 1.8(a)(i)
Business Recital C
CERCLA 3.25(b)(iii)
Certificates 1.14(c)
Citation Preface
Claim Notice 11.3(a)
Closing 1.3
Closing Date 1.3
Closing Merger Payment 1.8(a)(ii)
Closing Stock 1.9(c)
Closing Stockholders 1.9(c)
Code 1.9(d)
Company Preface
Company Covered Breach 11.2(a)
Company Indemnifiable Breach 11.2(b)
Company Stock Recital B
Company Stock Price 1.8(a)(iii)
Company Transaction Costs 13.5
Competing Offer 2.2(a)(i)
Competing Transaction 2.2(a)(ii)
Contingent Payments 1.9(d)
Contingent Payments List 10.1(f)
Contingent Payments Percentages 10.1(f)
Contingent Payments Rights 5.4
Contracts 3.11
Coopers 1.11(a)
Corporation Law 1.1
CPR 2.3(d)
Dispute 2.3(a)
Dissenting Stockholders 1.13
EBIT 1.9(d)
EPA 3.5
ERISA 3.5
Effective Time 1.2
Employee Plans 3.18
Environmental Laws 3.25(b)(iii)
Esenberg Employment Agreement 3.18
Excess Amount 1.11(h)
Expense List 13.5
Final Contingent Payments Payment 1.12(b)(iii)
GAAP 1.9(d)(i)
Hazardous Material 3.25(b)(i)
Indenture Act 1.14(a)
Independent Accountants 1.11(f)
A-5
TERM AGREEMENT SECTION
- ---- -----------------
Interstate Restricted Stock 1.9(d)(i)(I)
Liens 3.9
Leases 3.8
Merger Recital A
Mitchell Employment Agreement 3.18
NLRA 3.5
Navasota Plant 1.10(a)
Notice Period 11.3(a)
OSHA 3.5
Option Agreement 1.14(a)
Option Stock 1.9(c)
Option Stock Price 1.9(c)
Paying Agent 1.14(a)
Payout Period 1.9(d)
Pension Plan 3.18
Permits 3.25(a)(v)
Permitted Liens 6.1(a)
Proxy Statement 5.4
Proxy Statement-Prospectus 5.4
Real Estate 3.9
Registration Statement 5.4
Release 3.25(b)(ii)
Replacement 2.3(l)
Request 2.3(d)
SEC 4.4
SEC Reports 4.4
Stock Appreciation Rights 1.15
Stockholders 1.9(c)
Stockholders Agents 2.1(a)
Stockholders Meeting 5.5
Sub Preface
Survey 6.1(c)
Surviving Corporation 1.4(b)
Texas Limited Partnership 1.10(a)
Title VII 3.5
Title Commitments 6.1(d)
Title Company 6.1(e)
A-6
AGREEMENT AND PLAN OF MERGER
This Agreement and Plan of Merger dated as of May 16, 1996 (the
"Agreement") is among Citation Corporation, a Delaware corporation ("Citation"),
Citation Forging Corporation, a Wisconsin corporation (the "Sub") that is a
wholly owned subsidiary of Citation, and Interstate Forging Industries, Inc., a
Wisconsin corporation (the "Company").
RECITALS
A. The respective Boards of Directors of Citation, the Sub and the Company,
and Citation acting as the sole stockholder of the Sub, have approved of a
plan whereby the Sub will be merged into the Company (the "Merger"),
pursuant and subject to the terms and conditions of this Agreement.
B. In the Merger, all of the issued and outstanding shares of capital stock of
the Company, consisting of 1,313,524 shares of common stock, par value
$1.00 per share (the "Company Stock"), and all of the outstanding options
to purchase 182,950 shares of the common stock of the Company, will be
converted into the right to receive cash in the aggregate amount at Closing
of the Closing Merger Payment (as defined in Section 1.8), plus certain
contingent additional consideration based on the future earnings of the
Company.
C. Citation, through the merger of Sub into the Company, desires to acquire
the metal forging business being operated by the Company in Milwaukee,
Wisconsin and Navasota, Texas (the "Business").
D. The transaction described in this Agreement is subject to the approval of
the shareholders of the Company.
NOW, THEREFORE, in consideration of the premises and the mutual
representations, warranties and agreements herein contained, the parties hereto
agree as follows:
ARTICLE I
THE MERGER
1.1 THE MERGER. This Agreement provides for the merger of Sub with and into
the Company, whereby it is contemplated that each outstanding share of
Closing Stock (as defined in Section 1.9) will be converted into the right
to receive cash in the amount of the Company Stock Price (as defined in
Section 1.8) and a portion of the Contingent Payments as contemplated by
this Agreement. As of the Effective Time (as defined in Section 1.2), Sub
will be merged with and into the Company, which shall continue to be
governed by the laws of the State of Wisconsin, and the separate existence
of Sub shall thereupon cease. The Merger shall be pursuant to the
provisions of, and shall be with the effects provided in, the Wisconsin
Business Corporation Law (the "Corporation Law").
1.2 EFFECTIVE TIME OF THE MERGER. Subject to this Agreement, articles of
merger (the "Articles of Merger") will be prepared, executed and
acknowledged by the Sub and the Company and delivered to the Secretary of
State of the State of Wisconsin (or the Wisconsin Department of Financial
Institutions should it be the appropriate agency at the time of filing)
for filing, as provided in the Corporation Law, as soon as practicable on
or after the Closing Date (as defined in Section 1.3). The Merger will
become effective when such filing is made (the "Effective Time").
1.3 CLOSING. The closing of the Merger (the "Closing") shall take place at
the offices of Quarles & Brady, 411 East Wisconsin Avenue, Milwaukee,
Wisconsin on a date and time to be specified by the parties, or by mail if
agreed to in writing by the parties, which date shall be no later than the
fifth business day after the satisfaction of the conditions in Articles
VIII and IX (the "Closing Date").
A-7
1.4 EFFECTS OF THE MERGER.
(a) At the Effective Time, the effects of the Merger shall be as
provided in the Corporation Law, including the effects described in
Sections 1.4(b) and 1.4(c) of this Agreement.
(b) The corporate identity, existence, purposes, powers, franchises,
privileges, assets, properties and rights of the Company (hereinafter
sometimes referred to as the "Surviving Corporation") shall continue
unaffected and unimpaired by the Merger and the corporate identity,
existence, purposes, powers, franchises, privileges, assets, properties
and rights of Sub shall be merged into the Surviving Corporation and the
Surviving Corporation shall be fully vested therewith. The separate
existence of Sub, except insofar as otherwise specifically provided by
law, shall cease at the Effective Time whereupon Sub and the Surviving
Corporation shall be and become one single corporation.
(c) At the Effective Time, the Surviving Corporation shall succeed
to, without other transfer, and shall possess and enjoy, all the rights,
privileges, assets, properties, powers and franchises both of a public and
a private nature, and be subject to all the restrictions, disabilities and
duties of Sub and the Company, and all the rights, privileges, assets,
properties, powers and franchises of Sub or the Company and all property,
real, personal and mixed, tangible or intangible, and all debts due to Sub
or the Company on whatever account, shall be vested in the Surviving
Corporation; and all rights, privileges, assets, properties, powers and
franchises, and all and every other interest shall be thereafter as
effectively the property of the Surviving Corporation as they were of Sub
or the Company; and the title to or any interest in any real estate vested
by deed or otherwise in Sub or the Company shall not revert or be in any
way impaired by reason of the Merger; provided, however, that all rights
of creditors and liens upon any property of either Sub or the Company
shall be preserved unimpaired, and all debts, liabilities and duties of
Sub or the Company shall thenceforth attach to the Surviving Corporation
and may be enforced against the Surviving Corporation to the same extent
as if said debts, liabilities and duties had been incurred or contracted
by the Surviving Corporation.
1.5 ARTICLES OF INCORPORATION OF SURVIVING CORPORATION. The Articles of
Incorporation of the Company as in effect immediately prior to the
Effective Time shall be the Articles of Incorporation of the Surviving
Corporation until amended in accordance with law.
1.6 BYLAWS OF SURVIVING CORPORATION. The Bylaws of the Company as in effect
immediately prior to the Effective Time shall be the Bylaws of the
Surviving Corporation until amended in accordance with law.
1.7 DIRECTORS AND OFFICERS OF SURVIVING CORPORATION. The duly qualified and
acting directors and officers of Sub immediately prior to the Effective
Time shall be the directors and officers of the Surviving Corporation, to
hold office as provided in the Bylaws of the Surviving Corporation.
1.8 CALCULATION OF COMPANY STOCK PRICE.
(a) As used in this Agreement, the following terms shall have the
meanings specified:
(i) "Basic Merger Payment" shall mean $45,409,000 less the Company
Transaction Costs;
(ii) "Closing Merger Payment" shall mean that amount calculated as
follows:
(A) the Basic Merger Payment; plus
(B) an additional amount equal to $9,952.66 multiplied by the
number of calendar days from and after April 1, 1996 to and
including the Closing Date.
(iii) "Company Stock Price" shall be that amount (rounded to four
decimal places)
A-8
calculated as follows:
(A) the Closing Merger Payment plus $1,668,404; divided by
(B) 1,496,474.
(b) SCHEDULE 1.8 attached hereto sets forth an example of the
calculation of the Basic Merger Payment, the Closing Merger Payment and
the Company Stock Price. At the Closing, the Stockholders Agents (as
defined in Section 2.1) and Citation shall agree on the amounts of the
Basic Merger Payment, the Closing Merger Payment and the Company Stock
Price by a written closing statement.
1.9 EFFECT ON CAPITAL STOCK. As of the Effective Time, by virtue of the
Merger and without any action on the part of the holder of any shares of
capital stock or stock options:
(a) CAPITAL STOCK OF SUB. Each issued and outstanding share of the
capital stock of the Sub will be converted into and become one fully paid
share of common stock, par value $1.00 per share, of the Surviving
Corporation.
(b) CANCELLATION OF TREASURY STOCK. All shares of Company Stock
that are owned directly or indirectly by the Company as treasury stock, if
any, will be canceled, and no consideration will be delivered in exchange
for any such shares.
(c) CONVERSION OF COMPANY STOCK. Each share of Company Stock will
be converted into the right to receive, without interest thereon, an
amount in cash equal to the Company Stock Price. In addition, each share
of common stock of the Company which is issuable by the Company pursuant
to option rights (as detailed on SCHEDULE 1.9(c), the "Option Stock")
granted by the Company, whether vested or unvested at the Effective Time,
shall be converted to an amount in cash (the "Option Stock Price") equal
to the Company Stock Price less the per share exercise price of the
related option (and less any required withholding taxes). The registered
holders of Company Stock (the "Stockholders") and the holders of options
detailed on SCHEDULE 1.9(c) immediately prior to the Effective Time shall
herein be referred to as the "Closing Stockholders." The Company Stock
and the Option Stock shall herein be referred to as the "Closing Stock."
The Closing Stockholders shall also be granted the right to receive an
amount equal to the Contingent Payments (as defined in Section 1.9(d)
hereof), if any.
(d) CONTINGENT PAYMENTS. Citation will deliver to the Closing
Stockholders aggregate additional consideration (the "Contingent
Payments") equal to five (5) times the amount by which (x) the average
annual net earnings of the Company before interest and income and
franchise taxes ("EBIT") during the three year period from January 1, 1996
through December 31, 1998 (the "Payout Period") exceeds (y) $9,500,000.00.
As partial progress payments, Citation will make payments equal to 50% of
the Contingent Payments due with respect to the first and second year's
EBIT as hereinafter provided. Such partial progress payments shall be
deemed fully earned by the Closing Stockholders even though the subsequent
year EBIT may be less than $9,500,000. Any such Contingent Payments
shall be paid in cash on the dates specified in Section 1.12 of this
Agreement, and shall be deemed to include interest compounded semiannually
at the applicable federal mid-term rate as determined in accordance with
provisions of Section 1274(d) of the Internal Revenue Code of 1986, as
amended (the "Code"). For example, if the aggregate EBIT during the
Payout Period is $39,000,000, then the Contingent Payments payable to the
Closing Stockholders would be $17,500,000 ($39,000,000 - $28,500,000 =
$10,500,000 DIVIDED BY 3 = $3,500,000 x 5 = $17,500,000), subject to the
making of partial progress payments as hereinafter provided. The
following terms and conditions shall be applicable in calculating the
Contingent Payments and the payment thereof.
(i) As used in this Section 1.9, the term "EBIT" shall mean the
consolidated net earnings (or losses), before all interest,
income (federal and state) and franchise taxes, of the Company,
computed on the accrual basis of accounting in
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accordance with generally accepted accounting principles
("GAAP") consistently applied and consistent with the accounting
principles applied by the Company in its prior fiscal years,
except that the following provisions shall govern the
computation of EBIT for purposes of this Section 1.9:
(A) Any loss, charge or expense agreed to by Citation and the
Stockholders Agents to be (a) not related to the ordinary
business operations of the Company, or (b) paid, incurred
or charged in connection with expansion of the business
operations presently conducted by the Company as a result
of the making of acquisitions or the opening and staffing
of new offices, or any income or revenues directly derived
therefrom, shall be excluded from such computation.
(B) Any charge or expense for the amortization of goodwill
arising out of the Merger, pursuant hereto or otherwise,
or that the purchase price thereof is in excess of the net
worth thereof, shall be excluded from such computation.
(C) Any payments, charges or expenses for allocation of home
office, executive, general and administrative expenses or
other payments, charges or expenses of Citation and the Sub
and/or its affiliates shall be excluded from such
computation.
(D) Such computation (including, without limitation, the
determination of the basis for depreciation and the
reflection of intercompany transactions) shall be made as
though the Merger had not occurred hereunder and the
Company were a single corporation with all of the Company
Stock owned by persons who are neither directly or
indirectly related to or affiliated with Citation or any of
its affiliates.
(E) The Surviving Corporation shall maintain plant and
equipment consistent with past practices of the Company,
and if such maintenance is determined to be inconsistent,
an appropriate adjustment shall be made to EBIT. Inventory
practices including maintenance and spare parts
inventories, and capitalization policies for fixed assets
shall be consistent with prior practices. There will be
deducted from EBIT any material savings in expenses and/or
reduction in costs of goods and services purchased that
would not have resulted if the Surviving Corporation had
not been affiliated with Citation. Interest will be
deducted from EBIT that is related to equipment being
purchased by the Business after March 1, 1996 that was
leased prior to March 1, 1996.
(F) Payments made for Stock Appreciation Rights as provided by
Section 1.15 hereof shall be excluded from the computation
of EBIT.
(G) No effect shall be given to: (i) any tax or financial
statement write-up of the assets of the Company based on
the consummation of the transactions described in this
Agreement; (ii) the Company's payment of the Company
Transaction Costs; (iii) any recapture income or recapture
taxes resulting from the consummation of the Merger; (iv)
any additional depreciation or amortization of intangibles
associated with a write-up of assets upon or following the
consummation of the Merger; (v) the payments of, or accrual
for, the Contingent Payments; or (vi) the payments of, or
accrual for, any prepayment penalties based on the
prepayment of any indebtedness of the Company existing as
of the
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Effective Time.
(H) To the extent that EBIT of the Company for calendar year
1996, 1997 or 1998 is reduced as a result of an event for
which the Company has indemnified Citation and the Sub
pursuant to Section 11.1 of this Agreement (and is
recoverable because all Company Indemnifiable Breaches
exceed $750,000 or the Indemnifiable Breaches relate to
matters described in Sections 11.1(c) or 11.1(d)), the
amount of such reduction shall be added back to EBIT
notwithstanding the provisions of Section 11.2 of this
Agreement.
(I) Awards of restricted Common Stock of Citation shall be made
by Citation under Citation's Incentive Award Plan to those
management personnel of the Company set forth on SCHEDULE
1.9(d)(i)-1, which schedule also indicates the number of
restricted shares of Citation Common Stock to be awarded to
each such person (the "Interstate Restricted Stock"). The
awards of Interstate Restricted Stock shall be subject to
restricted stock agreements to be executed by each awardee
of Interstate Restricted Stock, the form of which
restricted stock agreement is attached as SCHEDULE
1.9(d)(i)-2. The awards of Interstate Restricted Stock
shall be made effective on the date of the Effective Time.
The grant of Interstate Restricted Stock shall be excluded
from the computation of EBIT.
1.10 PROTECTIVE PROVISIONS. From and after the date of this Agreement and
until October 1, 1999 as to Sections 1.10(c), 1.10(d) and 1.10(f) and
December 31, 1998 as to Sections 1.10(a), 1.10(b), 1.10(e), 1.10(g) and
1.10(h), Citation shall:
(a) not cause or permit the Company to: (i) sell all or
substantially all of its assets; (ii) merge or consolidate with any other
person; or (iii) liquidate or dissolve; or (iv) purchase all or
substantially all of the assets or capital stock of any person; provided
however, that Citation and Sub shall have the right to transfer the assets
and liabilities of the Company's Navasota forging operation (the "Navasota
Plant") to a Texas limited partnership (the "Texas Limited Partnership").
The Company shall own a 99% limited partnership interest in the Texas
Limited Partnership. However, for purposes of the calculation of EBIT the
Navasota Plant shall be accounted for as being 100% owned and operated by
the Company;
(b) cause all transactions between Citation and affiliates of
Citation, on the one hand, and the Company, on the other hand, to be
conducted on an arm's length basis on terms and conditions at least as
favorable to the Company as the Company could obtain from persons who were
not Citation or affiliates of Citation;
(c) permit the Stockholders Agents and the agents, attorneys and
accountants for the Stockholders Agents to have reasonable access to all
books and records of the Company;
(d) cause the Company to maintain accounting books and records which
are the basis for the calculation of EBIT for calendar years 1996, 1997
and 1998 and the Contingent Payments;
(e) cause the Company to not enter into the ownership, active
management or operation of any business other than the business of the
Company on the date of this Agreement;
(f) subject to his resignation, death or disability and the terms of
the Mitchell Employment Agreement (as defined in Section 3.18), cause
James Mitchell to be the principal executive officer of the Company, and
Citation shall cause James Mitchell to be so elected and, subject to the
ultimate control and responsibility of the Company's Board of Directors
and Citation and subject to James Mitchell's compliance with the
procedures, policies and limitations on
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authority of Citation then in effect, James Mitchell shall have the right
to manage the business and affairs of the Company and direct the
formulation and execution of both short- and long-term corporate plans,
including, without limitation, the hiring, retention or termination of
employees, and the setting of compensation and fringe benefits (other than
with respect to James Mitchell);
(g) cause the Company to make all capital expenditures described in
the business plan of the Company attached hereto as SCHEDULE 1.10(g),
unless the Stockholders Agents agree that any such capital expenditures
should not be made; and
(h) other than through the Company it will not own, directly or
indirectly, any other forging operation without first consulting with the
Stockholders Agents about such operation.
1.11 PROCEDURES.
(a) As soon as reasonably practicable after January 1, 1997, and in
any event on or prior to March 1, 1997, Citation shall deliver to the
Stockholders Agents: (i) audited financial statements for the Company for
calendar year 1996 audited by Coopers & Lybrand L.L.P. ("Coopers"), with
the costs of such audit to be borne by Citation and not taken into account
in the calculation of EBIT; (ii) a statement setting forth Citation's
calculation of the EBIT for calendar year 1996; (iii) a statement setting
forth Citation's calculation of the amount of the Contingent Payments for
1996 and the amount of such Contingent Payments payable pursuant to
Section 1.12(b)(i) of this Agreement; and (iv) a special report by Coopers
regarding Citation's calculation of the EBIT and the Contingent Payments
for calendar year 1996.
(b) As soon as reasonably practicable after January 1, 1998, and in
any event on or prior to March 1, 1998, Citation shall deliver to the
Stockholders Agents: (i) audited financial statements for the Company for
calendar year 1997 audited by Coopers, with the costs of such audit to be
borne by Citation and not taken into account in the calculation of EBIT;
(ii) a statement setting forth Citation's calculation of the EBIT for
calendar years 1996 and 1997; (iii) a statement setting forth Citation's
calculation of the amount of the Contingent Payments for 1996 and 1997 and
the amount of such Contingent Payments payable pursuant to Section
1.12(b)(ii) of this Agreement; and (iv) a special report by Coopers
regarding Citation's calculation of the EBIT and the Contingent Payments
for calendar years 1996 and 1997.
(c) As soon as reasonably practicable after January 1, 1999, and in
any event on or prior to March 1, 1999, Citation shall deliver to the
Stockholders Agents: (i) audited financial statements for the Company for
calendar year 1998 audited by Coopers, with the costs of such audit to be
borne by Citation and not taken into account in the calculation of EBIT;
(ii) a statement setting forth Citation's calculation of the EBIT for
calendar years 1996, 1997 and 1998; (iii) a statement setting forth
Citation's calculation of the amount of the Contingent Payments and the
amount of such Contingent Payments payable pursuant to Section
1.12(b)(iii) of this Agreement; (iv) a statement setting forth the amount
of any set off under Section 1.12(c) of this Agreement against the
Contingent Payments and the basis for, and facts underlying, such set off;
and (v) a special report by Coopers regarding Citation's calculation of
the EBIT and the Contingent Payments for calendar years 1996, 1997 and
1998.
(d) Citation and the Stockholders Agents shall, throughout the
entire period from the date of this Agreement to the date of the
deliveries required by Sections 1.11(a), 1.11(b) and 1.11(c) of this
Agreement, meet and discuss any and all financial and business matters
relating to such process and the calculations of the EBIT for calendar
years 1996, 1997 and 1998 and the calculation of the amounts of the
Contingent Payments.
(e) If the Stockholders Agents object to any calculation of EBIT or
the Contingent Payments for any calendar year, the Stockholders Agents
shall, within thirty (30) calendar days after receipt of the relevant
delivery under Section 1.11(a), 1.11(b) or 1.11(c) of this Agreement:
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(i) notify Citation in writing of such objection; and (ii) deliver to
Citation the calculation of the Stockholders Agents of the EBIT and the
Contingent Payments. If Citation does not agree with the objection of the
Stockholders Agents, Citation shall, within thirty (30) calendar days
after receipt of such objection, notify the Stockholders Agents in writing
of such fact.
(f) The disagreement between Citation and Stockholders Agents may
then be submitted by either Citation or the Stockholders Agents for
resolution to Arthur Andersen LLP, Chicago, Illinois or to such other firm
of independent certified public accountants of national standing with an
office in Chicago, Illinois and which is not affiliated with Citation as
is agreed to in writing by Citation and the Stockholders Agents (the
"Independent Accountants"). Each of the parties shall furnish, at its own
expense, the Independent Accountants and the other parties with such
documents and other written information as the Independent Accountants may
request. Each party may also furnish to the Independent Accountants such
other written information and documents as it deems relevant with
appropriate copies or notification being given to the other parties. The
Independent Accountants may, at their discretion, conduct a conference
concerning the disagreement with Citation and the Stockholders Agents, at
which conference each party shall have the right to present such
additional documents, materials and other information and to have present
such advisors, counsel and accountants as each party shall choose in its
sole discretion. In connection with such process, there shall be no
hearings, oral examinations, testimony, depositions, discovery or other
similar proceedings conducted by any party or by the Independent
Accountants. The Independent Accountants shall determine the proportion
of their fees and expenses to be paid by each of Citation and the
Stockholders Agents, the greater the degree to which the Independent
Accountants have accepted the position of a party, the smaller the
proportion of fees and expenses assessed. Any fees and expenses assessed
against the Stockholders Agents shall be paid only out of the Contingent
Payments and shall not be a personal responsibility or liability of the
Stockholders Agents.
(g) The Independent Accountants shall promptly render their decision
on the question in writing and such decision shall be final and binding on
the parties.
(h) If the Independent Accountants determine that the amount of the
Contingent Payments is greater by $25,000.00 than the amount of the
Contingent Payments calculated by Citation in the relevant delivery under
Section 1.11(a), 1.11(b) or 1.11(c) of this Agreement, then Citation shall
immediately pay: (i) to the Stockholders Agents any reasonable fees and
expenses of the Stockholders Agents in connection with the procedures
specified in Sections 1.11(e), 1.11(f) and 1.11(g) of this Agreement; (ii)
to the Independent Accountants any fees and expenses assessed against
Citation pursuant to Section 1.11(f) of this Agreement; (iii) to the
Paying Agent (as defined in Section 1.14) the amount by which the
Contingent Payments determined by the Independent Accountants is greater
than the Contingent Payments theretofore paid by Citation to the Paying
Agent (the "Excess Amount"); and (D) to the Paying Agent, interest on the
Excess Amount at an annual interest rate of 8% calculated from the date of
the relevant payment by Citation to the Paying Agent under Section 1.12 of
this Agreement to the date that the Excess Amount is paid by Citation to
the Paying Agent.
1.12 PAYMENTS OF CONTINGENT PAYMENTS.
(a) All payments of Contingent Payments shall be made by Citation to
the Closing Stockholders by delivery of such amounts to the Paying Agent.
The Paying Agent shall: (i) pay all expenses of the Stockholders Agents
incurred in connection with the administration and enforcement of this
Agreement submitted in accordance with Section 2.1(g) of this Agreement;
and (ii) distribute the balance of the Contingent Payments to the Closing
Stockholders in accordance with the Contingent Payments Percentages (as
defined in Section 10.1(h)) set forth on the Contingent Payments List (as
defined in Section 10.1(h)).
(b) The Contingent Payments shall be payable by Citation in annual
installments as
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follows:
(i) On or before the date that Citation makes the deliveries
described in Section 1.11(a) of this Agreement, Citation shall
deliver to the Paying Agent an amount equal to 50% of the amount
by which the 1996 calendar year EBIT exceeds $9,500,000
multiplied by 5. For example, if the Company has an EBIT of
$10,900,000, then Citation shall pay to the Paying Agent
$3,500,000 ($10,900,000 - $9,500,000 = $1,400,000 x 5 =
$7,000,000 x 1/2 = $3,500,000).
(ii) On or before the date that Citation makes the deliveries
described in Section 1.11(b) of this Agreement, Citation shall
deliver to the Paying Agent an amount equal to 50% of the amount
by which the combined 1996 and 1997 EBIT exceeds $19,000,000
divided by 2 and multiplied by 5, less the payments of
Contingent Payments previously made. For example, if the
Company has a 1996 EBIT of $10,900,000 and a 1997 EBIT of
$11,200,000, then Citation shall pay to the Paying Agent
$375,000 ($10,900,000 + $11,200,000 = $22,100,000 - $19,000,000
= $3,100,000 DIVIDED BY 2 = $1,550,000 x 5 = $7,750,000 x 1/2 =
$3,875,000 - $3,500,000 = $375,000). As an additional example,
if the Company has a 1996 EBIT of $10,900,000 and a 1997 EBIT of
$9,000,000, then Citation shall pay to the Paying Agent $0
($10,900,000 + $9,000,000 = $19,900,000 - $19,000,000 =
$900,000 DIVIDED BY 2 = $450,000 x 5 = $2,250,000 x 1/2 =
$1,125,000 - $3,500,000 = ($2,375,000) or zero). The Closing
Stockholders shall have no obligation to return prior payments
of Contingent Payments made, even though the lack of EBIT in
subsequent years result in prior payments of Contingent
Payments being made in excess of what would otherwise be owed at
the end of three year Contingent Payments payment period.
(iii) On or before the date that Citation makes the deliveries
described in Section 1.11(c) of this Agreement, Citation shall
deliver to the Paying Agent an amount (the "Final Contingent
Payments Payment") equal to the amount by which the combined
1996, 1997 and 1998 EBIT exceeds $28,500,000 divided by 3 and
multiplied by 5, less the payments of Contingent Payments
previously made. For example, if the Company has a 1996 EBIT
of $10,900,000, a 1997 EBIT of $11,200,000 and a 1998 EBIT of
$12,000,000, then Citation shall pay to the Paying Agent
$5,458,330, ($10,900,000 + $11,200,000 + $12,000,000 =
$34,100,000 - $28,500,000 = $5,600,000 DIVIDED BY 3 = $1,866,666
x 5 = $9,333,330 - $3,500,000 and - $375,000 = $5,458,330).
(c) The amount payable as the Final Contingent Payments Payment
shall be subject to set-off by Citation for claims of indemnification
arising pursuant to Article XI herein.
1.13 SHARES OF DISSENTING STOCKHOLDERS. Any Company Stock held by a person
who complies with all of the provisions of the Corporation Law concerning
the dissenters rights of holders of common stock (a "Dissenting
Stockholder"), will not be converted as described in Sections 1.9(c) and
(d), but will become subject to the right to receive such consideration as
may be determined to be due to such Dissenting Stockholder pursuant to the
Corporation Law. Shares of Company Stock held by a Dissenting
Stockholder who, after the Effective Time, loses the right of appraisal as
provided in such law will be deemed to be converted as of the Effective
Time into the right to receive an amount payable to non-dissenting holders
of Company Stock described in Section 1.9(c) and (d) hereof.
1.14 EXCHANGE OF CERTIFICATES.
(a) PAYING AGENT. A bank or trust company that is eligible for
appointment as a trustee under the Trust Indenture Act of 1939, as amended
(the "Indenture Act") will act as paying
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agent (the "Paying Agent") for the payment of the Closing Merger Payment
on surrender of certificates representing Company Stock and upon receipt
of the applicable option agreement for each holder of Option Stock (the
"Option Agreement"). Firstar Trust Company, Milwaukee, Wisconsin, shall
act as Paying Agent unless it is ineligible to do so under the Indenture
Act, in which case the Paying Agent shall be mutually acceptable to the
parties.
(b) SUB TO PROVIDE FUNDS. Before the Effective Time the Sub will
provide to the Paying Agent the Closing Merger Payment, and Citation will
provide to the Paying Agent prior to the respective annual installment
payment dates for the Contingent Payments the funds necessary to pay the
Contingent Payments pursuant to Section 1.12.
(c) EXCHANGE PROCEDURE FOR COMPANY STOCK. As soon as practicable
after the Effective Time (but not later than 15 days following such date),
the Paying Agent will mail to each holder of record of a certificate or
certificates that immediately before the Effective Time of the Merger
represented outstanding shares of Company Stock (the "Certificates") (i) a
letter of transmittal specifying that delivery will be effected, and risk
of loss and title to the Certificates will pass, only on delivery of the
Certificates to the Paying Agent and in such form and having such other
provisions as Citation may reasonably specify, and (ii) instructions for
use in effecting the surrender of the Certificates in exchange for the
Company Stock Price plus the contingent right to receive Contingent
Payments. On surrender of a Certificate for cancellation to the Paying
Agent or to such other agent or agents as may be appointed by the
Surviving Corporation, together with such letter of transmittal, duly
executed, and such other documents as may be reasonably required by the
Paying Agent, the holder of such Certificate will be entitled to receive
in exchange, and the Paying Agent will pay as soon as practicable to such
holder, the amount of cash into which the shares of Company Stock
represented by the Certificate so surrendered have been converted pursuant
to this Agreement, and the Certificate so surrendered will forthwith be
canceled. No interest will be paid or will accrue on the cash payable on
the surrender of any Certificate. Any holder whose Certificates have
been lost or destroyed may nevertheless obtain the amount of cash into
which the shares of Common Stock represented by such Certificates have
been converted pursuant to the provisions of this Agreement, provided such
holder delivers to Citation and the Paying Agent a statement certifying
such loss or destruction and providing for indemnity reasonably
satisfactory to Citation and the Paying Agent indemnifying Citation and
the Paying Agent against any loss or expense either of them may incur as a
result of such lost or destroyed Certificates being thereafter surrendered
to the Paying Agent. In the event of a transfer of ownership of Company
Stock which is not registered in the transfer records of the Company, a
check in payment of the proper amount of cash may be issued to a
transferee if the Certificate representing such Company Stock is presented
to the Paying Agent, accompanied by all documents required to evidence and
effect such transfer and by evidence that any applicable stock transfer
taxes have been paid. Until surrendered as contemplated by this Section,
each Certificate after the Effective Time will represent only the right to
receive on such surrender in exchange for each share of Company Stock
represented thereby the Company Stock Price and its pro rata share of
Contingent Payments, if any. Any funds deposited with the Paying Agent
that remain unclaimed by the former holders of Company Stock for four
years after the Effective Time will be paid to the Surviving Corporation
on demand, and any former holders of Company Stock who have not then
complied with the instructions for exchanging their Certificates may look
only to the Surviving Corporation for payment.
(d) EXCHANGE PROCEDURE FOR HOLDERS OF OPTION STOCK. The procedure
for holders of Option Stock at the Effective Time to receive the Option
Stock Price from the Paying Agent shall be the same procedure as that
specified for payment of the Company Stock Price, as detailed in Section
1.14(c) hereof (as reasonably modified pursuant to the discretion of the
Paying Agent, as necessary), except that the holders of Option Stock shall
be required to deliver to the Paying Agent their Option Agreements giving
rise to their rights to the Option Stock, rather than being required to
deliver stock certificates as in the case of holders of Company Stock.
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(e) PAYMENT OF CONTINGENT PAYMENTS. If an amount of Contingent
Payments is due to the Closing Stockholders pursuant to the provisions
herein, Citation shall make payment of such Contingent Payments to the
Paying Agent, and the Paying Agent shall deliver payment owed to all
Closing Stockholders (other than Dissenting Stockholders) who have
delivered their Certificates or Option Agreements, as applicable, to the
Paying Agent, in accordance with Section 1.12 of this Agreement. The
right to receive Contingent Payments, if any, is an integral part of the
consideration to be received in the Merger by Closing Stockholders. Such
rights (i) will not be represented by any form of certificate or
instrument, (ii) will not be transferable, whether by sale, assignment,
pledge or other transfer, except by operation of law or the laws of
descent and distribution, (iii) will not constitute or represent any
equity or ownership interest in the Company, Sub or Citation, and (iv)
will not entitle the holder thereof to any voting or dividend rights or
any other rights common to shareholders.
(f) NO FURTHER OWNERSHIP RIGHTS IN CLOSING STOCK. All cash paid on
the surrender of shares (or rights to shares for Option Stock) of Closing
Stock plus the payment of any Contingent Payments due in accordance with
the terms of this Agreement will be deemed to have been paid in full
satisfaction of all rights pertaining to such shares of Closing Stock, and
there will be no further registration of transfers on the stock transfer
books of the Surviving Corporation of the shares of Closing Stock. If,
after the Effective Time, Certificates are presented to the Surviving
Corporation for any reason, they will be canceled and exchanged as
provided in this Article.
1.15 PAYMENTS TO HOLDERS OF STOCK APPRECIATION RIGHTS. Upon the Effective
Time, the holders of stock appreciation rights (the "Stock Appreciation
Rights") of the Company detailed on SCHEDULE 1.15 hereof, shall be paid
from the funds of the Company the amount specified on SCHEDULE 1.15 as
full consideration for the payment in full and termination of such Stock
Appreciation Rights. Such payment from the Company to terminate the
Stock Appreciation Rights shall be excluded from the calculation of EBIT
described in Section 1.9(d) hereof.
ARTICLE II
OTHER AGREEMENTS
2.1 STOCKHOLDERS AGENTS.
(a) Upon the approval of this Agreement, the Merger and the
transactions described in this Agreement by the Stockholders, each Closing
Stockholder shall be deemed to have irrevocably constituted and appointed
Franklyn Esenberg, James Mitchell and David P. Lauer, and each of them
(the "Stockholders Agents"), as their agents and attorneys in fact with
full power of substitution to act from and after the Effective Time to do
any and all things and execute any and all documents which may be
necessary, convenient or appropriate to facilitate the consummation of the
transactions contemplated by this Agreement, including but not limited to:
(i) execution of documents and certificates pursuant to this Agreement;
(ii) receipt of payments under or pursuant to this Agreement and
disbursement thereof to the Closing Stockholders and others, as
contemplated by this Agreement; (iii) receipt and forwarding of notices
and communications pursuant to this Agreement; and (iv) administration and
enforcement of the provisions of this Agreement relating to the
calculation and payment of the Contingent Payments.
(b) In the event that the Stockholders Agents, with the advice of
counsel, are of the opinion that they require further authorization or
advice from the Closing Stockholders on any matters concerning this
Agreement, the Stockholders Agents shall be entitled to seek such further
authorization from the Closing Stockholders prior to acting on their
behalf. In such event, each Closing Stockholder shall have a number of
votes equal to the number of shares of the Company Stock (including the
Option Stock for such purposes) owned by that Closing Stockholder on the
Closing Date and the authorization of a majority of such number of such
shares shall be binding on all of the Closing Stockholders and shall
constitute the authorization by the Closing Stockholders.
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(c) Citation and the Sub shall be fully protected in dealing with
the Stockholders Agents under this Agreement and may rely upon the
authority of the Stockholders Agents to act as the agents of the Closing
Stockholders. Any payment by Citation or the Sub, or both, to the
Stockholders Agents under this Agreement shall be considered a payment by
Citation and the Sub to the Closing Stockholders. The appointment of the
Stockholders Agents is coupled with an interest and shall be irrevocable
by any Closing Stockholder in any manner or for any reason. This power of
attorney shall not be affected by the disability or incapacity of the
principal pursuant to any applicable law.
(d) Any act of the Stockholders Agents shall require the act of a
majority of the Stockholders Agents. Any of the Stockholders Agents may
resign from his capacity as a Stockholders Agent at any time by written
notice delivered to the other Stockholders Agents and to Citation. If
there is a vacancy at any time in any of the positions of Stockholders
Agents for any reason, the remaining Stockholders Agents may act with full
power and authority until such time as the remaining Stockholders Agents
shall select a successor to fill such vacancy. If at any time there is no
person acting as a Stockholders Agent for any reason, the Management
Committee of Quarles & Brady shall specify no more than three (3) of the
Closing Stockholders to act as the Stockholders Agents.
(e) Each of the Stockholders Agents acknowledges that he has
carefully read and understands this Agreement, hereby accepts such
appointment and designation, and represents that he will act in his
capacity as a Stockholders Agent in strict compliance with and conformance
to the provisions of this Agreement.
(f) The Stockholders Agents shall not be liable to Citation or to
the Closing Stockholders or to the Paying Agent for any error of judgment,
or any act done or step taken or omitted by them in good faith or for any
mistake in fact or law, or for anything which they may do or refrain from
doing in connection with this Agreement, except for their own bad faith or
willful misconduct. The Stockholders Agents may seek the advice of legal
counsel in the event of any dispute or question as to the construction of
any of the provisions of this Agreement or their duties hereunder, and
they shall incur no liability to Citation or the Closing Stockholders or
the Paying Agent and shall be fully protected with respect to any action
taken, omitted or suffered by them in good faith in accordance with the
opinion of such counsel.
(g) Any expenses incurred by the Stockholders Agents in connection
with the performance of their duties under this Agreement shall not be the
personal obligations of the Stockholders Agents but shall be payable by
the Paying Agent out of any Contingent Payments paid to the Paying Agent
pursuant to this Agreement. The Stockholders Agents may from time to time
submit invoices to the Paying Agent covering such expenses.
2.2 COMPETING TRANSACTION.
(a) As used in this Agreement, the following terms shall have the
meanings specified:
(i) "Competing Offer" shall mean any inquiry, proposal or offer
relating to a Competing Transaction.
(ii) "Competing Transaction" shall mean any of the following prior to
the Effective Time, other than the Merger as contemplated by
this Agreement: (A) a merger, consolidation, exchange of
securities, reorganization, business combination or other
similar transaction involving the Company; (B) a sale, transfer
or other disposition of all or substantially all of the assets
of the Company in a single transaction or series of related
transactions; (C) a sale of, or tender offer or exchange offer
for, or acquisition by any person or group of beneficial
ownership of, ten percent (10%) or more of the outstanding
capital stock of the Company in
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a single transaction or series of related transactions; or (D) a
public announcement of a proposal, plan, intention or agreement
to do any of the foregoing.
(b) The Company shall not, and shall not permit its officers,
directors, employees, agents or other representatives (including, without
limitation, any investment banker, attorney or accountant retained or
engaged by the Company) to, solicit, initiate, facilitate, encourage,
negotiate with respect to, discuss or agree to, any Competing Offer or any
Competing Transaction, except to the extent required by the fiduciary
duties of the Company's officers and Board of Directors under applicable
law if so advised by advice of counsel; provided, however, that this
provision shall not prohibit officers, directors, employees and
shareholders of the Company from making Competing Offers. The Company
shall notify Citation within forty-eight (48) hours following receipt of
any Competing Offer. The Company shall give Citation forty-eight (48)
hours prior notice and an opportunity to negotiate with the Company before
entering into, executing or agreeing to any Competing Offer or Competing
Transaction.
(c) The Company may, by notice to Citation at any time prior to the
Effective Time, terminate this Agreement if the Company enters into,
executes or agrees to a Competing Offer or Competing Transaction following
a determination by the Board of Directors of the Company on the advice of
counsel that such action is required by its fiduciary duties under
applicable law.
2.3 DISPUTE RESOLUTION MECHANISMS
(a) DISPUTE. As used in this Agreement, "Dispute" shall:
(i) mean any dispute or disagreement between the Company or the
Stockholders Agents and Citation concerning the interpretation
of this Agreement, the validity of this Agreement, any breach or
alleged breach by any party under this Agreement or any other
matter relating in any way to this Agreement; and
(ii) exclude any dispute or disagreement between the Stockholders
Agents and Citation concerning the Contingent Payments, which
shall be resolved pursuant to the provisions of Section 1.11 of
this Agreement.
(b) PROCEDURES. If a Dispute arises, the parties shall follow the
procedures specified in Sections 2.3(c), 2.3(d) and 2.3(e) of this
Agreement.
(c) NEGOTIATIONS. The parties shall promptly attempt to resolve any
Dispute by negotiations between the Stockholders Agents and Citation.
Either the Stockholders Agents or Citation may give the other party
written notice of any Dispute not resolved in the normal course of
business. The Stockholders Agents and Citation shall meet at a mutually
acceptable time and place within ten (10) calendar days after delivery of
such notice, and thereafter as often as they reasonably deem necessary, to
exchange relevant information and to attempt to resolve the Dispute. If
the Dispute has not been resolved by these persons within thirty (30)
calendar days of the disputing party's notice, or if the parties fail to
meet within such fifteen (15) calendar days, either the Stockholders
Agents or Citation may initiate mediation as provided in Section 2.3(d) of
this Agreement. If a negotiator intends to be accompanied at a meeting by
legal counsel, the other negotiator shall be given at least three (3)
business days' notice of such intention and may also be accompanied by
legal counsel.
(d) MEDIATION. If the Dispute is not resolved by negotiations
pursuant to Section 2.3(c) of this Agreement, the Stockholders Agents and
Citation shall attempt in good faith to resolve any such Dispute by non-
binding mediation. Either the Stockholders Agents or Citation may
initiate a non-binding mediation proceeding by a request in writing to the
other party (the "Request"), and both parties will then be obligated to
engage in a mediation. The proceeding will be conducted in accordance
with the then current Center for Public Resources ("CPR") Model Procedure
for
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Mediation of Business Disputes, with the following exceptions:
(i) if the parties have not agreed within thirty (30) calendar days
of the Request on the selection of a mediator willing to serve,
CPR, upon the request of either the Stockholders Agents or
Citation, shall appoint a member of the CPR Panels of Neutrals
as the mediator; and
(ii) efforts to reach a settlement will continue until the conclusion
of the proceedings, which shall be deemed to occur upon the
earliest of the date that: (A) a written settlement is reached;
or (B) the mediator concludes and informs the parties in writing
that further efforts would not be useful; or (C) the
Stockholders Agents and Citation agree in writing that an
impasse has been reached; or (D) a period of sixty (60) calendar
days has passed since the Request and none of the events
specified in Sections 2.3(d)(ii)(A), (B) or (C) have occurred.
No party may withdraw before the conclusion of the proceeding.
(e) ADJUDICATION. If a Dispute is not resolved by negotiation
pursuant to Section 2.3(c) of this Agreement or by mediation pursuant to
Section 2.3(d) of this Agreement within one hundred (100) calendar days
after initiation of the negotiation process pursuant to Section 2.3(c) of
this Agreement, such Dispute and any other claims arising out of or
relating to this Agreement may be heard, adjudicated and determined in an
action or proceeding filed in any state or federal court which has
jurisdiction over the parties.
(f) PROVISIONAL REMEDIES. At any time during the procedures
specified in Sections 2.3(c) and 2.3(d) of this Agreement, a party may
seek a preliminary injunction or other provisional judicial relief if in
its judgment such action is necessary to avoid irreparable damage or to
preserve the status quo. Despite such action, the parties will continue
to participate in good faith in the procedures specified in Section 2.3(c)
and 2.3(d) of this Agreement.
(g) TOLLING STATUE OF LIMITATIONS. All applicable statutes of
limitation and defenses based upon the passage of time shall be tolled
while the procedures specified in Sections 2.3(c) and 2.3(d) of this
Agreement are pending. The parties will take such action, if any, as is
required to effectuate such tolling.
(h) PERFORMANCE TO CONTINUE. Each party is required to continue to
perform its obligations under this Agreement pending final resolution of
any Dispute.
(i) EXTENSION OF DEADLINES. All deadlines specified in this Section
2.3 of this Agreement may be extended by mutual agreement between the
Stockholders Agents and Citation.
(j) ENFORCEMENT. The parties regard the obligations in this Section
2.3 of this Agreement to constitute an essential provision of this
Agreement and one that is legally binding on them. In case of a violation
of the obligations in this Section 2.3 of this Agreement by either the
Company or the Stockholders Agents or Citation, a party may bring an
action to seek enforcement of such obligations in any state or federal
court having jurisdiction over the parties.
(k) COSTS. The parties shall pay: (i) their own costs, fees, and
expenses incurred in connection with the application of the provisions of
Sections 2.3(c) and 2.3(d) of this Agreement; and (ii) fifty percent (50%)
of the fees and expenses of CPR and the mediator in connection with the
application of the provisions of Section 2.3(d) of this Agreement. The
Stockholders Agents shall have no personal obligations for pay such fees
and any such fees shall be paid by the Paying Agent out of the Contingent
Payments.
(l) REPLACEMENT. If CPR is no longer in business or is unable or
refuses or declines to act or to continue to act under Section 2.3(d) of
this Agreement for any reason, then the
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functions specified in Section 2.3(d) of this Agreement to be performed by
CPR shall be performed by another person engaged in a business equivalent
to that conducted by CPR as is agreed to by the Stockholders Agents and
Citation (the "Replacement"). If the Stockholders Agents and Citation
cannot agree on the identity of the Replacement within ten (10) calendar
days after a Request, the Replacement shall be selected by the Chief Judge
of the United States District Court for the Eastern District of Wisconsin
upon application. If a Replacement is selected by either means, Section
2.3(d) shall be deemed appropriately amended to refer to such Replacement.
2.4 SCHEDULES. If a document or matter is disclosed in any Schedule to this
Agreement, it shall be deemed to be disclosed for all purposes of this
Agreement without necessity of specific repetition or cross-reference.
All capitalized terms used in any Schedule shall have the definitions
specified in this Agreement.
2.5 DIRECTORS, OFFICERS AND FIDUCIARY INDEMNIFICATION. For a period of at
least eight (8) years after the Effective Time, Citation will, and will
cause the Company to, maintain in effect: (a) bylaw provisions, articles
of incorporation provisions, or other agreements indemnifying present or
former directors and officers of the Company and its subsidiaries who
serve or served as such at or prior to the Effective Time and former,
present or future fiduciaries of any employee benefit plan of the Company
who serve or served as such at or prior to the Effective Time; and (b)
policies of insurance: (i) insuring such officers and directors of the
Company and its subsidiaries against certain matters which arose at or
prior to the Effective Time; and (ii) insuring such fiduciaries against
certain matters which arose at or prior to, or which arise after, the
Effective Time, which in each case shall cover the same matters and be on
terms (including without limitation, limits of liability in insurance
policies) no less favorable than such articles of incorporation, bylaws or
agreements and insurance policies of the Company as are in effect at the
Effective Time.
2.6 TAX TREATMENT. The parties agree that for federal and state tax purposes
they will treat the Merger as a sale of the Company Stock by the Closing
Stockholders to Citation.
2.7 ATTORNEYS' FEES. In the event of litigation between the parties hereto to
enforce any provision of this Agreement, or for breach thereof, the party
or parties obtaining a final nonappealable judgment in their favor shall
be entitled to an award of their reasonable attorneys' fees and other
expenses incurred in prosecuting or defending such action, as the case may
be.
2.8 JURISDICTION AND VENUE. Each party hereto hereby agrees that any
proceeding relating to this Agreement must be brought in a court of
competent jurisdiction sitting in Milwaukee County, Wisconsin. Each party
hereto hereby consents to personal jurisdiction in any such action brought
in any such court, consents to service of process by registered mail made
upon such party and such party's agent and waives any objection to venue
in any such court to any claim that any such court is an inconvenient
forum.
ARTICLE III
REPRESENTATIONS AND WARRANTIES
The Company represents and warrants to Citation and Sub as follows:
3.1 CORPORATE EXISTENCE AND POWER. The Company is a corporation duly
organized, validly existing, and in active status under the laws of the
State of Wisconsin. The Company has the requisite corporate power and
authority to own, operate, and lease its properties as presently owned,
operated, and leased and to carry on its business as now being conducted.
The Company has no subsidiaries.
3.2 BINDING AGREEMENT. Upon the approval of this Agreement by the
shareholders of the Company, this Agreement will constitute the legal,
valid and binding obligation of the Company enforceable in accordance with
its terms, except as may be limited by bankruptcy, insolvency,
reorganization,
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or other laws (including court decisions) now or hereafter in effect and
affecting creditors' rights generally, and except as may be limited by
general principles of equity (regardless of whether considered in a
proceeding in equity or at law) and the discretion of the court.
3.3 EFFECT OF AGREEMENT. Other than with respect to the Hart-Scott-Rodino
Act and except as set forth on SCHEDULE 3.3 hereof, the execution,
delivery and performance of this Agreement by the Company and the
consummation of the transactions contemplated herein do not require the
consent, waiver, approval, license or authorization of any person or
public authorities, where the failure to obtain such consent would have a
material adverse effect on the Company; do not violate, in any material
respect, any provision of law applicable to the Company; do not conflict
with or result in any breach of, in any material respect, the Company's
articles of incorporation or by-laws, or with or without the giving of
notice and/or the passage of time, any mortgage, deed of trust, license,
lease, indenture or other agreement or other instrument, or any order,
judgment, or any other restriction of any kind or character, to which the
Company is a party or any of the Company's property may be bound; do not
give to others any right to terminate, or result in any termination of,
any such instrument which, if terminated, would have a material adverse
effect on the Company; do not result in termination of any material
provision of any such instrument; and do not result in the creation of any
material lien, charge or encumbrance upon any of the property of the
Company.
3.4 OWNERSHIP OF CAPITAL STOCK OF THE COMPANY. Except as set forth on
SCHEDULE 3.4, there are no outstanding subscriptions, options, warrants,
rights (including stock appreciation rights and the like), convertible
securities, or other agreements or commitments obligating the Company to
issue additional shares of capital stock. The authorized capital stock
of the Company consists of 6,000,000 shares of common stock, par value
$1.00 per share, of which 1,313,524 shares are issued and outstanding.
The name, address, and number of the Company shares owned by each
Stockholder, as appears on the records of the Company's transfer agent as
of a recent date, are as set out on SCHEDULE 3.4. The name, address,
description of stock options, including number of shares and option
exercise price, for each person who has been granted options to purchase
capital stock of the Company are set out on SCHEDULE 3.4. SCHEDULE 3.4
also indicates which of the Stockholders and holders of stock options are
employees, officers, directors, specifying all such capacities or
relationships as apply in each instance.
3.5 OPERATION OF BUSINESS. Except as set forth on SCHEDULE 3.5 hereof, the
Company complies in all material respects with all laws, statutes,
ordinances, rules, regulations and orders of all governmental entities
applicable to the operations of the Business, including, without limiting
the generality of the foregoing, Title VII of the Civil Rights Act of
1964, as amended ("Title VII"), the Age Discrimination in Employment Act
of 1967, as amended ("ADEA"), the Equal Pay Act of 1963, as amended
("EPA"), the National Labor Relations Act of 1935, as amended ("NLRA"),
the Federal Employee Retirement Income Security Act, as amended ("ERISA"),
the Immigration Act, the federal Occupational Safety Health Act ("OSHA"),
and the Americans With Disabilities Act ("ADA"), except where failure to
comply could not reasonably be expected to have a material adverse effect
on the Business. Further, except as set forth in SCHEDULE 3.5 and
excluding Environmental Laws (as defined in Section 3.25), no notice has
been issued and no investigation or review is pending or threatened by any
governmental entity with respect to (i) any alleged material violation by
the Company of any law, ordinance, rule, regulation, order, policy or
guideline of any governmental entity, or (ii) any alleged material failure
to have all permits, certificates, licenses, approvals and other
authorizations required in connection with the operation of the Business.
The Company has previously made available to Citation copies of all
material reports or other documents concerning the Company or its
employees made or received by the Company during the past five years (i)
pursuant to Title VII, to OSHA, the ADEA, EPA, NLRA, ADA and ERISA, and
(ii) pursuant to workers' compensation statutes.
3.6 FINANCIAL STATEMENTS. The Company has given to Citation copies of the
Company's audited balance sheets and operating statements as of the fiscal
years ends for the years 1991, 1992,
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1993, 1994 and 1995. The December 31, 1995 Balance Sheet fairly
presents the financial condition of the Company as of December 31, 1995.
There are no material liabilities of the Company that should, according to
GAAP, consistently applied, be included in the December 31, 1995 Balance
Sheet but which are not included as liabilities therein.
3.7 MATERIAL CHANGES. Since December 31, 1995, except as disclosed on
SCHEDULE 3.7 attached hereto, there has not been:
(a) any material adverse change in the condition, financial or
otherwise, of the Business (other than changes in the ordinary course of
business, none of which individually or in the aggregate has been
materially adverse);
(b) any damage, destruction or loss, whether or not covered by
insurance, materially adversely affecting the Business;
(c) other than in the ordinary course of business, any increase in
the compensation payable or to become payable by the Company to any of its
employees or agents employed in connection with the operation of the
Business, or in any bonus payment or arrangement made to or with any
thereof;
(d) any labor dispute materially adversely affecting the Business;
(e) any merger or consolidation involving the Company through the
date of this Agreement, or any issuance of stock of the Company or of any
options or warrants in respect thereof; or
(f) any disposition of the assets of the Company other than in the
ordinary course of business.
3.8 LEASES. The Company has previously made available to Citation true and
correct copies of all of the Company's personal and real property leases
together with all amendments relating thereto involving annual payments in
excess of $75,000 (the "Leases"), which Leases are listed on SCHEDULE 3.8.
The Leases listed on SCHEDULE 3.8 constitute all of the personal and real
property leases to which the Company is a party as Lessor or Lessee
involving annual payments in excess of $75,000 other than Leases entered
into after the date hereof in the ordinary course of business. Such
Leases remain in full force and effect, and all rents and additional
amounts currently due on such Leases have been paid. No material waivers,
indulgences or postponements of the Company's obligations thereunder have
been granted by any lessor, or of any lessor's obligations by the Company.
There exists no event or occurrence, condition or act which, with the
giving of notice, the lapse of time or the happening of any further event
or condition would become a material default by the Company under such
Leases. Except as set forth on SCHEDULE 3.8, the consummation of the
transactions contemplated herein in accordance with the terms hereof will
not constitute a material default under any Lease.
3.9 REAL ESTATE; TITLE TO ASSETS. Legal descriptions of all real estate
material to the Business are set out on SCHEDULE 3.9 (the "Real Estate").
The Company has (or, with respect to assets acquired after the date
hereof, will have on the Closing Date) possession or control of its
assets, and, except as set out in SCHEDULE 3.9, the Company has good title
to all of its assets subject to no mortgage, pledge, lien, conditional
sales agreement, encumbrance, security interest, charge, or claim,
including without limitation any federal, state or municipal tax claim or
lien against any of its assets (the "Liens"), except for (i) liabilities
reflected in the December 31, 1995 Balance Sheet; (ii) liabilities
incurred in the ordinary course of business after that date; (iii)
Permitted Liens (as defined in Section 6.1); and (iv) Liens that do not
materially and adversely affect the use of the assets for operations of
the Business.
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3.10 CONDITION OF EQUIPMENT. The equipment that is presently being used in,
and which is material to, the operation of the Business is generally in
good operating condition and repair, subject only to ordinary wear and
tear.
3.11 CONTRACTS AND COMMITMENTS. The Company has previously made available to
Citation true and correct copies of all of the contracts, which constitute
all of the outstanding contracts, agreements, commitments or
understandings (written or oral) to which the Company is a party (other
than any contract terminable by the Company upon written notice of 30 days
or less without penalty, any contract involving an aggregate annual
expenditure by the Company of $75,000.00 or less, contracts arising from
purchase orders with customers and suppliers entered into in the ordinary
course of business, or contracts entered into after the date hereof in the
ordinary course of business), which contracts are listed on SCHEDULE 3.11
(the "Contracts"). Except as is disclosed on SCHEDULE 3.11.1, the
Company is not subject to nor a party to any mortgage, lien, lease,
agreement, contract, instrument, order, judgment or decree or any other
restriction of any kind or character which would materially hinder the
continued operation of the Business by the Surviving Corporation after the
Closing on substantially the same basis as theretofore operated.
SCHEDULE 3.11.1 includes a list of all of the Company's indebtedness as of
December 31, 1995. The Company has made available to Citation copies of
all of the loan documents to which it is a party.
3.12 ALL ASSETS. The assets included in the December 31, 1995 Balance Sheet
and/or subject to a Lease and the assets included in SCHEDULE 3.17
hereafter described constitute all the material properties of any nature
with which the Company has conducted the Business for the twelve month
period prior to December 31, 1995, subject to sale of inventory,
collection of accounts receivable and additions and deletions of other
assets in the ordinary course of business and except for toolings and dies
as described by SCHEDULE 3.23.
3.13 INSURANCE. Set forth on SCHEDULE 3.13 attached hereto is a true and
correct schedule of all policies of insurance on which the Company is
named as an insured party, and said schedule includes the name of the
insurer, the nature of the insurance coverage and the policy limits. The
policies listed upon SCHEDULE 3.13 are in full force and effect and all
applicable premiums thereon have been paid in full through the dates
indicated thereon.
3.14 JUDGMENTS AND DECREES. The Company is not subject to any order, judgment
or decree which would prevent the consummation of any of the transactions
contemplated hereunder or compliance by the Company with the terms,
conditions and provisions hereof.
3.15 LITIGATION AND ADMINISTRATIVE PROCEEDINGS. Except as set forth on
SCHEDULE 3.15 attached hereto, (i) there are no actions, suits, or
proceedings which have been served on the Company or, to the knowledge of
the Company, threatened against the Company, at law or in equity, which
would reasonably be expected to materially and adversely affect the
Company, by or before any federal, state or municipal court or any other
governmental department, commission, board, bureau, agency or
instrumentality, other than with respect to compliance with Environmental
Laws (as defined in Section 3.25) and (ii) to the knowledge of the
Company, the Company is not subject to any material liability by reason of
a violation of any order, rule, or regulation of any federal, state,
municipal or other governmental agency, department, commission, bureau,
board or instrumentality to which the Company is subject other than with
respect to compliance with Environmental Laws.
3.16 NO ADVERSE CHANGE. To the Company's knowledge, there exists no event,
condition or other circumstance (other than possible law or regulation
changes and economic conditions affecting the Business and similar
businesses generally) which immediately or, insofar as reasonably can be
foreseen, with a lapse of time, will materially adversely affect the
Business as conducted by the Company.
3.17 NAME, TRADEMARKS AND TRADE NAMES, LICENSES, ETC. The Company owns or
has adequate licenses or other rights to use its name and all material
trademarks, service marks, trade names, licenses,
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laboratory ratings and approvals, copyrights, patents, proprietary
information, and designs either used in, or necessary for, the conduct of
its Business; and all trademarks, service marks, trade names, licenses,
laboratory ratings and approvals, copyrights, designs owned by or under
license to the Company together with all pertinent information related
thereto, including filing, registration and expiration dates, serial
numbers, record owners and licenses and their essential terms are listed
on SCHEDULE 3.17 attached hereto.
3.18 EMPLOYEE PLANS. Except (a) for the Employment Agreement between James
Mitchell, the Company and Citation in the form of SCHEDULE 10.1(c) hereto
(the "Mitchell Employment Agreement"); (b) the Employment Agreement
between the Company and Franklyn Esenberg in the form of SCHEDULE 10.1(d)
hereto (the "Esenberg Employment Agreement"); and (c) as set forth in
SCHEDULE 3.18 hereto; the Company has no written employment contracts,
consulting agreements, indemnification agreements, severance agreements,
collective bargaining agreements or any other binding agreements relating
to the employment of any of its employees, or any pension, retirement,
profit sharing, incentive compensation, bonus, option or other benefit
plans which obligate the Company to provide any significant benefits to
its employees ("Employee Plans"). The Company has performed the
obligations required to be performed by it under, and has complied in all
material respects with the provisions of, all agreements set forth on such
SCHEDULE 3.18, and all such agreements are in full force and effect and
constitute the valid and legally binding obligations of the parties
thereto. Except as set forth in the instruments referred to in said
SCHEDULE 3.18 and except as may be required by applicable law, upon
termination of the employment of any of said employees, neither the
Company nor Citation will by reason of anything done prior to the Closing
hereunder be liable to any of said employees for any material amount of
so-called severance pay or any other pay. SCHEDULE 3.18 contains a true
and complete list of all material employee benefit arrangements currently
in effect covering employees of the Company.
Other than as disclosed on SCHEDULE 3.18 hereto, at no time in the
past ten years or at the date hereof has there been (and at no time from
and after the date hereof through the Closing Date will there be) any
pension, retirement, disability, medical, dental or other health plan,
life insurance or other death benefit plan, profit sharing, deferred
compensation, bonus or other incentive plan, vacation benefit plan,
severance plan, or other employee benefit plan or arrangement, including,
without limitation, any pension plan ("Pension Plan") as defined in
Section 3(2) of ERISA, and any "welfare plan" as defined in Section 3(1)
of ERISA, whether or not any of the foregoing is funded, and whether
written or oral, (a) to which the Company is or was a party or by which it
is or was bound and (b) with respect to which the Surviving Corporation
will have any material liability after Closing (including any such plan or
arrangement formerly maintained by the Company).
3.19 EMPLOYEES AND AGENTS. The Company is not a party to any consulting or
similar agreements with respect to consultants or agents, except as
described by SCHEDULE 3.19, which schedule also contains a true and
accurate list of all salaried employees and their salary rates, a list of
the rates of compensation for hourly employees in the Business and amounts
paid on account of any incentive programs for the twelve month period
ended December 31, 1995.
3.20 ORDINARY COURSE OF BUSINESS. Other than as specifically disclosed to
Citation hereunder or as set forth on SCHEDULE 3.20, since December 31,
1995, the Company has conducted its business solely in the usual and
ordinary manner and has refrained from any transaction not in the ordinary
course of business.
3.21 ACCOUNTS RECEIVABLE. All of the Company outstanding accounts receivable
included as assets in the December 31, 1995 Balance Sheet are bona fide,
arose in the ordinary course of business and, to the Company's knowledge,
are collectible in full (less any reserve for bad debts). The prior
sentence will not be construed by Citation or the Sub as a guaranty of
collection.
3.22 BOOKS AND RECORDS. The Company has maintained its books of account for
the five fiscal years ended December 31, 1995 in accordance with GAAP,
consistently applied.
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3.23 CUSTOMERS' TOOLINGS AND DIES. SCHEDULE 3.23 is a list of all of the
tooling and dies belonging to the Company's customers that are in the
possession of the Company, such list having detail as to customer name,
part number and description.
3.24 PREPARATION OF SCHEDULES. The Company's Schedules attached hereto have
been prepared by the management of the Company. The statements of fact
made by the Company in this Agreement and in the Company's Schedules are
true and correct in all material respects as of the date of this Agreement
and do not omit any fact necessary to make the statements contained
therein, in light of the circumstances under which they were made, not
misleading in any material respect as of the date of this Agreement. The
statements and information contained in the Schedules shall be deemed to
constitute representations and warranties of the Company under this
Agreement to the same extent as if herein set forth in full.
3.25 HAZARDOUS MATERIALS.
(a) Except as disclosed on SCHEDULE 3.25(a) and to the knowledge of the
Company:
(i) neither the Company nor any other person has in material
violation of Environmental Laws used or installed any Hazardous
Material (as hereinafter defined) on, from, or in the Real
Estate,
(ii) neither the Company nor any other person has violated, in any
material respect, any applicable Environmental Laws (as
hereinafter defined) relating to or affecting the Real Estate,
(iii) all of the Company Real Estate is currently in material
compliance with all Environmental Laws, and there are no facts
or circumstances currently existing upon or under such Real
Estate, or relating to such Real Estate, which may materially
violate any applicable Environmental Laws,
(iv) there is not now pending or threatened any material action,
suit, investigation or proceeding against the Company or any
such Real Estate (or against any other party relating to any
such Real Estate) seeking to enforce any material right or
remedy under any of the Environmental Laws,
(v) the Company has obtained all material licenses, permits and/or
other governmental or regulatory actions necessary to comply, in
all material respects, with Environmental Laws (the "Permits")
and is in compliance, in all material respects, with the terms
and provisions of the Permits, and
(vi) there has been no material Release (as hereinafter defined) of
any Hazardous Materials on or from such Real Estate, whether or
not such Release emanated from such Real Estate or any
contiguous real estate which would require the Company to report
and clean up the same;
(b) As used in this Agreement:
(i) "Hazardous Material" or "Hazardous Materials" means and includes
petroleum products, flammable explosives, radioactive materials,
asbestos or any material containing asbestos in any form that is
friable, polychlorinated biphenyls, and/or any hazardous or
toxic waste, substance, chemical or material defined as such, or
as a Hazardous Substance or any similar term, by, in or for the
purposes of the Environmental Laws, including, without
limitation Section 101(14) of CERCLA (hereinafter defined);
(ii) "Release" shall have the meaning given such term, or any
similar term, in the
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Environmental Laws, including, without limitation, Section
101(22) of CERCLA; and
(iii) "Environmental Law" or "Environmental Laws" shall mean any
"Super Fund" or "Super Lien" law, or any other federal, state or
local statute, law, ordinance, code, rule, regulation, order or
decree, regulating, relating to or imposing liability or
standards of conduct concerning any Hazardous Materials as may
now be in effect, including, without limitation, the following,
and all regulations promulgated thereunder or in connection
therewith: the Super Fund Amendments and Reauthorization Act of
1986; the Comprehensive Environmental Response, Compensation and
Liability Act of 1980 ("CERCLA"); the Clean Air Act; the Clean
Water Act; the Toxic Substances Control Act; the Solid Waste
Disposal Act, as amended by the Resource Conservation and
Recovery Act; the Hazardous Waste Management System; and OSHA.
3.26 INDEBTEDNESS. Except as set forth on SCHEDULE 3.11.1, the Company is not
obligated in any material amount under any outstanding loan, financing
arrangement, capitalized lease, or other form of short or long term
indebtedness for borrowed money. At December 31, 1995 the aggregate
amount of the Company's indebtedness for borrowed money did not exceed
$19,823,499 (including the Company's revolving line of credit).
3.27 TAXES. Except as set forth on SCHEDULE 3.27: (a) all required material
federal, state and local tax returns of Company have been accurately
prepared and duly and timely filed, and all federal, state and local taxes
required to be paid with respect to the periods covered by such returns
have been paid except for those contested in good faith and for which
adequate reserves have been taken; and (b) the Company does not have any
material liability for federal or state income taxes as of December 31,
1995 that is not included as a liability in the December 31, 1995 Balance
Sheet.
3.28 SURVIVAL. The representations and warranties of the Company set forth in
this Agreement shall be continuous and shall survive the Closing for a
period of two (2) years.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF CITATION AND SUB
Citation and the Sub jointly and severally represent and warrant to the
Company as follows:
4.1 CORPORATE EXISTENCE AND POWER. Citation is a corporation duly organized,
validly existing, and in good standing under the laws of the State of
Delaware; the Sub is a corporation duly organized, validly existing, and
in active status under the laws of State of Wisconsin; each of Citation
and the Sub has the requisite corporate power to own, operate, and lease
its properties as presently owned, operated, and leased and to carry on
its business as now being conducted; is duly qualified to do business and
is in good standing in each jurisdiction where the conduct of its business
or ownership of its property requires such qualification; and has the
requisite corporate power and authority to enter into and perform its
obligations under this Agreement in accordance with its terms.
4.2 AUTHORITY RELATIVE TO AGREEMENT. Each of Citation's and the Sub's
execution, delivery, and performance of this Agreement and the
consummation of the transactions contemplated hereby have been duly and
effectively authorized by all necessary corporate action, including
approval of its Board of Directors. This Agreement constitutes the
legal, valid and binding obligation of each of Citation and the Sub
enforceable in accordance with its terms, except as may be limited by
bankruptcy, insolvency, reorganization or other laws (including court
decisions) now or hereafter in effect and affecting creditors rights
generally, and except as may be limited by general principles of equity
(regardless of whether considered in a proceeding in equity or at law) and
the discretion of the court.
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4.3 EFFECT OF AGREEMENT. Other than with respect to the Hart-Scott-Rodino
Act, the execution, delivery and performance of this Agreement by each of
Citation and the Sub and the consummation by each of Citation and the Sub
of the transactions contemplated herein do not require the consent,
waiver, approval, license or authorization of any person or public
authorities, where the failure to obtain such consent would have a
material adverse effect on Citation or the Sub; do not violate, in any
material respect, any provision of law applicable to each of Citation and
the Sub; do not conflict with or result in any breach of, in any material
respect, Citation's or the Sub's articles of incorporation or bylaws, or
with or without the giving of notice and/or the passage of time, any
mortgage, deed of trust, license, lease, indenture or other agreement or
other instrument, or any order, judgment, or any other restrictions of any
kind or character, to which Citation or the Sub is a party or by which any
of Citation's or the Sub's property may be bound; do not give to others
any right to terminate, or result in any termination of, any such
instrument which, if terminated, would have a material adverse effect on
Citation or the Sub; do not result in termination of any material
provisions of such instrument; and do not result in the creation of any
material lien, charge or encumbrance upon any of the property of Citation
or the Sub.
4.4 REPORTS AND FINANCIAL STATEMENTS. All the filings required to be made by
Citation under the Securities Act of 1933, as amended (the "1933 Act"),
and the Securities Exchange Act of 1934, as amended (the "1934 Act"), have
been filed with the Securities and Exchange Commission (the "SEC"),
including all forms, statements, reports, agreements (oral or written),
and all documents, exhibits, amendments and supplements pertaining thereto
(the "SEC Reports"), and comply, as of their respective dates, in all
material respects, with all applicable requirements of the 1933 Act and
1934 Act, as the case may be, and the rules and regulations thereunder.
As of their respective dates, the SEC Reports did not contain any untrue
statement of a material fact or omit a material fact required to be stated
therein or necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading. The audited
consolidated financial statements and unaudited interim financial
statements of Citation included in the SEC Reports have been prepared in
accordance with GAAP, applied on a consistent basis (except as may be
indicated therein or in the notes thereto and except with respect to
unaudited statements as permitted by Form 10-Q of the SEC) and fairly
present the financial position of Citation as of the dates thereof and the
results of its operations and cash flows for the periods then ended,
subject, in the case of the unaudited interim financial statements, to
normal, recurring audit adjustments.
4.5 NO ADVERSE CHANGE. Since October 1, 1995, except as disclosed in the SEC
Reports, there has not been any material adverse change in the condition,
financial or otherwise, of Citation or the Sub (other than changes in the
ordinary course of business, none of which individually or in the
aggregate has been materially adverse), and to Citation's and the Sub's
knowledge, there exists no event, condition or other circumstance (other
than possible law or regulation changes and economic conditions affecting
their businesses and similar businesses generally) which immediately or,
insofar as reasonably can be foreseen, with a lapse of time, will
materially adversely affect their respective businesses.
4.6 JUDGMENTS AND DECREES. Neither Citation nor the Sub is subject to any
order, judgment or decree which would prevent the consummation of any of
the transactions contemplated hereunder or compliance by Citation and the
Sub with the terms, conditions and provisions hereof.
4.7 LITIGATION AND ADMINISTRATIVE PROCEEDINGS. Except as set forth in the SEC
Reports, (i) there are no actions, suits or proceedings which have been
served on Citation or the Sub or, to the knowledge of Citation and the
Sub, threatened against Citation or the Sub, at law or in equity, which
could reasonably be expected to materially and adversely affect Citation
or the Sub, by or before any federal, state or municipal court or any
other governmental department, commission, board, bureau, agency or
instrumentality, and (ii) to the knowledge of Citation and the Sub,
neither Citation nor the Sub are subject to any material liability by
reason of a violation of any order, rule
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or regulation of any federal, state, municipal or other governmental
agency, department, commission, bureau, board or instrumentality to which
Citation or the Sub are subject.
4.8 DISCLOSURE. The statements of fact made by Citation and the Sub in this
Agreement are true and correct in all material respects as of the date of
this Agreement and do not omit any fact necessary to make the statements
contained therein, in light of the circumstances under which they were
made, not misleading in any material respect as of the date of this
Agreement. Citation and the Sub have no knowledge of any fact,
occurrence, event or condition that would make any representations or
warranties of the Company untrue in any material respect. Until the
Closing Date, Citation and the Sub will immediately advise the Company in
writing of any factor, occurrence or any pending or threatened occurrence
of which either of them obtains knowledge which, if existing and known at
any time prior to the Closing Date, would make any representation or
warranty of the Company untrue in any material respect.
4.9 SURVIVAL. The representations and warranties of Citation and the Sub set
forth in this Agreement shall be continuous, and shall survive the Closing
for a period of four (4) years.
ARTICLE V
CONDUCT OF BUSINESS PENDING CLOSING
From and after the date hereof until the Closing:
5.1 FULL ACCESS AND INVESTIGATION. Citation and its authorized
representatives shall have reasonable access upon reasonable notice during
normal business hours (or at other times reasonably determined by the
Company) to all properties, books, records, contracts and documents of the
Company in the manner reasonably determined by the Company, and the
Company shall furnish or cause to be furnished (including through the
Company's employees, authorized representatives, suppliers, customers and
independent providers of professional services) to Citation and its
authorized representatives all material information with respect to the
affairs and Business of the Company as Citation may reasonably request.
Citation agrees that any information furnished to or obtained by Citation
will be held in strict confidence in accordance with the terms of the
Confidentiality Agreement dated February 7, 1996 between Citation and the
Company.
5.2 CONTINUE BUSINESS IN REGULAR COURSE. The Company shall carry on the
Business substantially in the same manner as it is currently being
conducted and shall not make or institute any material change in its
method of purchase, sale, lease, management, marketing, accounting or
operations without the prior written consent of Citation. Unless
otherwise consented to in writing by Citation, or except as set forth on
SCHEDULE 5.2, the Company shall use reasonable efforts to:
(a) maintain all of the material assets presently being used in the
operation of the Business in good operating condition and repair subject
to ordinary wear and tear;
(b) maintain insurance upon the assets of the Business in amounts
comparable to that in effect on the date hereof;
(c) preserve its present business organization intact, and refrain
from firing or terminating any of its present officers or key employees,
except upon prior notice to Citation;
(d) maintain its books, accounts and records in the usual, regular
and ordinary manner, on a basis consistent with prior years, endeavor to
comply, in all material respects, with all laws applicable to it and to
the conduct of the Business, and perform all of its material obligations
without default;
(e) not sell or voluntarily dispose of any of the assets of the
Business, except for the sale of inventory and collection of accounts
receivable in the ordinary course of business or any
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other sale or disposition of assets in the ordinary course of business;
(f) not incur any accounts payable with respect to the operation of
the Business except in the ordinary course of business;
(g) not grant any increase in pay to employees nor increase any
salary, commission, bonus or management fee to any employee, nor pay any
bonus or institute any bonus or pension or profit-sharing plan or program,
other than in the ordinary course of business;
(h) not enter into any contract or commitment or engage in any
transaction which is not in the ordinary course of business, nor permit
any material change in the character of the Business;
(i) prevent the occurrence of any event which would result in any of
its representations and warranties contained in this Agreement not being
true and correct;
(j) keep its Business intact and preserve its relationship with
suppliers, customers and others with whom the Company has business
relations;
(k) not amend or propose to amend its Restated Articles of
Incorporation or Bylaws except as required by law;
(l) not issue any additional stock options, stock appreciation
rights or similar rights;
(m) not remove any inventory or equipment from the Real Estate,
except for the sale of inventory and equipment in the ordinary course of
business; and
(n) not pay or declare any distributions to shareholders as such
after December 31, 1995, except for a dividend distribution of $91,000
paid in March 1996.
5.3 CONSENTS OF CITATION. No consent, recommendation or advice given by
Citation to the Company pursuant to this Section 5 regarding the conduct
of the Business pending the Closing shall constitute an understanding,
commitment, representation or undertaking of Citation or give rise to any
obligation or liability of Citation or constitute a waiver of any
warranty, representation, covenant or agreement contained herein, except
as may be subsequently expressly set forth in writing and signed by the
parties hereto.
5.4 REGISTRATION STATEMENT. As promptly as practicable after the execution
of this Agreement, Citation shall prepare and file such registration
statement and indenture (the "Registration Statement") as shall be
necessary to register under the 1933 Act and to qualify under the
Indenture Act the rights associated with the Contingent Payments (the
"Contingent Payments Rights") in accordance with this Agreement. The
Company shall promptly prepare and/or furnish to Citation all information
concerning the business, financial condition and affairs of the Company
that may be required or reasonably requested by Citation in connection
with the preparation or filing of the Registration Statement, including
without limitation the Company's proxy statement to be delivered to the
Company Stockholders and contained in the Registration Statement (the
"Proxy Statement"), and financial statements, financial statement
schedules and auditor's consents required to be included therein or filed
therewith, and shall otherwise cooperate and cause its representatives to
cooperate with Citation in the preparation and filing of the Registration
Statement. The parties shall use their best efforts to cause the
Registration Statement to become effective as soon as practicable and to
distribute copies of Citation's prospectus and the Company's Proxy
Statement contained in such Registration Statement (the "Proxy Statement-
Prospectus") to the Company Stockholders. After the execution of this
Agreement and before the effectiveness of the Registration Statement, and
thereafter until the Closing Date, The Company shall promptly advise
Citation of any facts that should be set forth in an amendment or
supplement
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to the Proxy Statement-Prospectus or the Registration Statement, and each
party shall take all actions that may be necessary to keep the
Registration Statement and the Proxy Statement-Prospectus current and
effective until the Closing Date.
5.5 COMPANY STOCKHOLDER APPROVAL. As promptly as practicable after the
Registration Statement becomes effective and in accordance with applicable
law, the Company will duly hold a meeting of its Stockholders (the
"Stockholders Meeting") for the purpose of voting on the Merger. Unless
the board of directors of the Company in its good faith judgment
determines that it is otherwise required by law or its fiduciary duties,
the Company shall recommend the Merger to the Stockholders for approval.
Except with the prior written consent of Citation, the Company shall not
distribute any materials to the Stockholders in connection with the
Stockholders Meeting other than the Proxy Statement-Prospectus and related
form of proxy.
5.6 REPRESENTATIONS OF THE COMPANY AS TO THE REGISTRATION STATEMENT. The
Company warrants and represents to Citation and the Sub and covenants with
Citation and the Sub that, at the time the Registration Statement shall
become effective and at all times subsequent to effectiveness up to and
including the Closing Date, the Registration Statement and all amendments
or supplements thereto, with respect to the information therein furnished
by the Company or its representatives, (a) will comply in all material
respects with the applicable provisions of the 1933 Act, the 1934 Act and
the respective rules and regulations thereunder, and (b) will not contain
any untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary to make the statements
contained therein not misleading.
5.7 CITATION'S AND SUB'S REPRESENTATIONS AS TO REGISTRATION STATEMENT.
Citation and the Sub, jointly and severally, warrant and represent to the
Company and covenant with the Company that, at the time the Registration
Statement shall become effective and at all times subsequent to
effectiveness up to and including the Closing Date, the Registration
Statement and all amendments or supplements thereto, with respect to the
information therein furnished by Citation, the Sub or their
representatives, (a) will comply in all material respects with the
applicable provisions of the 1933 Act, the 1934 Act and the respective
rules and regulations thereunder, and (b) will not contain any untrue
statement of a material fact or omit to state a material fact required to
be stated therein or necessary to make the statements contained therein
not misleading.
5.8 STATE SECURITIES FILINGS. Citation shall undertake to qualify the
Contingent Payments Rights under applicable state securities laws and in
connection therewith take all such action as it may do without
unreasonable effort or expense. The Company shall cooperate with Citation
and furnish all information that may be required or reasonably requested
by Citation in connection therewith.
ARTICLE VI
TITLE INSURANCE; SURVEYS
6.1 DEFINITIONS. As used in this Agreement, the following terms shall have
the meanings specified:
(a) PERMITTED LIENS. "Permitted Liens" shall mean those Liens which
are expressly noted as Permitted Liens on SCHEDULE 6.1 hereto.
(b) REAL ESTATE. "Real Estate" shall mean those parcels of Real
Estate leased or owned by the Company, which are listed and described on
SCHEDULE 3.9 hereto.
(c) SURVEY. "Survey" shall mean a certified survey map prepared by
a registered land surveyor jointly selected by the Company and Citation
which shall be sufficient to enable the Title Company to eliminate all
survey exceptions (except such encroachments which are not material)
relating to the surveyed real property and shall include those matters
required to be included on a land survey in accordance with the minimum
standards and detail requirements for land title surveys as jointly
established and adopted by the American Land Title Association and the
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American Congress of Surveying and Mapping according to the 1992 Standards
for an Urban Survey.
(d) TITLE COMMITMENTS. "Title Commitments" shall mean binding
commitments issued by the Title Company for the issuance of an owners form
of title insurance policies, insuring the title in the relevant Real
Estate in accordance with the terms of this Agreement, subject only to
Permitted Liens.
(e) TITLE COMPANY. "Title Company" shall mean Chicago Title
Insurance Company or such other title insurance company which may be
jointly selected by the Company and Citation.
6.2 DELIVERIES PRIOR TO CLOSING. At least fourteen (14) calendar days prior
to the Closing Date, the Company shall: (a) cause the Title Company to
deliver to Citation the Title Commitments, dated as of a date which is no
earlier than twenty (20) calendar days prior to the Closing Date; and
(b) deliver to Citation Surveys of the Real Estate, each dated as of a
date which is no earlier than twenty (20) calendar days prior to the
Closing Date.
6.3 DELIVERIES AT CLOSING. On the Closing Date, the Company shall cause the
Title Company to issue and deliver to Citation executed title insurance
policies, dated as of the Closing Date, which title insurance policies
shall: (a) be in the amounts for each parcel of the Real Estate which are
set forth on SCHEDULE 6.3 hereto; and (b) insure title to the Real Estate
in accordance with the provisions set forth in this Agreement and in the
Title Commitments.
6.4 EXPENSES. The Company shall be responsible for the costs, expenses and
premiums for the Title Commitments, the Surveys and the title insurance
policies issued pursuant to the Title Commitments.
ARTICLE VII
HART-SCOTT-RODINO
As promptly as practicable after the date hereof, the parties shall each
prepare and file all documents with the Federal Trade Commission and the United
States Department of Justice that may be required to comply with the Hart-Scott-
Rodino Act, and shall promptly furnish all materials thereafter requested by any
of the regulatory agencies having jurisdiction over such filings, in connection
with the transactions contemplated hereby. Each party will take all reasonable
actions and will file and use reasonable efforts to have declared effective or
approved all documents and notifications with any governmental or regulatory
bodies, as may be necessary or may reasonably be requested under federal
antitrust laws for the consummation of the Merger pursuant to this Agreement.
The Closing shall only occur after any applicable waiting period under the Hart-
Scott-Rodino Act shall have expired or been terminated.
ARTICLE VIII
CONDITIONS TO OBLIGATIONS OF CITATION AND SUB
Each and every obligation of Citation and the Sub under this Agreement to
be performed on or prior to the Closing Date shall be subject to the
fulfillment, on or prior to the Closing Date, of each of the following
conditions:
8.1 REPRESENTATIONS AND WARRANTIES TRUE AT CLOSING. The representations and
warranties made by the Company in or pursuant to this Agreement or given
on its behalf hereunder shall be true and correct in all material respects
(i) on and as of the date hereof and (ii) on and as of the Closing Date
with the same effect as though such representations and warranties had
been made or given on and as of the Closing Date (except for
representations and warranties that expressly speak only as of a specific
date or time, which need only be true and correct as of such date and
time).
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8.2 OBLIGATIONS PERFORMED. The Company shall have performed and complied
with all agreements and conditions required by this Agreement to be
performed or complied with by it prior to or at the Closing in all
material respects.
8.3 CONSENTS AND APPROVALS. The consents and approvals of all persons or
entities, including governmental agencies, whose consent or approval is
required to consummate the transactions contemplated herein shall have
been obtained, including the expiration of any waiting period under the
Hart-Scott-Rodino Act. The parties hereto agree that the obtaining of
consents contemplated by the Contracts detailed on SCHEDULE 3.3 are not
required to consummate the transactions contemplated herein.
8.4 DELIVERY OF CLOSING DOCUMENTS. The Company shall have delivered to
Citation and the Sub each of the closing documents and instruments listed
and set forth in Section 10.1 hereof together with any additional
documents Citation may reasonably request to effect the transactions
contemplated herein.
8.5 NO LITIGATION OR GOVERNMENT INVESTIGATIONS. As of the Closing Date there
shall be no litigation, including without limitation any litigation
brought by any creditor of the Company, or government investigation, in
which an injunction or other order or decree has been obtained against the
transactions contemplated hereby.
8.6 NO MATERIAL CHANGE. At the Closing, the Business and the Company shall
not have been materially and adversely affected as the result of fire,
water, explosion, flood, act of God, accident or other casualty, labor
controversy, or any action by the United States or any other governmental
authority, whether or not covered by insurance. Further, as of the
Closing Date, and since December 31, 1995, the Company shall not have
suffered any material adverse change in general financial condition of the
Business, other than as disclosed in any of the Schedules to the
Agreement.
8.7 DISSENTING STOCKHOLDERS. Dissenting Stockholders shall not have
exercised and properly perfected dissenters' rights in compliance with the
Corporation Law with respect to Company Stock that would, if no
dissenters' rights had been exercised by any Dissenting Stockholders, be
convertible into the right to receive an aggregate of 10% of the Closing
Merger Payment.
8.8 COMPANY STOCKHOLDER APPROVAL. This Agreement must have been approved and
adopted by the affirmative vote of the holders of Company Stock
constituting at least a majority of all the votes entitled to be cast on
the Agreement.
8.9 EFFECTIVENESS OF REGISTRATION STATEMENT. The Registration Statement
shall have become effective under the 1933 Act, no stop order suspending
its effectiveness shall be in effect, and no stop order proceeding with
respect thereto shall be pending.
8.10 BLUE SKY QUALIFICATION. The Contingent Payments Rights shall have been
qualified under all applicable state securities laws without unreasonable
effort or expense.
ARTICLE IX
CONDITIONS TO COMPANY'S OBLIGATIONS
The obligation upon the Company to consummate the transactions
contemplated herein shall be subject to the fulfillment on or prior to the
Closing Date of the following additional conditions:
9.1 REPRESENTATIONS AND WARRANTIES TRUE AT CLOSING. The representations and
warranties made by Citation and the Sub in or pursuant to this Agreement
or given on behalf of each of Citation and the Sub hereunder shall be true
and correct in all material respects (i) on and as of the date hereof and
(ii) on and as of the Closing Date with the same effect as though such
representations and
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warranties had been made or given on and as of the Closing Date
(except for representations and warranties that expressly speak only as of
a specific date or time, which need only be true and correct as of such
date and time).
9.2 OBLIGATIONS PERFORMED. Each of Citation and the Sub shall have performed
and complied with all of the agreements and conditions required by this
Agreement to be performed or complied with by it prior to or at the
Closing in all material respects.
9.3 DELIVERY OF CLOSING DOCUMENTS. Citation and the Sub shall have delivered
to the Company each of the closing documents and instruments listed in
Section 10.2 hereof together with any additional documents which the
Company may reasonably request to effect the transactions contemplated
herein.
9.4 COMPANY STOCKHOLDER APPROVAL. This Agreement must have been approved and
adopted by the affirmative vote of the holders of Company Stock
constituting at least a majority of all the votes entitled to be cast on
the Agreement.
9.5 CONSENTS AND APPROVALS. The consents and approvals of all persons or
entities, including governmental agencies, whose consent or approval is
required to consummate the transactions contemplated herein shall have
been obtained, including the expiration of any waiting period under the
Hart-Scott-Rodino Act.
9.6 NO LITIGATION OR GOVERNMENT INVESTIGATIONS. As of the Closing Date,
there shall be no litigation, including without limitation any litigation
brought by any creditor of the Sub or Citation, or government
investigation, in which an injunction or other order or decree has been
obtained against the transactions contemplated hereby.
9.7 EFFECTIVENESS OF REGISTRATION STATEMENT. The Registration Statement
shall have become effective under the 1933 Act, no stop order suspending
its effectiveness shall be in effect, and no stop order proceeding with
respect thereto shall be pending.
9.8 BLUE SKY QUALIFICATION. The Contingent Payments Rights shall have been
qualified under all applicable state securities laws without unreasonable
effort or expense.
9.9 OPINION OF FINANCIAL ADVISOR. The opinion of Robert W. Baird & Co.
Incorporated received by the Company's Board of Directors in connection
with their consideration of the Merger, to the effect that the
consideration to be received in the Merger by the Closing Stockholders is
fair to the Closing Stockholders from a financial point of view, shall not
have been withdrawn at the date of the Stockholders Meeting.
9.10 NO MATERIAL CHANGE. At the Closing, Citation and the Sub shall not have
been materially and adversely affected as a result of fire, water,
explosion, flood, act of God, accident or other casualty, labor
controversy, or any action by the United States or any other governmental
authority, whether or not covered by insurance. Further, as of the
Closing Date, and since October 1, 1995, Citation and the Sub shall not
have suffered any material adverse change in their respective general
financial conditions.
ARTICLE X
DELIVERIES AT CLOSING
10.1 DELIVERIES BY THE COMPANY AT CLOSING. At the Closing, the Company shall
deliver or cause to be delivered to Citation and the Sub the following
executed instruments and agreements:
(a) CERTIFICATE OF RESOLUTIONS OF BOARD. Resolutions of the Board
of Directors and shareholders of the Company, certified by the Secretary
of the Company, authorizing this
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Agreement and the transactions contemplated herein;
(b) CERTIFICATE OF THE COMPANY. A certificate of the Chairman or
President of the Company dated the Closing Date certifying (i) the
fulfillment of the conditions specified in Article VIII hereof, and
(ii) all warranties and representations of the Company contained in this
Agreement are true and correct in all material respects to the best of his
knowledge and belief after due inquiry at and as of the Closing Date as
though such warranties and representations were made at and as of such
time (except for representations and warranties that expressly speak only
as of a specific date or time);
(c) ARTICLES OF MERGER. The Company shall execute and deliver the
Articles of Merger in the form attached hereto as SCHEDULE 10.1(e);
(d) CERTIFICATE OF INCUMBENCY. A Certificate of Incumbency
evidencing the authority of each of the individuals executing on behalf of
the Company this Agreement and any other documents delivered in connection
herewith;
(e) OPINION OF COMPANY COUNSEL. An opinion of legal counsel for
the Company dated the Closing Date in the form of SCHEDULE 10.1(g); and
(f) CONTINGENT PAYMENTS LIST. At the Closing, the Company shall
have delivered a list (the "Contingent Payments List") of the Closing
Stockholders setting forth for each Closing Stockholder the percentage
("Contingent Payments Percentages") of Contingent Payments (less expenses
paid to the Stockholders Agents as provided in Section 1.12(a)), if any,
that each will receive, based on their pro rata ownership of the Closing
Stock.
10.2 DELIVERIES BY CITATION AND THE SUB AT CLOSING. At the Closing, Citation
and the Sub will execute and deliver, or cause to be executed and
delivered, to the Company the following:
(a) CASH. An amount equal to the Closing Merger Payment by bank
wire transfer in immediately available funds to the Paying Agent for
delivery to the Closing Stockholders.
(b) ARTICLES OF MERGER. The Sub shall execute and deliver the
Articles of Merger in the form attached hereto as SCHEDULE 10.1(e).
(c) CERTIFICATES OF INCUMBENCY. Certificates of Incumbency
evidencing the authority of each of the individuals executing on behalf of
each of the Sub and Citation this Agreement, the Mitchell Employment
Agreement and the Esenberg Employment Agreement, and any other documents
delivered in connection herewith;
(d) CERTIFICATES OF RESOLUTIONS OF BOARD. Resolutions of the Board
of Directors of each of Citation and the Sub, and of the sole shareholder
of the Sub, certified by the respective Secretaries of Citation and the
Sub, authorizing this Agreement and the transactions contemplated herein;
(e) CHAIRMAN'S CERTIFICATE. A certificate of the Chairman of each
of Citation and the Sub dated the Closing Date certifying (i) the
fulfillment of the conditions specified in Article IX hereof, and (ii) all
representations and warranties of Citation and the Sub contained in this
Agreement are true and correct in all material respects to the best of
their knowledge and belief after due inquiry at and as of the Closing Date
as though such warranties and representations were made at and as of such
time (except for representations and warranties that expressly speak only
as of a specific date or time);
(f) CITATION GUARANTY. Citation will execute and deliver the
guaranty attached hereto as Schedule 10.2(f) with respect to the Esenberg
Employment Agreement;
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(g) OPINION OF COUNSEL FOR CITATION AND SUB. An opinion of legal
counsel for Citation and the Sub dated the Closing Date in the form of
SCHEDULE 10.2(h).
ARTICLE XI
INDEMNIFICATION
11.1 INDEMNIFICATION. The Company hereby indemnifies and agrees to hold the
Surviving Corporation and Citation and/or the respective directors,
officers and/or agents of the Surviving Corporation and Citation and/or
their respective successors and assigns harmless from the following (for
purposes of this Article XI, the Surviving Corporation and Citation shall
be collectively and/or interchangeably referred to as "Citation"):
(a) MISREPRESENTATION, NONFULFILLMENT OF AGREEMENT. Any liability,
loss, cost, expense, damage, claim or deficiency resulting from any
misrepresentation set forth herein, breach of any warranty set forth
herein or any breach, nonfulfillment of, or failure to perform any
covenant, duty or obligation set forth herein on the part of the Company;
(b) TAX LIABILITIES. Any liability, loss, cost or expense related
to delinquent or underpaid taxes, including any interest and penalties
thereon, which relate to fiscal year 1995 and prior years and not included
as a liability on the December 31, 1995 Balance Sheet;
(c) ACTIONS OR PROCEEDINGS. Any liability, loss, cost or expense
incurred after the Effective Time by the Company or Citation that are
related to or arise out of any administrative, civil or criminal action or
proceedings relating to any securities law matters, including but not
limited to any inquiry or investigation, whether formal or informal, with
respect to any conduct by the Company relating thereto;
(d) STOCK RELATED LIABILITIES. Any liability, loss, cost or
expense incurred after the Effective Time by the Company or Citation that
are related to or arise out of a claim of stock ownership (and/or options
or other rights to purchase the Company's capital stock) in the Company by
persons to the extent not recognized by the Company as of the Effective
Time as being entitled to a portion of the consideration to be paid by
Citation described in Section 1.9; and
(e) ATTENDING COSTS AND EXPENSES. All liabilities, claims,
actions, suits, proceedings, demands, assessments, judgments and costs
incident to and reasonably incurred by Citation on account of any of the
foregoing, including, without limitation, reasonable attorney's fees and
other expenses of investigation or litigation.
11.2 LIMITS OF INDEMNIFICATION. The liability under Section 11.1 of this
Agreement shall:
(a) not arise with respect to a single indemnifiable course of
conduct, related set of circumstances, occurrence or event unless the
damages suffered by Citation arising therefrom exceed Ten Thousand and
00/100 Dollars ($10,000.00) (a "Company Covered Breach"); and
(b) not arise with respect to a Company Covered Breach unless, and
then only to the extent that, the cumulative damages suffered by Citation
for said Company Covered Breach and all Company Covered Breaches relating
to similar matters covered by a reserve, if any, which the Company has
established specifically for such matters in the books and records of the
Company as of December 31, 1995, exceed the amount of such specific
reserve. To the extent the liability for such a Company Covered Breach is
not covered by any specific reserve, or to the extent the aggregate of all
such liabilities has exceeded the relevant reserve, the liability, or such
portion thereof, as the case may be, shall be referred to as a "Company
Indemnifiable Breach"; and
(c) be recoverable only if and to the extent that the cumulative
damages suffered by
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Citation for all Company Indemnifiable Breaches exceeds Seven Hundred
Fifty Thousand and 00/100 Dollars ($750,000.00); provided, however, that
Indemnifiable Breaches relating to claims arising pursuant to
Sections 11.1(c) and 11.1(d) shall be recoverable without regard to this
limitation; and
(d) Citation shall not be entitled to more than one recovery for any
single loss, damage, cost, expense, liability, obligation or claim even
though such may have resulted from the breach or inaccuracy of more than
one of the representations and warranties and agreements made by the
Company in or pursuant to this Agreement;
(e) Citation shall not bring a claim or be entitled to
indemnification with respect to any facts or circumstances resulting in a
breach of any representation, warranty, covenant or agreement of the
Company of which Citation had knowledge on or before the Closing Date; and
(f) The cumulative liability under Section 11.1 of this Agreement
shall be limited in the aggregate to $10,000,000.00.
11.3 METHOD OF ASSERTING CLAIMS AGAINST THE COMPANY. All claims for
indemnification under this Article XI made by Citation shall be asserted
and resolved as follows:
(a) In the event that any claim or demand for which the Company
would be liable to Citation hereunder is asserted against or sought to be
collected from Citation by a third party, Citation shall promptly notify
the Stockholders Agents of such claim or demand, specifying the nature of
such claim or demand and the amount or the estimated amount thereof to the
extent then feasible (which estimate shall not be conclusive of the final
amount of such claim or demand) (the "Claim Notice"). The Stockholders
Agents shall have 30 calendar days from receipt of the Claim Notice (the
"Notice Period") to notify Citation:
(i) whether or not the Stockholders Agents dispute liability to the
third party or to Citation hereunder with respect to such claim
or demand and
(ii) whether or not they desire, at their sole cost and expense, to
defend Citation against such claim or demand. In the event
that the Stockholders Agents notify Citation within the Notice
Period that the Stockholders Agents desire to defend Citation
against such claim or demand, except as hereinafter provided,
the Stockholders Agents shall have the right to defend Citation
by appropriate proceedings, which proceedings shall be promptly
settled or prosecuted by them to a final conclusion in such a
manner as to avoid any risk of Citation becoming subject to
liability for any other matter. If Citation desires to
participate in, but not control, any such defense or settlement,
it may do so at its sole cost and expense. If the
Stockholders Agents elect not to defend Citation against such
claim or demand, whether by not giving Citation timely notice as
provided above or otherwise, then the amount of any such claim
or demand, or, if the same be contested by the Stockholders
Agents or by Citation (but Citation shall have no obligation to
contest any such claim or demand), then that portion thereof as
to which such defense is unsuccessful shall be conclusively
deemed to be a liability of the Stockholders Agents hereunder,
provided Citation is otherwise entitled to indemnification with
respect to such claim or demand under Section 11.1 hereof.
(b) In the event Citation should have a claim against the Company
hereunder which does not involve a claim or demand being asserted against
or sought to be collected from it by a third party, Citation shall
promptly send a Claim Notice with respect to such claim to the
Stockholders Agents. If the Stockholders Agents do not notify Citation
within a 30 day Notice Period that the Stockholders Agents dispute such
claim, it shall be conclusively deemed a liability of the Company
hereunder.
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(c) Nothing herein shall be deemed to prevent Citation from making a
claim hereunder for potential or contingent claims or demands provided the
Claim Notice sets forth the specific basis for any such potential or
contingent claim or demand, to the extent then feasible and Citation has
reasonable grounds to believe that such a claim or demand may be made.
11.4 PAYMENT OF CLAIMS. Payment of claims for which Citation has established
that it is entitled to indemnification hereunder shall be made solely by a
set-off by Citation against the amount owed to the Closing Stockholders
for the Final Contingent Payments Payment.
11.5 INDEMNIFIED CLAIMS BY CITATION. Citation does hereby indemnify and agree
to hold the Closing Stockholders and/or their agents and/or their
respective successors and assigns and the directors, officers and agents
of the Company harmless from the following:
(a) MISREPRESENTATION, NONFULFILLMENT OF AGREEMENT. Any liability,
loss, cost, expense, damage, claim or deficiency resulting from any
misrepresentation set forth herein, breach of any warranty set forth
herein or any breach, nonfulfillment of, or failure to perform any
covenant, duty or obligation set forth herein on the part of the Sub or
Citation;
(b) LIABILITIES OF CITATION. Any liability, loss, cost, damage or
expense arising in connection with or resulting from the operation of the
Business on or after the Closing Date; and
(c) ATTENDING COSTS AND EXPENSES. All liabilities, claims,
actions, suits, proceedings, demands, assessments, judgments and costs
incident to and reasonably incurred by the Closing Stockholders, their
agents and their respective successors and assigns and the directors,
officers and agents of the Company on account of any of the foregoing,
including, without limitation, reasonable attorney's fees and other
expenses of investigation or litigation.
11.6 METHOD OF ASSERTING CLAIM AGAINST CITATION. All claims for
indemnification under this Article XI made against Citation shall be
asserted and resolved in the manner set out for asserting and resolving
claims made against the Company under Section 11.3, except that Citation
will serve as its own agent. In the event that Citation is required to
make any payment under this Article XI, Citation shall pay the indemnitee
entitled thereto such amount within ten (10) days after the determination
of such amount in immediately available funds.
11.7 EXCLUSIVITY. The rights of indemnity provided by this Article XI of this
Agreement shall be exclusive of all other rights of indemnity or
contribution, whether created by law or otherwise, either before or after
the Effective Time, relating in any way to the subject matter of this
Agreement.
11.8 DEFINITION OF LOSS. For the purposes of this Article XI, any liability,
loss, cost, expense, damage, claim or deficiency for which any person is
liable hereunder shall be calculated without regard to any resulting tax
benefits.
11.9 INSURANCE. Prior to asserting any claim for indemnification with respect
to any liability, loss, cost, expense, damage, claim or deficiency under
this Article XI, the indemnitee shall exhaust all remedies with respect to
such liability, loss, cost, expenses, damage, claim or deficiency against
all collateral sources, including, but not limited to, all applicable
insurance policies which may be maintained or available to the indemnitee
or any affiliate thereof. In the event that any collateral source,
including, without limitation, any insurance policies maintained by or
available to the indemnitee or affiliates, covers such liability, loss,
cost, expense, damage, claim or deficiency, then such liability, loss,
cost, expense, damage, claim or deficiency shall be limited to the amounts
in excess of the amounts collected by the indemnitee with respect thereto.
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ARTICLE XII
TERMINATION, AMENDMENT AND WAIVER
12.1 TERMINATION. This Agreement may be terminated at any time before the
Effective Time, whether before or after approval by the stockholders of
the Company of matters presented to them in connection with the Merger,
(a) by mutual consent of Citation and the Company;
(b) by Citation if any of the conditions set forth in Article VIII
of this Agreement shall not have been fulfilled on or before August 31,
1996;
(c) by the Company if any of the conditions set forth in Article IX
of this Agreement shall not have been fulfilled on or before August 31,
1996;
(d) by the Company pursuant to Section 2.2 of this Agreement; or
(e) by the Company or Citation if the Closing has not occurred on or
before September 30, 1996.
12.2 EFFECT OF TERMINATION. If either the Company or Citation terminates this
Agreement as provided in the foregoing Section, this Agreement will
forthwith become void, and there will be no liability or obligation on the
part of Citation, the Sub or the Company or their officers or directors
except as set forth in Section 13.5 (relating to expenses), Section 13.6
(relating to brokers) and in Section 13.13 (relating to publicity), except
to the extent that such termination or any purported termination results
from the willful breach by a party of any of its representations,
warranties or agreements in this Agreement, whereupon the nonbreaching
party shall be entitled to equitable relief, including injunctive relief
and specific performance, as well as all other remedies available under
Article XI of this Agreement.
12.3 AMENDMENT. This Agreement may be amended by the parties, by action
taken by their Boards of Directors, at any time before or after any
required approval of matters presented in connection with the Merger by
the Stockholders of the Company but, after any such approval, no amendment
may be made that materially adversely affects the Closing Stockholders
without such further approval of the Stockholders. This Agreement may
not be amended except by an instrument signed on behalf of each of the
parties.
12.4 EXTENSION; WAIVER. At any time before the Effective Time, the parties,
by action taken by their Boards of Directors, may, to the extent legally
allowed, extend the time for the performance of any of the obligations or
other acts of the other parties, waive any inaccuracies in the
representations and warranties contained in this Agreement or in any
document delivered pursuant to it and waive compliance with any of the
agreements or conditions contained in this Agreement. Any agreement on
the part of a party to any such extension or waiver will be valid only if
set forth in an instrument signed on behalf of such party.
12.5 PROCEDURE FOR TERMINATION, AMENDMENT, EXTENSION OR WAIVER. A termination
or amendment of this Agreement or an extension or waiver pursuant to any
of the foregoing Sections of this Article will, in order to be effective,
require, in the case of Citation, the Sub or the Company, action by its
Board of Directors or an authorized committee of the Board or the duly
authorized designee of its Board of Directors.
ARTICLE XIII
MISCELLANEOUS
13.1 NOTICES. All communications or notices required or permitted by this
Agreement shall be in writing
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and shall be deemed to have been given at the earlier of the date when
actually delivered to an individual party or to an officer of a corporate
party by personal delivery or telephonic facsimile transmission or when
deposited in the United States mail, certified or registered mail, postage
prepaid, return receipt requested, and addressed as follows, unless and
until any of such parties notifies the others in accordance with this
Section 13.1 of a change of address:
If to Citation
or the Sub: Citation Corporation
Attention: T. Morris Hackney
Suite 204
2 Office Park Circle
Birmingham, Alabama 35223
Fax No: 205-870-8211
with a copy to:
Ritchie & Rediker, L.L.C.
Attention: Thomas A. Ritchie
312 North 23rd Street
Birmingham, Alabama 35203
Fax No. 205-324-7382
If to the Company: Interstate Forging Industries, Inc.
Attention: Franklyn Esenberg
4051 N. 27th Street
Milwaukee, Wisconsin 53216-1883
Fax No.: 414-444-7300
with a copy to:
Quarles & Brady
Attention: Patrick M. Ryan
411 East Wisconsin Avenue
Milwaukee, Wisconsin 53202-4497
Fax No.: 414-277-5237
If to the Stockholders
Agents: Franklyn Esenberg
c/o Interstate Forging Industries, Inc.
4051 N. 27th Street
Milwaukee, Wisconsin 53216-1883
Fax No.: 414-444-7300
with a copy to:
James Mitchell
c/o Interstate Forging Industries, Inc.
4051 N. 27th Street
Milwaukee, Wisconsin 53216-1883
Fax No.: 414-444-7300
with a copy to:
David Lauer
c/o Interstate Forging Industries, Inc.
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4051 N. 27th Street
Milwaukee, Wisconsin 53216-1883
Fax No.: 414-444-7300
with a copy to:
Quarles & Brady
Attention: Patrick M. Ryan
411 East Wisconsin Avenue
Milwaukee, Wisconsin 53202-4497
Fax No.: 414-277-5237
13.2 BINDING AGREEMENT; ASSIGNMENT. This Agreement and the right of the
parties hereunder shall be binding upon and inure to the benefit of the
parties hereto and their respective successors, assigns, heirs, estates
and legal representatives. Neither this Agreement nor any rights or
liabilities may be assigned by the Company without the written consent of
Citation. Neither Citation nor Sub may assign any of their rights or
obligations under this Agreement without the prior written consent of:
(a) the Company prior to the Effective Time; and (b) the Stockholders
Agents after the Effective Time.
13.3 ENTIRE AGREEMENT. This Agreement and the Schedules attached hereto, and
the documents delivered pursuant hereto, constitute the entire Agreement
and understanding among the parties hereto and supersede and revoke any
prior agreement or understanding relating to the subject matter of this
Agreement.
13.4 COUNTERPARTS. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original and all of which
together shall constitute one and the same instrument.
13.5 EXPENSES. Whether or not the transaction contemplated herein is
consummated, the parties hereto will each pay their own attorneys and
accountants fees, expenses and disbursements in connection with the
negotiation and preparation of this Agreement and Schedules and all other
costs and expenses incurred in performing and complying with all
conditions to be performed under this Agreement. If the Merger is
consummated, such costs and expenses incurred by the Company as determined
below, will be deducted from the amount otherwise payable at the Closing
in respect to the Company Stock Price. Such costs and expenses (the
"Company Transaction Costs") of the Company shall include only costs and
expenses directly associated with the transactions contemplated hereby and
shall include, without limitation:
(i) the Company's attorneys and accountants fees related to the
transactions described herein (including, without limitation,
fees associated with the preparation and filing of the
Registration Statement including filing and qualification under
the Indenture Act and preparation of filings required by the
Hart-Scott-Rodino Act),
(ii) the fees and expenses of the Paying Agent,
(iii) the fees and expenses described in Article VI of this Agreement,
(iv) the fees and expenses of any investment banking advisors, and
(v) distributions to dissenting shareholders in excess of the
Company Stock Price or prohibited shareholder distributions;
whether such expenses and fees have been paid by the Company before or
after the Effective Time. Within five business days prior to the
Effective Time, the Company will present to Citation
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a list (the "Expense List") of both those Company Transaction Costs that
have been incurred and paid as of such date and that to the best
knowledge of the Company are expected to be incurred and payable relating
to the Merger. All costs and expenses incurred by the Company in
connection with the Merger which exceed the total amount described on the
Expense List will become subject to the right of set-off by Citation
against the Final Contingent Payments Payment.
13.6 BROKERS. Each party shall indemnify and hold harmless the other party
against and in respect of any claim for brokerage or other commissions
relative to this Agreement or to the transactions contemplated hereby,
respectively. Specifically, Citation and the Sub shall hold the Company
harmless from any such claim asserted by Craft and Associates related to
an agreement between such broker and Citation.
13.7 FURTHER ASSURANCES. Upon reasonable request from time to time the
parties hereto will deliver and/or execute such further instruments as are
necessary or appropriate to the consummation of the transactions
contemplated by this Agreement.
13.8 CONSTRUCTION. Within this Agreement, the singular shall include the
plural and the plural shall include the singular, and any gender shall
include the other genders, all as the meaning in the context of this
Agreement shall require.
13.9 INCORPORATION. All Schedules attached to this Agreement are by this
reference incorporated herein and made an essential part hereof.
13.10 COOPERATION. The parties hereto will cooperate fully with each other and
their respective counsel and accountants in connection with all steps to
be taken as part of their obligations under this Agreement.
13.11 CAPTIONS. The captions used in this Agreement are inserted for
convenience only and shall not constitute a part hereof.
13.12 GOVERNING LAW. This Agreement shall be governed and regulated and the
rights and liabilities of all parties hereto shall be construed pursuant
to the laws of the State of Wisconsin.
13.13 PUBLICITY. So long as this Agreement is in effect, neither the Company
nor Citation will, or will permit any of its subsidiaries to, issue or
cause the publication of any press release or other public announcement
with respect to the transactions contemplated by this Agreement without
the consent of the other party (which may not be unreasonably delayed or
withheld), except as may be required by law, in which case the parties
will consult with each other before such release or announcement.
IN WITNESS WHEREOF, the undersigned parties have entered into and executed
this Agreement to be effective as of the day and year first above written.
ATTEST: CITATION CORPORATION
/s/ Stanley B. Atkins By: /s/ T. Morris Hackney
- ---------------------------- ------------------------------------
T. MORRIS HACKNEY
Its Chairman
ATTEST: CITATION FORGING CORPORATION
/s/ Stanley B. Atkins By: /s/ T. Morris Hackney
- ---------------------------- ------------------------------------
T. MORRIS HACKNEY
Its Chairman
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ATTEST: INTERSTATE FORGING INDUSTRIES, INC.
/s/ Contance J. Janikowski By: /s/ Franklyn Esenberg
- ---------------------------- ------------------------------------
FRANKLYN ESENBERG
Its Chairman
SOLELY FOR THE PURPOSES OF
SECTION 2.1 OF THE AGREEMENT
/s/ Franklyn Esenberg
----------------------------------------
Franklyn Esenberg
/s/ James Mitchell
----------------------------------------
James Mitchell
/s/ David P. Lauer
----------------------------------------
David P. Lauer
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LIST OF SCHEDULES
Schedule 1.8 Example of Calculations
Schedule 1.9(c) Detail of Company Stock Options
Schedule 1.9(d)(I)-1 Interstate Restricted Stock Awards
Schedule 1.9(d)(I)-2 Form of Restricted Stock Agreement
Schedule 1.10(g) Company Business Plan
Schedule 1.15 Detail of Stock Appreciation Rights
Schedule 3.3 Effect of Agreement
Schedule 3.4 Stockholders
Schedule 3.5 Operation of Business
Schedule 3.7 Material Changes since December 31, 1995
Schedule 3.8 The Company's personal and real property leases
together with all amendments relating thereto (the
"Leases")
Schedule 3.9 Legal descriptions of real estate occupied by the
Company
Schedule 3.11 Contracts
Schedule 3.11.1 Disclosures of any mortgage, lien, lease, agreement,
contract, instrument, order, judgment or decree which
may materially affect the Agreement
Schedule 3.13 True and correct schedule of all policies of insurance
on which the Company is named as an insured party
Schedule 3.15 Any actions, suits or proceedings which have been
served on the Company
Schedule 3.17 Names, Trademarks, Trade Names, Licenses, etc.
Schedule 3.18 Employee Plans, Contracts and benefit arrangements
Schedule 3.19 List of all salaried employees and their salary rates,
a list of the rates of compensation for hourly
employees in the Business and amounts paid on account
of any incentive programs for the twelve month period
ended December 31, 1995
Schedule 3.20 Ordinary Course of Business
Schedule 3.23 Customers' Toolings and Dies
Schedule 3.25(a) Hazardous Materials
Schedule 3.27 Certain Tax Matters
Schedule 5.2 Continue Business in Regular Course
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Schedule 6.1 Permitted Liens
Schedule 6.3 Amounts of Title Insurance
Schedule 10.1(c) Employment Agreement between Company, Citation and
James Mitchell
Schedule 10.1(d) Employment Agreement between Company and Franklyn
Esenberg
Schedule 10.1(e) Articles of Merger
Schedule 10.1(g) Opinion of Quarles & Brady
Schedule 10.2(f) Citation Guaranty
Schedule 10.2(h) Opinion of Ritchie & Rediker
A-44
ARTICLES OF MERGER
OF
CITATION FORGING CORPORATION
INTO
INTERSTATE FORGING INDUSTRIES, INC.
THESE ARTICLES OF MERGER are made as of this day of ,
1996, by and between CITATION FORGING CORPORATION, a Wisconsin corporation
("CFC"), and INTERSTATE FORGING INDUSTRIES, INC., a Wisconsin corporation
("IFI").
ARTICLE I
PLAN OF MERGER
The Plan of Merger required by Sections 180.1101 and 180.1105 of the
Wisconsin Business Corporation Law is the Plan of Merger (the "Plan of Merger")
attached hereto as Schedule A and by reference made a part hereof with the same
force and effect as if herein set forth in full. The Plan of Merger has been
approved by the shareholders of CFC and IFI in accordance with Section 180.1103
of the Wisconsin Business Corporation Law.
ARTICLE II
EFFECTIVE TIME OF MERGER
As provided in the Plan of Merger, the Effective Time of the Merger shall
be upon filing these Articles of Merger with the Wisconsin Department of
Financial Institutions.
IN WITNESS WHEREOF, each of the parties hereto have caused these Articles
of Merger to be executed on its behalf on the date and year first above
written.
CITATION FORGING CORPORATION
By:_____________________________________
Name:___________________________________
Title:__________________________________
Attest:
________________________________________
Name:___________________________________
Title:__________________________________
INTERSTATE FORGING INDUSTRIES, INC.
By:_____________________________________
Name:___________________________________
Title:__________________________________
Attest:
_______________________________________
Name:__________________________________
Title:_________________________________
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STATE OF WISCONSIN )
) SS.
COUNTY OF MILWAUKEE )
The foregoing instrument was acknowledged before me this day of
, 1996, by and ,
and , respectively, of Citation Forging
Corporation, a Wisconsin corporation, on behalf of the corporation.
_______________________________________
_______________________________________
Notary Public, Milwaukee County
State of Wisconsin
My commission:_________________________
STATE OF WISCONSIN )
) SS.
COUNTY OF MILWAUKEE )
The foregoing instrument was acknowledged before me this day of
, 1996, by and ,
and , respectively, of Interstate Forging
Industries, Inc., a Wisconsin corporation, on behalf of the corporation.
_______________________________________
_______________________________________
Notary Public, Milwaukee County
State of Wisconsin
My commission:_________________________
This instrument was drafted
by and should be returned to:
Patrick M. Ryan
Quarles & Brady
411 East Wisconsin Avenue
Milwaukee, WI 53202
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SCHEDULE A
PLAN OF MERGER
OF CITATION FORGING CORPORATION
INTO
INTERSTATE FORGING INDUSTRIES, INC.
THIS PLAN OF MERGER (the "Plan of Merger") is made as of this day of
, 1996, by and between CITATION FORGING CORPORATION, a Wisconsin
corporation ("CFC"), and INTERSTATE FORGING INDUSTRIES, INC., a Wisconsin
corporation ("IFI").
RECITALS
WHEREAS, IFI, CFC and Citation Corporation, a Delaware corporation
("Citation"), are parties to an Agreement and Plan of Merger, dated as of May
16, 1996, as amended (the "Merger Agreement"), providing for, among other
things, the merger of CFC with and into IFI (the
"Merger");
WHEREAS, the respective Boards of Directors of CFC and IFI have determined
that the Merger is advisable, fair and in the best interests of CFC and IFI and
their respective shareholders, and, by resolutions duly adopted, have approved
the Merger, the Merger Agreement, including this Plan of Merger, and the
transactions contemplated thereby;
WHEREAS, the shareholders of CFC and IFI, by resolutions duly adopted, have
approved the Merger, the Merger Agreement, including this Plan of Merger, and
the transactions contemplated thereby;
NOW, THEREFORE, in consideration of the Recitals and of the mutual
agreements and covenants set forth in this Plan of Merger and for other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, CFC and IFI hereby agree as follows:
ARTICLE I
CORPORATE EXISTENCE OF THE SURVIVING CORPORATION
As of the effective time of the Merger (the "Effective Time"), CFC will be
merged with and into IFI, which shall continue to be governed by the laws of the
State of Wisconsin, and the separate existence of CFC shall thereupon cease,
whereupon CFC and the Surviving Corporation shall be and become one single
corporation. The corporate identity, existence, purposes, powers, franchises,
privileges, assets, properties and rights of IFI (hereinafter sometimes referred
to as the "Surviving Corporation") shall continue unaffected and unimpaired by
the Merger and the corporate identity, existence, purposes, powers, franchises,
privileges, assets, properties and rights of CFC shall be merged into the
Surviving Corporation and the Surviving Corporation shall be fully vested
therewith.
ARTICLE II
ARTICLES OF INCORPORATION OF SURVIVING CORPORATION
The Articles of Incorporation of IFI as in effect immediately prior to the
Effective Time shall be the Articles of Incorporation of the Surviving
Corporation until amended in accordance with law.
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ARTICLE III
BYLAWS OF SURVIVING CORPORATION
The Bylaws of IFI as in effect immediately prior to the Effective Time
shall be the Bylaws of the Surviving Corporation until amended in accordance
with law.
ARTICLE IV
DIRECTORS AND OFFICERS OF SURVIVING CORPORATION
The duly qualified and acting directors and officers of CFC immediately
prior to the Effective Time shall be the directors and officers of the Surviving
Corporation, to hold office as provided in the Bylaws of the Surviving
Corporation.
ARTICLE V
CONVERSION OF IFI STOCK
(a) On the terms and conditions set forth in the Merger Agreement, at the
Effective Time, by virtue of the Merger and without any action on the part of
the holder of any shares of capital stock or stock options:
(i) Each share of Common Stock of IFI outstanding at the Effective
Time will be converted into the right to receive, without interest thereon, an
amount in cash equal to $___________. In addition, each share of Common Stock
of IFI which is issuable by IFI pursuant to option rights granted by IFI,
whether vested or unvested at the Effective Time, shall be converted into an
amount in cash equal to $____________ less the per share exercise price of the
related option (and less any required withholding taxes). The registered
holders of IFI Common Stock and the holders of IFI options shall herein be
referred to as the "Closing Stockholders."
(ii) Citation will deliver to the Closing Stockholders aggregate
additional cash consideration equal to five (5) times the amount by which (x)
the average annual net earnings of IFI before interest and income and franchise
taxes during the three year period from January 1, 1996 through December 31,
1998 exceeds (y) $10,000,000.00>.
(b) All shares of IFI Common Stock that are owned directly or indirectly
by IFI as treasury stock, if any, will be cancelled, and no consideration will
be delivered in exchange for any such shares.
ARTICLE VI
CONVERSION OF CFC STOCK
On the terms and conditions set forth in the Merger Agreement, at the
Effective Time, by virtue of the Merger and without any action on the part of
the holders of any shares of capital stock, each issued and outstanding share of
the capital stock of CFC will be converted into and become one fully paid share
of Common Stock, $1.00 par value per share, of the Surviving Corporation.
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ARTICLE VII
EFFECT OF THE MERGER
(a) At the Effective Time, the effect of the Merger shall be as provided
in the Wisconsin Business Corporation Law, including the effects described in
Section (b) of this Article VII.
(b) At the Effective Time, the Surviving Corporation shall succeed to,
without other transfer, and shall possess and enjoy, all the rights, privileges,
assets, properties, powers and franchises both of a public and a private nature,
and be subject to all the restrictions, disabilities and duties of CFC and IFI,
and all the rights, privileges, assets, properties, powers and franchises of CFC
or IFI and all property, real, personal and mixed, tangible or intangible, and
all debts due to CFC or IFI on whatever account, shall be vested in the
Surviving Corporation; and all rights, privileges, assets, properties, powers
and franchises, and all and every other interest shall be thereafter as
effectively the property of the Surviving Corporation as they were of CFC or
IFI; and the title to or any interest in any real estate vested by deed or
otherwise in either CFC or IFI shall not revert or be in any way impaired by
reason of the Merger; provided, however, that all rights of creditors and liens
upon any property of either CFC or IFI shall be preserved unimpaired, and all
debts, liabilities and duties of CFC or IFI shall thenceforth attach to the
Surviving Corporation and may be enforced against the Surviving Corporation to
the same extent as if said debts, liabilities and duties had been incurred or
contracted by the Surviving Corporation.
ARTICLE VIII
EFFECTIVE TIME OF MERGER
The Effective Time of the Merger shall be upon filing Articles of Merger
with the Wisconsin Department of Financial Institutions.
ARTICLE IX
CONDITIONS AND TERMINATION
The conditions specified in Articles VIII and IX of the Merger Agreement
shall constitute conditions precedent to the obligations of CFC and IFI as
therein provided and if by reason of the provisions of Articles VIII or IX of
the Merger Agreement, or otherwise as provided in Article XII of the Merger
Agreement, either CFC or IFI is not obligated to consummate the Merger
contemplated by this Plan of Merger, then the party not obligated may terminate
this Plan of Merger prior to the Effective Time by action of its Board of
Directors, and thereupon this Plan of Merger shall be terminated without further
liability of either party in favor of the other except as provided in the Merger
Agreement.
IN WITNESS WHEREOF, each of the parties hereto have caused this Plan of
Merger to be executed on its behalf on the day and year first above written.
CITATION FORGING CORPORATION
By:____________________________________
Name:__________________________________
Title:_________________________________
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Attest:
_______________________________________
Name:__________________________________
Title:_________________________________
INTERSTATE FORGING INDUSTRIES, INC.
By:____________________________________
Name:__________________________________
Title:_________________________________
Attest:
_______________________________________
Name:__________________________________
Title:_________________________________
STATE OF WISCONSIN )
) SS.
COUNTY OF MILWAUKEE )
The foregoing instrument was acknowledged before me this day of
, 1996, by and ,
and , respectively, of Citation Forging
Corporation, a Wisconsin corporation, on behalf of the corporation.
_______________________________________
_______________________________________
Notary Public, Milwaukee County
State of Wisconsin
My commission: ________________________
STATE OF WISCONSIN )
) SS.
COUNTY OF MILWAUKEE )
The foregoing instrument was acknowledged before me this day of
, 1996, by and ,
and , respectively, of Interstate Forging
Industries, Inc., a Wisconsin corporation, on behalf of the corporation.
_______________________________________
_______________________________________
Notary Public, Milwaukee County
State of Wisconsin
My commission:_________________________
This instrument was drafted
by and should be returned to:
Patrick M. Ryan
Quarles & Brady
411 East Wisconsin Avenue
Milwaukee, WI 53202
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AMENDMENT TO AGREEMENT AND PLAN OF MERGER
This Amendment to Agreement and Plan of Merger ("Amendment") dated as of
August 23, 1996, is made by and among Citation Corporation, a Delaware
corporation ("Citation"), Citation Forging Corporation, a Wisconsin corporation
("Sub"), and Interstate Forging Industries, Inc., a Wisconsin corporation (the
"Company").
WITNESSETH
WHEREAS, Citation, Sub and the Company entered into an Agreement and Plan
of Merger dated as of May 16, 1996 (the "Merger Agreement") which generally
provides that Sub will be merged into the Company, and the Company shall become
a wholly-owned subsidiary of Citation; and
WHEREAS, Citation, Sub and the Company have agreed to amend the Merger
Agreement pursuant to the terms of this Amendment;
NOW, THEREFORE, in consideration of the premises and the mutual
representations, warranties and agreements herein contained, the parties hereto,
agree as follows:
1. The parties acknowledge that the Company's audited Balance Sheet,
Statement of Income, Statement of Stockholders' Equity and
Statement of Cash Flow as of and for the period ended December 31,
1995 have been restated to reflect a $505,000 inventory
accumulation error discovered subsequent to the date of the
original Merger Agreement. In addition, the financial statements
of Interstate for the six month period ended on June 30, 1996 have
been amended and restated. The parties agree that the attached
restated Financial Statements shall constitute the Company's 1995
Financial Statements and Financial Statements for the six month
period ended on and as of June 30, 1996 for all purposes under the
Merger Agreement.
2. Section 1.8(a) of the Merger Agreement shall be amended by
deleting the existing language in its entirety and inserting in
lieu thereof the following:
1.8 CALCULATION OF COMPANY STOCK PRICE.
(a) As used in this Agreement, the following terms shall
have the meanings specified:
(i) "Basic Merger Payment" shall mean $45,409,000 less:
(A) the Company Transaction Costs; and plus (B) the
SAR Difference.
(ii) "Closing Merger Payment" shall mean that amount
calculated as follows:
(A) the Basic Merger Payment; plus
(B) an additional amount equal to $9,952.66
multiplied by the number of calendar days from
and after April 15, 1996 to and including the
Closing Date.
(iii) "Company Stock Price" shall be that amount (rounded to
four decimal places) calculated as follows:
(A) the Closing Merger Payment plus $1,668,404;
divided by
(B) 1,496,474.
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(iv) "SAR Difference" shall mean that amount calculated
as follows:
(A) $608,200; minus
(B) the sum of the amounts of the SAR Cash
Price for each person listed on Schedule
1.15 hereof.
(v) "SAR Cash Price" shall mean, for each person listed on
Schedule 1.15 hereof that amount equal to:
(1) the number of shares listed for each
such person in Column A of Schedule
1.15 hereof; multiplied by
(2) (a) the SAR Per Share Price; minus
(b) the Grant Price listed for each such
person in Column B of Schedule 1.15
hereof.
(vi) "SAR Per Share Price" shall mean that amount,
calculated by means of a simultaneous equation, so
that the SAR Per Share Price and the Company Stock
Price are equal.
3. Subsection (d) of Section 1.9 of the Merger Agreement shall be
amended by deleting the existing language in its entirety and
inserting in lieu thereof the following:
(d) CONTINGENT PAYMENTS. Citation will deliver to the
Closing Stockholders aggregate additional consideration (the
"Contingent Payments") equal to five (5) times the amount by which
(x) the average annual net earnings of the Company before interest
and income and franchise taxes ("EBIT") during the three year
period from January 1, 1996 through December 31, 1998 (the "Payout
Period") exceeds (y) $10,000,000. As partial progress payments,
Citation will make payments equal to 50% of the Contingent
Payments due with respect to the first and second year's EBIT as
hereinafter provided. Such partial progress payments shall be
deemed fully earned by the Closing Stockholders even though the
subsequent year EBIT may be less than $10,000,000. Any such
Contingent Payments shall be paid in cash on the dates specified
in Section 1.12 of this Agreement, and shall be deemed to include
interest compounded semiannually at the applicable federal
mid-term rate as determined in accordance with provisions of
Section 1274(d) of the Internal Revenue Code of 1986, as amended
(the "Code"). For example, if the aggregate EBIT during the
Payout Period is $39,000,000, then the Contingent Payments payable
to the Closing Stockholders would be $15,000,000 ($39,000,000 -
$30,000,000 = $9,000,000 DIVIDED BY 3 = $3,000,000 x 5 =
$15,000,000), subject to the making of partial progress payments
as hereinafter provided. The following terms and conditions shall
be applicable in calculating the Contingent Payments and the
payment thereof.
(i) As used in this Section 1.9, the term "EBIT" shall
mean the consolidated net earnings (or losses), before
all interest, income (federal and state) and franchise
taxes, of the Company, computed on the accrual basis
of accounting in accordance with generally accepted
accounting principles ("GAAP") consistently applied
and consistent with the accounting principles applied
by the Company in its prior fiscal years, except that
the following provisions shall govern the computation
of EBIT for purposes of this Section 1.9:
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(A) Any loss, charge or expense agreed to by
Citation and the Stockholders Agents to be (a)
not related to the ordinary business operations
of the Company, or (b) paid, incurred or charged
in connection with expansion of the business
operations presently conducted by the Company as
a result of the making of acquisitions or the
opening and staffing of new offices, or any
income or revenues directly derived therefrom,
shall be excluded from such computation.
(B) Any charge or expense for the amortization of
goodwill arising out of the Merger, pursuant
hereto or otherwise, or that the purchase price
thereof is in excess of the net worth thereof,
shall be excluded from such computation.
(C) Any payments, charges or expenses for allocation
of home office, executive, general and
administrative expenses or other payments,
charges or expenses of Citation and the Sub
and/or its affiliates shall be excluded from
such computation.
(D) Such computation (including, without limitation,
the determination of the basis of depreciation
and the reflection of intercompany transactions)
shall be made as though the Merger had not
occurred hereunder and the Company were a single
corporation with all of the Company Stock owned
by persons who are neither directly or
indirectly related to or affiliated with
Citation or any of its affiliates.
(E) The Surviving Corporation shall maintain plant
and equipment consistent with past practices of
the Company, and if such maintenance is
determined to be inconsistent, an appropriate
adjustment shall be made to EBIT. Inventory
practices including maintenance and spare parts
inventories, and capitalization policies for
fixed assets shall be consistent with prior
practices. There will be deducted from EBIT any
material savings in expenses and/or reduction in
costs of goods and services purchased that would
not have resulted if the Surviving Corporation
had not been affiliated with Citation. Interest
will be deducted from EBIT that is related to
equipment being purchased by the Business after
March 1, 1996 that was leased prior to March 1,
1996.
(F) Payments made for Stock Appreciation Rights as
provided by Section 1.15 hereof shall be
excluded from the computation of EBIT.
(G) No effect shall be given to: (i) any tax or
financial statement write-up of the assets of
the Company based on the consummation of the
transactions described in this Agreement; (ii)
the Company's payment of the Company Transaction
Costs; (iii) any recapture income or recapture
taxes resulting from the consummation of the
Merger; (iv) any additional depreciation or
amortization of intangibles associated with a
write-up of assets upon or following the
consummation of the Merger; (v) the payments of,
or accrual for, the Contingent Payments; or (vi)
the payments of, or accrual for, any prepayment
penalties based on
A-53
the prepayment of any indebtedness of the
Company existing as of the Effective Time.
(H) To the extent that EBIT of the Company for
calendar year 1996, 1997 or 1998 is reduced as a
result of an event for which the Company has
indemnified Citation and the Sub pursuant to
Section 11.1 of this Agreement (and is
recoverable because all Company Indemnifiable
Breaches exceed $750,000 or the Indemnifiable
Breaches relate to matters described in Sections
11.1(c) or 11.1(d)), the amount of such
reduction shall be added back to EBIT
notwithstanding the provisions of Section 11.2
of this Agreement.
(I) Awards of restricted Common Stock of Citation
shall be made by Citation under Citation's
Incentive Award Plan to those management
personnel of the Company set forth on SCHEDULE
1.9(d)(I)-1, which schedule also indicates the
number of restricted shares of Citation Common
Stock to be awarded to each such person (the
"Interstate Restricted Stock"). The awards of
Interstate Restricted Stock shall be subject to
restricted stock agreements to be executed by
each awardee of Interstate Restricted Stock, the
form of which restricted stock agreement is
attached as SCHEDULE 1.9(d)(I)-2. The awards of
Interstate Restricted Stock shall be made
effective on the date of the Effective Time.
The grant of Interstate Restricted Stock shall
be excluded from the computation of EBIT.
4. Section 1.12 of the Merger Agreement shall be amended by deleting
the existing language in its entirety and inserting in lieu
thereof the following:
1.12 PAYMENTS OF CONTINGENT PAYMENTS.
(a) All payments of Contingent Payments shall be made by
Citation to the Closing Stockholders by delivery of such amounts to the
Paying Agent. The Paying Agent shall: (i) pay all expenses of the
Stockholders Agents incurred in connection with the administration and
enforcement of this Agreement submitted in accordance with Section 2.1(g)
of this Agreement; and (ii) distribute the balance of the Contingent
Payments to the Closing Stockholders in accordance with the Contingent
Payments Percentages (as defined in Section 10.1(h)) set forth on the
Contingent Payments List (as defined in Section 10.1(h)).
(b) The Contingent Payments shall be payable by Citation in
annual installments as follows:
(i) On or before the date that Citation makes the deliveries
described in Section 1.11(a) of this Agreement, Citation
shall deliver to the Paying Agent an amount equal to 50% of
the amount by which the 1996 calendar year EBIT exceeds
$10,000,000 multiplied by 5. For example, if the Company
has an EBIT of $10,900,000, then Citation shall pay to the
Paying Agent $2,250,000 ($10,900,000 - $10,000,000 =
$900,000 x 5 = $4,500,000 x 1/2 = $2,250,000).
(ii) On or before the date that Citation makes the deliveries
described in Section 1.11(b) of this Agreement, Citation
shall deliver to the Paying Agent an amount equal to 50% of
the amount by which the combined 1996 and 1997 EBIT exceeds
$20,000,000 divided by 2 and multiplied by 5, less the
payments of Contingent
A-54
Payments previously made. For example, if the Company has a
1996 EBIT of $10,900,000 and a 1997 EBIT of $11,200,000,
then Citation shall pay to the Paying Agent $375,000
($10,900,000 + $11,200,000 = $22,100,000 - $20,000,000 =
$2,100,000 DIVIDED BY 2 = $1,050,000 x 5 = $5,250,000 x 1/2
= $2,625,000 - $2,250,000 = $375,000). As an additional
example, if the Company has a 1996 EBIT of $10,900,000 and a
1997 EBIT of $9,500,000, then Citation shall pay to the
Paying Agent $0 ($10,900,000 + $9,500,000 = $20,400,000 -
$20,000,000 = $400,000 DIVIDED BY 2 = $200,000 x 5 =
$1,000,000 x 1/2 = $500,000 - $2,250,000 = ($1,750,000) or
zero). The Closing Stockholders shall have no obligation to
return prior payments of Contingent Payments made, even
though the lack of EBIT in subsequent years result in prior
payments of Contingent Payments being made in excess of what
would otherwise be owed at the end of three year Contingent
Payments payment period.
(iii) On or before the date that Citation makes the deliveries
described in Section 1.11(c) of this Agreement, Citation
shall deliver to the Paying Agent an amount (the "Final
Contingent Payments Payment") equal to the amount by which
the combined 1996, 1997 and 1998 EBIT exceeds $30,000,000
divided by 3 and multiplied by 5, less the payments of
Contingent Payments previously made. For example, if the
Company has a 1996 EBIT of $10,900,000, a 1997 EBIT of
$11,200,000 and a 1998 EBIT of $12,000,000, then Citation
shall pay to the Paying Agent $4,208,330, ($10,900,000 +
$11,200,000 + $12,000,000 = $34,100,000 - $30,000,000 =
$4,100,000 DIVIDED BY 3 = $1,366,666 x 5 = $6,833,330 -
$2,250,000 and - $375,000 = $4,208,330).
(c) The amount payable as the Final Contingent Payments Payment
shall be subject to set-off by Citation for claims of indemnification
arising pursuant to Article XI herein.
5. Section 1.15 of the Merger Agreement shall be amended by deleting
the existing language in its entirety and inserting in lieu thereof the
following:
1.15 PAYMENTS TO HOLDERS OF STOCK APPRECIATION RIGHTS. Upon the
Effective Time, the holders of stock appreciation rights (the "Stock
Appreciation Rights") of the Company detailed on SCHEDULE 1.15 hereof, shall be
paid from the funds of the Company the amount of the SAR Cash Price multiplied
by the number of shares listed for each such holder in Column A of SCHEDULE 1.15
as full consideration for the payment in full and termination of such Stock
Appreciation Rights. Such payment from the Company to terminate the Stock
Appreciation Rights shall be excluded from the calculation of EBIT described in
Section 1.9(d) hereof.
6. Section 12.1 of the Merger Agreement shall be amended by deleting
the existing language in its entirety and inserting in lieu
thereof the following:
12.1 TERMINATION. This Agreement may be terminated at any time before
the Effective Time, whether before or after approval by the
stockholders of the Company of matters presented to them in
connection with the Merger,
(a) by mutual consent of Citation and the Company;
(b) by Citation if any of the conditions set forth in Article
VIII of this Agreement shall not have been fulfilled on or
before November 15, 1996;
(c) by the Company if any of the conditions set forth in Article
IX of this Agreement shall not have been fulfilled on or
before November 15, 1996;
(d) by the Company pursuant to Section 2.2 of this Agreement; or
A-55
(e) by the Company or Citation if the Closing has not occurred
on or before November 30, 1996.
7. Schedule 1.8 and Schedule 1.15 to the Merger Agreement shall be
amended by substituting therefor the schedules attached to this
Amendment.
8. Except as herein modified all provisions of the Merger Agreement
shall remain in full force and effect.
9. This Amendment may be executed in two or more counterparts, each
of which shall be deemed an original and all of which together
shall constitute one and the same instrument.
10. All capitalized terms not defined in this Amendment shall have the
same meaning as such terms in the Merger Agreement.
IN WITNESS WHEREOF, the undersigned parties have entered into and
executed this Amendment to be effective as of the day and year first above
written.
ATTEST: CITATION CORPORATION
/s/ Stanley B. Atkins By: /s/ T. Morris Hackney
- ------------------------ --------------------------
T. MORRIS HACKNEY
Its Chairman
ATTEST: CITATION FORGING CORPORATION
/s/ Stanley B. Atkins By: /s/ T. Morris Hackney
- ------------------------ --------------------------
T. MORRIS HACKNEY
Its Chairman
ATTEST: INTERSTATE FORGING INDUSTRIES, INC.
/s/ James Mitchell By: /s/ Franklyn Esenberg
- ------------------------- --------------------------
FRANKLYN ESENBERG
Its Chairman
A-56
APPENDIX B
SUBCHAPTER XIII OF
THE WISCONSIN BUSINESS CORPORATION LAW
DISSENTERS' RIGHTS
180.1301 DEFINITIONS. In ss. 180.1301 to 180.1331:
(1) "Beneficial shareholder" means a person who is a beneficial owner of
shares held by a nominee as the shareholder.
(1m) "Business combination" has the meaning given in s. 180.1130(3).
(2) "Corporation" means the issuer corporation or, if the corporate action
giving rise to dissenters' rights under s. 180.1302 is a merger or share
exchange that has been effectuated, the surviving domestic corporation or
foreign corporation of the merger or the acquiring domestic corporation or
foreign corporation of the share exchange.
(3) "Dissenter" means a shareholder or beneficial shareholder who is
entitled to dissent from corporate action under s. 180.1302 and who exercises
that right when and in the manner required by ss. 180.1320 to 180.1328.
(4) "Fair value", with respect to a dissenter's shares other than in a
business combination, means the value of the shares immediately before the
effectuation of the corporate action to which the dissenter objects, excluding
any appreciation or depreciation in anticipation of the corporate action unless
exclusion would be inequitable. "Fair value", with respect to a dissenter's
shares in a business combination, means market value, as defined in
s. 180.1130(9)(a) 1 to 4.
(5) "Interest" means interest from the effectuation date of the corporate
action until the date of payment, at the average rate currently paid by the
corporation on its principal bank loans or, if none, at a rate that is fair and
equitable under all of the circumstances.
(6) "Issuer corporation" means a domestic corporation that is the issuer
of the shares held by a dissenter before the corporate action.
180.1302 RIGHT TO DISSENT. (1) Except as provided in sub. (4) and
s. 180.1008(3), a shareholder or beneficial shareholder may dissent from, and
obtain payment of the fair value of his or her shares in the event of, any of
the following corporate actions:
(a) Consummation of a plan of merger to which the issuer corporation is a
party if any of the following applies:
1. Shareholder approval is required for the merger by s. 180.1103 or by
the articles of incorporation.
2. The issuer corporation is a subsidiary that is merged with its parent
under s. 180.1104.
(b) Consummation of a plan of share exchange if the issuer corporation's
shares will be acquired, and the shareholder or the shareholder holding shares
on behalf of the beneficial shareholder is entitled to vote on the plan.
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(c) Consummation of a sale or exchange of all, or substantially all, of
the property of the issuer corporation other than in the usual and regular
course of business, including a sale in dissolution, but not including any of
the following:
1. A sale pursuant to court order.
2. A sale for cash pursuant to a plan by which all or substantially all
of the net proceeds of the sale will be distributed to the shareholders within
one year after the date of sale.
(d) Except as provided in sub. (2), any other corporate action taken
pursuant to a shareholder vote to the extent that the articles of incorporation,
bylaws or a resolution of the board of directors provides that the voting or
nonvoting shareholder or beneficial shareholder may dissent and obtain payment
for his or her shares.
(2) Except as provided in sub. (4) and s. 180.1008(3), the articles of
incorporation may allow a shareholder or beneficial shareholder to dissent from
an amendment of the articles of incorporation and obtain payment of the fair
value of his or her shares if the amendment materially and adversely affects
rights in respect of a dissenter's shares because it does any of the following:
(a) Alters or abolishes a preferential right of the shares.
(b) Creates, alters or abolishes a right in respect of redemption,
including a provision respecting a sinking fund for the redemption or
repurchase, of the shares.
(c) Alters or abolishes a preemptive right of the holder of shares to
acquire shares or other securities.
(d) Excludes or limits the right of the shares to vote on any matter or to
cumulate votes, other than a limitation by dilution through issuance of shares
or other securities with similar voting rights.
(e) Reduces the number of shares owned by the shareholder or beneficial
shareholder to a fraction of a share if the fractional share so created is to be
acquired for cash under s. 180.0604.
(3) Notwithstanding sub. (1)(a) to (c), if the issuer corporation is a
statutory close corporation under ss. 180.1801 to 180.1837, a shareholder of the
statutory close corporation may dissent from a corporate action and obtain
payment of the fair value of his or her shares, to the extent permitted under
sub. (1)(d) or (2) or s. 180.1803, 180.1813(1)(d) or (2)(b), 180.1815(3) or
180.1829(1)(c).
(4) Except in a business combination or unless the articles of
incorporation provide otherwise, subs. (1) and (2) do not apply to the holders
of shares of any class or series if the shares of the class or series are
registered on a national securities exchange or quoted on the national
association of securities dealers, inc., automated quotations system on the
record date fixed to determine the shareholders entitled to notice of a
shareholders meeting at which shareholders are to vote on the proposed corporate
action.
(5) Except as provided in s. 180.1833, a shareholder or beneficial
shareholder entitled to dissent and obtain payment for his or her shares under
ss. 180.1301 to 180.1331 may not challenge the corporate action creating his or
her entitlement unless the action is unlawful or fraudulent with respect to the
shareholder, beneficial shareholder or issuer corporation.
180.1303 DISSENT BY SHAREHOLDERS AND BENEFICIAL SHAREHOLDERS. (1) A
shareholder may assert dissenters' rights as to fewer than all of the shares
registered in his or her name only if the shareholder dissents with respect to
all shares beneficially owned by any one person and notifies the corporation in
writing of the name and address of each person on whose behalf he or she asserts
dissenters' rights. The rights of a shareholder who under this subsection
asserts dissenters' rights as to fewer than all of the
B-2
shares registered in his or her name are determined as if the shares as to which
he or she dissents and his or her other shares were registered in the names of
different shareholders.
(2) A beneficial shareholder may assert dissenters' rights as to shares
held on his or her behalf only if the beneficial shareholder does all of the
following:
(a) Submits to the corporation the shareholder's written consent to the
dissent not later than the time that the beneficial shareholder asserts
dissenters' rights.
(b) Submits the consent under par. (a) with respect to all shares of which
he or she is the beneficial shareholder.
180.1320 NOTICE OF DISSENTERS' RIGHTS. (1) If proposed corporate action
creating dissenters' rights under s. 180.1302 is submitted to a vote at a
shareholders' meeting, the meeting notice shall state that shareholders and
beneficial shareholders are or may be entitled to assert dissenters' rights
under ss. 180.1301 to 180.1331 and shall be accompanied by a copy of those
sections.
(2) If corporate action creating dissenters' rights under s. 180.1302 is
authorized without a vote of shareholders, the corporation shall notify, in
writing and in accordance with s. 180.0141, all shareholders entitled to assert
dissenters' rights that the action was authorized and send them the dissenters'
notice described in s. 180.1322.
180.1321 NOTICE OF INTENT TO DEMAND PAYMENT. (1) If proposed corporate
action creating dissenters' rights under s. 180.1302 is submitted to a vote at a
shareholders' meeting, a shareholder or beneficial shareholder who wishes to
assert dissenters' rights shall do all of the following:
(a) Deliver to the issuer corporation before the vote is taken written
notice that complies with s. 180.0141 of the shareholder's or beneficial
shareholder's intent to demand payment for his or her shares if the proposed
action is effectuated.
(b) Not vote his or her shares in favor of the proposed action.
(2) A shareholder or beneficial shareholder who fails to satisfy sub. (1)
is not entitled to payment for his or her shares under ss. 180.1301 to 180.1331.
180.1322 DISSENTERS' NOTICE. (1) If proposed corporate action creating
dissenters' rights under s. 180.1302 is authorized at a shareholders' meeting,
the corporation shall deliver a written dissenters' notice to all shareholders
and beneficial shareholders who satisfied s. 180.1321.
(2) The dissenters' notice shall be sent no later than 10 days after the
corporate action is authorized at a shareholders' meeting or without a vote of
shareholders, whichever is applicable. The dissenters' notice shall comply with
s. 180.0141 [which is set forth below] and shall include or have attached all of
the following:
(a) A statement indicating where the shareholder or beneficial shareholder
must send the payment demand and where and when certificates for certificated
shares must be deposited.
(b) For holders of uncertificated shares, an explanation of the extent to
which transfer of the shares will be restricted after the payment demand is
received.
(c) A form for demanding payment that includes the date of the first
announcement to news media or to shareholders of the terms of the proposed
corporate action and that requires the shareholder
B-3
or beneficial shareholder asserting dissenters' rights to certify whether he or
she acquired beneficial ownership of the shares before that date.
(d) A date by which the corporation must receive the payment demand, which
may not be fewer than 30 days nor more than 60 days after the date on which the
dissenters' notice is delivered.
(e) A copy of ss. 180.1301 to 180.1331.
180.1323 DUTY TO DEMAND PAYMENT. (1) A shareholder or beneficial
shareholder who is sent a dissenters' notice described in s. 180.1322, or a
beneficial shareholder whose shares are held by a nominee who is sent a
dissenters' notice described in s. 180.1322, must demand payment in writing and
certify whether he or she acquired beneficial ownership of the shares before the
date specified in the dissenters' notice under s. 180.1322(2)(c). A shareholder
or beneficial shareholder with certificated shares must also deposit his or her
certificates in accordance with the terms of the notice.
(2) A shareholder or beneficial shareholder with certificated shares who
demands payment and deposits his or her share certificates under sub. (1)
retains all other rights of a shareholder or beneficial shareholder until these
rights are canceled or modified by the effectuation of the corporate action.
(3) A shareholder or beneficial shareholder with certificated or
uncertificated shares who does not demand payment by the date set in the
dissenters' notice, or a shareholder or beneficial shareholder with certificated
shares who does not deposit his or her share certificates where required and by
the date set in the dissenters' notice, is not entitled to payment for his or
her shares under ss. 180.1301 to 180.1331.
180.1324 RESTRICTIONS ON UNCERTIFICATED SHARES. (1) The issuer
corporation may restrict the transfer of uncertificated shares from the date
that the demand for payment for those shares is received until the corporate
action is effectuated or the restrictions released under s. 180.1326.
(2) The shareholder or beneficial shareholder who asserts dissenters'
rights as to uncertificated shares retains all of the rights of a shareholder or
beneficial shareholder, other than those restricted under sub. (1), until these
rights are canceled or modified by the effectuation of the corporate action.
180.1325 PAYMENT. (1) Except as provided in s. 180.1327, as soon as the
corporate action is effectuated or upon receipt of a payment demand, whichever
is later, the corporation shall pay each shareholder or beneficial shareholder
who has complied with s. 180.1323 the amount that the corporation estimates to
be the fair value of his or her shares, plus accrued interest.
(2) The payment shall be accompanied by all of the following:
(a) The corporation's latest available financial statements, audited and
including footnote disclosure if available, but including not less than a
balance sheet as of the end of a fiscal year ending not more than 16 months
before the date of payment, an income statement for that year, a statement of
changes in shareholders' equity for that year and the latest available interim
financial statements, if any.
(b) A statement of the corporation's estimate of the fair value of the
shares.
(c) An explanation of how the interest was calculated.
(d) A statement of the dissenter's right to demand payment under
s. 180.1328 if the dissenter is dissatisfied with the payment.
B-4
(e) A copy of ss. 180.1301 to 180.1331.
180.1326 FAILURE TO TAKE ACTION. (1) If an issuer corporation does not
effectuate the corporate action within 60 days after the date set under
s. 180.1322 for demanding payment, the issuer corporation shall return the
deposited certificates and release the transfer restrictions imposed on
uncertificated shares.
(2) If after returning deposited certificates and releasing transfer
restrictions, the issuer corporation effectuates the corporate action, the
corporation shall deliver a new dissenters' notice under s. 180.1322 and repeat
the payment demand procedure.
180.1327 AFTER-ACQUIRED SHARES. (1) A corporation may elect to withhold
payment required by s. 180.1325 from a dissenter unless the dissenter was the
beneficial owner of the shares before the date specified in the dissenters'
notice under s. 180.1322(2)(c) as the date of the first announcement to news
media or to shareholders of the terms of the proposed corporate action.
(2) To the extent that the corporation elects to withhold payment under
sub. (1) after effectuating the corporate action, it shall estimate the fair
value of the shares, plus accrued interest, and shall pay this amount to each
dissenter who agrees to accept it in full satisfaction of his or her demand.
The corporation shall send with its offer a statement of its estimate of the
fair value of the shares, an explanation of how the interest was calculated, and
a statement of the dissenter's right to demand payment under s. 180.1328 if the
dissenter is dissatisfied with the offer.
180.1328 PROCEDURE IF DISSENTER DISSATISFIED WITH PAYMENT OR OFFER.
(1) A dissenter may, in the manner provided in sub. (2), notify the corporation
of the dissenter's estimate of the fair value of his or her shares and amount of
interest due, and demand payment of his or her estimate, less any payment
received under s. 180.1325, or reject the offer under s. 180.1327 and demand
payment of the fair value of his or her shares and interest due, if any of the
following applies:
(a) The dissenter believes that the amount paid under s. 180.1325 or
offered under s. 180.1327 is less than the fair value of his or her shares or
that the interest due is incorrectly calculated.
(b) The corporation fails to make payment under s. 180.1325 within 60 days
after the date set under s. 180.1322 for demanding payment.
(c) The issuer corporation, having failed to effectuate the corporate
action, does not return the deposited certificates or release the transfer
restrictions imposed on uncertificated shares within 60 days after the date set
under s. 180.1322 for demanding payment.
(2) A dissenter waives his or her right to demand payment under this
section unless the dissenter notifies the corporation of his or her demand under
sub. (1) in writing within 30 days after the corporation made or offered payment
for his or her shares. The notice shall comply with s. 180.0141.
180.1330 COURT ACTION. (1) If a demand for payment under s. 180.1328
remains unsettled, the corporation shall bring a special proceeding within 60
days after receiving the payment demand under s. 180.1328 and petition the court
to determine the fair value of the shares and accrued interest. If the
corporation does not bring the special proceeding within the 60-day period, it
shall pay each dissenter whose demand remains unsettled the amount demanded.
(2) The corporation shall bring the special proceeding in the circuit
court for the county where its principal office or, if none in this state, its
registered office is located. If the corporation is a foreign corporation
without a registered office in this state, it shall bring the special proceeding
in the county in
B-5
this state in which was located the registered office of the issuer corporation
that merged with or whose shares were acquired by the foreign corporation.
(3) The corporation shall make all dissenters, whether or not residents of
this state, whose demands remain unsettled parties to the special proceeding.
Each party to the special proceeding shall be served with a copy of the petition
as provided in s. 801.14.
(4) The jurisdiction of the court in which the special proceeding is
brought under sub. (2) is plenary and exclusive. The court may appoint one or
more persons as appraisers to receive evidence and recommend decision on the
question of fair value. An appraiser has the power described in the order
appointing him or her or in any amendment to the order. The dissenters are
entitled to the same discovery rights as parties in other civil proceedings.
(5) Each dissenter made a party to the special proceeding is entitled to
judgment for any of the following:
(a) The amount, if any, by which the court finds the fair value of his or
her shares, plus interest, exceeds the amount paid by the corporation.
(b) The fair value, plus accrued interest, of his or her shares acquired
on or after the date specified in the dissenter's notice under
s. 180.1322(2)(c), for which the corporation elected to withhold payment under
s. 180.1327.
180.1331 COURT COSTS AND COUNSEL FEES. (1)(a) Notwithstanding ss. 814.01
to 814.04, the court in a special proceeding brought under s. 180.1330 shall
determine all costs of the proceeding, including the reasonable compensation and
expenses of appraisers appointed by the court and shall assess the costs against
the corporation, except as provided in par. (b).
(b) Notwithstanding ss. 814.01 and 814.04, the court may assess costs
against all or some of the dissenters, in amounts that the court finds to be
equitable, to the extent that the court finds the dissenters acted arbitrarily,
vexatiously or not in good faith in demanding payment under s. 180.1328.
(2) The parties shall bear their own expenses of the proceeding, except
that, notwithstanding ss. 814.01 to 814.04, the court may also assess the fees
and expenses of counsel and experts for the respective parties, in amounts that
the court finds to be equitable, as follows:
(a) Against the corporation and in favor of any dissenter if the court
finds that the corporation did not substantially comply with ss. 180.1320 to
180.1328.
(b) Against the corporation or against a dissenter, in favor of any other
party, if the court finds that the party against whom the fees and expenses are
assessed acted arbitrarily, vexatiously or not in good faith with respect to the
rights provided by this chapter.
(3) Notwithstanding ss. 814.01 to 814.04, if the court finds that the
services of counsel and experts for any dissenter were of substantial benefit to
other dissenters similarly situated, the court may award to these counsel and
experts reasonable fees to be paid out of the amounts awarded the dissenters who
were benefitted.
* * * * *
180.0141 NOTICE. (1) This section applies to notice that is required
under this chapter and that is made subject to this section by express reference
to this section.
B-6
(2)(a) A person shall give notice in writing, except as provided in
par. (b).
(b) A person may give oral notice if oral notice is permitted by the
articles of incorporation or bylaws and not otherwise prohibited by this
chapter.
(3) Except as provided in s. 180.0721(4) or unless otherwise provided in
the articles of incorporation or bylaws, notice may be communicated in person,
by telephone, telegraph, teletype, facsimile or other form of wire or wireless
communication, or by mail or private carrier, and, if these forms of personal
notice are impracticable, notice may be communicated by a newspaper of general
circulation in the area where published, or by radio, television or other form
of public broadcast communication.
(4) Written notice to a domestic corporation or a foreign corporation
authorized to transact business in this state may be addressed to its registered
agent at its registered office or to the domestic corporation or foreign
corporation at its principal office. With respect to a foreign corporation that
has not yet filed an annual report under s. 180.1622, the address of the foreign
corporation's principal office may be determined from its application for a
certificate of authority.
(5)(a) Except as provided in par. (b) and ss. 180.0807(2) and
180.0843(1), written notice is effective at the earliest of the following:
1. When received.
2. Five days after its deposit in the U.S. mail, if mailed postpaid and
correctly addressed.
3. On the date shown on the return receipt, if sent by registered or
certified mail, return receipt requested, and the receipt is signed by or on
behalf of the addressee.
4. On the effective date specified in the articles of incorporation or
bylaws.
(b) Written notice by a domestic corporation or foreign corporation to its
shareholder is effective when mailed and may be addressed to the shareholder's
address shown in the domestic corporation's or foreign corporation's current
record of shareholders.
(c) Oral notice is effective when communicated.
B-7
[Robert W. Baird & Co. Incorporated Letterhead] APPENDIX C
August 23,1996
Board of Directors
Interstate Forging Industries, Inc.
4051 North 27th Street
Milwaukee, WI 53216
Gentlemen:
Interstate Forging Industries, Inc. (the "Company") proposes to enter
into an Amendment to the Agreement and Plan of Merger (as amended, the
"Agreement") with Citation Corporation ("Citation") and Citation Forging
Corporation, a wholly owned subsidiary of Citation ("Sub"). Pursuant to the
Agreement, as of the Effective Time (as defined in the Agreement), Sub will
be merged with and into the Company (the "Merger") and each outstanding share
of common stock, par value $1.00 per share ("Company Common Stock") of the
Company (other than shares held in the Company's treasury and shares held by
parties perfecting dissenter's appraisal rights) will be converted solely
into the right to receive the Company Stock Price (as hereinafter defined),
payable as of the Effective Time, and the Contingent Payments (as hereinafter
defined), payable as set forth in the Agreement. The Company Stock Price and
the per share Contingent Payments are collectively referred to as the "Merger
Consideration". You have requested our opinion as to the fairness, from a
financial point of view, to the holders of Company Common Stock (other than
Citation, Sub and their affiliates) of the Merger Consideration.
The "Closing Merger Payment" means the sum of (i) $45,409,000 (less certain
transaction costs), plus (ii) the SAR Difference, plus (iii) an amount equal to
(A) $9,952.66 multiplied by (B) the number of calendar days from and after
April 15, 1996, to and including the closing date of the Merger. The "SAR
Difference" means the amount, if any, by which the aggregate payment required
to settle the Company's outstanding Stock Appreciation Rights (based on a
value of the Company Common Stock equal to the Company Stock Price) is less
than $608,200. The "Company Stock Price" means (x) the Closing Merger
Payment, plus $1,668,404, divided by (y) 1,496,474. The "Contingent
Payments" means an amount equal to five times the amount by which the average
annual net earnings of the Company before interest, income and franchise
taxes ("EBIT") during the three-year period ending December 31, 1998 (the
"Period") exceeds $ 10,000,000. The Contingent Payments will be payable in
annual installments as follows: (i) with respect to EBIT for the years ending
December 31, 1996 and 1997, equal to 50% of the Contingent Payments relating
thereto, (ii) the remainder of the Contingent Payments will be payable after
the end of the Period based upon the finally determined amount of the total
Contingent Payments.
Robert W. Baird & Co. Incorporated ("Baird"), as part of its investment
banking business, is engaged in the evaluation of businesses and their
securities in connection with mergers and acquisitions, negotiated
underwritings, competitive biddings, secondary distributions of listed and
unlisted securities, private placements, and valuations for estate, corporate
and other purposes.
In conducting our investigation and analysis and in arriving at our opinion
herein, we have reviewed such information and taken into account such financial
and economic factors as we have deemed relevant under the circumstances. In
that connection, we have, among other things: (i) reviewed certain internal
information, primarily financial in nature, including projections, concerning
the business and operations of the Company furnished to us by the Company for
purposes of our analysis, as well as historical financial information relating
to the Company's financial position and operating results; (ii) reviewed certain
publicly available information including but not limited to, Citation's recent
filings with the Securities and Exchange Commission and equity analyst research
reports prepared by various investment banking firms; (iii) reviewed a draft of
the Agreement in the form presented to the Board of Directors of the Company;
(iv) compared the financial position and operating results of the Company with
those of other publicly traded companies we deemed relevant; and (v) compared
the proposed financial terms of the Merger with the financial terms of certain
other business combinations we deemed relevant. We have held discussions with
C-1
certain members of the Company's and Citation's senior management concerning the
Company's and Citation's respective historical and current financial condition
and operating results, as well as the future prospects of the Company and
Citation, respectively. We have also considered such other information,
financial studies, analysis and investigations and financial, economic and
market criteria which we deemed relevant for the preparation of this opinion.
We have not been requested to, and did not, solicit third party indications of
interest in acquiring all or any part of the Company.
In arriving at our opinion, we have assumed and relied upon the accuracy
and completeness of all of the financial and other information provided us by or
on behalf of the Company and Citation, or publicly available, and have not
attempted independently to verify any such information. We have assumed that
all material assets and liabilities (contingent or otherwise, known or unknown)
are as set forth on the Company's financial statements. With respect to
projections, we assumed that they have been reasonably prepared and represent
the best available estimates and good faith judgments of the Company's
management as to future performance of the Company. In conducting our review,
we have not made nor obtained an independent valuation or appraisal of any of
the assets or liabilities (contingent or otherwise) of the Company, nor have we
made a physical inspection of the properties or facilities of the Company. Our
opinion necessarily is based upon economic, monetary and market conditions as
they exist and can be evaluated on the date hereof, and does not predict or take
into account any changes which may occur, or information which may become
available, after the date hereof.
Our opinion has been prepared at the request and for the information of the
Company's Board of Directors, and shall not be reproduced, summarized, described
or referred to without the prior written consent of Baird; provided, however,
that this letter may be reproduced in full in the Proxy Statement/Prospectus
relating to the Contingent Payments. This opinion does not address the relative
merits of the Merger and any other potential transactions or business strategies
considered by the Company's Board of Directors, and does not constitute a
recommendation to any shareholder of the Company as to how any such shareholder
should vote with respect to the Merger. Baird will receive a fee for rendering
this opinion. In the past, we have provided investment banking services to the
Company, for which we have received our customary compensation.
In the ordinary course of our business, we may from time to time hold the
securities of the Company and Citation for our own account or the accounts of
our customers and, accordingly, may at any time hold long or short positions in
such securities. In addition, the President and Chief Executive Officer of
Baird is a director of the Company and is the beneficial owner of shares of
Company Common Stock.
Based upon and subject to the foregoing, we are of the opinion that, as of
the date hereof, the Merger Consideration is fair, from a financial point of
view, to the holders of Company Common Stock (other than Citation, Sub and their
respective affiliates).
Very truly yours,
ROBERT W. BAIRD & CO. INCORPORATED
Terrance P. Maxwell
Managing Director
C-2
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Citation's Certificate of Incorporation eliminates, subject to certain
exceptions, the personal liability of directors of Citation or its stockholders
for monetary damages for breaches of fiduciary duties as directors. The
Certificate does not provide for the elimination of or limitation on the
personal liability of a director for (i) any breach of the director's duty of
loyalty to Citation or its stockholders, (ii) acts or omissions not in good
faith or which involve intentional misconduct or a knowing violation of law,
(iii) certain unlawful dividends or redemptions as provided under Section 174 of
the Delaware General Corporation Law or (iv) any transaction from which the
director derived an improper personal benefit. This provision of the
Certificate of Incorporation will limit the remedies available to a stockholder
in the event of breaches of any director's duties to such stockholder or
Citation.
Under Section 145 of the Delaware General Corporation Law, a corporation
may indemnify a director, officer, employee or agent of the corporation (or
other entity if such person is serving in such capacity at the corporation's
request) against expenses (including attorney's fees), judgments, fines and
amounts paid in settlement actually and reasonably incurred by him if he acted
in good faith and in a manner he reasonably believed to be in, or not opposed
to, the best interests of the corporation and, with respect to any criminal
action or proceeding, had no reasonable cause to believe his conduct was
unlawful. In the case of an action brought by or in the right of a corporation,
the corporation may indemnify a director, officer, employee or agent of the
corporation (or other entity if such person is serving in such capacity at the
corporation's request) against expenses (including attorneys' fees) actually and
reasonably incurred by him if he acted in good faith and in a manner he
reasonably believed to be in, or not opposed to, the best interests of the
corporation, except that no indemnification shall be made in respect of any
claim, issue or matter as to which such person is fairly and reasonably entitled
to indemnification for such expenses as the court shall deem proper. Citation's
Bylaws provide that expenses (including attorneys' fees) incurred by an officer
or director in defending any civil, criminal, administrative or investigative
action, suit or proceeding shall be paid by Citation in advance of the final
disposition of such action, suit or proceeding upon receipt of an undertaking by
or on behalf of such director or officer to repay such amount if it shall
ultimately be determined that he is not entitled to be indemnified by Citation.
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
ITEM 21(A). EXHIBITS
NUMBER DOCUMENT
- ------ --------
2.1 Agreement and Plan of Merger, dated as of May 16, 1996, as amended by
Amendment to Agreement and Plan of Merger dated as of August 23,
1996 ("Merger Agreement"), among Citation, Sub, Interstate (included
in the Proxy Statement-Prospectus as Appendix A).
4.1 Merger Agreement (included in the Proxy Statement-Prospectus as
Appendix A).
5.1 Opinion of Ritchie & Rediker, L.L.C. (previously filed).
8.1 Opinion of Quarles & Brady regarding tax matters (previously filed).
11.1 Statement Regarding Computation of Per-Share Earnings (previously
filed).
23.1 Consent of Coopers & Lybrand L.L.P. (filed herewith).
23.2 Consent of Ernst & Young LLP (filed herewith).
23.3 Consent of Ritchie & Rediker, L.L.C. (included as part of Exhibit
5.1, previously filed).
23.4 Consent of Franklyn Esenberg (previously filed).
24.1 Power of attorney of certain signatories (included on the Signature
Page).
99.1 Form of proxy/voting instructions to be used in connection with the
Special Meeting of Shareholders of Interstate (filed herewith).
II-1
ITEM 21(B). FINANCIAL STATEMENT SCHEDULES.
None.
ITEM 22. UNDERTAKINGS.
(a) (1) The undersigned registrant hereby undertakes that, to file, during
any period in which offers or sales are being made, a post effective amendment
to this registration statement;
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising after
the effective date of the registration statement (or the most recent post-
effective amendment thereof) which, individually or in the aggregate, represent
a fundamental change in the information set forth in the registration
statement. Notwithstanding the foregoing, any increase or decrease in volume
of securities offered (if the total dollar value of securities offered would
not exceed that which was registered) and any deviation from the low or high
and of the estimated maximum offering range may be reflected in the form of
prospectus filed with the Commission pursuant to Rule 424(b) if, in the
aggregate, the changes in volume and price represent no more than 20 percent
change in the maximum aggregate offering price set forth in the "Calculation of
Registration Fee" table in the effective registration statement.
(iii) To include any material information with respect to the plan of
distribution not previously disclosed in the registration statement or any
material change to such information in the registration statement;
(a) (2) The undersigned registrant hereby undertakes that, for the
purpose of determining any liability under the Securities Act of 1933, each such
post-effective amendment shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such securities
at that time shall be deemed to be the initial BONA FIDE offering thereof.
(a) (3) To remove from registration by means of a post-effective
amendment any of the securities being registered which remain unsold at the
termination of the offering.
(a) (4) The undersigned registrant hereby undertakes that, for purposes
of determining any liability under the Securities Act of 1933, each filing of
the registrant's annual report pursuant to section 13(a) or section 15(d) of the
Securities Exchange Act of 1934 (and, where applicable, each filing of an
employee benefit plan's annual report pursuant to section 15(d) of the
Securities Exchange Act of 1934) that is incorporated by reference in the
registration statement shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering thereof.
(a) (5) The undersigned registrant hereby undertakes as follows: that
prior to any public reoffering of the securities registered hereunder through
use of a prospectus which is a part of this registration statement, by any
person or party who is deemed to be an underwriter within the meaning of Rule
145(c), the issuer undertakes that such reoffering prospectus will contain the
information called for by the applicable registration form with respect to
reofferings by persons who may be deemed underwriters, in addition to the
information called for by the other Items of the applicable form.
(a) (6) The registrant undertakes that every prospectus (i) that is
filed pursuant to paragraph (a)(5) immediately preceding, or (ii) that purports
to meet the requirements of section 10(a)(3) of the Act and is used in
connection with an offering of securities subject to Rule 415 (Section 230.415
of this chapter), will be filed as part of an amendment to the registration
statement and will not be used until such amendment is
II-2
effective, and that, for purposes of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed to be
a new registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
(a) (7) Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers and controlling
persons of Citation pursuant to the provisions referred to in Item 20, or
otherwise, Citation has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as expressed
in the Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by Citation of
expenses incurred or paid by a director, officer or controlling person of
Citation in the successful defense of any action, suit or proceeding) is
asserted by such director, officer or controlling person in connection with the
securities being registered, Citation will, unless in the opinion of its counsel
the matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Act and will be governed by the final
adjudication of such issue.
(b) The undersigned registrant hereby undertakes to respond to requests
for information that is incorporated by reference into the prospectus pursuant
to Items 4, 10(b), 11, or 13 of this Form, within one business day of receipt of
such request, and to send the incorporated documents by first class mail or
other equally prompt means. This includes information contained in documents
filed subsequent to the effective date of the registration statement through the
date of responding to the request.
(c) The undersigned registrant hereby undertakes to supply by means of a
post-effective amendment all information concerning a transaction, and the
company being acquired involved therein, that was not the subject of and
included in the registration statement when it became effective.
II-3
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THE REGISTRANT HAS
DULY CAUSED THIS REGISTRATION STATEMENT TO BE SIGNED ON ITS BEHALF BY THE
UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN BIRMINGHAM, ALABAMA, ON THE DATE
INDICATED.
CITATION CORPORATION
Date: October 2, 1996 By: S/ T. MORRIS HACKNEY
--------------------- ----------------------------------
T. MORRIS HACKNEY,
CHAIRMAN OF THE BOARD AND CHIEF
EXECUTIVE OFFICER
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS REGISTRATION
STATEMENT HAS BEEN SIGNED BELOW BY THE FOLLOWING PERSONS IN THE CAPACITIES AND
ON THE DATES INDICATED. EACH PERSON WHOSE SIGNATURE APPEARS BELOW HEREBY
AUTHORIZES T. MORRIS HACKNEY AND R. CONNER WARREN AND EACH OF THEM, AS
ATTORNEY-IN-FACT, TO SIGN ON HIS BEHALF INDIVIDUALLY AND IN EACH CAPACITY STATED
BELOW, AND TO FILE, ANY AMENDMENTS, INCLUDING POST-EFFECTIVE AMENDMENTS, TO THIS
REGISTRATION STATEMENT.
SIGNATURE CAPACITY DATE
--------- -------- ----
S/ T. MORRIS HACKNEY Chairman of the Board, Chief October 2, 1996
- ---------------------------------------- Executive Officer and President
T. MORRIS HACKNEY (PRINCIPAL EXECUTIVE OFFICER)
S/ R. CONNER WARREN Executive Vice President of October 2, 1996
- ---------------------------------------- Finance and Administration,
R. CONNER WARREN Treasurer and Director
(PRINCIPAL FINANCIAL OFFICER)
S/ THOMAS W. BURLESON Vice President and Controller October 2, 1996
- ---------------------------------------- (PRINCIPAL ACCOUNTING OFFICER)
THOMAS W. BURLESON
S/ FREDERICK F. SOMMER* Director October 2, 1996
- ----------------------------------------
FREDERICK F. SOMMER
S/ A. DERRILL CROWE* Director October 2, 1996
- ----------------------------------------
A. DERRILL CROWE
S/ WILLIAM W. FEATHERINGILL* Director October 2, 1996
- ----------------------------------------
WILLIAM W. FEATHERINGILL
S/ FRANK B. KELSO, II* Director October 2, 1996
- ----------------------------------------
FRANK B. KELSO, II
S/ VAN L. RICHEY* Director October 2, 1996
- ----------------------------------------
VAN L. RICHEY
S/ HUGH G. WEEKS* Director October 2, 1996
- ----------------------------------------
HUGH G. WEEKS
S/ T. MORRIS HACKNEY
- ----------------------------------------
* T. MORRIS HACKNEY,
AS ATTORNEY IN FACT
II-4
EXHIBIT INDEX
NUMBER DOCUMENT
- ------ --------
2.1 Agreement and Plan of Merger, dated as of May 16, 1996 as amended by
Amendment to Agreement and Plan of Merger dated as of August 23, 1996
("Merger Agreement"), among Citation, Sub, Interstate (included in the
Proxy Statement-Prospectus as Appendix A).
4.1 Merger Agreement (included in the Proxy Statement-Prospectus as
Appendix A).
5.1 Opinion of Ritchie & Rediker, L.L.C. (previously filed).
8.1 Opinion of Quarles & Brady regarding tax matters (previously filed).
11.1 Statement Regarding Computation of Per-Share Earnings (previously filed).
23.1 Consent of Coopers & Lybrand L.L.P. (filed herewith).
23.2 Consent of Ernst & Young LLP (filed herewith).
23.3 Consent of Ritchie & Rediker, L.L.C. (included as part of Exhibit 5.1,
previously filed).
23.4 Consent of Franklyn Esenberg (previously filed).
24.1 Power of attorney of certain signatories (included on the Signature
Page).
99.1 Form of proxy/voting instructions to be used in connection with the
Special Meeting of Shareholders of Interstate (filed herewith).