Proxy Statement/Prospectus
CITATION CORPORATION
Common Stock, Par Value $0.01 per share
MERGER PROPOSAL--YOUR VOTE IS IMPORTANT
FILED PURSUANT TO
RULE 424 (b) (3)
FILE NOS.: 333-89431
333-86763
Dear Stockholder:
On October 12, 1999, the Board of Directors unanimously approved certain
revisions to the terms of the merger agreement described in the proxy
statement/prospectus mailed to you on September 9, 1999. The special meeting of
stockholders of Citation Corporation, which was convened and adjourned on
October 7, 1999, will reconvene on November 30, 1999, at 10:00 a.m., Central
Time, at the offices of Citation in Birmingham, Alabama. The purpose of the
reconvened meeting is to consider and vote upon the agreement and plan of
merger and recapitalization, as amended, with RSJ Acquisition Co., a
corporation formed by Kelso & Company. If the merger is completed, you may
elect, with respect to each share of Citation common stock you own, either to
receive $17.00 in cash, without interest, or to retain one share of common
stock of Citation, which will be the surviving corporation in the merger.
However, in order to elect to retain any shares in the merger, you must elect
to retain at least 10,000 shares.
The amended merger agreement provides that exactly 1,062,619 shares of
Citation common stock must be retained in the merger. This structure is
designed to enable the merger to be accounted for as a recapitalization for
financial accounting purposes. We expect that certain stockholders of Citation
will make elections to retain 1,062,619 shares, in which event elections by any
other stockholders to retain Citation common stock will cause all stock
elections to be subject to a proration, designed to ensure that no more than
1,062,619 shares will be retained. The receipt of cash in the merger will not
be subject to any proration. If you own more than 10,000 shares of Citation
common stock, you may make a different election with respect to a portion of
your shares, but the merger agreement does not permit an election to retain
fewer than 10,000 shares.
Details of the amended merger agreement and other important information
appear in the attached proxy statement/prospectus. A copy of the merger
agreement, as amended, is attached as Annex A to the proxy
statement/prospectus. We urge you to read carefully the entire proxy statement/
prospectus. We especially encourage you to read the section entitled "Risk
Factors" which begins on page 26.
Citation's Board of Directors, upon the unanimous recommendation of a special
committee of directors, has unanimously determined that the merger is fair to
you and in your best interests, has approved and has recommended that you vote
in favor of adoption of the merger agreement, as amended. The Board of
Directors has also unanimously determined to recommend to you that you not
elect to retain any Citation common stock in the merger, and instead receive
cash for all of your shares of Citation common stock. Citation's financial
advisor, Bear, Stearns & Co. Inc., has delivered a written opinion to
Citation's Board of Directors stating that, as of October 12, 1999, and based
upon and subject to the matters stated in the opinion, the consideration to be
received by Citation's stockholders in the merger is fair from a financial
point of view. A copy of the opinion of Bear, Stearns & Co. Inc. is attached as
Annex B to the proxy statement/prospectus.
The merger cannot be completed unless the stockholders adopt the amended
merger agreement. It is very important that your shares be represented, and we
hope you can attend the reconvened special meeting. Whether or not you plan to
attend the reconvened special meeting and whether or not you have previously
signed a proxy card in connection with Citation's earlier solicitation, please
take time to complete, sign and date the enclosed proxy card and return it
promptly in the enclosed postage-prepaid envelope. This will ensure that your
shares are properly represented at the reconvened special meeting. If after
submitting your proxy, you decide to change your vote or decide that you would
rather vote your shares in person, you may do so at any time before or at the
reconvened special meeting.
Very truly yours,
/s/ T. Morris Hackney
--------------------------------
T. Morris Hackney
Chairman
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of this transaction or these
securities, passed upon the fairness or merits of this transaction or
determined if this proxy statement/prospectus is adequate or accurate. Any
representation to the contrary is unlawful.
This proxy statement/prospectus is dated October 29, 1999 and is first being
mailed to stockholders of Citation on or about October 29, 1999.
CITATION CORPORATION
PROXY STATEMENT/PROSPECTUS
This proxy statement/prospectus relates to an Agreement and Plan of Merger
and Recapitalization, as amended, by and between Citation Corporation, a
Delaware corporation, and RSJ Acquisition Co., a Delaware corporation formed
by Kelso & Company. In connection with the merger, each Citation stockholder
will be entitled either to receive $17.00 in cash, without interest, or to
retain one share of common stock of Citation after the merger in respect of
each share of Citation common stock held by that stockholder as of the
effective time of the merger. However, in order to elect to retain any shares
of Citation common stock in the merger, a stockholder must elect to retain at
least 10,000 shares. Because the merger agreement provides that the number of
shares of Citation common stock to be retained by existing Citation
stockholders must equal 1,062,619, and because we expect certain stockholders
of Citation to make an election to retain a total of 1,062,619 shares, the
right to retain shares of Citation common stock will likely be subject to
proration, as set forth in the merger agreement and described in this proxy
statement/prospectus. For example, and as further described in "The Merger and
Recapitalization--Stock Election," a holder of 10,000 shares of Citation
common stock who elects to retain all of its shares will receive fewer than
10,000 shares of common stock and cash for the balance of its shares. On the
other hand, the right to receive $17.00 in cash per share in the merger is not
subject to proration, because certain stockholders of Citation are expected to
make elections to retain 1,062,619 shares in the merger. See "The Merger and
Recapitalization--Stock Election Agreements and Related Agreements."
Accordingly, a holder of common stock who does not elect to retain any shares
in the merger will receive all cash for all of its shares. Holders of fewer
than 10,000 shares of Citation common stock as of the Election Date referred
to in this proxy statement/prospectus will not be eligible to elect to retain
any shares of common stock of Citation in the merger and will automatically
receive cash for all of their shares. For a more detailed description of this
election and proration procedure, see "The Merger and Recapitalization--Stock
Election." A copy of the merger agreement between Citation and RSJ Acquisition
Co., as amended, is attached as Annex A to this proxy statement/prospectus.
Citation has filed a registration statement on Form S-4 pursuant to the
Securities Act of 1933, as amended, covering the 1,062,619 shares of Citation
common stock to be retained by stockholders of Citation in connection with the
merger. This proxy statement/prospectus constitutes the prospectus filed as
part of the registration statement and is being furnished to stockholders of
Citation in connection with the solicitation of proxies by the Board of
Directors of Citation for use at the reconvened Special Meeting of the
Stockholders of Citation scheduled to be held on November 30, 1999.
Adoption of the merger agreement, as amended, requires the affirmative vote
of a majority of the outstanding shares of Citation common stock held by
stockholders entitled to vote as of the close of business on August 27, 1999.
A holder of Citation common stock electing to retain Citation common stock
must make the election with respect to at least 10,000 shares of common stock.
In addition, the holder must return the form of stock election, which is being
mailed to stockholders under separate cover, together with duly endorsed
Citation common stock certificates as instructed in this proxy
statement/prospectus, by 5:00 p.m. New York City time, on November 22, 1999,
regardless of how the stockholder decides to vote with respect to the merger
proposal.
See "Risk Factors" beginning on page 26 for a discussion of certain factors
you should consider before voting and determining whether or not to elect to
retain Citation common stock after the merger.
This proxy statement/prospectus incorporates by reference important business
and financial information about Citation that is not included or delivered
with this document. This information is available without charge to Citation
stockholders upon written or oral request. If you would like to get copies of
the documents we refer to, please contact:
Stanley B. Atkins
Vice President and Secretary
Citation Corporation
2 Office Park Circle
Suite 204
Birmingham, Alabama 35223
(205) 871-5731
To obtain timely delivery of the requested documents prior to the special
meeting, you must request them by no later than November 22, 1999, which is
five business days prior to the special meeting. If you request any documents,
we will mail them to you by first class mail or other equally prompt means as
soon as practicable after we receive your request.
TABLE OF CONTENTS
Page
----
NOTICE OF RECONVENING OF ADJOURNED SPECIAL MEETING OF STOCKHOLDERS........ 1
QUESTIONS AND ANSWERS ABOUT THE MERGER AND RECAPITALIZATION............... 3
SUMMARY................................................................... 9
The Companies........................................................... 9
The Citation Stockholders' Meeting...................................... 10
The Merger and Recapitalization......................................... 13
Selected Consolidated Financial Data.................................... 23
RISK FACTORS.............................................................. 26
We Will Be Controlled by Kelso & Company After the Merger............... 26
There Will Be No Active Trading Market for the Common Stock You Will
Retain in Connection with the Merger................................... 27
We Will Have a High Level of Debt, Which Will Have a Negative Effect on
Our Net Income......................................................... 27
Our Debt Obligations May Contain Covenants That Will Restrict How We
Operate Our Business Which Could Impair Our Ability to Respond to
Changing Conditions or Could Lead to Declines in Operating Results..... 27
We Will Have Decreased Liquidity After The Merger....................... 28
If We Do Not Continue to File Reports With the SEC, it Will Be Difficult
for Stockholders to Obtain Information Regarding Our Financial
Condition.............................................................. 28
We Do Not Expect to Pay Dividends After the Merger...................... 28
The Merger and Recapitalization Are Subject to Review under Laws Which,
If Violated, Could Void the Payment of Cash............................ 29
You Will Not Likely Retain the Amount of Stock You Elect to Retain...... 29
Your Interest as a Citation Stockholder is Subject to Dilution.......... 30
The Election to Retain Citation Common Stock or the Proration Procedures
May Cause Possible Dividend Treatment for Cash Received................ 30
The Loss of a Few Key Customers Would Substantially Reduce Our Sales.... 30
Our Business Operations Are Subject to Significant Seasonal and Cyclical
Fluctuations........................................................... 31
Our Foundries Must Comply With Environmental Laws and Regulations....... 31
We May Be Adversely Affected by Work Stoppages and Other Labor Matters.. 31
The Markets for Our Products Are Highly Competitive and Our Competitors
May Have Greater Financial Resources or Lower Costs, Placing Us at a
Disadvantage........................................................... 32
The Price of Some of Our Principal Raw Materials Is Subject to
Fluctuation and Our Inability to Adjust to Price Fluctuations in a
Timely Manner Could Adversely Affect Our Financial Position............ 32
We May Not be Able to Implement Our Growth and Acquisition Strategy..... 32
We May Be Adversely Affected by Year 2000 Issues........................ 33
A Warning about Forward-Looking Statements.............................. 33
THE SPECIAL MEETING....................................................... 34
General................................................................. 34
Matters to Be Considered................................................ 34
Record Date............................................................. 34
Voting at the Special Meeting........................................... 35
Proxies................................................................. 36
Information Concerning the Solicitation of Proxies...................... 36
Recommendation of the Board of Directors................................ 37
THE MERGER AND RECAPITALIZATION............................................ 38
Background of the Merger and Recapitalization............................ 38
Citation's Reasons For The Merger and Recapitalization; Recommendation of
the Board of Directors.................................................. 47
Reasons for the Board of Directors' Recommendation that Stockholders Not
Elect to Retain Common Stock in the Merger.............................. 51
Opinion of Financial Advisor............................................. 52
Certain Estimates of Future Operations and Other Information............. 56
Description of Voting Agreement.......................................... 58
Purpose and Structure of the Merger and Recapitalization................. 58
Certain Effects of The Merger and Recapitalization....................... 58
Merger Consideration..................................................... 59
Description of the Stock Election Agreements............................. 60
Stock Election........................................................... 60
Election Procedures...................................................... 62
Conversion of Shares; Procedures for Exchange of Certificates............ 62
Fractional Shares........................................................ 63
Federal Income Tax Consequences.......................................... 63
Financing of the Merger and Recapitalization............................. 66
Interests of Certain Persons in the Merger and Recapitalization.......... 70
Directors and Officers of Citation After the Merger...................... 72
Governmental and Regulatory Approvals.................................... 73
Accounting Treatment..................................................... 73
Rights of Stockholders After the Merger.................................. 73
CERTAIN PROVISIONS OF THE MERGER AGREEMENT................................. 75
The Merger; Merger Consideration......................................... 75
Dissenting Shares........................................................ 75
Treatment of Stock Options............................................... 76
Closing; Effective Time.................................................. 76
Exchange of Certificates................................................. 76
Lost, Stolen or Destroyed Certificates................................... 76
Representations and Warranties........................................... 76
Rights Plan Amendment.................................................... 77
Certain Covenants........................................................ 77
Certain Other Covenants and Agreements................................... 78
Agreement Not to Solicit Offers.......................................... 78
Board Recommendations.................................................... 79
Employee Benefits........................................................ 79
Indemnification, Exculpation and Insurance............................... 80
Solvency Letter.......................................................... 80
Recapitalization Financing............................................... 80
Conditions to Completion of the Merger................................... 81
Termination.............................................................. 81
Termination Fees and Expenses............................................ 82
Amendment and Waiver..................................................... 83
UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS...................... 84
CAPITALIZATION............................................................. 92
INFORMATION CONCERNING THE COMPANIES....................................... 93
Citation................................................................. 93
Kelso & Company and RSJ Acquisition Co................................... 94
STOCK PRICE AND DIVIDEND INFORMATION....................................... 95
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT............. 96
Security Ownership of Certain Beneficial Owners.......................... 96
Security Ownership of Management......................................... 98
COMPARISON OF THE RIGHTS OF CITATION STOCKHOLDERS BEFORE AND AFTER THE
MERGER.................................................................... 100
Description of Citation Capital Stock Following the Merger............... 100
Absence of Rights Plan................................................... 101
Anti-Takeover Statute.................................................... 101
CERTAIN PENDING LITIGATION................................................. 102
APPRAISAL RIGHTS........................................................... 102
LEGAL MATTERS.............................................................. 105
INDEPENDENT ACCOUNTANTS.................................................... 105
WHERE YOU CAN FIND MORE INFORMATION........................................ 105
INCORPORATION OF DOCUMENTS BY REFERENCE.................................... 106
STOCKHOLDER PROPOSALS...................................................... 107
OTHER MATTERS.............................................................. 107
ANNEX A: Agreement and Plan of Merger and Recapitalization as Amended...... A-1
ANNEX B: Opinion of Bear, Stearns & Co. Inc................................ B-1
ANNEX C: Section 262 of the General Corporation Law of the State of
Delaware.................................................................. C-1
ANNEX D: Form of Stockholders Agreement.................................... D-1
ANNEX E: Form of Registration Rights Agreement............................. E-1
Citation Corporation
----------------
NOTICE OF RECONVENING OF ADJOURNED SPECIAL MEETING OF STOCKHOLDERS
To be Held November 30, 1999
----------------
NOTICE IS HEREBY GIVEN that a special meeting of stockholders of Citation
Corporation, a Delaware corporation, was convened on October 7, 1999 and was
adjourned until October 22, 1999. On October 22, 1999 the meeting was
reconvened and adjourned again, subject to the call of the Board of Directors.
The reconvened special meeting will be held on November 30, 1999, at the
offices of Citation, located at 2 Office Park Circle, First Floor, Birmingham,
Alabama 35223. The meeting will begin at 10:00 a.m. Central Time.
At the reconvened special meeting you will be asked to:
(1) Adopt an Agreement and Plan of Merger and Recapitalization, dated as of
June 24, 1999, as amended by Amendment No. 1 on September 3, 1999 and
Amendment No. 2 on October 12, 1999, by and between Citation and RSJ
Acquisition Co., a subsidiary of Kelso Investment Associates VI, L.P.
and KEP VI, LLC. Under the merger agreement as amended:
. RSJ Acquisition Co. will merge with and into Citation and Citation
will be the surviving corporation in the merger; and
. Each share of Citation common stock that is issued and outstanding
immediately before the effective time of the merger will be
converted into the right, at the election of the stockholder, either
to receive $17.00 in cash, without interest, or to retain one share
of common stock of Citation, as the surviving corporation in the
merger. The right to elect to retain common stock of Citation in the
merger is available only to stockholders who make the election with
respect to at least 10,000 shares of Citation common stock. In
addition, because the terms of the merger agreement, as amended,
require that the number of shares of Citation common stock to be
retained by existing Citation stockholders must equal exactly
1,062,619, the right to retain one share of common stock of Citation
for each share of Citation common stock is also subject to
proration, as set forth in the merger agreement and described in the
accompanying proxy statement/prospectus. Because we expect certain
stockholders of Citation to elect to retain an aggregate of
1,062,619 shares of Citation common stock in connection with the
merger, however, a stockholder who does not elect to retain shares
in the merger should receive all cash for all of its shares. Shares
held in Citation's treasury will be canceled without payment. Shares
held by stockholders who perfect appraisal rights in accordance with
Delaware law will not be converted into the right to receive the
merger consideration; and
(2) Vote upon any other matters that may properly come before the special
meeting or any adjournments or postponements of the special meeting.
August 27, 1999 is the record date for the determination of stockholders
entitled to notice of and to vote at the reconvened special meeting and any
adjournments or postponements thereof. Only holders of record of Citation
common stock at the close of business on that date will be entitled to notice
of and to vote at the reconvened special meeting. Delaware law requires the
affirmative vote of a majority of the outstanding shares of common stock
entitled to vote on the adoption of the merger agreement in order to adopt the
merger agreement, as amended.
Stockholders of Citation who do not vote to adopt the merger agreement, as
amended, and who comply with the requirements of Section 262 of the General
Corporation Law of the State of Delaware will have the right to demand
appraisal of their shares in connection with the merger. For a description of
appraisal rights, see the information provided in the proxy
statement/prospectus under the caption "Appraisal Rights" on page 102. See also
Annex C to the proxy statement/prospectus for a copy of Section 262 of the
General Corporation Law of the State of Delaware.
Any stockholder who gives a proxy may revoke it at any time before it is
voted at the reconvened special meeting by filing with the Secretary of
Citation a written revocation bearing a later date than the date of the proxy
being revoked, by submitting a proxy bearing a later date than the date of the
proxy being revoked or by voting in person at the reconvened special meeting.
Revocation of a proxy is more fully described in the proxy statement/prospectus
under the caption "The Special Meeting--Proxies" on page 36. Properly executed
but unmarked proxies will be voted FOR adoption of the merger agreement, as
amended.
Your vote is important and we urge you to complete, sign, date and return
your proxy card as promptly as possible, whether or not you expect to attend
the reconvened special meeting and whether or not you have already returned a
proxy relating to Citation's earlier solicitation. If you are unable to attend
in person and you return your proxy card, your shares will be voted at the
reconvened special meeting. A return envelope is included for your convenience.
If your shares are held in "street name" by your broker or other nominee, only
that holder can vote your shares. You should follow the directions provided by
your broker or nominee regarding how to instruct them to vote your shares.
By Order of the Board of Directors
STANLEY B. ATKINS
Vice President and Secretary
Birmingham, Alabama
October 29, 1999
Please sign and date the enclosed proxy and return it promptly in the
enclosed postage-paid envelope. For your vote to count, you must do this (or
vote in person at the reconvened special meeting) whether or not you have
previously completed, signed and dated a proxy card with respect to the earlier
proxy statement/prospectus concerning the merger.
If you elect to retain Citation common stock you must make that election
with respect to at least 10,000 shares of common stock. In addition,
stockholders who want to retain at least 10,000 shares of Citation common stock
must return the form of stock election, which is being mailed to stockholders
under separate cover, together with duly endorsed Citation common stock
certificates as instructed in this proxy statement/prospectus, by 5:00 p.m. New
York City time, on November 22, 1999, regardless of how you decide to vote with
respect to the merger proposal. See "The Merger and Recapitalization-- Election
Procedures" on page 62. Otherwise, you should retain your stock certificates
until letters of transmittal are received after the effective time of the
merger. Stockholders who do not make an election to retain stock will have
their shares converted into the right to receive cash. See "Certain Provisions
of the Merger Agreement--The Merger; Merger Consideration" and "The Merger and
Recapitalization--Stock Election."
If you have any questions or require additional copies of this proxy
statement/prospectus and related materials, please contact Stanley B. Atkins,
Vice President and Secretary, Citation Corporation, 2 Office Park Circle, Suite
204, Birmingham, Alabama 35223, (205) 871-5731.
2
QUESTIONS AND ANSWERS ABOUT
THE MERGER AND RECAPITALIZATION
The Merger
Q:Who is RSJ Acquisition Co.?
A: RSJ Acquisition Co. is a corporation formed by Kelso & Company solely for
purposes of the merger. Kelso & Company is a private investment firm based
in New York, New York.
Q: Why is Citation proposing to merge with RSJ Acquisition Co.?
A: The Board of Directors of Citation determined to recommend adoption of the
merger agreement, as amended, based on a number of factors, including:
. the unanimous recommendation of a special committee of independent
directors to approve the merger agreement, as amended;
. the premium offered by RSJ Acquisition Co. over the historical market
prices and recent trading activity of Citation's common stock;
. Citation's results of operations, financial condition and prospects, and
current industry, economic and market conditions;
. the extensive process that led to the approval of RSJ Acquisition Co.'s
proposal;
. the desire and intention of T. Morris Hackney, the co-founder, Chairman
and largest stockholder of Citation, to sell all or a substantial portion
of his common stock of Citation and the effect of that intention on the
market for Citation common stock and on Citation's management team and
customer relationships;
. Kelso & Company's strong business reputation and successful completion of
transactions similar to the merger;
. the reasons cited by Kelso & Company for the unsuccessful placement of
the senior subordinated notes, as originally contemplated in June 1999,
and the willingness of Kelso & Company to contribute or cause to be
contributed additional equity as part of the revised financing for the
transaction;
. the terms and provisions of the merger agreement, as amended;
. the fact that all stockholders, other than those who are parties to the
Stock Election Agreements described elsewhere in this proxy
statement/prospectus, have the opportunity to receive $17.00 in cash for
all their shares and that all stockholders who retain shares will have
the opportunity to enter into the same stockholders agreement and
registration rights agreement to which the parties to the Stock Election
Agreements will be subject; and
. the opinion of Citation's financial advisor, Bear, Stearns & Co. Inc.,
dated October 12, 1999, as to the fairness, from a financial point of
view, of the merger consideration to the holders of Citation common
stock.
Q: What changes have taken place since Citation's proxy statement/prospectus
dated September 9, 1999?
A: As described in the proxy statement/prospectus dated September 9, 1999, the
merger agreement originally provided that, to the extent they did not elect
to retain common stock in the merger, stockholders of Citation would receive
$18.10 in cash, without interest, for each share of common stock owned by
them. The merger agreement as amended now provides that each stockholder
will be entitled either to receive $17.00 in cash, without interest or,
subject to the effects of proration and the 10,000 share minimum share
election requirement described below, to retain one share of common stock of
Citation in exchange for each share of common stock of Citation held by that
stockholder. In addition, a change in both the amount of equity to be
invested by affiliates and designees of Kelso & Company and in the cash
merger consideration to be paid in the merger has caused the number of
shares of common stock which must be retained by stockholders to be
increased from 790,115 to 1,062,619.
Q: Why were these changes necessary?
A: At the time of the signing of the merger agreement in June 1999, Citation
and RSJ
3
Acquisition Co. received certain financing letters relating to a proposed
offering of subordinated notes, which were to be issued in a private
placement under Rule 144A under the Securities Act of 1933, and a proposed
senior credit facility to be provided by a syndicate of banks. The lead
placement agent for the proposed subordinated notes offering, Donaldson,
Lufkin & Jenrette Securities Corporation, indicated that it was highly
confident of its ability to place the debt securities on market terms. On
October 6, 1999, Citation announced that it had been advised by Kelso &
Company that the proposed offering of $200.0 million in senior subordinated
notes of Citation, constituting part of the financing for the proposed
merger, was not completed on the terms indicated in the June financing
letter. Kelso & Company and Donaldson, Lufkin & Jenrette Securities
Corporation cited the recent changes in the condition of the U.S. high-
yield bond markets as the primary reason for the unsuccessful notes
offering. As a result of certain changes in the financing of the
transaction which were caused by these recent developments, Kelso & Company
and RSJ Acquisition Co. proposed a reduction in the merger consideration
and the other changes described elsewhere in this proxy
statement/prospectus. Further negotiations between Citation and its
advisors and Kelso & Company led to the most recent amendment to the merger
agreement on October 12, 1999.
Q: How is the merger being financed?
A: The merger consideration, the refinancing of most of Citation's debt and
the payment of all related fees and expenses will be funded by an equity
investment by affiliates and designees of Kelso & Company and new
borrowings by Citation. Citation's receipt of new debt financing is a
condition to RSJ Acquisition Co.'s obligation to close the merger. RSJ
Acquisition Co. has delivered to us commitment letters from lenders
relating to that debt financing.
Q: What are the recent changes to the financing proposals?
A: As described in our proxy statement/prospectus dated September 9, 1999, the
equity investment to be made by affiliates and designees of Kelso & Company
was to be $190.0 million. That investment commitment has been increased to
$240.0 million. In addition, in lieu of issuing $200.0 million in senior
subordinated notes, Citation has obtained a commitment letter from DLJ
Bridge Finance, Inc., The Chase Manhattan Bank and First Union Investors,
Inc. regarding Citation's issuance of $135.0 million aggregate principal
amount of senior subordinated increasing rate bridge notes and loans, which
will have a one-year term, subject to extension under certain
circumstances, and will bear interest at a per annum rate between 13.0% and
17.0%, which rate will be adjusted every three months. The holders of the
bridge notes and loans will have the right commencing on the first
anniversary of the closing and, in some circumstances, sooner, to resell
the bridge notes and loans as fixed rate notes with an interest rate no
higher than 17% per annum.
Q: What is the effect on Citation of these changes?
A: In our proxy statement/prospectus dated September 9, 1999, we provided
certain pro forma financial information for Citation as if the merger and
recapitalization had been completed previously. As a result of the changes
described above, the pro forma financial results have also changed. For
example, as of June 27, 1999, our pro forma total indebtedness would have
been $403.2 million, compared to $474.4 million, and stockholders' equity
would have been $138.0 million, compared to $63.7 million under the
transaction as originally proposed. As a result of changes to the terms of
our financing for the transaction, our pro forma interest expense for the
fiscal year ended September 27, 1998 and for the nine months ended
June 27, 1999 would have been $53.1 million and $34.9 million,
respectively, compared to $50.4 million and $38.4 million, respectively,
under the transaction as originally proposed. Pro forma net income for the
fiscal year ended September 27, 1998 and for the nine months ended
June 27, 1999 would have been $2.3 million and $5.6 million, respectively,
rather than $4.0 million and $3.5 million,
4
respectively, as described earlier. See "Unaudited Pro Forma Consolidated
Financial Statements" on page .
Q: What stockholder vote is required to adopt the merger agreement?
A: In order to complete the merger, the merger agreement as amended must be
adopted by the affirmative vote of a majority of the outstanding shares of
Citation's common stock entitled to vote on the adoption of the merger
agreement as amended.
The Merger Consideration
Q: What will Citation stockholders be entitled to receive in the merger?
A: Each Citation stockholder will, at the election of that stockholder, be
entitled either to receive $17.00 in cash, without interest, or, subject
to the effects of proration and the 10,000 share minimum election
requirement described below, to retain one share of common stock of
Citation, in exchange for each share of common stock of Citation held by
that stockholder.
Q: What is the 10,000 share minimum election requirement?
A: The merger agreement provides that to elect to retain any shares of common
stock of Citation, you must elect to retain at least 10,000 shares.
Accordingly, to be eligible to retain Citation common stock, you must own
at least 10,000 shares of our common stock on November , 1999, the
Election Date for the merger. If the reconvened special meeting of
stockholders is postponed for any reason, the Election Date will be five
business days before the date of the meeting. Persons who own fewer than
10,000 shares on that date and holders who attempt to make a stock election
with respect to fewer than 10,000 shares will automatically receive cash
for all of their shares in the merger.
Q: Why is the Board recommending that stockholders not make an election to
retain stock in the merger and instead receive all cash for their shares?
A: The Board of Directors of Citation determined to recommend that
stockholders not make an election to retain stock and instead receive all
cash for all of their shares based on a number of factors, including:
. The Citation common stock will not be listed on Nasdaq, any other
securities exchange or any over-the-counter market after the merger;
accordingly, there will be no public market for any retained shares of
Citation common stock;
. The fact that Kelso & Company has stated its intention to operate
Citation following the merger as a private company. Examples of this
include:
. The cash fee of approximately $8.5 million that we understand Kelso &
Company will cause Citation to pay to it upon completion of the merger,
and the annual monitoring fee of $850,000 we understand Kelso & Company
will charge Citation for monitoring and other services it will provide.
The Board of Directors believes these fees may dilute the value of a
retained share of Citation common stock;
. The option that we understand the controlling stockholders of Citation
after the merger, who are affiliated with Kelso & Company, will cause
Citation to grant to them upon the completion of the merger that will
allow them to purchase from Citation within one year of the merger an
unlimited number of shares of common stock for a per share price equal
to the lesser of $17.00 in cash or the fair market value of a share of
common stock, based on an appraisal;
. The possibility that the controlling stockholders of Citation after the
merger will cause certain shares of Citation common stock not owned by
affiliates and designees of Kelso & Company to be converted into the
right to receive cash, or will otherwise take actions to dilute, reduce
or eliminate the ownership interest of minority stockholders;
. The fact that affiliates and designees of Kelso & Company, together
with certain stockholders who have agreed or are expected to agree to
make an election to
5
retain shares in the merger, will enter into certain agreements among
themselves and with Citation, providing for, among other things,
restrictions on transfer, rights of first refusal, registration rights
and other matters which will affect their ownership of Citation common
stock. However, Kelso & Company has informed us that after the closing,
Kelso & Company will give all stockholders who retain shares of Citation
common stock the opportunity to enter into identical arrangements
regarding their retained shares;
. The fact that continued ownership of Citation common stock after the
merger will be subject to a number of risks, as described in this proxy
statement/prospectus under "Risk Factors" on page ;
. The fact that the commitment letter in connection with the senior
subordinated increasing rate bridge financing calls for Citation to place
warrants, equal to 5% of its fully diluted common stock, in an escrow
account, such warrants to be used as necessary in connection with
reselling or refinancing the notes or loans. The issuance of common stock
resulting from the exercise of these warrants would cause dilution to the
post-merger holdings of Citation's stockholders; and
. The fact that Bear Stearns advised the Board of Directors, including the
special committee, that its opinion regarding the fairness of the merger
consideration, from a financial point of view, attributed no value to the
retained shares inasmuch as, in Bear Stearns' view, any value which could
be attributed to the retained shares would be affected by significant
discounts due to the speculative nature of the retained shares, the
minority interest represented by the retained shares and the lack of
marketability of such shares and, accordingly, the value of a retained
share would be less than $17.00 in cash.
Q: Will the common stock of Citation be listed on the Nasdaq Stock Market
after the merger?
A: No. The Citation common stock to be retained in connection with the merger
will not be listed on Nasdaq, any other securities exchange or any over-
the-counter market. As a result, there will be no public market of any
kind for the common stock retained by stockholders in the merger.
Q: Is there any limit on the number of Citation shares that may be retained?
A: Yes. The amended merger agreement provides that exactly 1,062,619 shares
of common stock will be retained by Citation stockholders in connection
with the merger. This feature is designed to enable the merger to be
accounted for as a recapitalization under generally accepted accounting
principles. The 1,062,619 shares will represent approximately 7.0% of the
outstanding shares of common stock of Citation immediately after the
merger, without giving effect to the issuance of shares from the exercise
of warrants.
We expect that certain stockholders of Citation, including members of
management or their affiliates, will make an election to retain a total of
1,062,619 shares in the merger so that the required number of retained
shares will be assured, and so that all stockholders who want only cash in
the merger will be assured of receiving all cash. If additional
stockholders elect to retain shares, the 1,062,619 shares will be allocated
among all stock electing stockholders on a pro rata basis.
In addition, a stockholder must elect to retain 10,000 shares in the merger
in order to be eligible to retain any shares.
Q: Why does the recent amendment to the merger agreement increase the number
of shares to be retained?
A: The number of shares of common stock of Citation to be retained by existing
stockholders is equal to 7% of the outstanding shares of common stock of
Citation after the merger without giving effect to the issuance of shares
from the exercise of warrants. A change in both the amount of equity to be
invested by affiliates and designees of Kelso & Company and in the value
per share of common stock of Citation following the merger (based upon the
price of $17.00 per share to be paid in the merger) has therefore caused an
increase in the number of shares of common stock to be retained.
6
Q: What will happen if too few people elect to retain Citation shares?
A: This should not happen because RSJ Acquisition Co. has entered into or
expects to enter into Stock Election Agreements with stockholders of
Citation, including members of management of Citation or their affiliates,
in which these stockholders have already agreed or are expected to agree
to retain a total of 1,062,619 shares in the merger. As a result, there
should be at least 1,062,619 stock electing shares and therefore no
proration of retained shares among stockholders who do not elect to retain
shares.
Q: What will happen if too many people elect to retain Citation shares?
A: If any Citation stockholders, in addition to the stockholders described
above, properly elect to retain shares, then we will allocate the
1,062,619 shares among all holders of stock electing shares, including the
parties to the Stock Election Agreements, on a pro rata basis, and all
stock electing shares that are not so allocated, and all other shares of
Citation common stock, will be converted into the right to receive $17.00
in cash per share.
Q: What are appraisal rights?
A: Instead of either receiving $17.00 in cash or retaining, subject to
proration, one share of common stock of Citation for each share of
Citation common stock, you have the right under Delaware law to have the
fair value of your stock appraised by the Delaware Court of Chancery and
then paid to you in cash. In order to demand appraisal, you must make a
written demand for appraisal before the vote on the merger agreement at
the reconvened special meeting, you must not vote to adopt the merger
agreement and you must satisfy the other requirements under Delaware law
which are described in this proxy statement/prospectus.
How to Vote Your Shares and Elect the Form of Merger Consideration to be
Received
Q: How do I vote my shares?
A: After carefully reading and considering the information contained in this
proxy statement/prospectus, please fill out and sign your proxy card. Then
mail your completed, signed and dated proxy card in the enclosed return
envelope as soon as possible so that your shares can be voted at the
reconvened Citation special meeting. For your vote to count, you must do
this (or vote in person at the reconvened special meeting) whether or not
you have previously completed, signed and dated a proxy card with respect
to the earlier proxy statement/prospectus concerning the merger. Please do
not send in your stock certificates with your proxy card. However, if you
want to retain Citation common stock after the merger, you should, as
noted below, send in your stock certificates with the completed, signed
and dated Form of Election which has been mailed to you in a separate
envelope.
Q: If my shares are held in "street name" by my broker, will my broker vote
for me?
A: No. Your broker will not be able to vote your shares on the merger
proposal without instructions from you. You should follow the directions
provided by your broker to vote your shares.
Q: How do I change my vote after I have mailed my signed proxy card?
A: You may change your vote by sending a written notice stating that you want
to revoke your proxy or by completing and submitting a new, later dated
proxy card to the Corporate Secretary of Citation. You may also change
your vote by attending the Citation special meeting and voting in person.
Q: How do I elect the form of merger consideration I want to receive?
A: For the reasons described elsewhere in this proxy statement/prospectus,
the Board of Directors has unanimously recommended that you do not elect
to retain any Citation common stock in the merger, but instead recommends
that you receive all cash for your shares.
However, if you want to retain Citation common stock in connection with the
merger and you are electing to retain at least 10,000 shares in the merger,
you should complete, sign and return the Form of Election, which is being
mailed to you in a separate
7
envelope, together with your Citation common stock certificates as
instructed in this proxy statement/prospectus. If you seek to make a stock
election with respect to fewer than 10,000 shares, you will not be eligible
to retain common stock in the merger and will instead receive all cash for
your shares, regardless of any election to retain shares. If your shares
are held in "street name," by your broker, then you should complete, sign
and return the Letter of Instructions which has been sent to you. An
election to retain stock after the merger is not counted as a vote for
adoption of the merger agreement.
If you want only cash and do not want to retain Citation common stock in
connection with the merger, you do not need to make an election. Further,
you should keep your Citation common stock certificates until we mail a
letter of transmittal to you after the effective time of the merger.
If you own more than 10,000 shares of Citation common stock, you may make a
different election with respect to your shares, subject to the effects of
proration and the 10,000 share minimum election requirement for electing to
retain common stock.
Q: When do you expect the merger to be completed?
A: We are working toward completing the merger as quickly as possible after
the Citation special meeting. We anticipate that the merger will be
completed prior to December 31, 1999.
Q: What are the tax consequences of the merger?
A: If you retain shares of Citation common stock after the merger, there
should be no tax consequences to you with respect to those retained
shares. To the extent that you receive cash in exchange for your shares of
common stock, you will recognize gain or loss in an amount equal to the
difference between your adjusted tax basis of the Citation common stock
that is being exchanged for cash and the amount of cash received in
exchange for those shares. The gain or loss will be capital gain or loss
if the common stock is a capital asset, and will be long-term capital gain
or loss if you have held the common stock for more than one year, unless
the cash received in exchange for the stock is considered a dividend. To
review the tax consequences of the merger to stockholders in greater
detail, see "The Merger and Recapitalization--Federal Income Tax
Consequences" on page 63.
Q: Who can help answer my questions?
A: If you have more questions about the merger, you should contact:
Stanley B. Atkins
Citation Corporation
2 Office Park Circle
Suite 204
Birmingham, Alabama 35223
(205) 871-5731
8
SUMMARY
This Summary and the "Questions and Answers About the Merger and
Recapitalization" on the preceding pages highlight important selected
information from this proxy statement/prospectus and may not contain all of the
information that is important to you. To understand fully the merger and
recapitalization and for a more complete description of the legal terms of the
merger and recapitalization, you should read carefully this entire document and
the other documents to which we have referred you. For more information about
Citation, see "Where You Can Find More Information" on page 105. We have
included page references in this summary to captions in this proxy
statement/prospectus in order to direct you to additional information.
Citation has made forward-looking statements that are subject to risks and
uncertainties in this proxy statement/prospectus and in its reports filed with
the SEC and incorporated by reference in this proxy statement/prospectus.
Forward-looking statements include information concerning possible or assumed
future results of operations of Citation. When words such as "believes,"
"expects," "anticipates" or similar expressions are used, they are intended to
identify forward looking statements. People reading this proxy
statement/prospectus should note that many factors, some of which are discussed
elsewhere in this proxy statement/prospectus and in Citation's publicly
available documents on file with the SEC incorporated in this proxy
statement/prospectus by reference, could affect the future financial and
business results of Citation and could cause those results to differ materially
from those expressed in the forward-looking statements contained or
incorporated by reference into this document.
The Companies (Page 93)
Citation Corporation
2 Office Park Circle
Suite 204
Birmingham, Alabama 35223
(205) 871-5731 Citation Corporation, a Delaware
corporation, is a leading independent
manufacturer of cast, forged and
machined components made primarily from
iron, aluminum and steel materials for
use by automotive, heavy truck,
construction equipment, aerospace,
agriculture and capital and durable
goods manufacturers. We make:
. Brake, steering, engine and drive
train parts for passenger cars, SUVs
and light trucks
. Suspension and transmission parts
for medium and heavy trucks
. Wheels, differential housings and
ground engaging tools for
construction and mining equipment
. Engine, landing gear and structural
airframe parts
. Thousands of other critical parts
for agricultural, capital and
durable goods, including gear boxes
for agricultural equipment, drilling
equipment for oil tools and
crankshafts for compressors
9
We market our products to many of the
major original equipment manufacturers
(OEMs) and Tier 1 suppliers such as
Ford Motor Company, TRW LucasVarity
PLC, Dana Corporation, Caterpillar
Inc., Delphi Corporation,
DaimlerChrysler Corp. and General
Motors Corp. Our business is divided
into four groups focused on common
markets for our products. These groups
are Automotive, Industrial Iron,
Industrial Steel and Aerospace and
Technology. We now operate 20 divisions
in nine states.
RSJ Acquisition Co.
320 Park Avenue
24th Floor
New York, New York 10022
(212) 751-3939 RSJ Acquisition Co., a Delaware
corporation, was organized by Kelso &
Company solely for the purpose of being
a party to the merger with Citation. It
has not engaged in any activities
except in connection with the proposed
merger. RSJ Acquisition Co. is wholly-
owned by certain affiliates and
designees of Kelso & Company, which is
a private investment company
specializing in acquisition
transactions.
The Citation Stockholders' Meeting (Page 34)
Time, Date, and Place A special meeting of our stockholders
convened on October 7, 1999 and was
adjourned to October 22, 1999. We
reconvened on October 22, 1999 and
adjourned again, subject to the call of
the Board of Directors. We will
reconvene the adjourned special meeting
of our stockholders at Citation's
offices, located at 2 Office Park
Circle, First Floor, Birmingham,
Alabama 35223, on November 30, 1999, at
10:00 a.m. Central Time.
Purpose of the Meeting At the reconvened special meeting, we
will ask our stockholders to adopt the
merger agreement, as amended, that is
described in this proxy
statement/prospectus. The complete
merger agreement as amended is also
attached as Annex A to this proxy
statement/prospectus. We encourage you
to read it, as it is the legal document
that governs the merger.
Voting at the Special Meeting You may vote at the reconvened special
meeting if you were the record owner of
Citation common stock at the close of
business on August 27, 1999. On August
27, 1999, there were a total of
10
17,884,739 shares of common stock
outstanding and entitled to vote, held
by 174 holders of record. You can cast
one vote for each share of common stock
you owned on that date. The holders of
a majority of the outstanding shares of
common stock entitled to vote must be
present in person or by properly
executed proxy to have a quorum at the
reconvened special meeting. See "The
Special Meeting--Voting at the Special
Meeting" on page 35.
Delaware law requires the affirmative
vote of a majority of the outstanding
shares of common stock entitled to vote
on the adoption of the merger
agreement, as amended, to adopt the
merger agreement, as amended. Your
failure to vote or your abstention will
be treated as a vote against adoption
of the merger agreement, as amended.
See "The Special Meeting--Voting at the
Special Meeting" on page 35.
Proxies All shares of common stock represented
at the reconvened special meeting by
properly executed and timely proxies,
that have not been revoked, will be
voted in accordance with their
instructions. If you sign, date and
return a proxy but do not give any
instructions, your proxy will be voted
FOR adoption of the merger agreement,
as amended. For your vote to count, you
must do this (or vote in person at the
reconvened special meeting) whether or
not you have previously completed,
signed and dated a proxy card with
respect to the earlier proxy statement/
prospectus concerning the merger. If
you give a proxy, you may revoke it at
any time before it is voted at the
reconvened special meeting (or any
adjournments or postponements thereof).
You may revoke a proxy by:
--filing with our Secretary a written
revocation bearing a later date than
the proxy being revoked;
--submitting a validly executed proxy
bearing a later date than the proxy
being revoked; or
--attending the reconvened special
meeting and voting in person.
However, your attendance at the
special meeting will not in and of
itself revoke a proxy. See "The
Special Meeting--Proxies" on page 36.
Shares held by Directors and
Executive Officers
On the record date, Citation's
directors, executive officers and their
affiliates were entitled to vote
6,904,414 shares of Citation common
stock, or approximately 38.6% of the
shares of Citation
11
common stock outstanding. This includes
the 5,350,040 shares subject to the
voting agreement described below. We
understand that these directors,
executive officers and their affiliates
intend to vote their shares of Citation
common stock for adoption of the merger
agreement, as amended. See "Security
Ownership of Certain Beneficial Owners
and Management" on page 96.
As a condition to its signing the
merger agreement in June 1999, RSJ
Acquisition Co. required certain family
trusts and family limited liability
companies affiliated with T. Morris
Hackney, Chairman of Citation, to enter
into a voting agreement with RSJ
Acquisition Co. Under this agreement,
Mr. Hackney's affiliated entities
agreed to vote 5,350,040 shares of
Citation common stock, constituting
approximately 29.9% of the Citation
common stock outstanding, in favor of
adoption of the merger agreement and
against any other extraordinary
corporate transactions that could
impede completion of the merger. Under
the voting agreement, these
stockholders also granted to RSJ
Acquisition Co. a proxy to vote all the
shares of Citation common stock covered
by the agreement in favor of adoption
of the merger agreement and against any
other transactions. The voting
agreement terminates if and when the
merger agreement terminates, so long as
any termination fees that Citation then
owes to RSJ Acquisition Co. under the
merger agreement have been paid. See
"The Merger and Recapitalization--
Description of Voting Agreement" on
page 58.
The voting agreement, including the
grant of the proxy to RSJ Acquisition
Co., may discourage entities other than
RSJ Acquisition Co. from attempting to
merge with, or acquire, Citation.
As a condition to proceeding with the
merger transaction in September 1999,
RSJ Acquisition Co. requested a family
limited liability company affiliated
with Mr. Hackney, as well as other
members of management, to enter into
Stock Election Agreements regarding a
total of 1,062,619 shares owned by
them. See "The Merger and
Recapitalization; Description of the
Stock Election Agreements" on page 60.
12
The Merger and Recapitalization (Page 38)
The merger agreement, as amended, is attached as Annex A to this proxy
statement/prospectus. The Citation Board of Directors encourages you to read
the merger agreement, as amended, in its entirety. It is the legal document
governing the merger.
Reasons For the Merger The Citation Board of Directors
determined to approve and recommend
adoption of the merger agreement, as
amended, based on a number of factors,
including:
--the unanimous recommendation of a
special committee of independent
directors to approve the merger
agreement as amended;
--the premium offered by RSJ
Acquisition Co. over the historical
market prices and recent trading
activity of Citation's common stock;
--Citation's results of operations,
financial condition and prospects,
and current industry, economic and
market conditions;
--the extensive process that led to the
approval of RSJ Acquisition Co.'s
proposal;
--the desire and intention of Mr.
Hackney to sell all or a substantial
portion of his common stock of
Citation and the effect of that
intention on the market for the
common stock of Citation and on
Citation's management team and
customer relationships;
--Kelso & Company's strong business
reputation and successful completion
of transactions similar to the
merger;
--the reasons cited by Kelso & Company
for the unsuccessful placement of the
senior subordinated notes, as
originally contemplated in June 1999,
and the willingness of Kelso &
Company to contribute additional
equity as part of the revised
financing for the transaction;
--the terms and provisions of the
merger agreement, as amended;
--the fact that all stockholders, other
than those who are parties to the
Stock Election Agreements, will have
the opportunity to receive $17.00 in
cash for all of their shares and that
all stockholders who retain shares
will have the opportunity to enter
into the same stockholders and
registration rights agreements to
which the parties to the Stock
Election Agreements will be subject;
and
13
--the opinion of Citation's financial
advisor, Bear, Stearns & Co. Inc.,
dated October 12, 1999, as to the
fairness, from a financial point of
view, of the merger consideration to
the holders of Citation's common
stock.
General The merger agreement, as amended, and
merger are part of a planned
recapitalization of Citation. Under the
recapitalization:
--Kelso & Company will make or will
cause its affiliated entities or
designees to make an equity
investment of $240.0 million in RSJ
Acquisition Co. at the time of the
merger;
--Citation will obtain new senior
secured credit facilities in the
aggregate principal amount of up to
$360.0 million and will repay
substantially all of its existing
senior secured indebtedness;
--Citation will issue or borrow, as
this case may be, $135.0 million in
senior subordinated increasing rate
bridge notes or loans in a private
placement; and
--RSJ Acquisition Co. will merge into
Citation. RSJ Acquisition Co. will
not exist after the merger. We will
be the surviving corporation in the
merger, and Kelso & Company's
affiliated entities and designees
will be our controlling stockholders
after the merger, owning
approximately 93.0% of our
outstanding common stock (without
regard to any shares issued from the
exercise of warrants), which they
will receive in exchange for their
$240.0 million equity investment
described above. Existing
stockholders of Citation, including
some of our current executive
officers and their affiliates, will
continue to own 7.0% of our
outstanding common stock, after the
merger (without regard to any shares
issued from the exercise of
warrants). Following the merger,
Citation will continue to operate
essentially in the same manner as it
has in the past, except that we will
be substantially more leveraged and
except that we understand Kelso &
Company will operate us as a private
company.
Effective Time of the Merger The merger will become effective when
we file a certificate of merger with
the Secretary of State of the State of
Delaware as required by Delaware law,
or at a later time specified in the
certificate of merger. We expect to
file promptly after the amended merger
agreement is adopted at the special
14
meeting and after the other conditions
to completion of the merger in the
merger agreement, as amended, are
satisfied or waived. See "Certain
Provisions of the Merger Agreement--
Closing; Effective Time" on page 76.
Appraisal Rights Delaware law permits holders of
Citation common stock to have the fair
value of their stock appraised and paid
to them in cash in connection with the
merger. If you hold shares of Citation
common stock, if you do not vote in
favor of adoption of the merger
agreement, as amended, and if you
follow the required procedures, you
will neither receive the $17.00 per
share cash price nor retain any shares
of stock. Instead, your only right will
be to receive the appraised fair value
of your Citation shares in cash.
Merger Consideration At the effective time of the merger,
subject to the provisions in the merger
agreement, as amended, regarding shares
of common stock held in treasury by
Citation and shares of common stock as
to which appraisal rights have been
validly perfected, each share of
Citation common stock (other than those
shares just mentioned above) will, at
the election of the holder, be
converted into the right either (i) to
receive $17.00 in cash, without
interest, or (ii) subject to the
effects of proration and the 10,000
share minimum election requirement
described elsewhere in this proxy
statement/prospectus, to retain one
share of Citation common stock after
the merger.
A stockholder may only elect to retain
any shares of Citation common stock in
the merger if that stockholder elects
to retain at least 10,000 shares.
Accordingly, a stockholder who owns
fewer than 10,000 shares of Citation
common stock on the Election Date will
not be eligible to retain any shares in
the merger.
The merger agreement, as amended,
requires that approximately 16,822,120
shares of Citation common stock
(approximately 94.1% of the presently
issued and outstanding shares of
Citation common stock) be converted
into cash and that 1,062,619 shares of
Citation common stock (approximately
5.9% of the presently issued and
outstanding shares of Citation common
stock) be retained by existing
stockholders.
At the insistence of, and as an
accommodation to, RSJ Acquisition Co.,
certain stockholders of Citation,
including executive officers of
Citation and a family limited liability
company affiliated with
15
Mr. Hackney, entered into or are
expected to enter into Stock Election
Agreements with RSJ Acquisition Co., in
which these stockholders agreed or are
expected to agree that they will make
an election to retain an aggregate of
1,062,619 shares of common stock in the
merger. Accordingly, stockholders who
satisfy the 10,000 share minimum
election requirement and who elect to
retain Citation common stock likely
will, along with these existing
stockholders who have entered into the
Stock Election Agreements, retain a
lesser, prorated number of shares than
they have elected to retain, plus cash,
in order to ensure that the number of
shares retained in the merger is
exactly 1,062,619. See "The Merger and
Recapitalization--Description of the
Stock Election Agreements" on page 60.
On the other hand, because these
stockholders have already agreed or are
expected to agree to elect to retain
the required 1,062,619 shares of
Citation common stock in the merger,
stockholders who do not elect to retain
any shares should receive all cash for
all of their shares in the merger.
Examples illustrating the potential
effects of proration are included in
this proxy statement/prospectus under
"The Merger And Recapitalization--Stock
Election" on page 60.
Recommendations of the Board of Directors
YOUR BOARD OF DIRECTORS BELIEVES THAT
THE MERGER IS ADVISABLE AND IN YOUR
BEST INTERESTS AND UNANIMOUSLY
RECOMMENDS THAT YOU VOTE "FOR" THE
ADOPTION OF THE MERGER AGREEMENT, AS
AMENDED. The Board of Directors, based
upon the unanimous recommendation of a
special committee of independent
directors, believes the merger
agreement, as amended, and the merger
are fair to, advisable and in the best
interests of Citation stockholders. See
"The Merger and Recapitalization--
Citation's Reasons for the Merger and
Recapitalization; Recommendation of the
Board of Directors" on page 47.
BECAUSE CITATION WILL BE CONTROLLED BY
KELSO & COMPANY FOLLOWING THE MERGER
AND FOR THE OTHER REASONS DESCRIBED IN
THIS PROXY STATEMENT/PROSPECTUS, THE
BOARD OF DIRECTORS ALSO UNANIMOUSLY
RECOMMENDS THAT YOU DO NOT ELECT TO
RETAIN ANY SHARES
16
OF CITATION COMMON STOCK IN THE MERGER
AND INSTEAD RECEIVE ALL CASH FOR ALL
YOUR SHARES. See "The Merger and
Recapitalization--Reasons for the Board
of Directors' Recommendation that
Stockholders Not Elect to Retain Common
Stock in the Merger" on page 51.
Opinion of Financial Advisor In deciding to approve the merger
agreement, as amended, and to make the
recommendations described above,
Citation's Board of Directors
considered an opinion from its
financial advisor, Bear, Stearns & Co.
Inc., dated October 12, 1999, as to the
fairness of the merger consideration to
Citation's stockholders from a
financial point of view. This opinion
is attached as Annex B to this proxy
statement/prospectus. We encourage you
to read this opinion. See "The Merger
and Recapitalization--Opinion of
Financial Advisor" on page 52.
Bear, Stearns & Co. Inc. is expected to
receive a fee of approximately $4.8
million in connection with the merger,
of which $650,000 is in connection with
the delivery of its opinion.
Interests of Certain Persons
in the Merger that are
Different from Yours
If we complete the merger, members of
Citation's management and of the Board
of Directors will receive some economic
benefits that are different from or in
addition to yours. These benefits could
present these directors and officers of
Citation with potential conflicts of
interest in connection with the merger.
Citation's Board of Directors knew
about these conflicts, described below,
and considered them, in addition to
other matters, when the Board approved
the merger agreement and the amendments
to the merger agreement.
In the amended merger agreement,
Citation has agreed, for six years
after the merger, to indemnify and
advance expenses to directors,
officers, employees and agents, to
maintain directors' and officers'
liability insurance and to maintain
provisions in Citation's organizational
documents relating to indemnification,
advancement of expenses and exculpation
no less favorable than the provisions
presently contained in Citation's
organizational documents.
The merger agreement, as amended,
provides that certain outstanding
options to purchase Citation common
stock held by employees of Citation,
will,
17
upon designation by RSJ Acquisition Co.
and with the consent of the holders of
the options, be continued after the
merger, on terms and conditions to be
agreed upon. There are currently no
agreements or understandings concerning
the continuation of any options.
However, it is possible that Kelso &
Company could reach agreements with
certain members of management to
continue to own options to purchase
Citation common stock following the
merger. In addition, we anticipate that
a new stock option plan will be adopted
after the merger.
In 1998, Citation entered into change
of control severance agreements with
some of its senior officers including,
but not limited to, Frederick F.
Sommer, Timothy L. Roberts, John W.
Lawson and Edwin L. Yoder, for a term
of three years, pursuant to which these
officers will be entitled to
accelerated vesting of stock options
and other benefits as a result of the
merger. Senior officers of Citation may
also be eligible for future grants of
stock options after the merger, and may
enter into employment agreements with
Citation after the merger.
We understand that Kelso & Company will
cause Citation to pay to it a fee of
approximately $8.5 million in cash upon
completion of the merger and will also
cause Citation to pay to it an annual
fee of $850,000 for monitoring and
other services provided to Citation.
From time to time in the future, Kelso
& Company may also cause Citation to
pay to Kelso & Company customary fees
for other advisory services rendered to
Citation. We understand that these fees
for additional advisory services will
be negotiated with the Board of
Directors and will be based on the
services performed and the prevalent
fees then charged by other parties for
comparable services.
We also understand that, shortly after
the effective time of the merger, Kelso
Investment Associates VI, L.P. and KEP
VI, LLC, who will be the controlling
stockholders of Citation, will cause
Citation to grant them an option to
purchase from Citation, at any time
during the one-year period after the
effective time of the merger, such
number of additional primary shares of
common stock of Citation as they shall
from time to time request. The price
per share of those additional shares of
common stock will be
18
the lesser of (i) $17.00 and (ii) the
fair market value of common stock,
based on an appraisal.
Certain stockholders of Citation,
including certain executive officers of
Citation or their affiliates, have
entered into or are expected to enter
into Stock Election Agreements with RSJ
Acquisition Co., pursuant to which
these stockholders have agreed or are
expected to agree to make an election
to retain a total of 1,062,619 shares
of common stock in the merger. These
stockholders and the Kelso-affiliated
stockholders will also be parties to a
Stockholders Agreement and a
Registration Rights Agreement following
the merger under which these
stockholders will have various rights
and obligations with respect to their
retained shares, including preemptive
rights with respect to any shares
issued to affiliates of Kelso & Company
in connection with the option to
purchase described above. Kelso &
Company has informed us that after the
closing of the merger, Kelso & Company
will make available to all stockholders
who retain shares of Citation common
stock the opportunity to enter into
identical arrangements.
See "The Merger and Recapitalization--
Interests of Certain Persons in the
Merger and Recapitalization" on page
70.
Treatment of Stock Options At the time we complete the merger,
each holder of outstanding options to
purchase Citation common stock--other
than those executive officers and other
employees, if any, who have been
designated by, and who have agreed
with, RSJ Acquisition Co. to keep their
options outstanding after the merger--
will, whether or not the options are
then exercisable, receive a cash
payment for each option equal to the
excess, if any, of $17.00 over the
exercise price per share of the common
stock subject to the option. See
"Certain Provisions of the Merger
Agreement--Treatment of Stock Options"
on page 76.
Financing of the Merger and Recapitalization
The total amount of funds required to
complete the recapitalization,
including the merger, and to pay all
related fees and expenses, is estimated
to be approximately $635.2 million,
which will be provided through a
combination of:
--existing cash of $0.2 million;
--$240.0 million in proceeds from an
equity investment in RSJ Acquisition
Co. by affiliates and designees of
Kelso & Company;
19
--borrowings by Citation of
approximately $260.0 million under
new senior secured credit facilities;
and
--proceeds of approximately $135.0
million from Citation's senior
subordinated increasing rate bridge
notes or loans.
Actual sources and uses of funds on the
date the transactions close may vary
from these amounts due to slight
variances in cash and debt balances
from June 27, 1999 to the date of
closing. See "The Merger and
Recapitalization--Financing of the
Merger and Recapitalization" on page
66.
Conditions to Completion of the Merger The merger is subject to a number of
conditions, including stockholder
approval and receipt of the financing
necessary to complete the merger. RSJ
Acquisition Co. has agreed to use its
reasonable commercial efforts to cause
those funds to be obtained. Where the
law permits, Citation or RSJ
Acquisition Co. could elect to waive a
condition that has not been satisfied
and complete the merger despite the
non-satisfaction of that condition. We
cannot be certain when (or if ) the
conditions to the merger will be
satisfied or waived or that the merger
will be completed. See "Certain
Provisions of the Merger Agreement--
Conditions to Completion of the Merger"
on page 81.
Termination of the Merger Agreement Citation and RSJ Acquisition Co. can
terminate the merger agreement, as
amended, at any time before the
effective time of the merger by mutual
consent. In addition, either Citation
or RSJ Acquisition Co. can terminate
the merger agreement, as amended, if:
(1) any governmental body takes any
action preventing the completion of the
merger; (2) the merger is not completed
by December 31, 1999, or, under certain
circumstances, January 31, 2000; or (3)
the holders of at least a majority of
the outstanding shares of Citation
common stock entitled to vote on the
adoption of the merger agreement, as
amended, do not adopt the merger
agreement, as amended, at the special
meeting. Either party can also
terminate the merger agreement, as
amended, if the other party breaches or
fails in any material respect to
perform or comply with any of its
material covenants and agreements
contained in the merger agreement, as
amended, or breaches its
representations and warranties in any
material respect and the breach or
failure is incapable of being cured in
the manner
20
permitted by the merger agreement, as
amended. There are other circumstances
that could entitle either Citation or
RSJ Acquisition Co. to terminate the
merger agreement, as amended. See
"Certain Provisions of the Merger
Agreement--Termination" on page 81.
Under some circumstances, if the merger
agreement, as amended, is terminated by
Citation or RSJ Acquisition Co., then
Citation must pay RSJ Acquisition Co. a
termination fee of $8,179,000 and
reimburse RSJ Acquisition Co.'s and its
affiliates' transaction expenses up to
$1,500,000. See "Certain Provisions of
the Merger Agreement--Termination Fee
and Expenses" on page 82.
Federal Income Tax Consequences The merger will be tax-free to a
stockholder to the extent the
stockholder retains its shares of
Citation common stock after the merger,
and taxable to a stockholder to the
extent the stockholder exchanges its
shares of Citation common stock for
cash. See "The Merger and
Recapitalization--Federal Income Tax
Consequences" on page 63.
If Citation common stock is a capital
asset in the hands of a stockholder,
then the stockholder will recognize
capital gain or loss based upon the
difference between the cash received
and the stockholder's basis in the
shares exchanged, unless the cash
received in exchange for the stock is
considered to be a dividend. To review
in greater detail the material United
States federal income tax consequences
of the merger to stockholders of
Citation, see "The Merger and
Recapitalization--Federal Income Tax
Consequences" on page 63.
This tax treatment may not apply to all
Citation stockholders. Tax matters can
be complicated and the actual tax
consequences of the merger to
stockholders will depend on the facts
of their own situation and on variables
not within our control. You are urged
to consult your own tax advisors to
understand fully the tax consequences
of the merger to you.
Rights of Stockholders After the Merger We understand that Kelso & Company
will, after the merger, make available
to all stockholders who retain shares
in the merger the opportunity to enter
into a stockholders agreement and
registration rights agreement. Forms of
these agreements are attached as
Annexes D and E, respectively, to this
proxy statement/prospectus. See "The
Merger and
21
Recapitalization--Rights of
Stockholders After the Merger" on page
73.
Directors and Officers of
Citation After The Merger The merger agreement provides that at
the effective time of the merger, the
directors serving on the Board of
Directors of RSJ Acquisition Co. will
become the Board of Directors of
Citation. Except for Mr. Hackney, the
incumbent officers of Citation are
expected to continue to serve as the
officers of Citation after the merger.
See "The Merger and Recapitalization--
Directors and Officers of Citation
After the Merger" on page 72.
Accounting Treatment We expect the merger to be accounted
for as a recapitalization under
generally accepted accounting
principles. As a result, the
transaction will not affect the
historical basis of Citation's assets
and liabilities. See "The Merger and
Recapitalization--Accounting Treatment"
on page 73.
Regulatory Approvals Citation and RSJ Acquisition Co. both
have made filings with federal
antitrust authorities in connection
with the merger and have received early
termination of the applicable waiting
period. See "The Merger and
Recapitalization--Governmental and
Regulatory Approvals" on page 73.
Certain Market Information Citation common stock is listed on The
Nasdaq Stock Market under the symbol
"CAST." On June 24, 1999, the last full
trading day before the public
announcement of the proposed merger,
Citation common stock closed at
$14.125. On October 26, 1999, the last
practicable date before the printing of
this proxy statement/prospectus,
Citation common stock closed at $16
1/16. See "Stock Price and Dividend
Information" on page 95.
22
Selected Consolidated Financial Data
In the table on the following page, we provide you with selected historical
consolidated financial data of Citation. We prepared this information using the
consolidated financial statements of Citation for each of the five fiscal years
in the period ended September 27, 1998, as well as for the unaudited nine-month
periods ended June 28, 1998 and June 27, 1999. The financial statements for
each of the five fiscal years in the period ended September 27, 1998 have been
audited by PricewaterhouseCoopers LLP, independent accountants. Certain of the
financial and balance sheet data set forth below have not been audited for any
of the periods presented. The selected statement of income and balance sheet
data as of and for the nine-month periods ended June 28, 1998 and June 27, 1999
have been derived from unaudited consolidated financial statements. The
unaudited consolidated financial statements include all adjustments, consisting
only of normal recurring accruals, that Citation considers necessary for a fair
presentation of the consolidated financial position and the consolidated
results of operations for that period. When you read the selected historical
consolidated financial data, it is important that you read along with it the
consolidated financial statements and accompanying notes, as well as
"Management's Discussion and Analysis of Financial Condition and Results of
Operations," that Citation has included in its Annual Report on Form 10-K for
the fiscal year ended September 27, 1998 and its Quarterly Report on Form 10-Q
for the quarter ended June 27, 1999 (you can obtain these reports by following
the instructions we provide in this proxy statement/prospectus under "Where You
Can Find More Information" on page 105). Citation operates on a 52- or 53-week
fiscal year ending on the Sunday closest to September 30. Fiscal years 1994,
1995, 1996, 1997 and 1998 each consisted of 52-weeks. Fiscal year 1999 consists
of 53 weeks.
We also attempt to illustrate in the table the financial results that might
have occurred if the merger and recapitalization, together with certain
acquisitions and a disposition made by Citation, had been completed previously.
We present unaudited pro forma consolidated balance sheet information for
Citation as of June 27, 1999 as if the merger and recapitalization had been
completed on June 27, 1999. We present unaudited pro forma consolidated
statement of income information for Citation for the fiscal year ended
September 27, 1998 and the nine-month period ended June 27, 1999 as if certain
acquisitions and a disposition, as well as the merger and recapitalization
described in this proxy statement/prospectus, had been completed on September
29, 1997. This pro forma financial data has not been audited for any of the
periods presented. It is important to remember that this information is
hypothetical, and does not necessarily reflect the actual financial performance
of Citation if the acquisitions, disposition, merger and recapitalization had
been completed on those dates. It is also important to remember that this
information does not necessarily reflect future financial performance of
Citation if the merger and recapitalization actually occur. Please see
"Unaudited Pro Forma Consolidated Financial Statements" on page 84 for a more
detailed explanation of this analysis.
23
Fiscal Year Ended Nine Months Ended
-------------------------------------------------------------- -----------------------------------
Pro Forma Pro Forma
Oct. 2, Oct. 1, Sept. Sept. Sept. 27, Sept. 27, June 28, June 27, June 27,
1994 1995 29, 1996 28, 1997 1998 1998(3) 1998 1999 1999(3)
-------- -------- -------- -------- --------- ----------- ----------- ----------- -----------
(unaudited) (unaudited) (unaudited) (unaudited)
(dollars in thousands, except per share data)
Statement of Income
Data:
Sales............... $191,566 $307,681 $487,753 $648,961 $ 724,017 $838,859 $559,760 $ 613,446 $622,662
Cost of sales....... 151,921 243,493 404,961 538,502 612,035 704,144 462,707 518,111 525,175
-------- -------- -------- -------- --------- -------- -------- --------- --------
Gross profit........ 39,645 64,188 82,792 110,459 111,982 134,715 97,053 95,335 97,487
Selling, general and
administrative
expenses........... 19,650 32,697 45,844 58,066 63,603 75,671 47,938 52,974 53,336
Impairment charge... 10,000
-------- -------- -------- -------- --------- -------- -------- --------- --------
Operating income.... 19,995 31,491 36,948 52,393 38,379 59,044 49,115 42,361 44,151
Interest expense,
net................ 2,813 3,974 7,866 14,433 15,254 53,076 11,040 15,752 34,873
Other expenses
(income)........... (24) (581) 1,178 (14) 2,155 2,138 -- 1,815 --
-------- -------- -------- -------- --------- -------- -------- --------- --------
Income before
provision for
income taxes....... 17,206 28,098 27,904 37,974 20,970 3,830 38,075 24,794 9,278
Provision for income
taxes (1).......... 6,538 11,019 11,162 14,810 8,178 1,493 14,849 9,918 3,711
-------- -------- -------- -------- --------- -------- -------- --------- --------
Net income(1)....... $ 10,668 $ 17,079 $ 16,742 $ 23,164 $ 12,792 $ 2,337 $ 23,226 $ 14,876 $ 5,567
======== ======== ======== ======== ========= ======== ======== ========= ========
Other Financial
Data:
EBITDA(2)
(unaudited)........ $ 27,084 $ 42,129 $ 57,099 $ 82,882 $ 84,654 $103,076 $ 75,414 $ 75,679 $ 78,494
EBITDA margin(2)
(unaudited)........ 14.1% 13.7% 11.7% 12.8% 11.7% 12.3% 13.5% 12.3% 12.6%
Depreciation and
amortization....... $ 7,089 $ 10,638 $ 20,151 $ 30,489 $ 36,275 $ 44,032 $ 26,299 $ 33,318 $ 34,343
Cash flow data:
Operating
activities........ $ 19,624 $ 22,604 $ 21,781 $ 68,423 $ 45,897 $ 33,916 $ 55,326
Investing
activities........ $(24,124) $(96,977) $(67,631) $(81,993) $(104,612) $(94,384) $(102,022)
Financing
activities........ $ 3,921 $ 83,204 $ 38,305 $ 13,948 $ 58,392 $ 60,699 $ 46,454
Capital
expenditures:
Maintenance
(unaudited)....... $ 8,320 $ 14,412 $ 21,086 $ 18,942 $ 24,750 $ 19,402 $ 9,477
Capacity expansion
(unaudited)....... 8,908 15,432 10,080 21,589 22,929 17,976 22,114
-------- -------- -------- -------- --------- -------- ---------
Total.............. $ 17,228 $ 29,844 $ 31,166 $ 40,531 $ 47,679 $ 37,378 $ 31,591
======== ======== ======== ======== ========= ======== =========
Earnings per share--
basic.............. $ 1.02 $ 1.27 $ 0.95 $ 1.31 $ 0.72 $ 0.15 $ 1.30 $ 0.83 $ 0.37
Earnings per share--
diluted............ $ 1.02 $ 1.25 $ 0.94 $ 1.29 $ 0.71 $ 0.15 $ 1.29 $ 0.83 $ 0.37
Book value per
share--basic
(unaudited)........ $ 4.16 $ 9.86 $ 8.44 $ 9.74 $ 10.43 $ 11.02 $ 11.18 $ 9.09
Book value per
share--diluted
(unaudited)........ $ 4.16 $ 9.70 $ 8.36 $ 9.63 $ 10.31 $ 10.87 $ 11.14 $ 9.09
Pro Forma Financial
Data
(unaudited)(3):
Ratio of EBITDA to
interest
expense(2)......... 1.94x 2.25x
Ratio of total debt
to EBITDA(2)(4).... 3.91x 3.85x
As of June 27, 1999
-----------------------
As
Actual Adjusted(5)
----------- -----------
(unaudited)
(dollars in thousands)
Balance Sheet Data:
Working capital..... $ 15,500 $ 38,576 $ 62,504 $ 66,546 $ 84,622 $ 86,746 $ 99,244 $105,548
Total assets........ 113,449 271,871 383,557 493,296 569,265 584,358 678,730 695,542
Total debt
(including current
maturities)........ 30,282 77,807 143,600 184,233 243,841 240,952 319,351 403,167
Stockholders'
equity............. 43,631 132,476 149,319 172,639 186,034 196,473 199,904 137,981
24
- --------
(1) Prior to Citation's initial public offering in August 1994, Citation was
organized as an S corporation and, accordingly, was not subject to
corporate income taxation. Such amounts for the fiscal year ended
October 2, 1994 are pro forma to reflect the federal and state income taxes
as if Citation had been a C corporation based on statutory rates that were
in effect during the period.
(2) EBITDA is defined, for any period, as income before interest expense,
provision for income taxes, depreciation and amortization, other expenses
(income) and impairment charge. EBITDA is presented because it is a widely
accepted financial indicator of a company's ability to service and/or incur
indebtedness. EBITDA should not be considered an alternative to net income
as a measure of Citation's operating results or to cash flow as a measure
of liquidity. In addition, although the EBITDA measure of performance is
not recognized under generally accepted accounting principles, it is widely
used by various companies as a general measure of a company's performance
because it assists in comparing performance on a relatively consistent
basis across companies without regard to depreciation and amortization,
which can vary significantly depending on accounting methods (particularly
where acquisitions are involved) or non-operating factors such as
historical costs bases. Because EBITDA is not calculated identically by all
companies, the presentation herein may not be strictly comparable to other
similarly titled measures of other companies.
(3) Pro forma financial data gives effect to acquisitions and disposition of
businesses and to the merger and recapitalization as if they occurred at
the beginning of the respective periods.
(4) EBITDA for the nine months ended June 27, 1999 is annualized for the
purpose of calculating the ratio.
(5) As adjusted to give effect to the merger and recapitalization as if such
transactions occurred on June 27, 1999.
25
RISK FACTORS
The merger agreement, as amended, provides that you may elect, in exchange
for each share of Citation common stock you own, either to receive $17.00 in
cash, without interest, or to retain one share of common stock of Citation as
the surviving corporation of the merger. This election is subject to the
proration procedures and the 10,000 share minimum election requirement
described elsewhere in this proxy statement/prospectus. A continued investment
in our stock involves a high degree of risk. You should carefully consider the
following risks, as well as the other information appearing in this proxy
statement/prospectus, before deciding to vote to adopt the merger agreement and
electing to retain shares of Citation common stock in connection with the
merger. Our Board of Directors has unanimously recommended that you do not
elect to retain any shares of Citation common stock in the merger and instead
receive all cash for your shares.
We Will Be Controlled by Kelso & Company After the Merger
After giving effect to the merger and recapitalization, affiliates and
designees of Kelso & Company will own 93.0% of the outstanding stock of
Citation and existing stockholders of Citation, including certain current
executive officers and their affiliates, will own 7.0% (without giving effect
to any shares issued from the exercise of warrants). Subject to any fiduciary
duties to other stockholders, the controlling stockholders will have the voting
power to control the direction and policies of Citation, the election of all of
the directors and the outcome of any matter requiring stockholder approval,
including adopting amendments to Citation's certificate of incorporation and
approving a merger or a sale of all or substantially all of Citation's assets.
The directors of Citation will have the authority to make decisions affecting
the appointment of new management and the capital structure of Citation,
including the issuance of additional capital stock, the implementation of stock
repurchase programs, the grant of options and the declaration of dividends, if
any. In addition, we cannot assure you that the controlling stockholders and
directors of Citation will not take action following the merger to dilute,
reduce or eliminate the ownership interest of minority stockholders.
Kelso & Company has stated that its control of Citation will give it the
ability to operate the Company in a manner consistent with the way in which
other leading private equity firms operate their privately held portfolio
companies. Examples of this ability include (i) the fee of approximately $8.5
million in cash that we understand Kelso & Company will cause Citation to pay
to it upon completion of the merger, and the annual monitoring fee of $850,000
we understand Kelso & Company will charge Citation for monitoring and other
services it will provide; (ii) the option that we understand Kelso Investment
Associates VI, L.P. and KEP VI, LLC, the controlling stockholders of Citation
following the merger, will cause Citation to grant to them to purchase from
Citation within one year of the merger an unlimited number of shares of common
stock of Citation for a per share price equal to the lesser of $17.00 in cash
or the fair market value of a share of common stock, based on an appraisal;
(iii) the possibility that Kelso Investment Associates VI, L.P. and KEP VI,
LLC, as the controlling stockholders of Citation following the merger, will
cause certain shares of Citation common stock not owned by Kelso Investment
Associates VI, L.P. and KEP VI, LLC to be converted into the right to receive
cash; and (iv) the Stockholders Agreement and Registration Rights Agreement to
which the Kelso-affiliated stockholders and the stockholders who have entered
into or are expected to enter into the Stock Election Agreements will be
parties. Kelso & Company has informed us, however, that subsequent to the
closing of the merger, Kelso & Company will make available to all stockholders
who retain shares of Citation common stock the opportunity to enter into
identical arrangements with respect to their retained shares.
In addition, the existence of a controlling stockholder or group of
controlling stockholders of Citation may make it more difficult for a third
party to acquire, or discourage a third party from seeking to acquire, a
majority of the outstanding common stock of Citation. A third party will have
to negotiate any acquisition transaction with Kelso & Company, and Kelso &
Company's interests may be different from the interests of other Citation
stockholders.
26
There Will Be No Active Trading Market for the Common Stock You Will Retain in
Connection with the Merger
Because the number of stockholders and the number of shares of Citation
common stock held by unaffiliated stockholders after the merger will be quite
small, the Citation common stock will not be listed on Nasdaq, any other
securities exchange or any over-the-counter market after the merger.
Consequently, there will be no public trading market of any kind for Citation
common stock following the merger and it will be difficult or impossible for
stockholders to resell shares of common stock.
We Will Have a High Level of Debt, Which Will Have a Negative Effect on Our Net
Income
As a result of the merger and the transactions contemplated by the merger,
we will have a substantial amount of debt. Assuming that the merger, the senior
subordinated bridge financing and drawings under the senior credit facilities
had occurred on June 27, 1999, we would have had total debt of $403.2 million,
and stockholders' equity of $138.0 million as of that date. Subject to
restrictions in our senior credit facility and senior subordinated bridge
financing, we may incur more debt for working capital, capital expenditures,
acquisitions and for other purposes in the future.
Our high level of debt could have consequences which are important for you
to consider, including the following:
. we may have difficulty borrowing money in the future for working
capital, capital expenditures, acquisitions or other purposes;
. we may have difficulty satisfying our obligations under the senior
subordinated bridge financing;
. we will be increasingly vulnerable to general adverse economic and
industry conditions;
. our flexibility in planning for, or reacting to, changes in our business
and the industry in which we operate will be limited; and
. we may be placed at a competitive disadvantage compared to our
competitors who have less debt.
In addition, substantial leverage will have a negative effect on our net
income. Assuming that the merger, the senior subordinated bridge financing and
the drawings under the senior credit facilities had occurred on September 29,
1997, we would have had a net income for the fiscal year ended September 27,
1998 of $2.3 million and net income for the nine months ended June 27, 1999 of
$5.6 million. Without assuming the occurrence of these events, our net income
for the fiscal year ended September 27, 1998 was $12.8 million and our net
income for the nine months ended June 27, 1999 was $14.9 million.
Our Debt Obligations May Contain Covenants That Will Restrict How We Operate
Our Business Which Could Impair Our Ability to Respond to Changing Conditions
or Could Lead to Declines in Operating Results
Although the terms of the definitive documents governing these debt
instruments have not been finalized as of the date of this proxy
statement/prospectus, based on the commitment letters delivered to RSJ
Acquisition Co., we expect that the senior credit facilities and the documents
governing the senior subordinated bridge financing will contain various
provisions that limit our management's discretion by restricting our ability
to:
. incur additional debt;
. pay dividends and make other distributions;
. prepay subordinated debt;
. make investments and other restricted payments;
. create liens;
27
. sell assets; and
. enter into certain transactions with affiliates.
In addition, the senior credit facility and the senior subordinated bridge
financing documents will require us to meet certain financial ratios. Under
certain circumstances, if the bridge obligations are redeemed, Citation may be
required to pay a premium for redemption, and if the bridge obligations remain
outstanding, Citation may be required to pay certain fees.
If we fail to comply with the restrictions of the senior credit facilities
or the documents governing the senior subordinated bridge financing or any
other subsequent financing agreements, a default may occur. This default may
allow the creditors, if the agreements allow, to accelerate the related
indebtedness as well as any other indebtedness to which a cross-acceleration or
cross-default provision applies. In addition, the lenders may be able to
terminate any commitments they had made to supply us with further funds.
We Will Have Decreased Liquidity After The Merger
Our ability to make payments on and to refinance our indebtedness and to
fund planned capital expenditures and research and development efforts will
depend on our ability to generate cash in the future. This is, to a certain
extent, subject to general economic, financial, competitive, legislative,
regulatory and other factors that are beyond our control.
Based on our current level of operations and anticipated cost savings and
operating improvements, we believe our cash flow from operations, available
cash and availability of borrowings under our proposed senior credit facility
will be adequate to meet our liquidity needs for at least the next few years.
However, we cannot assure you that any of the following will occur:
. our business will generate sufficient cash flow from operations;
. our currently anticipated cost savings and operating improvements will
be realized on schedule; or
. future borrowings will be available to us under our proposed senior
credit facility in an amount sufficient to enable us to pay our
indebtedness, or to fund our other liquidity needs.
We may need to refinance all or a portion of our indebtedness on or before
maturity. We cannot assure you that we will be able to refinance any of our
indebtedness, including our credit facility and the senior subordinated bridge
financing, on commercially reasonable terms or at all.
If We Do Not Continue to File Reports With the SEC, it Will Be Difficult for
Stockholders to Obtain Information Regarding Our Financial Condition
For a limited period of time following the merger, we expect that we will
continue to be a reporting company under the Securities Exchange Act of 1934,
as amended, and will continue to file periodic reports, including annual and
quarterly reports and proxy statements. However, we will not be required by the
Exchange Act to be a reporting company if, for example, the number of holders
of our common stock falls below 300, a circumstance which we do expect will
occur at the effective time of the merger. If Citation were to cease to be a
reporting company under the Exchange Act, the information now available to
holders of Citation common stock in the periodic reports would not be available
to them as a matter of right.
We Do Not Expect to Pay Dividends After the Merger
Citation has never paid a dividend to its stockholders and we do not expect
that Citation will pay dividends to stockholders following the merger. We
anticipate that the agreements governing the terms of our indebtedness will
contain covenants limiting the dividends that may be paid by us. In addition,
it is likely that we will use any retained earnings for working capital and to
finance our strategic plans, and not to pay dividends.
28
The Merger and Recapitalization Are Subject to Review under Laws Which, If
Violated, Could Void the Payment of Cash
Citation's borrowings in connection with the merger transaction, and the
transfer to stockholders of a portion of those borrowings as a result of the
merger, may create issues under relevant federal and state fraudulent
conveyance statutes if Citation seeks bankruptcy relief or becomes subject to
an involuntary bankruptcy proceeding or if a lawsuit is filed by or on behalf
of unpaid creditors of Citation. If a court determines that the payment of the
cash merger consideration to stockholders of Citation violated the U.S.
Bankruptcy Code or applicable state fraudulent conveyance laws, the bankruptcy
trustee, debtor in possession or unpaid creditors could void the payment of the
cash merger consideration and recover the cash merger consideration from
Citation's stockholders.
A finding could be made under these fraudulent conveyance statutes if a
court finds that, at the time of the recapitalization and merger, Citation:
. incurred the indebtedness associated with the payments to stockholders
with the intent of hindering, delaying or defrauding current or future
creditors; or
. received less than reasonably equivalent value or fair consideration for
incurring such debt; and, in addition, at least one of the following was
true:
(1) Citation was insolvent or was rendered insolvent by reason of the
incurrence of debt;
(2) Citation was engaged, or was about to be engaged, in a business
or transaction for which its remaining assets constituted
unreasonably small capital to carry on its business; or
(3) Citation intended to incur, or believed that it would incur
obligations beyond its ability to pay as those obligations
matured.
The measure of insolvency for purposes of the foregoing considerations will
vary depending on the law of the jurisdiction that is being applied in any such
proceeding. Generally, a company would be considered insolvent if, at the time
it incurred debt:
. the sum of its debts (including contingent liabilities) is greater than
its assets, at fair valuation;
. the present fair saleable value of its assets is less than the amount
required to pay the probable liability on its total existing debts and
liabilities (including contingent liabilities) as they become absolute
and matured; or
. the company cannot pay its debts as they become due.
We cannot assure you as to what standards a court would use to determine
whether Citation was solvent at the relevant time, or whether, whatever
standard was used, the payment to stockholders pursuant to the merger would not
be avoided on another of the grounds set forth above. In the course of its
deliberations concerning the merger agreement, the Citation Board of Directors
considered the requirement in the merger agreement that, before the completion
of the merger, Citation receive a letter from an independent appraisal firm as
to the solvency and appropriate size of capital of Citation after giving effect
to the merger and recapitalization. Based upon its discussions with its
advisors and financing sources, Citation expects to receive this letter.
You Will Not Likely Retain the Amount of Stock You Elect to Retain
The election of Citation stockholders to retain shares of Citation common
stock in the merger is subject to proration and other limitations, including
the 10,000 minimum share election requirement described elsewhere in this proxy
statement/prospectus. Because of the Stock Election Agreements signed or
expected to be signed between RSJ Acquisition Co. and certain stockholders of
Citation, if you elect to retain stock and the merger is completed, you will
probably not receive all of the stock you have elected, and will receive cash
for some of your shares. See "The Merger and Recapitalization--Stock Election"
on page 60 for a description of the proration procedures.
29
On the other hand, because of the Stock Election Agreements, stockholders
who do not elect to retain any shares should receive all cash for all of their
shares in the merger.
Your Interest as a Citation Stockholder is Subject to Dilution
Following the merger, we understand that Kelso Investment Associates VI,
L.P. and KEP VI, LLC will cause the Company to grant them an option to purchase
an unlimited number of additional shares of Citation common stock and will
cause Citation to grant members of management options for the purchase of
Citation common stock. The exercise of those options would dilute the holdings
of Citation stockholders. No final decision has been made with respect to the
granting of any stock options to management after the merger. Certain existing
stockholders of Citation will, by virtue of the Stockholders Agreement, have
preemptive rights with respect to their shares of Citation common stock,
subject to certain exceptions, but these preemptive rights will also be enjoyed
by other stockholders who elect to retain shares and who enter into the
Stockholders Agreement with affiliates of Kelso & Company and other
stockholders after the merger. In addition, in connection with the senior
subordinated increasing rate bridge financing described elsewhere in this proxy
statement/prospectus, Citation has agreed that it will place warrants, equal to
5% of its fully diluted common stock, in an escrow account. These warrants are
to be used as necessary in connection with reselling or refinancing the bridge
obligations. The warrants will be exercisable at $0.01 per share for a period
of seven years from the date of release from escrow. Issuance of common stock
as a result of the exercise of these warrants would cause further dilution to
the holdings of Citation's stockholders.
Election to Retain Citation Common Stock or the Proration Procedures May Cause
Possible Dividend Treatment for Cash Received
As stated elsewhere in this proxy statement/prospectus, pursuant to the
Stock Election Agreements, certain existing stockholders of Citation have
agreed or are expected to agree to make the election to retain an aggregate of
1,062,619 shares of common stock in the merger. Accordingly, to the extent any
other stockholder elects to retain common stock in the merger, all stock
electing stockholders will, by virtue of the proration procedures described
under "The Merger and Recapitalization Stock Election," receive a combination
of cash and stock for all of that holder's stock-electing shares. In that
event, a stockholder may receive dividend treatment (rather than the generally
more favorable capital gain treatment) for any cash received in the merger as a
result of those proration procedures. See "The Merger and Recapitalization--
Federal Income Tax Consequences" on page 63 for a more detailed discussion of
the tax consequences of receiving cash.
The Loss of a Few Key Customers Would Substantially Reduce Our Sales
We rely on a few key customers and market segments for a significant portion
of our sales business. For the nine months ended June 27, 1999, our business
had the following characteristics:
. 48.3% of all of our sales on a pro forma basis were in the domestic
automotive/light truck industry;
. 11.8% of all of our sales on a pro forma basis were in the domestic
medium and heavy truck industry; and
. approximately 41.4% of our total sales were made to our 10 largest
customers.
We sell many of our products in industries that experience significant
fluctuations in demand based on economic conditions or other matters that are
beyond our control. The automotive industry is subject to the following
particular concerns:
. it experiences significant fluctuations in demand based on factors
including general economic conditions and consumer confidence; and
. it is subject to labor problems. Any serious disruption in business
arising from a work stoppage or any other conditions that could lead to
a reduction in purchases by one or more of our major customers could
hurt our business.
30
Our Business Operations Are Subject to Significant Seasonal and Cyclical
Fluctuations
Most of our markets are highly cyclical and are dependent on consumer
spending. Economic factors adversely affecting our results and consumer
spending could adversely impact us. In addition, our sales generally are lower
during our first and fourth fiscal quarters because of temporary plant closings
by major customers for vacations, holidays and model changeovers. Because of
these significant seasonal fluctuations, a period of slow economic growth or a
recession could hurt our business.
Our Foundries Must Comply With Environmental Laws and Regulations
We are in the foundry, forging and related manufacturing industries and
therefore must comply with numerous federal, state and local environmental laws
and regulations, such as those relating to air emissions and solid waste
disposal. Set forth below are several environmental concerns:
. we cannot assure you that we operate at all times in complete compliance
with all environmental requirements;
. we could be subject to potentially significant fines and penalties if we
do not comply with these requirements;
. we are subject to laws requiring the cleanup of any contamination that
we are held responsible for; and
. some of our operations generate hazardous substances. If a release of
hazardous substances occurs at or from any of our current or former
properties or at a landfill or another location where we have disposed
of wastes, we may be held liable for the contamination.
We believe we are generally in compliance with environmental laws and
regulations. However, we may not be able to comply with all environmental laws
and regulations in the future, including possible changes to the Federal Clean
Air Act, and the costs and expenses resulting from any non-compliance could be
significant.
We May Be Adversely Affected by Work Stoppages and Other Labor Matters
Unions represent approximately 2,500 of our 7,500 employees at 10 of our
operating divisions, under collective bargaining agreements which expire at
various times beginning January 2000 through October 2002. The unionization of
our workers results in the following concerns which could harm our business:
. We could encounter strikes, further unionization efforts or other types
of conflicts with labor unions or our employees. Any of these
occurrences may hurt us or may limit our flexibility in dealing with our
workforce. For example, recently the management of our Mansfield Foundry
and the United Steelworkers of America failed to reach an agreement on
economic issues prior to the expiration of a labor agreement in May
1999. Following a five-week strike, we reached an agreement and
manufacturing resumed on June 28, 1999.
Many OEMs and their suppliers have unionized work forces.
. Work stoppages or slow-downs experienced by OEMs or their suppliers
could result in slow-downs or closures of assembly plants where our
products are included in assembled vehicles.
. For example, strikes by the United Auto Workers led to the shut down of
most of General Motors' North American assembly plants in June and July
1998. This work stoppage at General Motors' facilities had an
unfavorable impact on our fiscal 1998 revenues.
. The United Auto Workers Union has renegotiated its contracts with the
three major auto producers. The contracts with General Motors and
DaimlerChrysler AG have been approved and the contract with Ford Motor
Company is expected to be ratified in the near future. While we do not
currently anticipate that a strike will occur, a strike by the United
Auto Workers Union against Ford prior to the ratification of the
contract or resulting from a failure to ratify the new agreement could
eliminate
31
or substantially reduce sales to our largest market sectors for an
indeterminate period of time and could accordingly negatively impact our
results of operations and financial condition.
The Markets for Our Products Are Highly Competitive and Our Competitors May
Have Greater Financial Resources or Lower Costs, Placing Us at a Disadvantage
The markets for our products are highly competitive. The companies within
our industry compete on the basis of price, quality, service and engineering.
We also compete 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 metal components producers and an increase in the share
of production held by larger companies, some of which have greater financial
resources than we have and may have lower production costs than we do. In
addition, with respect to certain of our products, some of our competitors are
divisions of our manufacturing customers. There can be no assurance that we
will be able to maintain or improve our competitive position in these markets.
The Price of Some of Our Principal Raw Materials Is Subject to Fluctuation and
Our Inability to Adjust to Price Fluctuations in a Timely Manner Could
Adversely Affect Our Financial Position
The principal raw material we use in the manufacture of iron and steel
castings is steel scrap. The principal raw material we use in the manufacture
of steel forgings is steel bar. The market for steel scrap and bar presents us
with the following problems:
. the cost of steel scrap and bar has historically tended to fluctuate;
and
. our arrangements with our iron and steel customers allow us to pass
along fluctuations in price to the customer. Unfortunately, when the
price of steel scrap and bar rises rapidly the price adjustment
mechanisms we have negotiated for with our customers may not apply
quickly enough, thus leaving us exposed to the increased price.
The principal raw material we use to produce aluminum castings is aluminum
ingot, which we purchase to specified grades. The market for aluminum ingot
presents the following concerns:
. the price of aluminum ingot has also historically tended to fluctuate;
and
. some of our arrangements with aluminum customers allow us to pass along
price increases to the customer, but most do not. If we do not have this
type of arrangement and the price of aluminum rises, our ability to pass
along price increases is largely dependent on competitive conditions and
may fail to protect us completely from increased costs.
We May Not be Able to Implement Our Growth and Acquisition Strategy
While we do not expect the pace of our acquisitions in the next few years to
match that of the preceding four years, we will continue to evaluate
acquisitions, joint ventures and strategic alliances that allow us to increase
penetration of key customers, expand our product and service offerings, add
manufacturing capacity, globalize operations and supplement our design and
engineering expertise. Listed below are several challenges associated with our
past and future acquisition strategy that could hurt our business:
. the integration of acquired companies will continue to require
significant management attention;
. we must implement our operational, financial and management information
systems into the target for an acquisition to be successful.
Accordingly, our business may be hurt for a period of time while the
operations of the acquired businesses are integrated into our existing
operations;
. we may incur substantial unanticipated costs or problems associated with
integrating our acquisitions;
. our financing arrangements may include significant limitations or
restrictions on our ability to borrow money for acquisitions and other
purposes and as a result, we may not be able to take advantage of
acquisition opportunities; and
32
. we have recently expanded our operations outside the United States.
These foreign operations are subject to a number of risks in addition to
those described above, including currency exchange rate fluctuations,
trade barriers, exchange controls, risk of governmental expropriation or
other regulation, political risks and risks of increases in taxes.
We May Be Adversely Affected by Year 2000 Issues
Many computer systems and other equipment with embedded chips or processors
in them use only two digits to represent the year and as a result they may be
unable accurately to process certain data before, during or after the year
2000. We have addressed this "Year 2000" issue through a comprehensive project
throughout all of our operations.
This project involved reviewing our current software as well as embedded
systems in certain of our equipment and surveying each of our divisional
operations to assess the impact of any Year 2000 problems. We completed this
project in September of 1999, and have also developed a contingency plan that
will involve manual processing, system backups, increasing our inventory from
critical suppliers and selecting alternative suppliers of critical materials.
We have also had some of our major customers review certain of our systems
and those of our suppliers for Year 2000 compliance, and we understand that
these reviews have satisfied these customers.
The most reasonably likely harm to our business that we currently anticipate
with respect to Year 2000 is that some of our suppliers, including utility
suppliers, may fail to be Year 2000 compliant. This could cause a temporary
interruption in the delivery of materials or services that we need to make our
products, which could result in delayed shipments to customers and lost sales
and profits for us.
The failure to correct a material Year 2000 problem could result in an
interruption in, or a failure of, certain normal business activities or
operations. Such failures could significantly harm our business. It is possible
that we will incur material remediation costs with respect to the Year 2000
beyond our anticipated costs, or that our business will be hurt if Year 2000
problems with our systems, or with the products or systems of other entities
with which we do business, are not resolved in a timely manner.
A Warning about Forward-Looking Statements
We make forward-looking statements in this document and in the Citation
public documents to which we refer you. These forward-looking statements are
subject to risks and uncertainties including those set forth in the foregoing
risk factors, and there can be no assurance that those statements will prove to
be correct. Forward-looking statements include some of the statements set forth
under "Summary--Selected Consolidated Financial Data," "Risk Factors--We Will
Have a High Level of Debt, Which Will Have a Negative Effect on our Net
Income," "--We Will Have Decreased Liquidity After the Merger," "The Merger and
Recapitalization Citation's Reasons for the Merger and Recapitalization;
Recommendation of the Board of Directors," "--Opinion of Financial Advisor,"
"--Certain Estimates of Future Operations and Other Information," "--Certain
Effects of the Merger and Recapitalization ," "--Financing of the Merger and
Recapitalization" and "Unaudited Pro Forma Consolidated Financial Statements."
In addition, in some cases, you can identify forward-looking statements by
terminology such as "may," "will," "should," "plans," "believes,"
"anticipates," "expects" and "intends," or the negative of those terms, and
similar terminology. Forward-looking statements are subject to certain risks
and uncertainties that could cause actual results to differ materially from
those projected. You should consider these risks when you vote on the adoption
of the merger agreement, as amended, and decide whether or not to elect to
retain any shares of Citation common stock. We caution you not to place undue
reliance on these forward-looking statements, which speak only as of the date
of this proxy statement/prospectus. We are not obligated to release publicly
the results of any revisions to these forward-looking statements that may be
made to reflect events or circumstances after the date hereof or to reflect the
occurrence of anticipated events. You should read the information in this
document in conjunction with the risk factors and other information contained
in this proxy statement/prospectus and in the other public documents to which
we referred you.
33
THE SPECIAL MEETING
General
You were sent a proxy statement/prospectus in connection with a special
meeting of stockholders of Citation which originally was scheduled for October
7, 1999. This proxy statement/prospectus is being sent to you in connection
with the solicitation of proxies by and on behalf of Citation's Board of
Directors for use at the reconvened special meeting, and any adjournments or
postponements thereof. The special meeting will reconvene on November 30, 1999,
at 10:00 a.m., Central Time, at Citation's offices, located at 2 Office Park
Circle, First Floor, Birmingham, Alabama 35223.
Matters to Be Considered
At the reconvened special meeting, you will be asked to:
(1) Adopt an Agreement and Plan of Merger and Recapitalization, dated as of
June 24, 1999, as amended by Amendment No. 1 on September 3, 1999 and
Amendment No. 2 on October 12, 1999, by and between Citation and RSJ
Acquisition Co., a subsidiary of Kelso Investment Associates VI, L.P.
and KEP VI, LLC. Under the merger agreement, as amended:
. RSJ Acquisition Co. will merge with and into Citation and Citation
will be the surviving corporation in the merger; and
. Each share of Citation common stock that is issued and outstanding
immediately before the effective time of the merger will be
converted into the right, at the election of the stockholder, either
to receive $17.00 in cash, without interest, or to retain one share
of common stock of Citation, as the surviving corporation in the
merger. The right to elect to retain common stock of Citation in the
merger is available only to stockholders who make such election with
respect to at least 10,000 shares of Citation common stock. In
addition, because the terms of the merger agreement, as amended,
require that the number of shares of Citation common stock to be
retained by existing Citation stockholders must equal exactly
1,062,619, the right to retain shares of common stock of Citation is
also subject to proration, as set forth in the merger agreement and
described in this proxy statement/prospectus. Because we expect
certain stockholders of Citation to elect to retain an aggregate of
1,062,619 shares of Citation common stock in connection with the
merger, however, a stockholder who does not elect to retain shares
in the merger should receive all cash for all of its shares. Shares
held in Citation's treasury will be canceled without payment. Shares
held by stockholders who perfect appraisal rights in accordance with
Delaware law will not be converted into the right to receive the
merger consideration; and
(2) Vote upon any other matter that may properly come before the special
meeting or any adjournments or postponements of the special meeting.
Questions or requests for assistance in completing and submitting proxy
cards should be directed to:
Stanley B. Atkins
Citation Corporation
2 Office Park Circle
Suite 204
Birmingham, Alabama 35223
(205) 871-5731
Record Date
The Board of Directors fixed August 27, 1999 as the record date for the
determination of the Citation stockholders entitled to receive notice of and to
vote at the special meeting and at any adjournments or postponements of the
special meeting. Under Delaware law, this record date will continue to apply to
any adjournment of the meeting. Only Citation stockholders of record at the
close of business on that date will be entitled to notice of and to vote at the
reconvened special meeting and any adjournments or postponements of
34
the reconvened special meeting. As of the record date, the only outstanding
capital stock of Citation was its common stock. At the close of business on the
record date, 17,884,739 shares of Citation common stock were outstanding and
are entitled to vote at the special meeting.
Voting at the Special Meeting
Quorum Requirement The presence, in person or by properly executed
proxy, of the holders of a majority of the
outstanding shares of Citation common stock
entitled to vote on the record date is
necessary to constitute a quorum at the
reconvened special meeting.
Voting Rights Each share of Citation common stock outstanding
on the record date entitles its holder to one
vote as to each matter that may properly come
before the reconvened special meeting.
Vote Required Adoption of the merger agreement, as amended,
requires the affirmative vote of a majority of
the outstanding shares of Citation common stock
entitled to vote on the adoption of the merger
agreement as of the record date.
As of the record date, 6,904,414 shares of
Citation common stock, or approximately 38.6%
of the shares entitled to vote at the special
meeting, were owned by directors and executive
officers of Citation and their affiliates. This
includes the shares subject to the voting
agreement described in this proxy
statement/prospectus. We expect that each
director and executive officer, together with
their affiliates, will vote their shares of
Citation for adoption of the merger agreement,
as amended. For additional information with
respect to beneficial ownership of Citation
common stock by holders of more than 5% of the
common stock and by directors and executive
officers of Citation, see "Security Ownership
of Certain Beneficial Owners and Management."
Abstentions and Broker Non-votes
We intend to count shares of Citation common
stock present in person at the reconvened
special meeting but not voting, and shares of
Citation common stock for which we have
received proxies but with respect to which
holders of those shares have abstained, as
present at the reconvened special meeting for
purposes of determining the presence or absence
of a quorum for the transaction of business.
Brokers who hold shares of Citation common
stock in "street" name for customers who are
the beneficial owners of those shares are
prohibited from giving a proxy to vote shares
held for their customers with respect to the
matters to be considered and voted at the
special meeting without specific instructions
from their customers who own the shares. Shares
of Citation common stock represented by proxies
returned by a broker holding shares in nominee
or "street" name will be counted for purposes
of determining whether a quorum exists, even if
the shares are broker non-votes.
Because adoption of the merger agreement, as
amended, requires the affirmative vote of a
majority of outstanding shares of Citation
common stock entitled to vote on the adoption
of the merger agreement, as amended,
abstentions and broker non-votes will have the
same effect as votes against adoption of the
merger agreement, as amended.
35
Proxies
If you are a Citation stockholder, you may use the accompanying proxy if you
are unable to attend the reconvened special meeting in person or want to have
your shares voted by proxy even if you do attend the reconvened special
meeting. The vote regarding the adoption of the merger agreement, as amended,
is separate from the decision to elect to retain Citation common stock after
the merger. You should not send your stock certificates with your proxy card.
You should only send your stock certificates with the Form of Election, which
has been mailed to you in a separate envelope, if you want to elect to retain
Citation common stock in connection with the merger. See "The Merger and
Recapitalization--Election Procedures."
For your proxy to count, you must use the accompanying proxy whether or not
you have previously completed, signed and dated a proxy card with respect to
the earlier proxy statement/prospectus concerning the merger.
You may revoke any proxy given by you in this solicitation by any of the
following methods:
. delivering to the Secretary of Citation, at or before the special
meeting, a written notice (bearing a later date than the proxy) which,
by its terms, revokes the proxy;
. duly executing a later proxy relating to the same shares and delivering
it to the Secretary of Citation at or before the reconvened special
meeting; or
. attending the reconvened special meeting and voting in person.
Attendance at the reconvened special meeting by a stockholder will not
in and of itself revoke a previously delivered proxy.
You should address any written notice of revocation and other communications
regarding the revocation of Citation proxies to the Corporate Secretary of
Citation at 2 Office Park Circle, Suite 204, Birmingham, Alabama 35223. In all
cases, the latest dated proxy revokes an earlier dated proxy, regardless of
which method is used to give or revoke a proxy, or if different methods are
used to give and revoke a proxy. For a notice of revocation or later proxy to
be valid, however, it must actually be received by Citation before the vote of
the Citation stockholders at the special meeting. If your broker has been
instructed to vote your shares, you must follow directions received from your
broker in order to change your vote.
All shares represented by valid proxies received and not revoked before they
are voted will be voted in the manner specified on the proxies. If you sign,
date and return your proxy but do not specify how your proxy is to be voted, it
will be voted in favor of adoption of the merger agreement, as amended. The
Citation Board of Directors is unaware of any other matters that it expects to
be presented for action at the reconvened special meeting. If other matters do
properly come before the reconvened special meeting, however, it is intended
that shares represented by proxies in the accompanying form will be voted or
not voted by the persons named in the proxies, in their discretion.
Information Concerning the Solicitation of Proxies
The accompanying proxy is solicited on behalf of the Citation Board of
Directors. The cost of soliciting proxies will be borne by Citation. In
addition to solicitation by mail, directors, officers and employees of
Citation, none of whom will receive additional compensation for solicitations,
may solicit proxies in person, by telephone, by telegram, by personal
interview, by e-mail or by facsimile. In addition, Citation will request banks,
brokerage houses and other custodians, nominees and fiduciaries to forward its
solicitation materials to the beneficial owners of Citation common stock they
hold of record and obtain authorization for, and appropriate certification in
connection with, the execution of proxy cards. Citation will reimburse these
record holders for customary mailing expenses incurred by them in forwarding
these materials.
We have retained Corporate Communications, Inc. to aid in the solicitation
of proxies and to verify certain records related to the solicitations.
Corporate Communications will receive a fee of $3,500 as compensation for its
services and reimbursement for its related out-of-pocket expenses. Citation has
agreed to indemnify Corporate Communications against certain liabilities
arising out of or in connection with its engagement.
36
Recommendation of the Board of Directors
The Board of Directors, acting upon the unanimous recommendation of a
special committee of independent directors, has (a) determined that the merger
agreement, as amended, and the transactions contemplated thereby, including the
merger, are fair to, advisable and in the best interests of the stockholders of
Citation, and (b) recommended that Citation's stockholders adopt the merger
agreement, as amended. The Board of Directors believes that the merger
agreement, as amended, and the merger are fair to, advisable and in the best
interests of Citation and the Citation stockholders, and unanimously recommends
that the Citation stockholders vote "FOR" adoption of the merger agreement, as
amended. The Board of Directors, upon the unanimous recommendation of the
special committee, has also unanimously determined, for the reasons described
elsewhere in this proxy statement/prospectus, to recommend to you that you not
elect to retain any Citation common stock in the merger, and instead receive
cash for all of your shares of Citation common stock. See "The Merger and
Recapitalization--Citation's Reasons for the Merger and Recapitalization;
Recommendation of the Board of Directors" and "--Reasons for the Board of
Directors' Recommendation that Stockholders Not Elect to Retain Common Stock in
the Merger."
37
THE MERGER AND RECAPITALIZATION
Background of the Merger and Recapitalization
The Drummond Company Seeks To Acquire Mr. Hackney's Shares. Since its
inception as a small, privately held manufacturing concern in 1974, Citation
has grown into a publicly held holding company owning geographically and
operationally diverse casting, forging and machining subsidiaries. At the time
of its initial public offering in August 1994, Citation operated eight
foundries. In order to increase its product breadth and technological
capabilities, Citation has grown significantly over the past several years
through strategic acquisitions, resulting in an increase in the number of
divisions operated to 20 as of the end of the most recent fiscal quarter. The
growth and continued development of Citation took place under the leadership of
its co-founder and Chairman, T. Morris Hackney, who also served as Chief
Executive Officer from Citation's inception until the fall of 1998. On August
17, 1998, Mr. Hackney informed members of the Citation Board of Directors that
he desired to reduce his day-to-day operating responsibilities at Citation by
remaining as Chairman, but resigning as Chief Executive Officer. At the time of
his resignation, Mr. Hackney beneficially owned, directly or indirectly,
approximately 5.8 million shares, constituting approximately 32%, of Citation's
outstanding common stock. Except for the sale of 300,000 shares in a secondary
public offering in September 1995, gifts to family members and charities and
transfers for estate planning purposes, Mr. Hackney has made no disposition of
his original ownership of shares of Citation common stock since its inception
in 1974.
Following Mr. Hackney's resignation as Chief Executive Officer,
representatives of the Drummond Company, Inc., a privately held company
headquartered in Birmingham, Alabama, approached Mr. Hackney in mid- to late-
October, 1998, expressing an interest in acquiring all or a significant portion
of Mr. Hackney's shares of Citation common stock. As a result of their
discussions, Mr. Hackney and Drummond entered into a Call Option Agreement,
dated as of November 6, 1998, pursuant to which Drummond had the right, but not
the obligation, to purchase 4,000,000 shares of Citation common stock then
owned by Mr. Hackney at a price of $20.00 per share. The Call Option Agreement
also granted to Drummond a right of first refusal with respect to the remaining
shares owned by Mr. Hackney. In addition, on November 9, 1998, Drummond agreed
to acquire approximately 1,300,000 shares of Citation common stock held by Mr.
Hugh Weeks, who was then a director and also one of the founders of Citation,
for $15.00 per share, and engaged in discussions with Mr. Conner Warren, an
Executive Vice President, director and also a founder of Citation, regarding
the purchase of his shares. The agreements with Messrs. Hackney and Weeks gave
Drummond the right to acquire, in the aggregate, approximately 29% of
Citation's outstanding common stock.
By letter dated November 11, 1998, Drummond informed Citation's Board of
Directors that it desired to conduct a due diligence investigation of Citation
prior to exercising its option on Mr. Hackney's shares. In this letter,
Drummond indicated that it had no immediate plans beyond its consideration of
the option granted by Mr. Hackney, but that it believed a combination of its
operations with those of Citation could be an attractive opportunity for both
companies. Drummond stated this same belief in a Schedule 13D filed with the
SEC on November 16, 1998.
The Board of Directors Responds To Drummond. On November 13, 1998,
Citation's Board of Directors engaged the law firm of Balch & Bingham LLP as
special counsel to the Board of Directors and convened a special meeting to
consider the impact of Drummond's agreements with Mr. Hackney and Mr. Weeks on
Citation and its other stockholders. At this meeting, the directors generally
agreed that Drummond's efforts to accumulate Citation's common stock, coupled
with its failure clearly to state its intentions with respect to Citation,
could reasonably be perceived as a threat to Citation's long-term corporate
policy and to Citation's public stockholders' continued investment in Citation.
The directors were also aware of, and concerned about, Drummond's previous
acquisitions of the stock of publicly traded companies. The Board of Directors
formed a Special Committee, consisting of disinterested directors, to identify
Drummond's intentions with respect to Citation and any issues which should be
considered by the Board of Directors in light of those intentions. The Board of
Directors also considered the adoption of a Stockholder Rights Plan. Following
that meeting,
38
Balch & Bingham met with counsel for Drummond and expressed the Board's desire
and need to understand Drummond's intentions with respect to Citation.
By letter dated November 17, 1998, Drummond specifically requested two
actions by Citation's Board of Directors: (i) the granting of access to certain
nonpublic information and management personnel of Citation and (ii) the pursuit
of a consent or agreement from Citation's principal lenders which would permit
Drummond to acquire in excess of 30% of Citation's outstanding common stock
(which acquisition would otherwise violate the change of control covenant
contained in Citation's current credit facility).
The Special Committee met on November 25, 1998 to consider each of the
requests made by Drummond in its November 17, 1998 letter and to further
consider the adoption of a Stockholder Rights Plan. At the Special Committee's
invitation, representatives of Bear, Stearns & Co. Inc. made a presentation
regarding the financial implications of the proposed Stockholder Rights Plan.
Based on advice received from Balch & Bingham and Bear Stearns, the Special
Committee recommended the adoption of the Stockholder Rights Plan and, due in
part to Drummond's continuing reluctance to clarify its intentions with respect
to Citation, the refusal of Drummond's requests. Acting on the recommendations
of the Special Committee, the Board of Directors determined not to grant either
of Drummond's requests and adopted the Stockholder Rights Plan at a meeting
held on November 25, 1998, immediately following the Special Committee meeting.
In addition, the Board (a) adopted an amendment to Citation's by-laws to
provide for an orderly administration of any stockholder consent solicitation
and to require a two-thirds majority vote of stockholders to approve certain
by-law amendments; (b) amended Citation's stock option plans so that options
would fully vest in the event of a change of control; and (c) approved change
of control severance agreements with certain senior officers of Citation. See
"--Interests of Certain Persons in the Merger and Recapitalization."
On November 30, 1998, Van L. Richey, Chairman of the Special Committee,
informed Drummond of the Board's decision not to grant either of Drummond's
requests, as well as Citation's adoption of a Stockholder Rights Plan which
would be triggered in the event Drummond were to exercise its option with Mr.
Hackney and thereby acquire ownership in excess of 15% of the outstanding
Citation common stock. At that time, Mr. Richey emphasized that the Board's
decisions were not an indication that the Board was opposed to entering into
any discussions with Drummond, but were instead directly related to Citation's
lack of information concerning Drummond's intentions with respect to Citation
and the impact of those intentions, if any, on Citation's public stockholders.
Mr. Richey also stated that the Board would be willing to reconsider its
decision regarding Drummond's requests, and noted that it had the authority to
redeem the rights issuable under the Stockholder Rights Plan to permit Drummond
to cross the 15% beneficial ownership threshold, if, in the opinion of the
Board, Drummond's intentions with respect to Citation were made clear and the
Board were to receive adequate assurances that, in the event Drummond sought
effective control of Citation, Citation's public stockholders would be treated
fairly in the process and thereafter.
On January 4, 1999, Drummond completed the purchase of 1,300,000 shares of
common stock from Mr. Weeks. On January 12, 1999, Mr. Richey met with the
Chairman and the President of Drummond, which meeting was the first
communication between Drummond and the Special Committee since the discussions
in November 1998. At the meeting on January 12, the Drummond representatives
indicated that they wanted Drummond to acquire up to 30% to 40% of Citation's
common stock and to have three seats on the Board of Directors. Mr. Richey
stated that Citation's Board of Directors had already considered and rejected
Drummond's earlier request to acquire more than 30% of the outstanding common
stock, and suggested that Drummond's financial advisor meet with the Special
Committee's financial advisor, Bear Stearns, to determine if Drummond and
Citation could structure a mutually beneficial transaction. Drummond declined
to participate in any such meeting and, on January 21, 1999, notified Mr.
Hackney that it did not intend to exercise its option to purchase his shares of
Citation common stock. However, Drummond's amendment to its Schedule 13D filed
with the SEC on January 21, 1999, disclosing the termination of the option
agreement with Mr. Hackney, also stated that Drummond would continue to
evaluate the possibility of additional purchases of Citation common stock or
the possibility of a business combination with, or acquisition of control of,
Citation.
39
Although Drummond declined to exercise its option or otherwise seek to
acquire control of Citation, by late January 1999, Mr. Hackney's desire to sell
all or a significant portion of his holdings in Citation common stock had
created significant public speculation about the future ownership and control
of Citation. This speculation, in the view of the Board of Directors, had the
potential of encouraging unsolicited takeover proposals. Accordingly, the
Special Committee met on January 27, 1999 to consider how to respond to any
unsolicited proposals that might be received. At that meeting, the Special
Committee received advice from the Delaware law firm of Richards, Layton &
Finger, P.A., concerning applicable principles under Delaware law.
Representatives from Bear Stearns also participated in the meeting and
expressed their view that the then current market price of Citation common
stock did not appear to reflect the significant potential value which could
result from Citation's recent acquisitions or future success in implementing
its business objectives.
The Board of Directors Addresses Public Speculation and Uncertainty
Concerning Mr. Hackney's Continuing Desire to Sell His Citation Common
Stock. On February 15, 1999, approximately three weeks after Drummond indicated
that it would not exercise its option with Mr. Hackney, the Special Committee
met with Mr. Hackney and its advisors to discuss whether Mr. Hackney continued
to desire to sell a significant amount of his stock in Citation and, if so, the
relationship, if any, between Mr. Hackney's desire and Citation's ability to
achieve its business objectives. At that meeting, Mr. Hackney explained to the
Special Committee that he wished to sell a significant amount of his stock in
Citation at an acceptable price in order to achieve liquidity. Representatives
of Bear Stearns expressed their view that the public speculation and
uncertainty regarding Mr. Hackney's ongoing interest in selling his Citation
common stock was continuing, and that this speculation and uncertainty could
have an adverse effect on Citation's relationships with its customers and
suppliers, its ability to retain key employees, its market trading patterns and
the trading price of its common stock. The Special Committee, in consultation
with its financial and legal advisors, determined that this uncertainty with
regard to Mr. Hackney's continued ownership of Citation common stock was
adversely affecting Citation's business and threatening to prevent Citation
from achieving its long-term business plan. In order to address this element of
uncertainty, the Special Committee authorized Bear Stearns to analyze various
means of accommodating Mr. Hackney's desire for liquidity, including a
registered offering of Mr. Hackney's shares, a repurchase of his shares by
Citation, a leveraged recapitalization of Citation involving a new equity
partner or a potential sale of Citation.
On March 16, 1999, Citation's Board of Directors held a special meeting to
discuss how Citation intended to address the uncertainty surrounding Mr.
Hackney's continued interest in selling his Citation stock and the resulting
operational difficulties affecting Citation. Mr. Hackney began the meeting by
again expressing his desire to sell some or all of his stock in Citation, but
he emphasized that he wanted to do so in a manner that was in the best
interests of all of Citation's stockholders. The Board of Directors determined
that current market conditions would not accommodate a secondary public
offering involving Mr. Hackney's shares at an acceptable price, and declined to
pursue a potential stock repurchase involving Mr. Hackney's shares at a price
substantially in excess of the then-current market price. The Board authorized
Bear Stearns to solicit informal indications of interest for a recapitalization
or sale of Citation in order to determine whether a fair price could be
obtained under then existing market conditions. The Board of Directors agreed
that, if the expressions of interest so solicited indicated that a fair price
could be obtained, then it would reconvene for the purpose of determining
whether and how it should pursue a potential recapitalization or sale.
The Solicitation Process. During the weeks of March 15 and March 22, 1999,
Bear Stearns hosted nine meetings at its offices in New York to familiarize
potential acquirors or recapitalization partners with Citation's senior
management and to present Citation's long-term business plan, which was made
the subject of customary confidentiality agreements. During these meetings,
seven entities verbally indicated their interest in pursuing a potential
investment in Citation. On March 31, 1999, Bear Stearns sent each of these
seven interested parties a letter requesting the submission of written
indications of interest by April 8, 1999. This letter requested each party to
provide information relating to the proposed transaction structure, the
valuation of Citation, the method and availability of financing, expected due
diligence requirements, expected time required to close the transaction and a
list of closing conditions and any other issues deemed relevant to the
proposal.
40
Bear Stearns received written indications of interest, responsive to its
March 31 letter, from six entities, four of which indicated a valuation of
$17.00 per share or more. At that time, Citation's common stock was trading at
approximately $11.00 per share. Bear Stearns reviewed these indications of
interest with the Board of Directors at a meeting held on April 14, 1999, at
which the Board of Directors authorized Bear Stearns to invite the four
entities which had indicated a valuation of $17.00 per share or more to conduct
more extensive due diligence and to meet with Citation's senior management. At
this meeting, the Board also learned that a fifth entity was expected to meet
with Bear Stearns shortly, and the Board authorized Bear Stearns to invite this
fifth entity to conduct due diligence and meet with senior management if it
submitted a preliminary indication of interest with a valuation in excess of
$17.00 per share. This fifth entity subsequently submitted an indication of
interest in excess of $17.00 per share. During this same time, one potential
acquiror elected to withdraw from the process.
Between April 14 and May 24, 1999, Citation's senior management, with the
assistance of Bear Stearns, gave management presentations and facility tours to
four entities, accommodated their extensive legal and accounting due diligence
efforts, and met with representatives of their potential lending syndicates.
During this time, Citation also circulated a draft of a proposed merger
agreement to each of the four entities, indicating that the draft agreement
should be used as the basis for the submission of definitive written proposals
by no later than the evening of May 24, 1999.
On May 27, 1999, the Board of Directors held a regularly scheduled meeting
at which Bear Stearns reported that of the entities invited to do so, four had
submitted definitive written proposals. One entity proposed a merger as a
result of which $20.00 per share in cash would be paid to a "significant
minority" of Citation's stockholders (which it refused to quantify), and the
remainder of Citation's stockholders would receive shares of a newly formed
non-domestic entity which would survive the merger. A second proposal was for
$16.50 per share, less the amount necessary to cancel existing stock options,
to be paid to all of Citation's stockholders in cash. This purchase price was
also to be reduced by the amount by which the total debt of Citation at closing
exceeded $326.0 million. According to Bear Stearns, these purchase price
adjustments resulted in an effective offer price per share of $15.87. A third
entity offered $18.00 per share, between $14.50 and $16.50 of which would be
paid in cash, and between $3.50 and $1.50 of which would be paid in senior
preferred stock. The offeror indicated that the cash portion of the offer would
depend upon the timing of a potential transaction, with the payment of the
higher per share amount conditioned upon its ability to finance the transaction
based upon Citation's pro forma financial statements for the period ending
October 3, 1999, and the lower per share amount payable if the transaction were
financed based upon Citation's pro forma financial statements for earlier
periods. This entity refused to eliminate the preferred stock component and
submit an all-cash proposal. Kelso & Company offered $18.00 per share, to be
paid in cash in exchange for a minimum of 96% of Citation's currently
outstanding shares of common stock, with the right to acquire or cause to be
acquired the remaining 4% for the same per share price in cash if it could do
so and still achieve recapitalization accounting treatment for the proposed
transaction. Bear Stearns advised the Special Committee that, of the four
definitive proposals received, it considered Kelso & Company's proposal to be
the most favorable to Citation and its stockholders. Bear Stearns also pointed
out that Kelso & Company had submitted comments regarding Citation's suggested
form of merger agreement and was prepared to execute a definitive agreement
within five business days.
After receiving Bear Stearns' review of the strengths and weaknesses of each
of the proposals received, the Special Committee discussed the adequacy of
Kelso & Company's proposal in light of the current conditions affecting
Citation, particularly the uncertainty associated with Mr. Hackney's continuing
desire to liquidate all or a substantial portion of his holdings in Citation.
In this respect, Bear Stearns advised the Special Committee that, in its view,
the continuing uncertainty was disrupting Citation's business and could impair
its ability effectively to compete, could adversely affect its cost of capital
necessary to carry out its long-term business plan and could lead to management
attrition. The Special Committee authorized Bear Stearns and the Special
Committee's legal counsel to commence negotiations with the entities submitting
proposals concerning
41
the terms of a proposed transaction and the form of a proposed merger
agreement. This resolution of the Special Committee was subsequently adopted
unanimously by the full Board of Directors.
On May 28, 1999, Citation's legal and financial advisors invited Kelso &
Company to raise its offer to $19.00 per share, commit to acquire or cause to
be acquired 100% of Citation's shares and eliminate any financing condition to
closing the merger transaction. On May 28, 1999, Kelso & Company agreed to
increase its offer to $19.00 per share, refused to agree to the other two
requests and agreed to continue to negotiate the other terms and conditions of
the proposed transaction and the form of the proposed merger agreement. By
early June, 1999, substantially all of the terms and conditions of the proposed
transaction had been negotiated to the satisfaction of both Citation and Kelso
& Company, and their respective financial and legal advisors. However, just
prior to June 15, 1999, the date set for a meeting of the Board of Directors to
consider and act upon Kelso & Company's proposal, information was made
available concerning results for the month of May 1999 and the performance of
certain sectors of the economy, which caused the senior management of Citation
to conclude that Citation would probably not achieve the earlier projected
results of operations for fiscal years 1999 and 2000. Accordingly, management
felt obligated to revise its projections of operating performance, which no
longer represented management's expectation concerning Citation's future
operating results in light of the recent developments, and to inform
representatives of Kelso & Company of these revised projections of operating
performance. As a result, Kelso & Company indicated on June 15, 1999 that it
wanted to re-evaluate its $19.00 per share offer by conducting further
discussions with representatives of management and, as appropriate, its
prospective lenders.
Management reported these developments to the Board of Directors at its
specially called meeting held June 15, 1999. The Board of Directors decided
nonetheless to take the opportunity to evaluate in detail Kelso & Company's
most recent offer. Accordingly, at that meeting, Bear Stearns explained in
detail the terms of Kelso & Company's proposal and expressed its view that
Kelso & Company was capable of securing the financing necessary for it to
complete the proposed transaction. Richards, Layton & Finger then reviewed in
detail the various terms and conditions of the draft merger agreement. The
Board and its advisors also discussed the terms of the financing letters from
the financial institutions selected by Kelso & Company to provide the necessary
financing, including the qualifications and conditions of those financing
letters.
Approval of the Merger and Recapitalization. On June 22, 1999, Kelso &
Company, after further consultation with representatives of management and its
prospective lenders, submitted a revised offer of $17.50 per share. After
further negotiations with Bear Stearns, Kelso & Company increased its offer to
$18.10 per share and indicated that it was not prepared to go any higher. All
terms and conditions contained in its previous offer remained the same, except
that the proposed termination fee payable by Citation under certain
circumstances was reduced from $8.5 million to $8.179 million. On June 24,
1999, the Board of Directors convened and received a report from Bear Stearns
concerning the revised offer. Copies of the latest draft of the merger
agreement and of the financing letters had previously been distributed to the
Board of Directors. Bear Stearns then rendered to the Board its oral opinion
(which opinion was later confirmed by delivery of a written opinion) to the
effect that, as of June 24, 1999, based upon and subject to certain matters
stated in the opinion, the consideration to be received by the holders of
Citation common stock in Kelso's revised offer was fair to the stockholders of
Citation from a financial point of view. Bear Stearns also reviewed with the
Board the financial analyses performed by it in connection with its opinion and
the methodology utilized to evaluate the fairness of the merger consideration
(see "--Opinion of Financial Advisor").
The meeting of the Board of Directors was then recessed while the Special
Committee met. After taking into consideration the factors listed under
"Citation's Reasons for the Recapitalization and Merger; Recommendations of the
Board of Directors; Factors Considered by the Special Committee and the Board
of Directors" below, the Special Committee voted unanimously to recommend that
the Board of Directors approve the merger agreement on the grounds that it was
fair to, advisable and in the best interests of, Citation's stockholders. The
full Board of Directors then reconvened, and after receiving the recommendation
of the Special Committee, unanimously approved the proposed merger agreement
and authorized the
42
appropriate officers of Citation to execute the merger agreement and to take
all steps necessary to consummate the transactions contemplated thereby.
Immediately following the Board meeting on June 24, 1999, RSJ Acquisition
Co. and Citation entered into the merger agreement, RSJ Acquisition Co. and
certain family trusts and family limited liability companies affiliated with
Mr. Hackney entered into the voting agreement, and Citation issued a press
release announcing the merger.
Amendment No. 1 to the Merger Agreement. Throughout the course of Citation's
negotiations with Kelso & Company, the Board of Directors of Citation expressed
its desire that, if possible, the merger consideration be paid entirely in
cash. Consistent with that desire, the merger agreement, when it was executed
on June 24, 1999, provided that, so long as the merger would qualify as a
recapitalization for financial accounting purposes, RSJ Acquisition Co. was to
use its reasonable commercial efforts to cause there to be no reason for
stockholders of Citation to be stockholders of the surviving corporation. In
the event RSJ Acquisition Co. was able to cause that result, then the merger
agreement was to be deemed amended to provide for the merger consideration to
be paid entirely in cash, thereby eliminating the necessity for a stock
election by stockholders of Citation.
Subsequent to the execution of the merger agreement, during August 1999
representatives of Kelso & Company engaged in discussions with members of
management of Citation regarding the possible continuation of some equity
ownership in Citation by members of management, through elections to retain
their stock in connection with the merger or otherwise. In addition, certain
members of management expressed a desire, and Kelso & Company agreed, that
stock options currently held by officers and employees of Citation could, at
the election of the holder, be continued after the merger rather than canceled
in exchange for cash, as the merger agreement then provided. Accordingly, Kelso
& Company requested that the Board of Directors of Citation consider an
amendment to the merger agreement that would provide for the possible
continuation of outstanding options after the merger.
Also in August 1999, at the insistence of Kelso & Company, certain members
of Citation's management or their affiliates agreed to enter into the Stock
Election Agreements. In addition, given the likelihood that, as a result of the
execution of the Stock Election Agreements, shares of Citation common stock
would not qualify for listing on Nasdaq after the merger, Kelso & Company also
requested that the Board of Directors eliminate the condition in the merger
agreement that the shares of Citation common stock to be retained in the merger
be approved for listing on Nasdaq.
Earlier in August representatives of Kelso & Company had suggested that
Kelso & Company specify which existing stockholders be permitted to retain
their stock and thus eliminate the election feature of the merger agreement
entirely. Representatives of Citation rejected such a structure. Thereafter,
Kelso & Company informed Citation and its representatives that it would not
eliminate completely the necessity for some stockholders of Citation to
continue to own Citation common stock after the merger, since it viewed such an
arrangement as necessary to ensure that the transaction qualified as a
recapitalization for financial accounting purposes. Kelso & Company then
proposed that the merger agreement should be amended to eliminate the Nasdaq
listing requirement and to permit only holders of record of 20,000 or more
shares of Citation common stock to make the election to retain their shares.
Ultimately, Kelso & Company agreed to reduce the minimum stock election
requirement to 10,000 shares.
At meetings of the Special Committee and the Board of Directors held on
September 3, 1999, the directors were informed by members of management of the
foregoing developments, including the fact that the execution of the Stock
Election Agreements was at the insistence of Kelso & Company. Both Messrs.
Hackney and Warren informed the other members of the Board of Directors that
their decision to enter into the Stock Election Agreements was made solely as
an accommodation to Kelso & Company, and that neither of them would otherwise
have elected to retain any shares of Citation common stock in the merger. The
Special Committee and the Board of Directors recognized that the effect of the
Stock Election Agreements, assuming that the requisite number of shares would
be subject to those agreements, was to eliminate the possibility of
43
"forced" proration of retained shares for any stockholder of Citation who did
not make an election to retain shares. Given the likelihood that stockholders
of Citation other than the parties to the Stock Election Agreements would not,
under the circumstances, elect to retain shares, and because of the illiquidity
of the retained shares and other factors described under "Risk Factors," the
directors agreed to eliminate the condition in the merger agreement that the
retained shares be approved for listing on Nasdaq, as part of the overall
arrangement under which all stockholders other than those parties to the Stock
Election Agreements could receive all cash.
In light of (i) Kelso & Company's stated determination that it desired to
avoid having a number of small stockholders of Citation after the merger; (ii)
Kelso & Company's intention to operate Citation after the merger as a private
company; (iii) Kelso & Company's informing the directors that it would seek
after the merger to eliminate the holdings of small stockholders through a
reverse stock split or similar means; (iv) Kelso & Company's insistence on the
minimum share election requirement as a condition to proceeding with the merger
transaction; and (v) the belief by the Board of Directors that the receipt of
the cash merger consideration was preferable to the retention of stock in
Citation, the directors agreed to the requested 10,000 share minimum election
requirement. The directors also agreed to the revisions to the merger agreement
because Kelso & Company had advised Citation that doing so would enhance
Citation's ability to raise the financing necessary for the merger by
expediting the private placement of the senior subordinated notes. The
directors also approved the proposal to amend the merger agreement to provide
for the continuation of outstanding employee stock options and to revise
Citation's representation and warranty concerning litigation, as described
elsewhere in this proxy statement/prospectus, and determined to recommend that
stockholders of Citation not elect to retain shares of Citation common stock in
the merger. Two directors of Citation, each of whom owns more than 10,000
shares, informed the Board of Directors that they did not intend to make a
stock election.
The Special Committee voted unanimously to recommend that the Board of
Directors approve Amendment No. 1 to the merger agreement on the grounds that
it was fair to, advisable and in the best interests of, Citation's
stockholders. The full Board of Directors then met to receive the
recommendation of the Special Committee, unanimously approved the amendment to
the merger agreement and authorized the appropriate officers of Citation to
execute the amendment and to take all steps necessary to consummate the
transactions contemplated by the merger agreement, as amended.
Amendment No. 2 to the Merger Agreement. RSJ Acquisition Co.'s obligations
to close the transactions contemplated by the merger agreement, as executed on
June 24, 1999 and as amended on September 3, 1999, were conditioned upon, among
other things, Citation's receipt of approximately $200.0 million from the
issuance of senior subordinated notes, anticipated to take place at the same
time as the closing under the merger agreement, as amended. The senior
subordinated notes were to be general unsecured obligations of Citation, junior
to all existing and future senior indebtedness of Citation and equal in right
of payment to all other existing and future senior subordinated indebtedness of
Citation. While the interest rate, interest payment dates, maturity and other
material terms of the senior subordinated notes were to have been established
before completion of the merger, Citation anticipated, based upon the financing
letter described below, that these notes would have customary terms for this
type of financing, including registration rights and restrictions on
indebtedness, dividends, liens, affiliate transactions, stock repurchases and
mergers. In accepting the financing condition as part of the merger agreement,
Citation's Board of Directors considered the fully executed "highly confident"
letter issued by Donaldson, Lufkin & Jenrette Securities Corporation ("DLJ") in
June 1999 with respect to the placement of the subordinated debt, as well as
RSJ Acquisition Co.'s covenant to use its reasonable commercial efforts to
arrange for alternative financing in the event the financing contemplated by
the "highly confident" letter became unavailable.
During the month of September 1999, representatives of Citation, RSJ
Acquisition Co., DLJ and the other placement agents for the proposed
subordinated notes prepared a private placement memorandum for the notes,
commenced the offering thereof in a private placement under Rule 144A under the
Securities Act and tentatively scheduled the notes to be "priced" during the
week of September 27. On September 30, 1999,
44
Kelso & Company advised Bear Stearns that DLJ had not yet received sufficient
orders to price the notes and that additional efforts to sell the notes would
be made at the beginning of the following week.
On the afternoon of Friday, October 1, 1999, RSJ Acquisition Co. advised
Bear Stearns of its intention to develop contingency financing in the event
that the offering of senior subordinated notes was unsuccessful. At the close
of business on Tuesday, October 5, 1999, representatives of Bear Stearns,
Citation and legal advisors to Citation and the Special Committee participated
in a conference call during which Bear Stearns informed Citation that RSJ
Acquisition Co. had advised that DLJ had terminated its efforts to place the
senior subordinated notes due to unfavorable conditions in the markets for
high-yield debt securities. Bear Stearns further informed Citation that RSJ
Acquisition Co. had further advised that it was exploring certain alternative
financing sources, based upon two alternatives. The first alternative involved
an extension of the termination date under the merger agreement to March 31,
2000, with the closing of the transaction to be subject to obtaining the $200.0
million in financing pursuant to the subordinated notes offering as well as all
the other conditions to closing. Bear Stearns stated that the extension was
intended to allow time for the conditions in the markets for debt securities to
improve. The second alternative involved certain "bridge" financing to be
provided by DLJ and the other placement agents, conditioned upon certain
changes to the terms of the transaction, including an amendment to the merger
agreement reducing the cash merger consideration to $16.00 per share, coupled
with Kelso & Company's commitment to contribute or cause to be contributed an
additional $50.0 million in equity.
On the morning of Wednesday, October 6, before the market opened, Citation
notified The Nasdaq Stock Market that it would be issuing a statement and
requested that trading in Citation common stock be halted. Later that day,
Citation issued a news release stating that it had been advised that the notes
offering was not completed on the terms indicated in the June financing letter
provided by DLJ and that, under the circumstances, Citation believed that it
would be necessary to postpone the special meeting of stockholders, then
scheduled for Thursday, October 7, to vote on adoption of the merger agreement.
Citation stated that a postponement would be necessary in order to allow the
Board of Directors to consider possible financing arrangements by RSJ
Acquisition Co. as well as the effect of such arrangements on the merger
agreement and, if necessary, to disseminate updated or revised proxy materials
to stockholders.
The Citation Board of Directors met on Wednesday, October 6 to consider
Citation's rights under the merger agreement and the alternatives suggested by
RSJ Acquisition Co. Based on advice received, the Board considered the risk
that the merger agreement might terminate based on a failure to satisfy the
above described financing condition and determined that Citation should
continue discussions with RSJ Acquisition Co. concerning the terms of a
proposed amendment. At this meeting, the Board agreed that an extension of the
closing date with no material modifications to the financing arrangements was
unacceptable and that a revised cash consideration of $16.00 per share was
unacceptable. The Board also determined that, in view of the uncertainties then
existing with regard to the financing alternatives, it would be advisable to
adjourn the special meeting of stockholders to October 22, 1999.
On the evening of October 6, Bear Stearns contacted RSJ Acquisition Co. to
determine the status of the proposed alternative financing and the rationale
for its proposed reduction in the merger consideration to $16.00 per share.
Bear Stearns advised RSJ Acquisition Co. that the proposed $16.00 per share
merger consideration was inadequate. At that time, RSJ Acquisition Co. advised
Bear Stearns that it believed it could obtain a commitment for $135.0 million
in "bridge" financing and that, based on receipt of such financing and the
additional $50.0 million in equity that Kelso & Company was prepared to
contribute, it was then prepared to revise its offer of cash consideration to
$16.75 per share. In this regard, RSJ Acquisition Co. indicated that it was
exploring certain possible alternatives to the post-merger capitalization of
Citation that might avoid the necessity of additional shares of common stock of
Citation being retained by existing stockholders. At that time, RSJ Acquisition
Co. also advised Bear Stearns that it would need to research whether the
provisions concerning the retained equity necessary to achieve recapitalization
accounting treatment would need to be revised in light of the proposed revised
capital structure.
45
On October 7, 1999, Citation convened the special meeting of stockholders,
at which the Chairman announced that the merger and recapitalization proposal
that was originally the subject of the meeting would not be voted upon at that
time, in light of the recent developments. The stockholders thereupon voted to
adjourn the special meeting until Friday, October 22, 1999.
The Citation Board of Directors met again on Thursday, October 7 and, upon
receiving a status report from Bear Stearns, instructed Bear Stearns to
continue its discussions with RSJ Acquisition Co., placing particular emphasis
on price, strength of financing and expediency of closing. Later that
afternoon, in response to Bear Stearns' negotiation efforts, RSJ Acquisition
Co. increased its proposed amended offer from $16.75 per share to $17.00 per
share and committed to furnish documentation evidencing the alternative
financing package for Citation's review as soon as possible.
The Citation Board of Directors met again on Friday, October 8 to receive a
status report from Bear Stearns. Upon learning of RSJ Acquisition Co.'s offer
of $17.00 per share based upon a revised committed financing package, and based
upon advice received concerning the amount of financing sources apparently
available to RSJ Acquisition Co., the Board instructed Bear Stearns to urge RSJ
Acquisition Co. to increase its per share offer to at least $17.25 in cash and
also instructed Bear Stearns to request receipt of the financing documentation
as soon as possible.
RSJ Acquisition Co.'s representatives furnished documentation evidencing its
proposed amendment to the merger agreement and its alternative financing
package, fully executed by the prospective lenders, to Bear Stearns on the
evening of October 8 and on October 9. The proposed amendment to the merger
agreement reflected (i) proposed cash merger consideration of $17.00 per share
and (ii) a significant increase in the amount of common stock to be retained in
order for the transaction to achieve recapitalization accounting treatment. The
increase in common stock to be retained was, as described elsewhere herein,
necessary because of the increase in the proposed equity contribution of
affiliates and designees of Kelso & Company and the proposed reduction in the
cash merger consideration. Citation and its representatives reviewed these
documents over the weekend of October 8-10.
On the morning of Monday, October 11, after considering the documents and
advice received with respect to the proposed amended transaction, Citation's
Board of Directors instructed Bear Stearns to continue its attempt to elicit a
superior offer from RSJ Acquisition Co. with respect to price and strength of
financing. Also at this meeting, Mr. Hackney stated that he had earlier that
morning discussed with representatives of Kelso & Company the necessity for an
increase in retained common stock by existing stockholders, and he informed the
Board that he would agree to revise the stock election of Hackney One
Investments, LLC, if necessary to accommodate Kelso & Company in its desire for
recapitalization accounting treatment.
At a meeting of the Board of Directors held on October 12, representatives
of Bear Stearns reported that RSJ Acquisition Co. had declined to increase its
offer and had indicated that the proposed cash merger consideration of $17.00
per share was its highest and last offer. Representatives of Bear Stearns then
rendered Bear Stearns' oral opinion (which was later confirmed in writing)
that, as of October 12, 1999, the consideration to be received by Citation's
public stockholders in the revised proposal was fair to Citation's stockholders
from a financial point of view. At this meeting, Bear Stearns also reviewed
with the Board the financial analyses performed by it in connection with its
opinion and the methodology utilized to evaluate the fairness of the merger
consideration. (see "--Opinion of Financial Advisor"). Bear Stearns and
Citation's other advisors also reviewed the alternative financing
documentation, including the status of comments provided by Citation and its
advisors to such documentation.
The meeting of the Board of Directors was then recessed while the Special
Committee met to discuss the proposed amendment to the merger agreement and
Citation's other alternatives. After taking into consideration the factors
listed under "Citation's Reasons for the Recapitalization and Merger;
Recommendations of the Board of Directors--Factors Considered by the Special
Committee and the Board of Directors," the Special Committee resolved
unanimously to recommend that the Board of Directors approve the proposed
amendment
46
to the merger agreement and, after taking into consideration the factors listed
below under "Reasons for the Board of Directors' Recommendation that
Stockholders Not Elect to Retain Common Stock in the Merger," resolved
unanimously to reconfirm their earlier recommendation that stockholders not
elect to retain common stock in the merger but rather receive all cash. The
Board of Directors then reconvened to consider the recommendation of the
Special Committee. In connection with their consideration of the proposed
transaction and the recommendation of the Special Committee, directors who are
holders of at least 10,000 shares of common stock (including Messrs. Crowe,
Featheringill, Hackney, Sommer and Warren) stated their intention, to the
extent they were not obligated to elect to retain common stock under the Stock
Election Agreements described elsewhere herein, not to elect to retain common
stock of Citation in the merger. The Board of Directors then unanimously
approved the amendment to the merger agreement and recommended its adoption to
the stockholders, and also resolved unanimously to reconfirm the Board's prior
recommendation to the stockholders that they not elect to retain common stock
in the merger but rather receive all cash.
Citation's Reasons For The Merger and Recapitalization; Recommendation of the
Board of Directors
Citation's Reasons for the Merger and Recapitalization
The Special Committee's and the Board's decisions to enter into the merger
agreement in June 1999 were based, in large part, upon balancing the risks and
benefits of the merger and recapitalization transaction against the risks of
Citation's continuing to operate its business and attempting to implement its
long-term business strategies. Applying their knowledge of Citation's business,
financial condition, prospects, current business strategy and opportunities, as
well as Citation's position in its industry, the directors considered the
following risks and made the following determinations in evaluating Citation's
ability to achieve its objectives:
Market Uncertainty and Control over the Transaction Process. Mr. Hackney
desired to sell all or a substantial portion of his ownership of Citation
common stock. This desire created a market "overhang" which, in the opinion
of Bear Stearns, could present a continuing source of downward pressure on
the market price of Citation's common stock. Accordingly, the Special
Committee believed that it was in the best interests of all stockholders of
Citation to take action which would eliminate this continuing downward
pressure on the stock. In addition, the Special Committee determined that
it was in the best interests of all stockholders for the Special Committee
and the Board of Directors to control the process pursuant to which Mr.
Hackney would liquidate his position in Citation common stock so as to
ensure the equitable and fair treatment of all stockholders.
Potential for Management Attrition. As discussed above, Citation is a
holding company with a diverse group of operating subsidiaries. The Special
Committee believed that it is extremely important under these circumstances
to have a strong, experienced and cohesive central management team to
combine this diverse group into an efficient, consolidated operation. Mr.
Hackney's intention to sell all or a portion of his stock in Citation to a
third party or parties created significant uncertainty among members of
Citation's senior management concerning their ongoing operating
responsibilities, as well as their employment security. The Special
Committee further believed that Citation's competitors might seek to take
advantage of that uncertainty by attempting to solicit and hire certain
members of senior management. Accordingly, the Special Committee determined
that it was in the best interests of Citation's stockholders to resolve the
uncertainty concerning Citation's future ownership in an effort to retain
existing management, the loss of any member of which could adversely affect
Citation's ability to achieve its long-term business plan as an independent
entity.
Customer Uncertainty. During the course of its growth and development,
Citation's customer base has expanded from local manufacturing facilities
to include international original equipment manufacturers such as Ford
Motor Company and Caterpillar Inc. and Citation's operating subsidiaries
have established long-term supply arrangements with customers based upon
their experience with Citation's engineering and production capabilities,
management integrity and commitment to quality. In the current, highly
competitive marketplace, the Special Committee believed that Citation must
continuously reaffirm those
47
attributes which have served Citation well over the last 25 years under Mr.
Hackney's leadership and reputation. As a result of the speculation and
uncertainty about the future management and control of Citation, it became
increasingly difficult to reaffirm these attributes to our customers.
Accordingly, the Special Committee believed that it was in the best
interests of Citation's stockholders to resolve the uncertainty concerning
Citation's future management and control in an effort to avoid potential
deterioration in its established customer relationships.
Having considered the risks associated with continuing to operate as an
independent entity in light of substantial uncertainty concerning the future
management and control of Citation, the Special Committee considered the
following benefits of a potential recapitalization or sale of Citation:
Realize Current Value. As described above, the Special Committee recognized
that a prolonged inability to resolve the uncertainty concerning the future
management and control of Citation could adversely affect its business and
financial condition. The Special Committee considered a current
recapitalization or sale of Citation to be the best means by which
stockholders could realize the current value of Citation, including the
value inherent in its business objectives.
Fair Treatment of All Stockholders. As mentioned above, the Special
Committee considered various means of resolving the uncertainty concerning
Citation's future management and control in a manner which would also
eliminate the "market overhang," including a secondary offering or
repurchase of Mr. Hackney's shares. After considering these various
alternatives, the Special Committee concluded that a recapitalization
involving a new equity partner or a sale of the entire company would
eliminate this uncertainty, while at the same time treating all
stockholders fairly. Accordingly, Bear Stearns was authorized to determine
if a sale of, or leveraged recapitalization involving, Citation could be
accomplished at a fair price.
Factors Considered by the Special Committee and the Board of Directors
In deciding to recommend approval of the merger agreement on June 24, 1999
and Amendment No. 1 to the merger agreement, on September 3, 1999 the Special
Committee considered the following factors as supporting its recommendation:
. current and historical market prices and trading history of the shares
of Citation common stock and the relationship of the merger
consideration to the historical and recent trading prices of shares of
Citation common stock, including the fact that the proposed merger
consideration of $18.10 per share represented a 25.9% premium over the
closing price of the common stock on June 23, 1999, the last trading day
prior to the Special Committee's determination;
. the results of operations, financial condition, assets, liabilities,
business strategy and prospects of Citation and the nature of the
industry in which Citation competes;
. the potentially disruptive effects on Citation's management team and
customer relationships (and resulting adverse effect on the market value
of Citation common stock) which might arise if the uncertainty
surrounding the future ownership and control of Citation (all of which
are more fully discussed above) were not resolved;
. its judgment that Kelso & Company's offer reflected the current value of
Citation which is inherent in its potential, as well as the risk of not
being able to achieve it;
. the fact that Bear Stearns contacted a substantial number of potential
bidders over an extended period of time in a process designed to elicit
proposals to acquire or recapitalize Citation, that no party had
submitted a definitive offer more favorable than Kelso & Company's, and
that participants in the bidding process had been afforded sufficient
time and information to submit a more favorable proposal had they wished
to do so;
. the arm's-length negotiations between the Special Committee and its
representatives and Kelso & Company and its representatives;
48
. Kelso & Company's strong business reputation and successful completion
of transactions similar to the merger;
. Bear Stearns' view that Kelso & Company's financing proposals are
realistic and reasonable, and that the proposed transaction has a high
likelihood of closing;
. the fact that all stockholders other than those who are parties to the
Stock Election Agreements would have the opportunity to receive the cash
merger consideration for all of their shares and that all stockholders
who retain shares will have the opportunity to enter into the same
stockholder and registration rights agreements to which the parties to
the Stock Election Agreements will be subject;
. the terms and conditions of the merger agreement, including provisions
of the merger agreement which permit the Board of Directors to withdraw
its recommendation of the merger in the event of an unsolicited third
party proposal which is superior to the merger, or to enter into an
agreement with a third party which has proposed a superior proposal, in
either case, if the Board of Directors determines in good faith that
failing to do so would create a reasonable possibility of a breach of
its fiduciary duties and satisfies the other conditions set out in the
merger agreement;
. the availability of appraisal rights under Section 262 of the General
Corporation Law of the State of Delaware to stockholders of Citation in
connection with the merger;
. the fact that the terms of the merger agreement do not provide for the
survival of the representations and warranties made by Citation, nor do
they require any portion of the merger consideration to be set aside or
held in escrow for the purpose of satisfying indemnity provisions; and
. Bear Stearns' opinion that, as of June 24, 1999, the merger
consideration of $18.10 per share was fair, from a financial point of
view, to Citation's stockholders.
In deciding to recommend approval of Amendment No. 2 to the merger agreement
on October 12, 1999, the Special Committee considered all of the foregoing
factors, as well as the following factors, as supporting its recommendation:
. the fact that the proposed revised merger consideration of $17.00 per
share represented a premium of 18.3% over the closing price of the
common stock on June 23, 1999, the last trading day prior to the Special
Committee's determination;
. the revised financing commitments received by the Company and RSJ
Acquisition Co., including Kelso & Company's commitment to invest or
cause to be invested $240.0 million, and Bear Stearns' view that, in
light of market conditions, these revised proposals were realistic and
reasonable;
. the increase in the proposed merger consideration offered by RSJ
Acquisition Co. from $16.00 per share to $17.00 per share as a result of
negotiations with Bear Stearns between October 6, 1999 and October 12,
1999;
. RSJ Acquisition Co.'s statement on October 12, 1999 that the revised
merger consideration was its highest and final offer;
. the Special Committee's understanding of recent conditions in the
markets for high-yield debt securities which caused the termination of
the proposed $200.0 million senior subordinated notes offering;
. the fact that, since the public announcement of the proposed merger and
recapitalization on June 24, 1999, no third party had contacted Citation
or Bear Stearns to express any interest in discussing a business
combination transaction with Citation;
. Bear Stearns' opinion that, as of October 12, 1999, the merger
consideration is fair, from a financial point of view, to Citation's
stockholders;
. legal redress available to Citation to force the merger to close at the
$18.10 per share price; and
49
. the prospects of Citation on a stand-alone basis and the effect of
continuing to be a stand-alone corporation on Citation's stockholders
(including consideration of the trading price of Citation's common stock
since Citation's October 6, 1999 announcement).
The Special Committee also considered the following factors, none of which
supported its recommendation:
. the fact that existing stockholders of Citation, including certain
current executive officers, would own approximately 7.0% of the common
stock of Citation immediately after the merger, which would decrease,
relative to their current interest in Citation, the stockholders'
opportunity as a group to participate in any future growth of Citation
following the merger;
. the provisions in the merger agreement relating to the fee and expense
reimbursements to RSJ Acquisition Co. payable by Citation upon
termination of the merger agreement as a result of, among other things,
Citation's acceptance of a competing offer that is superior to the
merger;
. the fact that the market price of Citation common stock after the merger
may be influenced by many factors, including, among others, the
financial leverage of Citation and the fact that shares of Citation
common stock after the merger would likely not be as marketable or
liquid as prior to the merger;
. the interests of certain officers and directors in the merger and
recapitalization transaction, presenting certain potential conflicts of
interest (see "--Interests of Certain Persons in the Merger and
Recapitalization"); and
. the fact that representatives of Kelso & Company had insisted on a
minimum share election of at least 10,000 shares.
In approving the merger agreement and the amendments to the merger
agreement, the Board of Directors considered the conclusions and
recommendations of the Special Committee and the factors referred to above that
were taken into account by the Special Committee. The Board of Directors,
including the members of the Special Committee, also believes that the merger
and recapitalization transactions are procedurally fair because, among other
things:
. the Special Committee consisted of independent directors appointed to
represent the interests of all Citation's stockholders;
. the Special Committee retained and received advice from independent
legal counsel retained solely for the purpose of rendering that advice;
. the Special Committee retained Bear Stearns as its financial advisor to
assist it in evaluating a potential transaction and received extensive
advice from Bear Stearns;
. the deliberations pursuant to which the Special Committee evaluated the
proposed merger and recapitalization transactions with Kelso & Company;
. the terms and conditions of the merger agreement, as amended, resulted
from active arm's-length bargaining between representatives of the
Special Committee, on the one hand, and representatives of Kelso &
Company, on the other hand; and
. the Special Committee authorized its advisors to solicit indications of
interest from potential interested parties, resulting in a definitive
proposal from several interested parties, including Kelso & Company.
Recommendation of the Board of Directors
Based on the reasons described in this proxy statement/prospectus, including
its judgment that a recapitalization or sale of Citation was advisable and in
the best interests of Citation's stockholders and that the recapitalization
transaction proposed by Kelso & Company most effectively maximizes Citation's
current value, and the opinion of Bear Stearns that, as of October 12, 1999,
the recapitalization proposed by Kelso &
50
Company is fair, from a financial point of view, to Citation's stockholders,
the Special Committee has recommended that the Board of Directors approve the
merger agreement as amended. For the same reasons, the Board of Directors
(a) determined that the merger agreement, the amendments to the merger
agreement and the transactions contemplated thereby, including the merger, are
fair to, advisable and in the best interests of the stockholders of Citation,
and (b) recommended that Citation's stockholders adopt the merger agreement, as
amended, and not elect to retain any Citation common stock in the merger. THE
BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE FOR THE PROPOSAL TO ADOPT THE
MERGER AGREEMENT, AS AMENDED, AND THAT YOU NOT ELECT TO RETAIN ANY CITATION
COMMON STOCK, AND INSTEAD ELECT TO RECEIVE CASH IN THE MERGER.
Reasons for the Board of Directors' Recommendation that Stockholders Not Elect
to Retain Common Stock in the Merger
The Board of Directors of Citation determined to recommend that stockholders
not elect to retain common stock and instead receive all cash for all of their
shares based on a number of factors, including:
. the Citation common stock will not be listed on Nasdaq, any other
securities exchange or any over the counter market after the merger;
accordingly, there will be no public market for any retained shares of
Citation common stock;
. the fact that Kelso & Company has stated its intention to operate
Citation following the merger as a private company. Examples of this
include:
. the cash fee of approximately $8.5 million that we understand Kelso
& Company will cause Citation to pay to it upon completion of the
merger, and the annual monitoring fee of $850,000 we understand
Kelso & Company will charge Citation for monitoring and other
services it will provide. The Board of Directors believes these fees
may dilute the value of a retained share of Citation common stock;
. the option that we understand Kelso Investment Associates VI, L.P.
and KEP VI, LLC, the controlling stockholders of Citation after the
merger, will cause Citation to grant to them upon the completion of
the merger that will allow them to purchase from Citation within one
year of the merger an unlimited number of shares of common stock of
Citation for a per share price equal to the lesser of $17.00 in cash
or the fair market value of a share of common stock, based on an
appraisal;
. the possibility that Kelso Investment Associates VI, L.P. and KEP
VI, LLC, as the controlling stockholders of Citation following the
merger, will cause certain shares of Citation common stock not owned
by them to be converted into the right to receive cash or take other
actions to dilute, reduce or eliminate the ownership interest of
minority stockholders; and
. the fact that Kelso Investment Associates VI, L.P. and KEP VI, LLC,
together with certain members of management of Citation or their
affiliates, have agreed to enter into agreements among themselves
and Citation, providing for, among other things, restrictions on
transfer, rights of first refusal, registration rights and other
matters which will affect their ownership of Citation common stock;
. the fact that continued ownership of Citation common stock after the
merger will be subject to a number of risks, as described in this proxy
statement/prospectus under "Risk Factors" on page 26;
. the fact that the commitment letter in connection with the senior
subordinated increasing rate bridge financing calls for Citation to
place warrants, equal to 5% of its fully diluted common stock, in an
escrow account, such warrants to be used as necessary in connection with
reselling or refinancing the bridge notes or loans. The issuance of
common stock resulting from the exercise of these warrants would cause
dilution to the post-merger holdings of Citation's stockholders; and
51
. the fact that Bear Stearns advised the Board of Directors, including the
Special Committee, that its opinion regarding the fairness of the merger
consideration, from a financial point of view, attributed no value to
the retained shares inasmuch as, in Bear Stearns' view, any value which
could be attributed to the retained shares would be affected by
significant discounts due to the speculative nature of the retained
shares, the minority interest represented by the retained shares and the
lack of marketability of such shares and, accordingly, the value of a
retained share would be of less value than $17.00 in cash.
Opinion of Financial Advisor
The Board of Directors retained Bear Stearns to act as its financial advisor
and to render an opinion to the Board of Directors as to the fairness, from a
financial point of view, to Citation's public stockholders of any transaction
that the Board of Directors might approve. Bear Stearns is an internationally
recognized investment banking firm with substantial experience in transactions
similar to the merger and recapitalization and the Board of Directors retained
Bear Stearns based upon its expertise and reputation, as well as its prior
investment banking relationship with Citation. Bear Stearns, as part of its
investment banking business, is continuously engaged in the valuation of
businesses and securities in connection with mergers and acquisitions,
negotiated underwritings, competitive biddings, secondary distributions of
listed and unlisted securities, private placements and valuations for corporate
and other purposes.
At the meeting of Citation's Board of Directors on October 12, 1999, Bear
Stearns presented its analysis of the proposed transaction. At the meeting,
Bear Stearns also delivered its oral opinion to the Board of Directors,
subsequently confirmed in writing, to the effect that, as of that date, the
merger consideration was fair, from a financial point of view, to Citation's
public stockholders.
The full text of the Bear Stearns opinion is attached as Annex B to this
proxy statement/prospectus. The Bear Stearns opinion was intended solely for
the benefit and use of Citation's Board of Directors in its evaluation of the
merger and recapitalization transaction. Citation stockholders are urged to,
and should, read the Bear Stearns opinion carefully in its entirety in
conjunction with this proxy statement/prospectus for the assumptions made,
matters considered and limits of the review by Bear Stearns. The Bear Stearns
opinion addresses only the fairness of the merger consideration, from a
financial point of view, to Citation's public stockholders and does not
constitute a recommendation to the Board of Directors or to any Citation
stockholder as to how to vote in connection with the transaction. The summary
of the Bear Stearns opinion set forth in this proxy statement/prospectus is
qualified in its entirety by reference to the full text of the opinion.
In rendering its opinion, Bear Stearns, among other things:
. reviewed the merger agreement, as proposed to be amended;
. reviewed Citation's audited financial statements for the fiscal years
ended September 29, 1996 through September 27, 1998 and unaudited
financial statements for the fiscal quarters ended December 27, 1998,
March 28, 1999 and June 27, 1999;
. reviewed certain operating and financial information, including interim
financial information and projections, provided to Bear Stearns by
management relating to Citation's business and prospects;
. met with certain members of Citation's senior management to discuss its
operations, historical financial statements and future prospects;
. reviewed publicly available financial data, stock market performance
data and valuation parameters of companies which Bear Stearns deemed
generally comparable to Citation;
. reviewed indications of interest, offers to purchase Citation and
recapitalization proposals received by Citation from third parties other
than Kelso & Company; and
. conducted such other studies, analyses, inquiries and investigations as
Bear Stearns deemed appropriate.
52
In the course of its review, Bear Stearns relied upon and assumed, without
independent verification, the accuracy and completeness of the financial and
other information provided to Bear Stearns by Citation. Bear Stearns did not
assume any responsibility for the independent verification of any such
information and it further relied upon the assurances of the senior management
of Citation that they were unaware of any facts that would make the information
provided to Bear Stearns incomplete or misleading. In arriving at its opinion,
Bear Stearns did not perform or obtain any independent appraisal of the assets
or liabilities of Citation, nor was it furnished with any appraisals. For
purposes of rendering its opinion, Bear Stearns assumed, in all respects
material to its analysis, that the transaction will be completed substantially
in accordance with the terms set forth in the merger agreement, as amended,
that the representations and warranties of each party contained in the merger
agreement as amended were true and correct, that each party will perform all of
the covenants and agreements required to be performed by it under the merger
agreement as amended and all conditions to the consummation of the transaction
will be satisfied without waiver by Citation or RSJ Acquisition Co. Bear
Stearns did not express any opinion as to the price or range of prices at which
the Citation common stock may trade following completion of the merger. Bear
Stearns noted that subsequent to the public announcement of the unsuccessful
placement of senior subordinated notes, no third party had emerged expressing
interest in pursuing an alternative transaction with Citation. The Bear Stearns
opinion is necessarily based on economic, market and other conditions, and the
information made available to Bear Stearns, as of October 12, 1999.
The following is a brief summary of the material financial analyses reviewed
by Bear Stearns in connection with rendering its opinion to the Board of
Directors.
Stock Trading History. Bear Stearns reviewed the historical market prices of
Citation common stock during the 12-month period prior to the date of the Bear
Stearns opinion. Bear Stearns observed that the per share cash consideration to
be received by Citation's public stockholders (assuming they elected to receive
all cash) in connection with the merger represented the following premiums to
selected closing prices of Citation common stock at various times during the
period from 12 months preceding the announcement of the original transaction
and the date of the Bear Stearns opinion:
Premium of
Total
Consideration
Price ($17.00)
------ -------------
Market Price on 6/23/99.................................... $14.38 18.3%
52-Week High (9/27/99)..................................... $17.31 (1.8%)
52-Week Low (10/16/98)..................................... $ 7.50 126.7%
20-Day Trailing Average(1)................................. $14.81 14.8%
3-Month Trailing Average(1)................................ $12.69 34.0%
6-Month Trailing Average(1)................................ $11.95 42.3%
1-Year Trailing Average(1)................................. $12.35 37.7%
- --------
(1) Periods leading up to June 23, 1999.
Comparable Companies Analysis. Bear Stearns reviewed and compared the
financial and stock market performance of Citation to the financial and stock
market performance of certain publicly traded companies in the casting and
forging industries that Bear Stearns believed were generally comparable to
Citation. These companies included Amcast Industrial Corp., Hayes Lemmerz
International, Inc., Intermet Corp. and Precision Castparts Corp. For each of
the comparable companies, Bear Stearns reviewed certain publicly available
financial data, valuation statistics, financial ratios, published earnings
estimates for 1999 and 2000 and stock market information. Bear Stearns
calculated the ratios of the comparable companies' stock prices as of
October 7, 1999 to their respective earnings per share ("P/E") during the last
12-month period ("LTM") and projected 1999 and 2000 earnings per share, and
also calculated the ratio of the comparable companies' enterprise values (i.e.,
equity value plus debt less cash and cash equivalents) ("EV") as of October 7,
1999 to their respective LTM and projected 1999 earnings before interest,
taxes, depreciation and amortization
53
("EBITDA"). Bear Stearns observed that the proposed transaction consideration
implied valuation multiples that exceeded most of the trading multiples of the
comparable companies:
Stock Price LTM FY1999 FY2000 EV / LTM EV / 1999
(10/7/99) P/E P/E P/E EBITDA EBITDA
----------- ----- ------ ------ -------- ---------
Amcast....................... $13.19 10.7x 7.9x 6.7x 4.5x 3.2x
Hayes-Lemmerz................ $23.88 10.2x 9.7x 7.7x 5.5x 5.2x
Intermet..................... $ 9.25 5.5x 5.9x 4.6x 3.7x 3.0x
Precision Castparts.......... $30.69 6.9x 7.5x 6.7x 4.7x 4.8x
Harmonic Mean................ 8.0x 8.1x 6.2x 4.6x 3.8x
Transaction Consideration.... $17.00 21.7x 17.3x 11.3x 6.5x 6.1x
Bear Stearns chose the comparable companies because they have general
business, operating and financial characteristics similar to those of Citation.
However, Bear Stearns noted that no company used in the foregoing analysis is
identical to Citation. Accordingly, Bear Stearns did not rely solely on the
mathematical results of the analysis, but also made qualitative judgments
concerning differences in financial and operating characteristics of Citation
and the comparable companies that could affect the values of each.
Comparable Acquisitions Analysis. Bear Stearns reviewed and analyzed certain
publicly available financial information related to 16 merger and acquisition
transactions pending or completed during the previous four years that it deemed
generally comparable to the proposed merger and recapitalization. These
transactions included the following (acquired company / acquiring company):
Precision Castparts Corp. / Wyman-Gordon Company; J.L. French Automotive
Castings Inc. / Onex Corp.; Groupe Valfond / UBS Capital; CMI International
Inc. / Hayes-Lemmerz International, Inc.; David Brown Group plc/ Textron, Inc.;
Eaton Corp. (Suspension Division) / Oxford Automotive Inc.; Triplex Lloyd plc /
Doncasters plc; Accuride Corp. (Phelps Dodge Corp.) / Kohlberg, Kravis,
Roberts; Neenah Corp. / Citicorp Venture Capital Ltd.; Howell Industries Inc. /
Oxford Automotive Inc.; A.O. Smith Corp. (Automotive Unit) / Tower Automotive,
Inc.; Lemmerz Holdings, Inc. / Hayes Wheels International, Inc.; Sudbury, Inc.
/ Intermet Corp.; Varity Corp. / Lucas Industries plc; Hayes Wheels
International, Inc. / Motor Wheel Corp.; and Doehler-Jarvis, Inc. / Harvard
Industries, Inc. For each of these transactions, Bear Stearns calculated
certain valuation statistics including the ratio of EV to LTM EBITDA, the ratio
of EV to LTM earnings before interest and taxes ("EBIT") and the ratio of
equity value to LTM net income. Bear Stearns observed that the transaction
consideration implied valuation multiples that compared favorably to the
comparable transactions:
EQUITY
EV / LTM EV / LTM VALUE / LTM
EBITDA EBIT Net Income
-------- -------- -----------
Harmonic Mean of Comparable Transactions...... 6.9x 11.6x 18.0x
High of Comparable Transactions............... 9.3x 16.6x 33.6x
Low of Comparable Transactions................ 5.0x 6.8x 10.7x
Transaction Consideration..................... 6.5x 12.6x 21.4x
Bear Stearns noted that no transaction used in the foregoing analysis is
identical to the proposed merger and recapitalization transaction. Accordingly,
an analysis of the results of the foregoing is not mathematical; rather, it
involves a number of considerations and judgments concerning differences in
financial and operating characteristics of the companies and the comparable
transactions and other factors that could affect the value of the companies or
transactions to which Citation or the merger and recapitalization are being
compared.
Discounted Cash Flow Analysis. Bear Stearns performed a discounted cash flow
analysis of Citation based upon the following financial projections prepared by
Citation's management for the fiscal years ending September 2000 through
September 2003: the projections shared by management of Citation with
prospective
54
lenders and investors involved in the transaction financing and a downturn
sensitivity case that uses more conservative assumptions regarding Citation's
growth. The latest management projections assume that annual automotive
production remain at current levels, which are significantly higher than the
historical average, and that Citation's industrial end-markets begin to recover
in fiscal 2000 after contracting significantly in fiscal 1999. In addition, the
projections envision sales growth that exceeds the projected growth of
Citation's end-markets, as well as increases in operating margins due to
anticipated productivity improvements. The downturn sensitivity case
projections address the historical cyclicality of Citation's end-markets,
assuming more conservative automobile and heavy truck build rates as well as a
slower recovery in Citation's other industrial end-markets. Based on its
understanding of Citation's end-markets and historical performance, Bear
Stearns noted the downturn sensitivity case represented a realistic estimate of
the likely outcome if economic conditions exhibited their historical
cyclicality.
Using a range of discount rates reflecting Bear Stearns' estimate of
Citation's weighted average after-tax cost of capital, Bear Stearns calculated,
for each financial case, the present value of the projected free cash flows for
each of the 2000 through 2003 fiscal years and the present value of the
terminal value of Citation at the end of the 2003 fiscal year. Bear Stearns
calculated free cash flow for each fiscal year as tax-affected earnings before
interest and taxes, plus depreciation and amortization, less capital
expenditures and less incremental working capital requirements. Terminal value
was computed by applying a range of assumed growth rates of free cash flow into
perpetuity. The following table shows the assumed range of discount rates and
perpetual growth rates used in the analysis, as well as the range of implied
per share equity values for both the target case and the downturn sensitivity
case:
Range
------------------
Discount Rate Assumption............................... 10.0% -- 11.0%
Perpetual Growth Rate of Free Cash Flow Assumption..... 2.5% -- 3.5%
Implied Equity Value per Share ........................
Latest Management Projections......................... $15.43 -- $24.02
Downturn Sensitivity Case............................. $13.64 -- $21.63
To calculate the aggregate net present value of the equity of Citation, Bear
Stearns subtracted total debt minus cash and cash equivalents of Citation as of
June 27, 1999, from the sum of the present value of the projected free cash
flows and the present value of the terminal value. Based on this analysis and
the assumptions set forth above, Bear Stearns calculated the implied equity
value per fully diluted share of Citation common stock to be between $15.43 and
$24.02 per share for the latest management projected case and between $13.64
and $21.63 per share for the downturn sensitivity case.
Although Bear Stearns did not express an opinion as to the range of prices
at which Citation common stock may trade following the merger and
recapitalization, Bear Stearns noted that the retained equity would be largely
illiquid because of the significantly reduced public shares outstanding and the
fact that the shares will not be listed on Nasdaq, any other securities
exchange or any over-the-counter market. Bear Stearns also noted that the
presence of the bridge financing made the retained equity particularly
unsuitable for public stockholders. Bear Stearns advised the Board that, in
reaching its conclusion as to the fairness of the transaction from a financial
point of view to the public stockholders, it had ascribed no value to the
retained equity.
The preparation of a fairness opinion is a complex process and involves
various judgments and determinations as to the most appropriate and relevant
assumptions and financial analyses and the application of these methods to the
particular circumstances involved. Bear Stearns' opinion is therefore not
necessarily susceptible to partial analysis or summary description, and taking
selected portions of the analyses or of the summary described above, without
considering the analysis as a whole, would, in the view of Bear Stearns, create
an incomplete and misleading picture of the processes underlying the analyses
considered in rendering its opinion. Bear Stearns did not form an opinion as to
whether any individual analysis or factor (positive or negative), considered in
isolation, supported or failed to support the Bear Stearns opinion. In arriving
at its opinion, Bear Stearns considered the results of its separate analyses
and did not attribute particular weight to any one analysis or factor. The
analyses performed by Bear Stearns, particularly those based on estimates and
55
projections, are not necessarily indicative of actual values or actual future
results, which may be significantly more or less favorable than those results
suggested by these analyses. These analyses were prepared solely as part of the
Bear Stearns analysis of the fairness, from a financial point of view, of the
merger consideration to Citation's public stockholders.
Pursuant to the terms of its engagement letter with Bear Stearns dated as of
November 25, 1998, Citation paid Bear Stearns a retainer fee of $100,000 and
has paid Bear Stearns additional quarterly fees of $100,000 for each period of
its engagement. Citation has also paid Bear Stearns a fee of $650,000 (against
which the fees previously paid are to be credited) for rendering its opinion
related to the original transaction. Citation has also agreed to pay Bear
Stearns a total fee equal to 0.80% of the aggregate value of the transaction,
which includes the assumption of debt, capital leases and certain other
liabilities. This fee, in the aggregate amount of approximately $4.8 million,
against which fees previously paid are to be credited, is payable upon
completion of the transaction. In addition, Citation has agreed to reimburse
Bear Stearns for all out-of-pocket expenses incurred by it in connection with
the transaction, including reasonable fees and disbursements of legal counsel.
Citation has also agreed to indemnify Bear Stearns against certain liabilities
in connection with its engagement, including certain liabilities under the
federal and state securities laws.
Bear Stearns has been previously engaged by Citation and Kelso & Company to
provide certain investment banking and financial advisory services. Frank T.
Nickell, President and Chief Executive Officer of Kelso & Company, is a member
of the Board of Directors of The Bear Stearns Companies, Inc., parent of Bear
Stearns. Subsequent to the rendering of its opinion, Bear Stearns was asked to,
and will, participate in the offering of senior subordinated notes described in
this proxy statement/prospectus in connection with the transaction based on its
experience and knowledge of Citation from previous investment banking services
provided to Citation. In the ordinary course of business, Bear Stearns may
actively trade the securities of Citation for its own account and for the
accounts of its customers and, accordingly, may, at any time, hold a long or
short position in Citation's securities.
Certain Estimates of Future Operations and Other Information
During the course of the solicitation process conducted by Bear Stearns as
described above, and Citation's negotiations with Kelso & Company, management
of Citation prepared certain nonpublic projected financial information
reflecting management's estimates as to the possible future operating
performance of Citation over the five fiscal years ending in September 2003.
This information, which does not give effect to the merger and
recapitalization, was provided to both Bear Stearns and to Kelso & Company on a
confidential basis. The following table summarizes these estimates:
Projected Fiscal Year(1)
(in thousands)
--------------------------------------------------
1999 2000 2001 2002 2003
-------- -------- ---------- ---------- ----------
Net sales................... $818,300 $920,000 $1,009,900 $1,050,000 $1,088,900
Gross profit................ 138,600 172,400 195,200 210,400 222,500
Selling, general &
administrative expenses.... 77,400 84,800 89,900 92,200 94,100
Operating income............ 61,200 87,600 105,300 118,200 128,400
- --------
(1) Citation operates on a 52- or 53-week fiscal year ending on the Sunday
closest to September 30. Fiscal 1999 is a 53-week year.
Management of Citation also prepared certain nonpublic projected financial
information reflecting management's estimates as to the possible future
operating performance of Citation taking into account the historical
cyclicality of Citation's end markets. This scenario was based upon certain
assumptions regarding a decrease in the production in automobile units in years
2001 and 2002, as well as a slower recovery in Citation's other industrial
markets. The projected financial information in this scenario indicated net
sales of $865.8 million, $916.0 million, $962.6 million and $1,010.9 million,
respectively, and operating income of $67.2 million, $77.0 million, $84.4
million and $93.5 million, respectively, for fiscal years 2000 through 2003.
56
As described above, as a result of information concerning results for the
month of May 1999, management of Citation concluded that Citation would not
achieve its earlier projected results of operations for fiscal years 1999 and
2000, based upon financial results for the year-to-date as well as concerns
that certain sectors of the economy were not showing anticipated improvement
inherent in the earlier forecast. Accordingly, in late June 1999 management
revised the projections of future operating performance for those fiscal years,
in light of these recent developments. Bear Stearns, Kelso & Company and
prospective lenders and investors in connection with the proposed financing for
the transaction were informed of the revised projections of operating
performance for fiscal 1999 and fiscal 2000. These revised projections for
fiscal 1999 and 2000 are summarized in the following table:
Projected Fiscal
Year
(in thousands)
-----------------
1999 2000
-------- --------
Net sales.............................................. $805,738 $896,851
Gross profit........................................... 129,783 160,673
Selling, general & administrative expenses............. 72,809 83,430
Operating income....................................... 56,974 77,243
Since June 1999, these projections have been subject to further review and
revision by management to take into account Citation's actual results for the
most recent fiscal quarter and to make certain other corrections.
These estimates do not give effect to the merger and recapitalization and
should be read in conjunction with "Risk Factors," "Unaudited Pro Forma
Consolidated Financial Statements," and the other information included or
incorporated by reference in this proxy statement/prospectus.
We prepared the estimates referred to above for internal planning purposes
and not with a view to public disclosure or compliance with published
guidelines established by the SEC or the American Institute of Certified Public
Accountants regarding projections. Readers of this proxy statement/prospectus
are cautioned not to place any reliance on the forecasted financial
information. We have included these estimates in this proxy
statement/prospectus solely because we provided this information to Bear
Stearns and to Kelso & Company in connection with discussions giving rise to
the merger agreement. These estimates are based upon numerous assumptions
relating to commercial acceptance of Citation's products, industry performance,
general business and economic conditions, the business of Citation and other
matters, all of which may not be realized and are subject to significant
uncertainties and contingencies, many of which are beyond the control of
Citation, Kelso & Company or RSJ Acquisition Co., and do not take into account
any changes in Citation's operations or capital structure that may result from
the merger. It is not possible to predict accurately whether the assumptions
made in preparing the projected financial information will prove correct, and
actual results of Citation may materially differ than those contained in the
projections. There can be no assurance that the estimates will be realized;
actual results may be higher or lower than those estimated. See "Risk Factors--
A Warning about Forward-Looking Statements." Neither Citation's auditors nor
any other independent accountants have compiled, examined or performed any
procedures with respect to the foregoing estimates, nor have they expressed any
opinion or any other form of assurance about the information or its
achievability, and assume no responsibility for, the prospective financial
information. You should not regard our inclusion of these estimates as an
indication that Kelso & Company, RSJ Acquisition Co., Citation or any other
party considers them to be accurate predictions of future events. None of
Citation, Kelso & Company or RSJ Acquisition Co. or any other party intends
publicly to update or otherwise publicly revise the estimates included above
even if experience or future changes make it clear that the estimates will not
be realized.
57
Description of Voting Agreement
In anticipation of the requirement that the stockholders of Citation must
adopt the merger agreement in order for the merger to be completed, and as a
condition to its executing the merger agreement, RSJ Acquisition Co. required
certain family trusts and family limited liability companies affiliated with T.
Morris Hackney, the Chairman of Citation, to enter into a voting agreement with
RSJ Acquisition Co. The voting agreement was executed and delivered at the same
time as the execution and delivery of the merger agreement and was reaffirmed
by Mr. Hackney on October 12, 1999. Under the voting agreement, Mr. Hackney's
affiliated entities agreed to vote 5,350,040 shares of Citation common stock,
constituting approximately 29.9% of the Citation common stock outstanding, in
favor of adoption of the merger agreement and against any other extraordinary
corporate transactions that could impede completion of the merger. If the
merger agreement terminates in accordance with its terms, the covenants and
agreements in the voting agreement will also terminate at the same time, so
long as Citation has paid any termination fee then due and payable in
connection with the termination of the merger agreement.
Under the voting agreement, Mr. Hackney's affiliated entities also appointed
RSJ Acquisition Co., James J. Connors, II and Frank J. Loverro (both
representatives of Kelso & Company) as their irrevocable proxy to vote the
shares of Citation common stock covered by the voting agreement in favor of
adoption of the merger agreement and certain related agreements and actions and
against certain other enumerated actions or agreements. Subject to the terms
and conditions of the voting agreement, all of the stockholders who are parties
to that agreement have also agreed to refrain from soliciting or responding to
certain inquiries or proposals regarding Citation, to restrictions on transfer
of the shares covered by the voting agreement, to waive any rights of appraisal
available in connection with the merger with respect to the shares and to take
or refrain from taking certain other actions.
Purpose and Structure of the Merger and Recapitalization
The purpose of the merger is for affiliates and designees of Kelso & Company
to acquire a substantial majority of Citation common stock and thus control of
Citation. If the merger agreement, as amended, is adopted by Citation
stockholders and all other conditions to the merger are satisfied or, where
permissible, waived, the merger will be completed by merging RSJ Acquisition
Co., a newly formed corporation owned by affiliates and designees of Kelso &
Company, with and into Citation, with Citation surviving the merger and
retaining the name of Citation Corporation.
Following the merger, existing stockholders of Citation, including some of
our executive officers and their affiliates, will own approximately 7.0% of
Citation and affiliates and designees of Kelso & Company will own approximately
93.0% of Citation (without giving effect to any shares issued from the exercise
of warrants). The structure of the merger is known as a "leveraged
recapitalization." Citation expects that it will incur substantial indebtedness
to pay the cash consideration and the transaction costs and fees relating to
the merger and to refinance substantially all of its existing indebtedness. It
is expected the Citation will incur $495.0 million in long-term debt,
consisting of $360.0 million in senior secured indebtedness (approximately
$260.0 million of which will be funded at the time of the merger) and
approximately $135.0 million in senior subordinated increasing rate bridge
indebtedness. In addition, affiliates and designees of Kelso & Company will
make an equity contribution of $240.0 million to RSJ Acquisition Co. in
connection with the merger.
Certain Effects of The Merger and Recapitalization
The principal effects on Citation resulting from the merger will be that
affiliates of Kelso & Company will control it and have the power to elect all
the directors, appoint new management and approve any action requiring the
approvals of the holders of common stock.. We understand from Kelso & Company
that it intends to operate Citation in a manner consistent with the way other
leading private equity firms operate their private portfolio companies. See
"Risk Factors--We Will Be Controlled By Kelso & Company After the Merger." It
is expected that following the merger, Citation's business and operations will,
except as described in this proxy
58
statement/prospectus, be conducted by the surviving corporation substantially
as they are currently conducted. See "Risk Factors."
Because the number of stockholders and the number of shares of Citation
common stock held by unaffiliated stockholders after the merger will be quite
small, the Citation common stock will not be listed on Nasdaq, any other
securities exchange or any over-the-counter market after the merger.
Consequently, there will be no public trading market of any kind for Citation
common stock following the merger and it will be difficult or impossible for
stockholders to resell shares of common stock.
Citation currently expects to continue to be a reporting company under the
Exchange Act and to continue to file periodic reports (including annual and
quarterly reports) for a limited period of time following the effective time of
the merger. However, we will not be required by the Exchange Act to be a
reporting company if, for example, the number of holders of our common stock
falls below 300, a circumstance which we do expect to happen. If Citation were
to cease to be a reporting company under the Exchange Act, the information now
available to holders of Citation common stock in Citation's periodic reports
would not be available to them as a matter of right. See "Risk Factors--There
Will Be No Active Trading Market for the Common Stock You Will Retain in
Connection with the Merger."
Merger Consideration
At the effective time of the merger, subject to the provisions in the merger
agreement, as amended, regarding shares of common stock held in treasury by
Citation and shares of common stock as to which appraisal rights have been
validly perfected, each share of Citation common stock (other than those shares
described above) will, at the election of the holder, be converted into the
right either (i) to receive in cash an amount equal to $17.00, without
interest, or (ii) subject to the effects of proration and the 10,000 share
minimum election requirement described elsewhere in this proxy
statement/prospectus, to retain one share of Citation common stock after the
merger.
A stockholder may only elect to retain any shares of Citation common stock
in the merger if that stockholder elects to retain at least 10,000 shares.
Accordingly, a stockholder who owns fewer than 10,000 shares of Citation common
stock on the Election Date defined below will not be eligible to retain any
shares in the merger.
The merger agreement, as amended, requires that approximately 16,822,120
shares of Citation common stock (approximately 94.1% of the presently issued
and outstanding shares of Citation common stock) be converted into cash and
that 1,062,619 shares of Citation common stock (approximately 5.9% of the
presently issued and outstanding shares of Citation common stock) be retained
by existing stockholders.
At the insistence of, and as an accommodation to, RSJ Acquisition Co.,
certain stockholders of Citation have entered into or are expected to enter
into Stock Election Agreements with RSJ Acquisition Co., pursuant to which
these stockholders have agreed to make or are expected to make elections to
retain an aggregate of 1,062,619 shares of common stock in the merger.
Accordingly, stockholders who satisfy the 10,000 share minimum election
requirement and who elect to retain Citation common stock will, along with the
existing stockholders who have entered into the Stock Election Agreements,
retain a lesser, prorated number of shares than they have elected to retain,
plus cash, in order to ensure that the number of shares retained in the merger
is exactly 1,062,619. See "--Description of the Stock Election Agreements"
below.
Because existing stockholders are expected to retain an aggregate of
1,062,619 shares of Citation common stock in the merger pursuant to the Stock
Election Agreements, stockholders who do not elect to retain any shares should
receive all cash for all of their shares in the merger.
59
Description of the Stock Election Agreements
As described, certain executive officers or affiliates of executive officers
of Citation entered into Stock Election Agreements with RSJ Acquisition Co. as
of September 8, 1999. The Stock Election Agreement executed by Hackney One
Investments, LLC was amended on October 12, 1999. In these agreements, these
stockholders have irrevocably agreed that they will make an election to retain
shares of common stock of Citation in connection with the merger in the
following amounts:
Retained
Name Shares
---- ---------
Hackney One Investments, LLC.................................... 781,619
R. Conner Warren................................................ 165,000
Frederick F. Sommer............................................. 31,250
Timothy L. Roberts.............................................. 30,000
John W. Lawson.................................................. 24,500
---------
Total......................................................... 1,032,369
In addition to the foregoing, RSJ Acquisition Co. is engaged in discussions
with other stockholders of Citation regarding an election to retain 30,250
shares.
The Stock Election Agreements provide that the election to retain shares
thereunder will be irrevocable. Each party to such an agreement has also agreed
that he will not transfer any shares of common stock subject to the agreement,
that he waives any rights of appraisal or right to dissent from the merger that
he may have with respect to the shares subject to the agreement, and that at
the effective time of the merger he will enter into the Stockholders Agreement
and Registration Rights Agreement with Kelso & Company and its affiliates and
designees. These agreements are described in more detail in "--Interests of
Certain Persons in the Merger and Recapitalization."
Kelso & Company has informed us that other stockholders of Citation, other
than the parties to the Stock Election Agreements, who properly elect to retain
shares in the merger, will also be given the opportunity after the closing of
the merger to become parties to the Stockholders Agreement and the Registration
Rights Agreement. See "--Rights of Stockholders After the Merger."
Stock Election
Record holders of shares of Citation common stock will be entitled to make
an election (which is hereafter referred to as a Stock Election) to retain
common stock of Citation following the merger on or prior to the Election Date
(as defined below in "--Election Procedures"), provided that a stockholder may
only elect to retain shares of common stock of Citation in the merger if the
stockholder elects to retain at least 10,000 shares of such common stock.
Accordingly, a stockholder who owns fewer than 10,000 shares of Citation common
stock on the Election Date will not be eligible to retain any shares of common
stock in the merger.
If More Than 1,062,619 Shares of Citation Common Stock are Elected to be
Retained.
If the aggregate number of shares subject to all Stock Elections (defined
hereafter as Stock Electing Shares), including the shares subject to the Stock
Election Agreements, exceeds 1,062,619, then the number of Stock Electing
Shares owned by a stockholder to be converted into the right to retain Citation
common stock will be determined by multiplying the total number of Stock
Electing Shares of the stockholder by a ratio determined by dividing 1,062,619
by the aggregate number of Stock Electing Shares. Each Stock Electing Share
that is not so converted into the right to retain common stock through the
mechanism described in the preceding sentence will be converted into the right
to receive $17.00 in cash, without interest, upon the completion of the merger.
60
If Fewer than 1,062,619 Shares of Citation Common Stock are Elected to be
Retained.
Because certain existing stockholders of Citation have irrevocably agreed,
or are expected to agree, pursuant to the Stock Election Agreements, to elect
to retain an aggregate of 1,062,619 shares of Citation Common Stock, it is not
likely that there will be fewer than 1,062,619 Stock Electing Shares.
Accordingly, in such event the right to receive $17.00 in cash per share of
Citation common stock in the merger will not be subject to proration and
stockholders electing to receive cash in the merger should receive all cash for
their shares. Examples of the effects of the result of the Stock Election are
set forth below.
With respect to certain risks related to continuing to hold Citation common
stock after the merger, see "Risk Factors."
Example A
Holder A owns 10,000 shares and does Since other stockholders are
notelect to retain any Citation expected to retain 1,062,619 or more
shares. shares in the aggregate, then Holder
A will receive $170,000 in cash, or
$17.00 per share for each of its
10,000 shares.
Example B
Holder B owns 10,000 shares and Since the stockholders who are
elects to retain 10,000 Citation parties to the Stock Election
shares Agreements are expected to make
elections to retain 1,062,619 shares
in the aggregate, then all stock
electing stockholders, including
Holder B, will have elected to
retain more than 1,062,619 shares in
the aggregate. Accordingly, the
number of shares to be retained by
stockholders must be reduced to
1,062,619. Holder B will not be able
to retain all of its shares and will
be required to receive some cash.
For example, if stockholders elected
to retain 1,500,000 shares in the
aggregate, then each holder electing
to retain shares, including Holder
B, would be able to retain only
approximately 71% of the shares he
or she elected to retain in order to
reduce the number of shares of the
surviving corporation issued to
current Citation stockholders to
1,500,000. Therefore, Holder B would
be able to retain only 7,100 shares
and would receive $49,300 in cash
(2,900 shares at $17.00 per share).
Example C
Holder C owns 15,000 shares and Since the stockholders who are
elects to retain 10,000 shares and parties to the Stock Election
convert 5,000 shares into cash Agreements are expected to make
elections to retain 1,062,619 shares
in the aggregate, then all stock
electing stockholders, including
Holder C, will have elected to
retain more than 1,062,619 shares in
the aggregate. Accordingly, Holder C
will not be able to retain all
10,000 shares.
61
For example, if stockholders elected
to retain 1,500,000 shares in the
aggregate, then each holder,
including Holder C, would be able to
retain only approximately 71% of the
shares he or she elected to retain
in order to reduce the number of
issued shares to 1,062,619.
Therefore, Holder C would be able to
retain only 7,100 shares and would
receive $134,300 in cash (7,900
shares at $17.00 per share).
Election Procedures
Under separate cover from this proxy statement/prospectus, Citation is
mailing a form for making an election to retain shares of Citation common stock
to stockholders of record of Citation common stock. For a Form of Election to
be effective, you must properly complete the Form of Election, the Form of
Election must relate to at least 10,000 shares of Citation common stock and the
Form of Election, together with all certificates for shares of Citation common
stock you hold, duly endorsed for transfer on the books of Citation (or by
appropriate guarantee of delivery as set forth in the Form of Election), must
be received by The Bank of New York, Citation's exchange agent, at one of the
addresses listed on the Form of Election and not withdrawn, by 5:00 p.m., New
York City time, on the day which is five business days before the reconvened
special meeting (the "Election Date"), unless extended. The exchange agent will
determine whether elections to retain shares have been properly made or
revoked, and its determinations will be binding. Any Form of Election that
relates to fewer than 10,000 shares of Citation common stock shall be deemed to
be null and void.
A stockholder may revoke an election by sending notice of revocation to the
exchange agent prior to 5:00 p.m., New York City time, on the Election Date,
unless that date is extended by notice. All elections will be automatically
revoked if the merger agreement is terminated.
Only holders of Citation common stock who want to elect to retain shares of
Citation common stock in connection with the merger are required to send stock
certificates with their Form of Election. Stockholders who do not want to elect
to retain shares of Citation common stock in connection with the merger should
not submit the Form of Election.
Conversion of Shares; Procedures for Exchange of Certificates
The conversion of shares of Citation common stock into the right to receive
cash or the right to retain shares of Citation common stock following the
merger will occur at the effective time of the merger. As soon as practicable
after the effective time of the merger, The Bank of New York, Citation's
exchange agent, will send a letter of transmittal to each holder of Citation
common stock (other than holders of Citation common stock who will retain
shares of Citation common stock in connection with the merger and who have
properly submitted forms of election and stock certificates to the exchange
agent). The letter of transmittal will contain instructions with respect to the
surrender of certificates representing shares of Citation common stock in
exchange for cash and, if proration is required, certificates representing
shares of Citation common stock to be issued in connection with the merger, or
the amount of cash in lieu of any fractional interest in a share of Citation
common stock, if applicable.
Except for stock certificates surrendered with a Form of Election as
described above under "--Election Procedures," you should not forward stock
certificates to the exchange agent until you have received the letter of
transmittal.
As soon as practicable after the effective time of the merger and once you
surrender your outstanding certificates formerly representing shares of
Citation common stock to the exchange agent and the exchange agent accepts
those certificates, you will be entitled to receive the cash merger
consideration, and the number of full shares of Citation common stock and cash
in lieu of fractional shares which you are entitled to receive
62
under the merger agreement. The exchange agent will accept certificates upon
compliance with such reasonable terms and conditions as the exchange agent may
impose to cause an orderly exchange in accordance with normal exchange
practices. After the effective time of the merger, there will be no further
transfer on the records of Citation or its transfer agent of certificates
representing shares of stock which have been converted in connection with the
merger. If certificates are presented to Citation for transfer, they will be
cancelled against delivery of cash, and if appropriate, certificates for shares
of Citation common stock. Until surrendered as contemplated by the merger
agreement, each certificate for shares of Citation common stock will be deemed
at any time after the effective time of the merger to represent only the right
to receive upon surrender the consideration provided under the merger
agreement. No interest will be paid or will accrue on any cash payable as
consideration in connection with the merger or in lieu of any fractional shares
of Citation common stock.
After the effective time of the merger, no dividends or other distributions
with a record date after the effective time of the merger will be paid to the
holder of any unsurrendered certificate for shares of Citation common stock and
no cash payment in lieu of fractional shares will be paid to the holder under
the merger agreement until the surrender of the certificate in accordance with
the merger agreement.
Subject to the effect of applicable laws, following surrender of any
certificate, the exchange agent will pay to the holder of the certificate
representing whole shares of Citation common stock issued in respect of
surrendered certificates, without interest (1) at the time of surrender, the
amount of any cash payable in lieu of a fractional share of Citation common
stock to which the holder is entitled under the merger agreement and the
proportionate amount of dividends or other distributions, if any, with a record
date after the effective time of the merger paid with respect to whole shares
of Citation common stock, and (2) at the appropriate payment date, the
proportionate amount of dividends or other distributions, if any, with a record
date after the effective time of the merger but before surrender and a payment
date after surrender payable with respect to the whole shares of Citation
common stock.
Fractional Shares
Fractional shares of Citation common stock will not be issued in connection
with the merger. Each Citation stockholder who would otherwise be entitled to
retain a fraction of a share of Citation common stock will receive, in lieu of
a fractional share, a cash payment, without interest, in an amount equal to the
product of the fraction multiplied by $17.00.
Federal Income Tax Consequences
In the opinion of Ritchie & Rediker, L.L.C. the following are, under current
applicable law, the material United States federal income tax consequences of
the merger to stockholders of Citation who receive cash, shares of Citation
common stock or a combination of the foregoing in connection with the merger.
The following discussion deals only with stockholders that hold shares of
Citation's common stock as capital assets (generally, property held for
investment). The discussion does not address all aspects of United States
federal income taxation that may be relevant to particular stockholders in
light of their personal circumstances or to certain types of stockholders
subject to special treatment under the United States federal income tax laws
(including certain financial institutions, broker dealers, insurance companies,
tax-exempt organizations, foreign persons and persons acquiring shares of
Citation's common stock upon the exercise of employee stock options or
otherwise as compensation). In addition, the discussion does not address any
state, local or foreign tax consequences of any aspect of the merger. The
discussion is based upon the Internal Revenue Code of 1986 (the "Code"),
applicable Treasury regulations promulgated thereunder, judicial decisions and
current administrative pronouncements, all as in effect as of the date hereof
and which are subject to change at any time, potentially with retroactive
effect. No ruling from the Internal Revenue Service will be applied for with
respect to the United States federal income tax consequences discussed in this
section and, accordingly, there can be no assurance that the Internal Revenue
Service will agree with these conclusions. All
63
stockholders are urged to consult their tax advisors as to the particular tax
consequences to them of the merger, including the applicability and effect of
any foreign, state, local or other tax laws.
Characterization of the Merger
For the United States federal income tax purposes, both RSJ Acquisition Co.
and the merger will be disregarded as transitory, with the result that
stockholders will be deemed to have sold a portion of their Citation common
stock to affiliates of Kelso & Company (i.e., a sale transaction) and to have
had redeemed a portion of their Citation common stock by Citation (i.e., a
redemption transaction). Citation intends to take the position that, for each
tendering stockholder, the portion of the Citation common stock disposed of in
the merger that is allocable to the sale to affiliates of Kelso & Company is
the percentage equivalent of a fraction the numerator of which is the amount of
equity contributed to RSJ Acquisition Co. by affiliates of Kelso & Company in
exchange for capital stock of RSJ Acquisition Co., and the denominator of which
is the aggregate amount of cash paid to stockholders pursuant to the merger.
The remainder of the stockholder's Citation common stock disposed of in the
merger will be treated as having been redeemed by Citation. The Internal
Revenue Service could, however, adopt a different allocation approach. See "--
Stockholders Receiving Cash" below for a discussion of the consequences of cash
being deemed paid in redemption of Citation common stock.
Tax Consequences to Stockholders on Receipt of Consideration
The following discussion assumes that Citation common stock is held as a
capital asset. A holding period of more than one year is required for long-term
capital gain or loss treatment. As described more fully below, the United
States federal income tax consequences of the merger with respect to a
particular stockholder will depend upon, among other things, (a) whether the
stockholder received any cash proceeds pursuant to the merger, (b) the extent
to which a stockholder will be treated as transferring Citation common stock to
affiliates of Kelso & Company (in a sale transaction) and to Citation (in a
redemption transaction) and (c) whether the redemption of a stockholder's
Citation common stock by Citation will qualify as a sale or exchange under
Section 302 of the Code.
Stockholders Receiving Cash. To the extent that a stockholder is considered
to have sold Citation common stock to affiliates of Kelso & Company, the
stockholder will recognize capital gain or loss equal to the difference between
the amount realized on the deemed sale (i.e., the cash proceeds properly
allocated thereto) and the stockholder's adjusted tax basis in Citation common
stock. To the extent that a stockholder is considered to have transferred
Citation common stock to Citation in a redemption transaction, the stockholder
also will recognize capital gain or loss equal to the difference between the
cash proceeds allocable to the deemed redemption and the stockholder's adjusted
tax basis in Citation common stock, provided that the redemption is treated as
a sale or exchange under Section 302 of the Code with respect to the
stockholder.
Under Section 302 of the Code, a redemption of Citation common stock
pursuant to the merger will generally be treated as a sale or exchange if the
redemption (a) is "substantially disproportionate" with respect to the
stockholder, (b) results in a "complete redemption" of the stockholder's
interest in Citation or (c) is "not essentially equivalent to a dividend" with
respect to the stockholder. In determining whether any of these Section 302
tests is satisfied, stockholders must take into account both Citation common
stock that they actually own and Citation common stock that they are deemed to
own under the constructive ownership rules set forth in Section 318 of the
Code. Under those rules, a stockholder is treated as owning Citation common
stock that is owned by certain related individuals or entities and Citation
common stock that the stockholder has the right to acquire by exercise of an
option or by conversion or exchange of a security.
The deemed redemption of a stockholder's Citation common stock in the merger
will be "substantially disproportionate" with respect to the stockholder if,
among other things, the percentage of Citation common stock actually and
constructively owned by the stockholder immediately following the merger is
less than 80% of the percentage of Citation common stock actually and
constructively owned by the stockholder immediately
64
prior to the merger. Additionally, the redemption of a stockholder's Citation
common stock will not be"substantially disproportionate" with respect to the
stockholder unless, after the merger, the stockholder owns less than 50% of the
total combined voting power of all classes of stock entitled to vote in
Citation. Stockholders are urged to consult their own tax advisors with respect
to the application of the"substantially disproportionate" test to their
particular facts and circumstances.
The redemption of a stockholder's Citation common stock will result in
a"complete redemption" of a stockholder's interest in Citation if either (a)
all the Citation common stock actually and constructively owned by the
stockholder is redeemed (or deemed sold) pursuant to the merger or (b) all
Citation common stock actually owned by the stockholder is redeemed (or deemed
sold) pursuant to the merger and the stockholder is eligible to waive, and does
effectively waive in accordance with Section 302(c) of the Code, attribution of
all Citation common stock which otherwise would be considered to be
constructively owned by the stockholder.
Even if the redemption of a stockholder's Citation common stock fails to
satisfy the "substantially disproportionate" test and the "complete redemption"
test described above, the redemption of a stockholder's Citation common stock
may nevertheless satisfy the "not essentially equivalent to a dividend" test if
the merger results in a "meaningful reduction" in the stockholder's
proportionate equity interest in Citation. Whether the receipt of cash by a
stockholder will be considered "not essentially equivalent to a dividend" will
depend upon the stockholder's facts and circumstances. In certain
circumstances, even a small reduction in a stockholder's proportionate equity
interest may satisfy this test. For example, the Internal Revenue Service has
indicated in a published ruling that a 3.3% reduction in the proportionate
equity interest of a small (substantially less than 1%) stockholder in a
publicly held corporation who exercises no control over corporate affairs
constitutes such a "meaningful reduction." Stockholders are urged to consult
with their own tax advisors as to the application of this test.
A tendering stockholder may not be able to satisfy one of the above tests
because of the retention (by election or proration) or the contemporaneous
acquisition of Citation common stock by the stockholder or a related party
whose Citation common stock would be attributed to the stockholder under
Section 318 of the Code. Stockholders are urged to consult their own tax
advisors regarding the tax consequences of retention or acquisitions in their
particular circumstances.
If a stockholder cannot satisfy any of the three tests described above, then
to the extent Citation has sufficient current and/or accumulated earnings and
profits, the stockholder will be treated as having received a dividend which
will be includible in gross income (and treated as ordinary income) in an
amount equal to the cash received (without regard to gain or loss, if any). In
that case, in general, the basis of the Citation common stock tendered by the
stockholder will be allocated to the adjusted basis of the Citation common
stock retained by the stockholder. In the case of a corporate stockholder, if
the cash paid is treated as a dividend, the dividend income may be eligible for
the 70% dividends-received deduction. The dividends-received deduction is
subject to certain limitations, and may not be available if the corporate
stockholder does not satisfy certain holding period requirements with respect
to the Citation common stock or if the Citation common stock is treated as
"debt financed portfolio stock" within the meaning of Section 246A(c) of the
Code. Additionally, if a dividends-received deduction is available, the
dividend may be treated as an "extraordinary dividend" under Section 1059(a) of
the Code, in which case a corporate stockholder's adjusted tax basis in
Citation common stock retained by the stockholder would be reduced, but not
below zero, by the amount of the non-taxed portion of the dividend. If the non-
taxed portion of the dividend exceeds the basis, the excess will be treated as
gain from the sale or exchange of the Citation common stock for the taxable
year in which the extraordinary dividend is received. Corporate stockholders
are urged to consult their own tax advisors as to the effect of Section 1059 of
the Code on the adjusted tax basis of their Citation common stock.
Stockholders Retaining Citation Common Stock and Receiving No Cash. The
merger will have no United States federal income tax consequences for
stockholders who retain their Citation common stock and receive no cash.
Accordingly, a stockholder will not recognize any gain or loss on Citation
common stock retained by the stockholder, and the stockholder's holding period
for and basis in the Citation common stock will not change.
65
Stockholders Retaining a Portion of Their Citation Common Stock and
Receiving Cash. To the extent that a stockholder chooses to exchange a portion
of its Citation common stock for cash, or to the extent a stockholder is
prorated into receiving cash in exchange for a portion of its Citation common
stock, the tax treatment of the stockholder's receipt of cash will be the same
as set forth above under "--Stockholders Receiving Cash." As described above
under "--Stockholders Retaining Citation Common Stock and Receiving No Cash,"
the merger will have no tax consequences to a stockholder (and, thus, a
stockholder will not recognize any gain or loss as a result of the merger), to
the extent the stockholder elects to retain, or is prorated into retaining,
Citation common stock. However, as described more fully above under "--
Stockholders Receiving Cash," a stockholder's retention of Citation common
stock may, under certain circumstances, cause the redemption portion of the
cash received by the stockholder to be treated as a dividend for United States
federal income tax purposes.
Foreign Citation Common Stockholders--Withholding.
A foreign stockholder is any stockholder who is, for United States federal
income tax purposes, a foreign corporation, a non-resident alien individual, a
foreign partnership, a foreign estate or a foreign trust, as those terms are
defined in the Code (a "Foreign Stockholder"). In the case of any Foreign
Stockholder, the exchange agent will withhold 30% of the amount paid to redeem
the Citation common stock of the stockholder in order to satisfy certain United
States withholding requirements, unless the Foreign Stockholder proves in a
manner satisfactory to Citation and the exchange agent that either (i) the
redemption of its Citation common stock pursuant to the merger will qualify as
a sale or exchange under Section 302 of the Code, rather than as a dividend for
United States federal income tax purposes, in which case no withholding will be
required, (ii) the Foreign Stockholder is eligible for a reduced tax treaty
rate with respect to dividend income, in which case the exchange agent will
withhold at the reduced treaty rate or (iii) no United States withholding is
otherwise required. Foreign Stockholders are urged to consult their own tax
advisers regarding the application to them of these withholding rules and other
tax consequences of the merger to them.
Backup Withholding
Payments in connection with the merger may be subject to "backup
withholding" at a rate of 31%, unless a holder of shares (a) is a corporation
or falls within certain exempt categories and, when required, demonstrates this
fact or (b) provides a correct tax identification number ("TIN") to the payor,
certifies as to no loss of exemption from backup withholding and otherwise
complies with applicable requirements of the backup withholding rules. A
stockholder who does not provide a correct TIN may be subject to penalties
imposed by the Internal Revenue Service. Any amount paid as backup withholding
does not constitute an additional tax and will be creditable against the
stockholder's United States federal income tax liability. Each stockholder is
urged to consult with his or her own tax advisor as to his or her qualification
for exemption from backup withholding and the procedure for obtaining an
exemption. Stockholders may prevent backup withholding by completing a
Substitute Form W-9 or, in the case of Foreign Stockholders, a Form W-8, and
submitting it to the exchange agent along with the letter of transmittal.
Financing of the Merger and Recapitalization
General
To complete the transactions contemplated by the merger agreement and to pay
all related fees and expenses, Citation will require approximately $635.2
million. Citation expects to obtain these funds through a combination of:
. approximately $0.2 million in existing cash;
. $240.0 million in proceeds from the equity contribution to RSJ
Acquisition Co. to be made by affiliates and designees of Kelso &
Company;
. borrowings by Citation of up to $260.0 million under new senior secured
credit facilities; and
. proceeds of up to $135.0 million from senior subordinated increasing
rate bridge financing.
66
The following table illustrates approximate sources and uses of funds needed
to complete the transactions contemplated by the merger agreement, assuming the
transaction was completed on June 27, 1999. The actual amounts of sources and
uses of funds may differ at the closing of the merger. RSJ Acquisition Co. has
represented in the merger agreement that the aggregate proceeds from these
sources of financing will be sufficient to pay the cash portion of the merger
consideration, repay the existing indebtedness of Citation and its subsidiaries
(excluding any indebtedness the parties agree shall not be repaid) and pay all
fees and expenses of RSJ Acquisition Co. related to the recapitalization
transactions.
Source of Funds
---------------
(in thousands)
Existing cash........................................... $ 161
Senior secured term loans............................... 260,000(/1/)
Senior subordinated bridge financing ................... 135,000
Equity contribution..................................... 240,000
--------
Total Sources of Funds.................................. $635,161
========
Use of Funds
---------------
(in thousands)
Payment of cash consideration in the merger............. $285,857
Cancellation of outstanding options and payment of
deferred compensation.................................. 4,288
Repayment of outstanding indebtedness................... 311,184
Accrued interest........................................ 2,107
Estimated fees and expenses............................. 31,725
--------
Total Uses of Funds..................................... $635,161
========
- --------
(1) Citation will have $100.0 million available for borrowings under the senior
secured revolving facility.
Equity Contribution
The merger agreement contemplates that Kelso & Company will contribute or
cause to be contributed to RSJ Acquisition Co. the equity financing required to
complete the merger. In connection with entering into the merger agreement, in
June 1999, RSJ Acquisition Co. and Citation received a letter from Kelso &
Company undertaking to provide or cause to be provided $190.0 million in equity
required for the merger and recapitalization. In connection with Amendment No.
2 to the merger agreement in October 1999, RSJ Acquisition Co. and Citation
received a revised letter from Kelso & Company undertaking to provide or cause
to be provided $240.0 million in equity.
Term Loan Facilities and Revolving Facility
We expect to enter into a credit agreement with The Chase Manhattan Bank, as
administrative agent and collateral agent, DLJ Capital Funding Inc., as
documentation agent, and First Union National Bank, as syndication agent, and
the lenders named therein that will provide for senior credit facilities
consisting of term loans of up to $260.0 million and a revolving credit
facility of $100.0 million. The following is a summary description of the
principal anticipated terms of our senior credit facilities and is
subject to and qualified in its entirety by reference to the terms of a
definitive credit agreement, when negotiated and executed.
Structure. Loans under the credit agreement will consist of (i) Tranche A
term loans in the amount of $50.0 million; (ii) Tranche B term loans in the
amount of $210.0 million; and (iii) a revolving credit facility in the amount
of $100.0 million (which will be available, in part, for letters of credit and
in the form of swingline
67
loans). The term loans and the revolving credit facility comprise our senior
credit facilities. We will use the term loans to provide a portion of the funds
necessary to complete the merger and the recapitalization and repay certain
existing indebtedness. We will use the revolving credit facility for general
corporate purposes including permitted acquisitions.
Guarantees and Security. Our obligations under our senior credit facilities
will be guaranteed by each of our existing and subsequently acquired or
organized domestic subsidiaries. In addition, our senior credit facilities and
the guarantees will be secured by substantially all of our assets and all of
the assets of the guarantors. This collateral will include (i) a first priority
pledge of all the capital stock we, or any of our domestic subsidiaries hold in
any existing and subsequently acquired or organized subsidiary (which pledge,
in the case of any foreign subsidiary, will be limited to 65% of capital stock
of such foreign subsidiary) and (ii) a perfected first priority security
interest in, and mortgage on, substantially all the tangible and intangible
assets of Citation and of the guarantors (including accounts receivable,
inventory, equipment, intellectual property, general intangibles, real
property, cash and cash accounts and proceeds of the foregoing), in each case
subject to certain limited exceptions. The credit agreement will provide for
the release of guarantees under certain limited circumstances.
Availability. The availability of our senior credit facilities will be
subject to various conditions precedent typical of bank loans including, among
other things, the absence of any material adverse change in our business. The
full amount of the term loans must be drawn in a single drawing at the closing
of the merger. Amounts repaid or prepaid under the term loans may not be
reborrowed. Amounts under the revolving credit facility will be available on a
revolving basis.
Amortization, Interest. The Tranche A term loans will be repayable in
quarterly principal payments in amounts to be agreed, commencing on the closing
date of the credit agreement, with the balance payable at maturity. The final
maturity of the Tranche A term loans will be the date that is six years after
the closing date. The Tranche A term loans will bear interest at a rate per
annum equal to (at our option): (i) an adjusted London interbank offered rate
("Adjusted LIBOR") plus 2.50% or (ii) a rate equal to the greater of the
administrative agent's prime rate, a certificate of deposit rate plus 1% and
the Federal Funds effective rate plus of 1% (the "Alternate Base Rate") plus
1.50%, in each case subject to certain reductions based on our financial
performance. The Tranche B term loans will be repayable in nominal quarterly
principal payments over six years, commencing on the closing date, and
repayable in amounts to be agreed, commencing on the sixth anniversary of the
closing date with the balance of the Tranche B term loans payable at maturity.
The final maturity of the Tranche B term loans will be the date that is eight
years after the Closing Date. The Tranche B term loans will bear interest at a
rate per annum equal to (at our option): (i) Adjusted LIBOR plus 3.00% or
(ii) the Alternate Base Rate plus 2.00%. The Revolving Credit Facility will be
a six year facility and outstanding balances thereunder will bear interest at a
rate per annum equal (at our option) to (i) Adjusted LIBOR plus 2.50% or (ii)
the Alternate Base Rate plus 1.50%, in each case subject to certain reductions
based on our financial performance. Amounts under our senior credit facilities
not paid when due will bear interest at a default rate equal to 2.0% above the
otherwise applicable rate.
Prepayments. Our senior credit facilities will permit us to prepay loans and
to permanently reduce revolving credit commitments, in whole or in part, at any
time. In addition, we will be required to make mandatory prepayments of term
loans, subject to exceptions to be specified in the credit agreement, in
amounts equal to (i) 50% of excess cash flow (as specified in the credit
agreement); (ii) 100% of the net cash proceeds of certain dispositions of
assets or issuances of debt of Citation or any of our subsidiaries; and (iii)
50% of the net cash proceeds of issuances of equity of Citation or any of our
subsidiaries. Mandatory and optional prepayments will be allocated pro rata
between the Tranche A term loans and Tranche B term loans, as applicable, and
within each tranche, applied pro rata to the remaining amortization payments
under such tranche, except that, if Tranche A term loans are outstanding, the
lenders participating in the Tranche B term loans will have the right to refuse
mandatory prepayments, in which case such prepayments will be applied to the
Tranche A term loans. Any prepayment of Adjusted LIBOR loans other than at the
end of an interest period will be subject to reimbursement of breakage costs.
68
Fees. We will be required to pay the lenders a commitment fee equal to of 1%
per annum on the undrawn portion of the unused commitments, subject to
reductions based upon our financial performance. We will also be required to
pay (i) a commission on the face amount of all outstanding letters of credit
equal to the applicable margin then in effect for Adjusted LIBOR loans under
the revolving credit facility, (ii) a fronting fee in the amount of 0.25% per
annum on each letter of credit to the issuing bank on a quarterly basis, (iii)
annual administration fees and (iv) agent, arrangement and other similar fees.
Covenants; Events of Default. Our senior credit facilities will contain
covenants that, among other things, restrict our ability and the ability of our
subsidiaries to dispose of assets, incur additional indebtedness, incur
guarantee obligations, prepay certain indebtedness or amend certain debt
instruments, pay dividends, create liens on assets, enter into sale and
leaseback transactions, make investments, loans or advances, make acquisitions,
engage in mergers or consolidations, change our business, make capital
expenditures, or engage in certain transactions with affiliates and otherwise
restrict certain corporate activities. In addition, under our senior credit
facilities, we will be required to comply with specified financial ratios,
including minimum interest coverage ratios and maximum leverage ratios.
Our senior credit facilities will also contain provisions that will prohibit
any modification of the indenture. Our senior credit facilities will also
contain customary representations and warranties, affirmative covenants and
events of default, including cross default, material judgments and change in
control.
Senior Subordinated Increasing Rate Bridge Financing
In connection with the merger, Citation expects to raise approximately
$135.0 million consisting of (i) the issuance of senior subordinated increasing
rate bridge notes (the "Notes") to an affiliate of DLJ Bridge Finance, Inc.
("DLJ Bridge") and First Union Investors, Inc. ("FUI") in a private placement
in an aggregate principal amount of approximately $101,250,000 and (ii) a
borrowing from The Chase Manhattan Bank ("Chase" and, collectively with DLJ
Bridge and FUI, the "Bridge Parties") in the principal amount of $33,750,000
(the "Loan" and, collectively with the Notes, the "Obligations"). Citation
expects that the Obligations will be general unsecured obligations of Citation,
junior to all existing and future permitted senior indebtedness of Citation and
equal in right of payment to all other existing and future senior subordinated
indebtedness of Citation. The terms and conditions of the commitment letter
received by Citation and RSJ Acquisition Co. from the Bridge Parties on
October 12, 1999 provide that the interest rate on the Obligations for the
first three months following the issuance of the Notes and the making of the
Loan will be the greatest of each of 13.0% and each of the rates set forth in
clauses (i) through (iii) of the next sentence on such Funding Date (the
"Initial Rate"). Thereafter, the interest rate shall be payable at the greatest
of the following as determined at the beginning of each subsequent three month
period: (i) the prime rate (as defined below) plus 4.75%, increasing by an
additional .5% at the end of each three month period subsequent to the Funding
Date for so long as the Notes are outstanding; (ii) the Treasury Rate (as
defined below) plus 6.95%, increasing by an additional .5% basis points at the
end of each three month period subsequent to the Funding Date for so long as
the Notes are outstanding; (iii) the DLJ High Yield Index Rate plus .98%,
increasing by an additional .5% at the end of each three month period
subsequent to the Funding Date for so long as the Notes are outstanding; and
(iv) an amount equal to the Initial Rate plus the product of .5% times the
number of complete three month periods that have elapsed since the Funding
Date. The interest rates on the notes may not exceed 17% per annum. Interest
will be paid quarterly. For purposes of this section, the "prime rate" means
the prime or reference rate as announced from time to time by the Bank of New
York and the "Treasury Rate" means the rate applicable to the most recent
auction of direct obligations of the United States having a maturity of ten
years, as published by the Board of Governors of the Federal Rate System.
The Obligations will mature on the first anniversary of the closing of the
merger, but may be extended under certain conditions until the date which is
six months after the date of the original final stated maturity of our senior
credit facilities as in evidence as of the closing date. The Obligations may be
redeemed or repaid in whole or in part by Citation at any time, for an amount
equal to the outstanding principal amount of the
69
Obligations plus, in certain circumstances, 3% of the principal amount of
Obligations to be redeemed or repaid, and will be subject to mandatory
redemption at the same price upon the issuance of debt or equity securities by
Citation or upon the sale of assets, subject to certain exceptions to be agreed
upon. In the event the Obligations remain outstanding following the later to
occur of the first anniversary of the closing and the Bridge Parties'
submission to Citation of a proposal to refinance the Obligations, on financial
and other terms and conditions no less favorable to Citation than those
generally available at such time in the U.S. Capital Markets to comparable
issuers (such earlier date being referred to herein as the "Fixed Rate Sale
Date"), then Citation must pay the Bridge Parties a cash duration fee equal to
3% of the principal amount of the Obligations then outstanding. The Bridge
Parties have the right to sell, transfer or assign the Obligations at any time,
subject to legal restrictions. In addition, following the Fixed Rate Sale Date,
the Obligations may be sold, transferred or assigned on a fixed rate basis,
with an interest rate of no greater than 17% per annum. After the first
anniversary of the Obligations, the holders of the Obligations will also have
certain registration rights.
The definitive documents for the bridge financing will contain covenants and
events of default that are usual and customary for transactions of this nature,
including covenants and events of default that are substantially similar to the
negative and affirmative covenants and events of default to be included in our
senior credit facility, as the same may be amended from time to time. After the
Fixed Rate Sale Date, the affirmative and negative covenants will, subject to
the satisfaction of certain conditions, be replaced with public high yield
bond-style covenants.
The commitment letter also provides that on the closing date, Citation will
place warrants, equal to 5% of its fully diluted common stock, in an escrow
account, such warrants to be used in connection with selling, transferring,
assigning or refinancing the Obligations in certain instances. The warrants
will be exercisable at $0.01 per share for a period of seven years from the
date of release from escrow. The warrants are to have customary anti-dilution
provisions, tag-along rights and demand and "piggy-back" registration rights.
The Bridge Parties' obligation to purchase the Notes and to make the Loan,
as the case may be, is conditioned upon there not having occurred any material
adverse effect (as defined) on Citation since September 27, 1998, and other
customary conditions for commitments of this type.
Interests of Certain Persons in the Merger and Recapitalization
Members of management and the Board of Directors of Citation will receive
some economic benefits upon completion of the merger that are different from or
in addition to the merger consideration to be received by other stockholders.
These benefits could present these persons with potential conflicts of interest
in connection with the merger. Citation's Board of Directors was aware of these
conflicts and has considered them in addition to the other matters described in
this proxy statement/prospectus.
Indemnification and Insurance
Following the merger, Citation's certificate of incorporation and by-laws
will contain provisions no less favorable than those existing before the merger
with respect to elimination of personal liability, indemnification and
advancement of expenses. In addition, Citation has agreed to maintain for six
years after the merger directors' and officers' liability insurance policies
covering events occurring before the merger. In no event, however, will
Citation be required to spend in any year in excess of 200% of the last annual
premium paid by Citation prior to the date of the merger agreement, which was
$110,000. If Citation would be required to spend in excess of 200% of the last
annual premium paid for that purpose, Citation must buy as much insurance as
can be obtained for a cost not exceeding that amount. The merger agreement, as
amended, also provides that, for six years after the merger, Citation, as the
surviving corporation in the merger, will indemnify and advance expenses to
present and former directors, officers, employees and agents to the fullest
extent permitted by applicable law.
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Stock Options
The merger agreement, as amended, provides that certain outstanding options
to purchase Citation common stock may be designated by RSJ Acquisition Co. and,
upon the agreement of RSJ Acquisition Co. and the holder of a particular
option, may be continued after the merger, on terms and conditions to be agreed
upon by RSJ Acquisition Co. and the holder of the option. At the time of the
mailing of this proxy statement/ prospectus, there are no agreements or
understandings between RSJ Acquisition Co. and any holder of an option
concerning the continuation of any options. However, it is possible that Kelso
& Company could reach agreements with management to continue to own options to
purchase Citation common stock following the merger. At the effective time of
the merger, all holders of options will receive cash equal to the same amount
they would have received if their options had already been exercised, which is
the difference between $17.00 and the per share exercise price of the option
(or, in the case of common stock purchased under Citation's Employee Stock
Purchase Plan which have not been fully paid for by the holder thereof, the
difference between $17.00 and the unpaid portion, if any, of the per share
subscription price) to the extent the difference is a positive number.
Of the 695,138 options currently outstanding, 208,638 options granted in
August 1994 at exercise prices of $8.00 and $8.80 per share, including 125,000
options held by executive officers of Citation, were due to expire in August
1999. After the execution of the merger agreement, the Board of Directors of
Citation, with the consent of RSJ Acquisition Co., extended the expiration date
of those options, so that the employees holding those options would not be
required to exercise the options prior to the closing under the merger
agreement. The difference between the merger consideration of $17.00 per share
and the exercise price of the 125,000 options held by executive officers, which
options would have expired in August 1999, is $1,085,000 in the aggregate, of
which (assuming these options are not continued as described above) $410,000
will be paid to T. Morris Hackney, $450,000 will be paid to R. Conner Warren,
and $225,000 will be paid to other executive officers.
Anticipated Future Stock Option Plan Awards and Other Employment Arrangements
Citation anticipates that, at the request of Kelso & Company, it will
establish a stock option plan and other incentive compensation arrangements
following the merger and recapitalization for its officers and other key
employees, although the terms of any such plan or arrangements, and the amount
or level of any individual awards or participation are not known at this time.
In addition, Citation anticipates that, at the request of Kelso & Company, it
may seek to enter into new or amended employment agreements with certain of its
officers and other key employees, although the terms of any such agreements are
not known at this time.
Change of Control Arrangements
In December 1998, Citation entered into change of control severance
agreements with Frederick F. Sommer, Timothy L. Roberts, John W. Lawson and
Edwin L. Yoder, as well as other senior officers. The Board of Directors, which
approved these agreements at the time it approved the Stockholders Rights Plan,
intended for the agreements to reinforce and encourage the continued attention
and dedication of members of senior management to their duties without
distraction arising from the possibility of a change of control of Citation,
and therefore to maintain the executives' focus on business performance and
strategy execution.
The agreements are effective for a term of three years, and will be
automatically extended for one year at the end of each year thereafter unless
terminated by either party. However, the term of the agreements will not expire
before the expiration of two years following a change of control of Citation.
If the employment of the particular officer is involuntarily terminated, or in
certain circumstances constructively terminated, within 24 months following a
change of control by Citation or the officer other than for cause, disability,
retirement (as each of those terms is defined in the agreements) or death, the
officer will receive the following benefits:
. a pro rata bonus for the year of termination;
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. a lump sum cash payment equal to two times (and in Mr. Sommer's case,
2.99 times) his annual base salary at the highest rate in effect during
the previous 12 months, plus the average annual bonus received by him
during the preceding three years, subject to certain adjustments; and
. continuation of life insurance, medical, health and accident, and
disability benefits for up to two years (three years for Mr. Sommer).
The merger and recapitalization will constitute a change of control for
purposes of these agreements. As a result, all restrictions on any outstanding
incentive awards will lapse and become fully vested at the effective time of
the merger, all outstanding stock options will become fully vested and
immediately exercisable, and the officer will receive a lump sum cash payment
of the entire balance of his account under Citation's Nonqualified Deferred
Compensation Plan. Each agreement also provides that Citation will pay all
legal fees and related expenses incurred by the officer in connection with any
dispute arising under or relating to the agreement or any action or proceeding
to enforce his rights under the agreement.
Citation does not anticipate that any officer's employment will be
terminated following the merger. However, under the agreements, Messrs. Sommer,
Roberts, Lawson and Yoder will be entitled to receive approximately $570,000,
$126,000, $26,000 and $24,000, respectively, in accelerated benefits at the
effective time of the merger. These amounts include the benefits resulting from
the cancellation of and payment for all options (assuming these options are not
continued as described above).,
Stock Election Agreements and Related Agreements
As described elsewhere in this proxy statement/prospectus, at the insistence
of, and as an accommodation to, RSJ Acquisition Co., Messrs. Sommer, Warren,
Roberts and Lawson and Hackney One Investments, LLC entered into Stock Election
Agreements with RSJ Acquisition Co. on September 8, 1999. Hackney One
Investments, LLC agreed to an amended Stock Election Agreement on October 12,
1999, and Messrs. Sommer, Warren, Roberts and Lawson affirmed their stock
elections as of that date. In these agreements, such stockholders have agreed
to make an irrevocable election to retain 1,032,369 shares in the aggregate of
common stock of Citation in connection with the merger. RSJ Acquisition Co. is
engaged in discussions with other stockholders of Citation regarding an
election to retain 30,250 shares.
Each Stock Election Agreement described above has annexed to it a form of a
Stockholders Agreement and a form of a Registration Rights Agreement, copies of
which are attached to this proxy statement/prospectus as Annex D and Annex E,
respectively. Definitive versions of such agreements are to be entered into at
the closing of the merger by Citation, Kelso & Company and its affiliates and
designees, and each current stockholder who has executed a Stock Election
Agreement. In addition, Kelso & Company has informed us that stockholders of
Citation who elect to retain shares of common stock in connection with the
merger will be given the opportunity after the closing of the merger to become
parties to the Stockholders Agreement and Registration Rights Agreement. For a
description of these agreements, see "--Rights of Stockholders After the
Merger."
Directors and Officers of Citation After the Merger
The merger agreement provides that as of the effective time of the merger,
the directors serving on the Board of Directors of RSJ Acquisition Co. will
become the Board of Directors of Citation. After the effective time of the
merger, the Board of Directors of Citation will be subject to change from time
to time. The members of the board of directors of RSJ Acquisition Co. are
currently Frank K. Bynum and Thomas R. Wall, IV. Each of Mr. Bynum and Mr. Wall
is a managing member of KGP VI, LLC, the general partner of Kelso Investment
Associates VI, L.P. In addition, it is expected that Frederick F. Sommer,
currently the President, Chief Executive Officer and a director of Citation, is
expected to serve as chairman of the board of directors of Citation after the
merger.
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Frederick F. Sommer, age 56, joined Citation as its President and Chief
Operating Officer in July 1996. In 1998, Mr. Sommer became Chief Executive
Officer of Citation. Prior to joining Citation, Mr. Sommer served as President
and Chief Operating Officer of Automotive Industries Holdings, Inc., which had
been purchased by Hidden Creek Industries, Inc. in a leveraged transaction,
from 1991 until his appointment as President and Chief Executive Officer in
1994. He remained in that position after Automotive Industries Holdings, Inc.
was acquired by Lear Corporation in 1995, and also served as a Senior Vice
President of Lear Corporation. He has been a director of Citation since 1996.
Thomas R. Wall, IV, age 41, is a Managing Director of Kelso & Company and
has held various positions of increasing responsibility with Kelso & Company
since 1983. Mr. Wall also serves as a director of AMF Bowling, Inc.,
Consolidated Vision Group, Inc., Cygnus Publishing, Inc., iXL Enterprises,
Inc., Mitchell Supreme Fuel Company, Mosler, Inc., Peebles, Inc. and 21st
Century Newspapers, Inc.
Frank K. Bynum, Jr., age 36, is a Managing Director of Kelso & Company and
has held various positions of increasing responsibility with Kelso & Company
since 1987. Mr. Bynum also serves as a director of Cygnus Publishing, Inc., CDT
Acquisition Corp., Hosiery Corporation of America, Inc., iXL Enterprises, Inc.,
MJD Communications, Inc. and 21st Century Newspapers, Inc.
The merger agreement, as amended, provides that the officers of Citation
will continue to serve as the officers of Citation after the merger. It is
expected that the officers of Citation at the effective time of the merger
(other than Mr. Hackney) will be the officers of Citation after the merger
until otherwise determined by the Board of Directors following the merger.
Governmental and Regulatory Approvals
Under the Hart-Scott-Rodino Improvements Act of 1996, or "HSR Act," and the
rules promulgated thereunder by the Federal Trade Commission, or "FTC," the
merger may not be completed until notifications have been given and certain
information has been furnished to the FTC and the Antitrust Division of the
Department of Justice and specified waiting period requirements have been
satisfied. Citation and Kelso & Company filed notification and report forms
under the HSR Act with the FTC and the Antitrust Division on August 25, 1999
and received notice of an early termination of the waiting period on September
23, 1999. At any time before or, under some circumstances after completion of
the merger, the Antitrust Division, the FTC or state attorneys' general could
take such action under the antitrust laws as they deem necessary or desirable
in the public interest, including seeking to enjoin the merger. Private parties
may also seek to take legal action under the antitrust laws under certain
circumstances.
Based on the information available to them, Citation and Kelso & Company
believe that they can accomplish the merger in compliance with federal and
state antitrust laws. However, there can be no assurance that a challenge to
the merger on antitrust grounds will not be made or that, if a challenge were
made, Citation and Kelso & Company would prevail or would not be required to
accept certain conditions, including the divestitures of certain assets, in
order to complete the merger.
Accounting Treatment
In the merger, Citation will continue as the surviving corporation and the
proceeds from the new and refinanced indebtedness, together with Citation's
existing cash and the equity investment by affiliates and designees of Kelso &
Company, will be used to pay the merger consideration and repay substantially
all of Citation's existing indebtedness. After the merger, Citation will be
approximately 7.0% owned by existing stockholders of Citation, including
certain executive officer and their affiliates, and 93.0% owned by affiliates
and designees of Kelso & Company (without giving effect to any shares issued
from the exercise of warrants). Because these affiliates and designees of Kelso
& Company will acquire less than substantially all of Citation's common stock,
we expect the merger to be accounted for as a recapitalization under generally
accepted accounting principles. As a result, "push-down" accounting is not
required, and, accordingly, the historical
73
basis of Citation's assets and liabilities will not be affected by the
transaction. If push-down accounting were required, substantial goodwill would
be created in the transaction. The amortization of this goodwill would have a
significant negative impact on Citation's reported financial results in future
years.
Rights of Stockholders After the Merger
Resale of Common Stock Retained in the Merger. The Citation common stock to
be retained by existing stockholders in connection with the merger will be
freely transferable, except (i) to the extent transfer is restricted under the
terms of the Stockholders Agreement and (ii) shares issued to any stockholder
who may be deemed to be an "affiliate" (as defined under the Securities Act and
generally including, without limitation, directors, certain officers and
beneficial owners of 10% or more of a class of capital stock) of Citation for
purposes of Rule 145 under the Securities Act will not be transferable except
in compliance with the Securities Act. This proxy statement/prospectus does not
cover sales of Citation common stock issued to any person who may be deemed to
be an affiliate of Citation.
Stockholders Agreement and Registration Rights Agreement. Kelso & Company
has informed us that stockholders of Citation who make valid elections to
retain shares of common stock in connection with the merger will be given the
opportunity after the closing of the merger to become parties to the
Stockholders Agreement and the Registration Rights Agreement. The current forms
of these agreements are attached to this proxy statement/prospectus as Annexes
D and E, respectively. Although the terms and conditions of these agreements
are subject to further negotiation and change, stockholders are urged to read
these agreements carefully. The following summary of these agreements does not
purport to be complete and is qualified in its entirety by reference to Annex D
and Annex E to this proxy statement/prospectus, which are incorporated in this
proxy statement/prospectus by reference.
The Stockholders Agreement will provide that shares of Citation common stock
that are retained in connection with the merger may be freely transferred,
subject only to a right of first refusal in favor of Citation and certain of
its designees. The Stockholders Agreement will restrict the transfer of any
other shares of common stock owned by officers and employees of Citation who
are or who become parties to the Stockholders Agreement. Exceptions to this
restriction include transfers for estate planning purposes or transfers in
connection with certain pledges, so long as the transferee agrees to be bound
by the terms of the Stockholders Agreement. In addition, stockholders will have
"tag-along" rights to sell their shares on a pro rata basis with the affiliates
of Kelso & Company whenever those stockholders are selling their shares to
third parties. Similarly, affiliates of Kelso & Company will have "drag-along"
rights to cause each executive officer, employee or other stockholder who is or
who becomes a party to sell his shares of Citation on a pro rata basis with the
Kelso-affiliated stockholders to a third party that has made an offer to
purchase the shares of Citation owned by the Kelso-affiliated stockholders. To
the extent that the stockholders who are or will be parties acquire any shares
of Citation common stock in addition to their retained shares, the new shares
so acquired, including shares acquired pursuant to the exercise of any stock
options, will also be subject to "put" and "call" rights, which will entitle
Citation to purchase from the stockholder, and will entitle the stockholder to
sell to Citation, such common stock upon any termination of such stockholder's
employment with the Company, at differing prices, depending upon the
circumstances surrounding such termination.
The Registration Rights Agreement will provide that in the event that
Citation is registering its shares under the Securities Act (except for
registrations related to exchange offers or benefit plans) and any Kelso-
affiliated stockholder is selling its shares in connection with this
registration, the executive officers, employees and other parties to the
agreement who are not affiliated with Kelso & Company will have the right to
have their shares concurrently registered and sold, in most cases, on a pro
rata basis with those of the Kelso-affiliated stockholders.
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CERTAIN PROVISIONS OF THE MERGER AGREEMENT
This section of the proxy statement/prospectus describes certain aspects of
the proposed merger, including material provisions of the merger agreement, as
amended by Amendment No. 1 and Amendment No. 2 thereto. The following
description of the merger does not purport to be complete and is qualified in
its entirety by reference to the merger agreement, Amendment No. 1 and
Amendment No. 2, which are attached as Annex A to this proxy
statement/prospectus, and incorporated in this proxy statement/prospectus by
reference. You are urged to read the merger agreement, Amendment No. 1 and
Amendment No. 2 carefully before you decide how to vote. Unless the context
requires otherwise, references in this section to the merger agreement mean the
merger agreement as amended.
The Merger; Merger Consideration
The merger agreement was approved by Citation's Board of Directors and
signed by Citation and RSJ Acquisition Co. on June 24, 1999. Amendment No. 1 to
the merger agreement was approved by Citation's Board of Directors and signed
by Citation and RSJ Acquisition Co. on September 3, 1999. Amendment No. 2 to
the merger agreement was approved by Citation's Board of Directors and signed
by Citation and RSJ Acquisition Co. on October 12, 1999. The merger agreement
and Delaware law require that Citation stockholders adopt the merger agreement
by the affirmative vote of the holders of a majority of outstanding shares of
Citation common stock entitled to vote on the merger agreement.
Pursuant to the merger agreement, and on the terms and conditions set forth
in the merger agreement, at the effective time of the merger, RSJ Acquisition
Co., an affiliate of Kelso & Company, will be merged with and into Citation,
and Citation will be the surviving corporation. As a result of the merger, each
share of common stock issued and outstanding immediately prior to the effective
time (other than shares with respect to which the holders have perfected
appraisal rights under the Delaware Law) will be converted into the right, at
the option of the holder thereof, either to receive $17.00 in cash, without
interest, or, subject to proration and the minimum share election requirement
described in the next sentence, to retain one share of common stock of the
surviving corporation. The right to elect to retain common stock of Citation in
the merger is available only to stockholders who make such an election with
respect to at least 10,000 shares of Citation common stock.
Exactly 1,062,619 shares of common stock will be retained by Citation
stockholders in the merger. The 1,062,619 shares will represent approximately
7.0% of the common stock of Citation outstanding after the merger (without
giving effect to any shares issued from the exercise of warrants). If
stockholders in addition to those who are parties to or are expected to become
parties to the Stock Election Agreements also elect to retain any shares, then
there will be stock elections for an aggregate of more than 1,062,619 shares,
in which event Citation will allocate the 1,062,619 shares pro rata among the
Citation stockholders who have elected to retain shares based on the number of
shares each stockholder has elected to retain. See "The Merger and
Recapitalization--Stock Election."
Dissenting Shares
In the merger, stockholders have appraisal rights under Section 262 of the
General Corporation Law of the State of Delaware. If a stockholder exercises
its appraisal rights and complies with the requirements of Section 262, the
shares of common stock owned by the dissenting stockholder will not be
converted into the right to receive the merger consideration. Instead, a
dissenting stockholder's shares will be converted into the right to receive the
consideration as may be determined to be the appraisal value due to the
dissenting stockholder in accordance with Delaware law. If after the effective
time of the merger, the dissenting stockholder fails to comply with the
requirements of Section 262, the dissenting shares of the dissenting
stockholder will be treated as shares of common stock and will be converted
into the right to receive the merger consideration. At the effective time, a
dissenting stockholder will not have any rights (including voting rights and
rights to dividends or distributions) with respect to his or her dissenting
shares other than rights provided by Section 262. For a summary of the
requirements that a stockholder must follow in order to exercise his or her
appraisal rights, see "Appraisal Rights" and Annex C attached to this proxy
statement/prospectus.
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Treatment of Stock Options
Certain outstanding employee stock options to purchase Citation common stock
may be designated by RSJ Acquisition Co. and, upon the agreement of RSJ
Acquisition Co. and the holder of a particular option, may be continued after
the merger, on terms and conditions to be agreed upon by RSJ Acquisition Co.
and the applicable holder. At the time of the mailing of this proxy
statement/prospectus, no such formal agreements between RSJ Acquisition Co. and
a holder of an option have been reached. However, it is possible that Kelso &
Company could reach agreements with certain members of management to continue
to own options following the merger. At the effective time of the merger, all
holders of options will receive cash equal to the same amount they would have
received if their options had already been exercised, which is the difference
between $17.00 and the per share exercise price of the option (or, in the case
of common stock purchased under Citation's Employee Stock Purchase Plan which
have not been fully paid for by the holder thereof, the difference between
$17.00 and the unpaid portion, if any, of the per share subscription price) to
the extent the difference is a positive number.
Closing; Effective Time
Unless the parties agree otherwise, the closing of the merger will take
place by the second business day after the date on which all closing conditions
to the merger set forth in the merger agreement have been satisfied or waived.
Concurrently with the closing, Citation and RSJ Acquisition Co. will cause a
certificate of merger to be executed, acknowledged and filed with the Secretary
of State of the State of Delaware. The merger will become effective at the time
the certificate of merger is duly filed with the Secretary or at such later
time agreed by the parties and set forth in the certificate of merger. See
"Conditions to Completion of the Merger" and "The Merger and Recapitalization--
Governmental and Regulatory Approvals."
Exchange of Certificates
The Bank of New York will act as the exchange agent for the benefit of the
holders of shares of Citation common stock to receive the funds or shares to
which holders of shares of common stock become entitled upon surrender of their
certificates. Upon surrender of a certificate to the exchange agent, each
certificate holder will be entitled to a new certificate or certificates
representing the number of non-cash electing shares, cash or cash payable in
lieu of fractional shares, as the case may be. The Certificate surrendered will
then be canceled. No interest will be paid or accrued on any amount payable
upon due surrender of a Certificate.
Lost, Stolen or Destroyed Certificates
In the event any certificate is lost, stolen or destroyed, upon the making
of an affidavit of that fact by the stockholder claiming the certificate to be
lost, stolen or destroyed and, if required by the surviving corporation, the
posting by the stockholder of a bond in customary amount as indemnity against
any claim that may be made against it with respect to the certificate, the
exchange agent will issue in exchange for the lost, stolen or destroyed
certificate the applicable merger consideration the stockholder is entitled to
receive pursuant to the merger agreement.
Representations and Warranties
The merger agreement contains customary representations and warranties of
the parties relating to, with respect to Citation and its subsidiaries, among
other things: (a) organization, standing, corporate power and similar corporate
matters; (b) subsidiaries; (c) capital structure; (d) the authorization,
execution, delivery, performance and enforceability of the merger agreement;
(e) the recommendation of the Special Committee and the Board of Directors of
Citation with respect to the merger agreement, the merger and related
transactions; (f) consents and approvals; (g) the accuracy of information
contained in documents filed by Citation with the
76
SEC and supplied to RSJ Acquisition Co.; (h) the absence of certain changes or
events since the date of the most recent audited financial statements filed by
Citation with the SEC; (i) the absence of pending or threatened material
litigation and compliance with applicable laws; (j) labor matters; (k) benefit
plans and other related employment matters; (l) tax matters; (m) absence of
"parachute payments" under the Internal Revenue Code; (n) compliance with
applicable laws; (o) voting requirements for adoption of the merger agreement;
(p) absence of applicable state takeover statutes; (q) the absence of defaults
under material contracts; (r) the receipt of an opinion of Citation's financial
advisor; (s) brokers' fees and expenses; (t) intellectual property matters;
(u) Year 2000 issues; (v) the Board of Directors' exemption of RSJ Acquisition
Co. and its affiliates and the transactions contemplated by the merger
agreement under Citation's Stockholders' Rights Plan; (w) compliance of
Citation's products with customer qualification and certification requirements;
and (x) real property matters.
The merger agreement also contains customary representations and warranties
of RSJ Acquisition Co. relating to, among other things: (a) organization,
standing, corporate power and similar corporate matters; (b) capitalization;
(c) the authorization, execution, delivery, performance and enforceability of
the merger agreement; (d) consents and approvals; (e) accuracy of information
supplied by RSJ Acquisition Co. for inclusion in this proxy
statement/prospectus; (f) the financing commitment and highly confident letter
obtained from third parties in connection with the merger; and (g) ownership of
shares of Citation common stock.
All the representations and warranties are subject to various qualifications
and limitations. The representations and warranties of the parties do not
survive the effective time of the merger.
Rights Plan Amendment
In connection with the execution of the merger agreement in June 1999,
Citation amended its Stockholder Rights Plan to provide, among other things,
that (a) neither the merger agreement, as amended from time to time, nor any of
the transactions contemplated by that agreement, including the merger, would
result in the occurrence of a "Flip-In Event," a "Stock Acquisition Date" or a
"Distribution Date," in each case as those terms are defined in the Stockholder
Rights Plan; (b) none of RSJ Acquisition Co. or any of their "Affiliates" or
"Associates" would be deemed an "Acquiring Person," in each case as those terms
are defined in the Rights Plan; and (c) the rights will expire immediately
prior to the effective time of the merger. See "Comparison of the Rights of
Citation Stockholders Before and After the Merger--Absence of Rights Plan."
Certain Covenants
Citation has agreed that, before the completion of the merger, it will
conduct its business only in the ordinary course and in compliance with
applicable laws, and will use its reasonable best efforts to preserve
substantially intact its business organization, to keep available the services
of its present officers and employees and to preserve its present relationships
with customers, suppliers, licensors, licensees, distributors, suppliers and
other persons with whom it has significant business relations.
Accordingly, Citation agreed that it will not, without the prior written
consent of RSJ Acquisition Co.: (a) declare, set aside or pay any dividends in
cash, stock or property or make any other distributions in respect of its
capital stock; (b) issue, deliver, sell or pledge any shares of its stock,
except upon the exercise of stock options; (c) amend its certificate of
incorporation, by-laws or other comparable organizational documents;
(d) acquire any other business, whether by merger, consolidation or purchase of
assets; (e) sell, lease, license, mortgage or otherwise encumber any property,
except in the ordinary course of business; (f) incur or modify any indebtedness
or other liability, guarantee any indebtedness for another person or issue or
sell any debt securities; (g) make or agree to make any capital expenditures in
excess of $2.0 million, with certain exceptions; (h) make any material tax
election, settle or compromise any tax liability or file any amendment to a
material tax return; (i) pay, discharge, settle or satisfy any claims,
liability or litigation other than in the ordinary course of business; (j)
provide any new or change any existing employment, severance, consulting or
termination agreement or employee benefit plans; (k) enter into or modify any
material option under any material contract, except in the ordinary course of
business; (l) revalue any assets; (m) make changes in its
77
accounting methods other than as required by generally accepted accounting
principles; (n) hold any meeting of stockholders; or (o) authorize, or commit
or agree to take any of the above actions.
Certain Other Covenants and Agreements
Subject to the Confidentiality Agreement, dated as of March 16, 1999,
between Citation and Kelso & Company and except as otherwise required by
applicable law, each of RSJ Acquisition Co. and Citation is required under the
merger agreement to afford to the other party and to its representatives
reasonable access during normal business hours during the period prior to the
effective time to all their respective properties, books, contracts,
commitments, personnel and records. Until the effective time of the merger,
each of the parties must furnish promptly to the other party (a) a copy of each
report, schedule, registration statement and other document filed by it during
that period pursuant to the requirements of Federal or state securities laws,
and (b) all other information concerning its business, properties and personnel
as the other party may reasonably request.
Citation has agreed to call, give notice of and convene the special meeting
of its stockholders to consider and vote upon the adoption of the merger
agreement and to afford RSJ Acquisition Co. and its representatives reasonable
access to its books and records. RSJ Acquisition Co. has agreed to use its
reasonable commercial efforts to obtain the financing required for the
completion of the merger pursuant to the commitment letters delivered to the
parties. Each of the parties has agreed to cooperate with the other party in
preparing disclosure documents to stockholders, making filings under the HSR
Act and other filings and to use their reasonable efforts to obtain all
necessary governmental and third-party approvals.
Agreement Not to Solicit Offers
The merger agreement restricts Citation's ability to take actions with
respect to takeover proposals other than the recapitalization and merger. We
use the term takeover proposal to mean any of the following:
. any tender or exchange offer involving Citation that, if completed,
would result in any person owing 10% or more of the common stock of
Citation;
. any proposal for a merger, consolidation, business combination,
recapitalization or other similar transaction involving Citation; or
. any inquiry, proposal or offer to acquire in any manner 10% or more of
the equity interests in, or 10% or more of the business, net revenues,
net income or assets of, Citation.
Citation has agreed that it will:
. not, directly or indirectly, through any officer, director, agent,
financial advisor or otherwise, solicit, initiate or encourage, or take
other action to facilitate any inquiries or the making of any proposal
constituting a takeover proposal, participate in any discussions or
negotiations regarding a takeover proposal or enter into any agreement
concerning a takeover proposal or approve or resolve to approve any
takeover proposal;
. notify RSJ Acquisition Co. if Citation receives any offers related to a
takeover proposal or a possible takeover proposal, and include in that
notice the name of the person making the proposal or offer and the terms
and conditions of the proposal or offer; and
. not withdraw, qualify or modify its recommendation of the
recapitalization and merger, approve, recommend or propose publicly to
approve or recommend a takeover proposal, or cause Citation to enter
into any letter of intent, agreement or like arrangement with respect to
a takeover proposal.
78
However, the merger agreement does not prevent Citation from taking and
disclosing to Citation stockholders a position contemplated by Rule 14e-2(a)
under the Exchange Act with regard to a tender or exchange offer made by
someone other than RSJ Acquisition Co.
The merger agreement also allows Citation, prior to the adoption of the
merger agreement by Citation's stockholders, and in response to an unsolicited
takeover proposal, to furnish information to any person or entity making the
takeover proposal and to participate in negotiations with respect to the
takeover proposal if the following conditions are satisfied:
. The Board of Directors determines in good faith, based upon the advice
of Citation's outside legal advisers, that the failure to take such
actions would create a reasonable possibility of a breach of its
fiduciary duties under applicable law;
. The Board of Directors determines in good faith, based on the advice of
Citation's financial advisers, that the takeover proposal would result
in the acquisition of more than 50% of the voting power of the shares of
Citation's common stock or all or substantially all of the assets of
Citation and its subsidiaries; and
. The Board of Directors determines in good faith, based on the advice of
Citation's outside legal and financial advisers, that the takeover
proposal would be more favorable to Citation's stockholders than the
merger and that the financing necessary to consummate the takeover
proposal is then committed or reasonably capable of being obtained (we
use the term superior proposal to mean any takeover proposal which
satisfies the foregoing conditions).
In addition, the Board of Directors may terminate the merger agreement (and
concurrently therewith, if it so chooses, cause Citation to enter into a
definitive agreement for another takeover proposal) if the following additional
conditions are satisfied:
. The Board of Directors determines in good faith, based on the advice of
Citation's outside legal advisers, that the failure to do so would
create a reasonable possibility of a breach in its fiduciary duties
under applicable law; and
. Citation shall have (i) notified RSJ Acquisition Co. that it is prepared
to accept another takeover proposal, (ii) specified the material terms
and conditions thereof, including the identity of the person making the
proposal and (iii) caused its financial and legal advisers to negotiate
in good faith with RSJ Acquisition Co. for at least three days to make
such adjustments to the terms of the merger as will enable Citation to
proceed with the merger on the adjusted terms.
Board Recommendations
In connection with the merger and special meeting, the Citation Board of
Directors, based upon the unanimous recommendation of the Special Committee (a)
has determined that the merger agreement, as amended, and the transactions
contemplated thereby, including the merger, are fair to, advisable and in the
best interests of the stockholders of Citation, and (b) has recommended that
Citation's stockholders adopt the merger agreement, as amended, and not elect
to retain any stock in the merger.
Employee Benefits
Citation as the surviving corporation to the merger will provide employee
pension and welfare plans which will, in the aggregate, be substantially
comparable to those provided to employees of Citation as of the date of the
merger agreement. The merger agreement also states that Citation will honor the
change of control agreements in place between Citation and certain executive
officers and other officers. RSJ Acquisition Co. has agreed that it will honor
all Citation plans and employment, severance, termination and retirement
agreements.
79
Indemnification, Exculpation and Insurance
From the effective time of the merger through the sixth anniversary of the
date on which the effective time occurs, the surviving corporation is required
under the merger agreement to indemnify and hold harmless each person who is
now, or has been at any time prior to the date of the merger agreement, or who
becomes prior to the effective time, a director, officer, employee or agent of
Citation or any of its subsidiaries, against all claims, losses, liabilities,
damages, judgments, fines and reasonable fees, costs and expenses, including
attorneys' fees and disbursements, incurred in connection with any claim,
action, suit, proceeding or investigation, whether civil, criminal,
administrative or investigative, arising out of or pertaining to (a) the fact
that the party is or was an officer, director, employee or agent of Citation or
any of its subsidiaries or (b) matters existing or occurring at or prior to the
effective time (including the merger agreement and the transactions and actions
contemplated thereby), whether asserted or claimed prior to, at or after the
effective time, to the fullest extent permitted under applicable law. Each
covered party is entitled to advancement of expenses incurred in the defense of
any claim, action, suit, proceeding or investigation from the surviving
corporation within ten business days of receipt by the surviving corporation
from the party of a request therefor. However, any person to whom expenses are
advanced shall provide an undertaking, to the extent required by Delaware law,
to repay advances if it is ultimately determined that the person is not
entitled to indemnification.
The certificate of incorporation and by-laws of the surviving corporation
must contain provisions no less favorable with respect to indemnification,
advancement of expenses and exculpation of present and former directors,
officers, employees and agents of Citation and its subsidiaries then are
presently set forth in the certificate of incorporation and by-laws of
Citation.
The surviving corporation shall maintain the current policies of the
directors' and officers' liability insurance maintained by Citation with
respect to matters existing or occurring at or prior to the effective time
(including the transactions contemplated by the merger agreement) at no expense
to the beneficiaries for a period of six years from the effective time, so long
as the annual premium therefor would not be in excess of 200% of the last
annual premium paid prior to the date of the merger agreement, the maximum
premium. If Citation's existing insurance expires, is terminated or canceled
during that six-year period or exceeds the maximum premium, the surviving
corporation shall obtain as much directors' and officers' liability insurance
as can be obtained for the remainder of the period for an annualized premium
not in excess of the maximum premium, on terms and conditions no less
advantageous to covered parties than Citation's existing directors' and
officers' liability insurance.
Solvency Letter
Citation and RSJ Acquisition Co. have agreed to engage, at the expense of
RSJ Acquisition Co., an appraisal firm to deliver a letter addressed to the
Board of Directors of Citation and Citation (and upon which the Board of
Directors shall be entitled to rely) indicating that immediately after the
effective time and after giving affect to the merger and the financing
contemplated by the merger agreement, the surviving corporation (a) will not be
insolvent and will have assets sufficient to pay its debts and (b) will not
have unreasonably small capital with which to engage its business.
Recapitalization Financing
RSJ Acquisition Co. has agreed to use its reasonable commercial efforts to
obtain the financing required for the completion of the merger pursuant to the
commitment letters and to satisfy all conditions to funding as set forth in the
financing letters. To the extent that any portion of the financing contemplated
by the commitment letters becomes unavailable, RSJ Acquisition Co. has agreed
to use its reasonable commercial efforts to arrange for alternative financing
for the merger.
80
Conditions to Completion of the Merger
The respective obligations of Citation and RSJ Acquisition Co. to complete
the merger are subject to various conditions which include, in addition to
other customary closing conditions, the following: (a) the Citation
stockholders must adopt the merger agreement; (b) there must be no law, order,
injunction or other legal restraint or prohibitions restricting or preventing
the completion of the merger; (c) the waiting period under the Hart-Scott-
Rodino Act must have terminated or expired; and (d) the registration statement
of which this proxy statement/prospectus is a part must have become effective
and not be subject to any stop order or proceedings seeking a stop order.
The obligations of RSJ Acquisition Co. to complete the merger are also
subject, in addition to other customary conditions, to the conditions that
Citation shall have received the proceeds from the financing described
elsewhere in this proxy statement/prospectus, and that all of Citation's
indebtedness under its existing senior secured credit facility shall have been
refinanced.
The obligations of Citation to complete the merger are also subject, in
addition to other customary conditions, to the receipt of the solvency letter
described above.
Although the parties obligations to complete the merger are subject to the
condition that the parties' respective representations and warranties in the
merger agreement be true and correct, in all material respects, as of the
closing date, the merger agreement, as amended, provides that no litigation
pending against Citation after June 24, 1999, and arising out of the merger
agreement or merger, will be deemed to have a material adverse effect on
Citation.
Termination
The merger agreement may be terminated and the transactions contemplated in
the merger agreement abandoned at any time before the effective time of the
merger, whether before or after adoption of the merger agreement by the
Citation stockholders:
. by mutual written consent of RSJ Acquisition Co. and Citation;
. by either RSJ Acquisition Co. or Citation if:
--the merger has not been completed on or before December 31, 1999 or,
under certain circumstances, January 31, 2000, so long as the party
seeking to terminate did not prevent completion by failing to fulfill
any of its obligations under the merger agreement;
--Citation's stockholders do not adopt the merger agreement; or
--any governmental any action restraining, enjoining or otherwise
prohibiting the merger or any of the transactions contemplated by the
merger agreement becomes final and non-appealable; or
. by Citation:
--if RSJ Acquisition Co. breaches or fails in any material respect to
perform or comply with any of its material covenants and agreements
contained in the merger agreement or breaches its representations and
warranties in any material respect, which breach or failure (A) would,
if it existed at the closing of the merger agreement, entitle Citation
not to close the merger and (B) is incapable of being cured by RSJ
Acquisition Co. within five business days of notice thereof; or
--prior to the affirmative vote of Citation's stockholders with respect
to the merger, in response to a superior proposal in accordance with
the applicable restrictions and limitations in the merger agreement, if
Citation has paid the termination fee and expenses described below
under "Termination Fees and Expenses;" or
81
. by RSJ Acquisition Co. if:
--Citation breaches or fails in any material respect to perform or
comply with any of its material covenants and agreements contained in
the merger agreement or breaches its representations and warranties in
any material respect, which breach or failure (A) would, if it existed
at the closing of the merger agreement, entitle RSJ Acquisition Co. not
to close the merger and (B) is incapable of being cured by Citation
within five business days of notice thereof;
--the Citation Board withdraws, modifies or changes, in a manner adverse
to RSJ Acquisition Co., the Citation Board's approval and
recommendation of the merger agreement or shall have recommended or
approved another takeover proposal; or
--any person, entity or group, other than RSJ Acquisition Co. or its
affiliates, acquires beneficial ownership or becomes the beneficial
owner of 30% or more of the common stock of Citation.
Termination Fees and Expenses
The merger agreement provides that Citation will pay RSJ Acquisition Co. a
termination fee of $8,179,000 and up to $1,500,000 of reasonable out-of-pocket
expenses of RSJ Acquisition Co. and its affiliates incurred in connection with
the merger if the merger agreement is terminated under the following
circumstances:
. RSJ Acquisition Co. terminates the merger agreement because:
--any person, entity or group, other than RSJ Acquisition Co. or its
affiliates, acquires beneficial ownership or becomes the beneficial
owner of 30% or more of the common stock of Citation; or
--the Citation Board of Directors withdraws, modifies or changes, in any
manner adverse to RSJ Acquisition Co., the Board's approval and
recommendation of the merger agreement, or shall have recommended or
approved another takeover proposal; or
. the Citation Board of Directors, prior to the affirmative vote of
Citation's stockholders with respect to the merger, terminates the
merger agreement in response to a superior proposal in accordance with
the applicable restrictions and limitations contained in the merger
agreement.
All termination fees and expenses in the foregoing instances must be paid on
the date of the termination of the merger agreement.
The merger agreement also provides that Citation will also pay RSJ
Acquisition Co. a termination fee of $8,179,000 and up to $1,500,000 of
reasonable out-of-pocket expenses of RSJ Acquisition Co. and its affiliates
incurred in connection with the merger agreement under the following
circumstances:
. (1) RSJ Acquisition Co. terminates the merger agreement because Citation
willfully and materially breaches any of the material covenants and
agreements contained in the merger agreement or willfully and materially
breaches its representations and warranties and (2) within one year of
termination, Citation shall have entered into a definitive agreement
with respect to another takeover proposal or similar business
combination or consummated another takeover proposal or similar business
combination; or
. (1) either party terminates the merger agreement because the Citation
stockholders failed to adopt the merger agreement; and (2) (a) before
the taking of the stockholder vote, another takeover proposal shall have
been made and remain pending and (b) within one year of termination,
Citation shall have entered into a definitive agreement with respect to
another takeover proposal or similar business combination or consummated
another takeover proposal or similar business combination.
Any termination fee and expenses in these immediately foregoing instances
must be paid on the date of the execution of the applicable definitive
agreement, or, if earlier, the consummation of the applicable takeover proposal
or similar business combination.
82
Amendment and Waiver
The parties may amend the merger agreement by written agreement of the
parties at any time before the closing date of the merger. After Citation
stockholders adopt the merger agreement, the parties may not amend the merger
agreement in any way that would require the further approval of the
stockholders without obtaining that approval.
At any time before the effective time of the merger, either party may (a)
extend the time for the performance of any of the obligations or other acts of
the other party; (b) waive any inaccuracies in the representations and
warranties of the other party contained in the merger agreement or in any
document delivered with the merger agreement; or (c) subject to applicable law,
waive compliance with any of the agreements or conditions in the merger
agreement. Any extension or waiver described above will be valid if set forth
in writing and signed by the parties to be bound.
83
UNAUDITED PRO FORMA
CONSOLIDATED FINANCIAL STATEMENTS
The unaudited pro forma consolidated financial statements of Citation on the
following pages have been derived by the application of pro forma adjustments
to Citation's historical consolidated financial statements. The unaudited pro
forma consolidated statements of income for the fiscal year ended September 27,
1998 and the nine-month period ended June 27, 1999 give effect to acquisitions
and disposition of businesses by Citation and to the merger and
recapitalization transactions as if the transactions were consummated as of
September 29, 1997. The unaudited pro forma consolidated balance sheet gives
effect to the merger and recapitalization transactions as if the transactions
had occurred as of June 27, 1999. The adjustments are described in the
accompanying notes. The unaudited pro forma consolidated financial statements
should not be considered indicative of actual results that would have been
achieved had the acquisitions and disposition of businesses by Citation and the
merger and recapitalization transactions been completed on the dates indicated
and do not purport to indicate balance sheet data or results of operations as
of any future date or for any future period. The unaudited pro forma
consolidated financial statements should be read in conjunction with Citation's
historical financial statements and the notes thereto.
At the effective time of the merger, RSJ Acquisition Co. will be merged with
and into Citation and Citation will continue as the surviving corporation in
the merger. RSJ Acquisition Co. was organized in connection with the merger and
has not carried on any activities to date other than those incident to its
formation and the transactions contemplated by the merger agreement.
The pro forma adjustments were applied to the respective historical
consolidated financial statements to reflect and account for the merger as a
recapitalization. Accordingly, the historical basis of Citation's assets and
liabilities will not be affected by the transactions.
84
CITATION CORPORATION
Unaudited Pro Forma Consolidated Balance Sheet
As of June 27, 1999
Recapitalization
June 27, 1999 and Offering June 27, 1999
Historical Adjustments (a) As Adjusted
------------- ---------------- -------------
(dollars in thousands)
ASSETS
Current assets:
Cash and cash equivalents....... $ 2,080 $ (161) $ 1,919
Accounts receivable, net........ 117,989 -- 117,989
Inventories..................... 58,781 -- 58,781
Deferred income taxes, prepaid
expenses and other current
assets......................... 33,719 -- 33,719
-------- --------- --------
Total current assets.......... 212,569 (161) 212,408
-------- --------- --------
Property, plant and equipment,
net.............................. 339,872 -- 339,872
Intangible assets, net............ 109,593 -- 109,593
Other assets...................... 16,696 16,973 33,669
-------- --------- --------
Total assets.................. $678,730 $ 16,812 $695,542
======== ========= ========
LIABILITIES AND STOCKHOLDERS'
EQUITY
Current liabilities:
Current portion of long-term
debt and capital leases........ $ 3,936 $ (1,384) $ 2,552
Accounts payable................ 57,876 -- 57,876
Accrued expenses and other
current liabilities............ 51,513 (5,081) 46,432
-------- --------- --------
Total current liabilities..... 113,325 (6,465) 106,860
-------- --------- --------
Long-term liabilities:
Revolving credit facility....... -- -- --
Long-term debt and capital
leases......................... 315,415 (309,800) 5,615
Senior term loan A.............. -- 50,000 50,000
Senior term loan B.............. -- 210,000 210,000
Senior subordinated bridge
financing...................... -- 135,000 135,000
Deferred income taxes and other
long-term liabilities.......... 50,086 -- 50,086
-------- --------- --------
Total liabilities............. 478,826 78,735 557,561
-------- --------- --------
Stockholders' equity:
Common stock.................... 179 (27) 152
Additional paid-in capital...... 107,304 124,833 232,137
Retained earnings (accumulated
deficit)....................... 92,421 (186,729) (94,308)
-------- --------- --------
Total stockholders' equity.... 199,904 (61,923) 137,981
-------- --------- --------
Total liabilities and
stockholders' equity............. $678,730 $ 16,812 $695,542
======== ========= ========
See Notes to Unaudited Pro Forma Consolidated Balance Sheet
85
Notes to Unaudited Pro Forma Consolidated Balance Sheet
(dollars in thousands, except share and per share data)
The pro forma financial data have been derived by the application of pro
forma adjustments to Citation's historical financial statements as of the date
noted. The merger will be accounted for as a recapitalization which will have
no impact on the historical basis of Citation's assets and liabilities. The pro
forma financial data assume that no stockholders assert appraisal rights in
connection with the merger.
(a) Pro forma adjustments to the Unaudited Pro Forma Consolidated Balance Sheet
are summarized in the following table and are described in the notes that
follow:
Purchase
Price of Transaction
Equity Compensation Fees and Repayment Total Net
Financing (1) (2) Expense (3) Expenses (4) of Existing Debt (5) Adjustment
------------- -------- ------------ ------------ -------------------- ----------
Cash and cash
equivalents............ 635,000 (285,857) (4,288) (31,725) (313,291) (161)
Other assets............ 17,625 (652) 16,973
Current portion of long-
term debt and capital
leases................. (1,384) (1,384)
Accrued expenses and
other current
liabilities............ (2,713) (2,368) (5,081)
Long-term debt and
capital leases......... (309,800) (309,800)
Senior term loan A...... 50,000 50,000
Senior term loan B...... 210,000 210,000
Senior subordinated
bridge financing....... 135,000 135,000
Common stock............ 141 (168) (27)
Additional paid-in
capital................ 239,859 (100,926) (14,100) 124,833
Retained earnings....... (184,763) (1,575) (391) (186,729)
--------
(1) Sources and uses of cash for the recapitalization are as follows:
Sources:
Existing cash................................................... $ 161
Senior term loan A.............................................. 50,000
Senior term loan B.............................................. 210,000
Senior subordinated bridge financing............................ 135,000
Equity contribution............................................. 240,000
--------
Total......................................................... $635,161
========
Uses:
Payment of merger consideration................................. $285,857
Cancellation of options and payment of deferred compensation.... 4,288
Repayment of outstanding indebtedness........................... 311,184
Accrued interest................................................ 2,107
Estimated fees and expenses..................................... 31,725
--------
Total......................................................... $635,161
========
(2) The adjustments represent the payment of merger consideration to
existing stockholders. Subsequent to the merger, existing stockholders
will own 1,062,619 shares, or approximately 7.0%, of the outstanding
common stock of Citation as the surviving corporation.
86
(3) Compensation expense of $2,625 ($1,575 after related tax effect)
relates to the cancellation of all outstanding stock options at the
difference between $17.00 per share and the exercise price of the
options and $1,663 relates to the payment of accrued benefits under
Citation's non-qualified deferred compensation plan.
(4) The adjustment represents the estimated transaction fees and expenses
of $31,725. The portion of estimated transaction fees and expenses
attributable to the debt financing is $17,625, which will be recorded
as debt issuance costs and therefore amortized over the expected life
of the debt to be issued. Such estimated debt issuance costs include
estimated fees and expenses payable to banks and related advisors. The
remaining estimated transaction fees and expenses of $14,100 represent
costs associated with the cash portion of the merger consideration to
existing stockholders.
(5) This adjustment represents the repayment of existing indebtedness,
except for capital leases; related accrued interest; and the write-off
of unamortized debt issuance costs related to the existing debt. The
unamortized debt issuance costs of $652 ($391 after related tax effect)
will be written off as an extraordinary charge upon repayment of the
existing indebtedness.
87
CITATION CORPORATION
Unaudited Pro Forma Consolidated Statement of Income
For the Fiscal Year Ended September 27, 1998
(dollars and shares in thousands, except per share data)
Recapitalization
Citation Acquisitions Combination Disposition Citation and Offering Citation
Historical Actual (a) Adjustments (b) Actual (c) Pro Forma Adjustments As Adjusted
---------- ------------ --------------- ----------- --------- ---------------- -----------
Net sales............... $724,017 $127,850 $ -- $(13,008) $838,859 $ -- $838,859
Cost of sales........... 612,035 112,130 (2,940) (17,081) 704,144 -- 704,144
-------- -------- ------- -------- -------- -------- --------
Gross profit........... 111,982 15,720 2,940 4,073 134,715 -- 134,715
Selling, general, and
administrative
expenses............... 63,603 12,780 1,853 (2,448) 75,788 (117)(d) 75,671
Impairment charge....... 10,000 -- -- (10,000) -- -- --
-------- -------- ------- -------- -------- -------- --------
Operating income........ 38,379 2,940 1,087 16,521 58,927 117 59,044
Other expenses (income)
Interest expense....... 15,254 3,450 4,949 -- 23,653 29,423 (e) 53,076
Other, net............. 2,155 (6) -- (11) 2,138 -- 2,138
-------- -------- ------- -------- -------- -------- --------
17,409 3,444 4,949 (11) 25,791 29,423 55,214
-------- -------- ------- -------- -------- -------- --------
Income before provision
for income taxes....... 20,970 (504) (3,862) 16,532 33,136 (29,306) 3,830
Income tax provision.... 8,178 1,100 (2,803) 6,447 12,922 (11,429)(f) 1,493
-------- -------- ------- -------- -------- -------- --------
Net income.............. $ 12,792 $ (1,604) $(1,059) $ 10,085 $ 20,214 $(17,877) $ 2,337
======== ======== ======= ======== ======== ======== ========
Net income per common
share:
Basic.................. $ 0.72 $ 0.15
Diluted................ $ 0.71 $ 0.15
Weighted average common
shares outstanding used
in computing per share
amounts:
Basic.................. 17,838 15,180
Diluted................ 18,042 15,180
See Notes to Unaudited Pro Forma Consolidated Statements of Income
88
CITATION CORPORATION
Unaudited Pro Forma Consolidated Statement of Income
For the Nine Months Ended June 27, 1999
(dollars and shares in thousands, except per share data)
Recapitalization
Citation Acquisitions Combination Disposition Citation and Offering Citation
Historical Actual (a) Adjustments (b) Actual (c) Pro Forma Adjustments As Adjusted
---------- ------------ --------------- ----------- --------- ---------------- -----------
Net sales............... $613,446 $18,129 $ -- $(8,913) $622,662 $ -- $622,662
Cost of sales........... 518,111 16,715 (745) (8,906) 525,175 -- 525,175
-------- ------- ----- ------- -------- -------- --------
Gross profit........... 95,335 1,414 745 (7) 97,487 -- 97,487
Selling, general, and
administrative
expenses............... 52,974 2,240 163 (2,062) 53,315 21 (d) 53,336
Impairment charge....... -- -- -- -- -- -- --
-------- ------- ----- ------- -------- -------- --------
Operating income........ 42,361 (826) 582 2,055 44,172 (21) 44,151
Other expenses (income)
Interest expense....... 15,752 901 541 -- 17,194 17,679 (e) 34,873
Other, net............. 1,815 -- -- (1,815) -- -- --
-------- ------- ----- ------- -------- -------- --------
17,567 901 541 (1,815) 17,194 17,679 34,873
-------- ------- ----- ------- -------- -------- --------
Income before provision
for income taxes....... 24,794 (1,727) 41 3,870 26,978 (17,700) 9,278
Income tax provision.... 9,918 (257) (417) 1,548 10,792 (7,081)(f) 3,711
-------- ------- ----- ------- -------- -------- --------
Net income.............. $ 14,876 $(1,470) $ 458 $ 2,322 $ 16,186 $(10,619) $ 5,567
======== ======= ===== ======= ======== ======== ========
Net income per common
share:
Basic.................. $ 0.83 $ 0.37
Diluted................ $ 0.83 $ 0.37
Weighted average common
shares outstanding used
in computing per share
amounts:
Basic.................. 17,885 15,180
Diluted................ 17,948 15,180
See Notes to Unaudited Pro Forma Consolidated Statements of Income
89
Notes to Unaudited Pro Forma Consolidated Statements of Income
(dollars in thousands, except per share data)
The unaudited pro forma consolidated financial data have been derived by the
application of pro forma adjustments to Citation's historical financial
statements for the periods indicated. The merger has been accounted for as a
recapitalization, which will have no impact on the historical basis of
Citation's assets and liabilities. The pro forma financial data assume that no
stockholders assert appraisal rights in connection with the merger.
The pro forma adjustments to the statements of income exclude $2,675 ($1,575
after related tax effect) of employee compensation expense relating to the
cancellation of the existing stock options and $652 ($391 after related tax
effect) related to the write-off of existing unamortized debt issuance costs.
These amounts represent non-recurring expenses which Citation anticipates will
be recorded in its consolidated statement of income concurrent with the
effective date of the merger.
(a) The following acquisitions, both individually and in the aggregate, did
not constitute acquisitions of "significant subsidiaries," within the
meaning of SEC rules regarding financial reporting. The unaudited pro
forma statement of income for the fiscal year ended September 27, 1998
gives effect to the acquisitions of Camden Casting Center ("Camden"),
which occurred on December 1, 1997, Dycast, Inc. ("Dycast"), which
occurred on January 8, 1998, Amcast Precision Products, Inc. ("Citation
Precision"), which occurred on March 30, 1998, Custom Products
Corporation ("Custom"), which occurred on November 17, 1998, and CT
South Inc. ("Citation Marion"), which occurred on December 28, 1998, as
if each such acquisition had occurred at the beginning of the fiscal
year. The unaudited pro forma statement of income for the nine-month
period ended June 27, 1999 gives effect to the acquisitions of Custom
and Citation Marion as if they had occurred at the beginning of the
1999 fiscal year.
(b) For the fiscal year ended September 27, 1998 and the nine month period
ended June 27, 1999, the adjustments represent the (i) reduced
depreciation expense, reflected in cost of sales, related to the net
write down of fixed assets in purchase accounting of ($13,567)
amortized primarily over a 12-year life; (ii) additional goodwill
amortization, reflected in selling, general and administrative
expenses, based on the fair values of the net assets acquired of
$51,734 amortized over a 20-year life; (iii) additional interest
expense on the increased borrowings of $98,234 at weighted average
interest rates of 7.28% and 7.30%, respectively; and (iv) the pro forma
tax effect of the above adjustments.
(c) Represents an adjustment for the historical operating results of the
Oberdorfer Industries facility, which was sold on June 16, 1999. The
sale of the Oberdorfer Industries facility did not constitute a
disposition of a "significant subsidiary," within the meaning of SEC
rules regarding financial reporting.
(d) Represents (i) an annual monitoring fee of $850 that we understand will
be paid by Citation to Kelso & Company; (ii) reduced compensation
expense of $755 and $351 for the fiscal year ended September 27, 1998
and the nine-month period ended June 27, 1999, respectively, for
executives whose employment with Citation will not continue after the
merger; and (iii) reduced costs associated with certain pubic company-
related expenses of $212 and $266 for the fiscal year ended
September 27, 1998 and the nine-month period ended June 27, 1999,
respectively, that will not continue after the merger.
90
(e) The recapitalization and offering adjustments to interest expense
reflect the following:
Year Ended Nine Months Ended
September 27, 1998 June 27, 1999
------------------ -----------------
Senior term loan A (1).................... $ 4,375 $ 3,281
Senior term loan B (2).................... 19,950 14,963
Senior subordinated bridge financing (3).. 18,563 13,922
Commitment fee (4)........................ 500 375
Interest expense related to existing
interest rate swap agreements............ 993 1,086
Interest on existing debt not repaid...... 826 722
-------- --------
Cash interest expense..................... 45,207 34,349
Amortization of debt issuance costs (5)... 9,017 1,194
Historical capitalized interest........... (1,148) (670)
-------- --------
Interest expense--as adjusted............. 53,076 34,873
Less: pro forma interest expense (6)...... (23,095) (17,004)
Less: pro forma amortization of debt
issuance costs (7)....................... (558) (190)
-------- --------
Total adjustment.......................... $ 29,423 $ 17,679
======== ========
- --------
(1) Represents interest on $50,000 of senior term loan A using an assumed rate
of 8.75%.
(2) Represents interest on $210,000 of senior term loan B using an assumed rate
of 9.50%.
(3) Represents interest on $135,000 of senior subordinated bridge financing
using a weighted average rate of 13.75%.
(4) Represents a 0.5% commitment fee on the unused portions of the revolving
credit facility.
(5) Represents amortization of debt issuance costs of $17,625 over the term of
the related debt.
(6) Represents the elimination of pro forma interest expense paid or payable in
cash.
(7) Represents the elimination of pro forma amortization of debt issuance fees.
A 0.125% increase or decrease in the assumed weighted average interest rate
applicable to the senior term loan A, senior term loan B and the senior
subordinated bridge financing would change the pro forma interest expense and
income before taxes as follows:
Year Ended Nine Months Ended
September 27, 1998 June 27, 1999
------------------ -----------------
Senior term loan A...................... $ 63 $ 47
Senior term loan B...................... 263 197
Senior subordinated bridge financing.... 169 127
---- ----
Total................................... $495 $371
==== ====
(f) Represents the tax effect of the recapitalization and offering
adjustments.
91
CAPITALIZATION
The following table sets forth the historical capitalization of Citation as
of June 27, 1999, and the capitalization of Citation as of June 27, 1999, as
adjusted to give effect to the merger and recapitalization. The information
below should be read in conjunction with the pro forma consolidated financial
statements included elsewhere in this proxy statement/prospectus, and the
consolidated financial statements and related notes. See "Unaudited Pro Forma
Consolidated Financial Statements."
As of
June 27, 1999
--------------------
Actual As Adjusted
-------- -----------
(dollars in
thousands)
Cash and cash equivalents.................................. $ 2,080 $ 1,919
======== ========
Debt (including current maturities):
Revolving credit facility (1)............................. $ -- $ --
Senior term loan A........................................ -- 50,000
Senior term loan B........................................ -- 210,000
Capitalized leases........................................ 8,167 8,167
Senior subordinated bridge financing...................... -- 135,000
Existing debt ............................................ 311,184 --
-------- --------
Total debt............................................... 319,351 403,167
Stockholders' equity....................................... 199,904 137,981
-------- --------
Total capitalization..................................... $519,255 $541,148
======== ========
- --------
(1) Following the merger and the transactions contemplated by the merger
agreement, our principal sources of liquidity will be cash flow generated
from operations and borrowings under our $100.0 million revolving credit
facility.
92
INFORMATION CONCERNING THE COMPANIES
Citation
General
Citation Corporation, established in 1974, is a leading independent
manufacturer of cast, forged and machined components made primarily from iron,
steel and aluminum materials. We believe that we are the second largest
independent castings supplier and the third largest independent forgings
supplier in the markets in which we compete, and one of only 11 companies in
these markets with annual sales in excess of $300 million. Our products are
used primarily in the following markets and in a wide range of applications,
including those noted below:
Market Applications
------ ------------
Automotive Brake, steering, engine and drive train parts
for passenger cars, sport-utility vehicles
(SUVs) and light trucks
Medium and Heavy Truck Suspension and transmission parts
Construction Equipment Wheels, differential housings, and ground
engaging tools
Aerospace Engine, landing gear and structural airframe
parts
Other, Capital Goods and Durable Goods Broad range of critical parts, including gear
boxes for agricultural equipment, drilling
equipment for oil tools and crankshafts for
compressors
We market our products to many of the major original equipment manufacturers
and Tier 1 and other major suppliers such as Ford Motor Company, TRW
LucasVarity PLC, Dana Corporation, Caterpillar Inc., Delphi Corporation,
DaimlerChrysler Corp. and General Motors Corp. We believe we have established a
leading market share in many of our major product lines through our design,
engineering and manufacturing expertise, and through selective acquisitions.
For the 12-month period ended August 1, 1999, we generated pro forma sales of
$817.9 million.
We recently reorganized our operations into four groups focused on common
markets for our products. The primary goals of this reorganization were to: (1)
market our products more uniformly, efficiently and effectively through the
consistent use of the "Citation" name; (2) increase cross-selling of our
products to our key customers; (3) contain costs by eliminating redundant
marketing personnel; and (4) implement "best practices" throughout our
organization. We believe that this reorganization will significantly improve
our existing and future business prospects by allowing us to better focus on
specific customer needs and operate more effectively. Our operating groups are:
(1) Automotive (47.1% of our total pro forma sales for the nine-month period
ended June 27, 1999); (2) Industrial Iron (32.8%); (3) Industrial Steel (13.5%)
and (4) Aerospace and Technology (6.6%).
Citation was originally organized in 1974 and reincorporated in Delaware in
1994. Its principal offices and corporate headquarters are located at 2 Office
Park Circle, Suite 204, Birmingham, Alabama 35223, telephone: (205) 871-5731.
Management and Additional Information
Certain information relating to the current directors and executive
officers, executive compensation and certain relationships and related
transactions and other related matters as to Citation is set forth in the
Citation Annual Report on Form 10-K, as amended, for the year ended September
27, 1998, which is incorporated into this proxy statement/prospectus by
reference. See "Where You Can Find More Information" and "Incorporation of
Documents by Reference."
93
Kelso & Company and RSJ Acquisition Co.
Kelso & Company is a private investment company which specializes in
acquisition transactions. The offices of Kelso & Company are located at 320
Park Avenue, 24th Floor, New York, New York 10022, telephone (212) 751-3939.
RSJ Acquisition Co., a Delaware corporation, was recently organized by Kelso
& Company for the purpose of entering into the merger. It has not engaged in
any activities except in connection with the proposed merger. RSJ Acquisition
Co. is wholly-owned by affiliates of Kelso & Company. The offices of RSJ
Acquisition Co. are located at 320 Park Avenue, 24th Floor, New York, New York
10022, telephone (212) 751-3939.
The capital stock of RSJ Acquisition Co. presently is owned by Kelso
Investment Associates VI, L.P., a Delaware limited partnership, and KEP VI,
LLC, a Delaware limited liability company, which are private investment
vehicles formed for the purpose of investing in transactions arranged by Kelso
& Company.
We understand that Kelso & Company will cause Citation to pay to it a fee of
approximately $8.5 million in cash upon completion of the merger and will also
cause Citation to pay to it an annual fee of $850,000 for monitoring and other
advisory services. From time to time in the future, Kelso & Company may also
cause Citation to pay to Kelso & Company customary fees for additional advisory
services rendered to Citation. We understand that these fees for additional
advisory services will be negotiated with the Board of Directors and will be
based on the services performed and the prevalent fees then charged by other
parties for comparable services.
94
STOCK PRICE AND DIVIDEND INFORMATION
Shares of Citation common stock are traded on The Nasdaq Stock Market under
the symbol "CAST." The table below sets forth, for the fiscal quarters
indicated, the high and low closing prices of shares of Citation common stock
as reported by The Nasdaq Stock Market.
Fiscal 1998 High Low
----------- ---- ----
First Quarter....................................... $20 1/2 $15 1/2
Second Quarter...................................... $ 23 $15 7/8
Third Quarter....................................... $23 3/4 $ 18
Fourth Quarter...................................... $20 5/8 $ 8 1/2
Fiscal 1999 High Low
----------- ---- ----
First Quarter....................................... $14 3/8 $ 7 1/2
Second Quarter...................................... $13 1/16 $ 9
Third Quarter....................................... $16 3/16 $ 9 1/2
Fourth Quarter...................................... $17 5/16 $14 3/4
Fiscal 2000 High Low
----------- ---- ----
First Quarter (through October 18, 1999)............ $15 15/16 $11 13/16
As of August 27, 1999 there were 174 holders of record of common stock.
On June 24, 1999, the last full trading day before the public announcement
of the proposed merger, the reported closing price of Citation common stock on
The Nasdaq Stock Market was $14.125 per share.
On October 26, 1999, the most recent practicable date before the printing of
this proxy statement/ prospectus, the reported closing price of Citation common
stock on The Nasdaq Stock Market was $16 1/16 per share.
95
SECURITY OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS AND MANAGEMENT
Security Ownership of Certain Beneficial Owners
The following table sets forth, as of August 27, 1999, the number and
percentage of outstanding shares of Citation common stock beneficially owned by
each person known by Citation to be a beneficial owner of more than five
percent of its issued and outstanding common stock. Beneficial ownership
reflects sole voting and investment power unless otherwise noted.
Shares Percentage
Beneficially of Common
Beneficial Owner Owned Stock(1)
---------------- ------------ ----------
T. Morris Hackney....... 4,026,034(2)(4) 22.0%
Chairman
2 Office Park Circle,
Suite 204
Birmingham, Alabama
35223
Wilmington Trust
Company, as Trustee.... 1,764,166(3)(4) 9.6%
of the Morris Hackney
Irrevocable Trust and
the Brenda M. Hackney
Irrevocable Trust
Rodney Square North 1100
North Market Street
Wilmington, Delaware
19890-0001
RSJ Acquisition Co., ... 5,350,040(4) 29.3%
Kelso & Company, and
affiliates
320 Park Avenue, 24th
Floor
New York, New York 10022
Skyline Asset Management
L.P. .................. 1,362,000(5) 7.4%
311 South Wacker Drive
Suite 4500
Chicago, Illinois 60606
Drummond Company, Inc... 1,336,400 7.3%
P. O. Box 10246
530 Beacon Parkway West
Birmingham, Alabama
35202
- --------
(1) For purposes of this table, the percentage of class beneficially owned has
been computed, in accordance with Rule 13d-3(d)(1) under the Securities
Exchange Act of 1934, as amended, on the basis of 17,884,739 shares
outstanding, plus 401,750 shares issuable pursuant to options exercisable
within 60 days. Percentages shown here therefore vary from percentages
stated in other places in this proxy statement/prospectus, which are based
only on the number of shares actually outstanding.
(2) The amount shown includes 50,000 shares that may be acquired pursuant to
stock options exercisable within 60 days, 338,000 shares owned by the
Hackney Charitable Foundation, of which Mr. Hackney is an officer and a
director with shared voting and investment power, and an aggregate of
3,619,634 shares owned by three limited liability companies as to which Mr.
Hackney has sole voting and investment power. The amount shown also
includes 18,400 shares owned by trusts for the benefit of Mr. Hackney's
minor children, as to which he disclaims ownership. All of these shares
(but not the options) are subject to the voting agreement with RSJ
Acquisition Co. See "The Merger and Recapitalization--Description of Voting
Agreement."
(3) The amount shown includes 1,400,000 shares owned by the Morris Hackney
Irrevocable Trust, a trust for the benefit of Mr. Hackney and his family,
and 364,166 shares owned by the Brenda M. Hackney Irrevocable Trust, a
trust for the benefit of Mr. Hackney's spouse, as to all of which
Wilmington Trust Company, as Trustee, has sole voting and investment power.
An aggregate of 1,374,006 of the shares held
96
by these trusts are subject to the voting agreement with RSJ Acquisition Co.
See "The Merger and Recapitalization--Description of Voting Agreement."
(4) Under the voting agreement among RSJ Acquisition Co., the Hackney
Charitable Foundation, the Hackney limited liability companies and the
Hackney family trusts described in notes 2 and 3 above, RSJ Acquisition Co.
has the power to vote 5,350,040 of the shares beneficially owned or held by
Mr. Hackney and/or entities related to him or his family in favor of
adoption of the merger agreement. See "The Merger and Recapitalization--
Description of Voting Agreement." As such, and as reported in a
Schedule 13D filed as of June 24, 1999, Kelso & Company, RSJ Acquisition
Co. and the limited partnerships and limited liability companies that own
RSJ Acquisition Co., as well as the general partners and managing members
of those limited partnerships and limited liability companies, are all
considered to have shared voting power as to those shares, and therefore
may be deemed to beneficially own the shares. The individual general
partners have disclaimed beneficial ownership of these shares. The 29.3% of
the class shown in this table is slightly different from the 29.9% stated
in other places in this proxy statement/prospectus because of the inclusion
here of options that may be exercised within 60 days, as required by SEC
rules, in the total number of shares deemed outstanding.
(5) As indicated in Schedule 13G filed as of February 12, 1999, Skyline Asset
Management L.P. has shared voting and investment power over these shares,
which are held by it as investment adviser for the benefit of certain
client accounts over which it exercises discretion.
97
Security Ownership of Management
The following table sets forth, as of August 27, 1999, the number and
percentage of outstanding shares of Citation common stock beneficially owned by
each director, certain executive officers and all executive officers and
directors as a group. Beneficial ownership reflects sole voting and investment
power unless otherwise noted.
Shares Percentage
Beneficially of Common
Beneficial Owner Owned(1) Stock (1)
- ---------------- ------------ ----------
George N. Booth ....................................... 18,314 (2) *
Director
A. Derrill Crowe....................................... 65,033 (2) *
Director
William W. Featheringill............................... 115,401 (2) *
Director
T. Morris Hackney...................................... 4,026,034 (3) 22.0%
Chairman
Frank B. Kelso, II (4)................................. 11,000 (2) *
Director
John W. Lawson......................................... 51,014 (5) *
Vice President, Automotive Group
Van L. Richey.......................................... 16,638 (2) *
Director
Timothy L. Roberts..................................... 92,273 (6) *
Vice President, Aerospace and Technology
Groups
Frederick F. Sommer.................................... 148,168 (7) *
President, Chief Executive Officer
and Director
R. Conner Warren....................................... 895,300 (8) 4.9%
Executive Vice President and
Chief Administrative Officer
and Director
Edwin L. Yoder......................................... 56,535 (9) 0
Vice President, Industrial Group
Current directors and executive
officers as a group................................... 5,541,998(10) 30.3%
- --------
*less than 1%
(1) For purposes of this table, the percentage of class beneficially owned has
been computed, in accordance with Rule 13d-3(d)(1) under the Exchange Act,
on the basis of 17,884,739 shares outstanding, plus 401,750 shares
issuable pursuant to options exercisable within 60 days.
(2) Included in the number of shares beneficially owned by Mr. Booth, Dr.
Crowe, Mr. Featheringill, Admiral Kelso and Mr. Richey are 10,000 shares
each that non-employee directors have the right to acquire within 60 days
pursuant to stock options granted under Citation's Non-Qualified Stock
Option Plan for Non-Employee Directors.
(3) The amount shown includes 50,000 shares that may be acquired pursuant to
stock options exercisable within 60 days, 338,000 shares owned by the
Hackney Charitable Foundation, of which Mr. Hackney is
98
an officer and a director with shared voting and investment power, and an
aggregate of 3,619,634 shares owned by three limited liability companies
as to which Mr. Hackney has sole voting and investment power. The amount
shown also includes 18,400 shares owned by trusts for the benefit of Mr.
Hackney's minor children, as to which he disclaims ownership. The amount
shown does not include 1,400,000 shares owned by an irrevocable trust for
the benefit of Mr. Hackney and his family and 364,166 shares owned by a
trust for the benefit of his spouse, with respect to all of which an
independent trustee has sole voting and investment power. See note 3 in
the preceding table.
(4) Admiral Kelso is not related to or affiliated with Kelso & Company, RSJ
Acquisition Co., or any of their affiliates.
(5) The amount shown includes 25,000 shares that may be acquired pursuant to
stock options exercisable within 60 days.
(6) The amount shown includes 48,500 shares that may be acquired pursuant to
stock options exercisable within 60 days.
(7) The amount shown includes 116,500 shares that may be acquired pursuant to
stock options exercisable within 60 days.
(8) The amount shown includes 52,500 shares that may be acquired pursuant to
stock options exercisable within 60 days. It also includes 20,000 shares
owned by Mr. Warren's spouse and 8,000 shares owned by his children, as
to all of which he disclaims beneficial ownership.
(9) The amount shown includes 25,000 shares that may be acquired pursuant to
stock options exercisable within 60 days.
(10) Included in the number of shares beneficially owned by current directors
and executive officers as a group is an aggregate 401,750 shares that may
be acquired pursuant to stock options exercisable within 60 days.
99
COMPARISON OF THE RIGHTS OF CITATION
STOCKHOLDERS BEFORE AND AFTER THE MERGER
Description of Citation Capital Stock Following the Merger
The following description of Citation's capital stock following the merger
is only a summary, and is subject to the detailed provisions of the certificate
of incorporation and by-laws of Citation, and certain provisions of Delaware
law.
Common Stock. Citation has 30,000,000 shares of Citation common stock, par
value $.01 per share, authorized for issuance. Holders of Citation common stock
are entitled to one vote per share on all matters submitted to a vote of the
stockholders, including the election of directors, and are entitled to receive
ratably such dividends, if any, as may be declared from time to time by
Citation's Board of Directors out of funds legally available. Subject to the
rights of creditors and holders of any preferred stock which may be issued now
or in the future, in the event of a liquidation, dissolution or winding up of
Citation, holders of Citation common stock are entitled to share ratably in all
assets remaining after payment of Citation's liabilities. Holders of Citation
common stock have no right to convert their shares of Citation common stock
into other securities, and there are no redemptive provisions with respect to
the shares. All of the outstanding shares of Citation are, and the shares of
Citation common stock following the merger will be, fully paid and non-
assessable.
The Bank of New York is the transfer agent and registrar for Citation common
stock. Shares of Citation common stock currently are listed on The Nasdaq Stock
Market under the symbol "CAST." After the merger, the shares of Citation common
stock will not be listed on Nasdaq or any other stock exchange or over-the-
counter market, and Citation does not anticipate that it will have an
independent transfer agent and registrar.
Preferred Stock. Under Citation's certificate of incorporation, the Board of
Directors is authorized at any time and from time to time to provide for the
issuance of all or any shares of the Citation preferred stock in one or more
classes or series, and to fix for each such class or series such voting powers,
full or limited, or no voting powers, and such distinctive designations,
preferences and relative, participating, optional or other special rights and
such qualifications, limitations or restrictions thereof as are permitted by
Delaware law. Under a certificate of designations, Citation authorized 300,000
shares of preferred stock, designated as series A junior participating
preferred stock, in connection with the adoption of the Stockholder Rights Plan
described elsewhere in this proxy statement/prospectus. No shares of preferred
stock have been issued or are outstanding.
Non-Cumulative Voting. Each holder of Citation common stock is entitled, and
will continue to be entitled after the merger, to one vote per share with
respect to all matters that are required by law to be submitted to
stockholders. The stockholders are not entitled to cumulative voting in the
election of directors. Accordingly, the holders of more than 50% of the shares
voting for the election of directs can elect 100% of the directors if they
choose to do so, subject to the rights, if any, of the holders of preferred
stock, if any, to elect directors. The holders of the remaining less than 50%
of the shares voting for the election of the directors would be unable to elect
any person or persons to the Board of Directors.
Dividend Policy. Citation has not paid dividends on its common stock, does
not anticipate the payment of any cash dividends in the foreseeable future and
intends to retain earnings to finance its operations. See "Risk Factors--We do
Not Expect to Pay Dividends After the Merger."
Preemptive Rights. Owners of shares of Citation common stock currently are
not entitled to preemptive rights. However, the Stockholders Agreement will
provide that each stockholder who is a party to that agreement will have the
right to purchase his pro rata share of any equity securities if Citation
proposes to sell those securities to any person, subject to certain exceptions.
Subject to those preemptive rights, the Kelso-affiliated stockholders will have
the right to purchase from Citation, for a period of one year following the
merger, such additional number of shares of Citation common stock as those
stockholders may request for a per-share price equal to the lesser of $17.00 or
the fair market value thereof, based on the most recent appraisal
100
of Citation. Stockholders of Citation other than the parties to the
Stockholders Agreement will not have preemptive rights.
Charter Documents of Citation Following the Merger. The by-laws of Citation
in effect at the effective time will be the by-laws of Citation following the
merger until thereafter changed or amended as provided in the by-laws or by
applicable law. The certificate of incorporation of Citation, as in effect
immediately prior to the effective time, will be the certificate of
incorporation of Citation following the merger, until thereafter changed or
amended as provided in the certificate of incorporation or by applicable law.
It is not anticipated that there will be any change in the equity
capitalization of Citation in connection with the merger, except as described
in this proxy statement/prospectus.
Stockholders Agreement and Registration Rights Agreement. See "The Merger
and Recapitalization--Rights of Stockholders After the Merger" for a
description of the terms and conditions of the Stockholders Agreement and the
Registration Rights Agreement.
Issuance of Warrants to Purchase Common Stock. See "The Merger and
Recapitalization--Financing of the Merger and Recapitalization; Senior
Subordinated Increasing Rate Bridge Notes Financing" on page 69 for a
description of the agreement by Citation to place warrants, equal to 5% of its
fully diluted common stock, in an escrow account, such warrants to be used as
necessary in connection with reselling or refinancing the notes, and for a
description of the terms and conditions of those warrants.
Absence of Rights Plan
In November 1998, The Board of Directors of Citation implemented a
Stockholder Rights Plan, which has been amended so that it will not apply to
the merger agreement, the voting agreement or the merger, and so that the
rights will expire immediately prior to the effective time of the merger. See
"Certain Provisions of the Merger Agreement--Rights Plan Amendment."
Accordingly, Citation will not have a rights plan in place following the
merger.
Anti-Takeover Statute
Citation is subject to Section 203 of the General Corporation Law of the
State of Delaware ("Section 203"). Section 203 provides, with certain
exceptions, that a Delaware corporation may not engage in any of a broad range
of business combinations with a person, or an affiliate or associate of that
person, who is an "interested stockholder" for a period of three years from the
time that the person became an interested stockholder unless:
(1)the transaction resulting in the person becoming an interested
stockholder, or the business combination, is approved by the board of
directors of the corporation before the person becomes an interested
stockholder;
(2)the interested stockholder owned or acquired 85% or more of the
outstanding voting stock of the corporation (excluding shares owned by
persons who are both officers and directors of the corporation, and shares
held by certain employee stock plans) as a result of the transactions by
which it became an interested stockholder; or
(3)on or after the time the person becomes an interested stockholder, the
business combination is approved by the corporation's board of directors
and by the holders of at least 66 2/3% of the corporation's outstanding
voting stock, excluding shares owned by the interested stockholder, at an
annual or special meeting.
Under Section 203, an "interested stockholder" is defined (with certain
limited exceptions) as any person that is (a) the owner of 15% or more of the
outstanding voting stock of the corporation or (b) an affiliate or associate of
the corporation and was the owner of 15% or more of the outstanding voting
stock of the
101
corporation at any time within the three-year period immediately before the
date on which it is sought to be determined whether the person is an interested
stockholder.
A corporation may, at its option, exclude itself from the coverage of
Section 203 by amending its certificate of incorporation or by-laws by action
of its stockholders to exempt itself from coverage; provided that, with certain
limited exceptions, the bylaw or charter amendment shall not become effective
until 12 months after the date it is adopted. Neither the certificate of
incorporation nor the by-laws of Citation contains any exclusion.
The approval by the Citation Board of Directors of the merger agreement,
voting agreement and the transactions contemplated by those agreements
constituted the prior approval contemplated by Section 203. Accordingly,
Citation may engage in any business combination transactions within the meaning
of Section 203 with RSJ Acquisition Co., Kelso & Company or any of their
affiliates and associates, without satisfying the waiting period or stockholder
approval requirements (unless stockholder approval is otherwise required under
Delaware law) of Section 203. See "Risk Factors--We Will be Controlled by Kelso
& Company After the Merger."
CERTAIN PENDING LITIGATION
On June 25, 1999, Brickell Partners, an alleged stockholder of Citation,
filed suit against Citation and its directors, Messrs. Hackney, Sommer, Warren,
Booth, Crowe, Featheringill, Kelso and Richey, in the Court of Chancery of the
State of Delaware (the "Court of Chancery"), Brickell Partners v. Hackney, et
al., C.A No. 17256. On June 28, 1999, David Rucker, another alleged
stockholder, also filed suit against Citation and its directors, as well as
Kelso & Company and RSJ Acquisition Co. in the Court of Chancery, Rucker v.
Hackney, et al., C.A. No. 17257. Both complaints purport to be class actions
brought on behalf of the stockholders of Citation, and both seek to enjoin the
merger, or, in the alternative, rescind the transaction, as well as unspecified
damages and attorneys' fees. Plaintiffs in both actions allege that the price
offered in the merger is inadequate and that the defendants have breached their
fiduciary duties to Citation and its stockholders by approving the merger, or
have aided and abetted a breach.
On October 18, 1999, the defendants answered the Brickell complaint, denying
all material allegations of wrongdoing. The Rucker complaint has not been
served on the defendants. Citation believes that these claims are without
merit. Citation, the directors, Kelso & Company and RSJ Acquisition Co. intend
to defend vigorously against the actions.
APPRAISAL RIGHTS
Holders of shares of Citation common stock who do not vote in favor of the
adoption of the merger agreement and who properly demand appraisal of their
shares will be entitled to appraisal rights in connection with the merger under
Section 262 of the General Corporation Law of the State of Delaware ("Section
262").
The following discussion is not a complete statement of the law pertaining
to appraisal rights under Section 262 and is qualified in its entirety by the
full text of Section 262 which is attached to this proxy statement/prospectus
as Annex C. All references in Section 262 and in this summary to a
"stockholder" are to the record holder of the shares of Citation common stock
as to which appraisal rights are asserted. A person having a beneficial
interest in shares of Citation common stock held of record in the name of
another person, such as a broker or nominee, must act promptly to cause the
record holder to follow the steps summarized below properly and in a timely
manner to perfect appraisal rights.
Under Section 262, persons who hold shares of Citation common stock who
follow the procedures set forth in Section 262 will be entitled to have their
shares of Citation common stock appraised by the Delaware
102
Court of Chancery and to receive payment of the "fair value" of the shares,
exclusive of any element of value arising from the accomplishment or
expectation of the merger, together with a fair rate of interest, as determined
by the court.
Under Section 262, where a merger is to be submitted for approval at a
meeting of stockholders, as in the case of the adoption of the merger agreement
by Citation's stockholders, the corporation, not less than 20 days prior to the
meeting, must notify each of its stockholders entitled to appraisal rights that
appraisal rights are available and include in the notice a copy of Section 262.
This proxy statement/prospectus constitutes that notice, and the applicable
statutory provisions are attached to this proxy statement/prospectus as Annex
C. Any holder of Citation common stock who wishes to exercise appraisal rights
or who wishes to preserve the holder's right to do so, should review the
following discussion and Annex C carefully because failure to timely and
properly comply with the procedures specified will result in the loss of
appraisal rights.
A holder of shares of Citation common stock wishing to exercise appraisal
rights must deliver to Citation, before the vote on the adoption of the merger
agreement at the reconvened special meeting, a written demand for the appraisal
of their shares and must not vote in favor of the adoption of the merger
agreement. A holder of shares of Citation common stock wishing to exercise
appraisal rights must hold of record the shares on the date the written demand
for appraisal is made and must continue to hold the shares of record through
the effective time of the merger. A vote against the adoption of the merger
agreement will not in and of itself constitute a written demand for appraisal
satisfying the requirements of Section 262. The demand must reasonably inform
Citation of the identity of the holder as well as the intention of the holder
to demand an appraisal of the "fair value" of the shares held by the
stockholder.
Only a holder of record of shares of Citation common stock is entitled to
assert appraisal rights for the shares of Citation common stock registered in
that holder's name. A demand for appraisal in respect of shares of Citation
common stock should be executed by or on behalf of the holder of record, fully
and correctly, as the holder's name appears on the holder's stock certificates,
and must state that such person intends thereby to demand appraisal of the
holder's shares of Citation common stock in connection with the merger. If the
shares of Citation common stock are owned of record in a fiduciary capacity,
such as by a trustee, guardian or custodian, execution of the demand should be
made in that capacity, and if the shares of Citation common stock are owned of
record by more than one person, as in a joint tenancy and tenancy in common,
the demand should be executed by or on behalf of all joint owners. An
authorized agent, including two or more joint owners, may execute a demand for
appraisal on behalf of a holder of record; however, the agent must identify the
record owner or owners and expressly disclose the fact that, in executing the
demand, the agent is agent for the owner or owners. A record holder such as a
broker who holds shares of Citation common stock as nominee for several
beneficial owners may exercise appraisal rights with respect to the shares of
Citation common stock held for one or more beneficial owners while not
exercising such rights with respect to the shares of Citation common stock held
for other beneficial owners; in that case, however, the written demand should
set forth the number of shares of Citation common stock as to which appraisal
is sought and where no number of shares of Citation common stock is expressly
mentioned the demand will be presumed to cover all shares of Citation common
stock held in the name of the record owner. Stockholders who hold their shares
of Citation common stock in brokerage accounts or other nominee forms and who
wish to exercise appraisal rights are urged to consult with their brokers to
determine the appropriate procedures for the making of a demand for appraisal
by the nominee.
All written demands for appraisal pursuant to Section 262 should be sent or
delivered to Citation at 2 Office Park Circle, Suite 204, Birmingham, Alabama
35223, Attention: Stanley B. Atkins, Vice President and Secretary.
Within 10 days after the effective time of the merger, the surviving
corporation must notify each holder of Citation common stock who has complied
with Section 262 and who has not voted in favor of the adoption of the merger
agreement that the merger has become effective. Within 120 days after the
effective time of the merger, but not thereafter, the surviving corporation or
any holder of Citation common stock who has so
103
complied with Section 262 and is entitled to appraisal rights under Section 262
may file a petition in the Delaware Court of Chancery demanding a determination
of the fair value of the holder's shares of Citation common stock. The
surviving corporation is under no obligation to and has no present intention to
file a petition. Accordingly, it is the obligation of the holders of Citation
common stock to initiate all necessary action to perfect their appraisal rights
in respect of their shares of Citation common stock within the time prescribed
in Section 262.
Within 120 days after the effective time of the merger, any holder of
Citation common stock who has complied with the requirements for exercise of
appraisal rights will be entitled, upon written request, to receive from the
surviving corporation a statement setting forth the aggregate number of shares
not voted in favor of the adoption of the merger agreement and with respect to
which demands for appraisal have been received and the aggregate number of
holders of such shares. The statement must be mailed within ten days after a
written request therefor has been received by the surviving corporation or
within ten days after the expiration of the period for delivery of demands for
appraisal, whichever is later.
If a petition for an appraisal is timely filed by a holder of shares of
Citation common stock and a copy thereof is served upon the surviving
corporation, the surviving corporation will then be obligated within 20 days to
file with the Delaware Register in Chancery a duly verified list containing the
names and addresses of all stockholders who have demanded an appraisal of their
shares and with whom agreements as to the value of their shares have not been
reached. After notice to those stockholders as required by the Court, the
Delaware Court of Chancery is empowered to conduct a hearing on the petition to
determine those stockholders who have complied with Section 262 and who have
become entitled to appraisal rights thereunder. The Delaware Court of Chancery
may require the holders of shares of Citation common stock who demanded payment
for their shares to submit their stock certificates to the Register in Chancery
for notation thereon of the pendency of the appraisal proceeding; and if any
stockholder fails to comply with that direction, the Court of Chancery may
dismiss the proceedings as to that stockholder.
After determining the holders of Citation common stock entitled to
appraisal, the Delaware Court of Chancery will appraise the "fair value" of
their shares of Citation common stock, exclusive of any element of value
arising from the accomplishment or expectation of the merger, together with a
fair rate of interest, if any, to be paid upon the amount determined to be the
fair value. Holders of Citation common stock considering seeking appraisal
should be aware that the fair value of their shares of Citation common stock as
so determined could be more than, the same as or less than the consideration
they would receive pursuant to the merger if they did not seek appraisal of
their shares of Citation common stock and that investment banking opinions as
to fairness from a financial point of view are not necessarily opinions as to
fair value under Section 262. The Delaware Supreme Court has stated that "proof
of value by any techniques or methods which are generally considered acceptable
in the financial community and otherwise admissible in court" should be
considered in the appraisal proceedings. In addition, Delaware courts have
decided that the statutory appraisal remedy, depending on factual
circumstances, may or may not be a dissenter's exclusive remedy. The Court will
also determine the amount of interest, if any, to be paid upon the amounts to
be received by persons whose shares of Citation common stock have been
appraised. The costs of the action may be determined by the Court and taxed
upon the parties as the Court deems equitable. The Court may also order that
all or a portion of the expenses incurred by any stockholder in connection with
an appraisal, including, without limitation, reasonable attorneys' fees and the
fees and expenses of experts utilized in the appraisal proceeding, be charged
pro rata against the value of all the shares entitled to be appraised.
Any holder of shares of Citation common stock who has duly demanded an
appraisal in compliance with Section 262 will not, after the effective time of
the merger, be entitled to vote the shares of Citation common stock subject to
the demand for any purpose or be entitled to the payment of dividends or other
distributions on those shares of Citation common stock (except dividends or
other distributions payable to holders of record of Citation common stock as of
a record date prior to the effective time of the merger).
104
If any stockholder who demands appraisal under Section 262 fails to perfect,
or effectively withdraws or loses the holder's right to appraisal, the shares
of Citation common stock of that stockholder will be converted into the right
to receive $17.00 per share in cash, without interest. A stockholder will fail
to perfect, or effectively lose or withdraw the holder's right to appraisal if
no petition for appraisal is filed within 120 days after the effective time of
the merger, or if the stockholder delivers to the surviving corporation a
written withdrawal of the holder's demand for appraisal and an acceptance of
the merger, except that any such attempt to withdraw made more than 60 days
after the effective time of the merger will require the written approval of the
surviving corporation and, once a petition for appraisal is filed, the
appraisal proceeding may not be dismissed as to any holder absent court
approval.
Failure to follow the steps required by Section 262 for perfecting appraisal
rights may result in the loss of such rights.
LEGAL MATTERS
The validity of the shares of Citation common stock to be issued in
connection with the merger and the material federal income tax consequences of
the merger will be passed upon by Ritchie & Rediker, L.L.C., counsel to
Citation. Certain members of that firm own 409,700 shares of Citation common
stock and one member of that firm has engaged in discussions concerning an
election to retain 30,250 shares.
INDEPENDENT ACCOUNTANTS
The consolidated financial statements of Citation at September 27, 1998 and
September 28, 1997, and for each of the three years in the period ended
September 27, 1998, included in Citation's Annual Report on Form 10-K for the
fiscal year ended September 27, 1998, and incorporated by reference in this
proxy statement/prospectus, have been audited by PricewaterhouseCoopers LLP,
independent accountants, as stated therein. Representatives of
PricewaterhouseCoopers LLP are expected to be present at the special meeting,
and will be available to respond to appropriate questions.
WHERE YOU CAN FIND MORE INFORMATION
Citation is subject to the informational requirements of the Exchange Act,
and files annual, quarterly and special reports, proxy statements and other
information with the SEC. You may read and copy any reports, statements or
other information that companies file with the SEC at the SEC's public
reference rooms in Washington, D.C., New York, New York, and Chicago, Illinois.
Please call the SEC at 1-800-SEC-0330 for further information on the public
reference rooms. These SEC filings are also available to the public from
commercial document retrieval services at the Internet world wide web site
maintained by the SEC at http://www.sec.gov.
Citation filed a Registration Statement on Form S-4 to register with the SEC
its shares of common stock to be retained by Citation stockholders in
connection with the merger. This proxy statement/prospectus is a part of the
Registration Statement and constitutes a prospectus of Citation. As allowed by
SEC rules, this proxy statement/prospectus does not contain all of the
information you can find in Citation's Registration Statement or in the
exhibits to that Registration Statement. All information contained in this
proxy statement/prospectus concerning RSJ Acquisition Co. and Kelso & Company
has been supplied by RSJ Acquisition Co. and has not been verified by Citation.
Except as otherwise indicated, all other information contained in this proxy
statement/prospectus (or, as permitted by applicable rules and regulations of
the SEC, incorporated by reference in this proxy statement/prospectus) has been
supplied or prepared by Citation and has not been verified by RSJ Acquisition
Co. or Kelso & Company.
105
INCORPORATION OF DOCUMENTS BY REFERENCE
The SEC allows Citation to "incorporate by reference" information into this
proxy statement/prospectus, which means important information may be disclosed
to you by referring you to another document filed separately with the SEC. The
information incorporated by reference is deemed to be part of this proxy
statement/prospectus, except for any information superseded by information in
(or incorporated by reference in) this proxy statement/prospectus. This proxy
statement/prospectus incorporates by reference the documents listed below that
have been previously filed with the SEC. These documents contain important
information about our company and its finances.
Citation SEC Filings (File No. 0-24492) Period Covered
--------------------------------------- --------------
Annual Report on Form 10-K Fiscal year ended
September 27,1998
Quarterly Report on Form 10-Q Fiscal quarter ended
December 27, 1998
Quarterly Report on Form 10-Q Fiscal quarter ended
March 28, 1999
Quarterly Report on Form 10-Q Fiscal quarter ended
June 27, 1999
Proxy Statement on Schedule 14A for 1999 Dated January 11, 1999
Annual Meeting of Stockholders
Current Report on Form 8-K Dated July 1, 1999
Current Report on Form 8-K Dated September 17, 1999
Current Report on Form 8-K Dated October 6, 1999
Current Report on Form 8-K Dated October 7, 1999
Current Report on Form 8-K Dated October 13, 1999
Description of Citation common stock Dated July 6, 1994
contained in Citation's Registration
Statement
on Form 8-A
Description of Citation common stock Dated December 1, 1998
purchase rights contained in Citation's
Registration Statement on Form 8-A
Citation is also incorporating by reference additional documents that it may
file with the SEC between the date of this proxy statement/prospectus and the
date of the special meeting.
If you are a stockholder, Citation may have sent you some of the documents
incorporated by reference, but you can obtain any of them through either
Citation or the SEC. Documents incorporated by reference are available from
Citation without charge, excluding all exhibits unless specifically
incorporated by reference in this proxy statement/prospectus. Stockholders may
obtain documents incorporated by reference in this proxy statement/prospectus
by requesting them in writing or by telephone at the following address:
Stanley B. Atkins
Vice President and Secretary
Citation Corporation
2 Office Park Circle
Suite 204
Birmingham, Alabama 35223
(205) 871-5731
106
If you would like to request documents, please do so by November 22, 1999 in
order to receive them before the special meeting.
Citation also maintains an Internet web site (www.citationcorp.com) that
contains certain information, reports and news releases about Citation, as well
as links to Citation's SEC filings.
STOCKHOLDER PROPOSALS
Any proposal that a stockholder expects to present at the next annual
meeting must have been received at Citation's principal executive office shown
on the first page of this proxy statement/prospectus not later than September
9, 1999, in order to be included in the proxy material for the annual meeting
in 2000.
OTHER MATTERS
As of the date of this proxy statement/prospectus, the Citation Board knows
of no matters that will be presented for consideration at the special meeting
other than as described in this proxy statement/prospectus. If any other
matters properly come before either the special meeting or any adjournments or
postponements thereof to be voted upon, the enclosed proxies will be deemed to
confer discretionary authority on the individuals named as proxies to vote the
shares represented by those proxies as to any matters. The persons named as
proxies intend to vote or not to vote in accordance with the recommendation of
the Board of Directors of Citation.
We have not authorized anyone to give any information or make any
representation about the matters to be considered at the special meeting or
Citation that differs from or adds to the information in this proxy
statement/prospectus or in our documents that are publicly filed with the SEC
and incorporated by reference in this proxy statement/prospectus. Therefore, if
anyone does give you different or additional information, you should not rely
on it. Also, you should not assume that the information contained in this proxy
statement/prospectus is accurate as of any date other than its date or such
other date as this proxy statement/prospectus indicates. The mailing date of
this proxy statement/prospectus to Citation stockholders does not create any
implication to the contrary.
If you are in a jurisdiction where it is unlawful to offer to exchange or
sell, or to ask for offers to exchange or buy, the securities offered by this
proxy statement/prospectus or to ask for proxies, or if you are a person to
whom it is unlawful to direct those activities, then the offer presented by
this proxy statement/prospectus does not extend to you.
107
ANNEX A
AGREEMENT AND PLAN OF MERGER AND RECAPITALIZATION
by and between
RSJ ACQUISITION CO.
and
CITATION CORPORATION
Dated as of June 24, 1999
A-1
TABLE OF CONTENTS
Page
----
ARTICLE I The Merger...................................................... A-4
SECTION 1.01. The Merger ............................................... A-4
SECTION 1.02. Closing .................................................. A-4
SECTION 1.03. Effective Time ........................................... A-4
SECTION 1.04. Effects of the Merger .................................... A-4
SECTION 1.05. Certificate of Incorporation and By-laws ................. A-5
SECTION 1.06. Board of Directors ....................................... A-5
SECTION 1.07. Officers ................................................. A-5
ARTICLE II Effect of the Merger on the Capital Stock of the Constituent
Corporations ............................................................ A-5
SECTION 2.01. Effect on Capital Stock .................................. A-5
SECTION 2.02. Company Common Stock Elections ........................... A-6
SECTION 2.03. Proration ................................................ A-7
SECTION 2.04. Exchange of Certificates ................................. A-8
SECTION 2.05. Shares of Dissenting Stockholders......................... A-9
ARTICLE II Representations and Warranties................................. A-10
SECTION 3.01. Representations and Warranties of the Company ............ A-10
SECTION 3.02. Representations and Warranties of Merger Co............... A-20
ARTICLE IV Covenants Relating to Conduct of Business...................... A-22
SECTION 4.01. Conduct of Business....................................... A-22
SECTION 4.02. Other Actions............................................. A-24
SECTION 4.03. Advice of Changes......................................... A-24
SECTION 4.04. No Solicitation by the Company............................ A-24
ARTICLE V Additional Agreements .......................................... A-26
SECTION 5.01. Preparation of the Form S-4 and Proxy Statement;
Stockholder Meeting.................................................... A-26
SECTION 5.02. Access to Information; Confidentiality.................... A-27
SECTION 5.03. Filings; Other Action..................................... A-27
SECTION 5.04. Stock Options and Restricted Stock Units.................. A-27
SECTION 5.05. Indemnification, Exculpation and Insurance................ A-28
SECTION 5.06. Fees and Expenses......................................... A-29
SECTION 5.07. Public Announcements...................................... A-29
SECTION 5.08. Stockholder Litigation.................................... A-30
SECTION 5.09. Employee Matters.......................................... A-30
SECTION 5.10. Consummation of Financing................................. A-30
SECTION 5.11. Recapitalization.......................................... A-31
SECTION 5.12. Transfer Taxes............................................ A-31
SECTION 5.13. State Takeover Laws....................................... A-31
SECTION 5.14. The Company Rights Plan................................... A-31
SECTION 5.15. Letter as to Solvency..................................... A-31
SECTION 5.16. Monetization of Non-Cash Election Shares.................. A-31
SECTION 5.17. Listing................................................... A-32
A-2
Page
----
ARTICLE VI Conditions Precedent........................................... A-32
SECTION 6.01. Conditions to Each Party's Obligation To Effect the
Merger................................................................. A-32
SECTION 6.02. Conditions to Obligations of the Company.................. A-32
SECTION 6.03. Conditions to Obligations of Merger Co. .................. A-33
SECTION 6.04. Frustration of Closing Conditions......................... A-33
ARTICLE VII Termination, Amendment and Waiver............................. A-33
SECTION 7.01. Termination............................................... A-33
SECTION 7.02. Effect of Termination..................................... A-34
SECTION 7.03. Amendment................................................. A-34
SECTION 7.04. Extension; Waiver......................................... A-35
ARTICLE VIII General Provisions........................................... A-35
SECTION 8.01. Nonsurvival of Representations and Warranties............. A-35
SECTION 8.02. Notices................................................... A-35
SECTION 8.03. Definitions............................................... A-36
SECTION 8.04. Interpretation............................................ A-36
SECTION 8.05. Counterparts.............................................. A-36
SECTION 8.06. Entire Agreement; Third-Party Beneficiaries............... A-37
SECTION 8.07. Governing Law............................................. A-37
SECTION 8.08. Assignment................................................ A-37
SECTION 8.09. Enforcement; Waiver of Jury Trial......................... A-37
SECTION 8.10. Headings.................................................. A-37
SECTION 8.11. Severability.............................................. A-37
A-3
AGREEMENT AND PLAN OF MERGER AND RECAPITALIZATION (this "Agreement"), dated
as of June 24, 1999, by and between RSJ Acquisition Co., a Delaware corporation
("Merger Co."), and Citation Corporation, a Delaware corporation (the
"Company").
WHEREAS, the Board of Directors of each of the Company and Merger Co. has
approved and declared advisable this Agreement and the merger of Merger Co.
with and into the Company (the "Merger"), with the Company as the surviving
corporation (the "Surviving Corporation"), upon the terms and subject to the
conditions set forth in this Agreement, whereby each issued and outstanding
share of common stock, par value $.01 per share, of the Company ("Company
Common Stock"), other than shares directly or indirectly owned by Merger Co. or
the Company and other than Dissenting Shares (as hereinafter defined), will, at
the election of the holder thereof and subject to the terms hereof, be
converted into the right to receive either (i) cash or (ii) common stock, par
value $.01 per share, of the Surviving Corporation (the "Non-Cash Election
Shares");
WHEREAS, the Board of Directors of each of the Company (upon the
recommendation of its Special Committee) and Merger Co. has determined that the
Merger and the other transactions contemplated hereby are consistent with, and
in furtherance of, their respective business strategies and goals;
WHEREAS, Kelso & Company, L.P. ("Kelso & Company"), an affiliate of Merger
Co., has concurrently herewith delivered a letter to the Company (the "Equity
Commitment Letter"), which Equity Commitment Letter confirms Kelso & Company's
commitment, on the terms and subject to the conditions set forth therein, to
contribute or cause to be contributed to Merger Co. the equity financing
required for consummation of the Merger; and
WHEREAS, the Company and Merger Co. desire to make certain representations,
warranties, covenants and agreements in connection with the Merger and also to
prescribe various conditions to the Merger.
NOW, THEREFORE, in consideration of the representations, warranties,
covenants and agreements contained in this Agreement, the parties agree as
follows:
ARTICLE I
The Merger
SECTION 1.01. The Merger. Upon the terms and subject to the conditions set
forth in this Agreement, and in accordance with the General Corporation Law of
the State of Delaware (the "DGCL"), Merger Co. shall be merged with and into
the Company at the Effective Time. Following the Effective Time, the Company,
as the Surviving Corporation, shall succeed to and assume all the rights and
obligations of Merger Co. in accordance with the DGCL.
SECTION 1.02. Closing. The closing of the Merger (the "Closing") will take
place at 10:00 a.m. on the second business day after satisfaction or waiver of
the conditions set forth in Article VI (other than those conditions that by
their nature are to be satisfied at the Closing, but subject to the fulfillment
or waiver of those conditions), unless another time or date is agreed to by the
parties hereto (the "Closing Date").
SECTION 1.03. Effective Time. Subject to the provisions of this Agreement, as
soon as practicable on the Closing Date, the parties shall acknowledge and file
a certificate of merger (the "Certificate of Merger") executed in accordance
with the relevant provisions of the DGCL. The Merger shall become effective at
such time as the Certificate of Merger is duly filed with the Secretary of
State of the State of Delaware, or at such subsequent date or time as the
Company and Merger Co. shall agree and specify in the Certificate of Merger
(the time the Merger becomes effective being hereinafter referred to as the
"Effective Time").
SECTION 1.04. Effects of the Merger. The Merger shall have the effects set
forth in Section 259 of the DGCL.
A-4
SECTION 1.05. Certificate of Incorporation and By-laws. (a) The Certificate
of Incorporation of the Company, as in effect immediately prior to the
Effective Time, shall be the certificate of incorporation of the Surviving
Corporation until thereafter changed or amended as provided therein or by
applicable law.
(b) The By-laws of the Company, as in effect immediately prior to the
Effective Time, shall be the by-laws of the Surviving Corporation until
thereafter changed or amended as provided therein or by applicable law.
SECTION 1.06. Board of Directors. The directors of Merger Co. immediately
before the Effective Time will be the initial directors of the Surviving
Corporation until their successors are elected or appointed and qualified.
SECTION 1.07. Officers. The officers of the Company immediately prior to the
Effective Time shall be the officers of the Surviving Corporation, until the
earlier of their resignation or removal or until their respective successors
are duly elected and qualified, as the case may be.
ARTICLE II
Effect of the Merger on the Capital Stock of the
Constituent Corporations
SECTION 2.01. 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
the Company Common Stock or capital stock of Merger Co.:
(a) Cancellation of Company Stock. Each share of the Company Common Stock
that is owned by Merger Co. or the Company (or by any direct or indirect
wholly-owned subsidiary of Merger Co. or the Company) shall automatically be
canceled and shall cease to exist, and no consideration shall be delivered in
exchange therefor.
(b) Conversion of the Company Common Stock. Except as otherwise provided
herein and subject to Section 2.03 hereof, each share of the Company Common
Stock issued and outstanding immediately prior to the Effective Time (other
than shares to be canceled in accordance with Section 2.01(a) and other than
Dissenting Shares) shall be converted into the following (the "Merger
Consideration"):
(i) for each such share of Company Common Stock with respect to which an
election to receive common stock in the Surviving Corporation has been
effectively made and not revoked or lost, pursuant to Section 2.02 (the
"Electing Shares"), the right to receive, subject to Section 2.04(d), one
fully paid and non-assessable Non-Cash Election Shares; and
(ii) for each such share of Company Common Stock (other than Electing
Shares), the right to receive $18.10 in cash (the "Cash Election Price").
(c) Cancellation of Company Common Stock. As of the Effective Time, all
shares of the Company Common Stock shall no longer be outstanding and shall
automatically be canceled and shall cease to exist, and each holder of a
certificate that immediately prior to the Effective Time represented shares of
Company Common Stock (a "Certificate") shall cease to have any rights with
respect thereto, except (other than in the case of shares to be canceled in
accordance with Section 2.01(a)) the right to receive the Merger Consideration
and any cash in lieu of fractional shares pursuant to this Article II to be
paid in consideration therefor upon surrender of such Certificate in accordance
with Section 2.04, without interest, or, in the case of Dissenting Shares, the
rights, if any, accorded under Section 262 of the DGCL.
(d) Capital Stock of Merger Co. Each issued and outstanding share of capital
stock of Merger Co. shall be converted into and become such number of fully
paid and non-assessable Non-Cash Election Shares as is equal to (i) (x) the
aggregate amount of cash contributed as equity to Merger Co. in connection with
the
A-5
consummation of the Merger and the other transactions contemplated hereby,
divided by (y) $18.10, with written notice of the exact number of such Non-Cash
Election Shares to be provided by Merger Co. to the Company no later than three
business days prior to the mailing of the Proxy Statement (such number, the
"Parent Equity Number"), divided by (ii) the aggregate number of shares of
capital stock of Merger Co. issued and outstanding immediately prior to the
Effective Time.
SECTION 2.02. Company Common Stock Elections.
(a) Each person who, on or prior to the Election Date (as defined below), is
a record holder of shares of Company Common Stock shall be entitled, with
respect to all or any portion of such person's shares, to make an unconditional
election (a "Non-Cash Election") on or prior to such Election Date to receive
Non-Cash Election Shares, on the basis hereinafter set forth.
(b) Prior to the mailing of the Proxy Statement (as defined below), Merger
Co. shall appoint a bank or trust company as may be approved by the Company
(which approval shall not be unreasonably withheld or delayed) to act as
exchange and paying agent (the "Exchange Agent") for the payment of the Merger
Consideration.
(c) Merger Co. shall, subject to applicable requirements of the United States
federal securities laws, prepare a form of election (the "Form of Election")
which Form of Election shall be subject to the approval of the Company (which
approval shall not be unreasonably withheld or delayed) to be mailed by the
Company with the Proxy Statement to the record holders of Company Common Stock
as of the record date for the Company Stockholders Meeting (as defined below),
which Form of Election shall be used by each record holder of shares of Company
Common Stock who wishes to elect to receive Non-Cash Election Shares for any or
all shares of Company Common Stock held by such holder, subject to the
provisions of Section 2.03. The Company shall use its reasonable best efforts
to make the Form of Election and the Proxy Statement available to all persons
who become holders of Company Common Stock during the period between such
record date and the Election Date referred to below. Any such holder's election
to receive Non-Cash Election Shares shall have been properly made only if the
Exchange Agent shall have received at its designated office, by 5:00 p.m., New
York City time, on the business day that is five business days prior to the
date of the Company Stockholders Meeting (the "Election Date"), a Form of
Election properly completed and signed and accompanied by Certificates
representing the shares of Company Common Stock to which such Form of Election
relates, duly endorsed in blank or otherwise in form acceptable for transfer on
the books of the Company (or by an appropriate guarantee of delivery of such
Certificates as set forth in such Form of Election from a firm which is an
"eligible guarantor institution" (as defined in Rule 17Ad-15 under the
Securities Exchange Act of 1934, as amended (the "Exchange Act")); provided
that such Certificates are in fact delivered to the Exchange Agent within seven
business days after the date of execution of such guarantee of delivery).
(d) Any Form of Election may be revoked by the stockholder of the Company
submitting it to the Exchange Agent only by written notice received by the
Exchange Agent prior to 5:00 p.m, New York City time, on the Election Date
(unless Merger Co. and the Company determine not less than two business days
prior to the Election Date that the Closing Date is not likely to occur within
five business days following the date of the Company Stockholders Meeting, in
which case any Form of Election will remain revocable until a subsequent date
which shall be a date prior to the Closing Date determined by Merger Co. and
the Company and, in such a case, the Company shall provide notice to the
stockholders of the Company of such date in such manner as it may reasonably
determine). In addition, all Forms of Election shall automatically be revoked
if the Exchange Agent is notified in writing by Merger Co. and the Company that
this Agreement has been terminated. If a Form of Election is revoked, the
Certificate or Certificates (or guarantees of delivery, as appropriate) for the
shares of Company Common Stock to which such Form of Election relates shall be
promptly returned by the Exchange Agent to the stockholder of the Company
submitting the same.
(e) The determination of the Exchange Agent (or the mutual determination of
the Company and Merger Co. in the event that the Exchange Agent declines to
make any such determination) shall be binding as to
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whether or not elections to receive Non-Cash Election Shares have been properly
made or revoked pursuant to this Section 2.02 with respect to shares of Company
Common Stock and as to when elections and revocations were received by it. If
the Exchange Agent reasonably determines in good faith that any election to
receive Non-Cash Election Shares was not properly made with respect to shares
of Company Common Stock, such shares shall be treated by the Exchange Agent as
shares which were not Electing Shares at the Effective Time, and such shares
shall be converted in the Merger into the right to receive cash pursuant to
Section 2.01(b)(ii), subject to proration as provided in Section 2.03. The
Exchange Agent (or the Company and Merger Co. by mutual agreement in the event
that the Exchange Agent declines to make any such determination) shall also
make all computations as to the allocation and the proration contemplated by
Section 2.03, and any such computation shall be conclusive and binding on the
stockholders of the Company. The Exchange Agent may, with the mutual written
agreement of the Company and Merger Co., make such rules as are consistent with
this Section 2.02 for the implementation of the elections provided for herein
and as shall be necessary or desirable fully to effect such elections.
SECTION 2.03. Proration.
(a) Notwithstanding anything in this Agreement to the contrary, the aggregate
number of shares of Company Common Stock to be converted into the right to
receive Non-Cash Election Shares at the Effective Time (the "Non-Cash Election
Number") shall be equal to the Parent Equity Number, multiplied by 0.07, and
divided by 0.93; provided, however, in the event Merger Co. notifies the
Company pursuant to Section 5.16 hereof that there is no longer a reason for
the stockholders of the Company to be stockholders of the Surviving
Corporation, (i) such aggregate number shall be 0, (ii) no shares of Company
Common Stock shall be converted into the right to receive Non-Cash Election
Shares and (iii) shares of Company Common Stock which would otherwise convert
into the right to receive the Non-Cash Election Shares shall be converted into
the right to receive the Cash Election Price in accordance with Section
2.01(b)(ii).
(b) If the number of Electing Shares exceeds the Non-Cash Election Number,
each Electing Share shall be converted into the right to receive Non-Cash
Election Shares or cash in accordance with the terms of Section 2.01(b) in the
following manner:
(i) a proration factor (the "Non-Cash Proration Factor") shall be
determined by dividing the Non-Cash Election Number by the total number of
Electing Shares;
(ii) the number of Electing Shares covered by each Non-Cash Election to be
converted into the right to receive Non-Cash Election Shares shall be
determined by multiplying the Non-Cash Proration Factor by the total number
of Electing Shares covered by such Non-Cash Election; and
(iii) all Electing Shares, other than those shares converted into the right
to receive Non-Cash Election Shares in accordance with Section 2.03(b)(ii),
shall be converted into the right to receive cash (on a consistent basis among
stockholders of the Company who made the election referred to in Section
2.01(b)(i), pro rata to the number of shares of Company Common Stock as to
which they made such election) as if such shares were not Electing Shares in
accordance with the terms of Section 2.01(b)(ii).
(c) If the number of Electing Shares is less than the Non-Cash Election
Number:
(i) all Electing Shares shall be converted into the right to receive Non-
Cash Election Shares in accordance with the terms of Section 2.01(b)(i);
(ii) additional shares of Company Common Stock (other than Electing Shares,
Dissenting Shares and shares canceled pursuant to Section 2.01(a)) shall be
converted into the right to receive Non-Cash Election Shares in accordance
with the terms of Section 2.01(b)(i) in the following manner:
(A) a proration factor (the "Cash Proration Factor") shall be determined
by dividing (I) the difference between the Non-Cash Election Number and
the number of Electing Shares by (II) the total number of shares of
Company Common Stock outstanding at the Effective Time (other than
Electing Shares, Dissenting Shares and shares canceled pursuant to
Section 2.01(a)); and
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(B) the number of shares of Company Common Stock in addition to Electing
Shares to be converted into the right to receive Non-Cash Election
Shares shall be determined by multiplying the Cash Proration Factor by
the total number of shares of Company Common Stock outstanding at the
Effective Time (other than Electing Shares, Dissenting Shares and shares
canceled pursuant to Section 2.1(a)); and
(iii) shares of Company Common Stock subject to clause (ii) of this
paragraph (c) shall be converted into the right to receive Non-Cash Election
Shares in accordance with Section 2.01(b)(i) (on a consistent basis among
stockholders of the Company who held shares of Company Common Stock as to
which they did not make the election referred to in Section 2.01(b)(i), pro
rata to the number of shares as to which they did not make such election).
SECTION 2.04. Exchange of Certificates.
(a) Deposit with Exchange Agent. As of or as soon as reasonably practicable
after the Effective Time, the Company shall deposit with the Exchange Agent,
for the benefit of the stockholders of the Company, for exchange in accordance
with this Article II, the Merger Consideration.
(b) Exchange Procedures. As soon as reasonably practicable after the
Effective Time, each holder of a Certificate shall, upon surrender to the
Exchange Agent of such Certificate or Certificates and acceptance thereof by
the Exchange Agent, be entitled to a new certificate or new certificates (the
"New Certificates") representing the number of full Non-Cash Election Shares,
cash and cash payable in lieu of fractional shares, in each case, if any, to be
received by the holder thereof pursuant to this Agreement. The Exchange Agent
shall accept such Certificates upon compliance with such reasonable terms and
conditions as the Exchange Agent may impose to effect an orderly exchange
thereof in accordance with normal exchange practices. After the Effective Time,
there shall be no further transfer on the records of the Company or its
transfer agent of Certificates and, if Certificates are presented to the
Company for transfer, they shall be canceled against delivery of the Merger
Consideration. If any New Certificate for Non-Cash Election Shares is to be
issued in, or if cash is to be remitted to, a name other than that in which the
Certificate surrendered for exchange is registered, it shall be a condition of
such exchange that the Certificate so surrendered shall be properly endorsed,
with signature guaranteed, or otherwise in proper form for transfer, and that
the person requesting such exchange shall pay to the Company or its transfer
agent any transfer or other taxes required by reason of the issuance of New
Certificates for such Non-Cash Election Shares in a name other than that of the
registered holder of the Certificate surrendered, or establish to the
satisfaction of the Company or its transfer agent that such tax has been paid
or is not applicable. Until surrendered as contemplated by this Section
2.04(b), each Certificate shall be deemed at any time after the Effective Time
to represent only the right to receive upon such surrender the Merger
Consideration as contemplated by Section 2.01.
(c) Distributions with Respect to Unexchanged Shares. No dividends or other
distributions with respect to Non-Cash Election Shares with a record date after
the Effective Time shall be paid to the holder of any unsurrendered Certificate
with respect to the Non-Cash Election Shares to be received in respect thereof
and no cash payment in lieu of fractional shares shall be paid to any such
holder pursuant to Section 2.04(d), in each case until the surrender of such
Certificate in accordance with this Article II. Subject to the effect of
applicable laws, following surrender of any such Certificate, there shall be
paid to the holder of the New Certificate or New Certificates representing
whole Non-Cash Election Shares issued in connection therewith, without
interest, (i) at the time of such surrender, the amount of any cash payable in
lieu of a fractional Non-Cash Election Share to which such holder is entitled
pursuant to Section 2.04(d) and the proportionate amount of any dividends or
other distributions with a record date after the Effective Time theretofore
paid with respect to such whole Non-Cash Election Shares, and (ii) at the
appropriate payment date, the proportionate amount of any dividends or other
distributions with a record date after the Effective Time but prior to such
surrender and a payment date subsequent to such surrender payable with respect
to such whole Non-Cash Election Shares.
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(d) Fractional Shares. (i) No New Certificates or scrip representing
fractional Non-Cash Election Shares shall be issued in connection with the
Merger and such fractional share interests shall not entitle the owner thereof
to vote or to any rights of a stockholder of the Company after the Merger, and
(ii) notwithstanding any other provision of this Agreement, each holder of
shares of Company Common Stock exchanged pursuant to the Merger who would
otherwise have been entitled to receive a fraction of a Non-Cash Election Share
(after taking into account all shares of Company Common Stock delivered by such
holder) shall receive, in lieu thereof, a cash payment (without interest)
determined by multiplying the fractional share interest to which such holder
would otherwise be entitled by the Cash Election Price.
(e) No Further Ownership Rights Shares. The Merger Consideration paid upon
the surrender for exchange of Certificates in accordance with the terms of this
Article II (including any cash paid pursuant to Section 2.04(d)) shall be
deemed to have been issued (and paid) in full satisfaction of all rights
pertaining to the shares of Company Common Stock so exchanged.
(f) Termination of Exchange Fund. Any portion of the Merger Consideration
that remains undistributed to the holders of the Certificates for one year
after the Effective Time shall be delivered to the Surviving Corporation, upon
demand, and any holders of Certificates who have not theretofore complied with
this Article II shall thereafter look only to the Surviving Corporation for
payment of their claim for any cash, if any, Non-Cash Election Shares, if any,
any cash in lieu of Non-Cash Election Shares and any dividends or distributions
with respect to Non-Cash Election Shares to which such holders may be entitled,
subject to escheat and similar abandoned property laws.
(g) No Liability. None of Merger Co., the Company or the Exchange Agent shall
be liable to any person in respect of any cash or Non-Cash Election Shares (or
dividends or distributions in respect thereof) deposited with the Exchange
Agent (the "Exchange Fund") delivered to a public official pursuant to any
applicable abandoned property, escheat or similar law.
(h) Investment of Exchange Fund. The Exchange Agent shall invest any cash
included in the Exchange Fund as directed by Merger Co.; provided that such
investments shall be in obligations of or guaranteed by the United States of
America, in commercial paper obligations rated A-1 or P-1 or better by Moody's
Investors Service, Inc. or Standard & Poor's Corporation, respectively, or in
certificates of deposit, bank repurchase agreements or banker's acceptances of
commercial banks with capital exceeding $1 billion. Any net profit resulting
from, or interest or income produced by, such investments shall be payable to
Merger Co.
(i) Lost Certificates. If any Certificate shall have been lost, stolen or
destroyed, upon the making of an affidavit of that fact by the person claiming
such Certificate to be lost, stolen or destroyed and, if required by the
Surviving Corporation, the posting by such person of a bond in such reasonable
amount as the Surviving Corporation may direct as indemnity against any claim
that may be made against it with respect to such Certificate, the Exchange
Agent will issue in exchange for such lost, stolen or destroyed Certificate the
Merger Consideration, deliverable in respect thereof, pursuant to this
Agreement.
(j) Withholding Rights. The Surviving Corporation or the Exchange Agent shall
be entitled to deduct and withhold from the consideration otherwise payable
pursuant to this Agreement to any holder of a Certificate such amounts as the
Surviving Corporation or the Exchange Agent is required to deduct and withhold
with respect to the making of such payment under the Internal Revenue Code of
1986, as amended (the "Code"), or any provisions of state, local or foreign tax
law. To the extent that amounts are so withheld and paid over to the
appropriate taxing authority by the Surviving Corporation or the Exchange
Agent, such withheld amounts shall be treated for all purposes of this
Agreement as having been paid to the holder of the Certificate in respect of
which such deduction and withholding was made by the Surviving Corporation or
the Exchange Agent.
SECTION 2.05. Shares of Dissenting Stockholders. Notwithstanding anything in
this Agreement to the contrary, any issued and outstanding shares of Company
Common Stock held by a person (a "Dissenting Stockholder") who shall not have
voted to adopt this Agreement and who properly demands appraisal for such
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shares in accordance with Section 262 of the DGCL ("Dissenting Shares") shall
not be converted as described in Section 2.01, but shall be converted into the
right to receive such consideration as may be determined to be due to such
Dissenting Stockholder pursuant to the DGCL, unless such holder fails to
perfect or withdraws or otherwise loses his right to appraisal. If, after the
Effective Time, such Dissenting Stockholder fails to perfect or withdraws or
loses his right to appraisal, such Dissenting Stockholder's shares of Company
Common Stock shall no longer be considered Dissenting Shares for the purposes
of this Agreement and such holder's shares of Company Common Stock shall
thereupon be treated as shares that are not Electing Shares and shall be deemed
to have been converted, at the Effective Time, into the right to receive the
Merger Consideration set forth in Section 2.01(b)(ii). The Company shall give
Merger Co. (i) prompt notice of any demands for appraisal of shares of Company
Common Stock received by the Company and (ii) the opportunity to participate in
all negotiations and proceedings with respect to any such demands. The Company
shall not, without the prior written consent of Merger Co., make any payment
with respect to, or settle, offer to settle or otherwise negotiate, any such
demands.
ARTICLE III
Representations and Warranties
SECTION 3.01. Representations and Warranties of the Company. Except as
disclosed in the Company Filed SEC Documents (as defined in Section 3.01(g)) or
as set forth on the Disclosure Schedule dated the date hereof and delivered by
the Company to Merger Co. in connection with the execution of this Agreement
(the "Company Disclosure Schedule") (provided that the listing of an item in
one schedule of the Company Disclosure Schedule shall be deemed to be a listing
in each schedule of the Company Disclosure Schedule and to apply to any other
representation and warranty of the Company in this Agreement to the extent that
it is reasonably apparent from a reading of such disclosure item that it would
also qualify or apply to such other schedule or representation and warranty),
the Company represents and warrants to Merger Co. as follows:
(a) Organization, Standing and Corporate Power. Each of the Company and its
subsidiaries (as defined in Section 8.03) is duly organized, validly existing
and in good standing under the laws of the respective jurisdiction in which it
is incorporated and has the requisite power and authority to carry on its
business as now being conducted. Each of the Company and its subsidiaries is
duly qualified or licensed to do business and is in good standing in each
jurisdiction in which the nature of its business or the ownership or leasing of
its properties makes such qualification or licensing necessary, other than in
such jurisdictions where the failure to be so qualified or licensed,
individually or in the aggregate, would not have a material adverse effect (as
defined in Section 8.03) on the Company. The Company has made available to
Merger Co. prior to the date hereof complete and correct copies of its
Certificate of Incorporation and By-laws and the certificates of incorporation,
by-laws and other organizational documents of its subsidiaries, in each case as
amended to the date hereof.
(b) Subsidiaries. Exhibit 21 to the Company's Annual Report on Form 10-K for
the fiscal year ended September 27, 1998 (the "Company Form 10-K") or Schedule
3.01(b) of the Company Disclosure Schedule lists each subsidiary of the Company
as of the date of this Agreement, together with the jurisdiction of
incorporation of each such subsidiary. All the outstanding shares of capital
stock of, or other ownership interests in, each such subsidiary have been
validly issued and are fully paid and nonassessable and are owned directly or
indirectly by the Company, free and clear of all liens (as defined in Section
8.03) and free of any other restriction (including any restriction on the right
to vote, sell or otherwise dispose of such capital stock or such other
ownership interest). Except for the capital stock of, or other ownership
interests in, its subsidiaries noted above, the Company does not own, directly
or indirectly, any capital stock or other ownership interest in any
corporation, partnership, limited liability company or other entity.
(c) Capital Structure.
(i) The authorized capital stock of the Company consists of 30,000,000
shares of Company Common Stock and 5,000,000 shares of preferred stock, par
value $.01 per share. At the close of business on
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May 31, 1999, (i) 17,893,113 shares of the Company Common Stock and no
shares of preferred stock were issued and outstanding, (ii) 59,663 shares of
the Company Common Stock were held by the Company in its treasury and (iii)
300,000 shares of Series A Junior Participating Preferred Stock, par value
$.01 per share, of the Company (the "Series A Junior Participating Preferred
Stock") were reserved for issuance in connection with the rights (the
"Rights") to purchase shares of Series A Junior Participating Preferred
Stock, issued pursuant to the Rights Agreement, dated as of November 25,
1998, as amended (the "Rights Agreement"), between the Company and The Bank
of New York, as Rights Agent. Since May 31, 1999, no shares of Company
Common Stock have been issued, except in connection with the Company Stock
Plans, and no shares of Preferred Stock have been issued. As of the date of
this Agreement, no more than 825,432 shares of the Company Common Stock were
subject to options or other purchase rights (the "Company Stock Options")
granted under the Citation Corporation Non-Qualified Stock Option Plan for
Non-Employee Directors, the Citation Corporation Employee Stock Purchase
Plan (the "Stock Purchase Plan") and the Citation Corporation Incentive
Award Plan (collectively, the "Company Stock Plans"). As of the date of this
Agreement, no more than 114,794 shares of Company Common Stock have been
subscribed to by Company employees under the Stock Purchase Plan. As of the
date of this Agreement, there were 2,600,000 shares of the Company Common
Stock reserved for issuance under the Company Stock Plans. Except as set
forth above, at the close of business on the date of this Agreement, no
shares of capital stock or other voting securities of the Company were
issued, reserved for issuance or outstanding. There are no outstanding stock
appreciation rights ("SARs"), phantom stock units, restricted stock grants,
contingent stock grants or like rights (other than the Company Stock
Options) to receive shares of the Company Common Stock on a deferred basis
granted under the Company Stock Plans or otherwise. Schedule 3.01(c) of the
Company Disclosure Schedule sets forth a true and complete list, as of May
31, 1999, of all the Company Stock Options, the number of shares subject to
each such option, the holder thereof, the grant dates and the exercise
prices thereof. All outstanding shares of capital stock of the Company are,
and all shares which may be issued pursuant to the Company Stock Plans will
be, when issued, duly authorized, validly issued, fully paid and
nonassessable and not subject to preemptive rights. As of the date of this
Agreement, no bonds, debentures, notes or other indebtedness of the Company
having the right to vote (or convertible into, or exchangeable for,
securities having the right to vote) on any matters on which stockholders of
the Company may vote are issued or outstanding. Except as set forth above,
as of the date of this Agreement, there are no preemptive or other
outstanding securities, options, warrants, calls, rights, conversion rights,
redemption rights, repurchase rights, commitments, agreements, arrangements
or undertakings of any kind to which the Company or any of its subsidiaries
is a party or by which any of them is bound obligating the Company or any of
its subsidiaries to issue, deliver or sell, or cause to be issued, delivered
or sold, additional shares of capital stock or other voting securities of
the Company or any of its subsidiaries, or giving any person a right to
subscribe for or acquire, any securities of the Company or any of its
subsidiaries or obligating the Company or any of its subsidiaries to issue,
grant, extend or enter into any such security, option, warrant, call, right,
conversion right, redemption right, repurchase right, commitment, agreement,
arrangement or undertaking. There are no outstanding contractual obligations
of the Company or any of its subsidiaries to repurchase, redeem or otherwise
acquire any shares of capital stock of the Company or any of its
subsidiaries. There are no outstanding contractual obligations of the
Company to vote or to dispose of any shares of the capital stock of any of
its subsidiaries.
(ii) Since September 27, 1998, the Company has not declared or paid any
dividend on, or declared or made any distribution with respect to, or
authorized or effected any split-up or any other recapitalization of, any of
the Company Common Stock, or directly or indirectly, redeemed, purchased or
otherwise acquired any of its outstanding capital stock. As of the date
hereof, the Company Common Stock is traded, and meets the requirements for
inclusion and maintenance, on the NASDAQ Stock Market.
(iii) Schedule 3.01(c) of the Company Disclosure Schedule sets forth the
total amount of indebtedness for borrowed money as of May 30, 1999. All such
indebtedness is prepayable without more than two business days' notice and
without the payment of any penalty. Since May 30, 1999, no additional
A-11
indebtedness has been incurred by the Company other than in the ordinary course
of business consistent with past practice under existing lines of credit.
(d) Authority; Noncontravention.
(i) The Company has all requisite corporate power and authority to enter
into this Agreement and, subject to receipt of the Company Stockholder
Approval (as defined in Section 3.01(n)), to consummate the transactions
contemplated by this Agreement. The execution and delivery of this Agreement
by the Company and the consummation of the transactions contemplated by this
Agreement have been duly authorized by all necessary corporate action on the
part of the Company, subject, in the case of the Merger, to receipt of the
Company Stockholder Approval. This Agreement has been duly executed and
delivered by the Company and, assuming the due execution and delivery of
this Agreement by Merger Co., constitutes a legal, valid and binding
obligation of the Company, enforceable against the Company in accordance
with its terms subject to (i) applicable bankruptcy, insolvency, fraudulent
transfer and conveyance, moratorium, reorganization, receivership and
similar laws relating to or affecting the enforcement of the rights and
remedies of creditors generally, (ii) principles of equity (regardless of
whether considered and applied in a proceeding in equity or at law) and
(iii) the discretion of the court before which any proceeding in respect of
this Agreement or the transactions contemplated hereby may be brought. The
execution and delivery of this Agreement does not, and the consummation of
the transactions contemplated by this Agreement and compliance with the
provisions of this Agreement by the Company will not, conflict with, or
result in any violation of, or default (with or without notice or lapse of
time, or both) under, or give rise to a right of termination, cancellation
or acceleration of any obligation or to loss of a material benefit under, or
result in the creation of any lien upon any of the properties or assets of
the Company or any of its subsidiaries under (A) the Certificate of
Incorporation or By-laws of the Company or the certificate of incorporation
or organizational documents of any of its subsidiaries, (B) any loan or
credit agreement, note, bond, mortgage, indenture, lease or other agreement,
instrument, permit, concession, franchise or license applicable to the
Company or any of its subsidiaries or their respective properties or assets
or (C) subject to the governmental filings and other matters referred to in
the following sentence, any judgment, order, decree, statute, law,
ordinance, rule or regulation applicable to the Company or any of its
subsidiaries or their respective properties or assets, other than, in the
case of clauses (B) and (C), any such conflicts, violations, defaults,
obligations, losses, rights, liens, judgments, orders, decrees, statutes,
laws, ordinances, rules or regulations that, individually or in the
aggregate, would not have a material adverse effect on the Company and other
than as is provided for under Sections 3.01(g), 3.01(j), 3.01(l), 3.01(r),
5.04 and 5.09 of this Agreement relating to Company Benefit Plans (as
hereinafter defined) or Company Stock Options. No consent, approval, order
or authorization of, or registration, declaration or filing with, any
Federal, state or local government or any court, administrative agency or
commission or other governmental authority or agency, domestic or foreign (a
"Governmental Entity"), is required to be made or obtained by or with
respect to the Company or any of its subsidiaries in connection with the
execution and delivery of this Agreement by the Company or the consummation
by the Company of the Merger and any of the other transactions contemplated
by this Agreement, except for (A) the filing of a premerger notification and
report form by the Company under the Hart-Scott-Rodino Antitrust
Improvements Act of 1976, as amended (the "HSR Act"); (B) compliance with
and filings under, to the extent required, the Securities Act of 1933, as
amended (the "Securities Act"), and the Exchange Act and the rules and
regulations promulgated thereunder; (C) the filing with the Secretary of
State of the State of Delaware of the Certificate of Merger; (D) the filing
of appropriate documents with the relevant authorities of other states in
which the Company is qualified to do business, and such filings with
Governmental Entities to satisfy the applicable requirements of state
securities or "blue sky" laws; (E) the filing of the registration statement
on Form S-4, including the Proxy Statement, with the Securities and Exchange
Commission (the "SEC") by the Company in connection with the issuance of
Non-Cash Election Shares in connection with the Merger (the "Form S-4"); and
(F) such consents, approvals, orders or authorizations the failure of which
to be made or obtained, individually or in the aggregate, would not have a
material adverse effect on the Company.
A-12
(ii) The Special Committee of the Company's Board of Directors (the
"Special Committee"), at a meeting duly called and held, has by unanimous
vote of all its members approved this Agreement and determined that it is
advisable and in the best interests of the Company to enter into the Merger
and the other transactions contemplated by this Agreement. The Board of
Directors of the Company at a meeting duly called and held pursuant to the
recommendation of the Special Committee (A) has approved and declared
advisable this Agreement, the Merger and the other transactions contemplated
by this Agreement and (B) has resolved to recommend that the holders of
Company Common Stock approve and adopt this Agreement and the Merger.
(e) SEC Documents; Undisclosed Liabilities. The Company has filed all
required reports, schedules, forms, statements and other documents with the SEC
since September 28, 1996 (including all filed reports, schedules, forms,
statements and other documents whether or not required, the "Company SEC
Documents"). As of their respective dates, the Company SEC Documents complied
in all material respects with the requirements of the Securities Act or the
Exchange Act, as the case may be, and the rules and regulations of the SEC
promulgated thereunder applicable to the Company SEC Documents, and none of the
Company SEC Documents contained any untrue statement of a material fact or
omitted to state a material fact required to be stated therein or necessary in
order to make the statements therein, in light of the circumstances under which
they were made, not misleading. Except to the extent that information contained
in any Company SEC Document has been revised or superseded by a later filed
Company SEC Document, none of the Company SEC Documents contains any untrue
statement of a material fact or omits to state any material fact required to be
stated therein or necessary in order to make the statements therein, in light
of the circumstances under which they were made, not misleading. The financial
statements of the Company included in the Company SEC Documents are true and
complete and comply as to form in all material respects with applicable
accounting requirements and the published rules and regulations of the SEC with
respect thereto, have been prepared in accordance with U.S. generally accepted
accounting principles (except, in the case of unaudited statements, as
permitted by Form 10-Q of the SEC) applied on a consistent basis during the
periods involved (except as may be indicated in the notes thereto) and fairly
present the consolidated financial position of the Company and its consolidated
subsidiaries as of the dates thereof and the consolidated results of their
operations and cash flows for the periods then ended (subject, in the case of
unaudited statements, to normal year-end adjustments). Except for liabilities
and obligations incurred in the ordinary course of business consistent with
past practice since the date of the most recent consolidated balance sheet
included in the Company SEC Documents and except for liabilities and
obligations which, individually or in the aggregate, would not have a material
adverse effect on the Company, neither the Company nor any of its subsidiaries
has any liabilities or obligations of any nature (whether accrued, absolute,
contingent or otherwise).
(f) Information Supplied. No statement, certificate, instrument or other
writing furnished or to be furnished by the Company or any affiliate (as
defined in Section 8.03) thereof to Merger Co., or any affiliate thereof,
pursuant to this Agreement or any other document, agreement or instrument
referred to herein contains or will contain any untrue statement of material
fact or will omit to state a material fact necessary to make the statements
therein, in light of the circumstances under which they were made, not
misleading. None of the information supplied or to be supplied by the Company
for inclusion or incorporation by reference in (i) the Form S-4 will, at the
time the Form S-4 is filed with the SEC, at any time it is amended or
supplemented and at the time it becomes effective under the Securities Act,
contain any untrue statement of a material fact or omit to state any material
fact required to be stated therein or necessary to make the statements therein,
in the light of the circumstances under which they are made, not misleading and
(ii) the proxy statement to be sent to the stockholders of the Company in
connection with the Company Stockholders Meeting (such proxy statement, as
amended or supplemented, is herein referred to as the "Proxy Statement") will,
at the date it is first mailed to the stockholders of the Company and at the
time of the Company Stockholders Meeting, contain any untrue statement of a
material fact or omit to state any material fact required to be stated therein
or necessary in order to make the statements therein, in the light of the
circumstances under which they are made, not misleading. The Form S-4 will, as
of its effective date, and the prospectus contained therein will, as of its
date, comply as to form in all material respects with the requirements of the
Securities Act and the rules and regulations
A-13
promulgated thereunder. The Proxy Statement will, at the time of the Company
Stockholders Meeting, comply as to form in all material respects with the
requirements of the Securities Act and the Exchange Act and the rules and
regulations promulgated thereunder. Notwithstanding the foregoing, the Company
makes no representation or warranty with respect to any information supplied by
Merger Co. or any of its affiliates or representatives specifically for
inclusion in the Form S-4 or the Proxy Statement.
(g) Absence of Certain Changes or Events. Except as disclosed in the Company
SEC Documents filed and publicly available prior to the date of this Agreement
(as amended to the date of this Agreement, the "Company Filed SEC Documents"),
since September 27, 1998, the Company and each of its subsidiaries have
conducted their respective businesses only in the ordinary course consistent
with past practice, and there has not been since such date, (i) any material
adverse change (as defined in Section 8.03) in the Company, (ii) any
declaration, setting aside or payment of any dividend or other distribution
(whether in cash, stock or property) (other than the Rights) with respect to
any of the Company's capital stock, (iii) any split, combination or
reclassification of any of the Company's capital stock or any issuance or the
authorization of any issuance of any other securities in respect of, in lieu of
or in substitution for shares of its capital stock, (iv) (x) any granting by
the Company or any of its subsidiaries to any director, executive officer or
key employee of the Company or any of its subsidiaries of any award or
incentive payment or increase in compensation or benefits, except in the
ordinary course of business consistent with past practice or as was required
under employment agreements in effect as of the date of this Agreement (copies
of which have been made available to Merger Co.), (y) any granting by the
Company or any of its subsidiaries to any such director, executive officer or
key employee of any increase in severance or termination pay, except as was
required under any employment, severance or termination agreements in effect as
of the date of this Agreement (copies of which have been made available to
Merger Co.) or (z) any entry by the Company or any of its subsidiaries into any
employment, severance or termination agreement with any such director,
executive officer or key employee, (v) any change in accounting methods,
principles or practices by the Company or any of its subsidiaries, (vi) any
material labor dispute with respect to the Company or any subsidiary, (vii) any
entry by the Company or any of its subsidiaries into any material commitment,
agreement, license or transaction (including, without limitation, any
borrowing, capital expenditure, sale of assets or any lien made on any of the
properties of the Company or any of its subsidiaries) other than in the
ordinary course of business consistent with past practice, (viii) any damage,
destruction or loss to the properties of the Company or any of its subsidiaries
whether covered by insurance or not, which has had or will have a material
adverse effect on the Company or (ix) any agreement by the Company or any of
its subsidiaries to do any of the foregoing.
(h) Litigation. Except as disclosed in the Company SEC Documents, there is no
suit, action or proceeding pending or, to the knowledge of the Company,
threatened against or affecting the Company or any of its subsidiaries that,
individually or in the aggregate, would reasonably be expected to have a
material adverse effect on the Company, nor is there any judgment, decree,
injunction, rule or order of any Governmental Entity or arbitrator outstanding
against the Company or any of its subsidiaries having, or which would
reasonably be expected to have, individually or in the aggregate, a material
adverse effect on the Company.
(i) Labor Relations. Schedule 3.01(i) of the Company Disclosure Schedule
contains a true and correct list of each collective bargaining agreement
between the Company or any of its subsidiaries and a labor union, the name of
each such union and the date of termination of each such collective bargaining
agreement. Neither the Company nor any of its subsidiaries is the subject of
any suit, action or proceeding which is pending or, to the knowledge of the
Company, threatened, asserting that the Company or any of its subsidiaries has
committed an unfair labor practice (within the meaning of the National Labor
Relations Act or applicable state statutes) or is seeking to compel it to
bargain with any labor union or labor organization, nor is there pending or, to
the knowledge of the Company, threatened, nor has there been for the past two
years, any material labor strike, dispute, walk-out, work stoppage, slow-down,
lockout or organizational effort involving the Company or any of its
subsidiaries whether or not such subsidiary was a subsidiary of the Company at
such time.
A-14
(j) Benefit Plans.
(i) Schedule 3.01(j) contains a list and brief description of all
"employee pension benefit plans" (as defined in Section 3(2) of the
Employee Retirement Income Security Act of 1974, as amended ("ERISA"))
(sometimes collectively referred to herein as the "Company Pension Plans"),
"employee welfare benefit plans" (as defined in Section 3(l) of ERISA,
hereinafter a "Welfare Plan"), severance, termination, change in control,
incentive compensation profit sharing stock option, stock purchase, stock
ownership, phantom stock, deferred compensation plans, and other employee
fringe benefit plans or arrangements maintained, contributed to or required
to be maintained or contributed to by the Company or any of its
subsidiaries for the benefit of any present or former officers, employees,
directors or independent contractors of the Company or any of its
subsidiaries (all the foregoing being herein called the "Company Benefit
Plans"). The Company has made available to Merger Co. true, complete and
correct copies of (1) each Company Benefit Plan (or, in the case of any
unwritten Benefit Plans, descriptions thereof), (2) the most recent annual
report on Form 5500 filed with the Internal Revenue Service with respect to
each Company Benefit Plan (if any such report was required by applicable
law), (3) the most recent summary plan description for each Company Benefit
Plan for which such a summary plan description is required by applicable
law and (4) each currently effective trust agreement and insurance or
annuity contract relating to any Company Benefit Plan.
(ii) Each Company Benefit Plan has been administered in accordance with
its terms except for any failure so to administer as, individually or in
the aggregate, would not have a material adverse effect on the Company. To
the knowledge of the Company, the Company, its subsidiaries and all the
Company Benefit Plans are in compliance with the applicable provisions of
ERISA, the Code and other applicable laws as to the Company Benefit Plans
except for any failure so to be in compliance as, individually or in the
aggregate, would not have a material adverse effect on the Company.
(iii) With respect to the Company Benefit Plans, individually and in the
aggregate, no event has occurred and, to the knowledge of the Company,
there exists no condition or set of circumstances, in connection with which
the Company or any of its subsidiaries could be subject to any liability
that would have a material adverse effect on the Company under ERISA, the
Code or any other applicable law.
(iv) Each Company Pension Plan that is intended to comply with the
provisions of Section 401(a) of the Code has been the subject of a
determination letter from the Internal Revenue Service to the effect that
such Company Pension Plan is qualified and exempt from Federal income taxes
under Sections 401(a) and 501(a), respectively, of the Code; no such
determination letter has been revoked, and, to the knowledge of the
Company, revocation has not been threatened; and no amendment to such
Company Pension Plan as to which the remedial amendment period has expired
would adversely affect its qualification or materially increase its cost.
The Company has made available to Merger Co. a copy of the most recent
determination letter received with respect to each Company Pension Plan for
which such a letter has been issued, as well as a copy of any pending
application for a determination letter. Schedule 3.01(j) lists all the
Company Pension Plan amendments as to which a favorable determination
letter has not yet been received.
(v) No employee of the Company will be entitled to any additional
benefits or any acceleration of the time of payment, funding or vesting of
any benefits under any Company Benefit Plan as a result of the Merger or
the other transactions contemplated by this Agreement.
(vi) Since the date of the most recent audited financial statements
included in the Company Filed SEC Documents, there has not been any
adoption or amendment by the Company or any of its subsidiaries of any
collective bargaining agreement or any Company Benefit Plan.
(vii) No Company Benefit Plan provides health, death or medical benefits
(whether or not insured) with respect to current or former employees of the
Company or its subsidiaries beyond their retirement or other termination of
employment (other than (a) coverage mandated by applicable law or (b)
benefits the full cost of which is borne by the current or former employee
(or his or her beneficiary)).
A-15
(viii) There are no pending, anticipated or, to the knowledge of the
Company, threatened claims by or on behalf of any Company Benefit Plan, by
any employee or beneficiary covered under any such Company Benefit Plan, or
otherwise involving any such Benefit Plan (other than routine claims for
benefits) which would result in a material adverse effect on the Company.
(k) Taxes.
(i) Each of the Company and its subsidiaries has filed all material tax
returns and reports required to be filed by it or requests for extensions to
file such returns or reports have been timely filed, granted and have not
expired. All returns filed by the Company and each of its subsidiaries are
complete and accurate in all material respects. The Company and each of its
subsidiaries have paid (or the Company has paid on its behalf) all material
taxes required to be paid by the Company or any of its subsidiaries, and the
most recent financial statements contained in the Company Filed SEC
Documents reflect an adequate reserve for all taxes payable by the Company
and its subsidiaries for all taxable periods and portions thereof accrued
through the date of such financial statements.
(ii) No material deficiencies for any taxes have been proposed, asserted or
assessed against the Company or any of its subsidiaries that are not
adequately reserved for, and no requests for waivers or extension of the
time to assess or collect any material taxes of the Company or any of its
subsidiaries have been granted or are pending
(iii) All material taxes required to be withheld by the Company or any of
its subsidiaries have been duly withheld and paid to the proper taxing
authority or properly set aside in accounts for such purpose.
(iv) No power of attorney with respect to any taxes of the Company or any
of its subsidiaries has been executed or filed with any taxing authority.
(v) Neither the Company nor any of its subsidiaries is or has been at any
time since January 1, 1993 for purposes of filing any income tax return a
member of any affiliated, consolidated, combined or unitary group of which a
corporation (other than the Company and its subsidiaries) is or was the
common parent.
(vi) No taxes of the Company or any of its subsidiaries are currently under
audit by any taxing authority, and no taxing authority is now asserting
against the Company or any of its subsidiaries any material deficiency or
claim for additional taxes or any material adjustment of taxes.
(vii) Neither the Company nor any of its subsidiaries is a party to or
bound by or has any obligation under any tax sharing agreement or
arrangement entered into with any person (other than the Company or any of
its subsidiaries).
(l) No Excess Parachute Payments. No amount that could be received (whether
in cash or property or the vesting of property) as a result of the Merger or
any of the other transactions contemplated by this Agreement, either alone or
together with other events, by any employee, officer or director of the Company
or any of its affiliates who is a "disqualified individual" (as such term is
defined in proposed Treasury Regulation Section 1.280G-1) under any employment,
severance or termination agreement, other compensation arrangement or Company
Benefit Plan currently in effect would be characterized as an "excess parachute
payment" (as such term is defined in Section 280G(b)(1) of the Code). Neither
the Company nor any of its subsidiaries is a party to any contract, agreement
or other arrangement which would result in the payment of amounts prior to the
Effective Time that will be nondeductible by reason of Section 162(m) of the
Code.
(m) Compliance with Applicable Laws.
(i) Each of the Company and its subsidiaries has in effect all Federal,
state, local and foreign governmental approvals, authorizations,
certificates, filings, franchises, licenses, notices, permits and rights
A-16
("Permits") necessary for it to own, lease or operate its assets and to
carry on its business as now conducted, and there has occurred no default
under or limitation with respect to any such Permit, except for the lack of
Permits and for defaults or limitations under Permits which, individually or
in the aggregate, would not have a material adverse effect on the Company.
To the knowledge of the Company, the Company and its subsidiaries are, and
have been, in compliance with all Permits and all applicable statutes, laws,
ordinances, rules, orders and regulations of any Governmental Entity, except
for instances of noncompliance which, individually or in the aggregate,
would not have a material adverse effect on the Company. No investigation,
examination or review by any Governmental Entity with respect to the Company
or any of its subsidiaries is pending or, to the knowledge of the Company,
threatened, nor has any Governmental Entity indicated an intention to
conduct the same, except for those the outcome of which, individually or in
the aggregate, would not have a material adverse effect on the Company.
(ii) The Company and its subsidiaries are and have been in material
compliance in all respects with all applicable statutes, laws, ordinances,
rules, orders, regulations and other requirements of law regulating
pollution or the protection of human health and the environment or relating
to the use, handling, treatment, storage, disposal, release or threatened
release of Hazardous Materials (collectively, "Environmental Laws").
(iii) There is no suit, action, proceeding or inquiry pending or, to the
knowledge of the Company, threatened before any court, governmental agency
or authority or other forum in which the Company or any of its subsidiaries
has been or, with respect to threatened suits, actions and proceedings, may
be named as a defendant (i) for alleged noncompliance (including by any
predecessor) with any Environmental Law or (ii) relating to the release into
the environment of any Hazardous Material (as hereinafter defined), whether
or not occurring at, on, under or involving a site owned, leased, operated
or used by the Company or any of its subsidiaries.
(iv) During the period of ownership or operation by the Company and its
subsidiaries of any of their respective current properties, there have been
no material releases of Hazardous Material in, on, under or affecting
material properties or, to the knowledge of the Company, any surrounding
sites. Prior to the period of ownership or operation by the Company and its
subsidiaries of any of their respective current properties, to the knowledge
of the Company, there were no material releases of Hazardous Material in,
on, under or affecting any such property or any surrounding site. "Hazardous
Material" shall mean any waste or other substance that is classified or
regulated under any Environmental Law including any hazardous substance
within the meaning of any Environmental Law, including, without limitation,
asbestos, polychlorinated biphenyls or petroleum products or by-products.
(v) The Company is not subject to any material order, decree, injunction or
other material arrangement or obligation with any Governmental Entity or any
indemnity or other agreement with any third party relating to liability
under any Environmental Law or relating to any Hazardous Material.
(vi) Neither the Company, nor to the knowledge of the Company, any other
person, has caused or taken any action that will result in any material
liability or obligation on the part of the Company or any of its
subsidiaries relating to (x) the environmental conditions on, under or about
any properties or assets currently or formerly owned, leased, operated or
used by the Company, or (y) the past or present use, management, handling,
transport, treatment, generation, storage, disposal, discharge, emission or
release of any Hazardous Materials.
(vii) The Company has made available to Merger Co. all material site
assessments, compliance audits, studies and analyses, in its possession,
custody or control relating to (x) the environmental conditions on, under or
about the properties or assets currently or formerly owned, leased, operated
or used by the Company or any of its subsidiaries and (y) any Hazardous
Materials released by the Company or any other person on, under, about or
from any of the properties currently or formerly owned, leased or used by
the Company or any of its subsidiaries.
A-17
(viii) Schedule 3.01(m)(viii) lists all capital expenditures in excess of
$50,000 made by the Company or any of its subsidiaries since January 1,
1999, or presently planned to be made by the Company or any of its
subsidiaries, in order to address the Company's and its subsidiaries'
compliance with Environmental Laws.
(n) Voting Requirements. The affirmative vote at the Company Stockholders
Meeting of the holders of a majority in voting power of all outstanding shares
of the Company Common Stock to adopt this Agreement (the "Company Stockholder
Approval") is the only vote of the holders of any class or series of the
Company's capital stock necessary to adopt this Agreement.
(o) State Takeover Statutes. No "fair price", "moratorium", "control share
acquisition" or other similar antitakeover statute or regulation enacted under
state or federal laws in the United States (with the exception of Section 203
of the DGCL) applicable to the Company is applicable to the Merger or the other
transactions contemplated hereby. Assuming the accuracy of the representation
and warranty set forth in Section 3.02(f), the action of the Board of Directors
of the Company in approving this Agreement (and the transactions provided for
herein) is sufficient to render inapplicable to this Agreement (and the
transactions provided for herein) the restrictions on "business combinations"
(as defined in Section 203 of the DGCL) as set forth in Section 203 of the
DGCL.
(p) Brokers. No broker, investment banker, financial advisor or other person,
other than Bear, Stearns & Co. Inc., is entitled to any broker's, finder's,
financial advisor's or other similar fee or commission in connection with the
transactions contemplated by this Agreement based upon arrangements made by or
on behalf of the Company or any of its affiliates. The Company has provided
Merger Co. true and correct copies of all agreements between the Company and
Bear Stearns & Co. Inc. providing for any such fee arrangements. Such fees will
be paid by the Company.
(q) Opinion of Financial Advisor. The Company has received an opinion of
Bear, Stearns & Co. Inc., dated as of the date hereof, that the Merger
Consideration is fair, from a financial point of view, to the holders of shares
of the Company Common Stock, a complete and correct copy of which opinion has
been, or promptly upon receipt thereof will be, delivered to Merger Co. The
Company has been authorized by Bear Stearns & Co. Inc. to permit the inclusion
of such opinion in its entirety in the Proxy Statement.
(r) Material Contracts.
(i) Except as set forth in the exhibit index to the Company's most recent
Form 10-K and subsequent Form 10-Qs included in the Company's SEC Documents
or as provided for in this Agreement, neither the Company nor any of its
subsidiaries is a party to or bound by any (i) "material contract" (as such
term is defined in Item 601(b)(10) of Regulation S-K of the SEC), (ii) non-
competition agreement or any other agreement or obligation which purports to
limit in any respect the manner in which, or the localities in which, all or
any material portion of the business of the Company and its subsidiaries,
taken as a whole, may be conducted, (iii) transaction, agreement,
arrangement or understanding with any affiliate that would be required to be
disclosed under Item 404 of Regulation S-K under the Securities Act, (iv)
voting or other agreement governing how any shares of Company Common Stock
shall be voted, (v) material agreement with any stockholders of the Company,
(vi) acquisition, merger, asset purchase or sale agreement related to the
acquisition or sale of a business or (vii) contract or other agreement which
would prohibit or materially delay the consummation of the Merger or any of
the other transactions contemplated hereby (all contracts of the type
described in clauses (i)-(vii) being referred to herein as "Material
Contracts"). Except as would not, individually or in the aggregate, have a
material adverse effect on the Company, each Material Contract is valid and
binding on the Company (or, to the extent a subsidiary of the Company is a
party, such subsidiary) and is in full force and effect. Neither the Company
nor any such subsidiary is in default or knows of, or has received notice
of, any violation or default under (nor, to the knowledge of the Company,
does there exist any condition which with the passage of time or the giving
of notice or both would result in such a violation or default under) any
Material Contract, except as would not, individually or in the aggregate,
have a material adverse effect on the Company.
A-18
(ii) Except as disclosed in the Company's SEC Documents or as provided for
in this Agreement, neither the Company nor any of its subsidiaries is a
party to any oral or written (i) employment agreement or consulting
agreement (in excess of $100,000 per year) not terminable on 30 days' or
less notice, (ii) agreement with any executive officer or other key employee
of the Company or any of its subsidiaries the benefits of which are
contingent or vest, or the terms of which are materially altered, upon the
occurrence of a transaction involving the Company or any of its subsidiaries
of the nature contemplated by this Agreement or (iii) agreement with respect
to any executive officer or other key employee of the Company or any of its
subsidiaries providing any term of employment or compensation guarantee (in
excess of $100,000).
(s) Intellectual Property. Except as, individually or in the aggregate, would
not have a material adverse effect on the Company: the Company does not have
knowledge of any valid grounds for any claims (A) to the effect that the
manufacture, sale, licensing or use of any product as now used, sold or
licensed or proposed for use, sale or license by the Company or any of its
subsidiaries, infringes on any Third Party Intellectual Property Rights; (B)
against the use by the Company or any of its subsidiaries of any Company
Intellectual Property Rights; (C) challenging the ownership, validity or
effectiveness of any of the Company Intellectual Property Rights or other trade
secret material to the Company; or (D) challenging the license or right to use
of any Third-Party Intellectual Property Rights by the Company or any of its
subsidiaries. The Company or the applicable subsidiary owns, or has the legal
and valid right or license to use, all Company Intellectual Property Rights,
free and clear of all liens, except as, individually or in the aggregate, would
not have a material adverse effect on the Company. Neither the Company nor any
of its subsidiaries has licensed or otherwise granted to any other person any
rights in or to any Company Intellectual Property Rights. As used in this
Agreement, the term (x) "Intellectual Property" means all patents, trademarks,
trade names, service marks, copyrights and any applications, therefor,
technology, know-how, computer software programs or applications, and tangible
or intangible proprietary information or materials, trademarks, trade names,
service marks and copyrights; (y) "Third-Party Intellectual Property Rights"
means Intellectual Property owned by any third party; and (z) the "Company
Intellectual Property Rights" means the Intellectual Property used or held for
use in connection with the business of the Company or any of its subsidiaries
as such business is currently conducted or proposed to be conducted.
(t) Year 2000. All computer systems and computer software used by the Company
or any of its subsidiaries (i) recognize or are being adapted so that, prior to
December 31, 1999, they shall recognize the advent of the year A.D. 2000
without any adverse change in operation associated with such recognition, (ii)
can correctly recognize or are being adapted so that they can correctly
recognize and manipulate date information relating to dates before, on or after
January 1, 2000, including but not limited to accepting date input, performing
calculations on dates or portion of dates and providing date output, and the
operation and functionality of such computer systems and such computer software
will not be adversely affected by the advent of the year A.D. 2000 or any
manipulation of data featuring information relating to dates before, on or
after January 1, 2000, and (iii) can suitably interact with other computer
systems and computer software in a way that does not compromise (y) its ability
to correctly recognize the advent of the year A.D. 2000 or (z) its ability to
correctly recognize and manipulate date information relating to dates before,
on or after January 1, 2000 (the operations of clauses (i), (ii) and (iii)
together, "Millennium Functionality"), except in each case for such computer
systems and computer software, the failure of which to achieve Millennium
Functionality, individually or in the aggregate, would not have a material
adverse effect on the Company. Schedule 3.01(t) of the Company Disclosure
Schedule sets forth the Company's good faith estimate as of the date hereof of
the costs to be incurred after the date hereof by the Company and its
subsidiaries in order to achieve Millennium Functionality.
(u) Rights Agreement. The Company has amended the Rights Agreement to ensure
that (a) none of a "Flip-In Event", a "Distribution Date" or a "Stock
Acquisition Date" (in each case as defined in the Rights Agreement) will occur,
and none of Merger Co. or any of their "Affiliates" or "Associates" will be
deemed to be an "Acquiring Person" (in each case as defined in the Rights
Agreement), by reason of the execution and delivery of this Agreement or the
consummation of the transactions contemplated hereby; and (b) the Rights will
expire immediately prior to the Effective Time.
A-19
(v) Qualification. All products sold by the Company and its subsidiaries
pursuant to qualification or certification requirements established by the
Company's and its subsidiaries' customers were produced in a manner consistent
with the requirements of such qualification or certification, except for
individual defective products produced in the ordinary course of business
consistent with past practice, or where the failure to do so, individually or
in the aggregate, would not have a material adverse effect on the Company. Each
of the Company and its subsidiaries held all necessary qualifications or
certifications for its products from its customers pursuant to which sales were
made to such customers, except where the failure to do so, individually or in
the aggregate, would not have a material adverse effect on the Company. Except
for such revocations or terminations which, individually or in the aggregate,
would not have a material adverse effect on the Company, neither the Company
nor any of its subsidiaries have received notification that any qualifications
or certifications for its products as established by its customers have been
revoked or terminated, and to the knowledge of the Company, no such revocation
or termination is threatened or contemplated.
(w) Real Property Matters. Schedule 3.01(w) of the Company Disclosure
Schedule sets forth the street address of all real property (i) owned by the
Company or any of its subsidiaries (the "Owned Real Property") or (ii) leased
by the Company or any of its subsidiaries (the "Leased Real Property"). True
and complete copies of (i) all deeds and title insurance policies of the Owned
Real Property and (ii) all leases and any amendments thereto and assignments or
subleases thereof governing the Leased Real Property have been made available
to Merger Co. There are no proceedings, claims, disputes or conditions (except
for such conditions which, individually or in the aggregate, would not have a
material adverse effect on the Company) affecting the Owned Real Property or
the Leased Real Property (collectively, the "Real Property") that would
interfere with the use of such property. The Company and its subsidiaries own
the Owned Real Property, free and clear of all liens, and no other person has
any option to purchase any of the Owned Real Property. The Company and each
applicable subsidiary has a valid leasehold interest in the Leased Real
Property leased by it, free and clear of all liens, and each lease of Leased
Real Property is in full force and effect and no default exists by the Company
or the applicable subsidiary thereunder, except for such defaults which,
individually or in the aggregate, would not result in a material adverse effect
on the Company.
(x) Insurance Policies. The Company currently has in effect insurance
policies covering itself, its subsidiaries, their respective assets and the
conduct of their respective businesses, which insurance has been written by
insurers unaffiliated with the Company in such amounts and against such losses
or casualties as is usually maintained by reasonably prudent managers of
companies engaged in the same or similar businesses and of similar size, and
all such policies are valid and enforceable for the benefit of the Company or
its subsidiaries, as the case may be, and are, and through the Effective Time
will continue to be, in full force and effect, except for such failures to be
enforceable or to be in full force and effect which, individually or in the
aggregate, would not result in a material adverse effect on the Company.
SECTION 3.02. Representations and Warranties of Merger Co. Except as set
forth on the Disclosure Schedule dated the date hereof and delivered by Merger
Co. to the Company in connection with the execution of this Agreement (the
"Merger Co. Disclosure Schedule") (provided that the listing of an item in one
schedule of the Merger Co. Disclosure Schedule shall be deemed to be a listing
in each schedule of the Merger Co. Disclosure Schedule and to apply to any
other representation and warranty of Merger Co. in this Agreement to the extent
that it is reasonably apparent from a reading of such disclosure item that it
would also qualify or apply to such other schedule or representation and
warranty), Merger Co. represents and warrants to the Company as follows:
(a) Organization, Standing and Corporate Power. Each of Merger Co. and its
subsidiaries is a corporation duly organized, validly existing and in good
standing under the laws of the respective jurisdiction in which it is
incorporated and has the requisite corporate power and authority to carry on
its business as now being conducted. Each of Merger Co. and its subsidiaries is
duly qualified or licensed to do business and is in good standing in each
jurisdiction in which the nature of its business or the ownership or leasing of
its properties makes such qualification or licensing necessary, other than in
such jurisdictions where the failure to be so qualified or licensed,
individually or in the aggregate, would not have a material adverse effect on
Merger
A-20
Co. Merger Co. has made available to the Company prior to the date hereof
complete and correct copies of its Certificate of Incorporation and By-laws and
the certificates of incorporation and by-laws of its subsidiaries, in each case
as amended to the date hereof.
(b) Capitalization. All the outstanding shares of capital stock of, or other
ownership interests in, Merger Co. have been validly issued and are fully paid
and nonassessable and are owned free and clear of all liens and free of any
other restriction (including any restriction on the right to vote, sell or
otherwise dispose of such capital stock or such other ownership interest).
(c) Authority; Noncontravention.
(i) Merger Co. has all requisite corporate power and authority to enter
into this Agreement and to consummate the transactions contemplated by this
Agreement. The execution and delivery of this Agreement by Merger Co. and
the consummation of the transactions contemplated by this Agreement have
been duly authorized by all necessary corporate action on the part of Merger
Co. This Agreement has been duly executed and delivered by Merger Co., and,
assuming the due execution and delivery of the Agreement by the Company, the
Agreement constitutes a legal, valid and binding obligation of Merger Co.,
enforceable against Merger Co. in accordance with its terms subject to (i)
applicable bankruptcy, insolvency, fraudulent transfer and conveyance,
moratorium, reorganization, receivership and similar laws relating to or
affecting the enforcement of the rights and remedies of creditors generally,
(ii) principles of equity (regardless of whether considered and applied in a
proceeding in equity or at law) and (iii) the discretion of the court before
which any proceeding in respect of this Agreement or the transactions
contemplated thereby may be brought. The execution and delivery of this
Agreement do not, and the consummation of the transactions contemplated by
this Agreement and compliance with the provisions of this Agreement by
Merger Co. will not, conflict with, or result in any violation of, or
default (with or without notice or lapse of time, or both) under, or give
rise to a right of termination, cancellation or acceleration of any
obligation or to loss of a material benefit under, or result in the creation
of any lien upon any of the properties or assets of Merger Co. or any of its
subsidiaries under, (A) the Certificate of Incorporation or By-laws of
Merger Co. or the comparable certificate of incorporation or organizational
documents of any of its subsidiaries, (B) any loan or credit agreement,
note, bond, mortgage, indenture, lease or other agreement, instrument,
permit, concession, franchise or license applicable to Merger Co. or any of
its subsidiaries or their respective properties or assets or (C) subject to
the governmental filings and other matters referred to in the following
sentence, any judgment, order, decree, statute, law, ordinance, rule or
regulation applicable to Merger Co. or any of its subsidiaries or their
respective properties or assets, other than, in the case of clauses (B) and
(C), any such conflicts, violations, defaults, obligations, losses, rights,
liens, judgments, orders, decrees, statutes, laws, ordinances, rules or
regulations that, individually or in the aggregate, would not have a
material adverse effect on Merger Co. No consent, approval, order or
authorization of, or registration, declaration or filing with, any
Governmental Entity is required to be made or obtained by or with respect to
Merger Co. or any of its subsidiaries in connection with the execution and
delivery of this Agreement by Merger Co. or the consummation by Merger Co.
of any of the transactions contemplated by this Agreement, except for (A)
the filing of a premerger notification and report form under the HSR Act;
(B) compliance with and filings under, to the extent required, the
Securities Act and the Exchange Act and the rules and regulations
promulgated thereunder; (C) the filing with the Secretary of State of the
State of Delaware of the Certificate of Merger; (D) the filing of
appropriate documents with the relevant authorities of other states in which
Merger Co. is qualified to do business, and such filings with Governmental
Entities to satisfy the applicable requirements of state securities or "blue
sky" laws; (E) the filing of the Form S-4, including the Proxy Statement,
with the SEC under the Securities Act; and (F) such consents, approvals,
orders or authorizations the failure of which to be made or obtained,
individually or in the aggregate, would not have a material adverse effect
on Merger Co. or any of its subsidiaries.
(ii) As of the date hereof, the Board of Directors Merger Co. has approved
and declared advisable this Agreement, the Merger and the other transactions
contemplated by this Agreement.
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(d) Information Supplied. None of the information supplied or to be supplied
by Merger Co. specifically for inclusion in (i) the Form S-4 will, at the time
the Form S-4 is filed with the SEC, at any time it is amended or supplemented
and at the time it becomes effective under the Securities Act, contain any
untrue statement of a material fact or omit to state any material fact required
to be stated therein or necessary in order to make the statements therein, in
the light of the circumstances under which they are made, not misleading and
(ii) the Proxy Statement will, at the date it is first mailed to the
stockholders of the Company and at the time of the Company Stockholders
Meeting, contain any untrue statement of a material fact or omit to state any
material fact required to be stated therein or necessary in order to make the
statements therein, in the light of the circumstances under which they are
made, not misleading. Notwithstanding the foregoing, Merger Co. makes no
representation or warranty with respect to any information not supplied by it
or any of its representatives specifically for inclusion in the Form S-4 or the
Proxy Statement.
(e) Financing. Merger Co. has previously delivered to the Company the
following: (a) a fully executed commitment letter (the "Senior Debt Letter")
from The Chase Manhattan Bank, DLJ Capital Funding, Inc. and First Union
National Bank (the "Bank") and accepted by Merger Co. providing the detailed
terms and conditions upon which the Bank has committed to provide the entire
senior debt and revolving credit portion of the financing required in
connection with the Merger, (b) a fully executed "highly confident" letter (the
"Subordinated Debt Letter") issued by Donaldson, Lufkin & Jenrette Securities
Corporation and accepted by Merger Co. with respect to the placement of
subordinated debt of the Surviving Corporation pursuant to a private offering
under Rule 144A of the Exchange Act and (c) the executed Equity Commitment
Letter (together with the Senior Debt Letter and the Subordinated Debt Letter,
the "Financing Letters"). Each of the Financing Letters is in full force and
effect on the date hereof and has not been amended or modified, and there is no
breach or default existing (or which with notice or lapse of time or otherwise
may exist) thereunder. The aggregate proceeds of the financing contemplated by
the Financing Letters are sufficient to pay the cash portion of the Merger
Consideration, to repay the existing indebtedness of the Company and its
subsidiaries (excluding any indebtedness the parties agree shall not be repaid)
and to pay all fees and expenses to be paid by Merger Co. related to the
transactions contemplated by this Agreement.
(f) Company Stock. Merger Co. is not, nor at any time during the last three
years has it been, an "interested stockholder" of the Company as defined in
Section 203 of the DGCL. Merger Co. does not own (directly or indirectly,
beneficially or of record) and is not a party to any agreement, arrangement or
understanding for the purpose of acquiring, holding, voting or disposing of, in
each case, any shares of capital stock of the Company (other than as
contemplated by this Agreement).
ARTICLE IV
Covenants Relating to Conduct of Business
SECTION 4.01. Conduct of Business. During the period from the date of this
Agreement to the Effective Time, the Company shall, and shall cause its
subsidiaries to, carry on their respective businesses in the usual, regular and
ordinary course in substantially the same manner as heretofore conducted and in
compliance in all material respects with all applicable laws, and to the extent
consistent therewith, use all reasonable efforts to preserve intact their
current business organizations, licenses and authorizations, keep available the
services of their current officers and employees and preserve their
relationships with customers, suppliers, licensors, licensees, distributors,
managers and others having business dealings with them to the end that their
goodwill and ongoing businesses shall be unimpaired at the Effective Time.
Without limiting the generality of the foregoing, except as set forth on the
Company Disclosure Schedule, as otherwise provided for in this Agreement or as
consented to by Merger Co. in writing, during the period from the date of this
Agreement to the Effective Time, the Company shall not, and shall not permit
any of its subsidiaries to:
(a)(i) declare, set aside or pay any dividends payable in cash, stock or
property on, or make any other distributions in respect of, any of its capital
stock, other than dividends and distributions by a direct or indirect wholly-
owned subsidiary of the Company to its parent, (ii) split, combine or
reclassify any of its capital stock
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or issue or authorize the issuance of any other securities in respect of or in
substitution for shares of its capital stock or (iii) purchase, redeem or
otherwise acquire any shares of capital stock of the Company or any of its
subsidiaries or any other securities thereof or any rights, warrants or options
to acquire any such shares or other securities;
(b) issue, deliver, sell, pledge or otherwise encumber any shares of its
capital stock, any other voting securities or any securities convertible into,
or any rights, warrants or options to acquire, any such shares, voting
securities or convertible securities other than (i) upon the exercise of the
Rights or (ii) in accordance with the terms thereof, the issuance of the
Company Common Stock (and corresponding Rights) upon the exercise of Company
Stock Options, in each case outstanding on the date of this Agreement and in
accordance with their present terms;
(c) amend its certificate of incorporation, by-laws or other comparable
organizational documents;
(d) acquire (i) by merging or consolidating with, or by purchasing a
substantial portion of the assets of, or by any other manner, any business or
any corporation, partnership, joint venture, association or other business
organization or division thereof or (ii) any assets, including real estate,
except acquisitions of assets in the ordinary course of business consistent
with past practice;
(e) sell, lease, license, mortgage or otherwise encumber or subject to any
lien or otherwise dispose of any of its properties or assets, except sales of
assets in the ordinary course of business consistent with past practice;
(f)(i) incur any indebtedness for borrowed money or guarantee any such
indebtedness of another person, issue or sell any debt securities or warrants
or other rights to acquire any debt securities of the Company or any of its
subsidiaries, guarantee any debt securities of another person, enter into any
"keep well" or other agreement to maintain any financial statement condition of
another person or enter into any arrangement having the economic effect of any
of the foregoing, except for borrowings incurred in the ordinary course of
business consistent with past practice, under revolving credit agreements in
existence on the date hereof, (ii) permit any modifications or amendments of
any agreements related to any such indebtedness except for intercompany
indebtedness between the Company and any of its subsidiaries or between such
subsidiaries, or (iii) make any loans, advances or capital contributions to, or
investments in, any other person, other than to the Company or any direct or
indirect wholly-owned subsidiary of the Company and other than investments made
in the ordinary course of business consistent with past practice;
(g) except as set forth in the Company's business plan, the relevant portion
of which is set forth on Schedule 4.01(g) of the Company Disclosure Schedule,
make or agree to make any capital expenditure or expenditures, or enter into
any agreement or agreements providing for payments which, in the aggregate, are
in excess of $2,000,000;
(h) make any material tax election, settle or compromise any material tax
liability or file an amendment to any material tax return;
(i) pay, discharge, settle or satisfy any claims, liabilities, obligations or
litigation (absolute, accrued, asserted or unasserted, contingent or
otherwise), other than the payment, discharge, settlement or satisfaction, in
the ordinary course of business consistent with past practice without admission
of liability or in accordance with their terms, of liabilities recognized or
disclosed in the most recent consolidated financial statements (or the notes
thereto) of the Company included in the Company Filed SEC Documents or incurred
since the date of such financial statements or waive the benefits of, or agree
to modify in any manner, any confidentiality, standstill or similar agreement
to which the Company or any of its subsidiaries is a party;
(j) except as required by law or authorized hereunder and except for labor
agreements negotiated in the ordinary course, enter into, adopt, amend or
terminate any Company Benefit Plan or any other agreement, plan or policy
involving the Company or any of its subsidiaries, and one or more of its
directors, officers or
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employees, or materially change any actuarial or other assumption used to
calculate funding obligations with respect to any pension plan, or change the
manner in which contributions to any pension plan are made or the basis on
which such contributions are determined;
(k) except for normal increases in the ordinary course of business consistent
with past practice that, in the aggregate, do not materially increase benefits
or compensation expenses of the Company or any of its subsidiaries, or as
contemplated hereby or by the terms of any contract the existence of which does
not constitute a violation of this Agreement, increase the compensation of any
director, executive officer or other key employee or pay any benefit or amount
not required by a plan or arrangement as in effect on the date of this
Agreement to any such person;
(l) enter into, or alter, amend, modify or exercise any material option under
any existing material contract (including any contract with an affiliate of the
Company or any subsidiary) or material supply or requirements agreement or
long-term purchase order, except in the ordinary course of business consistent
with past practice;
(m) revalue in any material respect any of its assets, including, without
limitation, writing down the value of inventory or writing off notes or
accounts receivable other than in the ordinary course of business consistent
with past practice;
(n) except as maybe required as a result of a change in law or generally
accepted accounting principles, change any of its accounting policies or
practices;
(o) hold any meeting of its stockholders, except to the extent contemplated
herein or required by the request of the stockholders entitled to call a
meeting under the By-laws of the Company or the DGCL; or
(p) authorize, or commit or agree to take, any of the foregoing actions.
SECTION 4.02. Other Actions. Except as required by law, Merger Co. and the
Company shall not, and shall not permit any of their respective subsidiaries
to, voluntarily take any action that would, or that is reasonably likely to,
result in any of the conditions to the Merger set forth in Article VI not being
satisfied. Without limiting the generality of the foregoing, Merger Co. and the
Company shall not, and shall cause its subsidiaries not to, take any action
that would result in (i) any of its representations and warranties set forth in
this Agreement that are qualified as to materiality becoming untrue or (ii) any
of such representations and warranties that are not so qualified becoming
untrue in any material respect.
SECTION 4.03. Advice of Changes. Merger Co. and the Company shall promptly
advise the other party orally and in writing to the extent it has knowledge of
(i) any representation or warranty made by it contained in this Agreement,
becoming untrue or inaccurate in any respect where the failure of such
representation to be so true and correct (without giving effect to any
limitation as to "materiality" or "material adverse effect" set forth therein),
individually or in the aggregate, has had or is reasonably likely to have a
material adverse effect on it, (ii) the failure by it to comply in any material
respect with or satisfy in any material respect any covenant, condition or
agreement to be complied with or satisfied by it under this Agreement and (iii)
any change or event having, or which, insofar as can reasonably be foreseen,
would have a material adverse effect on such party or on the truth of their
respective representations and warranties or the ability of the conditions set
forth in Article VI to be satisfied; provided, however, that no such
notification shall affect the representations, warranties, covenants or
agreements of the parties (or remedies with respect thereto) or the conditions
to the obligations of the parties under this Agreement.
SECTION 4.04. No Solicitation by the Company. (a) The Company shall not, nor
shall it permit any of its subsidiaries to, nor shall it authorize any of its
directors, officers or employees or any investment banker, financial advisor,
attorney, accountant or other representative retained by it or any of its
subsidiaries to, directly or indirectly through another person, (i) solicit,
initiate or encourage (including by way of furnishing information), or take any
other action to facilitate, any inquiries or the making of any proposal which
constitutes, or may reasonably be expected to lead to, a Company Takeover
Proposal (as defined below), (ii) participate in any discussions or
negotiations regarding any Company Takeover Proposal or (iii) enter into
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any agreement with respect to any Company Takeover Proposal or approve or
resolve to approve any Company Takeover Proposal; provided, however, that, at
any time prior to obtaining the Company Stockholder Approval (the "Company
Applicable Period"), if, based upon the advice of the Company's outside legal
advisors, the Board of Directors determines in good faith that failing to take
such action would create a reasonable possibility of a breach of its fiduciary
duties under applicable law, the Company may, in response to a Takeover
Proposal which the Board of Directors of the Company determines in good faith,
based upon the advice of the Company's outside legal advisors and the Company's
financial advisors, would result in a Company Superior Proposal (as defined in
Section 4.04(b)) which was not solicited by it and which did not otherwise
result from a breach of this Section 4.04(a), and subject to providing prior
written notice of its decision to take such action to Merger Co. (the "Company
Notice") and compliance with Section 4.04(c), following delivery of the Company
Notice (x) furnish information with respect to the Company and its subsidiaries
to any person making such a Company Takeover Proposal pursuant to a
confidentiality agreement with terms not materially more favorable to the
person making the Company Takeover Proposal than those applicable to Kelso &
Company under the Confidentiality Agreement (as hereinafter defined) and
(y) participate in discussions or negotiations regarding such Company Takeover
Proposal. Without limiting the foregoing, it is understood that any violation
of the restrictions set forth in the preceding sentence by any director or
officer of the Company or any of its subsidiaries or any investment banker,
financial advisor, attorney, accountant or other representative of the Company
or any of its subsidiaries shall be deemed to be a breach of this Section by
the Company. Upon execution of this Agreement, the Company will immediately
cease any existing activities, discussions or negotiations with any parties
conducted heretofore with respect to any of the foregoing. For purposes of this
Agreement, "Company Takeover Proposal" means any inquiry, proposal or offer
from any person relating to any direct or indirect acquisition or purchase of a
business that constitutes 10% or more of the net revenues, net income or the
assets of the Company and its subsidiaries, taken as a whole, or 10% or more of
any class of equity securities of the Company or any of its subsidiaries, any
tender offer or exchange offer that if consummated would result in any person
beneficially owning 10% or more of any class of equity securities of the
Company or any of its subsidiaries, or any merger, consolidation, business
combination, recapitalization, liquidation, dissolution or similar transaction
involving the Company or any of its subsidiaries, other than the transactions
contemplated by this Agreement.
(b) Except as expressly permitted by this Section 4.04, neither the Board of
Directors of the Company nor any committee thereof shall (i) withdraw or
modify, or propose publicly to withdraw or modify, in a manner adverse to
Merger Co., the approval or recommendation by such Board of Directors or such
committee of this Agreement or the Merger, (ii) approve or recommend, or
propose publicly to approve or recommend, any Company Takeover Proposal or
(iii) cause the Company to enter into any letter of intent, agreement in
principle, acquisition agreement or other agreement related to any Company
Takeover Proposal (each, a "Company Acquisition Agreement"). Notwithstanding
anything in this Agreement to the contrary, in response to a Company Superior
Proposal which was not solicited by the Company and which did not otherwise
result from a breach of Section 4.04(a), the Board of Directors of the Company
may (subject to this and the following sentences) terminate this Agreement (and
concurrently with or after such termination, if it so chooses, cause the
Company to enter into any Company Acquisition Agreement with respect to any
Company Superior Proposal), but only (i) at a time that is during the Company
Applicable Period and is after the third business day following Merger Co.'s
receipt of written notice advising Merger Co. that the Board of Directors of
the Company is prepared to accept a Company Superior Proposal, specifying the
material terms and conditions of such Company Superior Proposal and identifying
the person making such Company Superior Proposal, (ii) if, based upon the
advice of the Company's outside legal advisors, the Board of Directors
determines in good faith that failing to take such action would create a
reasonable possibility of a breach of its fiduciary duties under applicable law
and (iii) if the Company shall have caused its financial and legal advisors to
negotiate in good faith with Merger Co. during such three business days to make
such adjustments to the terms and conditions of this Agreement as would enable
the Company to proceed with the Merger on such adjusted terms. For purposes of
this Agreement, a "Company Superior Proposal" means any proposal made by a
third party to acquire, directly or indirectly, including pursuant to a tender
offer, exchange offer, merger, consolidation, business combination,
recapitalization, liquidation, dissolution or similar transaction, for
consideration consisting of cash
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and/or securities, more than 50% of the voting power of the shares of the
Company Common Stock then outstanding or all or substantially all the assets of
the Company and its subsidiaries taken together and otherwise on terms which
the Board of Directors of the Company determines in good faith, based upon the
advice of the Company's outside legal advisors and the Company's financial
advisors, to be more favorable to the Company's stockholders than the Merger
and for which any necessary financing is then committed or which, in the good
faith judgment of the Company's Board of Directors, based upon the advice of
the Company's financial advisors, is reasonably capable of being obtained by
such third party.
(c) In addition to the obligations of the Company set forth in paragraphs (a)
and (b) of this Section 4.04, the Company shall promptly advise Merger Co.
orally and in writing of any request for information or of any Company Takeover
Proposal, the material terms and conditions of such request or the Company
Takeover Proposal and the identity of the person making such request or the
Company Takeover Proposal. The Company will keep Merger Co. reasonably informed
of the status and details (including amendments or proposed amendments) of any
such request or Company Takeover Proposal.
(d) Nothing contained in this Section 4.04 shall prohibit the Company from
taking and disclosing to its stockholders a position contemplated by Rule 14e-
2(a) promulgated under the Exchange Act; provided, however, that neither the
Company nor its Board of Directors shall, except as permitted by paragraph (b)
of this section, propose to approve or recommend a Company Takeover Proposal.
ARTICLE V
Additional Agreements
SECTION 5.01. Preparation of the Form S-4 and Proxy Statement; Stockholder
Meeting.
(a) As soon as reasonably practicable following the date of this Agreement,
the Company shall prepare the Form S-4 and the Proxy Statement and shall file
with the SEC under the Securities Act and the Exchange Act and the rules and
regulations promulgated thereunder the Form S-4, in which the Proxy Statement
will be included. Merger Co. and the Company will cooperate with each other in
the preparation of the Form S-4 and the Proxy Statement. Without limiting the
generality of the foregoing, Merger Co. will furnish to the Company the
information relating to it or its affiliates required by the Securities Act and
the Exchange Act and the rules and regulations promulgated thereunder to be set
forth in the Form S-4 and the Proxy Statement. The Company shall use its
reasonable commercial efforts to have the Form S-4 declared effective under the
Securities Act as soon as reasonably practicable after it is filed with the
SEC. The Company shall use its reasonable commercial efforts to cause the Proxy
Statement to be mailed to the stockholders of the Company as soon as reasonably
practicable after the Form S-4 is declared effective under the Securities Act.
The Company shall also use its reasonable commercial efforts to take any action
required to be taken under any applicable state securities laws in connection
with the registration and qualification of the Non-Cash Election Shares
following the Merger. Each of Merger Co. and the Company agree to correct any
information specifically provided by it for use in the Form S-4 and the Proxy
Statement which shall have become false or misleading. The Company shall as
soon as reasonably practicable notify Merger Co. of (i) the effectiveness of
the Form S-4, (ii) the receipt of any comments from the SEC with respect to the
Form S-4 and the Proxy Statement and (iii) any request by the SEC for any
amendment to the Form S-4 and the Proxy Statement or for additional
information.
(b) The Company (i) shall duly call, give notice of, convene and hold a
meeting of its stockholders (the "Company Stockholders Meeting") for the
purpose of obtaining the Company Stockholder Approval and (ii) shall, through
its Board of Directors, recommend to its stockholders the adoption of this
Agreement, unless, in the case of clauses (i) or (ii), the Board of Directors
of the Company shall have withdrawn or modified its approval or recommendation
of this Agreement or the Merger and terminated this Agreement in accordance
with Section 4.04(b).
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SECTION 5.02. Access to Information; Confidentiality. Subject to the
Confidentiality Agreement, dated as of March 16, 1999, between the Company and
Kelso & Company (the "Confidentiality Agreement") and except as otherwise
required by applicable law, each of Merger Co. and the Company shall, and shall
cause each of its respective subsidiaries to, afford to the other party and to
the officers, directors, employees, accountants, counsel, financial advisors
and other representatives of such other party, reasonable access during normal
business hours during the period prior to the Effective Time to all their
respective properties, books, contracts, commitments, personnel and records
and, during such period, each of Merger Co. and the Company shall, and shall
cause each of its respective subsidiaries to, furnish promptly to the other
party (a) a copy of each report, schedule, registration statement and other
document filed by it during such period pursuant to the requirements of Federal
or state securities laws, and (b) all other information concerning its
business, properties and personnel as such other party may reasonably request.
No review pursuant to this Section 5.02 shall have an effect for the purpose of
determining the accuracy of any representation or warranty given by either
party hereto to the other party hereto. Each of Merger Co. and the Company will
hold, and will cause its respective officers, employees, accountants, counsel,
financial advisors and other representatives and affiliates to hold, any
nonpublic information in accordance with the terms of the Confidentiality
Agreement.
SECTION 5.03. Filings; Other Action. Subject to the terms and conditions
provided in this Agreement, each of the Company and Merger Co. shall (a)
promptly make their respective filings and thereafter make any other required
submissions under the HSR Act and other regulatory filings with any relevant
Governmental Entity with respect to the Merger and the transactions
contemplated by this Agreement; and (b) use their respective reasonable best
efforts promptly to take, or cause to be taken, all other action and do, or
cause to be done, all other things necessary, proper or appropriate under this
Agreement and applicable laws and regulations to obtain as promptly as
practicable all consents, approvals, orders, authorizations, registrations and
permits required to be obtained by it from any Governmental Entity or third
party in connection with the execution and delivery of this Agreement and the
consummation of the Merger and the other transactions contemplated by this
Agreement as soon as practicable after the date hereof; provided, however, that
neither Merger Co. nor the Company will be required to agree to, or proffer to,
(i) divest or hold separate any of Merger Co.'s, the Company's or any of their
respective affiliates' businesses or assets or (ii) cease to conduct business
or operations in any jurisdiction in which Merger Co., the Company or any of
their respective subsidiaries conducts business or operations as of the date of
this Agreement.
SECTION 5.04. Stock Options and Restricted Stock Units.
(a) As soon as practicable following the date of this Agreement, the Board of
Directors of the Company (or, if appropriate, any committee administering the
Company Stock Plans) shall adopt such resolutions or take such other actions as
may be required so that at the Effective Time each then outstanding Company
Stock Option to purchase or acquire shares of Company Common Stock under the
Company Stock Plans, whether or not then exercisable or vested, shall be
canceled and shall represent the right to receive the following consideration
in settlement thereof: for each share of Company Common Stock subject to such
Company Stock Option, including any additional shares subject thereto by reason
of their terms upon consummation of the "change of control" resulting from the
Merger, an amount (subject to any applicable withholding tax) in cash equal to
the difference between the Merger Consideration and the per share exercise
price of such Company Stock Option (or, in the case of the Stock Purchase Plan,
the difference between the Merger Consideration and the unpaid portion, if any,
of the per share subscription price) to the extent such difference is a
positive number (such amount in cash as described above being hereinafter
referred to as the "Option Consideration"); provided, however, that with
respect to any person subject to Section 16(a) of the Exchange Act, any such
Option Consideration shall not be payable until the first day payment can be
made without liability to such person under Section 16(b) of the Exchange Act,
but shall be paid as soon as practicable thereafter.
(b) The surrender of a Company Stock Option to the Company in exchange for
the Option Consideration shall be deemed a release of any and all rights the
holder had or may have had in respect of such Company Stock Option. Prior to
the Effective Time, the Company shall take all action necessary (including
causing the Board of Directors of the Company (or any committees thereof) to
take such actions as are allowed by the
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Company Stock Option Plans) to ensure that, following the Effective Time, no
participant in any Company Stock Plan shall have any right thereunder to
acquire equity securities of the Company, the Surviving Corporation or any
subsidiary thereof.
(c) Upon the Effective Time, the parties hereto agree that the Surviving
Corporation shall pay to each holder of a Company Stock Option the Option
Consideration in respect thereof. No interest shall be paid or accrued on the
Option Consideration. Until settled in accordance with the provisions of this
Section 5.04(c), each Company Stock Option shall be deemed at any time after
the Effective Time to represent for all purposes only the right to receive the
Option Consideration.
SECTION 5.05. Indemnification, Exculpation and Insurance.
(a) From the Effective Time through the sixth anniversary of the date on
which the Effective Time occurs, the Surviving Corporation shall indemnify and
hold harmless each person who is now, or has been at any time prior to the date
hereof, or who becomes prior to the Effective Time, a director, officer,
employee or agent of the Company or any of its subsidiaries (the "Covered
Parties"), against all claims, losses, liabilities, damages, judgments, fines
and reasonable fees, costs and expenses, including attorneys' fees and
disbursements (collectively, "Costs"), incurred in connection with any claim,
action, suit, proceeding or investigation, whether civil, criminal,
administrative or investigative, arising out of or pertaining to (i) the fact
that the Covered Party is or was an officer, director, employee or agent of the
Company or any of its subsidiaries or (ii) matters existing or occurring at or
prior to the Effective Time (including this Agreement and the transactions and
actions contemplated hereby), whether asserted or claimed prior to, at or after
the Effective Time, to the fullest extent permitted under applicable law. Each
Covered Party will be entitled to advancement of expenses incurred in the
defense of any claim, action, suit, proceeding or investigation from the
Surviving Corporation within ten business days of receipt by the Surviving
Corporation from the Covered Party of a request therefor; provided that any
person to whom expenses are advanced provides an undertaking, to the extent
required by the DGCL, to repay such advances if it is ultimately determined
that such person is not entitled to indemnification.
(b) The Certificate of Incorporation and by-laws of the Surviving Corporation
shall contain provisions no less favorable with respect to indemnification,
advancement of expenses and exculpation of present and former directors,
officers, employees and agents of the Company and its subsidiaries than are
presently set forth in the Certificate of Incorporation and By-laws of the
Company.
(c) Subject to the next sentence, the Surviving Corporation shall maintain,
at no expense to the beneficiaries, in effect for six years from the Effective
Time the current policies of the directors' and officers' liability insurance
maintained by the Company with respect to matters existing or occurring at or
prior to the Effective Time (including the transactions contemplated by this
Agreement), so long as the annual premium therefor would not be in excess of
200% of the last annual premium paid prior to the date of this Agreement (such
200%, the "Maximum Premium"). If the Company's existing insurance expires, is
terminated or canceled during such six-year period or exceeds the Maximum
Premium, the Surviving Corporation shall obtain as much directors' and
officers' liability insurance as can be obtained for the remainder of such
period for an annualized premium not in excess of the Maximum Premium, on terms
and conditions no less advantageous to the Covered Parties than the Company's
existing directors' and officers' liability insurance. The Company represents
to Merger Co. that the Maximum Premium is $220,000.
(d) Notwithstanding anything herein to the contrary, if any claim, action,
suit, proceeding or investigation (whether arising before, at or after the
Effective Time) is made against any Covered Party, on or prior to the sixth
anniversary of the Effective Time, the provisions of this Section 5.05 shall
continue in effect until the final disposition of such claim, action, suit,
proceeding or investigation.
(e) The covenants contained in this Section are intended to be for the
benefit of, and shall be enforceable by, each of the Covered Parties and their
respective heirs and legal representatives and shall not be deemed
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exclusive of any other rights to which a Covered Party is entitled, whether
pursuant to law, contract or otherwise.
(f) In the event that the Surviving Corporation or any of its successors or
assigns (i) consolidates with or merges into any other person and shall not be
the continuing or surviving corporation or entity of such consolidation or
merger or (ii) transfers or conveys all or substantially all of its properties
and assets to any person, then, and in each such case, proper provision shall
be made so that the successors or assigns of the Surviving Corporation shall
succeed to the obligations set forth in this Section 5.05.
SECTION 5.06. Fees and Expenses. (a) All fees and expenses incurred in
connection with the Merger, this Agreement and the transactions contemplated by
this Agreement shall be paid by the party incurring such fees or expenses,
whether or not the Merger is consummated, except that each of the Company and
Merger Co. shall bear and pay one-half of the costs and expenses incurred in
connection with (1) the filing, printing and mailing of the Form S-4 and the
Proxy Statement (including SEC filing fees) and (2) the filings of the
premerger notification and report forms under the HSR Act (including filing
fees); provided, however, that if the Non-Cash Election Number is 0 pursuant to
the proviso to Section 2.03(a) hereof, the costs and expenses of filing,
printing and mailing of the Proxy Statement (including SEC filing fees) shall
be borne and paid by the Company.
(b) If (x) Merger Co. terminates this Agreement pursuant to Section 7.01(f)
or Section 7.01(g) or (y) the Company terminates this Agreement pursuant to
Section 7.01(d), then in each case, the Company shall pay, or cause to be paid
to Merger Co. or its designated affiliate, an amount equal to $8,179,000 (the
"Termination Fee"), plus Expenses (as defined below). If (i) Merger Co. or the
Company terminates this Agreement pursuant to Section 7.01(b)(ii) hereof, (ii)
prior to the taking of such vote of the stockholders of the Company a Company
Takeover proposal shall have been made and remain pending and (iii) within
twelve months of such termination the Company enters into a definitive
agreement to consummate the transactions contemplated by the Company Takeover
Proposal or the Company Takeover Proposal is consummated, the Company shall
pay, or cause to be paid to Merger Co. or its designated affiliate, the
Termination Fee, plus Expenses. If (i) Merger Co. terminates this Agreement
pursuant to Section 7.01(e) hereof as result of a willful and material breach
of this Agreement by the Company and (ii) within twelve months of such
termination the Company enters into a definitive agreement to consummate a
Company Takeover Proposal or a Company Takeover Proposal is consummated, the
Company shall pay, or cause to be paid to Merger Co. or its designated
affiliate, the Termination Fee, plus Expenses. Any payments required to be made
pursuant to this Section 5.06(b) shall be made by wire transfer of same day
funds on the date of termination (except that, in the case of the two
immediately preceding sentences, such payment shall be made on the date of the
execution of such definitive agreement or, if earlier, the consummation of such
transaction) to an account designated by Merger Co. For purposes hereof,
"Expenses" shall mean an amount equal to Merger Co.'s (and its affiliates')
actual and reasonably documented out-of-pocket expenses in connection with the
Merger, this Agreement and the consummation of the transactions contemplated
hereby, including, without limitation, all fees and expenses of agents,
counsel, commercial banks, investment banking firms, accountants, experts and
consultants to Merger Co. and its affiliates; provided, however, in no event
shall such amount exceed $1,500,000.
SECTION 5.07. Public Announcements. Each of the Company and Merger Co. will
consult with each other before issuing, and provide each other the opportunity
to review, comment upon and concur with, any press release or other public
statements with respect to the transactions contemplated by this Agreement,
including the Merger, and shall not issue any such press release or make any
such public statement prior to such consultation and concurrence, except as
either party may determine is required by applicable law, by court process or
by obligations pursuant to any listing agreement with any national securities
exchange, in which case such party will use its reasonable best efforts to
consult with the other party prior to issuing a press release or public
statement. The parties agree that the initial press release to be issued with
respect to the transactions contemplated by this Agreement shall be in the form
heretofore agreed to by the parties.
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SECTION 5.08. Stockholder Litigation. Each of Merger Co. and the Company
shall give the other the reasonable opportunity to participate in the defense
of any stockholder litigation against Merger Co. or the Company, as applicable,
and its directors relating to the transactions contemplated by this Agreement.
SECTION 5.09. Employee Matters. (a) Merger Co. agrees that the Company shall
honor in accordance with their respective terms and, on and after the Effective
Time, the Surviving Corporation shall honor, without offset, deduction,
counterclaim, interruption or deferment, all Company Plans and all other
written employment, severance, termination and retirement agreements to which
the Company is a party as of the Effective Time and which are set forth in the
Company Disclosure Schedule. Merger Co. acknowledges that, for the purposes of
certain of such Company Plans and certain of such other employment, severance,
termination and retirement agreements to which the Company is currently a
party, the consummation or stockholder approval (depending upon the terms of
the applicable plan or agreement) of the Merger will constitute a "change in
control" of the Company at the Effective Time and may constitute "Good Reason"
(as such terms are defined in such plans and agreements). In particular, and
without limiting the generality of the foregoing, the parties hereto
acknowledge that the execution of this Agreement shall constitute a "change in
control" under the Change in Control and Severance Agreements identified on
Schedule 3.01(j). Merger Co. agrees that the Surviving Corporation shall, after
consummation of the Merger, pay all amounts provided under such Company Plans
and agreements in accordance with their respective terms and to honor, and to
cause the Surviving Corporation to honor, all rights, privileges and
modifications to or with respect to any such Company Plans or agreements (other
than those agreements which are superseded by employment agreements entered
into as of the Effective Time) that become effective as a result of such change
in control or Good Reason.
(b) The Surviving Corporation shall provide employee pension and welfare
plans for the benefit of employees' and former employees of the Company that,
in the aggregate, are substantially comparable to the Company Plans in effect
as of the date hereof. To the extent any benefit plan of Merger Co. (or any
plan of the Surviving Corporation) shall be made applicable to any employee or
former employee of the Company, Merger Co. or the Surviving Corporation, as the
case may be, shall grant to employees and former employees of the Company
credit for service with the Company prior to the Effective Time for the
purposes of determining eligibility to participate and the employee's
nonforfeitable interest in benefits thereunder and, unless a duplication of
benefits under two or more defined benefit plans would result, for calculating
benefits (including benefits the amount or level of which is determined by
reference to an employee's vesting service) thereunder. In addition, to the
extent any plan of Merger Co. or any plan of the Surviving Corporation, as the
case may be, which constitutes a "welfare plan," as defined in Section 3.01(j)
hereof, shall be made applicable to any employee or former employee of the
Company, Merger Co. or the Surviving Corporation, as the case may be, shall (i)
waive all preexisting condition exclusions and waiting periods otherwise
applicable to employees and former employees of the Company, except to the
extent any such limitations or waiting periods in effect under comparable
Company Plans have not been satisfied as of the date such plan is made so
applicable and (ii) credit each employee and former employee of the Company for
any co-payments and deductibles paid by such employee or former employee under
comparable Company Plans prior to the date such plan is made so applicable.
Nothing in this Agreement shall be interpreted as limiting the power of the
Surviving Corporation to amend or terminate any Company Plan or any other
employee benefit plan, program, agreement or policy or as requiring the
Surviving Corporation to offer to continue (other than as required by its
terms) any written employment contract.
(c) "Company Plan" shall mean any bonus, pension, profit sharing, deferred
compensation, incentive compensation, stock ownership, stock purchase, stock
option, phantom stock, retirement, vacation, severance, disability, death
benefit, hospitalization, medical or other plan, arrangement or understanding
providing benefits to any current or former director, officer or employee of
the Company or any of its subsidiaries.
SECTION 5.10. Consummation of Financing. (a) Merger Co. will use its
reasonable commercial efforts to obtain the financing required for the
consummation of the Merger pursuant to the Financing Letters and to satisfy all
conditions to funding as set forth in the Financing Letters. To the extent that
any portion of
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the financing contemplated by the Financing Letters becomes unavailable, Merger
Co. will use its reasonable commercial efforts to arrange for alternative
financing for the Merger.
(b) The Company agrees to provide and to cause its subsidiaries to provide
all reasonably necessary cooperation in connection with the arrangement of such
financing, it being understood that the financing shall close immediately prior
to the Effective Time. Such cooperation shall include, without limitation, (i)
making senior officers of the Company available for participation in meetings
and due diligence sessions and road shows, (ii) preparation of offering
memoranda, private placement memoranda and similar documents, including all
appropriate financial statements in connection therewith, (iii) execution and
delivery of commitment letters, underwriting or placement agreements, pledge
and security documents, other definitive financing documents or other requested
certificates or documents and (iv) providing Merger Co. and its representatives
with reasonable access to Company facilities such that Merger Co. can prepare
environmental site assessments for such facilities.
SECTION 5.11. Recapitalization. The Company shall cooperate with any
reasonable requests of Merger Co. or the SEC related to the reporting of the
transactions contemplated hereby as a recapitalization for financial reporting
purposes, including, without limitation, assisting Merger Co. with any
presentation to the SEC with regard to such reporting and including appropriate
disclosure with regard to such reporting in all filings with the SEC and
mailings to the Company's stockholders in connection with the Merger.
SECTION 5.12. Transfer Taxes. All liability for transfer or other similar
taxes arising out of or related to the Merger or the consummation of
transactions contemplated hereby, and due to the property owned by the Company
or any of its subsidiaries or affiliates ("Transfer Taxes") shall be borne by
the Company, and the Company shall file or cause to be filed all tax returns
relating to such Transfer Taxes which are due.
SECTION 5.13. State Takeover Laws. If any state takeover statute other than
Section 203 of the DGCL becomes or is deemed to become applicable to the Merger
or the other transactions contemplated hereby, the Company shall take all
reasonable action necessary to render such statute inapplicable to all of the
foregoing.
SECTION 5.14. The Company Rights Plan. The Company, acting through its Board
of Directors or otherwise, shall not, except as specifically provided herein,
(a) amend, alter or modify the Company Rights Plan or (b) take any action with
respect to, or make any determination under, the Company Rights Plan, to
facilitate another Company Takeover Proposal, except in connection with the
approval or recommendation of, or entering into of a Company Acquisition
Agreement with respect to, any Company Superior Proposal in accordance with
Section 4.04(b) hereof.
SECTION 5.15. Letter as to Solvency. The parties hereto shall engage, at the
expense of Merger Co., an appraisal firm to deliver a letter addressed to the
Board of Directors of the Company and the Company (and on which the Board of
Directors of the Company shall be entitled to rely) indicating that immediately
after the Effective Time, and after giving effect to the Merger and the
financing contemplated by this Agreement and any other transactions
contemplated in connection with the Merger, the Surviving Corporation (i) will
not be insolvent and will have assets sufficient to pay its debts and (ii) will
not have unreasonably small capital with which to engage in its business.
SECTION 5.16. Monetization of Non-Cash Election Shares. Consistent with the
qualifying the transactions contemplated hereby as a recapitalization for
financial accounting purposes, Merger Co. will use its reasonable commercial
efforts to cause there to be no reason for the stockholders of the Company to
be stockholders of the Surviving Corporation. In the event, Merger Co. is able
to cause such a result, Merger Co. shall give the Company prompt written notice
thereof. If Merger Co. gives the Company such a notice, the provisions of
Article II shall be deemed amended to provide for the Merger Consideration to
be paid entirely in cash and Sections 5.17 and 6.02(d) hereof and all
references in this Agreement to the Form S-4 (to the extent that such
references do not apply to the Proxy Statement), including, without limitation,
those references (to the extent that such references do not apply to the Proxy
Statement) in Sections 3.01(f), 3.02(d), 5.01, 5.06 and
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6.01(d), and all obligations in connection therewith, shall be deemed
eliminated and to have no effect. Each of the Company and Merger Co. agree to
amend this Agreement, if necessary, to further implement the arrangements
described in this Section 5.16.
SECTION 5.17. Listing. The parties hereto shall use their reasonable best
efforts to have the Non-Cash Election Shares admitted for quotation on the
NASDAQ Stock Market (the "Listing"). Any fees in connection with the Listing
payable prior to the Effective Time shall be paid by Merger Co. Neither Merger
Co. nor the Company will take any action, for at least three years from the
Effective Time, to cause the Listing to be terminated, except with the approval
of a majority of the Non-Cash Election Shares not held of record or
beneficially by Kelso & Company or its affiliates or in connection with a
transaction pursuant to which the holders thereof receive cash or securities
similarly subject to a Listing; provided that nothing in this Section 5.17
shall (a) require Merger Co. or the Company to take any affirmative action to
prevent the Listing from being terminated by the NASDAQ Stock Market in the
event that the Non-Cash Election Shares cease to meet the applicable Listing
standards or (b) preclude Merger Co. or the Company from causing Non-Cash
Election Shares to be exchanged for cash.
ARTICLE VI
Conditions Precedent
SECTION 6.01. Conditions to Each Party's Obligation To Effect the Merger. The
respective obligation of each party to effect the Merger is subject to the
satisfaction or waiver on or prior to the Closing Date of the following
conditions:
(a) Stockholder Approval. The Company Stockholder Approval shall have been
obtained.
(b) HSR Act. The waiting period (and any extension thereof) applicable to the
Merger under the HSR Act shall have been terminated or shall have expired.
(c) No Injunctions or Restraints. No judgment, order, decree, statute, law,
ordinance, rule or regulation, entered, enacted, promulgated, enforced or
issued by any court or other Governmental Entity of competent jurisdiction or
other legal restraint or prohibition (collectively, "Restraints") shall be in
effect preventing the consummation of the Merger or any of the other
transactions contemplated by this Agreement; provided, however, that each of
the parties shall have used its reasonable best efforts to prevent the entry of
any such Restraints and to appeal as promptly as practicable any such
Restraints that may be entered.
(d) Form S-4. The Form S-4 shall have become effective under the Securities
Act and shall not be the subject of any stop order or proceedings seeking a
stop order, and any material "blue sky" and other state securities laws
applicable to the registration and qualification of the Non-Cash Election
Shares shall have been complied with in all material respects.
SECTION 6.02. Conditions to Obligations of the Company. The obligation of the
Company to effect the Merger is further subject to satisfaction or waiver by
the Company of the following conditions:
(a) Representations and Warranties. The representations and warranties of
Merger Co. set forth herein shall be true and correct both when made and at and
as of the Closing Date, as if made at and as of such time (except to the extent
expressly made as of an earlier date, in which case as of such date), except
where the failure of such representations and warranties to be so true and
correct (without giving effect to any limitation as to "materiality" or
"material adverse effect" set forth therein), individually or in the aggregate,
does not have, and is not reasonably likely to have, a material adverse effect
on Merger Co., and the Company shall have received a certificate signed on
behalf of Merger Co. by an executive officer of Merger Co. to such effect.
(b) Performance of Obligations of Merger Co. Merger Co. shall have performed
in all material respects all obligations required to be performed by it under
this Agreement at or prior to the Closing Date, and the
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Company shall have received a certificate signed on behalf of Merger Co. by an
executive officer of Merger Co. to such effect.
(c) The Company and its Board of Directors shall have received the letter
referred to in Section 5.15 or Merger Co. shall have provided to the Company
and its Board of Directors from another appraisal firm a comparable letter in
form and substance reasonably satisfactory to the Company.
(d) The Listing of the Non-Cash Election Shares shall have been approved,
subject only to official notice of issuance.
SECTION 6.03. Conditions to Obligations of Merger Co. The obligation of
Merger Co. to effect the Merger is further subject to satisfaction or waiver by
Merger Co. of the following conditions:
(a) Representations and Warranties. The representations and warranties of the
Company set forth herein shall be true and correct both when made and at and as
of the Closing Date, as if made at and as of such time (except to the extent
expressly made as of an earlier date, in which case as of such date), except
where the failure of such representations and warranties to be so true and
correct (without giving effect to any limitation as to "materiality" or
"material adverse effect" set forth therein), individually or in the aggregate,
does not have, and is not reasonably likely to have, a material adverse effect
on the Company, and Merger Co. shall have received a certificate signed on
behalf of the Company by an executive officer of the Company to such effect.
(b) Performance of Obligations of the Company. The Company shall have
performed in all material respects all obligations required to be performed by
it under this Agreement at or prior to the Closing Date, and Merger Co. shall
have received a certificate signed on behalf of the Company by an executive
officer of the Company to such effect.
(c) Financing. The Company shall have received the financing proceeds under
the Senior Debt Letter and the Subordinated Debt Letter on the terms and
conditions set forth therein or upon terms and conditions which are
substantially equivalent thereto, and to the extent any of the terms and
conditions are not as so set forth or substantially equivalent, on terms and
conditions reasonably satisfactory to Merger Co.; provided that Merger Co.
shall have complied with the provisions of Section 5.10(a).
(d) No Injunctions or Restraints. No Restraint shall be in effect which,
individually or in the aggregate, is reasonably likely to have a material
adverse effect on the combined businesses of the Company and Merger Co. (and
their subsidiaries) assuming for the purpose of this Section 6.03(e) that the
Merger is closed and consummated as contemplated by this Agreement; provided,
however, that Merger Co. shall have used its reasonable best efforts to prevent
the entry of any such Restraint and to appeal as promptly as practicable any
such Restraint that may be entered.
(e) Refinancing of Indebtedness. All of the Company's indebtedness and other
obligations under the Company's senior secured credit facility shall have been
repaid and discharged in full by the Company, using funds contemplated by the
Financing Letters or funds otherwise contemplated by Section 5.10(a) hereof.
SECTION 6.04. Frustration of Closing Conditions. Neither the Company nor
Merger Co. may rely on the failure of any condition set forth in Section 6.01,
6.02 or 6.03, as the case may be, to be satisfied if such failure was caused by
such party's failure to comply with its obligations under this Agreement.
ARTICLE VII
Termination, Amendment and Waiver
SECTION 7.01. Termination. This Agreement may be terminated at any time prior
to the Effective Time, whether before or after the Company Stockholder Approval
or adoption of this Agreement by the stockholders of Merger Co.:
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(a) by mutual written consent of the Company and Merger Co.;
(b) by either the Company or Merger Co.:
(i) if the Merger shall not have been consummated by November 30, 1999;
provided, however, that the right to terminate this Agreement pursuant to
this Section 7.01(b)(i) shall not be available to any party whose failure
to perform any of its obligations under this Agreement results in the
failure of the Merger to be consummated by such time;
(ii) if the Company Stockholder Approval shall not have been obtained at
the Company Stockholders Meeting duly convened therefor or at any
adjournment or postponement thereof at which a proper vote on such matters
was taken; or
(iii) if any Restraint having any of the effects set forth in Section
6.01(c) shall be in effect and shall have become final and nonappealable;
provided that the party seeking to terminate this Agreement pursuant to
this Section 7.01(b)(iii) shall have used reasonable best efforts to
prevent the entry of and to remove such Restraint;
(c) by the Company, if Merger Co. shall have breached or failed to perform in
any material respect any of its representations, warranties, covenants or other
agreements contained in this Agreement, which breach or failure to perform (A)
would give rise to the failure of a condition set forth in Section 6.02(a) or
(b) and (B) is incapable of being, or is not, cured by Merger Co., as the case
may be, within five business days of notice thereof;
(d) by the Company, prior to obtaining the Company Stockholder Approval, in
accordance with Section 4.04(b); provided that, in order for the termination of
this Agreement pursuant to this paragraph (d) to be deemed effective, the
Company shall have complied with all provisions contained in Section 4.04,
including the notice provisions therein, and shall have paid the Termination
Fee (plus Expenses) delineated in Section 5.06(b) hereof;
(e) by Merger Co., if the Company shall have breached or failed to perform in
any material respect any of its representations, warranties, covenants or other
agreements contained in this Agreement, which breach or failure to perform (A)
would give rise to the failure of a condition set forth in Section 6.03(a) or
(b) and (B) is incapable of being, or is not, cured by the Company within five
business days of notice thereof;
(f) by Merger Co., if the Board of Directors of the Company or any committee
thereof shall have withdrawn, modified or changed in a manner adverse to Merger
Co. its approval or recommendation of the Merger or this Agreement or shall
have recommended or approved another Company Takeover Proposal; or
(g) by Merger Co., if any person or "group" (as defined in Section 13(d)(3)
of the Exchange Act), other than Merger Co. or its affiliates or any group of
which any of them is a member, shall, after the date of this Agreement, acquire
beneficial ownership (as determined pursuant to Rule 13d-3 promulgated under
the Exchange Act) of, or become the beneficial owner (as determined pursuant to
Rule 13d-3 promulgated under the Exchange Act) of, 30% or more of the
outstanding shares of Company Common Stock.
SECTION 7.02. Effect of Termination. In the event of termination of this
Agreement by either Merger Co. or the Company as provided in Section 7.01, this
Agreement shall forthwith become void and have no effect, without any liability
or obligation on the part of the Company or Merger Co., other than the
provisions of the last sentence of Section 5.02 and the provisions of Section
5.06, this Section 7.02, Article VIII and the Confidentiality Agreement which
provisions and agreements shall survive such termination, and termination of
this Agreement will not relieve a breaching party from liability for any breach
by such party of any of its representations, warranties, covenants or
agreements set forth in this Agreement giving rise to such termination.
SECTION 7.03. Amendment. This Agreement may be amended by the parties hereto
at any time before or after the Company Stockholder Approval or the adoption of
this Agreement by the stockholders of Merger Co.; provided, however, that after
any such approval, there shall not be made any amendment that by law
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requires the further approval by such stockholders without such further
approval. This Agreement may not be amended except by an instrument in writing
signed on behalf of each of the parties.
SECTION 7.04. Extension; Waiver. At any time prior to the Effective Time, a
party may (a) extend the time for the performance of any of the obligations or
other acts of the other party, (b) waive any inaccuracies in the
representations and warranties of the other party contained in this Agreement
or in any document delivered pursuant to this Agreement or (c) subject to the
proviso of Section 7.03, waive compliance by the other party 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 shall be valid only if set forth in
an instrument in writing signed on behalf of such party. The failure of any
party to this Agreement to assert any of its rights under this Agreement or
otherwise shall not constitute a waiver of such rights.
ARTICLE VIII
General Provisions
SECTION 8.01. Nonsurvival of Representations and Warranties. None of the
representations and warranties in this Agreement or in any instrument delivered
pursuant to this Agreement shall survive the Effective Time. This Section 8.01
shall not limit (a) any covenant or agreement of the parties which by its terms
contemplates performance after the Effective Time or (b) the survival of the
last sentence of Section 5.02 and of Section 5.06, Section 7.02, this Article
VIII and the Confidentiality Agreement, as set forth in Section 7.02.
SECTION 8.02. Notices. All notices, requests, claims, demands and other
communications under this Agreement shall be in writing and shall be deemed
given if delivered personally, telecopied (which is confirmed) or sent by
reputable overnight courier to the parties at the following addresses (or at
such other address for a party as shall be specified by like notice):
(a) if to the Company, to:
Citation Corporation
2 Office Park Circle, Suite 204
Birmingham, Alabama 35233
Telecopy No.: (205) 871-5733
Attention: Stanley B. Atkins
with copies to: Balch & Bingham LLP
1901 Sixth Avenue North, Suite 2600
P.O. Box 306
Birmingham, Alabama 35201
Telecopy No.: (205) 226-8799
Attention: Walter M. Beale, Jr., Esq.
and Richards, Layton & Finger, P.A.
One Rodney Square
P.O. Box 551
Wilmington, DE 19899
Telecopy No.: (302) 658-6548
Attention: Charles F. Richards, Jr., Esq.
(b) if to Merger Co., to:c/o Kelso & Company
320 Park Avenue, 24th Floor
New York, NY 10022
Telecopy No.: (212) 223-2379
Attn: James J. Connors, II, Esq.
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with a copy to: Debevoise and Plimpton
875 Third Avenue
New York, NY 10022
Telecopy No.: (212) 909-6836
Attn: Richard D. Bohm, Esq.
SECTION 8.03. Definitions. For purposes of this Agreement:
(a) an "affiliate" of any person means another person that directly or
indirectly, through one or more intermediaries, controls, is controlled by, or
is under common control with, such first person, where "control" means the
possession, directly or indirectly, of the power to direct or cause the
direction of the management policies of a person, whether through the ownership
of voting securities, by contract, as trustee or executor, or otherwise;
(b) "knowledge" of any person which is not an individual means the actual
knowledge, after due inquiry, of such person's executive officers;
(c) "lien" shall mean any mortgage, deed of trust, pledge, security interest,
title retention agreement, lien, charge, option, adverse claim, title defect or
encumbrance of any kind;
(d) "material adverse change" or "material adverse effect" means, when used
in connection with Merger Co. or the Company, any change, effect, event,
occurrence or state of facts that (x) would be materially adverse to the
business, assets, liabilities, financial condition or results of operations of
such party and its subsidiaries taken as a whole, (y) materially impairs or
delays the ability of such party to perform its obligations under this
Agreement or (z) prevents the consummation of any of the transactions
contemplated by this Agreement, other than any change, effect, event,
occurrence or state of facts (I) that occurs as a result of any act or omission
of either party hereto that has been previously consented to in writing by the
other party hereto or (II) relating to the United States economy or securities
markets in general;
(e) "person" means an individual, corporation, partnership, limited liability
company, joint venture, association, trust, unincorporated organization or
other entity; and
(f) a "subsidiary" of any person means another person, an amount of the
voting securities, other voting ownership or voting partnership interests of
which is sufficient to elect at least a majority of its Board of Directors or
other governing body (or, if there are no such voting interests, at least a
majority or more of the equity interests of which is owned directly or
indirectly by such first person).
SECTION 8.04. Interpretation. When a reference is made in this Agreement to
an Article, Section or Exhibit, such reference shall be to an Article or
Section of, or an Exhibit to, this Agreement unless otherwise indicated.
Whenever the words "include", "includes" or "including" are used in this
Agreement, they shall be deemed to be followed by the words "without
limitation". The words "hereof", "herein" and "hereunder" and words of similar
import when used in this Agreement shall refer to this Agreement as a whole and
not to any particular provision of this Agreement. All terms defined in this
Agreement shall have the defined meanings when used in any certificate or other
document made or delivered pursuant hereto unless otherwise defined therein.
The definitions contained in this Agreement are applicable to the singular as
well as the plural forms of such terms and to the masculine as well as to the
feminine and neuter genders of such term. Any agreement, instrument or statute
defined or referred to herein or in any agreement or instrument that is
referred to herein means such agreement, instrument or statute as from time to
time amended, modified or supplemented, including (in the case of agreements or
instruments) by waiver or consent and (in the case of statutes) by succession
of comparable successor statutes and references to all attachments thereto and
instruments incorporated therein. References to a person are also to its
permitted successors and assigns.
SECTION 8.05. Counterparts. This Agreement may be executed in one or more
counterparts, all of which shall be considered one and the same agreement and
shall become effective when one or more counterparts have been signed by each
of the parties and delivered to the other party.
A-36
SECTION 8.06. Entire Agreement; Third-Party Beneficiaries. This Agreement
(including the documents and instruments referred to herein) and the
Confidentiality Agreement (a) constitute the entire agreement, and supersede
all prior agreements and understandings, both written and oral, among the
parties with respect to the subject matter of this Agreement and (b) except for
the provisions of Article II, Section 5.04 and Section 5.05, are not intended
to confer upon any person other than the parties hereto any rights or remedies.
SECTION 8.07. Governing Law. This Agreement shall be governed by, and
construed in accordance with, the laws of the State of Delaware, without regard
to the laws that might otherwise govern under applicable principles of conflict
of laws thereof.
SECTION 8.08. Assignment. Neither this Agreement nor any of the rights,
interests or obligations under this Agreement shall be assigned, in whole or in
part, by operation of law or otherwise by any of the parties hereto without the
prior written consent of the other party. Any assignment in violation of the
preceding sentence shall be void. Subject to the preceding two sentences, this
Agreement will be binding upon, inure to the benefit of, and be enforceable by,
the parties and their respective successors and assigns.
SECTION 8.09. Enforcement; Waiver of Jury Trial.
(a) The parties agree that irreparable damage would occur and that the
parties would not have any adequate remedy at law in the event that any of the
provisions of this Agreement were not performed in accordance with their
specific terms or were otherwise breached. It is accordingly agreed that the
parties hereto shall be entitled to seek an injunction or injunctions to
prevent breaches of this Agreement and to enforce specifically the terms and
provisions of this Agreement in any Federal court located in the State of
Delaware or in Delaware state court, this being in addition to any other remedy
to which they are entitled at law or in equity. In addition, each of the
parties hereto (i) consents to submit itself to the personal jurisdiction of
any Federal court located in the State of Delaware or any Delaware state court
in the event any dispute arises out of this Agreement or any of the
transactions contemplated by this Agreement, (ii) agrees that it will not
attempt to deny or defeat such personal jurisdiction by motion or other request
for leave from any such court, and (iii) agrees that it will not bring any
action relating to this Agreement or any of the transactions contemplated by
this Agreement in any court other than a Federal court sitting in the State of
Delaware or a Delaware state court.
(b) Each party acknowledges and agrees that any controversy which may arise
under this Agreement is likely to involve complicated and difficult issues, and
therefore each such party hereby irrevocably and unconditionally waives any
right such party may have to a trial by jury in respect of any litigation
directly or indirectly arising out of or relating to this Agreement or the
transactions contemplated by this Agreement. Each party certifies and
acknowledges that (i) no representative, agent or attorney of the other party
has represented, expressly or otherwise, that such other party would not, in
the event of litigation, seek to enforce the foregoing waiver, (ii) each party
understands and has considered the implications of this waiver, (iii) each
party makes this waiver voluntarily and (iv) each party has been induced to
enter into this Agreement by, among other things, the mutual waivers and
certifications in this Section 8.09(b).
SECTION 8.10. Headings. The headings contained in this Agreement are for
reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement.
SECTION 8.11. Severability. If any term or other provision of this Agreement
is invalid, illegal or incapable of being enforced by any rule of law or public
policy, unless the effects of such invalidity, illegality or unenforceability
would prevent the parties from realizing the major portion of the economic
benefits of the Merger that they currently anticipate obtaining therefrom, all
other conditions and provisions of this Agreement shall nevertheless remain in
full force and effect. Upon such determination that any term or other provision
is invalid, illegal or incapable of being enforced, the parties hereto shall
negotiate in good faith to modify this Agreement so as to effect the original
intent of the parties as closely as possible to the fullest extent permitted
A-37
by applicable law in an acceptable manner to the end that the transactions
contemplated hereby are fulfilled to the extent possible.
IN WITNESS WHEREOF, the Company and Merger Co. have caused this Agreement to
be signed by their respective officers thereunto duly authorized, all as of the
date first written above.
CITATION CORPORATION
/s/ Frederick F. Sommer
---------------------
Name: Frederick F. Sommer
Title: President and CEO
RSJ ACQUISITION CO.
/s/ James J. Connors, II
---------------------
Name: James J. Connors, II
Title:
A-38
AMENDMENT NO. 1 TO THE
AGREEMENT AND PLAN OF MERGER AND RECAPITALIZATION
Amendment No. 1, dated as of September 3, 1999 (the "Amendment"), to the
Agreement and Plan of Merger and Recapitalization, dated as of June 24, 1999
(as amended hereby, the "Merger Agreement"), among RSJ Acquisition Co., a
Delaware corporation ("Merger Co.") and Citation Corporation, a Delaware
corporation (the "Company").
WHEREAS, Merger Co. and the Company have heretofore entered in the Merger
Agreement; and
WHEREAS, Merger Co. and the Company have agreed to amend certain provisions
of the Merger Agreement.
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, Merger Co. and the Company do
hereby agree as follows:
1. Definitions. Unless otherwise defined herein, capitalized terms that are
defined in the Merger Agreement and used herein shall have the meanings set
forth in the Merger Agreement.
2. Amendment to Section 2.02(a). Section 2.02(a) of the Merger Agreement is
hereby amended and restated to read in its entirety as follows:
"(a) Each person who, on or prior to the Election Date (as defined
below), is a record holder of shares of Company Common Stock shall be
entitled, with respect to all or any portion of such person's shares, to
make an unconditional election ("Non-Cash Election") on or prior to such
Election Date to retain shares of Common Stock of the Surviving Corporation
in the Merger ("Non-Cash Election Shares"), on the basis hereinafter set
forth, provided that, notwithstanding anything in this Agreement to the
contrary, the minimum number of shares of Company Common Stock as to which
a Non-Cash Election may be made by any record holder is 10,000 and any
record holder who seeks to make a Non-Cash Election with respect to fewer
than 10,000 shares of Company Common Stock shall be deemed to have not made
a Non-Cash Election for all purposes of this Agreement."
3. Amendment of Section 2.02(c). Section 2.02(c) of the Merger Agreement is
hereby amended by adding the following proviso at the end of the last sentence
thereof:
"; provided, further, that to be effective, any such Form of Election must
relate to at least 10,000 shares of Company Common Stock and if any such
Form of Election relates to fewer than 10,000 shares of Company Common
Stock, such Form of Election shall be deemed to be not properly completed
and shall be null and void for all purposes of this Agreement."
4. Amendment to Section 2.03(a). Section 2.03(a) of the Merger Agreement is
hereby amended and restated to read in its entirety as follows:
"(a) Notwithstanding anything in this Agreement to the contrary, the
aggregate number of shares of Company Common Stock to be converted into the
right to retain Non-Cash Election Shares at the Effective Time (the "Non-
Cash Election Number") shall be 790,115."
5. Amendment to Section 3.01(h). Section 3.01(h) of the Merger Agreement is
hereby amended by adding the following language as a new second sentence
thereof:
"Notwithstanding the foregoing, for purposes of this paragraph (h), any
suit, action, proceeding judgment, decree, injunction, rule or order
arising after June 24, 1999 shall not be deemed to have a material adverse
effect on the Company if and to the extent such suit, action, proceeding,
judgment, decree, injunction, rule or order (or any relevant part thereof)
is based on this Agreement, or the transactions contemplated hereby."
A-39
6. Amendment to Section 5.01(b). Section 5.01(b) of the Merger Agreement is
hereby amended and restated to read in its entirety as follows:
"(b) The Company (i) shall duly call, give notice of, convene and hold a
meeting of its stockholders (the "Company Stockholders Meeting") for the
purpose of obtaining the Company Stockholder Approval and (ii) shall,
through its Board of Directors, recommend to its stockholders (X) the
adoption of this Agreement and (Y) that such stockholders do not make a
Non-Cash Election with respect to any share of Company Common Stock, unless
in the cases of clauses (i) or (ii), the Board of Directors of the Company
shall have withdrawn or modified its approval or recommendation of this
Agreement or the Merger and terminated this Agreement in accordance with
Section 4.04(b)."
7. Amendment to Section 5.04. Section 5.04 of the Merger Agreement is hereby
amended and restated to read in its entirety as follows:
"(a) Each Company Stock Option to purchase shares of the Company Common
Stock granted under the Company Stock Plans (including, without limitation,
any additional shares subject thereto by reason of the consummation of the
"change of control" resulting from the Merger) that is outstanding and not
yet vested or exercisable immediately prior to the Effective Time,
including the Rollover Options (as defined below), shall become fully
vested and exercisable upon the Effective Time. At or prior to the
Effective Time, the Board of Directors of the Company (or, if appropriate,
any committee administering the Company Stock Plans) shall adopt such
resolutions or take such other actions as may be necessary to cause each
such Company Stock Option to vest as a consequence of the Merger.
(b) At the Effective Time, each holder of a then outstanding Company
Stock Option whether or not then exercisable, other than the Rollover
Options, shall be entitled to receive for each share of Company Common
Stock subject to such Company Stock Option, in settlement and cancellation
thereof, an amount (subject to any applicable withholding tax) in cash
equal to the difference between the Merger Consideration and the per share
exercise price of such Company Stock Option, to the extent such difference
is a positive number (such amount being hereinafter referred to as the
"Option Consideration"). Upon the Effective Time, the Surviving Corporation
shall pay to each holder of a Company Stock Option (other than a Rollover
Option) the Option Consideration in respect thereof. No interest shall be
paid or accrued on the Option Consideration. Until settled in accordance
with this Section 5.04(b), each Company Stock Option (other than a Rollover
Option) shall be deemed at any time after the Effective Time to represent
for all purposes only the right to receive the Option Consideration.
(c) Notwithstanding anything contained in this Section 5.04, with respect
to any person subject to Section 16(a) of the Exchange Act, the Option
Consideration shall not be payable until the first day payment can be made
without liability to such person under Section 16(b) of the Exchange Act,
but shall be paid as soon as practicable thereafter.
(d) The surrender of a Company Stock Option to the Company in exchange
for the Option Consideration shall be deemed a release of any and all
rights the holder thereof had or may have had in respect of such Company
Stock Option. Prior to the Effective Time, the Company shall take all
action necessary (including causing the Board of Directors of the Company
(or any committees thereof) to take such actions as are allowed by the
Company Stock Option Plans) to ensure that, following the Effective Time,
no participant in any Company Stock Plan (other than holders of Rollover
Options with respect to such Rollover Options) shall have any right
thereunder to acquire equity securities of the Company, the Surviving
Corporation or any subsidiary thereof.
(e) Each holder of a Rollover Option shall thereafter continue to hold an
option to purchase such number of shares of common stock of the Surviving
Corporation, at such exercise prices and having such other terms and
conditions, as such holder enjoyed with respect to Company Common Stock
under such holder's Rollover Options, except as may be amended by agreement
between Merger Co. or the Surviving Corporation and such holder. "Rollover
Options" means the Company Stock Options (i) as to which Merger Co. and the
holder of such Company Stock Option have agreed will remain outstanding
after the Effective Time and (ii) which shall have been identified to the
Company no less than 10 days prior to the Closing Date, such identification
to be in the form of a written notice signed by the holder in question and
Merger Co.
A-40
(f) Upon the Effective Time, each share of Company Common Stock
subscribed to under the Stock Purchase Plan (other than such shares for
which a valid Non-Cash Election shall have been made) shall (without
duplication for any amounts that are paid with respect to such shares
pursuant to Section 2.01(c)) be canceled and shall thereafter represent the
right to receive in the Merger the difference between the Merger
Consideration and the unpaid portion, if any, of the per share subscription
price for such share.
(g) At or prior to the Effective Time, the Board of Directors of the
Company (or, if appropriate, any committee administering the Company Stock
Plans) shall adopt such resolutions or take such other actions as may be
necessary to implement the provisions of this Section 5.04."
8. Amendment to Section 5.16. Section 5.16 of the Merger Agreement is hereby
amended and restated to read in its entirety as follows:
"SECTION 5.16. [Intentionally Omitted]"
9. Amendment to Section 5.17. Section 5.17 of the Merger Agreement is hereby
amended and restated to read in its entirety as follows:
"SECTION 5.17. [Intentionally Omitted]"
10. Amendment to Section 6.02(d). Section 6.02(d) of the Merger Agreement is
hereby amended and restated to read in its entirety as follows:
"(d) [Intentionally Omitted]"
11. References. Each reference in the Merger Agreement to "this Agreement",
"hereof", "hereunder" or words of like import referring to the Merger Agreement
shall mean and be a reference to the Merger Agreement as amended by this
Amendment. This Amendment shall not constitute an amendment or waiver of any
provision of the Merger Agreement not expressly referred to herein and shall
not be construed as an amendment, waiver or consent to any action that would
require an amendment, waiver or consent except as expressly stated herein. The
Merger Agreement, as amended by this Amendment, is and shall continue to be in
full force and effect and is in all respects ratified and confirmed hereby.
12. Counterparts. This Amendment may be executed in any number of
counterparts each of which shall be an original and all of which taken together
shall constitute one and the same Amendment.
13. Governing Law. This Amendment shall be governed by, and construed in
accordance with the laws of the State of Delaware, without regard to laws that
might otherwise govern under applicable principles of conflicts of law.
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be duly
executed as of the day and year first above written.
CITATION CORPORATION
/s/ Thomas W. Burleson
By:__________________________________
Name: Thomas W. Burleson
Title: Vice President and Chief
Financial Officer
RSJ ACQUISITION CO.
/s/ James J. Connors, II
By:__________________________________
Name: James J. Connors, II
Title: Vice President
A-41
AMENDMENT NO. 2 TO THE
AGREEMENT AND PLAN OF MERGER AND RECAPITALIZATION
Amendment No. 2, dated as of October 12, 1999 (the "Amendment"), to the
Agreement and Plan of Merger and Recapitalization, dated as of June 24, 1999,
as amended by Amendment No. 1 thereto, dated as of September 3, 1999 (as
amended thereby and hereby, the "Merger Agreement"), by and between RSJ
Acquisition Co., a Delaware corporation ("Merger Co."), and Citation
Corporation, a Delaware corporation (the "Company").
WHEREAS, Merger Co. and the Company have heretofore entered into the Merger
Agreement; and
WHEREAS, Merger Co. and the Company have agreed to further amend certain
provisions of the Merger Agreement.
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, Merger Co. and the Company do
hereby agree as follows:
1. Definitions. Unless otherwise defined herein, capitalized terms that are
defined in the Merger Agreement and used herein shall have the respective
meanings set forth in the Merger Agreement.
2. Amendment to Third Recital. The third Recital of the Merger Agreement is
hereby amended and restated to read in its entirety as follows:
"WHEREAS, Kelso & Company, L.P. ("Kelso & Company"), an affiliate of
Merger Co., has on the date of this Amendment, delivered a letter to the
Company (the "Equity Commitment Letter"), which Equity Commitment Letter
confirms Kelso & Company's commitment, as set forth therein, to contribute
or cause to be contributed to Merger Co. the equity financing required for
the consummation of the Merger; and"
3. Amendment to Section 2.01(b)(ii). Section 2.01(b)(ii) of the Merger
Agreement is hereby amended and restated to read in its entirety as follows:
"(ii) for each such share of Company Common Stock (other than Electing
Shares), the right to receive $17.00 in cash (the "Cash Election Price")."
4. Amendment to Section 2.01(d). Section 2.01(d) of the Merger Agreement is
hereby amended and restated to read in its entirety as follows:
"(d) Each issued and outstanding share of capital stock of Merger Co.
shall be converted into and become such number of fully paid and non-
assessable Non-Cash Election Shares as is equal to (i) 14,117,647 divided
by (ii) the aggregate number of shares of capital stock of Merger Co.
issued and outstanding immediately prior to the Effective Time.".
5. Amendment to Section 2.02(c). Section 2.02(c) of the Merger Agreement is
hereby amended and restated to read in its entirety as follows:
"(c) Merger Co. shall, subject to applicable requirements of the United
States federal securities laws, prepare a form of election (the "Form of
Election") which Form of Election shall be subject to the approval of the
Company (which approval shall not be unreasonably withheld or delayed) to
be mailed by the Company with the amended Proxy Statement (as described in
Section 5.01(c) hereof) to the record holders of Company Common Stock as of
the record date for the Company Stockholders Meeting (as defined below),
which Form of Election shall be used by each record holder of shares of
Company Common Stock who wishes to elect to receive Non-Cash Election
Shares for any or all shares of Company Common Stock held by such holder,
subject to the provisions of Section 2.03. The Company shall use its
reasonable best efforts to make the Form of Election and the Proxy
Statement available to all persons who become holders of Company Common
Stock during the period between such record date and the Election Date
referred to below. Any such holder's election to receive Non-Cash Election
Shares shall have been
A-42
properly made only if the Exchange Agent shall have received at its
designated office, by 5:00 p.m., New York City time, on the business day
that is five business days prior to the date of the reconvened Company
Stockholders Meeting at which a vote on the adoption of this Agreement by
the stockholders of the Company is taken (the "Election Date"), a Form of
Election properly completed and signed and accompanied by Certificates
representing the shares of Company Common Stock to which such Form of
Election relates, duly endorsed in blank or otherwise in form acceptable
for transfer on the books of the Company (or by an appropriate guarantee of
delivery of such Certificates as set forth in such Form of Election from a
firm which is an "eligible guarantor institution" (as defined in Rule 17Ad-
15 under the Securities Exchange Act of 1934, as amended (the "Exchange
Act")); provided that such Certificates are in fact delivered to the
Exchange Agent within seven business days after the date of execution of
such guarantee of delivery).
6. Amendment to Section 2.03(a). Section 2.03(a) of the Merger Agreement is
hereby amended and restated to read in its entirety as follows:
"(a) Notwithstanding anything in this Agreement to the contrary, the
aggregate number of shares of Company Common Stock to be converted into the
right to retain Non-Cash Election Shares at the Effective Time (the "Non-
Cash Election Number") shall be 1,062,619."
7. Amendment to Section 3.01(q). Section 3.01(q) of the Merger Agreement is
hereby amended and restated to read in its entirety as follows:
"(q) Opinion of Financial Advisor. The Company has received an opinion of
Bear, Stearns & Co. Inc., dated as of the date of this Amendment, that the
Merger Consideration, after giving effect to Amendment No. 2 to the
Agreement and Plan of Merger and Recapitalization, is fair, from a
financial point of view, to the holders of shares of the Company Common
Stock, a complete and correct copy of which opinion has been, or promptly
upon receipt thereof will be, delivered to Merger Co. The Company has been
authorized by Bear, Stearns & Co. Inc. to permit the inclusion of such
opinion in its entirety in the Proxy Statement."
8. Amendment to Section 3.02(e). Section 3.02(e) of the Merger Agreement is
hereby amended and restated to read in its entirety as follows:
(e) Financing. Merger Co. has previously delivered to the Company the
following: (a) a fully executed commitment letter (the "Senior Debt
Letter") from the Chase Manhattan Bank, DLJ Capital Funding, Inc. and First
Union National Bank (collectively, the "Banks") and accepted by Kelso &
Company and the Company providing the detailed terms and conditions upon
which the Banks have committed to provide the entire senior debt and
revolving credit portion of the financing required in connection with the
Merger, (b) a fully executed commitment letter (the "Subordinated Debt
Letter") issued by DLJ Bridge Finance, Inc., Donaldson, Lufkin & Jenrette
Securities Corporation, The Chase Manhattan Bank, Chase Securities Inc. and
First Union National Bank (collectively, the "Bridge Lenders") and accepted
by Kelso & Company and the Company, providing the detailed terms and
conditions upon which the Bridge Lenders have committed to provide and
place the subordinated debt portion of the financing required in connection
with the Merger and (c) the executed Equity Commitment Letter (together
with the Senior Debt Letter and the Subordinated Debt Letter, the
"Financing Letters). Each of the Financing Letters is in full force and
effect on the date of this Amendment hereto and has not been amended or
modified, and there is no breach or default existing (or which with notice
or lapse of time or otherwise may exist) thereunder. The aggregate proceeds
of the financing completed by the Financing Letters are sufficient to pay
the cash portion of the Merger Consideration, to repay the existing
indebtedness of the Company and its subsidiaries (excluding any
indebtedness the parties hereto agree shall not be repaid) and to pay all
fees and expenses to be paid by Merger Co. related to the transactions
contemplated by this Agreement."
A-43
9. Amendment to Section 5.01. Section 5.01 of the Merger Agreement is hereby
amended by adding the following to the end thereof:
"(c) The Company shall promptly prepare and file (i) a post-effective
amendment to its registration statement on Form S-4, such amendment to
include an amended S-4 and an amended Proxy Statement with respect to the
matters that are the subject of this Agreement and (ii) a registration
statement on Form S-4 relating to the number of Non-Cash Election Shares in
excess of the Non-Cash Election Shares which have previously been
registered under an effective registration statement as of the date of this
Amendment (collectively, the "SEC Amendments"). Merger Co.'s and the
Company's respective rights and obligations contained in this Agreement
with respect to the Proxy Statement and the Form S-4 shall be applicable to
the SEC Amendments mutatis mutandis."
10. Amendment to Section 7.01(b)(i). Section 7.01(b)(i) of the Merger
Agreement is hereby amended and restated to read in its entirety as follows:
"(i) if the Merger shall not have been consummated by December 31, 1999;
provided that such date shall be extended until January 31, 2000 if the SEC
Amendments are not declared effective on or prior to November 15, 1999;
provided further, however, that the right to terminate this Agreement
pursuant to this Section 7.01(b)(i) shall not be available to any party
whose failure to perform any of its obligations under this Agreement
results in the failure of the Merger to be consummated by such time;"
11. Authorization, etc., of this Amendment. The Company represents and
warrants to the following matters set forth in this Paragraph 11. The Company
has all requisite corporate power and authority to enter into this Amendment,
and, subject to receipt of Company Stockholder Approval, to consummate the
transactions contemplated by this Amendment. The execution and delivery of this
Amendment by the Company, and the consummation of the transactions contemplated
by this Amendment, have been duly authorized by all necessary corporate action
on the part of the Company, subject, in the case of the Merger, to receipt of
the Company Stockholder Approval. This Amendment has been duly executed and
delivered by the Company, and, assuming the due execution and delivery of this
Amendment by Merger Co., constitutes a legal, valid and binding obligation of
the Company, enforceable against it in accordance with its terms, subject to
(i) applicable bankruptcy, insolvency, fraudulent transfer and conveyance,
moratorium, reorganization, receivership and similar laws relating to or
affecting the enforcement of the rights and remedies of creditors generally,
(ii) principles of equity (regardless of whether considered and applied in a
proceeding in equity or at law) and (iii) the discretion of the court before
which any proceeding in respect of this Amendment or the transactions
contemplated hereby may be brought.
12. Authorization, etc., of this Amendment. Merger Co. represents and
warrants to the following matters set forth in this Paragraph 12. Merger Co.
has all requisite corporate power and authority to enter into this Amendment,
to consummate the transactions contemplated by this Amendment. The execution
and delivery of this Amendment by Merger Co., and the consummation of the
transactions contemplated by this Amendment, have been duly authorized by all
necessary corporate action on the part of Merger Co. This Amendment has been
duly executed and delivered by Merger Co., and, assuming the due execution and
delivery of this Amendment by the Company, constitutes a legal, valid and
binding obligation of Merger Co., enforceable against it in accordance with its
terms, subject to (i) applicable bankruptcy, insolvency, fraudulent transfer
and conveyance, moratorium, reorganization, receivership and similar laws
relating to or affecting the enforcement of the rights and remedies of
creditors generally, (ii) principles of equity (regardless of whether
considered and applied in a proceeding in equity or at law) and (iii) the
discretion of the court before which any proceeding in respect of this
Amendment or the transactions contemplated hereby may be brought.
13. References. Each reference in the Merger Agreement to "this Agreement",
"hereof", "hereunder" or words of like import referring to the Merger Agreement
shall mean and be a reference to the Merger Agreement, as amended by this
Amendment. This Amendment shall not constitute an amendment or waiver of any
provision of the Merger Agreement not expressly referred to herein and shall
not be construed as an amendment, waiver or consent to any action that would
require an amendment, waiver or consent except as expressly stated herein.
A-44
14. Full Force and Effect. The Merger Agreement, as amended by this
Amendment, is and shall continue to be in full force and effect and is in all
respects ratified and confirmed hereby.
15. Counterparts. This Amendment may be executed in any number of
counterparts each of which shall be an original and all of which taken together
shall constitute one and the same Amendment.
16. Governing Law. This Amendment shall be governed by, and construed in
accordance with the laws of the State of Delaware, without regard to laws that
might otherwise govern under applicable principles of conflicts of law.
A-45
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be duly
executed as of the day and year first above written.
CITATION CORPORATION
By: /s/ Stanley B. Atkins
----------------------------------
Name: Stanley B. Atkins
Title: Vice President and
Secretary
RSJ ACQUISITION CO.
By: /s/ James J. Connors, II
----------------------------------
Name: James J. Connors, II
Title: Vice President
A-46
ANNEX B
October 12, 1999
Board of Directors
Citation Corporation
2 Office Park Circle
Suite 204
Birmingham, AL 35223
Attention: Mr. Van Richey
Chairman of Special Committee
Gentlemen:
We understand that Citation Corporation, a Delaware corporation ("Citation"),
and RSJ Acquisition Co. ("Merger Co."), a Delaware corporation organized by
Kelso & Company ("Kelso"), intend to enter into Amendment No. 2 dated the date
hereof (the "Second Amendment") to the Agreement and Plan of Merger and
Recapitalization dated as of June 24, 1999, as amended by Amendment No. 1
thereto dated as of September 3, 1999 (the "Agreement"), pursuant to which
Merger Co. will merge with and into Citation (the "Merger"), as the surviving
company ("New Citation"). Pursuant to the Agreement, and subject to the
election of Citation shareholders who elect to receive shares of New Citation
("New Citation Shares") in lieu of cash (the "Retention Election"), Citation
shareholders will receive consideration (the "Consideration") consisting of (i)
$17.00 per share for 94.1% of their Citation common shares and (ii) New
Citation Shares for 5.9% of their Citation common shares (which percent any
shareholder may elect to increase in the event any other shareholder does not
exercise his or her Retention Election). We have been advised by Citation that
(i) certain members of Citation's senior management have agreed to retain their
New Citation Shares and (ii) accordingly, Citation's public shareholders who do
not make a Retention Election will receive $17.00 per share in cash for all of
their Citation common shares.
You have asked us to render our opinion as to the fairness, from a financial
point of view, of the Consideration to Citation's public shareholders.
In the course of our analyses for rendering this opinion, we have:
1. reviewed the Agreement, as amended by the Second Amendment;
2. reviewed Citation's audited financial statements for the fiscal years
ended September 29, 1996 through September 27, 1998 and unaudited
financial statements for the fiscal quarters ended December 27, 1998,
March 28, 1999 and June 27, 1999;
3. reviewed certain operating and financial information, including
projections, provided to us by management relating to Citation's
business and prospects;
B-1
Citation Corporation
October 12, 1999
Page 2
4. met with certain members of Citation's senior management to discuss its
operations, historical financial statements and future prospects;
5. reviewed publicly available financial data, stock market performance
data and valuation parameters of companies which we deemed generally
comparable to Citation;
6. reviewed indications of interest, offers to purchase Citation and
recapitalization proposals received by Citation from third parties other
than Kelso; and
7. conducted such other studies, analyses, inquiries and investigations as
we deemed appropriate.
In the course of our review, we have relied upon and assumed, without
independent verification, the accuracy and completeness of the financial and
other information provided to us by Citation. We have not assumed any
responsibility for the independent verification of any such information and we
have further relied upon the assurances of the senior management of Citation
that they are unaware of any facts that would make the information provided to
us incomplete or misleading. In arriving at our opinion, we have not performed
or obtained any independent appraisal of the assets or liabilities of Citation,
nor have we been furnished with any such appraisals. Our opinion is necessarily
based on economic, market and other conditions, and the information made
available to us, as of the date hereof.
Although we not expressed an opinion as to the range of prices at which
Citation common stock may trade following the merger and recapitalization, we
note that the retained equity would be largely illiquid because of the
significantly reduced public shares outstanding and the fact that the shares
will not be listed on Nasdaq, any other securities exchange or any over-the-
counter market. We also note that the presence of the bridge financing makes
the retained equity particularly unsuitable for public shareholders. We have
advised the Board that, in reaching our conclusion as to the fairness of the
transaction from a financial point of view to the public shareholders, we have
ascribed no value to the retained equity.
We have acted as a financial advisor to Citation in connection with the
Merger and will receive a fee for such services. In 1998, Bear Stearns was
engaged by Citation to provide certain investment banking services in
connection with a possible offering of the Citation's senior subordinated
notes.
Bear Stearns is currently, and in the past has been, engaged by Kelso and
certain of its principals with respect to investment banking and financial
advisory assignments.
It is understood that this letter is intended for the benefit and use of the
Board of Directors of Citation and does not constitute a recommendation to the
Board of Directors of Citation or any Citation shareholder as to how to vote in
connection with the Merger. Moreover, we express no opinion with respect to
whether any Citation shareholder should exercise his or her Retention Election.
This opinion does not address Citation's underlying business decision to pursue
the Merger. This letter is not to be used for any other purpose, or reproduced,
disseminated, quoted to or referred to at any time, in whole or in part,
without our prior written consent; provided, however, that this letter may be
included in its entirety in any proxy statement to be distributed to Citation
shareholders in connection with the Merger.
Based on and subject to the foregoing, it is our opinion that the
Consideration is fair, from a financial point of view, to Citation's public
shareholders.
Very truly yours,
BEAR, STEARNS & CO. INC.
B-2
ANNEX C
GENERAL CORPORATION LAW OF DELAWARE
SECTION 262
APPRAISAL RIGHTS
(a) Any stockholder of a corporation of this State who holds shares of stock
on the date of the making of a demand pursuant to subsection (d) of this
section with respect to such shares, who continuously holds such shares through
the effective date of the merger or consolidation, who has otherwise complied
with subsection (d) of this section and who has neither voted in favor of the
merger or consolidation nor consented thereto in writing pursuant to sec. 228
of this title shall be entitled to an appraisal by the Court of Chancery of the
fair value of the stockholder's shares of stock under the circumstances
described in subsections (b) and (c) of this section. As used in this section,
the word "stockholder" means a holder of record of stock in a stock corporation
and also a member of record of a nonstock corporation; the words "stock" and
"share" mean and include what is ordinarily meant by those words and also
membership or membership interest of a member of a nonstock corporation; and
the words "depository receipt" mean a receipt or other instrument issued by a
depository representing an interest in one or more shares, or fractions
thereof, solely of stock of a corporation, which stock is deposited with the
depository.
(b) Appraisal rights shall be available for the shares of any class or series
of stock of a constituent corporation in a merger or consolidation to be
effected pursuant to sec. 251 (other than a merger effected pursuant to
sec.251(g) of this title), sec. 252, sec. 254, sec. 257, sec. 258, sec. 263 or
sec.264 of this title:
(1) provided, however, that no appraisal rights under this section shall be
available for the shares of any class or series of stock, which stock, or
depository receipts in respect thereof, at the record date fixed to determine
the stockholders entitled to receive notice of and to vote at the meeting of
stockholders to act upon the agreement of merger or consolidation, were either
(i) listed on a national securities exchange or designated as a national market
system security on an interdealer quotation system by the National Association
of Securities Dealers, Inc. or (ii) held of record by more than 2,000 holders;
and further provided that no appraisal rights shall be available for any shares
of stock of the constituent corporation surviving a merger if the merger did
not require for its approval the vote of the stockholders of the surviving
corporation as provided in subsection (f) of sec. 251 of this title.
(2) notwithstanding paragraph (1) of this subsection, appraisal rights under
this section shall be available for the shares of any class or series of stock
of a constituent corporation if the holders thereof are required by the terms
of an agreement of merger or consolidation pursuant to sec.sec. 251, 252, 254,
257, 258, 263 and 264 of this title to accept for such stock anything except:
a. Shares of stock of the corporation surviving or resulting from such merger
or consolidation, or depository receipts in respect thereof; b. Shares of stock
of any other corporation, or depository receipts in respect thereof, which
shares of stock (or depository receipts in respect thereof) or depository
receipts at the effective date of the merger or consolidation will be either
listed on a national securities exchange or designated as a national market
system security on an interdealer quotation system by the National Association
of Securities Dealers, Inc. or held of record by more than 2,000 holders; c.
Cash in lieu of fractional shares or fractional depository receipts described
in the foregoing subparagraphs a. and b. of this paragraph; or d. Any
combination of the shares of stock, depository receipts and cash in lieu of
fractional shares or fractional depository receipts described in the foregoing
subparagraphs a., b. and c. of this paragraph.
(3) In the event all of the stock of a subsidiary Delaware corporation party
to a merger effected under ss. 253 of this title is not owned by the parent
corporation immediately prior to the merger, appraisal rights shall be
available for the shares of the subsidiary Delaware corporation.
C-1
(c) Any corporation may provide in its certificate of incorporation that
appraisal rights under this section shall be available for the shares of any
class or series of its stock as a result of an amendment to its certificate of
incorporation, any merger or consolidation in which the corporation is a
constituent corporation or the sale of all or substantially all of the assets
of the corporation. If the certificate of incorporation contains such a
provision, the procedures of this section, including those set forth in
subsections (d) and(e) of this section, shall apply as nearly as is
practicable.
(d) Appraisal rights shall be perfected as follows:
(1) If a proposed merger or consolidation for which appraisal rights are
provided under this section is to be submitted for approval at a meeting of
stockholders, the corporation, not less than 20 days prior to the meeting,
shall notify each of its stockholders who was such on the record date for such
meeting with respect to shares for which appraisal rights are available
pursuant to subsection (b) or (c) hereof that appraisal rights are available
for any or all of the shares of the constituent corporations, and shall include
in such notice a copy of this section. Each stockholder electing to demand the
appraisal of such stockholder's shares shall deliver to the corporation, before
the taking of the vote on the merger or consolidation, a written demand for
appraisal of such stockholder's shares. Such demand will be sufficient if it
reasonably informs the corporation of the identity of the stockholder and that
the stockholder intends thereby to demand the appraisal of such stockholder's
shares. A proxy or vote against the merger or consolidation shall not
constitute such a demand. A stockholder electing to take such action must do so
by a separate written demand as herein provided. Within 10 days after the
effective date of such merger or consolidation, the surviving or resulting
corporation shall notify each stockholder of each constituent corporation who
has complied with this subsection and has not voted in favor of or consented to
the merger or consolidation of the date that the merger or consolidation has
become effective; or
(2) If the merger or consolidation was approved pursuant to sec. 228 or sec.
253 of this title, each constituent corporation, either before the effective
date of the merger or consolidation or within ten days thereafter, shall notify
each of the holders of any class or series of stock of such constituent
corporation who are entitled to appraisal rights of the approval of the merger
or consolidation and that appraisal rights are available for any or all shares
of such class or series of stock of such constituent corporation, and shall
include in such notice a copy of this section; provided that, if the notice is
given on or after the effective date of the merger or consolidation, such
notice shall be given by the surviving or resulting corporation to all such
holders of any class or series of stock of a constituent corporation that are
entitled to appraisal rights. Such notice may, and, if given on or after the
effective date of the merger or consolidation, shall, also notify such
stockholders of the effective date of the merger or consolidation. Any
stockholder entitled to appraisal rights may, within 20 days after the date of
mailing of such notice, demand in writing from the surviving or resulting
corporation the appraisal of such holder's shares. Such demand will be
sufficient if it reasonably informs the corporation of the identity of the
stockholder and that the stockholder intends thereby to demand the appraisal of
such holder's shares. If such notice did not notify stockholders of the
effective date of the merger or consolidation, either (i) each such constituent
corporation shall send a second notice before the effective date of the merger
or consolidation notifying each of the holders of any class or series of stock
of such constituent corporation that are entitled to appraisal rights of the
effective date of the merger or consolidation or (ii) the surviving or
resulting corporation shall send such a second notice to all such holders on or
within 10 days after such effective date; provided, however, that if such
second notice is sent more than 20 days following the sending of the first
notice, such second notice need only be sent to each stockholder who is
entitled to appraisal rights and who has demanded appraisal of such holder's
shares in accordance with this subsection. An affidavit of the secretary or
assistant secretary or of the transfer agent of the corporation that is
required to give either notice that such notice has been given shall, in the
absence of fraud, be prima facie evidence of the facts stated therein. For
purposes of determining the stockholders entitled to receive either notice,
each constituent corporation may fix, in advance, a record date that shall be
not more than 10 days prior to the date the notice is given, provided, that if
the notice is given on or after the effective date of the merger or
consolidation, the record date shall be such effective date. If no record date
is fixed and the notice is given prior to the effective date, the record date
shall be the close of business on the day next preceding the day on which the
notice is given.
C-2
(e) Within 120 days after the effective date of the merger or consolidation,
the surviving or resulting corporation or any stockholder who has complied with
subsections (a) and (d) hereof and who is otherwise entitled to appraisal
rights, may file a petition in the Court of Chancery demanding a determination
of the value of the stock of all such stockholders. Notwithstanding the
foregoing, at any time within 60 days after the effective date of the merger or
consolidation, any stockholder shall have the right to withdraw such
stockholder's demand for appraisal and to accept the terms offered upon the
merger or consolidation. Within 120 days after the effective date of the merger
or consolidation, any stockholder who has complied with the requirements of
subsections (a) and (d) hereof, upon written request, shall be entitled to
receive from the corporation surviving the merger or resulting from the
consolidation a statement setting forth the aggregate number of shares not
voted in favor of the merger or consolidation and with respect to which demands
for appraisal have been received and the aggregate number of holders of such
shares. Such written statement shall be mailed to the stockholder within 10
days after such stockholder's written request for such a statement is received
by the surviving or resulting corporation or within 10 days after expiration of
the period for delivery of demands for appraisal under subsection (d) hereof,
whichever is later.
(f) Upon the filing of any such petition by a stockholder, service of a copy
thereof shall be made upon the surviving or resulting corporation, which shall
within 20 days after such service file in the office of the Register in
Chancery in which the petition was filed a duly verified list containing the
names and addresses of all stockholders who have demanded payment for their
shares and with whom agreements as to the value of their shares have not been
reached by the surviving or resulting corporation. If the petition shall be
filed by the surviving or resulting corporation, the petition shall be
accompanied by such a duly verified list. The Register in Chancery, if so
ordered by the Court, shall give notice of the time and place fixed for the
hearing of such petition by registered or certified mail to the surviving or
resulting corporation and to the stockholders shown on the list at the
addresses therein stated. Such notice shall also be given by 1 or more
publications at least 1 week before the day of the hearing, in a newspaper of
general circulation published in the City of Wilmington, Delaware or such
publication as the Court deems advisable. The forms of the notices by mail and
by publication shall be approved by the Court, and the costs thereof shall be
borne by the surviving or resulting corporation.
(g) At the hearing on such petition, the Court shall determine the
stockholders who have complied with this section and who have become entitled
to appraisal rights. The Court may require the stockholders who have demanded
an appraisal for their shares and who hold stock represented by certificates to
submit their certificates of stock to the Register in Chancery for notation
thereon of the pendency of the appraisal proceedings; and if any stockholder
fails to comply with such direction, the Court may dismiss the proceedings as
to such stockholder.
(h) After determining the stockholders entitled to an appraisal, the Court
shall appraise the shares, determining their fair value exclusive of any
element of value arising from the accomplishment or expectation of the merger
or consolidation, together with a fair rate of interest, if any, to be paid
upon the amount determined to be the fair value. In determining such fair
value, the Court shall take into account all relevant factors. In determining
the fair rate of interest, the Court may consider all relevant factors,
including the rate of interest which the surviving or resulting corporation
would have had to pay to borrow money during the pendency of the proceeding.
Upon application by the surviving or resulting corporation or by any
stockholder entitled to participate in the appraisal proceeding, the Court may,
in its discretion, permit discovery or other pretrial proceedings and may
proceed to trial upon the appraisal prior to the final determination of the
stockholder entitled to an appraisal. Any stockholder whose name appears on the
list filed by the surviving or resulting corporation pursuant to subsection (f)
of this section and who has submitted such stockholder's certificates of stock
to the Register in Chancery, if such is required, may participate fully in all
proceedings until it is finally determined that such stockholder is not
entitled to appraisal rights under this section.
(i) The Court shall direct the payment of the fair value of the shares,
together with interest, if any, by the surviving or resulting corporation to
the stockholders entitled thereto. Interest may be simple or compound, as the
Court may direct. Payment shall be so made to each such stockholder, in the
case of holders of uncertified
C-3
stock forthwith, and the case of holders of shares represented by certificates
upon the surrender to the corporation of the certificates representing such
stock. The Court's decree may be enforced as other decrees in the Court of
Chancery may be enforced, whether such surviving or resulting corporation be a
corporation of this State or of any state.
(j) The costs of the proceeding may be determined by the Court and taxed upon
the parties as the Court deems equitable in the circumstances. Upon application
of a stockholder, the Court may order all or a portion of the expenses incurred
by any stockholder in connection with the appraisal proceeding, including,
without limitation, reasonable attorney's fees and the fees and expenses of
experts, to be charged pro rata against the value of all the shares entitled to
an appraisal.
(k) From and after the effective date of the merger or consolidation, no
stockholder who has demanded appraisal rights as provided in subsection (d) of
this section shall be entitled to vote such stock for any purpose or to receive
payment of dividends or other distributions on the stock (except dividends or
other distributions payable to stockholders of record at a date which is prior
to the effective date of the merger or consolidation); provided, however, that
if no petition for an appraisal shall be filed within the time provided in
subsection (e) of this section, or if such stockholder shall deliver to the
surviving or resulting corporation a written withdrawal of such stockholder's
demand for an appraisal and an acceptance of the merger or consolidation,
either within 60 days after the effective date of the merger or consolidation
as provided in subsection (e) of this section or thereafter with the written
approval of the corporation, then the right of such stockholder to an appraisal
shall cease. Notwithstanding the foregoing, no appraisal proceeding in the
Court of Chancery shall be dismissed as to any stockholder without the approval
of the Court, and such approval may be conditioned upon such terms as the Court
deems just.
(l) The shares of the surviving or resulting corporation to which the shares
of such objecting stockholders would have been converted had they assented to
the merger or consolidation shall have the status of authorized and unissued
shares of the surviving or resulting corporation.
C-4
ANNEX D
FORM OF STOCKHOLDERS AGREEMENT
D-1
TABLE OF CONTENTS
Page
----
1. Restrictions on Transfer of Common Stock............................. D-3
1.1Restriction on Transfers of Retained Common Stock................. D-3
1.2Restrictions on Transfers of New Common Stock..................... D-3
2. Sale of New Common Stock to the Company ("Put Rights")............... D-4
2.1Right to Sell..................................................... D-4
2.2Notice............................................................ D-4
2.3Payment........................................................... D-4
3. Right of the Company to Purchase New Common Stock ("Call Right")..... D-5
3.1Right to Purchase................................................. D-5
3.2Notice............................................................ D-5
3.3Payment........................................................... D-5
4. Purchase Price....................................................... D-5
4.1Appraisal......................................................... D-5
4.2Fair Market Value................................................. D-6
4.3Carrying Value.................................................... D-6
5. Prohibited Purchases................................................. D-6
6. Tag-Along and Drag-Along Rights...................................... D-7
6.1Tag-Along Rights.................................................. D-7
6.2Drag-Along Rights................................................. D-8
7. Sales to Third Parties............................................... D-9
7.1Right of First Refusal............................................ D-9
7.2Involuntary Transfers............................................. D-10
8. Stock Certificate Legend............................................. D-10
9. Covenants; Representations and Warranties............................ D-11
9.1New Management Stockholders....................................... D-11
9.2No Other Arrangements or Agreements............................... D-11
9.3Additional Representations and Warranties......................... D-11
10. Preemptive Rights.................................................... D-12
11. Option to Purchase Additional Common Stock........................... D-12
12. Amendment and Modification........................................... D-12
13. Parties.............................................................. D-12
13.1Assignment by the Company........................................ D-12
13.2Assignment Generally............................................. D-12
13.3Termination...................................................... D-13
13.4Agreements to Be Bound........................................... D-13
14. Recapitalizations, Exchanges, etc.................................... D-13
15. Further Assurances................................................... D-13
16. Governing Law........................................................ D-13
17. Invalidity of Provision.............................................. D-13
18. Waiver............................................................... D-13
19. Notices.............................................................. D-14
20. Headings............................................................. D-14
21. Counterparts......................................................... D-14
22. Entire Agreement..................................................... D-14
23. Injunctive Relief.................................................... D-14
24. Defined Terms........................................................ D-15
D-2
STOCKHOLDERS AGREEMENT
STOCKHOLDERS AGREEMENT, dated as of , 1999 among Citation
Corporation, a Delaware corporation (the "Company"), Kelso Investment
Associates VI, L.P., a Delaware limited partnership ("KIA VI"), KEP VI, LLC, a
Delaware limited liability company, ("KEP VI"; and, together with KIA VI,
"Kelso"), Hackney One Investments, LLC, a Delaware limited liability company,
R. Conner Warren, R. Conner Warren, Frederick F. Sommer, Timothy L. Roberts,
Edwin L. Yoder, John W. Lawson, those stockholders who are holders of Common
Stock on the date hereof and have agreed to become parties to this Agreement
(such stockholders are hereinafter referred to collectively as the "Existing
Stockholders") and those employees of the Company or its subsidiaries who
purchase Common Stock and who become parties to this Agreement pursuant to
Section 10.1 (collectively, the "Management Stockholders"). (The Existing
Stockholders and the Management Stockholders are hereinafter referred to
collectively as the "Non-Kelso Stockholders", and the Non-Kelso Stockholders,
together with Kelso, are hereinafter referred to collectively as the
"Stockholders".) Capitalized terms used herein without definition are defined
in Section 25.
WHEREAS, the Company and RSJ Acquisition Co., a Delaware corporation and a
subsidiary of Kelso ("RSJ"), have entered into that certain Agreement and Plan
of Merger and Recapitalization, dated as of June 24, 1999, as amended by
Amendment No. 1 to the Agreement and Plan of Merger and Recapitalization, dated
as of September 3, 1999 (as so amended, the "Merger Agreement"), pursuant to
which RSJ will merge with and into the Company, with the Company being the
surviving corporation in the merger (the "Merger");
WHEREAS, pursuant to the Stock Election Agreements, the Existing Stockholders
have elected to retain an aggregate of 790,115 shares of Common Stock following
the Merger (the "Retained Common Stock"); and
WHEREAS, certain employees of the Company or its subsidiaries may, after the
Closing, purchase or otherwise be issued shares of Common Stock (such shares to
be issued after the date hereof, the "New Common Stock").
NOW, THEREFORE, in consideration of the premises and the representations,
warranties and covenants contained herein, the parties agree as follows:
1. Restrictions on Transfer of Common Stock.
1.1 Restriction on Transfers of Retained Common Stock. Any Existing
Stockholder may Transfer any Retained Common Stock owned by such Existing
Stockholder at any time, provided that such Transfer is made in compliance with
Section 1.2(b) ("Permitted Pledges"), 6.1 ("Tag-Along Rights"), 6.2 ("Drag-
Along Rights"), 7 ("Sales to Third Parties"), or 13.4 ("Agreements to Be
Bound"), as applicable.
1.2 Restrictions on Transfers of New Common Stock. (a) A Management
Stockholder may not Transfer any shares of New Common Stock, nor any interest
therein nor any rights relating thereto, provided that shares of New Common
Stock may be Transferred (a) pursuant to Section 1.2(b) ("Permitted Pledges"),
(b) pursuant to Section 1.2(c) ("Estate Planning Transfers") or, in case of his
or her death, by will or by the laws of intestate succession, to his or her
executors, administrators, testamentary trustees, legatees or beneficiaries,
(c) pursuant to Section 6.1 ("Tag-Along Rights") or Section 6.2 ("Drag-Along
Rights"), (d) in accordance with Section 7.2 ("Involuntary Transfers") or (e)
pursuant to a Registration pursuant to the Registration Rights Agreement.
(b) Permitted Pledges. Any Existing Stockholder or Management Stockholder may
pledge any or all shares of Common Stock now or hereafter owned by him or her
or grant a security interest therein to secure indebtedness of such Stockholder
owing to a bank or other financial institution on terms and conditions approved
by the Board (excluding such Stockholder and other members of the Board who are
designees of the Existing Stockholders or Management Stockholders, if any),
provided, however, that any pledgee pursuant to this subsection (b) shall
acquire only a security interest in such shares of Common Stock entitling such
pledgee to (i) the proceeds from any sale of such shares made in compliance
with the terms of this Agreement and
D-3
(ii) any proceeds of any distribution to stockholders on account of the Common
Stock in any liquidation as a result of any bankruptcy proceeding or the
winding up of affairs of the Company and in no event shall such pledgee receive
title to such shares or any other rights incident thereto other than those
specified above. The pledge agreements or other related financing agreements of
any Existing Stockholder or Management Stockholder shall be subject to and
acknowledge the rights of the Company and the other Stockholders set forth
herein and shall acknowledge the restrictions imposed on the pledgee's security
pursuant to this Section 1.2(b).
(c) Estate Planning Transfers. Shares of New Common Stock held by Management
Stockholders may be Transferred for estate-planning purposes of such Management
Stockholder, authorized by the prior written approval of the Board (excluding
such Management Stockholder and other members of the Board who are designees of
the Management Stockholders, if any), to (A) a trust under which the
distribution of the shares of New Common Stock may be made only to
beneficiaries who are such Management Stockholder, his or her spouse, his or
her parents, members of his or her immediate family or his or her lineal
descendants, (B) a charitable remainder trust, the income from which will be
paid to such Management Stockholder during his or her life, (C) a corporation,
the stockholders of which are only such Management Stockholder, his or her
spouse, his or her parents, members of his or her immediate family or his or
her lineal descendants or (D) a partnership or limited liability company, the
partners or members of which are only such Management Stockholder, his or her
spouse, his or her parents, members of his or her immediate family or his or
her lineal descendants. Notwithstanding the foregoing, prior to any Management
Stockholder ceasing to have any such relationship with any such transferee,
such transferee shall transfer such shares of New Common Stock back to such
Management Stockholder and such Management Stockholder shall thereupon again be
subject to this Agreement.
2. Sale of New Common Stock to the Company ("Put Rights").
2.1 Right to Sell. Subject to all subsections of this Section 2 and to
Section 5 ("Prohibited Purchases"), each of the Management Stockholders shall
have the right to sell to the Company, and the Company shall have the
obligation to purchase from such Management Stockholder, all, but not less than
all, of such Management Stockholder's shares of New Common Stock following the
termination of employment of such Management Stockholder, in each case at their
Fair Market Value, if the employment of such Management Stockholder with the
Company and any subsidiary that employs such Management Stockholder (or by the
Company on behalf of any such subsidiary) (i) is terminated without Cause or
(ii) terminates as a result of (A) the death or Disability of such Management
Stockholder, (B) the resignation of such Management Stockholder for Good Reason
or (C) the retirement of such Management Stockholder upon or after reaching the
age of 65 ("Retirement").
2.2 Notice. If any Management Stockholder desires to sell shares of New
Common Stock pursuant to Section 2.1, he or she (or his or her estate, trust,
corporation or partnership, as the case may be) shall notify the Company (a)
not more than [180] days after the termination of employment as a result of the
death or Disability of such Management Stockholder, (b) not more than [60] days
after the termination of employment as a result of a termination without Cause,
the resignation of such Management Stockholder for Good Reason or Retirement
and (c) not earlier than six months nor later than eight months after the
acquisition of New Common Stock pursuant to the exercise of options to purchase
New Common Stock (including, without limitation, pursuant to the exercise of
any Rollover Stock Options) following the termination of employment as
described in Section 2.1. Each such notice shall specify the number of shares
of New Common Stock such Management Stockholder owns at such time.
2.3 Payment. (a) Subject to Section 5 ("Prohibited Purchases"), payment for
any shares of New Common Stock sold by a Management Stockholder pursuant to
Section 2.1 shall be made on the date that is 30 days (or the first business
day thereafter if the 30th day is not a business day) following the date of the
receipt by the Company of such Management Stockholder's notice with respect to
such shares.
(b) Any payments based on Fair Market Value required to be made by the
Company under this Section 2.3 shall accrue simple interest at a rate per annum
of 6% from the date of termination of employment of the relevant Management
Stockholder to the date the Company has paid in full for all of the shares of
Common Stock. All payments of interest accrued hereunder shall be paid only at
the date of payment by the Company for the shares of New Common Stock being
purchased.
D-4
3. Right of the Company to Purchase New Common Stock ("Call Right").
3.1 Right to Purchase. Subject to all subsections of this Section 3 and to
Section 5 ("Prohibited Purchases"), the Company shall have the right to
purchase from a Management Stockholder, and such Management Stockholder shall
have the obligation to sell to the Company, (a) all, but not less than all, of
such Management Stockholder's shares of New Common Stock and/or (b) all, but
not less than all of any shares of New Common Stock acquired upon the exercise
of options (including pursuant to the exercise any Rollover Options) following
the termination of employment:
(i) at the Fair Market Value of such shares of New Common Stock to be
purchased if such Management Stockholder's employment with the Company and
any subsidiary that employs such individual is terminated as a result of
(A) the termination by the Company and any such subsidiary (or by the
Company on behalf of any such subsidiary) of such employment without Cause,
(B) the death or Disability of such Management Stockholder, (C) the
resignation of such Management Stockholder for Good Reason or (D) the
Retirement of such Management Stockholder;
(ii) at the lesser of the Fair Market Value and the Carrying Value of
such shares of New Common Stock to be purchased if such Management
Stockholder's employment with the Company and any subsidiary that employs
such individual is terminated by the Company and any such subsidiary (or by
the Company on behalf of any such subsidiary) for Cause; or
(iii) at the Fair Market Value or the Carrying Value of such shares of
New Common Stock to be purchased, in the sole discretion of the Board
(excluding such Management Stockholder and other members of the Board who
are designees of the Management Stockholders, if any) if such Management
Stockholder's employment with the Company and any subsidiary that employs
such individual is terminated for any reason other than as a result of an
event described in either subparagraph (i) or (ii) of this Section 3.1.
3.2 Notice. If the Company desires to purchase shares of New Common Stock
from a Management Stockholder pursuant to Section 3.1, it shall notify such
Management Stockholder (or his or her estate, as the case may be) not more than
60 days after the termination of employment as a result of the event giving
rise to the Company's right to acquire such Management Stockholder's shares of
New Common Stock or, in the case of shares of New Common Stock acquired
pursuant to the exercise of options to purchase New Common Stock (including,
without limitation, pursuant to the exercise of Rollover Stock Options)
following the termination of employment, not earlier than six months nor later
than eight months after the acquisition of such shares.
3.3 Payment. (a) Subject to Section 5 ("Prohibited Purchases"), payment for
any shares of New Common Stock purchased by the Company pursuant to Section 3.1
shall be made on the date that is 30 days (or the first business day thereafter
if the 30th day is not a business day) following the date of the receipt by a
Management Stockholder of the Company's notice with respect to such shares
pursuant to Section 3.2.
(b) Any payments based on Fair Market Value required to be made by the
Company under this Section 3.3 shall accrue simple interest at a rate per annum
of 6% on the amounts not paid from the date of termination of employment to the
date the Company makes such payments. All payments of interest accrued
hereunder shall be paid only at the date or dates of payment by the Company for
the shares of New Common Stock being purchased.
4. Purchase Price.
4.1 Appraisal. The Company shall engage, from time to time at the discretion
of the Board, but not less often than within 90 days after every fiscal year,
commencing with the fiscal year ending on September , 2000, Houlihan Loki, or
such other independent valuation consultant or appraiser of recognized national
standing reasonably satisfactory to Kelso (the "Appraiser") to appraise the
Fair Market Value of the shares of Common Stock as of the last day of the
fiscal year then most recently ended or, at the request of the Company, as of
any more recent date (the "Appraisal Date"), and to prepare and deliver a
report to the Company describing the results of such appraisal (the
"Appraisal"). The Company shall bear the fees and expenses of each Appraisal.
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4.2 Fair Market Value. The "Fair Market Value" of any share of Common Stock
shall be (i) the fair market value of the entire Common Stock equity interest
of the Company taken as a whole, without additional premiums for control or
discounts for minority interests or restrictions on transfer, divided by (ii)
the number of outstanding shares of Common Stock, calculated on a fully-diluted
basis, provided that the Appraiser shall be entitled to determine in its
judgment the extent to which any "out of the money" stock options should be
included in the calculation of the number of fully diluted shares of Common
Stock. The Fair Market Value of any share of Common Stock shall be calculated
with reference to the most recent Appraisal and as of the most recent Appraisal
Date prior to the termination of the relevant Management Stockholder's
employment (or as of the first Appraisal and the first Appraisal Date in the
event that such termination occurs prior to the fiscal year ended September ,
2000).
4.3 Carrying Value. For the purposes of this Agreement, the "Carrying Value"
of any share of New Common Stock being purchased by the Company shall be equal
to the price paid by the selling Management Stockholder for any such share (or
in the case of any share acquired pursuant to a Rollover Option, the excess of
$17.00 over the exercise price for such option) plus simple interest at a rate
per annum equal to 6%, which shall be deemed to be the carrying cost, from the
date of the purchase of such shares by the selling Management Stockholder
through the date of such purchase by the Company, less the amount of dividends
and other distributions paid in respect of such share (to the extent that the
amount of such dividends and other distributions does not exceed such simple
interest).
5. Prohibited Purchases. Notwithstanding anything to the contrary herein, the
Company shall not be permitted or obligated to purchase any shares of New
Common Stock from a Management Stockholder hereunder to the extent (a) the
Company is prohibited from purchasing such shares by applicable law or by any
debt instruments or agreements, including any amendment, renewal, extension,
substitution, refinancing, replacement or other modification thereof (the
"Financing Documents") entered into by the Company or any of its subsidiaries
to finance the recapitalization of the Company pursuant to the Merger
Agreement, (b) an event of default has occurred (or, with notice or the lapse
of time or both, would occur) under any Financing Document and is (or would be)
continuing, (c) the purchase of such shares would, or in the opinion of the
Board (excluding such Management Stockholder and any other members of the Board
who are designees of the Management Stockholders) might, result in the
occurrence of an event of default under any Financing Document or create a
condition which would or might, with notice or lapse of time or both, result in
such an event of default or (d) the purchase of such shares would, in the
reasonable opinion of the Board (excluding such Management Stockholder and
other members of the Board who are designees of the Management Stockholders),
be imprudent in view of the financial condition (present or projected) of the
Company or any of its subsidiaries or the anticipated impact of the purchase of
such shares on the Company's or any of its subsidiaries' ability to meet their
respective obligations under any Financing Document. If shares of New Common
Stock which the Company has the right or obligation to purchase on any date
exceed the total amount permitted to be purchased on such date pursuant to the
preceding sentence (the "Maximum Amount"), the Company shall purchase on such
date only that number of shares of New Common Stock up to the Maximum Amount
(if any) (and shall not be required to purchase more than the Maximum Amount)
in such amounts as the Board shall in good faith determine, applying the
following order of priority:
(a) First, the shares of New Common Stock of all Management Stockholders
whose shares of New Common Stock are being purchased by the Company by reason
of termination of employment due to death or Disability and, to the extent that
the number of shares of New Common Stock that the Company is obligated to
purchase from such Management Stockholders (but for this Section 5) exceeds the
Maximum Amount, such shares of New Common Stock pro rata among such Management
Stockholders on the basis of the number of shares of New Common Stock held by
each of such Management Stockholders that the Company is obligated or has the
right to purchase, and,
(b) Second, to the extent that the Maximum Amount is in excess of the amount
the Company purchases pursuant to clause (a) above, the shares of New Common
Stock of all Management Stockholders whose shares of New Common Stock are being
purchased by the Company by reason of termination of employment without Cause
or due to Retirement or resignation for Good Reason up to the Maximum Amount
(as reduced by shares described in clause (a) to be purchased) and, to the
extent that the number of shares of New Common Stock
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that the Company is obligated to purchase from such Management Stockholders
(but for this Section 6) exceeds the Maximum Amount (as reduced by shares
described in clause (a) to be purchased), such shares of New Common Stock pro
rata among such Management Stockholders on the basis of the number of shares of
New Common Stock held by each of such Management Stockholders that the Company
is obligated or has the right to purchase, and
(c) Third, to the extent the Maximum Amount is in excess of the amounts the
Company purchases pursuant to clauses (a) and (b) above, the shares of Common
Stock of all other Management Stockholders whose shares of New Common Stock are
being purchased by the Company up to the Maximum Amount (as reduced by shares
described in clauses (a) and (b) to be purchased) and, to the extent that the
number of shares of New Common Stock that the Company is obligated to purchase
from such Management Stockholder (but for this Section 5) exceeds the Maximum
Amount (as reduced by shares described in clauses (a) and (b) to be purchased),
the shares of New Common Stock of such Management Stockholders in such order of
priority and in such amounts as the Board (excluding such Management
Stockholders and other members of the Board who are designees of the Management
Stockholders) in its sole discretion shall in good faith determine to be
appropriate under the circumstances.
Notwithstanding anything to the contrary contained in this Agreement, if the
Company is unable to make any payment when due to any Management Stockholders
under this Agreement by reason of this Section 5, the Company shall have the
option to either (i) make such payment at the earliest practicable date
permitted under this Section 5 and any such payment shall accrue simple
interest (or if such payment is accruing interest at such time, shall continue
to accrue interest) at a rate per annum of 6% from the date such payment is due
and owing to the date such payment is made or (ii) pay the purchase price for
such shares of New Common Stock with a subordinated note which is fully
subordinated in right of payment and exercise of remedies to the lenders'
rights under the Financing Documents.
6. Tag-Along and Drag-Along Rights.
6.1 Tag-Along Rights (a) In the event that at any time Kelso proposes to sell
shares of Common Stock owned by it to any Person (a "Proposed Purchaser"),
other than any Transfer (i) pursuant to a Registration or Rule 144 or (ii) to a
Kelso Holder, and the shares proposed to be sold, together with all shares of
Common Stock previously sold by Kelso, would represent more than 25% of the
aggregate number of shares of Common Stock owned by Kelso immediately after the
Closing, then Kelso will promptly provide each Non-Kelso Stockholder written
notice (a "Sale Notice") of such proposed sale (a "Proposed Sale") and the
material terms of the Proposed Sale as of the date of such Sale Notice (the
"Material Terms"). If within 30 days of the receipt of the Sale Notice, Kelso
receives a written request (a "Sale Request") to include shares of Common Stock
held by one or more Non-Kelso Stockholders in the Proposed Sale, the Common
Stock so held by such Non-Kelso Stockholders shall be so included as provided
therein; provided, however, that any Sale Request shall be irrevocable unless
(x) there shall be a material adverse change in the Material Terms or (y)
otherwise mutually agreed to in writing by such Non-Kelso Stockholder and
Kelso.
(b) The number of shares of Common Stock that each Non-Kelso Stockholder will
be permitted to include in a Proposed Sale pursuant to a Sale Request will be
the product of (i) the number of shares of Common Stock then held by such Non-
Kelso Stockholder and (ii) a fraction, the numerator of which shall be the
number of shares of Common Stock which Kelso and the Kelso Holders propose to
sell in the Proposed Sale and the denominator of which shall be the number of
shares of Common Stock then held by Kelso and the Kelso Holders.
(c) Shares of Common Stock subject to a Sale Request will be included in a
Proposed Sale pursuant hereto and to any agreement with the Proposed Purchaser
relating thereto, on the same terms and subject to the same conditions
applicable to the shares of Common Stock which Kelso and the Kelso Holders
propose to sell in the Proposed Sale. Such terms and conditions shall include,
without limitation, (i) the sale consideration (which shall be reduced by the
fees and expenses incurred by Kelso and the Company in connection with the
Proposed Sale), (ii) the provision of information, representations, warranties,
covenants and requisite indemnifications; provided, however, that any
representations and warranties relating specifically to any Stockholder shall
only be
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made by that Stockholder and any indemnification provided by the Stockholders
shall be based on the number of shares of Common Stock being sold by each
Stockholder in the Proposed Sale, either on a several, not joint, basis or
solely with recourse to an escrow established for the benefit of the Proposed
Purchaser; provided further, however, that in connection with any Proposed Sale
in which the Non-Kelso Stockholders receive all cash for the shares of Common
Stock to be sold by them in such sale, Kelso or any Kelso Holder may elect to
receive a form of consideration consisting, in whole or in part, of non-cash
consideration so long as the per share value of the consideration to be
received by Kelso or any Kelso Holder is the same or less than that to be
received by the Non-Kelso Stockholders (as reasonably determined by the Board
in good faith).
(d) Upon delivering a Sale Request, each Non-Kelso Stockholder will, if
requested by Kelso (or any Kelso Holder), execute and deliver a custody
agreement and power of attorney in form and substance satisfactory to Kelso (or
any such Kelso Holder) (a "Custody Agreement and Power of Attorney") with
respect to the shares of the Common Stock which are to be included in the
Proposed Sale pursuant to this Section 6.1. The Custody Agreement and Power of
Attorney will provide, among other things, that the Non-Kelso Stockholders will
deliver to and deposit in custody with the custodian and attorney-in-fact named
therein a certificate or certificates representing such shares of Common Stock
(duly endorsed in blank by the registered owner or owners thereof or
accompanied by duly executed stock powers in blank) and irrevocably appoint
said custodian and attorney-in-fact as such Non-Kelso Stockholder's agent and
attorney-in-fact with full power and authority to act under a custody agreement
and power of attorney on behalf of the such Non-Kelso Stockholders with respect
to the matters specified therein.
(e) Each Non-Kelso Stockholder agrees that he or she will execute such other
agreements as Kelso (or any Kelso Holder) may reasonably request in connection
with the consummation of a Proposed Sale and Sale Request and the transactions
contemplated thereby, including, without limitation, any purchase agreement,
proxies, written consents in lieu of meetings or waiver of appraisal rights.
6.2 Drag-Along Rights. (a) In the event that any time Kelso proposes to sell
shares of Common Stock owned by it to any Proposed Purchaser other than any
Transfer (i) pursuant to a Registration or Rule 144, or (ii) to a Kelso Holder,
and the shares proposed to be sold, together with all shares of Common Stock
previously sold by Kelso would represent more than 50% of the aggregate number
of shares of Common Stock owned by Kelso immediately after the Closing, then
Kelso may provide each Non-Kelso Stockholder written notice (a "Drag-Along
Notice") of such Proposed Sale and the Material Terms thereof not less than
[25] business days prior to the proposed closing date of the Proposed Sale and
each of the Non-Kelso Stockholders hereby agrees to sell to such Proposed
Purchaser that number of shares Common Stock (including Retained Common Stock
and New Common Stock) equal to the product of (i) the number of shares of
Common Stock then held by such Non-Kelso Stockholder and (ii) a fraction, the
numerator of which shall be the number of shares of Common Stock which Kelso
and the Kelso Holders propose to sell in the Proposed Sale and the denominator
of which shall be the number of shares of Common Stock then held by Kelso and
the Kelso Holders.
(b) Shares of Common Stock subject to a Drag-Along Notice will be included in
the Proposed Sale pursuant hereto and to any agreement with the Proposed
Purchaser relating thereto, on the same terms and subject to the same
conditions applicable to the shares of Common Stock which Kelso and the Kelso
Holders propose to sell in the Proposed Sale. Such terms and conditions shall
include, without limitation, (i) the sale consideration (which shall be reduced
by the fees and expenses incurred by Kelso and the Company in connection with
the Proposed Sale); (ii) the provision of information, representations,
warranties, covenants and requisite indemnifications, provided, however, that
any representations and warranties relating specifically to any Stockholder
shall only be made by that Stockholder and any indemnification provided by the
Stockholders shall be on a several, not joint, basis (or by recourse to an
escrow provided for the benefit of the Proposed Purchaser) based on the number
of shares of Common Stock being sold by each Stockholder in the Proposed Sale;
provided, further, however, that the form of consideration to be received by
Kelso or any Kelso Holder in connection with the Proposed Sale may be different
from that received by the Non-Kelso Stockholders so long as the value of the
consideration to be received by Kelso or any Kelso Holder is the same or less
than that to be received by the Non-Kelso Stockholders (as reasonably
determined by the Board of Directors of the Company in good faith). No Non-
Kelso Stockholders shall exercise any dissenter's or like rights with respect
to the consummation of any such Proposed Sale pursuant to this Section 6.3.
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(c) Each Non-Kelso Stockholder will, if requested by Kelso (or any Kelso
Holder), execute and deliver a Custody Agreement and Power of Attorney in form
and substance satisfactory to Kelso (or any such Kelso Holder) with respect to
the shares of Common Stock which are to be included in the Proposed Sale
pursuant to this Section 6.3. The Custody Agreement and Power of Attorney will
provide, among other things, that the Non-Kelso Stockholders will deliver to
and deposit in custody with the custodian and attorney-in-fact named therein a
certificate or certificates representing such shares of Common Stock (duly
endorsed in blank by the registered owner or owners thereof or accompanied by
duly endorsed stock powers in blank) and irrevocably appoint said custodian
and attorney-in-fact as such Non-Kelso Stockholder's agent and attorney-in-
fact with full power and attorney to act under a custody agreement and power
of attorney on behalf of the such Non-Kelso Stockholder with respect to the
matters specified therein.
(d) Each Non-Kelso Stockholder agrees that he or she will execute such other
agreements as Kelso (or any Kelso Holder) may reasonably request in connection
with the consummation of a Proposed Sale and Drag-Along Notice and the
transactions contemplated thereby, including, without limitation, any purchase
agreement, proxies, written consents in lieu of meetings or waiver of
appraisal rights.
7. Sales to Third Parties.
7.1 Right of First Refusal. (a) Procedure. If an Existing Stockholder (the
"Offering Stockholder") shall have received a bona fide offer or offers from
an Eligible Third Party to purchase any shares of Retained Common Stock, then
prior to selling such shares of Common Stock to such Eligible Third Party or
Eligible Third Parties such Offering Stockholder shall deliver to the Company
a letter signed by such Offering Stockholder (an "Offer") setting forth:
(i) the name of the Eligible Third Party or Eligible Third Parties;
(ii) the prospective purchase price per share of Retained Common Stock;
(iii) all material terms and conditions contained in the offer of the
Eligible Third Party or Eligible Third Parties;
(iv) the Offering Stockholder's offer (irrevocable by its terms for 30 days
following receipt) to sell to the Company all (but not less than all)
of the shares of Retained Common Stock covered by the offer of the
Eligible Third Party or Eligible Third Parties for a purchase price
per share and on other terms and conditions not less favorable to the
Company than those contained in the offer of the Eligible Third Party
or Eligible Third Parties; and
(v) closing arrangements and a closing date (not less than 30 nor more than
90 days following the date of such letter) for any purchase and sale
that may be effected by the Company.
Notwithstanding anything in this Agreement to the contrary, it is understood
and agreed that this Section 7.1 shall not apply in any way to a Transfer made
by any Existing Stockholders for bona fide estate-planning purposes to a
Person of a kind described in clauses (A)-(D) of Section 1.2(c) of this
Agreement.
(b) Effecting Sales. After the receipt of the Offer, the Company shall have
a 30-day period in which to determine whether to purchase all (but not less
than all) of the shares covered by the Offer on the terms set forth therein
(or assign the right to purchase the shares to Kelso, a Kelso Holder or any
other designee of Kelso's in accordance with Section 7.1(c)).
If the Company (or Kelso or a Kelso Holder pursuant to Section 7.1(c)) fails
to accept the Offer within such 30-day period or fails to consummate the
closing of the purchase of the shares covered by the Offer within the time
period set forth therein, then the Offering Stockholder shall have the right
to sell to the Eligible Third Party or Eligible Third Parties identified in
such Offer all (but not less than all) of the shares of Retained Common Stock
covered by the Offer, for the purchase price and on the other terms and
conditions contained in the Offer. If the Offering Stockholder has not signed
a binding purchase agreement (subject to customary closing conditions) with
such Eligible Third Party or Eligible Third Parties within 30 days after the
expiration of such 30-day period or if such sale has not been completed within
60 days (or such later date as is necessary to obtain all requisite
governmental and regulatory approvals and consents) after the expiration of
such 30-day period, the shares of Retained Common Stock covered by such Offer
may not thereafter be sold by the Offering Stockholder unless the procedures
set forth in this Section 7.1 shall have again been complied with.
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(c) Assignment by the Company. If the Company is not going to purchase all of
the shares of Retained Common Stock covered by the Offer, then the Company
shall, within five days following the date of the Offer, notify Kelso of such
Offer and make available to Kelso the right to purchase all of the shares
covered by the Offer which are not being purchased by the Company. Kelso shall
have the right to assign to one or more Kelso Holders or one or more third-
parties designated by Kelso all or any of its rights to purchase Common Stock
pursuant to this Section 7.1(c). Notwithstanding the foregoing, in no event
shall the Company, Kelso, any Kelso Holder or any such third-party designee be
entitled to purchase any shares of Retained Common Stock pursuant to this
Section 7.1 unless all of the shares of Retained Common Stock covered by the
Offer are purchased. Any purchases made by Kelso, any Kelso Holder or any such
designee hereunder shall be made in accordance with Section 7.1(b).
7.2 Involuntary Transfers. Any transfer of title or beneficial ownership of
shares of Common Stock upon default, foreclosure, forfeit, divorce, court order
or otherwise than by a voluntary decision on the part of a Stockholder (each,
an "Involuntary Transfer") shall be void unless the Stockholder complies with
this Section 7.2 and enables the Company to exercise in full its rights
hereunder. Upon any Involuntary Transfer, the Company shall have the right to
purchase such shares pursuant to this Section 7.2 and the person or entity to
whom such shares have been Transferred (the "Involuntary Transferee") shall
have the obligation to sell such shares in accordance with this Section 7.2.
Upon the Involuntary Transfer of any shares of Common Stock, such Stockholder
shall promptly (but in no event later than two days after such Involuntary
Transfer) furnish written notice (the "Notice") to the Company indicating that
the Involuntary Transfer has occurred, specifying the name of the Involuntary
Transferee, giving a detailed description of the circumstances giving rise to,
and stating the legal basis for, the Involuntary Transfer. Upon the receipt of
the Notice, and for 60 days thereafter, the Company shall have the right to
purchase, and the Involuntary Transferee shall have the obligation to sell, all
(but not less than all) of the shares of Common Stock acquired by the
Involuntary Transferee for a purchase price equal to the lesser of (i) the Fair
Market Value of such shares of Common Stock and (ii) the amount of the
indebtedness or other liability that gave rise to the Involuntary Transfer plus
the excess, if any, of the Carrying Value of such shares of Common Stock over
the amount of such indebtedness or other liability that gave rise to the
Involuntary Transfer. "Fair Market Value" shall be determined in accordance
with Section 4.2 and shall be calculated with reference to the most recent
Appraisal and as of the most recent Appraisal Date prior to the date of the
Involuntary Transfer (or as of the first Appraisal and the first Appraisal Date
in the event that such termination occurs prior to the fiscal year ended
September , 2000).
8. Stock Certificate Legend. A copy of this Agreement shall be filed with the
Secretary of the Company and kept with the records of the Company. Each
certificate representing shares of Common Stock owned by the Stockholders shall
bear upon its face the following legends, as appropriate:
(i) "THE SHARES EVIDENCED BY THIS CERTIFICATE HAVE BEEN ACQUIRED FOR
INVESTMENT AND HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933, AS AMENDED (THE "ACT"), AND MAY NOT BE OFFERED, SOLD, ASSIGNED,
PLEDGED, HYPOTHECATED, TRANSFERRED OR OTHERWISE DISPOSED OF UNLESS AND
UNTIL REGISTERED UNDER THE ACT AND ANY APPLICABLE STATE SECURITIES LAWS
OR UNLESS, IN THE OPINION OF COUNSEL TO THE STOCKHOLDER, WHICH COUNSEL
MUST BE, AND THE FORM AND SUBSTANCE OF WHICH OPINION ARE, SATISFACTORY
TO THE ISSUER, SUCH OFFER, SALE, ASSIGNMENT, PLEDGE, HYPOTHECATION,
TRANSFER OR OTHER DISPOSITION IS EXEMPT FROM REGISTRATION OR IS
OTHERWISE IN COMPLIANCE WITH THE ACT, SUCH LAWS AND THE STOCKHOLDERS'
AGREEMENT OF THE ISSUER, DATED AS OF (THE "STOCKHOLDERS
AGREEMENT")."
(ii) "THE SHARES OF STOCK REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO
RESTRICTIONS ON TRANSFER AND OTHER CONDITIONS, AS SPECIFIED IN THE
STOCKHOLDERS AGREEMENT, COPIES OF WHICH ARE ON FILE AT THE OFFICE OF
THE ISSUER AND WILL BE FURNISHED WITHOUT CHARGE TO THE HOLDER OF SUCH
SHARES UPON WRITTEN REQUEST."
D-10
In addition, certificates representing shares of Common Stock owned by
residents of certain states shall bear any legends required by the laws of such
states.
All Stockholders shall be bound by the requirements of such legends. Upon a
Registration of any shares of Common Stock, the certificate representing the
registered shares shall be replaced, at the expense of the Company, with
certificates not bearing the legends required by Sections 9(i) and 9(ii).
9. Covenants; Representations and Warranties.
9.1 New Management Stockholders. Each of the Stockholders hereby agrees that
any employee of the Company or any of its subsidiaries who after the date of
this Agreement is offered shares of any class of Common Stock or holds stock
options exercisable into shares of Common Stock (including any Rollover
Options) shall, as a condition precedent to the acquisition of such shares of
Common Stock or the exercise of such stock options, as the case may be, (a)
become a party to this Agreement by executing the same and (b) if such employee
is a resident of a state with a community or marital property system, cause his
or her spouse to execute a Spousal Waiver in the form of Exhibit A attached
hereto and deliver such Agreement and Spousal Waiver, if applicable, to the
Company at its address specified in Section 19 hereof. Upon such execution and
delivery, such employee shall be a Management Stockholder for all purposes of
this Agreement.
9.2 No Other Arrangements or Agreements. Each Stockholder hereby represents
and warrants to the Company and to each other Stockholder that, except for the
Registration Rights Agreement, the Rollover Agreements (in the case of the
Existing Stockholders, only) and, in the case of any affected Management
Stockholder, any employment agreement with the Company and any Stock Option
Agreement of the Company applicable to such Management Stockholder, he or she
has not entered into or agreed to be bound by any other arrangements or
agreements of any kind with any other party with respect to the shares of
Common Stock, including, but not limited to, arrangements or agreements with
respect to the acquisition or disposition of Common Stock or any interest
therein or the voting of shares of Common Stock (whether or not such agreements
and arrangements are with the Company or any of its subsidiaries, or other
Stockholders). Each Non-Kelso Stockholder agrees that, except as expressly
permitted under this Agreement, he or she will not enter into any such other
arrangements or agreements as he or she has represented and warranted to above
with any other party as long as any of the terms of this Agreement remain in
effect, except any such agreement with the Company or any of its subsidiaries
entered into in connection with the grant of any stock options or restricted
stock pursuant to any equity incentive plan of the Company or any of its
subsidiaries.
9.3 Additional Representations and Warranties. Each Stockholder represents
and warrants to the Company and each other Stockholder that:
(i) such Stockholder has the power, authority and capacity (or, in the case
of any Stockholder that is a corporation, limited liability company or limited
partnership, all corporate, limited liability company or limited partnership
power and authority, as the case may be) to execute, deliver and perform this
Agreement;
(ii) in the case of a Stockholder that is a corporation, limited liability
company or limited partnership, the execution, delivery and performance of this
Agreement by such Stockholder has been duly and validly authorized and approved
by all necessary corporate, limited liability company or limited partnership
action, as the case may be;
(iii) this Agreement has been duly and validly executed and delivered by such
Stockholder and constitutes a valid and legally binding obligation of such
Stockholder, enforceable in accordance with its terms, subject to bankruptcy,
insolvency, reorganization, moratorium or other similar laws affecting or
relating to creditors' rights generally and general principles of equity; and
(iv) the execution, delivery and performance of this Agreement by such
Stockholder does not and will not violate the terms of or result in the
acceleration of any obligation under (A) any material contract, commitment or
other material instrument to which such Stockholder is a party or by which such
Stockholder is bound or (B) in the case of a Stockholder that is a corporation,
limited liability company or limited partnership, the certificate of
incorporation, certificate of formation, certificate of limited partnership,
by-laws, limited liability company agreement or limited partnership agreement,
as the case may be.
D-11
10. Preemptive Rights. Following the date hereof, if the Company proposes to
sell, issue or grant to any Person any equity securities of the Company or
other securities or rights, directly or indirectly convertible into or
exercisable or exchangeable for any capital stock or other equity securities of
the Company (other than any Excluded Shares), each Existing Stockholder that
continues to own Retained Common Stock shall have the right, on the same terms
and conditions of the proposed sale, issuance or grant and exercisable within
30 days after the Company has given such Existing Stockholder notice of such
proposed sale, issuance or grant, to purchase a percentage of the shares or
securities to be sold, issued or granted equal to the percentage obtained by
dividing the number of shares of Retained Common Stock of such Existing
Stockholder's divided by the entire Common Stock of the Company, on a fully
diluted basis, as of the business day immediately prior to the date of such
sale, issuance or grant. If any such Existing Stockholder exercises any such
preemptive rights, the purchase of shares or securities by such Existing
Stockholder will be governed by and subject to the terms and conditions
(including, without limitation, as to price) applicable to the Person to whom
the sale, issuance or grant was initially proposed to be made.
11. Option to Purchase Additional Common Stock. Subject to Section 11
("Preemptive Rights"), prior to the first anniversary of the Closing, Kelso
shall have the right to purchase from the Company, and the Company shall have
the obligation to sell to Kelso such number of primary shares of Common Stock
as Kelso shall request ("Additional Shares"). The price per share of the
Additional Shares shall be the lesser of (i) $17.00 and (ii) the Fair Market
Value of a share of Common Stock based on the most recent Appraisal as of the
most recent Appraisal Date prior to Kelso's exercise of such option, subject to
any adjustment by reason of any stock split, dividend or similar transaction
after the Closing. The right of Kelso pursuant to this Section 11 shall expire
if unexercised upon the first anniversary of the date hereof. Kelso shall have
the right to assign to one or more Kelso Holders or one or more third-parties
designated by Kelso all of its rights to purchase Additional Shares pursuant to
this Section 11.
12. Amendment and Modification. This Agreement may not be amended, modified
or supplemented except by a written instrument signed by the Company, Kelso,
and to the extent (and only to the extent) their interests are adversely
affected by such amendment, modification or supplement, by a majority of
interest (based on the number of shares owned by each affected Shareholder at
the time of such amendment, modification or supplement) of the Existing
Stockholders or the Management Stockholders, as the case may be, provided that
in the event a Stockholder consents to any such amendment, modification or
supplement in any capacity as a Stockholder such Stockholder shall be deemed to
consent thereto in all of its capacities as a Stockholder. The Company shall
notify all Stockholders promptly after any such amendment, modification or
supplement shall have taken effect.
13. Parties.
13.1 Assignment by the Company. The Company shall have the right to assign to
Kelso all or any portion of its rights under Sections 2, 3 and 7, provided that
any such assignment is accepted by Kelso. If the Company has not exercised its
right to purchase shares of Common Stock pursuant to any such Section within 15
days of receipt by the Company of the letter, notice or other occurrence giving
rise to such right, then Kelso shall have the right to require the Company to
assign to Kelso such right. Kelso shall have the right to assign to one or more
of the Kelso Holders all or any of its rights to purchase shares of Common
Stock pursuant to this Section 12.1.
13.2 Assignment Generally. The provisions of this Agreement shall be binding
upon and inure to the benefit of the parties hereto and their respective heirs,
legal representatives, successors and assigns, provided that the Company may
not assign any of its rights or obligations hereunder without the consent of
Kelso and provided, further, that (i) an Existing Stockholder can not assign
its rights set forth in Section 11 and (ii) subject to clause (i) hereof, a
Non-Kelso Stockholder may not assign any of its rights or obligations hereunder
without the prior written consent of Kelso, unless such assignment is in
connection with a Transfer explicitly permitted by this Agreement and, prior to
such assignment, such assignee complies with the requirements of Section 13.4.
D-12
13.3 Termination. (a) Any Stockholder who ceases to own any shares of Common
Stock or any interest therein, shall cease to be a party to this Agreement and
thereafter shall have no rights or obligations hereunder, provided, however,
that a Transfer of shares of Common Stock not explicitly permitted under this
Agreement shall not relieve a Non-Kelso Stockholder of any of his or her
obligations hereunder.
(b) All rights and obligations pursuant to Sections 1.1, 1.2(a), 1.2(c), 2,
3, 4, 6, 7, 9.2, 10 and 13.4 of this Agreement shall terminate upon the closing
of a public offering pursuant to a Registration that covers (together with
prior Registrations) (a) not less than 20% of the outstanding shares of Common
Stock, on a fully diluted basis, or (b) shares of Common Stock that, after the
closing of such public offering, will be traded on the New York Stock Exchange,
the American Stock Exchange or the National Association of Securities Dealers
Automated Quotation System.
13.4 Agreements to Be Bound. Notwithstanding anything to the contrary
contained in this Agreement, any Transfer of shares by a Non-Kelso Stockholder
(other than pursuant to a Registration) shall be permitted under the terms of
this Agreement only if the transferee of such Non-Kelso Stockholder shall agree
in writing to be bound by the terms and conditions of this Agreement pursuant
to an instrument of assumption reasonably satisfactory in substance and form to
the Company, and, in the case of a transferee of a Stockholder who is an
individual and who resides in a state with a community property system, such
transferee causes his or her spouse, if any, to execute a Spousal Waiver in the
form of Exhibit A attached hereto. Upon the execution of the instrument of
assumption by such transferee and, if applicable, the Spousal Waiver by the
spouse of such transferee, such transferee shall be subject to all of the
restrictions and obligations of his or her transferor hereunder, including,
without limitation, the provisions of Sections 2 and 3 (which shall continue to
apply as though the transferring Stockholder were still the holder of such
shares), provided, however, that Section 6.1 (Tag-Along Rights) shall not apply
to any transferee who has acquired shares of Common Stock pursuant to Section
7.1 or 7.2.
14. Recapitalizations, Exchanges, etc. Except as otherwise provided herein,
the provisions of this Agreement shall apply to the full extent set forth
herein with respect to (a) the shares of Common Stock and (b) any and all
shares of capital stock of the Company or any successor or assign of the
Company (whether by merger, consolidation, sale of assets or otherwise) which
may be issued in respect of, in exchange for, or in substitution for the shares
of Common Stock by reason of any stock dividend, split, reverse split,
combination, recapitalization, reclassification, merger, consolidation or
otherwise. All share numbers and percentages shall be proportionately adjusted
to reflect any stock split, reverse split, stock dividend or other subdivision
or combination effected after the date hereof. Except as otherwise provided
herein, this Agreement is not intended to confer upon any person, except for
the parties hereto, any rights or remedies hereunder.
15. Further Assurances. Each party hereto shall do and perform or cause to be
done and performed all such further acts and things and shall execute and
deliver all such other agreements, certificates, instruments and documents as
any other party hereto or person subject hereto may reasonably request in order
to carry out the intent and accomplish the purposes of this Agreement and the
consummation of the transactions contemplated hereby.
16. Governing Law. This Agreement and the rights and obligations of the
parties hereunder and the persons subject hereto shall be governed by, and
construed and interpreted in accordance with, the laws of the State of
Delaware, without giving effect to the choice of law principles thereof.
17. Invalidity of Provision. The invalidity or unenforceability of any
provision of this Agreement in any jurisdiction shall not affect the validity
or enforceability of the remainder of this Agreement in that jurisdiction or
the validity or enforceability of this Agreement, including that provision, in
any other jurisdiction.
18. Waiver. Waiver by any party hereto of any breach or default by the other
party of any of the terms of this Agreement shall not operate as a waiver of
any other breach or default, whether similar to or different from the breach or
default waived. No waiver of any provision of this Agreement shall be implied
from any course of dealing between the parties hereto or from any failure by
either party to assert its or his or her rights hereunder on any occasion or
series of occasions.
D-13
19. Notices. All notices, requests, demands, waivers and other communications
required or permitted to be given under this Agreement shall be in writing and
shall be deemed to have been duly given if (a) delivered personally, (b)
mailed, certified or registered mail with postage prepaid, (c) sent by next-day
or overnight mail or delivery or (d) sent by fax, as follows (or to such other
address as the party entitled to notice shall hereafter designate in accordance
with the terms hereof):
(i) If to the Company:
Fax:
Attention:
with a copy to Kelso at its address set forth below
(ii) If to a Management Stockholder, to his or her attention at:
[name and address of the Company]
Fax:
(iii) If to an Existing Stockholder, to him at:
Fax:
Attention:
(vi) If to Kelso, to it at:
Kelso & Company
320 Park Avenue, 24th Floor
New York, New York 10022
Fax: 212-223-2379
Attention: James J. Connors, II, Esq.
All such notices, requests, demands, waivers and other communications shall be
deemed to have been received (A) if by personal delivery on the day after such
delivery, (B) if by certified or registered mail, on the fifth business day
after the mailing thereof, (C) if by next-day or overnight mail or delivery, on
the day delivered, or (D) if by fax, on the next day following the day on which
such fax was sent, provided that a copy is also sent by certified or registered
mail.
20. Headings. The headings to sections in this Agreement are for the
convenience of the parties only and shall not control or affect the meaning or
construction of any provision hereof.
21. Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall be deemed an original but all of which
together shall constitute one and the same instrument.
22. Entire Agreement. This Agreement, the Registration Rights Agreement, the
Rollover Agreements, and, in the case of any affected Management Stockholder or
Existing Stockholder, any employment agreement with the Company and any Stock
Option Agreement of the Company applicable to such Management Stockholder or
Existing Stockholder, constitute the entire agreement and understanding of the
parties hereto with respect to the matters referred to herein. This Agreement
and the agreements referred to in the preceding sentence supersede all prior
agreements and understandings among the parties with respect to such matters.
There are no representations, warranties, promises, inducements, covenants or
undertakings relating to the shares of Common Stock, other than those expressly
set forth or referred to herein, in the Registration Rights Agreement or the
Rollover Agreements.
23. Injunctive Relief. The shares of Common Stock cannot readily be purchased
or sold in the open in the market, and for that reason, among others, the
Company and the Stockholders will be irreparably damaged in the event this
Agreement is not specifically enforced. Each of the parties therefore agrees
that in the event of a breach of any provision of this Agreement, the aggrieved
party may elect to institute and prosecute proceedings in any court of
competent jurisdiction to enforce specific performance or to enjoin the
continuing breach of this Agreement. Such remedies shall, however, be
cumulative and not exclusive, and shall be in addition to any other remedy
which the Company or any Stockholder may have. Each Stockholder hereby
irrevocably submits to the non-exclusive jurisdiction of the state and federal
courts in New York for the purposes of any suit, action or other proceeding
arising out of or based upon this Agreement or the subject matter hereof. Each
Stockholder hereby consents to service of process made in accordance with
Section 18.
D-14
24.Defined Terms. As used in this Agreement, the following terms shall have
the meanings ascribed to them below:
Affiliate: person that directly, or indirectly through one or more
intermediaries, controls, or is controlled by, or is under common control with,
the Person specified.
Board: the board of directors of the Company.
Carrying Value: the meaning set forth in Section 4.3.
Cause: the meaning as set forth in the employment agreement between the Company
and such Management Stockholder or, if such Management Stockholder is not a
party to an employment agreement, a termination of such Management
Stockholder's employment by the Company or any subsidiary that employs such
individual (or by the Company on behalf of any such subsidiary) due to (i) the
refusal or neglect of the Management Stockholder to perform substantially his
employment-related duties, (ii) the Management Stockholder's personal
dishonesty, incompetence, willful misconduct or breach of fiduciary duty, (iii)
the Management Stockholder's conviction of or entering a plea of guilty or nolo
contendere to a crime constituting a felony or his or her willful violation of
any law, rule, or regulation (other than a traffic violation or similar offense
or violation outside of the course of employment which in no way adversely
affects the Company or its reputation or the ability of the Management
Stockholder to perform his employment-related duties or to represent the
Company) or (iv) the breach by the Management Stockholder of any written
covenant or agreement with the Company or any of its subsidiaries not to
disclose any information pertaining to the Company or such subsidiary or not to
compete or interfere with the Company or such subsidiary.
Closing: the "Closing" shall mean the closing of the recapitalization of the
Company pursuant to the Merger Agreement.
Common Stock: the Common Stock of the Company, par value $.01 per share.
Disability. With respect to a Management Stockholder, the term "Disability"
shall have the meaning set forth in the employment agreement between the
Company and such Management Stockholder, or, if such Management Stockholder is
not a party to an employment agreement, the termination of the employment of
any Management Stockholder by the Company and any subsidiary that employs such
individual (or by the Company on behalf of any such subsidiary) as a result of
such Management Stockholder's incapacity due to reasonably documented physical
or mental illness that shall have prevented such Management Stockholder from
performing his or her duties for the Company on a full-time basis for more than
six months and within 30 days after written notice of termination has been
given to such Management Stockholder, such Management Stockholder shall not
have returned to the full time performance of his or her duties. The date of
termination in the case of a termination for "Disability" shall be deemed to be
the last day of the aforementioned 30-day period.
Eligible Third-Party: means with respect to any proposed transfer by any
Existing Stockholder pursuant to Section 7 hereof, any third-party which is not
engaged, directly or indirectly in any business which is in competition with
any business then conducted by the Company or any of its subsidiaries.
Excluded Shares: (i) any Common Stock issued upon exercise of any options
granted to the employees of the Company, (ii) any securities of the Company
issued in connection with any business combination, (iii) any securities issued
in connection with any stock split, stock dividend or recapitalization of the
Company, (iv) any securities issued to any entity in connection with a loan by
such entity to the Company, if such loan transaction and such issuance of
securities has been approved by the Board, (v) any securities issued to any
entity in connection with the lease by such entity to the Company, if such
lease transaction and such issuance of securities has been approved by the
Board, and (vi) any securities issued in a public offering, including any
initial public offering.
Fair Market Value: the meaning set forth in Section 4.2.
Good Reason: the meaning as set forth in the employment agreement between the
Company and such Management Stockholder, or, if such Management Stockholder is
not a party to an employment agreement, a termination of a Management
Stockholder's employment with the Company and any subsidiary that employs
D-15
such individual shall be for "Good Reason" if such Management Stockholder
voluntarily terminates his employment with the Company and any such subsidiary
as a result of either of the following:
(i) without the Management Stockholder's prior written consent, a
significant reduction by the Company or any such subsidiary of his or her
current salary, other than any such reduction which is part of a general
salary reduction or other concessionary arrangement affecting all employees
or affecting the group of employees of which the Management Stockholder is
a member (after receipt by the Company of written notice and a 20-day cure
period); or
(ii) the taking of any action by the Company or any such subsidiary that
would substantially diminish the aggregate value of the benefits provided
him or her under the Company's or such subsidiary's accident, disability,
life insurance and any other employee benefit plans in which he or she was
participating on the date of his or her execution of this Agreement, other
than any such reduction which is (A) required by law, (B) implemented in
connection with a general concessionary arrangement affecting all employees
or affecting the group of employees of which the Management Stockholder is
a member or (C) generally applicable to all beneficiaries of such plans
(after receipt by the Company of written notice and a 20-day cure period).
Involuntary Transfer: the meaning set forth in Section 7.2.
Kelso Holder: Any Affiliate or designee of Kelso.
Merger Agreement: the First Amended and Restated Agreement and Plan of
Recapitalization and Merger, dated as of September , 1999, between RSJ and
the Company.
Person: an individual, corporation, partnership, limited liability company,
joint venture, association, trust or other entity or organization, including a
government or political subdivision or an agency or instrumentality thereof.
Registration: the closing of a public offering pursuant to an effective
Registration Statement under the Securities Act of 1933, as amended.
Registration Rights Agreement: the Registration Rights Agreement, dated as of
the date hereof, among the parties hereto.
Rollover Agreements: (i) the Rollover Agreement, dated as of September ,
1999, between RSJ and Morris T. Hackney and (ii) the additional Rollover
Agreement[s] between RSJ and each of [insert applicable management
stockholders].
Rollover Stock Options: means the options identified on Exhibit to the
Merger Agreement.
RSJ: the meaning set forth in the recitals hereto.
Transfer: any direct or indirect sale, assignment, mortgage, transfer, pledge,
hypothecation or other disposal.
D-16
IN WITNESS WHEREOF this Agreement has been signed by each of the parties
hereto, and shall be effective as of the date first above written.
CITATION CORPORATION
By: _________________________________
Name:
Title:
KELSO INVESTMENT ASSOCIATES VI, L.P.
By: Kelso GP VI, LLC,
its general partner
By: _________________________________
General Partner
KEP VI, LLC
By: _________________________________
General Partner
HACKNEY ONE INVESTMENTS, LLC
By: _________________________________
T. Morris Hackney, its Manager
-------------------------------------
R. CONNER WARREN
-------------------------------------
FREDERICK F. SOMMER
-------------------------------------
TIMOTHY L. ROBERTS
-------------------------------------
EDWIN L. YODER
-------------------------------------
JOHN W. LAWSON
D-17
Schedule A
Management Stockholders
D-18
Exhibit A
SPOUSAL WAIVER
[INSERT NAME] hereby waives and releases any and all equitable or legal claims
and rights, actual, inchoate or contingent, which she may acquire with respect
to the disposition, voting or control of the shares of Common Stock subject to
the Stockholders' Agreement of Citation Corporation, dated as of , 1999,
as the same shall be amended from time to time, except for rights in respect of
the proceeds of any disposition of such Common Stock.
-------------------------------------
Name:
D-19
ANNEX E
FORM OF REGISTRATION RIGHTS AGREEMENT
E-1
TABLE OF CONTENTS
Page
----
1.Registrations Upon Request.............................................. E-3
1.1.Requests by Kelso.................................................. E-3
1.2.Registration Statement Form........................................ E-4
1.3.Expenses........................................................... E-4
1.4.Priority in Demand Registrations................................... E-4
1.5.No Company Initiated Registration.................................. E-4
2.Incidental Registrations................................................ E-4
3.Registration Procedures................................................. E-5
4.Underwritten Offerings.................................................. E-8
4.1.Underwriting Agreement............................................. E-8
4.2.Selection of Underwriters.......................................... E-8
5.Holdback Agreements..................................................... E-9
6.Preparation; Reasonable Investigation................................... E-9
7.No Grant of Future Registration Rights.................................. E-9
8.Permitted Assignees..................................................... E-9
9.Indemnification......................................................... E-10
9.1.Indemnification by the Company..................................... E-10
9.2.Indemnification by the Sellers..................................... E-10
9.3.Notices of Claims, etc............................................. E-11
9.4.Other Indemnification.............................................. E-11
9.5.Indemnification Payments........................................... E-11
9.6.Other Remedies..................................................... E-11
10.Representations and Warranties.......................................... E-12
11.Definitions............................................................. E-12
12.Miscellaneous........................................................... E-13
12.1.Rule 144, etc...................................................... E-13
12.2.Successors, Assigns and Transferees................................ E-13
12.3.Stock Splits....................................................... E-13
12.4.Amendment and Modification......................................... E-14
12.5.Governing Law...................................................... E-14
12.6.Invalidity of Provision............................................ E-14
12.7.Notices............................................................ E-14
12.8.Headings; Execution in Counterparts................................ E-14
12.9.Injunctive Relief.................................................. E-15
12.10.Term.............................................................. E-15
12.11.Further Assurances................................................ E-15
12.12.Entire Agreement.................................................. E-15
E-2
REGISTRATION RIGHTS AGREEMENT
REGISTRATION RIGHTS AGREEMENT, dated as of , 1999, among Citation
Corporation, a Delaware corporation (the "Company"), Kelso Investment
Associates VI, L.P., a Delaware limited partnership ("KIA VI"), KEP VI, LLC, a
Delaware limited partnership ("KEP VI"; and, together with KIA V, "Kelso"),
Hackney One Investments, LLC, a Delaware limited liability company, R. Conner
Warren, R. Conner Warren, Frederick F. Sommer, Timothy L. Roberts, Edwin L.
Yoder, John W. Lawson, those stockholders who are holders of Common Stock on
the date hereof and have agreed to become parties to this Agreement and those
employees of the Company or its subsidiaries who become parties to this
Agreement from time to time (collectively, the "Non-Kelso Stockholders"). Kelso
and the Non-Kelso Stockholders are hereinafter referred to collectively as the
"Stockholders." Capitalized terms used herein without definition are defined in
Section 11.
WHEREAS, on the date hereof, RSJ Acquisition Co., a Delaware corporation
("RSJ"), is merging with and into Citation Corporation (the "Company"), a
Delaware corporation, pursuant to an Agreement and Plan of Merger and
Recapitalization, dated as of June 24, 1999, by and between RSJ and the
Company, as amended by Amendment No. 1 to the Agreement and Plan of Merger and
Recapitalization, dated as of September , 1999, by and between RSJ and the
Company (as so amended, the "Merger Agreement");
WHEREAS, pursuant to the Merger Agreement (i) Kelso, as the owner of all of
the common stock of RSJ, has acquired substantially all of the Common Stock of
the Company, as the surviving corporation of the Merger and (ii) the Non-Kelso
Stockholders, as former holders of a portion of the common stock of the
Company, have retained a portion of the Common Stock of the Company in the
Merger; and
WHEREAS, the parties hereto wish to set forth certain rights and obligations
with respect to the registration of the shares of Common Stock under the
Securities Act.
NOW, THEREFORE, in consideration of the mutual covenants and obligations set
forth in this Agreement, the parties hereto agree as follows:
1. Registrations Upon Request.
1.1 Requests by Kelso. At any time, Kelso shall have the right to make up to
five separate requests that the Company effect the registration under the
Securities Act of all or a portion of the Registrable Securities owned by
Kelso, each such request to specify the intended method or methods of
disposition thereof. A request made by Kelso shall not be counted for purposes
of the request limitations set forth above (a) if Kelso determines in its good
faith judgment to withdraw the proposed registration of any Registrable
Securities requested to be registered pursuant to this Section 1.1 due to
marketing or regulatory reasons, (b) the registration statement relating to any
such request is not declared effective within 90 days of the date such
registration statement is first filed with the Commission, (c) if, within 180
days after the registration relating to any such request has become effective,
such registration is interfered with by any stop order, injunction or other
order or requirement of the Commission or other governmental agency or court
for any reason and the Company fails to have such stop order, injunction or
other order or requirement removed, withdrawn or resolved to Kelso's reasonable
satisfaction within 30 days, (d) if more than 10% of the Registrable Securities
requested by Kelso to be included in the registration are not so included
pursuant to Section 1.4 or (e) the conditions to closing specified in the
underwriting agreement or purchase agreement entered into in connection with
the registration relating to any such request are not satisfied (other than as
a result of a default or breach thereunder by Kelso). Upon any such request,
the Company will promptly, but in any event within 15 days, give written notice
of such request to all holders of Registrable Securities and thereupon the
Company will, subject to Section 1.4, use its best efforts to effect the prompt
registration under the Securities Act of:
(i) the Registrable Securities which the Company has been so requested to
register by Kelso, and
(ii) all other Registrable Securities which the Company has been requested
to register by the holders thereof by written request given to the Company
by such holders within 20 days after the giving of such written notice by
the Company to such holders,
E-3
all to the extent required to permit the disposition of the Registrable
Securities so to be registered in accordance with the intended method or
methods of disposition of each seller of such Registrable Securities,
including, without limitation, in the case of a request by Kelso only, by means
of an underwritten public offering.
1.2 Registration Statement Form. A registration requested pursuant to Section
1.1 shall be effected by the filing of a registration statement on a form
agreed to by Kelso.
1.3 Expenses. The Company will pay all Registration Expenses in connection
with any registration requested under Section 1.1; provided that each seller of
Registrable Securities shall pay all Registration Expenses to the extent
required to be paid by such seller under applicable law and all underwriting
discounts and commissions and transfer taxes, if any.
1.4 Priority in Demand Registrations. If a registration pursuant to Section
1.1 involves an underwritten offering, and the managing underwriter (or, in the
case of an offering which is not underwritten, a nationally recognized
investment banking firm) shall advise the Company in writing (with a copy to
each Person requesting registration of Registrable Securities) that, in its
opinion, the number of securities requested and otherwise proposed to be
included in such registration exceeds the number which can be sold in such
offering without materially and adversely affecting the offering price, the
Company will include in such registration to the extent of the number which the
Company is so advised can be sold in such offering without such material
adverse effect, first, the Registrable Securities of Kelso, the Kelso Holders
and the Non-Kelso Stockholders, on a pro rata basis (based on the number of
shares of Registrable Securities owned by each such Stockholder), and second,
the securities, if any, being sold by the Company. Notwithstanding the
foregoing, the Non-Kelso Stockholders who are managers of the Company (and any
successor managers of the Company and its subsidiaries) will not be entitled to
participate in any such registration requested by Kelso to the extent that the
managing underwriter (or, in the case of an offering that is not underwritten,
a nationally recognized investment banking firm) shall determine in good faith
and in writing (with a copy to each affected Person requesting registration of
Registrable Securities), that the participation of management would adversely
affect the marketability or offering price of the securities being sold in such
registration, it being understood that the Company will include in such
registration that number of shares of the Non-Kelso Stockholders which can be
sold in such offering without adversely affecting the marketability or offering
price of the other securities to be sold in such registration.
1.5 No Company Initiated Registration. After receipt of notice of a requested
registration pursuant to Section 1.1, the Company shall not initiate, without
the consent of Kelso, a registration of any of its securities for its own
account until 90 days after such registration has been effected or such
registration has been terminated.
2. Incidental Registrations. If the Company at any time proposes to register
any of its equity securities under the Securities Act for its own account
(other than pursuant to a registration on Form S-4 or S-8 or any successor
form) and (i) Kelso or any Kelso Holder has requested that the Company include
Registrable Securities owned by Kelso or any Kelso Holder in such registration
or (ii) Kelso and the Kelso Holders no longer own any Registrable Securities,
then, in either case, but subject to subsection (a) below, the Company will
give prompt written notice to all holders of Registrable Securities regarding
such proposed registration. Upon the written request of any such holder made
within 20 days after the receipt of any such notice (which request shall
specify the number of Registrable Securities intended to be disposed of by such
holder and the intended method or methods of disposition thereof), the Company
will use its best efforts to effect the registration under the Securities Act
of such Registrable Securities on a pro rata basis in accordance with such
intended method or methods of disposition, provided that:
(i) if such registration shall be in connection with an IPO (i) the
Company shall not include any Registrable Securities in such proposed
registration if the Board shall have determined, after consultation with
the managing underwriter for such offering, that it is not in the best
interests of the Company to include any Registrable Securities in such
registration and (ii) the Company shall not include any
E-4
Registrable Securities of the Non-Kelso Stockholders who are managers of
the Company (and any successor managers of the Company and its
subsidiaries) in such proposed registration if it believes in good faith
that inclusion of such securities would not be in the best interests of the
Company, provided that the Company will include in such registration that
number of Registrable Securities of the Non-Kelso Stockholders that such
managing underwriter and the Company determine would not be adverse to the
best interests of the Company and provided, further, that the Company shall
give the Non-Kelso Stockholders prompt notice after any such determination
has been made (in lieu of the notice otherwise required under clause (ii)
of this Section 2);
(ii) if, at any time after giving written notice (pursuant to this
Section 2) of its intention to register equity securities and prior to the
effective date of the registration statement filed in connection with such
registration, the Company shall determine for any reason not to register
such equity securities, the Company may, at its election, give written
notice of such determination to each holder of Registrable Securities and,
thereupon, shall not be obligated to register any Registrable Securities in
connection with such registration (but shall nevertheless pay the
Registration Expenses in connection therewith), without prejudice, however,
to the rights of Kelso to request that a registration be effected under
Section 1.1; and
(iii) if in connection with a registration pursuant to this Section 2,
the managing underwriter of such registration (or, in the case of an
offering that is not underwritten, a nationally recognized investment
banking firm) shall advise the Company in writing (with a copy to each
holder of Registrable Securities requesting registration thereof) that, in
its opinion, the number of securities requested and otherwise proposed to
be included in such registration exceeds the number which can be sold in
such offering without materially and adversely affecting the offering
price, then in the case of any registration pursuant to this Section 2, the
Company will include in such registration to the extent of the number which
the Company is so advised can be sold in such offering without such
material adverse effect, first, the securities, if any, being sold by the
Company, and second, the Registrable Securities of Kelso, the Kelso Holders
and the Non-Kelso Stockholders, on a pro rata basis (based on the number of
shares of Registrable Securities owned by each such Stockholder).
Notwithstanding the foregoing, the Non-Kelso Stockholders will not be
entitled to participate in any registration pursuant to this Section 2 to the
extent that the managing underwriter (or, in the case of an offering that is
not underwritten, a nationally recognized investment banker) shall determine in
good faith and in writing (with a copy to each affected Person requesting
registration of Registrable Securities) that the participation of any such Non-
Kelso Stockholder would adversely affect the marketability or offering price of
the securities being sold by the Company in such registration.
The Company will pay all Registration Expenses in connection with each
registration of Registrable Securities requested pursuant to this Section 2,
provided that each seller of Registrable Securities shall pay all Registration
Expenses to the extent required to be paid by such seller under applicable law
and all underwriting discounts and commissions and transfer taxes, if any. No
registration effected under this Section 2 shall relieve the Company from its
obligation to effect registrations under Sections 1.1.
3. Registration Procedures. If and whenever the Company is required to use
its best efforts to effect the registration of any Registrable Securities under
the Securities Act as provided in Sections 1.1 and 2, the Company will
promptly:
(a) prepare, and as soon as practicable, but in any event within 60 days
thereafter, file with the Commission, a registration statement with respect
to such Registrable Securities, make all required filings with the NASD and
use its best efforts to cause such registration statement to become
effective as soon as practicable;
(b) prepare and promptly file with the Commission such amendments and
post-effective amendments and supplements to such registration statement
and the prospectus used in connection therewith as may be necessary to keep
such registration statement effective for so long as is required to comply
with the provisions of the Securities Act and to complete the disposition
of all securities covered by such registration statement in accordance with
the intended method or methods of disposition thereof, but in no event for
a period of more than six months after such registration statement becomes
effective;
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(c) furnish copies of all documents proposed to be filed with the
Commission in connection with such registration to (i) in the case of a
registration pursuant to Section 1.1 or a registration pursuant to Section
2 in which Kelso is participating, counsel selected by Kelso and (ii) in
the case of a registration pursuant to Section 2 in which Kelso is not
participating, counsel selected by the holders of at least 51% of the
Registrable Securities proposed to be sold in connection with such
registration (such holders, the "Majority Holders"), and such documents
shall be subject to the review of such counsel and Kelso or the Majority
Holders, as the case may be, and the Company shall not file any
registration statement or amendment or post-effective amendment or
supplement to such registration statement or the prospectus used in
connection therewith to which either such counsel or Kelso or the Majority
Holders, as the case may be, shall have reasonably objected in writing on
the grounds that such amendment or supplement does not comply (explaining
why) in all material respects with the requirements of the Securities Act
or of the rules or regulations thereunder;
(iv) furnish to each seller of Registrable Securities, without charge,
such number of conformed copies of such registration statement and of each
such amendment and supplement thereto (in each case including all exhibits
and documents filed therewith) and such number of copies of the prospectus
included in such registration statement (including each preliminary
prospectus and any summary prospectus) and any other prospectus filed under
Rule 424 under the Securities Act, in conformity with the requirements of
the Securities Act, and such other documents, as such seller may reasonably
request in order to facilitate the disposition of the Registrable
Securities owned by such seller in accordance with the intended method or
methods of disposition thereof;
(v) use its best efforts to register or qualify such Registrable
Securities covered by such registration statement under the securities or
blue sky laws of such jurisdictions as each seller shall reasonably
request, and do any and all other acts and things which may be necessary or
advisable to enable such seller to consummate the disposition of such
Registrable Securities in such jurisdictions in accordance with the
intended method or methods of disposition thereof, provided that the
Company shall not for any such purpose be required to qualify generally to
do business as a foreign corporation in any jurisdiction wherein it is not
so qualified, subject itself to taxation in any jurisdiction wherein it is
not so subject, or take any action which would subject it to general
service of process in any jurisdiction wherein it is not so subject;
(vi) use its best efforts to cause all Registrable Securities covered by
such registration statement to be registered with or approved by such other
governmental agencies, authorities or self-regulatory bodies as may be
necessary by virtue of the business and operations of the Company to enable
the seller or sellers thereof to consummate the disposition of such
Registrable Securities in accordance with the intended method or methods of
disposition thereof;
(vii) furnish to each seller of Registrable Securities a signed
counterpart, addressed to the sellers, of
1. an opinion of counsel for the Company experienced in securities
law matters, dated the effective date of the registration statement
(and, if such registration includes an underwritten public offering,
the date of the closing under the underwriting agreement), and
2. a "comfort" letter (unless the registration is pursuant to Section
2 and such a letter is not otherwise being furnished to the Company),
dated the effective date of such registration statement (and if such
registration includes an underwritten public offering, dated the date
of the closing under the underwriting agreement), signed by the
independent public accountants who have issued an audit report on the
Company's financial statements included in the registration statement,
covering such matters as are customarily covered in opinions of issuer's
counsel and in accountants' letters delivered to the underwriters in
underwritten public offerings of securities and such other matters as Kelso
(unless Kelso is not participating in such registration) may reasonably
request;
(viii) notify each seller of any Registrable Securities covered by such
registration statement at any time when a prospectus relating thereto is
required to be delivered under the Securities Act of the happening of any
event or existence of any fact as a result of which the prospectus included
in such
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registration statement, as then in effect, includes an untrue statement of
a material fact or omits to state any material fact required to be stated
therein or necessary to make the statements therein not misleading in light
of the circumstances then existing, and, as promptly as is practicable,
prepare and furnish to such seller a reasonable number of copies of a
supplement to or an amendment of such prospectus as may be necessary so
that, as thereafter delivered to the purchasers of such securities, such
prospectus shall not include an untrue statement of a material fact or omit
to state a material fact required to be stated therein or necessary to make
the statements therein not misleading in light of the circumstances then
existing;
(ix) otherwise comply with all applicable rules and regulations of the
Commission, and make available to its security holders, as soon as
reasonably practicable, an earnings statement of the Company (in form
complying with the provisions of Rule 158 under the Securities Act)
covering the period of at least 12 months, but not more than 18 months,
beginning with the first month after the effective date of such
registration statement;
(x) notify each seller of any Registrable Securities covered by such
registration statement (i) when the prospectus or any prospectus supplement
or post-effective amendment has been filed, and, with respect to such
registration statement or any post-effective amendment, when the same has
become effective, (ii) of any request by the Commission for amendments or
supplements to such registration statement or to amend or to supplement
such prospectus or for additional information, (iii) of the issuance by the
Commission of any stop order suspending the effectiveness of such
registration statement or the initiation of any proceedings for that
purpose and (iv) of the suspension of the qualification of such securities
for offering or sale in any jurisdiction, or of the institution of any
proceedings for any of such purposes;
(xi) use every reasonable effort to obtain the lifting of any stop order
that might be issued suspending the effectiveness of such registration
statement at the earliest possible moment;
(xii) use its best efforts (i) (A) to list such Registrable Securities on
any securities exchange on which the equity securities of the Company are
then listed or, if no such equity securities are then listed, on an
exchange selected by the Company, if such listing is then permitted under
the rules of such exchange, or (B) if such listing is not practicable, to
secure designation of such securities as a NASDAQ "national market system
security" within the meaning of Rule 11Aa2-1 under the Exchange Act or,
failing that, to secure NASDAQ authorization for such Registrable
Securities, and, without limiting the foregoing, to arrange for at least
two market makers to register as such with respect to such Registrable
Securities with the NASD, and (ii) to provide a transfer agent and
registrar for such Registrable Securities not later than the effective date
of such registration statement and to instruct such transfer agent (A) to
release any stop transfer order with respect to the certificates with
respect to the Registrable Securities being sold and (B) to furnish
certificates without restrictive legends representing ownership of the
shares being sold, in such denominations requested by the sellers of the
Registrable Securities or the lead underwriter;
(xiii) enter into such agreements and take such other actions as the
sellers of Registrable Securities or the underwriters reasonably request in
order to expedite or facilitate the disposition of such Registrable
Securities, including, without limitation, preparing for, and participating
in, such number of "road shows" and all such other customary selling
efforts as the underwriters reasonably request in order to expedite or
facilitate such disposition;
(xiv) furnish to any holder of such Registrable Securities such
information and assistance as such holder may reasonably request in
connection with any "due diligence" effort which such seller deems
appropriate; and
(xv) use its best efforts to take all other steps necessary to effect the
registration of such Registrable Securities contemplated hereby.
As a condition to its registration of Registrable Securities of any
prospective seller, the Company may require such seller of any Registrable
Securities as to which any registration is being effected to furnish to the
Company such information regarding such seller, its ownership of Registrable
Securities and the disposition of
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such Registrable Securities as the Company may from time to time reasonably
request in writing and as shall be required by law in connection therewith.
Each such holder agrees to furnish promptly to the Company all information
required to be disclosed in order to make the information previously furnished
to the Company by such holder not materially misleading.
The Company agrees not to file or make any amendment to any registration
statement with respect to any Registrable Securities, or any amendment of or
supplement to the prospectus used in connection therewith, which refers to any
seller of any Registrable Securities covered thereby by name, or otherwise
identifies such seller as the holder of any Registrable Securities, without the
consent of such seller, such consent not to be unreasonably withheld or
delayed, unless such disclosure is required by law.
By acquisition of Registrable Securities, each holder of such Registrable
Securities shall be deemed to have agreed that upon receipt of any notice from
the Company of the happening of any event of the kind described in Section
3(h), such holder will promptly discontinue such holder's disposition of
Registrable Securities pursuant to the registration statement covering such
Registrable Securities until such holder's receipt of the copies of the
supplemented or amended prospectus contemplated by Section 3(h). If so directed
by the Company, each holder of Registrable Securities will deliver to the
Company (at the Company's expense) all copies, other than permanent file
copies, in such holder's possession of the prospectus covering such Registrable
Securities at the time of receipt of such notice. In the event that the Company
shall give any such notice, the period mentioned in Section 3(b) shall be
extended by the number of days during the period from and including the date of
the giving of such notice to and including the date when each seller of any
Registrable Securities covered by such registration statement shall have
received the copies of the supplemented or amended prospectus contemplated by
Section 3(h).
4. Underwritten Offerings.
4.1. Underwriting Agreement. If requested by the underwriters for any
underwritten offering pursuant to a registration requested under Section 1.1 or
2, the Company shall enter into an underwriting agreement with the underwriters
for such offering, such agreement to be reasonably satisfactory in substance
and form to the underwriters and to Kelso (unless Kelso is not participating in
such registration) or to the Majority Holders. Any such underwriting agreement
shall contain such representations and warranties by the Company and such other
terms and provisions as are customarily contained in agreements of this type,
including, without limitation, indemnities to the effect and to the extent
provided in Section 9. The holders of Registrable Securities to be distributed
by such underwriter shall be parties to such underwriting agreement and may, at
their option, require that any or all of the representations and warranties by,
and the agreements on the part of, the Company to and for the benefit of such
underwriters be made to and for the benefit of such holders of Registrable
Securities and that any or all of the conditions precedent to the obligations
of such underwriters under such underwriting agreement shall also be conditions
precedent to the obligations of such holders of Registrable Securities. No
underwriting agreement (or other agreement in connection with such offering)
shall require Kelso, in its capacity as stockholder and/or controlling Person,
to make any representations or warranties to or agreements with the Company or
the underwriters other than representations, warranties or agreements regarding
such holder, the ownership of such holder's Registrable Securities and such
holder's intended method or methods of disposition and any other representation
required by law or to furnish any indemnity to any Person which is broader than
the indemnity furnished by such holder pursuant to Section 9.2.
4.2. Selection of Underwriter. If the Company at any time proposes to
register any of its securities under the Securities Act for sale for its own
account pursuant to an underwritten offering, the Company will have the right
to select the managing underwriter (which shall be of nationally recognized
standing) to administer the offering, but if Kelso and the Kelso Holders at
such time own at least 20% of the number of shares of Common Stock they own on
the date hereof, only with the approval of Kelso, such approval not to be
unreasonably withheld. Notwithstanding the foregoing sentence, whenever (i) a
registration requested pursuant to Section 1.1 is for an underwritten offering,
Kelso will have the right to select the managing underwriter (which shall be of
nationally recognized standing) to administer the offering, but only with the
approval of the Company, such approval not to be unreasonably withheld.
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5. Holdback Agreements. (i) If and whenever the Company proposes to register
any of its equity securities under the Securities Act for its own account
(other than on Form S-4 or S-8 or any successor form) or is required to use its
best efforts to effect the registration of any Registrable Securities under the
Securities Act pursuant to Section 1.1 or 2, each holder of Registrable
Securities agrees by acquisition of such Registrable Securities (i) not to
effect any public sale or distribution, including any sale pursuant to Rule 144
under the Securities Act, or to request registration under Section 1.1 of any
Registrable Securities within seven days prior to and 90 days (unless advised
in writing by the managing underwriter that a longer period, not to exceed 180
days, is required, or such shorter period as the managing underwriter for any
underwritten offering may agree) after the effective date of the registration
statement relating to such registration, except as part of such registration
and (ii) if requested by the Company or any underwriter of any offering in
connection with such registration, to sign a "holdback" or like agreement
confirming the above restrictions with respect to such offering.
(ii) The Company agrees not to effect any public sale or distribution of its
equity securities or securities convertible into or exchangeable or exercisable
for any of such securities within seven days prior to and 90 days (unless
advised in writing by the managing underwriter that a longer period, not to
exceed 180 days, is required, or such shorter period as the managing
underwriter for any underwritten offering may agree) after the effective date
of any registration statement filed pursuant to Section 1.1 (except as part of
such registration or pursuant to a registration on Form S-4 or S-8 or any
successor form). In addition, upon the request of the managing underwriter, the
Company shall use its best efforts to cause each holder of its equity
securities (or any securities convertible into or exchangeable or exercisable
for any of such securities to the extent the underlying documents relating to
such securities do not already so provide), whether outstanding on the date of
this Agreement or issued at any time after the date of this Agreement (other
than any such securities acquired in a public offering), to agree not to effect
any such public sale or distribution of such securities during such period,
except as part of any such registration if permitted, and to cause each such
holder to enter into a similar agreement to such effect with the Company.
6. Preparation; Reasonable Investigation. In connection with the preparation
and filing of each registration statement registering Registrable Securities
under the Securities Act, the Company will give the holders of such Registrable
Securities so to be registered and their underwriters, if any, and their
respective counsel and accountants the opportunity to participate in the
preparation of such registration statement, each prospectus included therein or
filed with the Commission, and each amendment thereof or supplement thereto,
and will give each of them such access to the financial and other records,
pertinent corporate documents and properties of the Company and its
subsidiaries and such opportunities to discuss the business of the Company with
its officers and the independent public accountants who have issued audit
reports on its financial statements as shall be reasonably requested by such
holders in connection with such registration statement.
7. No Grant of Future Registration Rights. The Company shall not grant any
other demand or incidental registration rights to any other Person without the
prior written consent of Kelso, so long as Kelso, together with the Kelso
Holders, continue to own at least 15% of the number of shares of Common Stock
that Kelso owns on the date hereof; provided that Kelso will not grant any such
consent unless the Non-Kelso Stockholders have the same right (if any), on a
pro rata basis (based on the number of shares of Registrable Securities owned
by each such Stockholder), as Kelso and the Kelso Holders to include
Registrable Securities in any such registration. During the term of this
Agreement, the Company shall not grant to any third party incidental
registration rights that are of a higher priority to the rights granted to the
holders of Registrable Securities under Section 2 hereof.
8. Permitted Assignees. Notwithstanding the definition of the term
"Registrable Securities," Kelso shall have the right to have included in any
registration pursuant to Section 1.1 or 2 any shares of Common Stock owned by
any Kelso Holder and such shares shall be deemed Registrable Securities that
shall be considered owned by Kelso for purposes of the "cut-back" provisions
applicable to such registration.
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9. Indemnification.
9.1. Indemnification by the Company. In the event of any registration of any
Registrable Securities pursuant to this Agreement, the Company will indemnify,
defend and hold harmless (a) each seller of such Registrable Securities, (b)
the directors, members, stockholders, officers, partners, employees, agents and
Affiliates of such seller, (c) each Person who participates as an underwriter
in the offering or sale of such securities and (d) each person, if any, who
controls (within the meaning of Section 15 of the Securities Act or Section 20
of the Exchange Act) any of the foregoing against any and all losses, claims,
damages or liabilities (or actions or proceedings in respect thereof), jointly
or severally, directly or indirectly, based upon or arising out of (i) any
untrue statement or alleged untrue statement of a fact contained in any
registration statement under which such Registrable Securities were registered
under the Securities Act, any preliminary prospectus, final prospectus or
summary prospectus contained therein or used in connection with the offering of
securities covered thereby, or any amendment or supplement thereto, or (ii) any
omission or alleged omission to state a fact required to be stated therein or
necessary to make the statements therein not misleading; and the Company will
reimburse each such indemnified party for any legal or any other expenses
reasonably incurred by them in connection with enforcing its rights hereunder
or under the underwriting agreement entered into in connection with such
offering or investigating, preparing, pursuing or defending any such loss,
claim, damage, liability, action or proceeding, except insofar as any such
loss, claim, damage, liability, action, proceeding or expense arises out of or
is based upon an untrue statement or omission made in such registration
statement, any such preliminary prospectus, final prospectus, summary
prospectus, amendment or supplement in reliance upon and in conformity with
written information furnished to the Company by such seller expressly for use
in the preparation thereof. Such indemnity shall remain in full force and
effect, regardless of any investigation made by such indemnified party and
shall survive the transfer of such Registrable Securities by such seller. If
the Company is entitled to, and does, assume the defense of the related action
or proceedings provided herein, then the indemnity agreement contained in this
Section 9.1 shall not apply to amounts paid in settlement of any such loss,
claim, damage, liability, action or proceeding if such settlement is effected
without the consent of the Company (which consent shall not be unreasonably
withheld or delayed).
9.2. Indemnification by the Sellers. The Company may require, as a condition
to including any Registrable Securities in any registration statement filed
pursuant to Section 1.1 or 2 that the Company shall have received an
undertaking satisfactory to it from each of the prospective sellers of such
Registrable Securities to indemnify and hold harmless, severally, not jointly,
in the same manner and to the same extent as set forth in Section 9.1, the
Company, its directors, officers, employees, agents and each person, if any,
who controls (within the meaning of Section 15 of the Securities Act or Section
20 of the Exchange Act) the Company with respect to any statement or alleged
statement in or omission or alleged omission from such registration statement,
any preliminary prospectus, final prospectus or summary prospectus contained
therein, or any amendment or supplement thereto, if such statement or alleged
statement or omission or alleged omission was made in reliance upon and in
conformity with written information furnished to the Company by such seller
expressly for use in the preparation of such registration statement,
preliminary prospectus, final prospectus, summary prospectus, amendment or
supplement. (The Company and the holders of the Registrable Securities hereby
acknowledge and agree that, unless otherwise expressly agreed to in writing by
such holders, the only information furnished or to be furnished to the Company
for use in any registration statement or prospectus relating to the Registrable
Securities or in any amendment, supplement or preliminary materials associated
therewith are statements specifically relating to (a) transactions between such
holder and its Affiliates, on the one hand, and the Company, on the other hand,
(b) the beneficial ownership of shares of Common Stock by such holder and its
Affiliates and (c) the name and address of such holder. If any additional
information about such holder or the plan of distribution (other than for an
underwritten offering) is required by law to be disclosed in any such document,
then such holder shall not unreasonably withhold its agreement referred to in
the immediately preceding sentence of this Section 9.2.) Such indemnity shall
remain in full force and effect, regardless of any investigation made by or on
behalf of the Company or any such director, officer or controlling Person and
shall survive the transfer of such Registrable Securities by such seller. The
indemnity agreement contained in this Section 9.2 shall not apply to amounts
paid in settlement of any such loss, claim,
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damage, liability, action or proceeding if such settlement is effected without
the consent of such seller (which consent shall not be unreasonably withheld or
delayed). The indemnity provided by each seller of Registrable Securities under
this Section 9.2 shall be limited in amount to the net amount of proceeds
actually received by such seller from the sale of Registrable Securities
pursuant to such registration statement.
9.3. Notices of Claims, etc. Promptly after receipt by an indemnified party
of notice of the commencement of any action or proceeding involving a claim
referred to in the preceding paragraphs of this Section 9, such indemnified
party will, if a claim in respect thereof is to be made against an indemnifying
party, give written notice to the indemnifying party of the commencement of
such action or proceeding, provided that the failure of any indemnified party
to give notice as provided herein shall not relieve the indemnifying party of
its obligations under the preceding paragraphs of this Section 9, except to the
extent that the indemnifying party is materially prejudiced by such failure to
give notice. In case any such action is brought against an indemnified party,
the indemnifying party will be entitled to participate therein and to assume
the defense thereof, jointly with any other indemnifying party similarly
notified, to the extent that it may wish, with counsel reasonably satisfactory
to such indemnified party, and after notice from the indemnifying party to such
indemnified party of its election so to assume the defense thereof, the
indemnifying party will not be liable to such indemnified party for any legal
or other expenses subsequently incurred by the latter in connection with the
defense thereof except for the reasonable fees and expenses of any counsel
retained by such indemnified party to monitor such action or proceeding.
Notwithstanding the foregoing, if such indemnified party reasonably determines,
based upon advice of independent counsel, that a conflict of interest may exist
between the indemnified party and the indemnifying party with respect to such
action and that it is advisable for such indemnified party to be represented by
separate counsel, such indemnified party may retain other counsel, reasonably
satisfactory to the indemnifying party, to represent such indemnified party,
and the indemnifying party shall pay all reasonable fees and expenses of such
counsel. No indemnifying party, in the defense of any such claim or litigation,
shall, except with the consent of such indemnified party, which consent shall
not be unreasonably withheld, consent to entry of any judgment or enter into
any settlement which does not include as an unconditional term thereof the
giving by the claimant or plaintiff to such indemnified party of a release from
all liability in respect of such claim or litigation.
9.4. Other Indemnification. Indemnification similar to that specified in the
preceding paragraphs of this Section 9 (with appropriate modifications) shall
be given by the Company and each seller of Registrable Securities with respect
to any required registration (other than under the Securities Act) or other
qualification of such Registrable Securities under any federal or state law or
regulation of any governmental authority.
9.5. Indemnification Payments. Any indemnification required to be made by an
indemnifying party pursuant to this Section 9 shall be made by periodic
payments to the indemnified party during the course of the action or
proceeding, as and when bills are received by such indemnifying party with
respect to an indemnifiable loss, claim, damage, liability or expense incurred
by such indemnified party.
9.6. Other Remedies. If for any reason the foregoing indemnity is
unavailable, or is insufficient to hold harmless an indemnified party, other
than by reason of the exceptions provided therein, then the indemnifying party
shall contribute to the amount paid or payable by the indemnified party as a
result of such losses, claims, damages, liabilities, actions, proceedings or
expenses in such proportion as is appropriate to reflect the relative benefits
to and faults of the indemnifying party on the one hand and the indemnified
party on the other in connection with the offering of Registrable Securities
(taking into account the portion of the proceeds of the offering realized by
each such party) and the statements or omissions or alleged statements or
omissions which resulted in such loss, claim, damage, liability, action,
proceeding or expense, as well as any other relevant equitable considerations.
The relative fault of the indemnifying party and of the indemnified party shall
be determined by reference to, among other things, whether the untrue statement
of a material fact or the omission to state a material fact relates to
information supplied by the indemnifying party or by the indemnified party and
the parties' relative intent, knowledge, access to information and opportunity
to correct or prevent such statements or omissions. No person guilty of
fraudulent misrepresentation (within the meaning of Section 11(f) of the
Securities Act) shall be entitled to contribution from any person who was not
guilty of such fraudulent
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misrepresentation. No party shall be liable for contribution under this Section
9.6 except to the extent as such party would have been liable to indemnify
under this Section 9 if such indemnification were enforceable under applicable
law.
10. Representations and Warranties. Each Stockholder represents and warrants
to the Company and each other Stockholder that:
(i) such Stockholder has the power, authority and capacity (or, in the
case of any Stockholder that is a corporation or limited partnership, all
corporate or limited partnership power and authority, as the case may be)
to execute, deliver and perform this Agreement;
(ii) in the case of a Stockholder that is a corporation or limited
partnership, the execution, delivery and performance of this Agreement by
such Stockholder has been duly and validly authorized and approved by all
necessary corporate or limited partnership action, as the case may be;
(iii) this Agreement has been duly and validly executed and delivered by
such Stockholder and constitutes a valid and legally binding obligation of
such Stockholder, enforceable in accordance with its terms, subject to
bankruptcy, insolvency, reorganization, moratorium or other similar laws
affecting or relating to creditors' rights generally and general principles
of equity; and
(iv) the execution, delivery and performance of this Agreement by such
Stockholder does not and will not violate the terms of or result in the
acceleration of any obligation under (A) any material contract, commitment
or other material instrument to which such Stockholder is a party or by
which such Stockholder is bound or (B) in the case of a Stockholder that is
a corporation or limited partnership, the certificate of incorporation,
certificate of limited partnership, by-laws or limited partnership
agreement, as the case may be.
11. Definitions. For purposes of this Agreement, the following terms shall
have the following respective meanings:
Affiliate: a Person that directly, or indirectly through one or more
intermediaries, controls, or is controlled by, or is under common control with,
the Person specified.
Board: the board of directors of the Company.
Commission: the Securities and Exchange Commission.
Common Stock: the Common Stock of the Company, par value $.01 per share.
Exchange Act: the Securities Exchange Act of 1934, as amended, or any
successor federal statute, and the rules and regulations thereunder which shall
be in effect at the time.
IPO: the initial public offering of Common Stock.
Kelso Holders: As defined in the Stockholders' Agreement.
Majority Holders: as defined in Section 3(c).
NASD: National Association of Securities Dealers, Inc.
NASDAQ: the Nasdaq National Market.
Permitted Transferee: as defined in Section 12.2.
Person: an individual, corporation, partnership, limited liability company,
joint venture, association, trust or other entity or organization, including a
government or political subdivision or an agency or instrumentality thereof.
Registrable Securities: the shares of Common Stock beneficially owned (within
the meaning of Rule 13d-3 of the Exchange Act) by Kelso, the Kelso Holders, the
Non-Kelso Stockholders or the Permitted Transferees. As to any particular
shares of Common Stock, such securities shall cease to be Registrable
Securities when (i) a
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registration statement with respect to the sale of such securities shall have
become effective under the Securities Act and such securities shall have been
disposed of in accordance with such registration statement, (ii) they shall
have been sold to the public pursuant to Rule 144 under the Securities Act,
(iii) they shall have been otherwise transferred other than to a Permitted
Transferee or Kelso Holder and subsequent disposition of them shall not require
registration or qualification of them under the Securities Act or any similar
state law then in force or (iv) they shall have ceased to be outstanding.
Registration Expenses: all expenses incident to the Company's performance of
or compliance with any registration pursuant to this Agreement, including,
without limitation, (i) registration, filing and NASD fees, (ii) fees and
expenses of complying with securities or blue sky laws, (iii) fees and expenses
associated with listing securities on an exchange or NASDAQ, (iv) word
processing, duplicating and printing expenses, (v) messenger and delivery
expenses, (vi) transfer agents', trustees', depositories', registrars' and
fiscal agents' fees, (vii) fees and disbursements of counsel for the Company
and of its independent public accountants, including the expenses of any
special audits or "cold comfort" letters, (viii) reasonable fees and
disbursements of any one counsel retained by the sellers of Registrable
Securities, which counsel shall be designated in the manner specified in
Section 3 and (ix) any fees and disbursements of underwriters customarily paid
by issuers or sellers of securities, but excluding underwriting discounts and
commissions and transfer taxes, if any.
Securities Act: the Securities Act of 1933, as amended, or any successor
federal statute, and the rules and regulations thereunder which shall be in
effect at the time.
Stockholders Agreement: the Stockholders Agreement, dated as of the date
hereof, as the same may be amended from time to time, among the Company, KIA
VI, KEP VI, the Existing Stockholders (as defined therein) and the Management
Stockholders (as defined therein).
12. Miscellaneous.
12.1. Rule 144, etc. If the Company shall have filed a registration statement
pursuant to the requirements of Section 12 of the Exchange Act or a
registration statement pursuant to the requirements of the Securities Act
relating to any class of equity securities, the Company will file the reports
required to be filed by it under the Securities Act and the Exchange Act and
the rules and regulations adopted by the Commission thereunder, and will take
such further action as any holder of Registrable Securities may reasonably
request, all to the extent required from time to time to enable such holder to
sell Registrable Securities without registration under the Securities Act
within the limitation of the exemptions provided by (a) Rule 144 under the
Securities Act, as such rule may be amended from time to time or (b) any
successor rule or regulation hereafter adopted by the Commission. Upon the
request of any holder of Registrable Securities, the Company will deliver to
such holder a written statement as to whether it has complied with such
requirements.
12.2. Successors, Assigns and Transferees. This Agreement shall be binding
upon and insure to the benefit of the parties hereto and their respective
successors and permitted assigns under this Section 12.2. Provided that an
express assignment shall have been made, a copy of which shall have been
delivered to the Company, the provisions of this Agreement which are for the
benefit of a holder of Registrable Securities shall be for the benefit of and
enforceable by any subsequent holder of any Registrable Securities, provided
that such transferee is a holder of Registrable Securities pursuant to the
terms of the Stockholders' Agreement ("Permitted Transferees"). Notwithstanding
anything herein to the contrary, the Non-Kelso Stockholders shall exercise all
rights hereunder on behalf of any of their Permitted Transferees and all other
parties hereto shall be entitled to deal exclusively with the Non-Kelso
Stockholders and rely on the consent, waiver or any other action by the Non-
Kelso Stockholders as the consent, waiver or other action, as the case may be,
of any such Permitted Transferees of such Non-Kelso Stockholders.
12.3. Stock Splits. Each holder of Registrable Securities agrees that it will
vote to effect a stock split or combination with respect to any Registrable
Securities in connection with any registration of any Registrable Securities
hereunder, or otherwise, if the managing underwriter shall advise the Company
in writing (or, in
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connection with an offering that is not underwritten, if an investment banker
shall advise the Company in writing) that in its opinion such a stock split or
combination would facilitate or increase the likelihood of success of the
offering. The Company shall cooperate in all respects in effecting any such
stock split or combination.
12.4. Amendment and Modification. This Agreement may be amended, modified or
supplemented by the Company with the written consent of Kelso and a majority
(by number of shares) of any other holder of Registrable Securities whose
interests would be adversely affected by such amendment, provided that (i) in
the event the Non-Kelso Stockholders are adversely affected by such amendment,
such amendment will require the consent of the Non-Kelso Stockholders and (ii)
all Stockholders shall be notified of such amendment, modification or
supplement.
12.5. Governing Law. This Agreement and the rights and obligations of the
parties hereunder and the persons subject hereto shall be governed by, and
construed and interpreted in accordance with, the law of the State of Delaware,
without giving effect to the choice of law principles thereof.
12.6. Invalidity of Provision. The invalidity or unenforceability of any
provision of this Agreement in any jurisdiction shall not affect the validity
or enforceability of the remainder of this Agreement in that jurisdiction or
the validity or enforceability of this Agreement, including that provision, in
any other jurisdiction.
12.7. Notices. All notices, requests, demands, letters, waivers and other
communications required or permitted to be given under this Agreement shall be
in writing and shall be deemed to have been duly given if (a) delivered
personally, (b) mailed, certified or registered mail with postage prepaid, (c)
sent by next-day or overnight mail or delivery or (d) sent by fax, as follows:
(i) If to the Company, to it at:
Fax:
Attention:
with a copy to Kelso at its address set forth in (iii) below.
(ii) If to a Non-Kelso Stockholder, to his or her attention at:
Fax:
(iii) If to Kelso, to it at:
Kelso & Company
320 Park Avenue, 24th Floor
New York, New York 10022
Fax: 212-223-2379
Attention: James J. Connors, II, Esq.
or to such other person or address as any party shall specify by notice in
writing to the Company. All such notices, requests, demands, letters, waivers
and other communications shall be deemed to have been received (w) if by
personal delivery on the day after such delivery, (x) if by certified or
registered mail, on the fifth business day after the mailing thereof, (y) if by
next-day or overnight mail or delivery, on the day delivered or (z) if by fax,
on the next day following the day on which such fax was sent, provided that a
copy is also sent by certified or registered mail.
12.8. Headings; Execution in Counterparts. The headings and captions
contained herein are for convenience and shall not control or affect the
meaning or construction of any provision hereof. This Agreement may be executed
in any number of counterparts, each of which shall be deemed to be an original
and which together shall constitute one and the same instrument.
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12.9. Injunctive Relief. Each of the parties recognizes and agrees that money
damages may be insufficient and, therefore, in the event of a breach of any
provision of this Agreement the aggrieved party may elect to institute and
prosecute proceedings in any court of competent jurisdiction to enforce
specific performance or to enjoin the continuing breach of this Agreement. Such
remedies shall, however, be cumulative and not exclusive, and shall be in
addition to any other remedy which such party may have.
12.10. Term. This Agreement shall be effective as of the date hereof and
shall continue in effect thereafter until the earlier of (a) its termination by
the consent of the parties hereto or their respective successors in interest
and (b) the date on which no Registrable Securities remain outstanding.
12.11. Further Assurances. Subject to the specific terms of this Agreement,
each of the Company and the Stockholders shall make, execute, acknowledge and
deliver such other instruments and documents, and take all such other actions,
as may be reasonably required in order to effectuate the purposes of this
Agreement and to consummate the transactions contemplated hereby.
12.12. Entire Agreement. This Agreement, together with the Stockholders'
Agreement, is intended by the parties hereto as a final expression of their
agreement and intended to be a complete and exclusive statement of their
agreement and understanding in respect of the subject matter contained herein.
This Agreement supersedes all prior agreements and understandings between the
parties with respect to such subject matter.
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IN WITNESS WHEREOF this Agreement has been signed by each of the parties
hereto, and shall be effective as of the date first above written.
CITATION CORPORATION
By:
----------------------------------
Name:
Title:
KELSO INVESTMENT ASSOCIATES VI, L.P.
By: Kelso GP VI, LLC,
its general partner
By:
----------------------------------
General Partner
KEP VI, LLC
By:
----------------------------------
General Partner
HACKNEY ONE INVESTMENTS, LLC
By:
----------------------------------
T. Morris Hackney, its Manager
-------------------------------------
R. CONNER WARREN
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-------------------------------------
FREDERICK F. SOMMER
-------------------------------------
TIMOTHY L. ROBERTS
-------------------------------------
EDWIN L. YODER
-------------------------------------
JOHN W. LAWSON
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PROXY
CITATION CORPORATION
Proxy for Reconvened Special Meeting of Stockholders, November 30, 1999
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby appoints Van L. Richey and George N. Booth, and either
of them, proxies for the undersigned, with full power of substitution, to
represent the undersigned and to vote, as designated below, all of the shares
of the common stock of Citation Corporation (the "Company") the undersigned is
entitled to vote at the reconvened special meeting of stockholders of the
Company to be held at the offices of the Company, No. 2 Office Park Circle,
First Floor, Birmingham, Alabama, 35223, on November 30, 1999, at 10:00 a.m.,
Central Time, and at any adjournment or postponement thereof.
1. Proposal to adopt the Agreement and Plan of Merger and Recapitalization,
dated as of June 24, 1999, as amended, by and between RSJ Acquisition Co.
and the Company.
[_] FOR [_] AGAINST [_] ABSTAIN
2. In their discretion, the Proxies are authorized to vote upon such other
matters that may properly come before the meeting.
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS and will be voted
as directed herein. If no direction is given, this proxy will be voted FOR
Proposal 1 and in the discretion of the above-named persons with respect to any
other matters that may properly come before the meeting.
Dated , 1999
-------------------------------------
Signature of Stockholder
-------------------------------------
Signature of Stockholder
Where stock is registered jointly in
the names of two or more persons,
ALL should sign. Signature(s) should
correspond exactly with the name(s)
as shown above. Please mark, sign,
date, and return the proxy card
promptly in the enclosed envelope.
No postage need be affixed if mailed
in the United States.
PLEASE COMPLETE, DATE, SIGN AND MAIL THIS PROXY PROMPTLY IN THE ENCLOSED
POSTAGE-PAID ENVELOPE.