SCHEDULE 14A
(RULE 14A-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE SECURITIES
EXCHANGE ACT OF 1934 (AMENDMENT NO. )
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
<Table>
[X] Preliminary Proxy Statement [ ] Confidential, for Use of the Commission Only
(as permitted by Rule 14a-6(e)(2))
[ ] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material under Rule 14a-12
</Table>
National Service Industries, Inc.
- --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[ ] No fee required.
[X] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
(1) Title of each class of securities to which transaction applies:
Common Stock, par value $1.00 per share, of National Service
Industries, Inc., together with the associated Preferred Stock Purchase
Rights (the "NSI common stock").
------------------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies:
11,330,528
------------------------------------------------------------------------
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which the
filing fee is calculated and state how it was determined):
Pursuant to the Agreement and Plan of Merger, dated as of April 1,
2003, by and between NS Acquisition Corp. and National Service
Industries, Inc., each stockholder of record of National Service
Industries, Inc. as of the effective time of the merger will receive
consideration, in cash, of $10.00 per share of NSI common stock held on
such date.
------------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
$112,671,860. Based upon consideration of (i) $10.00 per share of NSI
common stock, multiplied by 11,193,945 shares of common stock issued
and outstanding as of April 8, 2003, (ii) $10.00 per share of NSI
common stock, multiplied by an aggregate of 55,583 shares, consisting
of common stock which will become issuable pursuant to NSI's employee
stock purchase plan, restricted stock which will vest upon consummation
of the merger and NSI stock units; and (iii) $176,580 representing the
difference between the merger consideration of $10.00 per share and the
exercise price of "in the money" options to purchase, in the aggregate,
81,000 shares of NSI common stock.
------------------------------------------------------------------------
(5) Total fee paid:
$9,116
------------------------------------------------------------------------
[ ] Fee paid previously with preliminary materials:
-----------------------------------------------------------------------------
[ ] Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
------------------------------------------------------------------------
(2) Form, Schedule or Registration Statement No.:
------------------------------------------------------------------------
(3) Filing Party:
------------------------------------------------------------------------
(4) Date Filed:
------------------------------------------------------------------------
PRELIMINARY COPY, SUBJECT TO COMPLETION, DATED APRIL 10, 2003
[NATIONAL SERVICE INDUSTRIES, INC. LETTERHEAD]
, 2003
Dear Stockholder:
You are cordially invited to attend a special meeting of stockholders of
National Service Industries, Inc., or NSI, to be held at on
, 2003, at the offices of King & Spalding LLP, 191 Peachtree St.,
50th Floor, Atlanta, Georgia. At the special meeting, you will be asked to
consider and vote upon a proposal to adopt and approve the Agreement and Plan of
Merger, dated as of April 1, 2003, which provides for the merger of NS
Acquisition Corp., an affiliate of California Investment Fund, LLC, with and
into NSI. NSI will be the surviving corporation following the merger. If the
merger is completed, each outstanding share of NSI common stock (other than
shares as to which appraisal rights have been demanded and not withdrawn or
lost) will be converted into the right to receive $10.00 in cash, without
interest. You should carefully read the merger agreement, a copy of which is
attached as Annex A to the accompanying proxy statement. The affirmative vote of
holders of a majority of the shares of NSI common stock outstanding and entitled
to vote at the special meeting is necessary to approve the merger agreement and
the merger.
Our board of directors unanimously recommends to our stockholders that the
merger agreement be adopted and approved. Among the factors considered by our
board of directors in evaluating the merger agreement was the opinion dated
April 1, 2003, of SunTrust Robinson Humphrey, NSI's financial advisor, which
provides that, as of that date, the consideration to be received by holders of
NSI common stock in the merger was fair from a financial point of view to our
stockholders. The written opinion of SunTrust Robinson Humphrey is attached as
Annex B to the accompanying proxy statement and should be read carefully and in
its entirety.
You have the right under Delaware law to demand an appraisal of your shares
and to have a judicial determination of the fair value of your shares. We have
described these appraisal rights in detail in the accompanying proxy statement.
You should carefully read the relevant sections of the proxy statement and the
statutory provisions, attached to the accompanying proxy statement as Annex C.
OUR BOARD OF DIRECTORS HAS UNANIMOUSLY APPROVED THE MERGER AGREEMENT AND
THE MERGER AND DETERMINED THAT THE MERGER AGREEMENT AND MERGER ARE ADVISABLE AND
FAIR TO AND IN THE BEST INTERESTS OF OUR STOCKHOLDERS, AND ACCORDINGLY
UNANIMOUSLY RECOMMENDS THAT OUR STOCKHOLDERS VOTE TO ADOPT AND APPROVE THE
MERGER AGREEMENT AND THE MERGER.
The accompanying proxy statement provides you with a summary of the merger
agreement and the merger and additional information about the parties involved
and their interests. If the merger agreement and the merger are approved by the
requisite holders of NSI common stock, the closing of the merger will occur as
soon as practicable after the special meeting and all of the other conditions to
the closing of the merger are satisfied or waived.
PLEASE GIVE ALL OF THIS INFORMATION YOUR CAREFUL ATTENTION. WHETHER OR NOT
YOU PLAN TO ATTEND THE SPECIAL MEETING, YOU ARE REQUESTED TO PROMPTLY COMPLETE,
SIGN AND DATE THE ENCLOSED PROXY CARD AND RETURN IT IN THE ENVELOPE PROVIDED, OR
VOTE BY INTERNET OR PHONE, AS EXPLAINED IN THE ACCOMPANYING PROXY STATEMENT.
THIS WILL NOT PREVENT YOU FROM VOTING YOUR SHARES IN PERSON IF YOU SUBSEQUENTLY
CHOOSE TO ATTEND THE SPECIAL MEETING.
We thank you for your continued interest and support of our company.
Sincerely,
Brock A. Hattox
Chairman, Chief Executive Officer
and President
(NSI LOGO)
NATIONAL SERVICE INDUSTRIES, INC.
SUITE 200
1420 PEACHTREE STREET, N.E.
ATLANTA, GEORGIA 30309-3002
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD ON , 2003
We will hold a special meeting of stockholders of NATIONAL SERVICE
INDUSTRIES, INC. ("we", "us", or "NSI") on , 2003, at at the
offices of King & Spalding LLP, 191 Peachtree Street, 50th Floor, Atlanta,
Georgia for the following purposes:
(1) to adopt and approve the Agreement and Plan of Merger, dated as of
April 1, 2003, by and between NS Acquisition Corp., an affiliate of
California Investment Fund, LLC, and NSI, and the merger of NS Acquisition
Corp. with and into NSI, with NSI continuing as the surviving corporation.
Upon completion of the merger, each outstanding share of NSI common stock
(other than shares as to which appraisal rights have been demanded and not
withdrawn or lost) will be cancelled and converted into the right to
receive a cash payment of $10.00 per share, without interest; and
(2) to transact such other business as may properly come before the
meeting or any postponement or adjournment thereof.
Please do not send your NSI common stock certificates at this time. If the
merger is completed, you will receive written instructions for exchanging your
NSI stock certificates for cash.
Holders of NSI common stock have the right under Delaware law to demand an
appraisal of their shares and to have a judicial determination of the fair value
of their shares. These rights, generally known as appraisal rights, are
described in detail in the proxy statement accompanying this notice. In
addition, a copy of Section 262 of the Delaware General Corporation Law, which
governs appraisal rights, is attached as Annex C to this proxy statement. We
urge you to read both the applicable section of the proxy statement and the
statutory provisions carefully. If you wish to demand an appraisal of your
shares, you must strictly comply with the statutory requirements.
The board of directors of NSI has fixed the close of business on
, 2003 as the record date for the determination of the stockholders
who will be entitled to notice of and to vote at this meeting or any
postponement or adjournment thereof.
, 2003
By Order of the Board of Directors,
CAROL ELLIS MORGAN
Senior Vice President,
General Counsel, and Secretary
YOUR VOTE IS IMPORTANT
IF YOU ARE A STOCKHOLDER OF RECORD, YOU CAN VOTE YOUR SHARES BY THE
INTERNET OR BY TELEPHONE BY FOLLOWING THE INSTRUCTIONS ON YOUR PROXY CARD.
IF YOU WISH TO VOTE BY MAIL, PLEASE DATE, SIGN, AND MAIL THE ENCLOSED PROXY
PROMPTLY.
NO POSTAGE IS REQUIRED IF MAILED IN THE UNITED STATES IN THE ACCOMPANYING
ENVELOPE.
NATIONAL SERVICE INDUSTRIES, INC.
SUITE 200
1420 PEACHTREE STREET, N.E.
ATLANTA, GEORGIA 30309-3002
PROXY STATEMENT FOR SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD ON , 2003
FIRST MAILED TO STOCKHOLDERS ON OR ABOUT , 2003
QUESTIONS AND ANSWERS ABOUT THE MERGER AND THE SPECIAL MEETING
Q: WHAT AM I BEING ASKED TO VOTE UPON AT THE SPECIAL MEETING?
A: You are being asked to vote to adopt and approve the Agreement and Plan of
Merger, dated as of April 1, 2003, by and between NS Acquisition Corp., an
affiliate of California Investment Fund, LLC, and NSI, and the merger of NS
Acquisition Corp. with and into NSI, with NSI continuing as the surviving
corporation.
Q: WHAT VOTE IS REQUIRED TO APPROVE THE MERGER?
A: Adoption and approval of the merger agreement and the merger requires the
vote of the holders of at least a majority of the outstanding shares of NSI
common stock on , 2003, the record date for the special meeting.
Q: WHAT WILL I RECEIVE IN THE MERGER?
A: Upon completion of the merger, each outstanding share of NSI common stock
(other than shares as to which appraisal rights have been demanded and not
withdrawn or lost) will be cancelled and converted into the right to
receive a cash payment of $10.00 per share, without interest.
Q: IS THE MERGER EXPECTED TO BE TAXABLE TO ME?
A: Your receipt of the merger consideration will be a taxable transaction for
federal income tax purposes. To review the tax consequences to you in
greater detail, see page 36 of this proxy statement. Your tax consequences
will depend on your personal situation. You should consult your personal
tax advisors for a full understanding of the tax consequences of the merger
to you.
Q: WHAT IF I OWN NSI STOCK OPTIONS?
A: We have agreed to use commercially reasonable efforts to provide that each
option granted under our stock option or compensation plans which is
outstanding immediately prior to the effective time of the merger will be
cancelled in exchange for a single lump sum cash payment (except for our
executive officers, each of whom will surrender their outstanding options
without cash payment as described in "The Merger -- Interests of NSI's
Directors and Officers in the Merger"). Subject to any required tax
withholding, the amount of the cash payment will be equal to the product
of:
- the number of shares of NSI common stock subject to such option
immediately prior to the effective time of the merger; and
- the excess, if any, of $10.00 per share over the exercise price per share
of such option; provided, that if the exercise price per share of any
such option is equal to or greater than $10.00 per share, such option
will be cancelled in exchange for such cash payment, if any, as shall be
established by NSI and NS Acquisition Corp.
Q: WHAT IF I OWN SHARES OF NSI RESTRICTED STOCK?
A: We have agreed to take all actions necessary and appropriate to provide
that each share of NSI restricted stock granted under any compensation plan
which is outstanding immediately prior to the effective time of the merger
will become fully vested and will be cancelled and converted into the
Q-1
right to receive $10.00 per share, subject to any required tax withholding.
Each share of unissued NSI restricted stock underlying a performance-based
award granted under any stock option or compensation plan which is
outstanding immediately prior to the effective time of the merger will be
issued in amounts reflecting full satisfaction of any performance criteria
and will be deemed fully vested, effective as of the time of the approval
of the merger by NSI's stockholders, and will be cancelled and converted
into the right to receive $10.00 per share, subject to any required tax
withholding.
Q: HOW MANY VOTES DO I HAVE?
A: You have one vote for each share of NSI common stock that you owned at the
close of business on , 2003, the record date for the special
meeting.
Q: HOW DOES NSI'S BOARD OF DIRECTORS RECOMMEND THAT I VOTE?
A: Our board of directors believes that the terms of the merger agreement and
the merger are fair to, and in the best interests of, the holders of NSI
common stock. Our board of directors has unanimously approved the merger
agreement and the merger and recommends that you vote "FOR" the adoption
and approval of the merger agreement and the merger. You should read "The
Merger -- NSI's Purpose and Reasons for the Merger" beginning on page 13
for a discussion of the factors that our board of directors considered in
deciding to recommend the adoption and approval of the merger agreement.
Q: HOW DO I VOTE?
A: Stockholders may deliver their proxy using one of the following methods:
- In Person. If you plan to attend the special meeting and wish to vote in
person, we will give you a ballot when you arrive. If your shares are
held in "street name," you must bring an account statement or letter from
the brokerage firm or bank showing that you were the beneficial owner of
the shares on , 2003, the record date for the special meeting,
in order to be admitted to the special meeting. If you want to vote
shares that are not in your name at the special meeting, you must obtain
a "legal proxy" from the holder of record and present it at the special
meeting.
- By the Internet. Stockholders of record may give their voting
instructions by the internet as described on the proxy card. Internet
voting is also available to stockholders who hold shares in our
DirectService Plan, in our Employee Stock Purchase Plan, or in a 401(k)
plan sponsored by us.
- By Telephone. Stockholders of record may give their voting instructions
using the toll-free number listed on the proxy card. Telephone voting is
also available to stockholders who hold shares in our DirectService Plan,
in our Employee Stock Purchase Plan, or in a 401(k) plan sponsored by us.
- By Mail. Stockholders may sign, date, and mail their proxies in the
postage-paid envelope provided. If you sign, date, and mail your proxy
card without providing voting instructions on specific items, your proxy
will be voted as recommended by our board of directors.
Q: HOW DO I VOTE SHARES OF NSI COMMON STOCK HELD UNDER AN NSI 401(K) PLAN?
A: After you deliver your proxy in one of the methods described immediately
above, the trustee will then vote your 401(k) plan shares in accordance
with your instructions and the terms of the plan.
Q-2
Q: MAY I CHANGE MY VOTE?
A: Yes. A proxy that is properly submitted to us may be revoked at any time
before it is exercised. For a stockholder "of record," meaning one whose
shares are registered in his or her own name, to revoke a proxy, the
stockholder may either:
- send another signed proxy card with a later date to the address indicated
on the proxy card;
- send a letter revoking the stockholder's proxy to our Corporate Secretary
at our principal address; or
- attend the special meeting and vote in person.
A "beneficial holder" whose shares are registered in another name, for
example in "street name," must follow the procedures required by the holder
of record, which is usually a brokerage firm or bank, to revoke a proxy.
You should contact the holder of record directly for more information on
these procedures.
Q: WHAT HAPPENS IF I DO NOT SUBMIT A PROXY OR VOTE IN PERSON AT THE SPECIAL
MEETING?
A: Because the required vote of NSI stockholders is based upon the number of
outstanding shares of NSI common stock, rather than upon the shares
actually voted, the failure by the holder of any such shares to submit a
proxy or to vote in person at the special meeting, including abstentions
and broker non-votes, will have the same effect as a vote against the
adoption and approval of the merger agreement.
Q: ARE NSI STOCKHOLDERS ENTITLED TO APPRAISAL RIGHTS?
A: Yes. Under the General Corporation Law of the State of Delaware, holders of
NSI common stock who do not vote in favor of adopting and approving the
merger agreement and the merger will have the right to seek appraisal of
the fair value of their shares as determined by the Delaware Court of
Chancery if the merger is completed, but only if they submit a written
demand for an appraisal prior to the vote on the adoption of the merger
agreement and they comply with the Delaware law procedures explained in
this proxy statement under the heading "Appraisal Rights."
Q: WHAT WAS THE OPINION OF NSI'S FINANCIAL ADVISOR?
A: Our board of directors received an opinion from our financial advisor,
SunTrust Robinson Humphrey, that the merger consideration of $10.00 per
share is fair, from a financial point of view, to the holders of NSI common
stock. Please read the "The Merger -- Opinion of Financial Advisor"
beginning on page 14 of this proxy statement for information about the
opinion of SunTrust Robinson Humphrey. A copy of SunTrust Robinson
Humphrey's opinion is attached to this proxy statement as Annex B.
Q: IS THERE A DEADLINE FOR CLOSING THE MERGER?
A: There is no deadline, although the merger agreement may be terminated, in
general, by either party if the merger does not close on or before
September 30, 2003.
Q: HOW DO I EXCHANGE MY STOCK CERTIFICATES FOR CASH?
A: If the merger is completed, within 10 days after the effective time of the
merger, NSI will mail you written instructions and a letter of transmittal
and other necessary instructions for exchanging your NSI stock certificates
for cash. Please do not send your NSI stock certificates at this time.
Q: WHEN DO YOU EXPECT THE MERGER TO BE COMPLETED?
A: We are working to complete the merger as quickly as possible. We currently
expect to complete the merger in the second calendar quarter of 2003.
However, we cannot predict the exact timing of the merger because the
merger is subject to regulatory approvals and closing conditions.
Q-3
Q: WHOM SHOULD I CALL IF I HAVE ANY QUESTIONS?
A: If you have any questions about the special meeting or concerning the
merger, please contact:
Chester J. Popkowski
National Service Industries, Inc.
Suite 200
1420 Peachtree Street, N.E.
Atlanta, Georgia 30309-3002
Telephone: (404) 853-1000
You may also consult our website at www.nationalservice.com for information
concerning the merger. Information included on our website is expressly not
incorporated by reference into this proxy statement.
If you have any questions about your ownership of NSI common stock, please
contact:
NSI Shareholder Services
c/o EquiServe Trust Company, N.A.
P.O. Box 43069
Providence, Rhode Island 02940-3069
Telephone: 1-877-DIAL-NSI
1-877-342-5674
www.equiserve.com
Information included on EquiServe's website is expressly not incorporated
by reference into this proxy statement.
Q-4
NATIONAL SERVICE INDUSTRIES, INC.
PROXY STATEMENT FOR SPECIAL MEETING OF STOCKHOLDERS
TABLE OF CONTENTS
<Table>
<Caption>
PAGE
----
Questions and Answers About the Merger and the Special
Meeting................................................... Q-1
Summary..................................................... 2
Purpose of the Special Meeting............................ 2
The Parties............................................... 2
The Merger Agreement...................................... 2
Effect of the Merger...................................... 3
NSI's Board of Directors Recommendation to Stockholders... 3
Opinion of Financial Advisor.............................. 3
What NSI Stockholders will Receive in the Merger.......... 3
How Options will be Treated............................... 3
How Restricted Stock will be Treated...................... 3
Federal Income Tax Consequences of the Merger............. 4
Stockholder Vote Required to Adopt and Approve the Merger
Agreement and the Merger............................... 4
Financing Arrangements.................................... 4
Interests of NSI's Directors and Officers in the Merger... 6
Conditions to Closing the Merger.......................... 6
Termination............................................... 7
Termination Fee........................................... 7
Closing................................................... 7
Appraisal Rights.......................................... 7
Regulatory Approvals...................................... 8
Forward-Looking Statements................................ 8
The Special Meeting......................................... 9
Date, Time and Place of the Special Meeting............... 9
Purpose of the Special Meeting............................ 9
Holders of Record Entitled to Vote at the Special
Meeting................................................ 9
Quorum; Discretionary Voting.............................. 9
Vote Required to Adopt and Approve the Merger Agreement
and the Merger......................................... 9
Voting by Proxy........................................... 10
Revocation of Proxy....................................... 10
Costs of Solicitation of Proxies.......................... 10
Exchanging Stock Certificates............................. 11
The Merger.................................................. 12
Background of the Merger.................................. 12
NSI's Purpose and Reasons for the Merger.................. 13
Opinion of Financial Advisor.............................. 14
Financing Arrangements.................................... 21
Certain Effects of the Merger............................. 23
Conduct of the Business of NSI if the Merger is Not
Completed.............................................. 24
Interests of NSI's Directors and Officers in the Merger... 24
Regulatory Matters........................................ 26
The Merger Agreement........................................ 27
Merger Consideration; Effect of Merger.................... 27
Effective Time............................................ 27
Exchange of Stock Certificates............................ 27
Stock Options............................................. 27
Restricted Stock.......................................... 28
</Table>
<Table>
<Caption>
PAGE
----
Termination of Employee Stock Purchase Plan............... 28
Employee Benefits Matters................................. 28
Representations and Warranties............................ 28
Covenants................................................. 29
Conditions to Closing the Merger.......................... 30
Solicitation of Other Transactions........................ 32
Termination; Termination Fee; Amendment................... 33
Indemnification........................................... 35
Rights Agreement.......................................... 35
Certain Federal Income Tax Consequences..................... 36
Appraisal Rights............................................ 37
Beneficial Ownership of NSI Common Stock.................... 40
Where You Can Find More Information......................... 42
Other Matters............................................... 42
Stockholder Proposals..................................... 42
Other Business............................................ 43
Annex A -- Merger Agreement................................. A-1
Annex B -- Opinion of Financial Advisor..................... B-1
Annex C -- Delaware Appraisal Rights Statute................ C-1
</Table>
SUMMARY
This summary highlights selected information from the proxy statement. This
summary may not contain all of the information that is important to you. To
understand the merger fully and to obtain a more complete description of the
legal terms of the merger agreement and the merger, you should carefully read
this entire proxy statement, including the Annexes and the documents to which we
refer you. See "Where You Can Find More Information" beginning on page 42 of
this proxy statement for more details.
PURPOSE OF THE SPECIAL MEETING
At the special meeting, the stockholders of NSI are being asked to vote to
adopt and approve the merger agreement, and the merger of NS Acquisition Corp.
with and into NSI, with NSI continuing as the surviving corporation.
THE PARTIES
National Service Industries, Inc.
Principal Executive Offices:
Suite 200
1420 Peachtree Street, N.E.
Atlanta, Georgia 30309-3002
NSI is a publicly held corporation, incorporated under the laws of the
State of Delaware. NSI operates in two business segments -- textile rental and
envelope manufacturing. NSI is headquartered in Atlanta, Georgia, and provides
products and services throughout the United States.
California Investment Fund, LLC
Principal Executive Offices:
550 West C Street, Suite 1000
San Diego, California 92101
California Investment Fund, LLC, or CIF, is a California-based private
investment firm that specializes in the acquisition of under-valued assets.
During the past 10 years, affiliates of CIF have completed over $2 billion in
transactions, primarily in the commercial real estate sector. CIF is led by
Michael R. Kelly. Affiliates of CIF operate three businesses with approximately
250 employees.
NS Acquisition Corp.
Principal Executive Offices:
c/o California Investment Fund, LLC
550 West C Street, Suite 1000
San Diego, California 92101
NS Acquisition Corp., a privately held corporation incorporated under the
laws of the State of Delaware, is a newly-formed corporation affiliated with
CIF, which has not engaged in any business activities unrelated to the merger.
THE MERGER AGREEMENT (SEE PAGE 27)
Under the merger agreement, NS Acquisition Corp. will merge with and into
NSI, with NSI to remain as the surviving corporation. We have attached a copy of
the merger agreement as Annex A to this proxy statement. We encourage you to
read the merger agreement carefully because it is the legal document that
governs the merger.
2
EFFECT OF THE MERGER (SEE PAGE 27)
If the merger is completed, holders of shares of NSI common stock will not
have an opportunity to continue their equity interest in NSI and, therefore,
will not have the opportunity to share in its future earnings, dividends or
growth, if any. In addition, after the merger, NSI common stock will no longer
be listed on The New York Stock Exchange or registered with the Securities and
Exchange Commission, or SEC.
NSI'S BOARD OF DIRECTORS RECOMMENDATION TO STOCKHOLDERS (SEE PAGE 13)
Our board of directors believes that the terms of the merger agreement and
the merger are fair to, and in the best interests of, the holders of NSI common
stock. OUR BOARD OF DIRECTORS HAS ADOPTED AND APPROVED THE MERGER AGREEMENT AND
THE MERGER AND UNANIMOUSLY RECOMMENDS THAT YOU VOTE "FOR" THE ADOPTION AND
APPROVAL OF THE MERGER AGREEMENT AND THE MERGER.
OPINION OF FINANCIAL ADVISOR (SEE PAGE 14)
In connection with the merger agreement and the merger, our board of
directors considered the opinion of our financial advisor, SunTrust Robinson
Humphrey, that the merger consideration is fair, from a financial point of view,
to the holders of NSI common stock. The full text of SunTrust Robinson
Humphrey's written opinion is attached to this proxy statement as Annex B.
SunTrust Robinson Humphrey's opinion does not constitute a recommendation to any
stockholder with respect to any matter relating to the merger. We encourage you
to read the opinion carefully in its entirety for a description of the
assumptions made, matters considered and limitations on the review undertaken by
SunTrust Robinson Humphrey.
WHAT NSI STOCKHOLDERS WILL RECEIVE IN THE MERGER (SEE PAGE 27)
Upon completion of the merger, each outstanding share of NSI common stock
(other than shares as to which appraisal rights have been demanded and not
withdrawn or lost), will be cancelled and converted into the right to receive a
cash payment of $10.00 per share, without interest.
HOW OPTIONS WILL BE TREATED (SEE PAGE 27)
We have agreed to use commercially reasonable efforts to provide that each
option granted under our stock option or compensation plans which is outstanding
immediately prior to the effective time of the merger will be cancelled in
exchange for a single lump sum cash payment (except for our executive officers,
each of whom will surrender their outstanding options without cash payment as
described in "The Merger -- Interests of NSI's Directors and Officers in the
Merger"). Subject to any required tax withholding, the amount of the cash
payment will be equal to the product of:
- the number of shares of NSI common stock subject to such option
immediately prior to the effective time of the merger; and
- the excess, if any, of $10.00 per share over the exercise price per share
of such option; provided, that if the exercise price per share of any
such option is equal to or greater than $10.00 per share, such option
will be cancelled in exchange for such cash payment, if any, as shall be
established by NSI and NS Acquisition Corp.
HOW RESTRICTED STOCK WILL BE TREATED (SEE PAGE 28)
We have agreed to take all actions necessary and appropriate to provide
that each share of NSI restricted stock granted under any compensation plan
which is outstanding immediately prior to the effective time of the merger will
become fully vested and will be cancelled and converted into the right to
receive $10.00 per share, subject to any required tax withholding. Each share of
unissued NSI restricted stock underlying a performance-based award granted under
any stock option or compensation plan which is outstanding immediately prior to
the effective time of the merger will be issued in amounts reflecting full
3
satisfaction of any performance criteria and will be deemed fully vested,
effective as of the time of the approval of the merger by NSI's stockholders,
and will be cancelled and converted into the right to receive $10.00 per share,
subject to any required tax withholding.
FEDERAL INCOME TAX CONSEQUENCES OF THE MERGER (SEE PAGE 36)
Generally, for United States federal income tax purposes, NSI stockholders
will be treated as if they sold their NSI common stock for the cash received in
the merger. Each stockholder will recognize taxable gain or loss equal to the
difference between the amount of cash received and the stockholder's adjusted
tax basis in the NSI common stock exchanged. You should consult your personal
tax advisors for a full understanding of the tax consequences of the merger to
you.
STOCKHOLDER VOTE REQUIRED TO ADOPT AND APPROVE THE MERGER AGREEMENT AND THE
MERGER (SEE PAGE 9)
Adoption and approval of the merger agreement and the merger requires the
vote of the holders of at least a majority of the outstanding shares of NSI
common stock on , 2003, the record date for the special meeting.
FINANCING ARRANGEMENTS (SEE PAGE 21)
In connection with the merger agreement, CIF has obtained commitment
letters from Congress Financial Corporation and Fremont Investment & Loan to
provide an aggregate of $115 million in loans to finance the merger
consideration on the terms and conditions set forth in the commitment letters.
As of the date of this proxy statement, these commitment letters are in full
force and effect and have not been terminated.
Congress Financial's obligation to provide a $70 million credit facility is
subject to a number of conditions, including those set forth below. The
satisfaction of the conditions set forth below is determined by Congress
Financial, in its discretion. References to NSI in the following conditions mean
NSI, following the completion of the merger.
- Congress Financial shall have received all consents and waivers from
third parties in order to permit and perfect Congress Financial's
security interests in NSI's present and future personal property assets,
which are to serve as collateral for Congress Financial's loan;
- there shall be no event of default under any of the financing agreements;
- Congress Financial shall have received an opinion with respect to the
solvency of NSI following the transactions contemplated by the commitment
letter;
- the satisfactory completion of customary legal due diligence;
- Congress Financial shall have received evidence that NSI has received not
less than $20 million in immediately available funds in equity capital
contributions;
- Congress Financial shall have received evidence that NSI has received not
less than $45 million in immediately available funds from another term
loan;
- the syndication of the credit facility so that Congress Financial holds
$30 million or less of the aggregate commitments under the credit
facility; and
- no material adverse change in the business, operations or prospects of
CIF or NSI shall have occurred.
Fremont's obligation to provide a $45 million term loan is subject to a
number of conditions, including those set forth below. The satisfaction of the
conditions set forth below is determined by Fremont, in its discretion.
References to NSI in the following conditions mean NSI, following the completion
of the merger.
4
- NSI shall be the sole owner of the real property listed in the commitment
letter, which is to serve as collateral for Fremont's loan, with good and
marketable title and rights thereto;
- Fremont shall have approved the business, properties, financial
condition, capability and such other factors as Fremont deems material
with regard to NSI;
- the real property shall have been appraised at a specified amount;
- Fremont shall have received one or more environmental reports relating to
the real property, which reports shall disclose no environmental
conditions or hazardous waste on or under the real property which are
unacceptable to Fremont;
- the first priority security interest of Fremont with respect to the real
property shall be insured by a title insurance policy, issued by a title
company acceptable to Fremont;
- Fremont shall have approved all contracts and other agreements affecting
the real property;
- no event of default shall exist under any of the loan documents; and
- Fremont shall have obtained an opinion from its counsel that the asbestos
liability of NSI is adequately covered by insurance policies/existing
reserves for the next ten years.
In addition, NS Acquisition Corp. has delivered to NSI an equity commitment
letter which generally provides that:
- Michael R. Kelly, Managing Member of CIF, will use commercially
reasonable efforts to cause the contribution to NS Acquisition Corp. of
$20 million in cash, which amount consists of the proceeds of a loan to
be secured on a first priority basis by the equity interests in specified
entities controlled by affiliates of CIF; and
- from and after the effective time of the merger, Michael R. Kelly will
use commercially reasonable efforts to provide for the pledge for the
benefit of NSI of CIF's affiliates' right, title and interest in and to
such equity interests in such entities, when and as necessary, in NSI's
determination, to satisfy the obligations of NSI following the merger.
NS Acquisition Corp. has agreed in the merger agreement to use commercially
reasonable efforts to obtain the financing for the merger and to satisfy the
conditions set forth in the commitment letters. NS Acquisition Corp. has
represented in the merger agreement that, as of the date of the merger
agreement, the funds to be made available under the commitment letters will be
sufficient to enable NS Acquisition Corp. to pay the aggregate merger
consideration and all of its fees and expenses related to the transactions
contemplated by the merger agreement. NS Acquisition Corp. has also agreed to
use commercially reasonable efforts to find substitute financing as promptly as
possible in the event that any lender refuses to provide the financing described
in the commitment letters; provided, that any such substitute financing shall be
on terms and conditions no less favorable to NS Acquisition Corp. than the terms
and conditions of the financing so substituted.
NS Acquisition Corp.'s receipt of the proceeds of the financing pursuant to
the commitment letters is a condition to the consummation of the merger. As of
the date of this proxy statement, NS Acquisition Corp. has not yet completed its
financing, and no assurance can be given that its financing will be completed.
NS Acquisition Corp. currently does not have any alternative financing
commitments in the event that the financing with Congress Financial or Fremont
is not obtained.
5
INTERESTS OF NSI'S DIRECTORS AND OFFICERS IN THE MERGER (SEE PAGE 24)
When considering the recommendation of our board of directors, you should
be aware that several of our directors and officers have interests in the merger
that are different from, or in addition to, yours. As a result, these directors
and officers may be more likely to vote to adopt and approve the merger
agreement and the merger than our stockholders generally.
These interests include the following:
- amended severance arrangements for some of our executive officers;
- new employment agreements for some of our executive officers; and
- indemnification by the surviving corporation of the merger for our
directors and officers.
CONDITIONS TO CLOSING THE MERGER (SEE PAGE 30)
Each of NS Acquisition Corp. and NSI is required to complete the merger
only if specific conditions are satisfied or waived, including, but not limited
to, the following:
- the merger agreement and merger have been approved and adopted by the
requisite vote of NSI's stockholders;
- no temporary restraining order, preliminary or permanent injunction or
other court order or other legal restraint or prohibition preventing the
consummation of the merger shall be in effect; and
- all actions and filings with any governmental entity required to permit
the consummation of the merger have been obtained or made (including the
expiration or termination of any applicable waiting period under the
Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, or HSR
Act).
In addition, NS Acquisition Corp. is obligated to complete the merger only
if certain additional conditions to its obligations are satisfied or waived,
including, but not limited to:
- NS Acquisition Corp. having received the proceeds of the financing
pursuant to the commitment letters described above;
- the total number of shares of NSI common stock dissenting from the merger
(under applicable Delaware law) not exceeding 10% of the outstanding
shares of NSI common stock at the effective time of the merger;
- since the date for the merger agreement, no material adverse effect
having occurred with respect to NSI;
- NSI's representations and warranties that are qualified by materiality
being true and correct in all respects as of April 1, 2003 and as of the
closing date of the merger, except to the extent any such representation
or warranty is expressly made as of a specific date, in which case such
representation or warranty shall have been true and correct in all
respects as of such date;
- NSI's representations and warranties that are not qualified by
materiality being true and correct in all material respects as of April
1, 2003 and as of the closing date of the merger, except to the extent
any such representation or warranty is expressly made as of a specific
date, in which case such representation or warranty shall have been true
and correct in all respects as of such date;
- NSI having obtained the surrender or cancellation of each outstanding
stock option by the holders thereof for treatment or payment in
accordance with the terms of the merger agreement; and
- NSI having performed in all material respects all obligations required to
be performed under the merger agreement.
6
NSI is obligated to complete the merger only if certain additional
conditions to its obligations are satisfied or waived, including, but not
limited to:
- NS Acquisition Corp. having performed in all material respects all
obligations required to be performed under the merger agreement;
- NSI's board of directors having received a solvency opinion from a
nationally-recognized financial advisor, in form and substance reasonably
satisfactory to the board of directors, which opinion shall be as of the
effective time of the merger;
- NS Acquisition Corp.'s representations and warranties that are qualified
by materiality being true and correct in all respects as of April 1, 2003
and as of the closing date for the merger; and
- NS Acquisition Corp.'s representations and warranties that are not
qualified by materiality being true and correct in all material respects
as of April 1, 2003 and as of the closing date for the merger.
Although neither NSI nor NS Acquisition Corp. expects to waive any
conditions to the merger, NSI reserves the right to do so if it believes a
waiver is in the best interests of our stockholders; however, we will not waive
a material term or condition of the merger agreement without resoliciting the
approval of our stockholders.
TERMINATION (SEE PAGE 33)
The merger agreement may be terminated and the merger may be abandoned at
any time prior to the closing of the merger, whether before or after approval of
matters presented in connection with the merger by NSI's stockholders, either by
mutual written consent of NS Acquisition Corp. and NSI, or by either NSI or NS
Acquisition Corp. under specified circumstances. The grounds for termination of
the merger agreement include, but are not limited to, the failure of NSI
stockholders to approve the merger at the special meeting, the NSI board of
directors altering its recommendation to the stockholders to vote "for" the
merger at the special meeting, and the breach of certain representations and
warranties or covenants contained in the merger agreement. Each of the parties
has the right to terminate the merger agreement if the merger is not completed
on or before September 30, 2003, unless the party seeking to terminate the
merger agreement has failed to fulfill any obligation under the merger agreement
and its failure has been the primary cause of, or resulted in, the merger not
being completed by September 30, 2003.
TERMINATION FEE (SEE PAGE 33)
In the event that the merger agreement is terminated by NSI, NS Acquisition
Corp., or either of them, in certain instances, a termination fee will be
payable by NSI to NS Acquisition Corp. Depending on the grounds for termination
of the merger agreement, this payment may consist of NS Acquisition Corp.'s
reasonable expenses incurred in connection with the merger, up to a maximum
amount of $3 million, along with a fee of $4 million.
CLOSING (SEE PAGE 27)
The merger will be effective as promptly as practicable (and in any event
within five business days) following stockholder adoption and approval of the
merger agreement and the merger at the special meeting and satisfaction or
waiver of the terms and conditions set forth in the merger agreement, and upon
the filing of a certificate of merger with the Secretary of State of the State
of Delaware.
APPRAISAL RIGHTS (SEE PAGE 37)
Holders of NSI common stock who do not wish to accept the cash
consideration payable pursuant to the merger may seek, under Section 262 of the
General Corporation Law of the State of Delaware, judicial appraisal of the fair
value of their shares by the Delaware Court of Chancery. This value could be
more or less than or the same as the $10.00 per share merger consideration for
the NSI common stock.
7
This right to appraisal is subject to a number of restrictions and technical
requirements. Generally, in order to properly demand appraisal rights, among
other things:
- you must not vote in favor of the proposal to adopt and approve the
merger agreement and the merger;
- you must make a written demand on NSI for appraisal in compliance with
the General Corporation Law of the State of Delaware before the vote on
the proposal to adopt and approve the merger agreement and the merger at
the special meeting; and
- you must hold your shares of record continuously from the time of making
a written demand for appraisal though the effective time of the merger.
Merely voting against the merger agreement and the merger will not preserve
your right to appraisal under Delaware law. Also, because a submitted proxy not
marked "against" or "abstain" will be voted "for" the proposal to adopt the
merger agreement, the submission of a proxy not marked "against" or "abstain"
will result in the waiver of appraisal rights. If you hold shares in the name of
a broker or other nominee, you must instruct your nominee to take the steps
necessary to enable you to demand appraisal for your shares. If you or your
nominee fails to follow all of the steps required by Section 262 of the General
Corporation Law of the State of Delaware, you will lose your right of appraisal.
Annex C to this proxy statement contains the full text of Section 262 of
the General Corporation Law of the State of Delaware, which relates to your
right of appraisal. We encourage you to read these provisions carefully and in
their entirety.
REGULATORY APPROVALS (SEE PAGE 26)
Under the HSR Act and the rules and regulations promulgated under it by the
Federal Trade Commission, the merger cannot be consummated until certain
notifications have been given and certain information has been furnished to the
Federal Trade Commission and the Antitrust Division of the United States
Department of Justice, and the required waiting periods have ended. Expiration
of the required waiting periods under the HSR Act is a condition to the
consummation of the merger.
FORWARD-LOOKING STATEMENTS
This proxy statement contains forward-looking statements within the meaning
of the federal securities laws. Statements that are not historical facts,
including statements about management's and NSI's beliefs and expectations, are
forward-looking statements. Forward-looking statements include statements
preceded by, followed by or that include the words "believes," "expects,"
"anticipates," "plans," "estimates" or similar expressions. These statements
include, among others, statements regarding the consummation of the merger and
the transactions contemplated by the merger agreement, actions of governmental
authorities, including the timing of any clearance under the HSR Act, the
ability of NS Acquisition Corp. to consummate the financings contemplated by the
commitment letters and costs related to the merger.
Forward-looking statements are only predictions and are not guarantees of
performance. These statements are based on management's beliefs and assumptions,
which in turn are based on currently available information. Important
assumptions relating to the forward-looking statements include, among others,
the timely satisfaction of the conditions set forth in the merger agreement,
including the receipt of all necessary financing to complete the merger. These
assumptions could prove inaccurate. Forward-looking statements also involve
risks and uncertainties, which could cause actual results to differ materially
from those contained in any forward-looking statement. Many of these factors are
beyond NSI's ability to control or predict. Such factors include, but are not
limited to, delays in the receipt of necessary financing and third party and
governmental consents to complete the merger. NSI does not undertake any
obligation to publicly update or revise any forward-looking statements because
of new information, future events or otherwise. You should consult, among other
things, NSI's filings from time to time with the SEC, including NSI's Annual
Report on Form 10-K for the fiscal year ended August 31, 2002, and NSI's
Quarterly Reports on Form 10-Q, as filed with the SEC.
8
THE SPECIAL MEETING
DATE, TIME AND PLACE OF THE SPECIAL MEETING
The special meeting will be held on , 2003, at at the offices
of King & Spalding LLP, 191 Peachtree Street, 50th Floor, Atlanta, Georgia.
PURPOSE OF THE SPECIAL MEETING
At the special meeting, you will be asked to consider and vote upon the
following proposals:
(1) to adopt and approve the Agreement and Plan of Merger, dated as of
April 1, 2003, by and between NS Acquisition Corp., an affiliate of
California Investment Fund, LLC, and NSI, and the merger of NS Acquisition
Corp. with and into NSI, with NSI continuing as the surviving corporation.
Upon completion of the merger, each outstanding share of NSI common stock
(other than shares as to which appraisal rights have been demanded and not
withdrawn or lost) will be cancelled and converted into the right to
receive a cash payment of $10.00 per share, without interest; and
(2) to transact such other business as may properly come before the
meeting or any postponement or adjournment thereof.
HOLDERS OF RECORD ENTITLED TO VOTE AT THE SPECIAL MEETING
Our board of directors has set , 2003 as the record date for the
determination of stockholders who are entitled to notice of, and to vote at, the
special meeting or at any postponement or adjournment of the special meeting. On
the record date, there were shares of NSI common stock issued and
outstanding.
QUORUM; DISCRETIONARY VOTING
The adoption and approval of the merger agreement and the merger requires
the presence of, either in person or represented by proxy, a majority of the
outstanding shares of NSI common stock. Abstentions will be treated as shares
that are present and entitled to vote but as unvoted for purposes of determining
a quorum and the adoption and approval of the merger agreement and the merger or
any matter submitted to the stockholders.
If a broker indicates on the proxy that it does not have discretionary
authority as to certain shares to vote on a particular matter (i.e., "broker
non-votes"), those shares will be considered as present for purposes of
determining a quorum but will not be entitled to vote at the special meeting
with respect to that matter. In effect, abstentions and broker non-votes will
have the effect of a vote against the adoption and approval of merger agreement
and the merger at the special meeting.
VOTE REQUIRED TO ADOPT AND APPROVE THE MERGER AGREEMENT AND THE MERGER
For the merger to occur, the merger agreement and the merger must be
adopted and approved by the holders of at least a majority of the outstanding
shares of NSI common stock. As of the record date, there were
shares of NSI common stock issued and outstanding. NSI common stock entitles its
holder of record to one vote for each share owned.
9
VOTING BY PROXY
Stockholders are requested to provide their voting instructions on the
enclosed proxy by mail using the accompanying envelope, by the internet, or by
telephone. Stockholders who hold their shares through a bank or broker can vote
by the internet or by telephone if these options are offered by the bank or
broker. At any time before the proxy is voted, it may be revoked by written
notice to the Corporate Secretary of NSI. Proxies that are properly delivered,
and not revoked, will be voted in accordance with stockholders' directions.
Where no direction is specified, proxies will be voted as recommended by the
board of directors.
Stockholders may deliver their proxy using one of the following methods:
By the Internet. Stockholders of record may give their voting instructions
by the internet as described on the proxy card. Internet voting is also
available to stockholders who hold shares in our DirectService Plan, in our
Employee Stock Purchase Plan, or in a 401(k) plan sponsored by us. The internet
voting procedure is designed to verify the voting authority of stockholders. You
will be able to vote your shares by the internet and confirm that your vote has
been properly recorded. Please see your proxy card for specific instructions.
By Telephone. Stockholders of record may give their voting instructions
using the toll-free number listed on the proxy card. Telephone voting is also
available to stockholders who hold shares in our DirectService Plan, in our
Employee Stock Purchase Plan, or in a 401(k) plan sponsored by us. The telephone
voting procedure is designed to verify the voting authority of stockholders. The
procedure allows you to vote your shares and to confirm that your instructions
have been properly recorded. Please see your proxy card for specific
instructions.
By Mail. Stockholders may sign, date, and mail their proxies in the
postage-paid envelope provided. If you sign, date, and mail your proxy card
without providing voting instructions on specific items, your proxy will be
voted as recommended by the board of directors.
401(k) Plans. After you deliver your proxy in one of the methods described
immediately above, the trustee will then vote your 401(k) shares in accordance
with your instructions and the terms of the plan.
REVOCATION OF PROXY
A proxy that is properly submitted to us may be revoked at any time before
it is exercised. For a stockholder "of record," meaning one whose shares are
registered in his or her own name, to revoke a proxy, the stockholder may
either:
- send another signed proxy card with a later date to the address indicated
on the proxy card;
- send a letter revoking the stockholder's proxy to our Corporate Secretary
at our principal address; or
- attend the special meeting and vote in person.
A "beneficial holder" whose shares are registered in another name, for
example in "street name," must follow the procedures required by the holder of
record, which is usually a brokerage firm or bank, to revoke a proxy. You should
contact the holder of record directly for more information on these procedures.
COSTS OF SOLICITATION OF PROXIES
We will pay all of the costs of soliciting proxies from our stockholders,
consisting mostly of printing and mailing costs. Although we are mailing these
proxy materials, our directors and employees may also solicit proxies in person
or by telephone, facsimile or other electronic means of communication. We have
retained Georgeson Shareholder Communications Inc. to assist in the solicitation
of proxies for a fee of approximately $10,000 and reimbursement of specified
expenses. Brokers, custodians and fiduciaries will be requested to forward proxy
soliciting material to the owners of stock held in their names and, as required
by law, we will, at their request, reimburse them for their out-of-pocket
expenses in this regard.
10
EXCHANGING STOCK CERTIFICATES
Within 10 days after the effective time of the merger, EquiServe Trust
Company, N.A., whom we have designated as the exchange agent in the merger, will
mail to each of our stockholders a letter of transmittal and instructions
specifying the procedures to be followed in surrendering your shares of NSI
common stock in exchange for the merger consideration. YOU SHOULD NOT SUBMIT
YOUR STOCK CERTIFICATES FOR EXCHANGE UNTIL YOU RECEIVE THE LETTER OF TRANSMITTAL
AND INSTRUCTIONS FROM THE EXCHANGE AGENT. When you surrender your stock
certificates along with the properly executed letter of transmittal, you will
receive the merger consideration.
11
THE MERGER
While we believe that the following description covers the material terms
of the merger, this summary may not contain all of the information that is
important to you. You should carefully read this entire document, including the
annexes, and the other documents we refer to for a more complete understanding
of the merger.
BACKGROUND OF THE MERGER
On December 13, 2002, CIF delivered an unsolicited letter to Brock A.
Hattox, NSI's Chairman, Chief Executive Officer and President, which included a
preliminary proposal to acquire 100% of the outstanding shares of NSI common
stock for consideration equal to $10.00 per share in cash to each NSI
stockholder. The offer was subject to satisfactory completion of due diligence
by CIF and its financing sources and negotiation of definitive agreements
regarding the terms of the transaction. The parties entered into a
confidentiality agreement on December 20, 2002, and the parties agreed to meet
to discuss the possibility of a transaction.
On January 7, 2003, representatives of CIF met in Atlanta with senior
executives of NSI. As a result of the meeting, NSI agreed to provide CIF with
information regarding NSI's business and assets in order to facilitate the
making of a more definitive offer by CIF. On January 15, 2003, representatives
of CIF met in Atlanta with senior executives and counsel for NSI to discuss
NSI's spin-off of Acuity Brands, Inc. in November 2001 and to conduct further
due diligence on NSI's assets and liabilities. After the January 15 meeting, CIF
commenced the process of engaging third-party advisors to assist in its due
diligence effort and to explore potential sources of financing for the
transaction.
Principals of CIF met in Atlanta with senior management and counsel for NSI
on February 13 and 14, 2003. At these meetings, CIF further refined the terms
and structure of the potential acquisition proposal. On February 17, 2003, the
NSI board of directors met and discussed with management the status of the
discussions with CIF. After consideration, the board of directors authorized
management to continue negotiations and expressed a desire to meet with the
principals of CIF.
On February 24, 2003, the board of directors of NSI met to consider the
offer from CIF. After a presentation to the board of directors by Michael R.
Kelly, Managing Member of CIF, regarding the background of CIF and the terms of
the proposed transaction, the board of directors discussed at length the
proposal by CIF, the risks inherent in the transaction and the potential
benefits to NSI stockholders as compared to other potential alternatives,
including the continued execution of NSI's business strategy. The board of
directors was advised at this meeting by counsel from King & Spalding LLP. The
board of directors determined that it would be advisable to continue
negotiations with CIF and to conduct further mutual due diligence. After this
meeting, the board of directors engaged SunTrust Robinson Humphrey to serve as
financial advisor to the board of directors.
Between February 17 and March 14, 2003, management of NSI, together with
its legal and financial advisors, conducted additional financial due diligence
to determine the feasibility of the acquisition proposal by CIF. During this
time, representatives of CIF and potential lenders conducted extensive due
diligence on the business, assets and liabilities of NSI, including the
preparation of appraisals of the assets of NSI and assessment of NSI's expected
future liabilities arising out of asbestos litigation, as well as the related
insurance coverage available to pay these liabilities.
On March 14, 2003, Michael R. Kelly delivered a memorandum to NSI in which
he updated NSI on the status of CIF's discussions with potential lenders
regarding financing for the transaction and the status of CIF's due diligence
investigation of NSI and its assets and liabilities. In the memorandum, Mr.
Kelly indicated that CIF was prepared, subject to completion of due diligence
and receipt of commitment letters for financing the transaction, to offer $10.75
per share for the NSI common stock. Mr. Kelly also indicated that he expected to
have financing commitments from lenders no later than March 28, 2003 and that he
expected due diligence and negotiations of the definitive agreement to be
completed by that time.
12
On March 17, 2003, the NSI board of directors met. At this meeting, the
directors received a report from management on the results for the second fiscal
quarter and the financial outlook for NSI's operating businesses. The board of
directors also received reports on the analyses prepared by outside experts
regarding NSI's projected future asbestos liability and related insurance
coverage. In addition, SunTrust Robinson Humphrey provided a summary of their
method of analysis in assessing the fairness, from a financial point of view, to
the NSI stockholders of the proposal from CIF. Counsel for NSI from King &
Spalding LLP also reviewed for the directors a draft of the merger agreement and
the possible timetable for a transaction with CIF.
During the weeks of March 17 and March 24, 2003, counsel for NSI and CIF
negotiated the terms and conditions of a definitive merger agreement between NS
Acquisition Corp. and NSI. On March 27, 2003, Mr. Kelly telephoned Mr. Hattox
and informed him that, on the basis of the final financing proposals that had
been obtained from lenders, CIF was prepared to sign a definitive agreement
providing for a $10.00 per share purchase price. Mr. Hattox indicated in this
conversation that he would need to discuss the change in the pricing of the
transaction with the NSI board of directors. Pending the board of directors'
consideration of the terms of the revised proposal, the parties negotiated the
final terms of the merger agreement on March 28 and 29, 2003.
On March 29, 2003, the NSI board of directors met at NSI headquarters to
consider the revised proposal and the terms of the definitive merger agreement
that had been prepared. Prior to the meeting, the directors had been provided
with a near final version of the merger agreement, and during the course of the
meeting, counsel for NSI from King & Spalding LLP identified the changes in the
agreement from the draft previously distributed to the directors. At the
meeting, the NSI board of directors received an oral report from SunTrust
Robinson Humphrey, including its opinion that, on the basis of a $10.00 per
share purchase price, the consideration to be received by NSI stockholders in
the merger was fair, from a financial point of view, to the NSI stockholders.
After discussion, the NSI board of directors concluded that the proposed
transaction was in the best interest of NSI and its stockholders and that NSI
should proceed with finalizing the merger agreement.
After the March 29, 2003 board of directors meeting, counsel for the
parties completed preparation of the final merger agreement and ancillary
documents. On the afternoon of April 1, 2003, the NSI board of directors met by
telephone conference and received an update of the terms of the final merger
agreement and other documentation to be executed in connection with the merger
and an oral report, subsequently confirmed in writing, from SunTrust Robinson
Humphrey confirming as of that date its previous opinion that the consideration
to be received by stockholders of NSI in the merger was fair, from a financial
point of view, to the NSI stockholders. The NSI board of directors also received
a report on the financing structure of the transaction and on the expected
capital structure of NSI after completion of the transaction. The NSI board of
directors adopted and approved the merger agreement, the merger and the
amendment to the rights agreement (as described in "The Merger
Agreement -- Rights Agreement" below) by unanimous vote. The parties executed
the merger agreement after the meeting. NSI announced the merger in a press
release prior to the opening of the stock market on the morning of April 2,
2003.
NSI'S PURPOSE AND REASONS FOR THE MERGER
In reaching its recommendation described in this proxy statement, our board
of directors considered a number of factors including, without limitation, the
following:
- NSI's current financial condition, results of operations and business and
strategic objectives, as well as the risks involved in achieving those
objectives, including the ability of NSI to grow its businesses
successfully;
- current conditions and trends in the industries in which NSI operates,
and the effect of those conditions and trends on NSI;
- the current prospects for appreciation of NSI's valuation, given NSI's
relatively small market capitalization and relatively thin trading volume
in its common stock, including the fact that the
13
proposed merger consideration of $10.00 per share, payable in cash to each NSI
stockholder, represented, as of the date of execution of the merger agreement, a
significant premium over the recent average trading prices of NSI common stock
on The New York Stock Exchange;
- the significant competition in the industries in which NSI operates, the
relative size of other participants and the available capital and other
resources available to such participants;
- the financial and valuation analysis undertaken by SunTrust Robinson
Humphrey, including share prices and other relevant financial data
relating to other companies engaged in businesses considered comparable
to that of NSI and the prices and premiums paid in recent selected
acquisitions involving transactions similar in size and structure to that
of the merger;
- the opinion of SunTrust Robinson Humphrey to the effect that, as of the
date of the opinion, the offer price of $10.00 per share, payable in cash
in a lump sum to each NSI stockholder, pursuant to the terms and
conditions set forth in the merger agreement, was fair, from a financial
point of view, to the stockholders of NSI. YOU ARE URGED TO READ
CAREFULLY AND IN ITS ENTIRETY THE COMPLETE OPINION OF SUNTRUST ROBINSON
HUMPHREY, ATTACHED HERETO AS ANNEX B;
- the terms and conditions of the merger agreement, including, without
limitation, that the terms of the merger agreement will not prevent other
third parties from making unsolicited proposals to NSI after execution of
the merger agreement, and the limited circumstances under which NSI would
be required to pay to NS Acquisition Corp. a termination fee of $4
million plus reimbursement of expenses of up to $3 million if the
transaction does not close;
- the likelihood that the merger will be consummated; and
- the availability to NSI's stockholders of appraisal rights in the merger
under the applicable provisions of the Delaware General Corporation Law.
In view of the variety of factors considered in connection with its
evaluation of the merger, the board of directors did not find it practicable to
place relative weights or to otherwise quantify the specific factors considered
in reaching its determination. AFTER WEIGHING THESE CONSIDERATIONS, THE BOARD OF
DIRECTORS, BY UNANIMOUS VOTE, DETERMINED THAT THE MERGER AGREEMENT AND THE
MERGER ARE, IN THE BELIEF OF THE BOARD OF DIRECTORS, FAIR TO AND IN THE BEST
INTERESTS OF NSI AND ITS STOCKHOLDERS AND RECOMMENDS THAT THE STOCKHOLDERS VOTE
"FOR" THE ADOPTION AND APPROVAL OF THE MERGER AGREEMENT AND THE MERGER AT THE
SPECIAL MEETING.
OPINION OF FINANCIAL ADVISOR
NSI has engaged SunTrust Robinson Humphrey, a division of SunTrust Capital
Markets, Inc., to act as its financial advisor in connection with the merger. At
the March 29, 2003 meeting of the NSI board of directors, SunTrust Robinson
Humphrey reviewed with the board of directors its financial analysis of the
merger and, on April 1, 2003, SunTrust Robinson Humphrey delivered its written
opinion to the effect that, as of that date and based upon and subject to the
matters described in the opinion, the consideration to be paid in the merger was
fair, from a financial point of view, to the stockholders of NSI. No limitations
were imposed by the NSI board of directors upon SunTrust Robinson Humphrey with
respect to the investigation made or the procedures followed by SunTrust
Robinson Humphrey in rendering its opinion.
THE FULL TEXT OF SUNTRUST ROBINSON HUMPHREY'S WRITTEN OPINION DATED APRIL
1, 2003, WHICH DESCRIBES THE ASSUMPTIONS MADE, PROCEDURES FOLLOWED, MATTERS
CONSIDERED AND LIMITATIONS ON THE REVIEW UNDERTAKEN IN CONNECTION WITH THE
OPINION, IS ATTACHED AS ANNEX B AND IS INCORPORATED HEREIN BY REFERENCE. YOU ARE
URGED TO READ THIS OPINION IN ITS ENTIRETY.
SUNTRUST ROBINSON HUMPHREY'S OPINION IS ADDRESSED TO THE BOARD OF DIRECTORS
OF NSI AND RELATES ONLY TO THE FAIRNESS, FROM A FINANCIAL POINT OF VIEW, OF THE
CONSIDERATION TO BE PAID IN THE MERGER TO THE STOCKHOLDERS OF NSI, AND DOES NOT
CONSTITUTE A RECOMMENDATION TO ANY STOCKHOLDER AS TO HOW TO VOTE WITH RESPECT TO
MATTERS RELATING TO THE MERGER. THE SUMMARY OF SUNTRUST ROBINSON HUMPHREY'S
OPINION
14
DESCRIBED BELOW IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE FULL TEXT OF
ITS OPINION WHICH IS ATTACHED AS ANNEX B.
Material and Information Considered with Respect to the Merger
In arriving at its opinion, SunTrust Robinson Humphrey:
- reviewed the merger agreement and exhibits thereto;
- reviewed and analyzed certain publicly available information concerning
NSI which SunTrust Robinson Humphrey believed to be relevant to its
inquiry;
- reviewed and analyzed financial and operating information with respect to
the business, operations and prospects of NSI furnished to SunTrust
Robinson Humphrey by NSI;
- reviewed and analyzed a trading history of NSI common stock from December
3, 2001 (the first trading day after the spin-off of Acuity Brands, Inc.)
to the present and compared that trading history with those of other
publicly traded companies which SunTrust Robinson Humphrey deemed
relevant;
- reviewed and analyzed a comparison of the historical financial results
and present financial condition of NSI with those of publicly traded
companies which SunTrust Robinson Humphrey deemed relevant;
- reviewed and analyzed a comparison of the financial terms of the merger
with the publicly available financial terms of certain other recent
transactions which SunTrust Robinson Humphrey deemed relevant;
- reviewed and analyzed historical data relating to percentage premiums
paid in acquisitions of publicly traded companies;
- reviewed and analyzed a comparison of certain publicly available
information for companies with asbestos litigation and liabilities with
NSI's internal asbestos litigation and liability data;
- conducted discussions with the management of NSI concerning its
businesses, operations, assets, present condition and future prospects;
and
- undertook such other studies, analyses and investigations as SunTrust
Robinson Humphrey deemed appropriate.
In rendering its opinion, SunTrust Robinson Humphrey assumed and relied
upon, without independent verification, the accuracy and completeness of the
financial and other information discussed with or reviewed by SunTrust Robinson
Humphrey in arriving at its opinion. With respect to the financial forecasts
provided to or discussed with SunTrust Robinson Humphrey, SunTrust Robinson
Humphrey assumed, at the direction of the management of NSI and without
independent verification or investigation, that such forecasts had been
reasonably prepared on bases reflecting the best currently available
information, estimates and judgments of the NSI management as to the future
financial performance of NSI. In arriving at its opinion, SunTrust Robinson
Humphrey did not conduct a physical inspection of the properties and facilities
of NSI and did not make or obtain any evaluations or appraisals of the assets or
liabilities (including, without limitation, any potential environmental
liabilities), contingent or otherwise, of NSI. NSI did not authorize SunTrust
Robinson Humphrey to solicit, and SunTrust Robinson Humphrey did not solicit,
any indications of interest from any third party with respect to the purchase of
all or a part of NSI's business. SunTrust Robinson Humphrey also assumed the
following:
- that the merger would be consummated in accordance with the terms of the
merger agreement; and
- that all material governmental, regulatory or other consents and
approvals necessary for the consummation of the merger will be obtained
without any adverse effect on NSI, or on the expected benefits of the
merger.
15
SunTrust Robinson Humphrey's opinion is necessarily based upon market,
economic and other conditions as they may have existed and could be evaluated as
of April 1, 2003. SunTrust Robinson Humphrey expressed no opinion as to the
underlying valuation, future performance or long-term viability of NSI.
In connection with the preparation of its fairness opinion, SunTrust
Robinson Humphrey performed financial and comparative analyses, the material
portions of which are summarized below. The summary set forth below includes the
financial analyses used by SunTrust Robinson Humphrey and deemed to be material,
but does not purport to be a complete description of the analyses performed by
SunTrust Robinson Humphrey in arriving at its opinion. The preparation of a
fairness opinion involves various determinations as to the most appropriate and
relevant methods of financial analysis and the application of those methods to
the particular circumstances, and, therefore, such an opinion is not readily
susceptible to partial analysis or summary description. In addition, SunTrust
Robinson Humphrey believes that its analyses must be considered as an integrated
whole, and that selecting portions of such analyses and the factors considered
by it, without considering all of such analyses and factors, could create a
misleading or incomplete view of the process underlying its analyses set forth
in the opinion.
In performing its analyses, SunTrust Robinson Humphrey made numerous
assumptions with respect to industry and economic conditions, many of which are
beyond the control of NSI. Any estimates contained in such analyses are not
necessarily indicative of actual past or future results or values, which may be
significantly more or less favorable than as set forth therein. Estimates of
values of companies do not purport to be appraisals or necessarily to reflect
the price at which such companies may actually be sold, and such estimates are
inherently subject to substantial uncertainty. No company, business or
transaction used in such analyses as a comparison is identical to NSI, CIF,
their respective businesses or the merger, and an evaluation of the results of
those analyses is not entirely mathematical. Rather, the analyses involve
complex considerations and judgments concerning financial and operating
characteristics and other factors that could affect the acquisition, public
trading or other values of the companies, businesses or transactions analyzed.
SunTrust Robinson Humphrey's opinion and financial analyses were only one
of many factors considered by NSI's board of directors in its evaluation of the
merger and should not be viewed as determinative of the views of NSI's board of
directors or management with respect to the merger or the consideration to be
paid in the merger. The amount and type of consideration to be paid in the
merger was determined through direct negotiation between NSI and CIF. The
decision to enter into the merger was solely that of the NSI board of directors.
The following is a summary of the material financial analyses presented by
SunTrust Robinson Humphrey to the NSI board of directors in connection with its
opinion.
Analysis of Selected Publicly Traded Reference Companies
Reference company analysis analyzes a company's operating performance and
valuation relative to a reference group of publicly traded companies. SunTrust
Robinson Humphrey analyzed the financial and stock market information for the
following selected publicly traded companies for the Atlantic Envelope Company
("AECO") business unit of NSI (the "AECO Reference Companies"):
- Avery Dennison Corp.;
- Mail-Well, Inc.;
- Moore Corporation Limited;
- New England Business Services, Inc.;
- Standard Register Company;
- Wallace Computer Services, Inc.; and
- Workflow Management, Inc.
16
SunTrust Robinson Humphrey also analyzed the financial and stock market
information for the following selected publicly traded companies for the
National Linen Service ("National Linen") business unit of NSI (the "National
Linen Reference Companies"):
- Angelica Corporation;
- ARAMARK Corporation;
- Cintas Corporation;
- G&K Services, Inc.; and
- UniFirst Corporation.
SunTrust Robinson Humphrey reviewed and analyzed equity market values as
multiples of:
- book value;
- latest twelve months net income, adjusted for non-recurring charges ("LTM
Adjusted Net Income"); and
- projected 2003 net income, provided by management and adjusted for
non-recurring charges ("2003E Adjusted Net Income").
SunTrust Robinson Humphrey also reviewed and analyzed, among other things,
firm values, calculated as equity market value plus net debt, as multiples of:
- latest twelve months revenue ("LTM Revenue");
- latest twelve months earnings before interest, taxes, depreciation and
amortization, adjusted for non-recurring charges ("LTM Adjusted EBITDA");
- projected 2003 earnings before interest, taxes, depreciation and
amortization, provided by management and adjusted for non-recurring
charges ("2003E Adjusted EBITDA"); and
- latest twelve months earnings before interest and taxes, adjusted for
non-recurring charges ("LTM Adjusted EBIT").
All multiples were based on closing stock prices as of March 27, 2003. SunTrust
Robinson Humphrey then applied a relative weight to the average multiples for
the AECO Reference Companies and the National Linen Reference Companies based
upon the historical and projected revenue and operating income contributions of
AECO and National Linen, respectively, to arrive at multiples for the combined
business.
The following table sets forth the multiples indicated by this analysis as
of March 27, 2003:
<Table>
<Caption>
AVERAGE
-------
WEIGHTED MULTIPLE OF EQUITY MARKET VALUE TO:
Book Value.................................................. 2.4x
LTM Adjusted Net Income..................................... 18.0x
2003E Adjusted Net Income................................... 14.3x
WEIGHTED MULTIPLE OF FIRM VALUE TO:
LTM Revenue................................................. 0.74x
LTM Adjusted EBITDA......................................... 7.2x
2003E Adjusted EBITDA....................................... 6.6x
LTM Adjusted EBIT........................................... 11.0x
</Table>
SunTrust Robinson Humphrey then applied the average multiples resulting
from the analysis above to the actual and projected values for NSI for the
latest twelve months ended February 28, 2003 and for the fiscal year ending
August 31, 2003. SunTrust Robinson Humphrey then applied a discount to the
implied equity values to reflect the valuation discount created by the asbestos
liability for NSI. SunTrust Robinson
17
Humphrey assessed the discounts for publicly traded companies with asbestos
liabilities and not presently subject to bankruptcy protection to arrive at
average discounts to comparable peer groups unaffected by asbestos liabilities
of 35% to 36% and median discounts of 38% to 44%. Based on this analysis,
SunTrust Robinson Humphrey applied an asbestos liability discount of 40% to the
implied equity values per share. Prior to a discount, this analysis yielded
implied equity values per share for NSI of $46.57, $0.00, $0.00, $32.67, $9.85,
$7.41 and $0.00, respectively. Following a 40% asbestos discount, this analysis
yielded implied equity values per share for NSI of approximately $27.94, $0.00,
$0.00, $19.60, $5.91, $4.45 and $0.00, respectively. These implied equity values
per share were compared to the merger consideration of $10.00 per share.
In addition to the groups of reference companies listed above, SunTrust
Robinson Humphrey repeated this analysis for one selected comparable reference
company, considered to be the primary comparable company among the group of
publicly traded comparable companies, for each of the AECO and the National
Linen businesses. SunTrust Robinson Humphrey selected Mail-Well, Inc. for the
AECO multiples and Angelica Corporation for the National Linen multiples.
All multiples were based on closing stock prices as of March 27, 2003.
SunTrust Robinson Humphrey applied a relative weight to the average multiples
for Mail-Well, Inc. and Angelica Corporation based upon the historical and
projected revenue and operating income contributions of AECO and National Linen,
respectively, to arrive at multiples for the combined business.
The following table sets forth the multiples indicated by this analysis as
of March 27, 2003:
<Table>
<Caption>
AVERAGE
-------
WEIGHTED MULTIPLE OF EQUITY MARKET VALUE TO:
Book Value.................................................. 1.5x
LTM Adjusted Net Income..................................... 23.6x
2003E Adjusted Net Income................................... 10.2x
WEIGHTED MULTIPLE OF FIRM VALUE TO:
LTM Revenue................................................. 0.47x
LTM Adjusted EBITDA......................................... 6.2x
2003E Adjusted EBITDA....................................... NA
LTM Adjusted EBIT........................................... 11.3x
</Table>
SunTrust Robinson Humphrey then applied the average multiples resulting
from the analysis above to the actual and projected values for NSI for the
latest twelve months ended February 28, 2003 and for the fiscal year ending
August 31, 2003. SunTrust Robinson Humphrey then applied a discount to the
implied equity values to reflect the valuation discount created by the asbestos
liability for NSI. SunTrust Robinson Humphrey assessed the discounts for
publicly traded companies with asbestos liabilities and not presently subject to
bankruptcy protection to arrive at average discounts to comparable peer groups
unaffected by asbestos liabilities of 35% to 36% and median discounts of 38% to
44%. Based on this analysis, SunTrust Robinson Humphrey applied an asbestos
liability discount of 40% to the implied equity values per share. Prior to a
discount, this analysis yielded implied equity values per share for NSI of
$27.64, $0.00, $0.00, $20.18, $8.32, $0.00 and $0.00, respectively. Following a
40% asbestos discount, this analysis yielded implied equity values per share for
NSI of approximately $16.58, $0.00, $0.00, $12.11, $4.99, $0.00 and $0.00,
respectively. These implied equity values per share were compared to the merger
consideration of $10.00 per share.
Analysis of Selected Merger & Acquisition Transactions
Reference merger and acquisition transaction analysis provides a valuation
range based upon consideration and multiples paid for selected reference
companies in recent transactions. SunTrust Robinson Humphrey reviewed the
financial terms, to the extent publicly available, of 22 proposed, pending or
completed merger and acquisition transactions from January 1, 1997 to March 27,
2003, involving selected envelope and office products companies (the "AECO
Reference Transactions"). SunTrust
18
Robinson Humphrey also reviewed the financial terms, to the extent publicly
available, of 23 proposed, pending or completed merger and acquisition
transactions from January 1, 1997 to March 27, 2003, involving selected linen
rental companies (the "National Linen Reference Transactions"). For each of the
AECO Reference Transactions and the National Linen Reference Transactions,
SunTrust Robinson Humphrey calculated various financial multiples based on
publicly available information for each of the selected acquisition transactions
and compared them to corresponding financial multiples for the merger, based on
the merger consideration of $10.00 per share.
SunTrust Robinson Humphrey reviewed and analyzed, among other things,
equity market values as multiples of:
- book value; and
- latest twelve months net income ("LTM Net Income").
SunTrust Robinson Humphrey also reviewed and analyzed, among other things,
firm values as multiples of:
- LTM Revenue;
- latest twelve months earnings before interest, taxes, depreciation and
amortization ("LTM EBITDA"); and
- latest twelve months earnings before interest and taxes ("LTM EBIT").
All multiples for the selected transactions were based on publicly
available information at the time of announcement of the relevant transaction.
None of the transactions involved entities with significant publicly disclosed
asbestos liabilities. SunTrust Robinson Humphrey applied a relative weight to
the average multiples for AECO Reference Transactions and National Linen
Reference Transactions based upon the historical and projected revenue and
operating income contributions of AECO and National Linen, respectively, to
arrive at multiples for the combined business.
The following table sets forth the average multiples indicated by these
analyses:
<Table>
<Caption>
AVERAGE
-------
WEIGHTED MULTIPLE OF EQUITY MARKET VALUE TO:
Book Value.................................................. 2.1x
LTM Net Income.............................................. 20.8x
WEIGHTED MULTIPLE OF FIRM VALUE TO:
LTM Revenue................................................. 1.11x
LTM EBITDA.................................................. 7.5x
LTM EBIT.................................................... 13.7x
</Table>
SunTrust Robinson Humphrey then applied the average multiples resulting
from the analysis above to the latest twelve months financials for NSI as of
February 28, 2003. This analysis yielded implied equity values per share for NSI
of approximately $39.98, $0.00, $49.41, $10.31 and $0.00, respectively. These
implied equity values per share were compared to the proposed merger
consideration of $10.00 per share.
Discounted Cash Flow Analysis
SunTrust Robinson Humphrey performed a discounted cash flow analysis using
projections for 2003 through 2007 provided by NSI to estimate the net present
equity value per share of NSI. SunTrust Robinson Humphrey derived ranges of net
present equity values per share for NSI on a stand-alone basis that were based
upon the discounted cash flows of NSI from 2003 through 2007 plus a terminal
value calculated using a range of multiples of its projected year 2007 EBITDA.
SunTrust Robinson Humphrey applied discount rates ranging from 10.0% to 15.0%
and multiples of 2007 EBITDA ranging from 3.0x to 5.0x. This analysis resulted
in a range of net present equity values per share of $4.29 to $9.12. SunTrust
19
Robinson Humphrey then performed a sensitivity analysis to evaluate the
sensitivity of these discounted cash flow results to percentage changes in
annual revenue growth rates and annual EBITDA margins.
SunTrust Robinson Humphrey also derived ranges of net present equity values
per share for NSI on a stand-alone basis that were based upon the discounted
cash flows of NSI from 2003 through 2007 plus a terminal value calculated using
a projected perpetual growth rate. SunTrust Robinson Humphrey applied discount
rates ranging from 10.0% to 15.0% and perpetual growth rates of 2.0% to 4.0%.
This analysis resulted in a range of net present equity values per share of
$2.29 to $6.59. SunTrust Robinson Humphrey then performed a sensitivity analysis
to evaluate the sensitivity of these discounted cash flow results to percentage
changes in annual revenue growth rates and annual EBITDA margins.
In addition, SunTrust Robinson Humphrey applied the current NSI multiple of
firm value to LTM EBITDA of 2.8x to the projected 2007 EBITDA provided by
management. SunTrust Robinson Humphrey then discounted the implied 2007 stock
price at a discount rate of 15.0% to the present value. This analysis resulted
in an implied equity value per share of $4.21. SunTrust Robinson Humphrey also
performed this analysis for firm value to EBITDA multiples ranging from 4.0x to
5.0x and discount rates ranging from 11.0% to 14.0% and arrived at implied
equity values per share ranging from $6.21 to $8.76.
Finally, SunTrust Robinson Humphrey applied a 10.0x multiple of equity
value to Net Income to the projected 2007 Net Income provided by management.
SunTrust Robinson Humphrey then discounted the implied 2007 stock price at a
discount rate of 15.0% to the present value. This analysis resulted in an
implied equity value per share of $2.73. SunTrust Robinson Humphrey also
performed this analysis for equity value to Net Income multiples ranging from
9.0x to 11.0x and discount rates ranging from 11.0% to 14.0% and arrived at
implied equity values per share of $2.56 to $3.53.
Premiums Paid Analysis
SunTrust Robinson Humphrey reviewed and analyzed the transaction premiums
paid in 120 merger transactions with transaction values between $50 million and
$250 million, effected since January 1, 2002, based on the target company's
stock price one day, one week and four weeks prior to the public announcement of
the transaction. This analysis indicated the following mean and median premiums
paid in the selected transactions:
<Table>
<Caption>
MEAN MEDIAN
---- ------
PREMIUM PRIOR TO ANNOUNCEMENT
1 Day....................................................... 41.7% 27.6%
1 Week...................................................... 48.8% 32.6%
4 Weeks..................................................... 56.3% 37.2%
</Table>
This analysis resulted in a range of implied equity values per share of
$6.72 to $9.27 and implied equity values per share of $8.27 and $7.35 for the
average of mean and median premiums, respectively.
SunTrust Robinson Humphrey also reviewed and analyzed the transaction
premiums paid in all publicly reported merger transactions effected from January
1, 1998 through December 31, 2002, based on the target company's stock price one
day prior to the public announcement of the transaction. This analysis indicated
the following mean and median premiums paid in the selected transactions:
<Table>
<Caption>
MEAN MEDIAN
---- ------
PREMIUM PRIOR TO ANNOUNCEMENT
1 Day....................................................... 50.0% 36.1%
</Table>
This analysis resulted in net equity values per share of $7.91 and $7.17
for the mean and median premiums, respectively.
20
Information Concerning NSI's Financial Advisor
SunTrust Robinson Humphrey is a nationally recognized investment banking
firm and, as a customary part of its investment banking activities, is regularly
engaged in the valuation of businesses and securities in connection with mergers
and acquisitions, negotiated underwritings, private placements, and valuations
for corporate and other purposes. NSI retained SunTrust Robinson Humphrey
because of its experience, expertise, reputation and familiarity with NSI and
transactions similar to the merger. In the ordinary course of business, SunTrust
Robinson Humphrey and its affiliates may actively trade or hold the securities
and other instruments and obligations of NSI for their own account and for the
accounts of customers and, accordingly, may at any time hold long or short
positions in such securities, instruments or obligations.
SunTrust Robinson Humphrey is acting as financial advisor to NSI in
connection with the merger. Pursuant to the terms of its engagement, NSI has
agreed to pay SunTrust Robinson Humphrey a fee that is customary for
transactions of this nature, a significant portion of which is contingent on the
merger. SunTrust Robinson Humphrey also received a fee for rendering its
opinion. NSI also has agreed to reimburse SunTrust Robinson Humphrey for its
out-of-pocket expenses, including fees and expenses of legal counsel and any
other advisor retained by SunTrust Robinson Humphrey, and to indemnify SunTrust
Robinson Humphrey and related parties against liabilities, including liabilities
under the federal securities laws, arising out of its engagement.
FINANCING ARRANGEMENTS
In connection with the merger agreement, CIF has obtained commitment
letters from Congress Financial Corporation and Fremont Investment & Loan to
provide an aggregate of $115 million in loans to finance the merger
consideration on the terms and conditions set forth in the commitment letters.
As of the date of this proxy statement, these commitment letters are in full
force and effect and have not been terminated.
Congress Financial's obligation to provide a $70 million credit facility is
subject to a number of conditions, including those set forth below. The
satisfaction of the conditions set forth below is determined by Congress
Financial, in its discretion. References to NSI in the following conditions mean
NSI, following the completion of the merger.
- the execution of definitive documentation for the credit facility;
- Congress Financial shall have perfected first priority security interests
in and liens to NSI's present and future personal property assets, which
are to serve as collateral for Congress Financial's loan;
- NSI shall have a specified amount of cash available after the payment of
all fees and expenses of the merger;
- NSI shall have satisfied its outstanding obligations to Wachovia Bank,
N.A.;
- NSI shall have obtained all necessary consents and approvals to enter
into the credit facility and the merger;
- Congress Financial shall have received all consents and waivers from
third parties in order to permit and perfect Congress Financial's
security interests in the collateral;
- Congress Financial shall have received evidence of insurance coverage and
lender's loss payee endorsements in favor of Congress Financial as to
casualty and business interruption insurance;
- there shall be no event of default under any of the financing agreements;
- Congress Financial shall have received an opinion with respect to the
solvency of NSI following the transactions contemplated by the commitment
letter;
- the satisfactory completion of customary legal due diligence;
21
- Congress Financial shall have received evidence that NSI has received not
less than $20 million in immediately available funds in equity capital
contributions;
- Congress Financial shall have received evidence that NSI has received not
less than $45 million in immediately available funds from another term
loan;
- the syndication of the credit facility so that Congress Financial holds
$30 million or less of the aggregate commitments under the credit
facility; and
- no material adverse change in the business, operations or prospects of
CIF or NSI shall have occurred.
Fremont's obligation to provide a $45 million term loan is subject to a
number of conditions, including those set forth below. The satisfaction of the
conditions set forth below is determined by Fremont, in its discretion.
References to NSI in the following conditions mean NSI, following the completion
of the merger.
- the execution of definitive documentation for the term loan;
- NSI shall be the sole owner of the real property listed in the commitment
letter, which is to serve as collateral for Fremont's loan, with good and
marketable title and rights thereto;
- Fremont shall have approved the business, properties, financial
condition, capability and such other factors as Fremont deems material
with regard to NSI;
- Fremont shall have approved the value, location, condition and other
characteristics of NSI's real property;
- the real property shall have been appraised at a specified amount;
- Fremont shall have received one or more environmental reports relating to
the real property, which reports shall disclose no environmental
conditions or hazardous waste on or under the real property which are
unacceptable to Fremont;
- Fremont shall have received evidence that all permits, licenses and other
approvals required to construct, lease and use the real property have
been obtained and are in full force and effect;
- Fremont shall have received evidence that the real property complies with
all laws, rules and regulations of all governmental authorities having
jurisdiction over the real property;
- Fremont shall have received a preliminary title report covering the real
property and all recorded documents referenced therein;
- the first priority security interest of Fremont with respect to the real
property shall be insured by a title insurance policy, issued by a title
company acceptable to Fremont;
- Fremont shall have received evidence of the various types of insurance
required by the loan documentation;
- Fremont shall have approved all contracts and other agreements affecting
the real property;
- no event of default shall exist under any of the loan documents; and
- Fremont shall have received an opinion from its counsel that the asbestos
liability of NSI is adequately covered by insurance policies/existing
reserves for the next ten years.
In addition, NS Acquisition Corp. has delivered to NSI an equity commitment
letter which generally provides that:
- Michael R. Kelly will use commercially reasonable efforts to cause the
contribution to NS Acquisition Corp. of $20 million in cash, which amount
consists of the proceeds of a loan to be secured on a first priority
basis by the equity interests in specified entities controlled by
affiliates of CIF; and
22
- from and after the effective time of the merger, Michael R. Kelly will
use commercially reasonable efforts to provide for the pledge for the
benefit of NSI of CIF's affiliates' right, title and interest in and to
such equity interests in such entities, when and as necessary, in NSI's
determination, to satisfy the obligations of NSI following the merger.
NS Acquisition Corp. has agreed in the merger agreement to use commercially
reasonable efforts to obtain the financing for the merger and to satisfy the
conditions set forth in the commitment letters. NS Acquisition Corp. has
represented in the merger agreement that, as of the date of the merger
agreement, the funds to be made available under the commitment letters will be
sufficient to enable NS Acquisition Corp. to pay the aggregate merger
consideration and all of its fees and expenses related to the transactions
contemplated by the merger agreement. NS Acquisition Corp. has also agreed to
use commercially reasonable efforts to find substitute financing as promptly as
possible in the event that any lender refuses to provide the financing described
in the commitment letters; provided, that any such substitute financing shall be
on terms and conditions no less favorable to NS Acquisition Corp. than the terms
and conditions of the financing so substituted.
NS Acquisition Corp.'s receipt of the proceeds of the financing pursuant to
the commitment letters is a condition to the consummation of the merger. As of
the date of this proxy statement, NS Acquisition Corp. has not yet completed its
financing, and no assurance can be given that its financing will be completed.
NS Acquisition Corp. currently does not have any alternative financing
commitments in the event that the financing with Congress Financial or Fremont
is not obtained.
CERTAIN EFFECTS OF THE MERGER
As a result of the merger, the separate corporate existence of NS
Acquisition Corp. will cease and NSI will continue as the surviving corporation.
At the closing of the merger, all outstanding NSI common stock, other than
shares for which appraisal rights have been properly exercised, will be
converted into the right to receive a cash payment of $10.00 per share. The
merger agreement and the merger will also have the following effects:
- Effect on Holders of NSI Common Stock. If the merger is completed,
holders of NSI common stock (except for dissenting stockholders who are
entitled to and who have exercised appraisal rights) will receive a cash
payment of $10.00 per share and will not have the opportunity to
participate in any future earnings, profits and growth of NSI.
- Effect of Holders of Options to Purchase NSI Common Stock. Outstanding
options to purchase NSI common stock under its stock option plans will be
converted into the right to receive a cash payment (except for NSI's
executive officers, each of whom will surrender their outstanding options
without cash payment as described in "The Merger -- Interests of NSI's
Directors and Officers in the Merger"). Subject to any required tax
withholding, the amount of the payment will be equal to the product of:
- the number of shares of NSI common stock subject to such option
immediately prior to the effective time of the merger; and
- the excess, if any, of $10.00 over the exercise price per share of such
option; provided, that if the exercise price per share of any such
option is equal to or greater than the $10.00 per share, such option
will be cancelled in exchange for such cash payment, if any, as shall be
established by NSI and NS Acquisition Corp.
- Effect on Holders of Restricted Stock. We have agreed to take all
actions necessary and appropriate to provide that each share of NSI
restricted stock granted under any compensation plan which is outstanding
immediately prior to the effective time of the merger will become fully
vested and will be cancelled and converted into the right to receive
$10.00 per share, subject to any required tax withholding. Each share of
unissued NSI restricted stock underlying a performance-based award
granted under any stock option or compensation plan which is outstanding
immediately prior to the effective time of the merger will be issued in
amounts reflecting full satisfaction of any
23
performance criteria and will be deemed fully vested, effective as of the
time of the approval of the merger by NSI's stockholders, and will be
cancelled and converted into the right to receive $10.00 per share,
subject to any required tax withholding.
- NYSE Listing and SEC Registration. After the merger, NSI common stock
will no longer be listed on The New York Stock Exchange or registered
with the SEC.
- Effect on NSI and NS Acquisition Corp. Upon completion of the merger,
NSI will continue to operate as a textile rental and envelope
manufacturing business. As a result of the merger, and after cash
payments to NSI stockholders and optionholders under the merger
agreement, NS Acquisition Corp. will merge into NSI, with NSI continuing
as the surviving corporation, incorporated under the laws of the State of
Delaware.
- Effect on Current NSI Management. NSI has agreed to offer to enter into
employment agreements with the following executive officers of NSI:
Richard W. LeBer, J. Randolph Zook, Carol Ellis Morgan and K. Gene
Laminack. These agreements will govern services to be performed after the
closing of the merger. Additionally, NSI has agreed to enter into amended
severance arrangements with two of NSI's current executive officers:
Brock A. Hattox and Chester J. Popkowski. See "The Merger -- Interests of
NSI's Directors and Officers in the Merger" below for a description of
the terms of the employment agreements and the amended severance
agreements.
For federal income tax purposes, the receipt of the merger consideration by
holders of NSI common stock pursuant to the merger will generally be a taxable
sale of the holders' common stock. See "Certain Federal Income Tax
Consequences."
CONDUCT OF THE BUSINESS OF NSI IF THE MERGER IS NOT COMPLETED
If the merger is not completed, we will continue our ongoing operations for
the foreseeable future and may continue to explore possibilities for the
potential sale or merger of NSI. However, there can be no assurance that any
such opportunities will be made available to us, or if made available, will be
on terms acceptable or fair to NSI and our stockholders. We currently expect to
complete the merger in the second calendar quarter of 2003. However, we cannot
predict the exact timing of the merger because the merger is subject to
specified closing conditions. Moreover, both NSI and NS Acquisition Corp.
generally have the option to terminate the merger agreement if the merger is not
completed by September 30, 2003.
INTERESTS OF NSI'S DIRECTORS AND OFFICERS IN THE MERGER
When considering the recommendation of NSI's board of directors, you should
be aware that several of NSI's directors and officers have interests in the
merger that are different from, or in addition to, yours. As a result, these
directors and officers may be more likely to vote to adopt and approve the
merger agreement and the merger than NSI's stockholders generally.
Employment Agreements with NSI Executive Officers
In connection with the merger, NSI will enter into employment agreements
with Richard W. LeBer, J. Randolph Zook, Carol Ellis Morgan and K. Gene
Laminack, each of whom will serve as executive officers of NSI. The material
terms of the employment agreements are similar for each executive officer and
are summarized below.
The employment agreements will provide for an initial term of two years,
with one-year extensions unless either party provides notice not to extend the
agreement. Each executive will receive a base salary (equal to approximately
$300,000, $300,000, $350,000 and $225,000 for Mr. LeBer, Mr. Zook, Ms. Morgan
and Mr. Laminack, respectively), and be eligible to receive an annual bonus
based on achieving performance targets in accordance with a bonus plan to be
established by NSI. Each executive will waive all right to any bonus accrued
through the effective date of the merger under NSI's Management Compensation and
Incentive Plan and any outstanding Aspiration Achievement Incentive Awards under
NSI's Long-Term Achievement Incentive Plan and to future participation in such
plans.
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The executives will also be eligible to participate in such other annual bonus
and incentive compensation programs and benefit plans, programs and policies as
the board of directors shall make available to executive officers from time to
time. NSI also agrees to take all reasonable steps to ensure that each executive
will be provided coverage under directors' and officers' liability insurance, on
substantially similar terms as contained in the insurance in place for NSI's
directors and executive officers prior to the merger. In Mr. Zook's agreement,
NSI has also agreed to deposit in a rabbi trust or similar arrangement $752,598,
which equals the present value of the benefits he has earned under his
Supplemental Executive Retirement Plan, or SERP, as of the effective date of the
merger. In the agreements, each employee agrees to specified nonsolicitation,
noncompetition and confidentiality arrangements.
During the term of the agreements, if NSI terminates the executive's
employment other than for Cause (as defined in the agreements), death or
disability, or if the executive resigns for Good Reason (as defined in the
agreements), NSI will pay or provide to such executive, among other things, all
amounts earned or accrued through but not paid as of the termination date,
including base salary, expense reimbursements and a pro rata bonus. Also, NSI
will pay the executive as severance pay a lump sum cash payment equal to two
times the sum of the executive's base salary then in effect and an annual bonus
amount (equal to the greater of: (1) the amount of annual bonus paid or payable
to the executive for the most recent fiscal year ending prior to the termination
date, or (2) the amount of annual bonus that the executive would otherwise be
entitled to receive for the fiscal year during which the termination date occurs
based on the percentage of the quarterly performance targets for such fiscal
year attained as of the end of the most recent fiscal quarter ending prior to
the termination date, and treating such percentage as being attained for the
full fiscal year). Additionally, the executive will be entitled to a lump sum
supplemental retirement benefit and will be entitled to receive life insurance
and disability and medical coverage for 24 months following termination. In the
event that the payments to the executive upon termination of employment result
in the excise tax under Section 4999 of the Internal Revenue Code of 1986, as
amended (the "Code"), being imposed upon executive, NSI has agreed to pay such
excise tax and to gross-up the executive for any taxes on such excise tax.
In partial consideration for NSI's entering into the employment agreement,
each executive has agreed to waive the executive's rights under the current
Severance Protection Agreement and to agree to cancellation of all of the
executive's outstanding stock options without the payment of any further
consideration.
Severance Agreements
In connection with the merger, NSI has agreed to enter into amendments to
the Severance Protection Agreements between NSI and each of Brock A. Hattox,
currently NSI's Chairman, Chief Executive Officer and President, and Chester J.
Popkowski, currently NSI's Senior Vice President, Chief Financial Officer and
Treasurer. The definitive agreements will be executed prior to the merger, and
will be effective the day after the effective date of the merger, but NSI and NS
Acquisition Corp. intend such agreements to contain substantially the terms set
forth below. These amendments provide the executive with compensation and
benefits comparable to the amounts they were expected to receive under the
Severance Protection Agreements in the event of their termination of employment
and provide, in partial consideration for the amended agreement, that the
executive will be subject to specified confidentiality, noncompetition and
nonsolicitation restrictions. It is anticipated that immediately following the
merger, Messrs. Hattox's and Popkowski's employment with NSI will terminate and
each will receive benefits under the amended Severance Protection Agreement as
described below.
NSI and Mr. Hattox will enter into an amendment to Mr. Hattox's current
Severance Protection Agreement to provide for a lump sum base salary and bonus
payment of $1.92 million and a pro rata bonus payment equal to $269,260.
Additionally, all of Mr. Hattox's NSI restricted stock awards will immediately
vest, regardless of whether certain performance conditions contained therein
have been met. Mr. Hattox will receive a lump sum supplemental retirement
benefit equal to approximately $1 million and a supplemental 401(k) plan payment
of $7,876. Mr. Hattox will also be entitled to receive disability, medical,
dental and hospitalization coverages for 24 months following the effective date
of the agreement
25
as if he had remained actively employed as an executive of NSI. The agreement
provides that all rights to outstanding NSI stock options will be cancelled. In
partial consideration for the amended agreement, Mr. Hattox has agreed that for
a period of two years, he will be subject to specified confidentiality,
noncompetition and nonsolicitation restrictions. Mr. Hattox has also agreed to
waive any rights to his annual bonus for the current fiscal year and to his
outstanding Aspiration Achievement Incentive Award. Finally, Mr. Hattox will not
be entitled to indemnification from NSI for any excise tax under Section 4999 of
the Code, and NSI agrees that Mr. Hattox will have no indemnification obligation
to NSI for any loss of NSI tax deduction under Section 280G of the Code. NSI
will pay Mr. Hattox's expenses related to any audit and claim for excise taxes
under Section 4999 of the Code and may assume the defense of such claim, but
shall not be responsible for any excise tax determined to be due from Mr.
Hattox.
NSI and Mr. Popkowski will enter into an amendment to Mr. Popkowski's
current Severance Protection Agreement to provide for a lump sum base salary and
bonus payment of $430,000 and a pro rata bonus payment equal to $67,315.
Additionally, all of Mr. Popkowski's NSI restricted stock awards will
immediately vest, regardless of whether certain performance conditions contained
therein have been met. Mr. Popkowski will receive a lump sum supplemental
retirement benefit equal to $27,411 and a supplemental 401(k) plan payment of
$7,876. Under his agreement, Mr. Popkowski will be entitled to receive life
insurance, disability, medical, dental and hospitalization coverages for 24
months following the effective date of the agreement as if he had remained
actively employed as an executive of NSI. The agreement provides that all rights
to outstanding NSI stock options will be cancelled. In partial consideration for
the amended agreement, Mr. Popkowski has agreed that for a period of one year,
he will be subject to specified confidentiality, noncompetition and
nonsolicitation restrictions. Mr. Popkowski has agreed to waive any rights to
his annual bonus for the current fiscal year and to his outstanding Aspiration
Achievement Incentive Award. Finally, Mr. Popkowski will not be entitled to
indemnification from NSI for any excise tax under Section 4999 of the Code, and
NSI agrees that Mr. Popkowski has no indemnification obligation to NSI for any
loss of NSI tax deduction under Section 280G of the Code. NSI will pay Mr.
Popkowski's expenses related to any audit and claim for excise taxes under
Section 4999 of the Code and may assume the defense of such claim, but shall not
be responsible for any excise tax determined to be due from Mr. Popkowski.
Pursuant to a consulting agreement which NSI and Mr. Popkowski will enter
into, at or prior to the effective time of the merger, Mr. Popkowski will also
be paid $20,200 per month by NSI for 12 months in consideration for providing
advice to NSI on certain financial matters.
Indemnification Pursuant to the Merger Agreement
Pursuant to the terms of the merger agreement, all rights to
indemnification and exculpation by NSI existing in favor of each present and
former director and officer of NSI as provided in NSI's Certificate of
Incorporation or By-Laws, in each case as in effect as of April 1, 2003, or
pursuant to any other agreements in effect on such date, will survive the
merger, and the surviving corporation of the merger will (1) continue such
rights in full force and effect for a period of at least six years from the
effective time of the merger and (2) perform, in a timely manner, all of its
obligations with respect to such rights. Additionally, prior to the effective
time of the merger, NSI has agreed to purchase and pre-pay in full "tail"
directors' and officers' liability insurance providing for coverage with respect
to matters occurring prior to the effective time for six years from the
effective time, which coverage is reasonably equivalent in scope and amount to
the directors' and officers' liability insurance policies in place as of April
1, 2003; provided, however, that NSI will not, without NS Acquisition Corp.'s
prior written consent, pay or agree to pay an aggregate premium for such
insurance in excess of $1.7 million.
REGULATORY MATTERS
Under the HSR Act and the rules and regulations promulgated under it by the
Federal Trade Commission, the merger cannot be consummated until certain
notifications have been given and certain information has been furnished to the
Federal Trade Commission and the Antitrust Division of the United States
Department of Justice, and the required waiting periods have ended. Expiration
of the required waiting periods under the HSR Act is a condition to the
consummation of the merger.
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THE MERGER AGREEMENT
The following summarizes the material provisions of the merger agreement
and is qualified in its entirety by reference to the complete text of the merger
agreement. The merger agreement included in this proxy statement as Annex A
contains the complete terms of that agreement and stockholders should read it
carefully and in its entirety.
MERGER CONSIDERATION; EFFECT OF MERGER
At the effective time of the merger, NS Acquisition Corp. will be merged
with and into NSI. As a result of the merger, NS Acquisition Corp.'s separate
corporate existence will cease and NSI will continue as the surviving
corporation governed by the laws of the State of Delaware.
Upon completion of the merger, each outstanding share of NSI common stock
(other than shares as to which appraisal rights have been demanded and not
withdrawn or lost) will be cancelled and converted into the right to receive a
cash payment of $10.00 per share, without interest.
EFFECTIVE TIME
The merger will be effective as promptly as practicable, and in any event
within five business days, following stockholder adoption and approval of the
merger agreement and the merger at the special meeting and satisfaction or
waiver of the terms and conditions set forth in the merger agreement, and upon
filing of a certificate of merger with the Secretary of State of the State of
Delaware.
EXCHANGE OF STOCK CERTIFICATES
We have designated EquiServe Trust Company, N.A., to act as the exchange
agent in the merger. Within 10 days following the effective time of the merger,
the exchange agent will mail a letter of transmittal and instructions for use in
surrendering your shares of NSI common stock in exchange for the merger
consideration. The letter of transmittal and instructions will specify that
delivery will be effected and risk of loss and title to stock certificates will
pass only upon proper delivery of the stock certificates to the exchange agent
and will specify how to properly surrender your stock certificates for payment.
YOU SHOULD NOT SUBMIT YOUR STOCK CERTIFICATES FOR EXCHANGE UNTIL YOU RECEIVE THE
LETTER OF TRANSMITTAL AND INSTRUCTIONS REFERRED TO ABOVE.
When you deliver your stock certificates to the exchange agent along with a
properly executed letter of transmittal and any other required documents,
subject to any required withholding taxes, you will receive the merger
consideration to which you are entitled under the merger agreement for each
share of NSI common stock previously represented by your stock certificates, and
the stock certificates will be cancelled.
STOCK OPTIONS
We have agreed to use commercially reasonable efforts to provide that each
option granted under any stock option or compensation plan which is outstanding
immediately prior to the effective time of the merger will be cancelled in
exchange for a single lump sum cash payment (except for our executive officers,
each of whom will surrender their outstanding options without cash payment as
described in "The Merger -- Interests of NSI's Directors and Officers in the
Merger"). Subject to any required tax withholding, the amount of the cash
payment will be equal to the product of:
- the number of shares of NSI common stock subject to such option
immediately prior to the effective time of the merger; and
- the excess, if any, of $10.00 per share over the exercise price per share
of such option; provided, that if the exercise price per share of any
such option is equal to or greater than $10.00 per share, such option
will be cancelled in exchange for such cash payment, if any, as shall be
established by NSI and NS Acquisition Corp.
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After the consummation of the merger, we will take or cause to be taken any
and all actions reasonably necessary to give effect to the treatment of options
pursuant to the merger agreement.
RESTRICTED STOCK
We have agreed to take all actions necessary and appropriate to provide
that each share of NSI restricted stock granted under any compensation plan
which is outstanding immediately prior to the effective time of the merger will
become fully vested and will be cancelled and converted into the right to
receive $10.00 per share, subject to any required tax withholding. Each share of
unissued NSI restricted stock underlying a performance-based award granted under
any stock option or compensation plan which is outstanding immediately prior to
the effective time of the merger will be issued in amounts reflecting full
satisfaction of any performance criteria and will be deemed fully vested,
effective as of the time of the approval of the merger by NSI's stockholders,
and will be cancelled and converted into the right to receive $10.00 per share,
subject to any required tax withholding.
TERMINATION OF EMPLOYEE STOCK PURCHASE PLAN
Prior to execution of the merger agreement, our board of directors
authorized the termination of our Employee Stock Purchase Plan, and we have
taken all actions necessary to cause the termination of that plan.
EMPLOYEE BENEFITS MATTERS
Subject to the terms of any applicable collective bargaining agreement, for
a period of not less than 12 months following the effective time of the merger,
we will provide all of our employees immediately prior to the effective time of
the merger with compensation and benefits which are substantially comparable in
the aggregate to the compensation and benefits provided to those employees as of
the date of the merger agreement. However, neither NS Acquisition Corp. nor we
will have any obligation to issue, or adopt any plans or arrangements providing
for the issuance of, shares of capital stock, options or other securities
pursuant to any such plans or arrangements and none of our plans or arrangements
providing for such issuance shall be taken into account in determining whether
employee benefits are substantially comparable in the aggregate.
With respect to each of our employee benefit plans, programs and policies
following the merger, each employee will be given credit under such plans for
all service with NSI or any subsidiary prior to the effective time of the
merger. Subject to the terms and conditions of the merger agreement, with
respect to any severance protection agreement or arrangement, or employment
letter or agreement, providing for compensation or benefits to an NSI employee
after termination of employment, we will confirm in writing that we will pay and
perform all of our obligations pursuant to such agreements and arrangements.
Nothing contained in the merger agreement will prevent the termination of
employment of any individual employee or, subject to the provisions of the
merger agreement, any change in the employee benefits available to any
individual employee or the amendment or termination of any particular benefit
plan or agreement to the extent permitted by its terms as in effect immediately
prior to the effective time of the merger.
REPRESENTATIONS AND WARRANTIES
In the merger agreement, NSI has made a number of representations and
warranties to NS Acquisition Corp. with respect to, among other things, the
following matters:
- our capitalization;
- obtaining consents, permits and making governmental filings, including
under the HSR Act;
- filing of, and disclosure in required SEC filings;
- absence of material adverse changes regarding our business;
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- filing of tax returns, payment of taxes and absence of certain
tax-related disputes;
- clear and valid title to our assets;
- absence of certain litigation involving us;
- employee benefit plans and labor and employment matters;
- environmental compliance;
- rights to use intellectual property; and
- insurance matters.
In the merger agreement, NS Acquisition Corp. has made representations and
warranties to us relating to various aspects of its business, including the
obtainment of commitment letters from its lenders, such letters being in full
force and effect, and NS Acquisition Corp.'s obtainment of an equity commitment
of $20 million in cash, consisting of proceeds of a loan to be secured on a
first priority basis by the equity interests in specified entities controlled by
affiliates of CIF.
In addition, both NSI and NS Acquisition Corp. have made customary
representations and warranties to each other in connection with the merger
agreement, including representations with respect to corporate organization and
good standing, corporate authority to enter into the merger agreement and the
transactions contemplated thereby, and the lack of conflict with applicable law
or certain material agreements or encumbrances to which such company is subject.
COVENANTS
Under the merger agreement, NSI and each of its subsidiaries has agreed,
between April 1, 2003 and the effective time of the merger, to:
- conduct their operations in the ordinary course of business;
- use commercially reasonable efforts to preserve intact their business
organizations and to keep available the services of their current
officers and employees and to preserve the current relationships of NSI
and its subsidiaries with customers, suppliers and other persons with
which NSI or its subsidiaries have business relations; and
- comply in all material respects with all applicable laws and regulations,
including, without limitation, the timely filing of all reports, forms or
other documents with the SEC.
Additionally, NSI and each of its subsidiaries has agreed, between April 1,
2003 and the effective time of the merger, not to:
- declare or pay any dividends on or make other distributions (whether in
cash, stock or property) in respect of any of their capital stock, except
for quarterly dividends consistent with past practice (though NSI does
not expect to pay any dividends);
- split, combine or reclassify any of their capital stock or issue or
authorize or propose the issuance of any other securities in respect of,
in lieu of or in substitution for shares of their capital stock;
- repurchase or otherwise acquire any shares of their capital stock;
- issue, deliver or sell, or authorize or propose the issuance, delivery or
sale of, any shares of their capital stock or any securities convertible
into any such shares of their capital stock, or any rights, warrants or
options to acquire any such shares or convertible securities or any stock
appreciation rights, phantom stock plans or stock equivalents, other than
permitted issuances pursuant to NSI's employee benefit plans;
- amend their certificate of incorporation (including any certificate of
designations attached thereto) or bylaws or other equivalent
organizational documents;
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- create, assume or incur any indebtedness for borrowed money or guaranty
any such indebtedness of another person, other than trade payables
incurred in the ordinary course of business consistent with past
practice;
- make any loans or advances to any other person or mortgage or pledge any
of their assets or properties (other than in the ordinary course of
business consistent with past practice);
- merge or consolidate with any other entity in any transaction or acquire
any business or assets (other than assets acquired in the ordinary course
of business consistent with past practice);
- sell any business or assets (other than inventory sold in the ordinary
course of business consistent with past practice) in which the aggregate
consideration is $500,000 or greater;
- change NSI's accounting policies except as required by generally accepted
accounting principles;
- except as contemplated by the merger agreement, make any change in
employment terms for any of their directors, officers, employees or
consultants which would create material additional liability, or make any
material change to NSI's employee benefit plans;
- amend or cancel or agree to the amendment or cancellation of any Material
Contract (as defined in the merger agreement);
- pay, loan or advance (other than the payment of compensation, directors'
fees or reimbursement of expenses in the ordinary course of business
consistent with past practice) any amount to, or sell, transfer or lease
any properties or assets to, or enter into any agreement with, any of
their officers or directors or any affiliate or associate of any of their
officers or directors;
- settle any litigation or dispute matters (other than amounts not
exceeding, net of expected insurance recoverables, $500,000 in the
aggregate); or
- amend the Rights Agreement (as defined below), or take any action with
respect to, or make any determination under, the Rights Agreement,
including a redemption of the rights to facilitate an Acquisition
Proposal (as defined below).
CONDITIONS TO CLOSING THE MERGER
Mutual Conditions to Closing. Each of NS Acquisition Corp. and NSI is
required to complete the merger only if specific conditions are satisfied or
waived, including the following:
- the merger agreement and merger have been approved and adopted by the
requisite vote of NSI's stockholders;
- no temporary restraining order, preliminary or permanent injunction or
other court order or other legal restraint or prohibition preventing the
consummation of the merger shall be in effect;
- there shall not be overtly threatened, instituted or pending any action,
proceeding, application or counterclaim by any governmental entity before
any court or agency which challenges or seeks to challenge, restrain or
prohibit the consummation of the merger; and
- all actions and filings with any governmental entity required to permit
the consummation of the merger have been obtained or made (including the
expiration or termination of any applicable waiting period under the HSR
Act).
Conditions to the Obligations of NS Acquisition Corp. The obligations of
NS Acquisition Corp. to effect the merger are subject to satisfaction or waiver
at or prior to the closing of the merger of, among other things, the following
conditions:
- NSI's representations and warranties that are qualified by materiality
being true and correct in all respects as of April 1, 2003 and as of the
closing date of the merger, except to the extent any such representation
or warranty is expressly made as of a specific date, in which case such
representation or warranty shall have been true and correct in all
respects as of such date;
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- NSI's representations and warranties that are not qualified by
materiality being true and correct in all material respects as of April
1, 2003 and as of the closing date of the merger, except to the extent
any such representation or warranty is expressly made as of a specific
date, in which case such representation or warranty shall have been true
and correct in all respects as of such date;
- NSI having performed in all material respects all obligations required to
be performed by it under the merger agreement;
- since April 1, 2003, there not having occurred with respect to NSI any
material adverse effect or any event or development that would reasonably
be expected to, individually or in the aggregate, have a material adverse
effect;
- NS Acquisition Corp. having received the proceeds of the financing
pursuant to the debt and equity commitment letters;
- the total number of shares of NSI common stock dissenting from the merger
(under applicable Delaware law) not exceeding 10% of the outstanding
shares of NSI common stock at the effective time of the merger;
- NSI having received an opinion of King & Spalding LLP, relating to the
effect of the merger on the tax-free nature of NSI's spin-off of Acuity
Brands, Inc. in November 2001, or the spin-off;
- NSI having obtained the surrender or cancellation of each outstanding
stock option by the holders thereof for treatment or payment in
accordance with the terms of the merger agreement;
- there not having been entered by the United States Court of Appeals for
the Second Circuit any judgment or order in the currently outstanding
Blydenburgh Landfill litigation matter that results in NSI being required
to pay amounts in excess of $1 million;
- there not having been entered by any court a final, nonappealable
judgment or order against NSI requiring payment by NSI of amounts in
excess of $1 million that are not covered by insurance;
- the tax disaffiliation agreement entered into in connection with the
spin-off having been amended by the parties thereto to clarify certain of
NSI's obligations thereunder; and
- NSI and each of Brock A. Hattox and Chester J. Popkowski having entered
into the agreements described in "The Merger -- Interests of NSI's
Directors and Officers in the Merger."
Conditions to the Obligations of NSI. The obligations of NSI to effect the
merger are subject to satisfaction or waiver at or prior to the closing of the
merger of, among other things, the following conditions:
- NS Acquisition Corp.'s representations and warranties that are qualified
by materiality being true and correct in all respects as of April 1, 2003
and as of the closing date for the merger;
- NS Acquisition Corp.'s representations and warranties that are not
qualified by materiality being true and correct in all material respects
as of April 1, 2003 and as of the closing date for the merger;
- NS Acquisition Corp. having performed in all material respects all
obligations required to be performed by it under the merger agreement;
and
- NSI's board of directors having received a solvency opinion from a
nationally-recognized financial advisor, in form and substance reasonably
satisfactory to the board of directors, which opinion shall be as of the
effective time of the merger.
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SOLICITATION OF OTHER TRANSACTIONS
NSI has agreed that it will not take any action to:
- encourage, solicit, initiate or facilitate any Acquisition Proposal (as
defined below);
- unless the merger agreement is terminated by NSI (after the board of
directors has withdrawn or modified its recommendation of the merger upon
entering into an agreement relating to a Superior Proposal (as defined
below)), enter into any agreement, arrangement or understanding with
respect to any Acquisition Proposal or enter into any agreement,
arrangement or understanding requiring it to abandon, terminate or fail
to consummate the merger or any other transaction contemplated by the
merger agreement; or
- participate in any way in discussions or negotiations with, or furnish
any information to, any person (other than NS Acquisition Corp.) in
connection with, or take any other action to facilitate any inquiries or
the making of any proposal that constitutes, or would reasonably be
expected to lead to, any Acquisition Proposal.
However, at any time prior to obtaining stockholder approval of the merger,
NSI may, in response to an Acquisition Proposal that NSI's board of directors,
after consultation with its financial advisor, determines could reasonably lead
to a Superior Proposal:
- furnish information with respect to NSI to the person making such
Acquisition Proposal pursuant to a customary confidentiality agreement,
the terms of which are no more favorable to the other party to such
confidentiality agreement than those in place with NS Acquisition Corp.;
- participate in discussions or negotiations with respect to such
Acquisition Proposal; and
- terminate the merger agreement (after the board of directors has
withdrawn or modified its recommendation of the merger upon entering into
an agreement relating to a Superior Proposal), and enter into an
agreement, arrangement or understanding with respect to such Acquisition
Proposal.
NSI shall, as promptly as practicable (and in no event later than 48 hours
after receipt thereof), advise NS Acquisition Corp. of any inquiry received by
it relating to any Acquisition Proposal and of the material terms of any
proposal or inquiry (other than the identity of the person making the same) that
it may receive in respect of any such Acquisition Proposal, or of any
information requested from it or of any negotiations or discussions being sought
to be initiated with it, shall furnish to NS Acquisition Corp. a copy of any
such proposal or inquiry, if it is in writing, or an oral summary of any such
proposal or inquiry, if it is not in writing, and shall keep NS Acquisition
Corp. fully informed on a prompt basis with respect to any developments with
respect to the foregoing.
Neither NSI's board of directors nor any committee thereof shall:
- withdraw or modify, or propose publicly to withdraw or modify, in a
manner adverse to NS Acquisition Corp., the approval or recommendation by
NSI's board of directors or such committee of the approval of the merger
agreement;
- approve or recommend, or propose publicly to approve or recommend, any
Acquisition Proposal; or
- cause NSI to enter into any letter of intent, agreement in principle,
acquisition agreement or other similar agreement related to any
Acquisition Proposal (other than a confidentiality agreement described in
the merger agreement).
Nothing provided above shall prohibit NSI or NSI's board of directors from
(1) taking and disclosing to its stockholders a position contemplated by the
Securities Exchange Act of 1934, as amended, (2) making any disclosure required
by the Exchange Act, or (3) notwithstanding the foregoing, in the event that
NSI's board of directors determines in good faith that such action would be in
the best interests of NSI's stockholders, withdrawing or modifying its
recommendation (a "Subsequent Determination") of the merger agreement no earlier
than three business days following the day of delivery of written notice to
32
NS Acquisition Corp. of its intention to do so; provided, that NSI continues to
comply with all other provisions of the merger agreement; and also provided,
that, during such three business day period, NSI, if requested by NS Acquisition
Corp., negotiates in good faith with NS Acquisition Corp. to make such
adjustments to the terms and conditions of the merger agreement, if any, as
would enable NSI's board of directors to recommend the merger agreement on such
adjusted terms.
As used above, "Acquisition Proposal" means any offer or proposal
concerning any (1) merger, consolidation, business combination or similar
transaction involving NSI, (2) sale, lease or other disposition directly or
indirectly by merger, consolidation, business combination, share exchange, joint
venture or otherwise of assets of NSI or any subsidiary representing 50% or more
of the consolidated assets of NSI, (3) issuance, sale or other disposition of
(including by way of merger, consolidation, business combination, share
exchange, joint venture or any similar transaction) securities (or options,
rights or warrants to purchase, or securities convertible into or exchangeable
for such securities) representing 50% or more of the voting power of NSI, (4)
transaction in which any person shall acquire beneficial ownership, or the right
to acquire beneficial ownership or any group shall have been formed which
beneficially owns or has the right to acquire beneficial ownership of 50% or
more of the outstanding voting capital stock of NSI or (5) any combination of
the foregoing (other than the merger).
As used above, "Superior Proposal" means any bona fide Acquisition Proposal
made by a third party which, in the good faith judgment of NSI's board of
directors, taking into account the various legal, financial and regulatory
aspects of the proposal and the person making such proposal (1) if accepted, is
reasonably likely to be consummated, and (2) if consummated would, based upon
advice of SunTrust Robinson Humphrey, our financial advisor, result in a
transaction that is more favorable to NSI's stockholders, from a financial point
of view, than the transaction contemplated by the merger agreement.
TERMINATION; TERMINATION FEE; AMENDMENT
The merger agreement may be terminated and the merger may be abandoned at
any time prior to the closing of the merger, whether before or after approval of
matters presented in connection with the merger by NSI's stockholders, either by
mutual written consent of duly authorized representatives of NS Acquisition
Corp. and NSI, or:
By NS Acquisition Corp. or NSI:
- if any court of competent jurisdiction or other governmental entity shall
have issued an order, decree, ruling or taken any other action
permanently restraining, enjoining or otherwise prohibiting the merger
and such order, decree, ruling or other action shall have become final
and nonappealable;
- if the merger shall not have been consummated on or before September 30,
2003, provided that this termination right shall not be available to any
party whose failure to fulfill any obligation under the merger agreement
has been the primary cause of, or resulted in, the failure to consummate
the merger on or before such date; and
- if the merger agreement and the merger fail to be approved and adopted by
NSI's stockholders at the special meeting by reason of the failure to
obtain the required vote at such meeting. If (1) either NS Acquisition
Corp. or NSI exercises its right to terminate the merger agreement under
this provision, and (2) within 12 months after termination of the merger
agreement, NSI shall enter into any definitive agreement relating to, or
consummate, an Acquisition Proposal which was publicly announced prior to
such termination, then, immediately prior to, and as a condition of,
consummation of such transaction, NSI shall pay to NS Acquisition Corp.
the sum of (x) all reasonable documented fees and expenses incurred by NS
Acquisition Corp. in connection with or related to the authorization,
preparation, negotiation, financing, execution and performance of the
merger agreement ("Expenses") up to a maximum amount of $3 million and
(y) $4 million; provided that no such amount shall be payable if such fee
or expenses shall have become otherwise payable in accordance with the
merger agreement.
33
By NS Acquisition Corp.:
- if NSI's board of directors (1) shall have withdrawn or shall have
modified in a manner adverse to NS Acquisition Corp. its approval or
recommendation of the merger or the merger agreement, (2) causes NSI to
enter into an agreement with respect to an Acquisition Proposal, (3)
shall have endorsed, approved or recommended any Acquisition Proposal,
(4) shall have redeemed the rights under the Rights Agreement, or waived
or amended any provision of the Rights Agreement, in any such case to
permit or facilitate the consummation of any Acquisition Proposal, or (5)
shall have resolved to do any of the foregoing. If NS Acquisition Corp.
exercises its right to terminate the merger agreement under this
provision, NSI shall pay to NS Acquisition Corp. the sum of (x) the
Expenses up to a maximum amount of $3 million; and (y) $4 million;
- if (1) a tender offer or exchange offer that, if successful, would result
in any person or group becoming a beneficial owner of 50% or more of the
outstanding shares of NSI common stock is commenced (other than by NS
Acquisition Corp. or an affiliate of NS Acquisition Corp.) and NSI's
board of directors fails within 10 days of commencement of such tender
offer to recommend that NSI's stockholders not tender their shares in
such tender or exchange offer or (2) for any reason NSI fails to call and
hold the special meeting by September 30, 2003;
- if NS Acquisition Corp. exercises its right to terminate the merger
agreement under this provision, NSI shall pay to NS Acquisition Corp.
its Expenses up to a maximum amount of $3 million; provided that no such
amount shall be payable if such Expenses shall have become otherwise
payable in accordance with the merger agreement; and
- if (x) NS Acquisition Corp. exercises its right to terminate the merger
agreement under this provision, and (y) within 12 months after
termination of the merger agreement, NSI shall enter into any definitive
agreement relating to, or consummate, an Acquisition Proposal which was
publicly announced prior to such termination, then, immediately prior
to, and as a condition of, consummation of such transaction, NSI shall
pay to NS Acquisition Corp. $4 million; provided that no such amount
shall be payable if such fee shall have become otherwise payable in
accordance with the merger agreement;
- if (1) certain conditions to NS Acquisition Corp.'s obligations shall
have become incapable of fulfillment and shall not have been waived by NS
Acquisition Corp. or (2) NSI shall breach in any material respect any of
its representations, warranties, covenants or other obligations
thereunder (subject to a 10-day cure period or waiver). If (x) NS
Acquisition Corp. exercises its right to terminate the merger agreement
under subsection (2) above, and (y) within 12 months after termination of
the merger agreement, NSI shall enter into any definitive agreement
relating to, or consummate, an Acquisition Proposal which was publicly
announced prior to such termination, then, immediately prior to, and as a
condition of, consummation of such transaction, NSI shall pay to NS
Acquisition Corp. the sum of (I) the Expenses up to a maximum amount of
$3 million and (II) $4 million; provided that no such amount shall be
payable if such fee or Expenses shall have become otherwise payable in
accordance with the merger agreement; and
- if NSI shall, with the prior knowledge of any of its executive officers,
willfully and knowingly breach in any material respect any of its
covenants or obligations under the merger agreement. If NS Acquisition
Corp. exercises its right to terminate the merger agreement under this
provision, NSI shall pay to NS Acquisition Corp. (1) the Expenses up to a
maximum amount of $3 million and (2) if, within 12 months after
termination of the merger agreement, NSI shall enter into any definitive
agreement relating to, or consummate, an Acquisition Proposal which was
publicly announced prior to such termination, then, immediately prior to,
and as a condition of, consummation of such transaction, NSI shall pay to
NS Acquisition Corp. $4 million; provided that no such amounts shall be
payable if the Expenses or the fee shall have become otherwise payable in
accordance with the merger agreement.
34
By NSI:
- if (1) certain conditions to NSI's obligations shall have become
incapable of fulfillment and shall not have been waived by NSI or (2) NS
Acquisition Corp. shall breach in any material respect any of its
representations, warranties or obligations hereunder (subject to a 10-day
cure period or waiver); and
- if NSI's board of directors shall have withdrawn or shall have modified
in a manner adverse to NS Acquisition Corp. its approval or
recommendation of the merger or the merger agreement upon NSI entering
into an agreement relating to a Superior Proposal; provided that such
right to terminate shall not be available if NSI has not complied with
the requirements set forth in the merger agreement. If NSI exercises its
right to terminate the merger agreement under this provision, NSI shall
pay to NS Acquisition Corp. the sum of (x) the Expenses up to a maximum
amount of $3 million; and (y) $4 million.
The merger agreement may not be amended except in writing signed on behalf
of each of the parties thereto; provided, however, that after approval of the
merger by NSI's stockholders, no amendment shall be made that requires further
approval by NSI's stockholders without such approval having been obtained.
INDEMNIFICATION
Pursuant to the terms of the merger agreement, all rights to
indemnification and exculpation by NSI existing in favor of each present and
former director and officer of NSI as provided in NSI's Certificate of
Incorporation or By-Laws, in each case as in effect as of April 1, 2003, or
pursuant to any other agreements in effect on such date, shall survive the
merger, and the surviving corporation of the merger will (1) continue such
rights in full force and effect for a period of at least six years from the
effective time of the merger and (2) perform, in a timely manner, all of its
obligations with respect to such rights. Additionally, prior to the effective
time of the merger, NSI has agreed to purchase and pre-pay in full "tail"
directors' and officers' liability insurance providing for coverage with respect
to matters occurring prior to the effective time for six years from the
effective time, which coverage is reasonably equivalent in scope and amount to
the directors' and officers' liability insurance policies in place as of April
1, 2003; provided, however, that NSI shall not, without NS Acquisition Corp.'s
prior written consent, pay or agree to pay an aggregate premium for such
insurance in excess of $1.7 million.
RIGHTS AGREEMENT
In connection with the merger agreement and the merger, NSI agreed to amend
its Amended and Restated Rights Agreement, dated December 17, 1997, as amended,
by and between NSI and EquiServe Trust Company, N.A. (as successor-in-interest
to First Chicago Trust Company of New York) (the "Rights Agreement"). This
amendment to the Rights Agreement, which was effective on April 1, 2003, served
to:
- exempt NS Acquisition Corp. from the definition of "Acquiring Person"
contained in the Rights Agreement;
- provide that no "Stock Acquisition Date" or "Distribution Date" or
"Triggering Event" (as defined in the Rights Agreement) will occur as a
result of the execution of the merger agreement or the consummation of
the merger and the other transactions contemplated thereby; and
- terminate the Rights Agreement and provide that the Rights (as defined in
the Rights Agreement) will expire as of the effective time of the merger.
35
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The following is a summary of certain United States federal income tax
consequences of the merger to beneficial owners of NSI common stock converted to
cash in the merger. The discussion is for general information only and does not
purport to consider all aspects of United States federal income taxation that
might be relevant to beneficial owners of NSI common stock. The discussion is
based on current provisions of the Code, proposed, temporary and final
regulations promulgated thereunder and administrative and judicial
interpretations thereof, all of which are subject to change possibly on a
retroactive basis. The discussion applies only to shares of NSI common stock
held as capital assets within the meaning of Section 1221 of the Code, and may
not apply to shares of NSI common stock received pursuant to the exercise of
employee stock options or otherwise as compensation, or to certain types of
beneficial owners of shares of NSI common stock (such as insurance companies,
tax-exempt organizations, trustees of qualified retirement plans, mutual funds
and broker-dealers) who might be subject to special rules. This discussion does
not discuss the United States federal income tax consequences to a beneficial
owner of shares of NSI common stock who, for United States federal income tax
purposes, is a non-resident alien individual, a foreign corporation, a foreign
partnership or a foreign estate or trust, nor does it consider the effect of any
foreign, state or local tax laws.
BECAUSE INDIVIDUAL CIRCUMSTANCES MAY DIFFER, EACH BENEFICIAL OWNER OF
SHARES OF NSI COMMON STOCK SHOULD CONSULT A TAX ADVISOR TO DETERMINE THE
PARTICULAR TAX EFFECTS TO SUCH BENEFICIAL OWNER OF THE MERGER, INCLUDING THE
EFFECT OF STATE, LOCAL AND OTHER TAX LAWS.
The receipt of cash for shares of NSI common stock pursuant to the merger
will be a taxable transaction for United States federal income tax purposes. In
general, for United States federal income tax purposes, a beneficial owner of
shares of NSI common stock will recognize gain or loss equal to the difference
(if any) between the amount of cash received pursuant to the merger ($10.00 per
share) and the beneficial owner's adjusted tax basis in the shares of NSI common
stock. In general, such gain or loss will be capital gain or loss and will be
long-term capital gain or loss if the beneficial owner held the shares of NSI
common stock for more than one year as of the effective time of the merger.
Payments of the merger consideration might be subject to "backup
withholding" at a rate of up to 30%, unless a beneficial owner of shares of NSI
common stock (1) is a corporation or comes within certain exempt categories and,
when required, demonstrates this fact or (2) provides a correct taxpayer
identification number 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 beneficial owner who does not provide a correct
taxpayer identification number 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 beneficial
owner's United States federal income tax liability. Each beneficial owner of
shares of NSI common stock should consult with his or her own tax advisor as to
his or her qualification for exemption from backup withholding and the procedure
for obtaining such exemption. Those who convert their shares of NSI common stock
into cash in the merger may prevent backup withholding by completing a
substitute Form W-9 (or, in the case of a foreign stockholder, a substitute Form
W-8BEN) and submitting it to the paying agent for the merger.
NSI and the paying agent will be entitled to deduct and withhold from the
consideration otherwise payable pursuant to the merger agreement to any holder
of shares of NSI common stock such amounts as they are required to deduct and
withhold with respect to the making of such payment. Any such withheld amounts
shall be treated for all purposes of the merger agreement as having been paid to
the holder of the shares of NSI common stock in respect of which such deduction
and withholding was made.
36
APPRAISAL RIGHTS
If the merger is completed, holders of shares of NSI common stock are
entitled to appraisal rights under Section 262 of the Delaware General
Corporation Law, provided that they strictly comply with the conditions
established by Section 262.
Section 262 is reprinted in its entirety as Annex C to this proxy
statement. The following discussion is not a complete statement of the law
relating to appraisal rights and is qualified in its entirety by reference to
Annex C. This discussion and Annex C should be reviewed carefully by any
stockholder who wishes to exercise statutory appraisal rights or who wishes to
preserve the right to do so, as failure to strictly comply with the procedures
set forth in this section of the proxy statement or Section 262 will result in
the loss of appraisal rights.
A record holder of shares of NSI common stock:
- who makes the demand described below with respect to those shares;
- who continuously is the record holder of those shares through the
effective time of the merger;
- who otherwise complies with the statutory requirements of Section 262;
and
- who neither votes in favor of the merger agreement nor consents to such
approval in writing,
will be entitled to an appraisal by the Delaware Court of Chancery of the fair
value of his or her shares of NSI common stock. All references in this summary
of appraisal rights to a "stockholder" or "holders of shares of NSI common
stock" are to the record holder or holders of shares of NSI common stock. Except
as set forth in this section, our stockholders will not be entitled to appraisal
rights in connection with the merger.
Under Section 262, where a merger agreement is to be submitted for approval
at a meeting of stockholders, such as the special meeting, the corporation, not
less than 20 days prior to the meeting, must notify each of the holders of its
stock for whom appraisal rights are available that such appraisal rights are
available and include in each such notice a copy of Section 262. This proxy
statement shall constitute that notice to the record holders of NSI common
stock.
Holders of shares of NSI common stock who desire to exercise their
appraisal rights must not vote in favor of the merger agreement, and must
deliver a separate written demand for appraisal to us prior to the vote by our
stockholders on the merger agreement at the special meeting. A demand for
appraisal must be executed by or on behalf of the stockholder of record and must
reasonably inform us of the identity of the stockholder of record and that such
stockholder intends to demand appraisal of his or her shares of NSI common
stock. A proxy or vote against the merger agreement will not by itself
constitute such a demand. Within 10 days after the effective time of the merger,
we must provide notice of the effective time of the merger to all stockholders
who have complied with Section 262 and have not voted in favor of or consented
to the merger.
A stockholder who elects to exercise appraisal rights should mail or
deliver his or her written demand to the attention of our Corporate Secretary at
our offices located at Suite 200, 1420 Peachtree Street, N.E., Atlanta, Georgia
30309-3002.
A person having a beneficial interest in shares of NSI common stock that
are held of record in the name of another person, such as a broker, fiduciary,
depositary or other nominee, must act promptly to cause the record holder to
follow the steps summarized in this section properly and in a timely manner to
perfect appraisal rights. If the shares of NSI common stock are owned of record
by a person other than the beneficial owner, including a broker, fiduciary (such
as a trustee, guardian or custodian), depositary or other nominee, such demand
must be executed by or for the record owner. If the shares of NSI common stock
are owned of record by more than one person, as in a joint tenancy or tenancy in
common, such demand must be executed by or for all joint owners. An authorized
agent, including an agent for two or more joint owners, may execute the demand
for appraisal for a stockholder of record; however, the agent must identify the
record owner and expressly disclose the fact that, in exercising the demand,
such person
37
is acting as agent for the record owner. If a stockholder holds shares of NSI
common stock through a broker who in turn holds the shares through a central
securities depository nominee such as Cede & Co., a demand for appraisal of such
shares must be made by or on behalf of the depository nominee and must identify
the depository nominee as record holder.
A record holder, such as a broker, fiduciary, depositary or other nominee,
who holds shares of NSI common stock as a nominee for several beneficial owners,
may exercise appraisal rights with respect to the shares held for all or less
than all beneficial owners of shares as to which such person is the record
owner. In that case, the written demand must set forth the number of shares
covered by the demand. Where the number of shares is not expressly stated, the
demand will be presumed to cover all shares of NSI common stock outstanding in
the name of that record owner. Stockholders who hold their shares 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 procedure for
the making of a demand for appraisal by such a nominee.
Within 120 days after the effective time of the merger, either we or any
stockholder who has complied with the required conditions of Section 262 may
file a petition in the Delaware Court of Chancery demanding a determination of
the fair value of the shares of all dissenting stockholders. There is no present
intent on our part to file an appraisal petition, and stockholders seeking to
exercise appraisal rights should not assume that we will file such a petition or
that we will initiate any negotiations with respect to the fair value of such
shares. Accordingly, holders of NSI common stock who desire to have their shares
appraised should initiate any petitions necessary for the perfection of their
appraisal rights within the time periods and in the manner prescribed in Section
262. Within 120 days after the effective time of the merger, any stockholder who
has theretofore complied with the applicable provisions of Section 262 will be
entitled, upon written request, to receive from us a statement setting forth the
aggregate number of shares of NSI common stock not voting in favor of the merger
agreement and with respect to which demands for appraisal were received by us
and the number of holders of such shares. This statement must be mailed by the
later of:
- within 10 days after the written request for this statement has been
received by us; or
- within 10 days after the expiration of the period for the delivery of
demands as described above.
If a petition for an appraisal is timely filed and a copy of that petition
is served upon us, we 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 of our 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 such stockholders as required by the Court, the
Delaware Court of Chancery is empowered to conduct a hearing on such petition to
determine which stockholders are entitled to appraisal rights. The Delaware
Court of Chancery may require the stockholders who have demanded an appraisal of
their shares and who hold stock represented by certificates to submit their
certificates of stock to the Delaware Register in Chancery for notation on those
certificates of the pendency of the appraisal proceedings, and if any
stockholder fails to comply with such direction, the Delaware Court of Chancery
may dismiss the proceedings as to that stockholder. Where proceedings are not
dismissed, the Delaware Court of Chancery will appraise the shares of NSI common
stock owned by those stockholders, determining the fair value of those shares
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.
ALTHOUGH WE BELIEVE THAT THE MERGER CONSIDERATION IS FAIR, NO
REPRESENTATION IS MADE AS TO THE OUTCOME OF THE APPRAISAL OF FAIR VALUE AS
DETERMINED BY THE DELAWARE COURT OF CHANCERY, AND STOCKHOLDERS SHOULD RECOGNIZE
THAT AN APPRAISAL COULD RESULT IN A DETERMINATION OF A VALUE HIGHER OR LOWER
THAN, OR THE SAME AS, THE MERGER CONSIDERATION. Moreover, we do not anticipate
offering more than the merger consideration to any stockholder exercising
appraisal rights and reserve the right to assert, in any appraisal proceeding,
that, for purposes of Section 262, the "fair value" of a share of NSI common
stock is less than the merger consideration. In determining "fair value," the
Delaware Court of Chancery is required to take into account all relevant
factors. In Weinberger v. UOP, Inc., the Delaware Supreme
38
Court discussed the factors that could be considered in determining fair value
in an appraisal proceeding, stating 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 and that "[f]air price
obviously requires consideration of all relevant factors involving the value of
a company." The Delaware Supreme Court has stated that in making this
determination of fair value, the court must consider market value, asset value,
dividends, earnings prospects, the nature of the enterprise and any other facts
which could be ascertained as of the date of the merger which throw any light on
future prospects of the combined company. Section 262 provides that fair value
is to be "exclusive of any element of value arising from the accomplishment or
expectation of the merger." In Cede & Co. v. Technicolor, Inc., the Delaware
Supreme Court stated that such exclusion is a "narrow exclusion [that] does not
encompass known elements of value," but which rather applies only to the
speculative elements of value arising from such accomplishment or expectation.
In Weinberger, the Delaware Supreme Court construed Section 262 to mean that
"elements of future value, including the nature of the enterprise, which are
known or susceptible of proof, as of the date of the merger and not the product
of speculation, may be considered."
The cost of the appraisal proceeding may be determined by the Delaware
Court of Chancery and taxed against the parties as the Court deems equitable in
the circumstances. However, costs do not include legal and expert witness fees.
Each dissenting stockholder is responsible for his or her legal and expert
witness expenses, although, upon application of a dissenting stockholder, the
Delaware Court of Chancery may order that all or a portion of the expenses
incurred by a dissenting stockholder in connection with the appraisal
proceeding, including, without limitation, reasonable legal fees and the fees
and expenses of experts, be charged pro rata against the value of all shares of
stock entitled to appraisal.
Any holder of shares of NSI common stock who has duly demanded appraisal in
compliance with Section 262 will not, after the effective time of the merger, be
entitled to vote for any purpose any shares subject to that demand or to receive
payment of dividends or other distributions on those shares, except for
dividends or distributions payable to stockholders of record at a date prior to
the effective time.
At any time within 60 days after the effective time of the merger, any
stockholder will have the right to withdraw his or her demand for appraisal and
to accept the merger consideration. If no petition for appraisal is filed with
the Delaware Court of Chancery within 120 days after the effective time of the
merger, our stockholders' rights to appraisal shall cease, and all holders of
shares of NSI common stock will be entitled to receive the merger consideration.
Since we have no obligation to file such a petition, and we have no present
intention to do so, any holder of shares of NSI common stock who desires such a
petition to be filed is advised to file it on a timely basis. Any stockholder
may withdraw his or her demand for appraisal by delivering to us a written
withdrawal of the demand for appraisal and acceptance of the merger
consideration, except:
- that any such attempt to withdraw made more than 60 days after the
effective time of the merger will require our written approval; and
- that no appraisal proceeding in the Delaware Court of Chancery shall be
dismissed as to any stockholder without the approval of the Delaware
Court of Chancery, and such approval may be conditioned upon such terms
as the Delaware Court of Chancery deems just.
FAILURE TO FOLLOW THE STEPS REQUIRED BY SECTION 262 FOR PERFECTING
APPRAISAL RIGHTS WILL RESULT IN THE LOSS OF THOSE RIGHTS.
39
BENEFICIAL OWNERSHIP OF NSI COMMON STOCK
The following table sets forth information concerning beneficial ownership
of NSI common stock, as of March 31, 2003 unless otherwise indicated, by:
- each of the directors of NSI;
- each of the "named executive officers" of NSI, meaning all individuals
who served as NSI's Chief Executive Officer during fiscal year 2002 and
the four other most highly compensated executive officers who were
serving as executive officers of NSI at the end of fiscal year 2002.
(James S. Balloun served as NSI's Chief Executive Officer until the
consummation of the spin-off in November 2001, at which time Brock A.
Hattox became NSI's Chief Executive Officer. Mr. Balloun resigned from
all positions held with NSI in connection with the spin-off); and
- all directors, named executive officers and executive officers of NSI as
a group.
Other than as listed below, NSI knows of no beneficial owner of more than
five percent of NSI's stock. With respect to the holdings of such five percent
beneficial owners, information presented herein is derived entirely from a
review of such holders' filings on Schedule 13G with the SEC in February 2003.
<Table>
<Caption>
SHARES OF COMMON
STOCK BENEFICIALLY PERCENT OF
NAME OF OFFICER OR DIRECTOR OWNED(1)(2)(3) CLASS(4)
- --------------------------- ------------------ ----------
Dennis R. Beresford......................................... 13,482 *
John E. Cay, III............................................ 16,982 *
Don L. Chapman.............................................. 15,982 *
Brock A. Hattox............................................. 589,604 5.27%
Joia M. Johnson............................................. 11,292 *
Michael Z. Kay.............................................. 13,482 *
Betty L. Siegel............................................. 28,320 *
John T. Sweetwood........................................... 11,988 *
James S. Balloun(5)......................................... 31,885 *
Richard W. LeBer............................................ 107,096 *
J. Randolph Zook............................................ 211,002 1.88%
Carol Ellis Morgan.......................................... 79,414 *
Chester J. Popkowski........................................ 81,268 *
All "named executive officers," current executive officers
and current directors as a group (13 persons)............. 1,211,797 10.82%
5% STOCKHOLDERS
FMR Corp.
Abagail P. Johnson
Edward C. Johnson 3rd(6)
82 Devonshire Street
Boston, Massachusetts 02109............................... 1,055,075 9.61%
Wachovia Corporation(7)
One Wachovia Center
Charlotte, North Carolina 28288-0137...................... 577,831 5.26%
</Table>
- ---------------
* Less than 1%.
(1) Subject to applicable community property laws and except as otherwise
indicated, each beneficial owner has sole voting and investment power with
respect to all shares shown.
(2) Includes shares that may be acquired within 60 days after the ownership date
reflected, upon exercise of employee and director stock options. Such shares
are deemed to be outstanding and to be beneficially owned by the person or
group holding the options for the purpose of computing the percentage
ownership of such person or group, but are not treated as outstanding for
the purpose of
40
computing the percentage ownership of any other person or group. Options are
included for the following individuals: Mr. Hattox, 318,655 shares; Mr.
LeBer, 31,306 shares; Mr. Zook, 140,844 shares; Ms. Morgan, 40,656 shares;
Mr. Popkowski, 42,802 shares, Dr. Siegel, 22,304 shares and all executive
officers and directors as a group, 596,567 shares. NSI options held by
executive officers remaining with NSI following the spin-off were generally
adjusted in accordance with a conversion ratio to reflect the spin-off.
(3) Includes two awards of restricted shares, granted under NSI's Long-Term
Achievement Incentive Plan, one of which vests in equal installments through
January 2005, and one of which vests in equal installments through January
2006, to which the executives have sole voting power. Restricted shares are
included for the following individuals: Mr. Hattox, 212,699 shares; Mr.
Balloun, 2,250 shares (at November 30, 2001 and reflecting the effect of
NSI's one-for-four reverse stock split), Mr. LeBer, 55,850 shares; Mr. Zook,
52,823 shares; Ms. Morgan, 31,530 shares; Mr. Popkowski, 31,530 shares, each
non-employee director: 9,647 shares, and all executive officers and
directors as a group, 454,211 shares.
(4) Based on an aggregate of 11,195,973 shares of NSI common stock issued and
outstanding as of March 31, 2003.
(5) Information for Mr. Balloun is shown as of November 30, 2001, the effective
date of the Spin-Off at which time Mr. Balloun resigned from all positions
with NSI. At such time, all NSI options held by Mr. Balloun were converted
into options to purchase shares of Acuity common stock. These shares also
reflect the effect of a one-for-four reverse stock split of NSI's common
stock in January 2002.
(6) Fidelity Management & Research Company, a wholly-owned subsidiary of FMR
Corp., is the beneficial owner of 748,075 shares of NSI's common stock. The
ownership of one investment company, Fidelity Low Priced Stock Fund,
amounted to 748,075 shares of NSI's common stock outstanding. Edward C.
Johnson 3d, and FMR Corp., through its control of Fidelity, and the funds
each has sole power to dispose of the 748,075 shares owned by such fund.
Neither FMR Corp. nor Mr. Johnson, Chairman of FMR Corp., has the sole power
to vote or direct the voting of the shares owned directly by the funds.
Fidelity Management Trust Company, a wholly-owned subsidiary of FMR Corp.,
is the beneficial owner of 307,000 shares of NSI's common stock outstanding.
Mr. Johnson 3d and FMR Corp., through its control of Fidelity Management
Trust Company, each has sole dispositive power over 307,000 shares and sole
power to vote or to direct the voting of 307,000 shares of NSI's common
stock owned by the institutional account as reported above.
(7) Includes 438,746 shares of NSI's common stock as to which the reporting
person has the sole power to vote or direct the vote, 1,062 shares of NSI's
common stock as to which the reporting person has the shared power to vote
or direct the vote, 436,300 shares of NSI's common stock as to which the
reporting person has the sole power to dispose or direct the disposition,
and 140,594 shares of NSI's common stock as to which the reporting person
has the shared power to dispose or direct the disposition.
41
WHERE YOU CAN FIND MORE INFORMATION
NSI files annual, quarterly and special reports, proxy statements and other
information with the SEC. Stockholders are advised to review these filings for
additional information about NSI. You may read and copy any reports, statements
or other information that NSI files at the SEC's public reference room at 450
Fifth Street, N.W., Washington, D.C., 20549. Please call the SEC at
1-800-SEC-0330 for further information on the public reference rooms.
You may also obtain copies of this information by mail from the Public
Reference Section of the SEC, 450 Fifth Street, N.W., Room 1024, Washington,
D.C. 20549, at prescribed rates. The SEC also maintains an internet site that
contains reports, proxy statements and other information about issuers,
including NSI, who file electronically with the SEC. The address of that site is
http://www.sec.gov. Information contained in the SEC's website is not
incorporated by reference into this proxy statement.
You should rely only on the information contained in this proxy statement
to vote on the merger agreement and the merger. We have not authorized anyone to
provide you with information that is different from what is contained in this
proxy statement. This proxy statement is dated , 2003. You should
not assume that the information in this proxy statement is accurate as of any
date other than that date, and its mailing to stockholders shall not create any
implication to the contrary.
OTHER MATTERS
STOCKHOLDER PROPOSALS
We do not currently expect to hold a 2003 Annual Meeting of Stockholders,
because upon completion of the merger, NSI would no longer have public
stockholders or any public participation in our stockholder meetings.
If the merger is not completed, we will hold a 2003 Annual Meeting of
Stockholders. Stockholder proposals for inclusion in our proxy statement for
such 2003 Annual Meeting of Stockholders would have to be submitted to our
Corporate Secretary in writing and received by us at our corporate headquarters
located at Suite 200, 1420 Peachtree Street, N.E., Atlanta, Georgia 30309-3002,
Attention: Corporate Secretary, a reasonable time before we begin to print and
mail our proxy materials for that meeting. Proposals of stockholders submitted
outside the processes of Rule 14a-8 of the Exchange Act (relating to proposals
to be presented at the 2003 Annual Meeting of Stockholders but not included in
our proxy statement and form of proxy), must be received by us at our corporate
headquarters in Atlanta, Georgia between September 8, 2003 and October 8, 2003
in order to be considered timely for purposes of the advance notice provision in
our By-Laws.
Carol Ellis Morgan, NSI's Senior Vice President, General Counsel and
Secretary, will be granted discretionary authority with respect to any
stockholder proposal with respect to which we do not receive timely notice. If a
stockholder proposal is received by us in a timely manner, the persons
designated in our proxy card may still exercise discretionary authority under
circumstances consistent with the SEC's proxy rules.
42
OTHER BUSINESS
The board of directors knows of no other business to be transacted, but if
any other matters do come before the meeting, the persons named as proxies in
the accompanying proxy, or their substitutes, will vote or act with respect to
them in their discretion.
By Order of the Board of Directors,
CAROL ELLIS MORGAN
Senior Vice President,
General Counsel, and Secretary
, 2003
43
ANNEX A
AGREEMENT AND PLAN OF MERGER
BY AND BETWEEN
NS ACQUISITION CORP.
AND
NATIONAL SERVICE INDUSTRIES, INC.
DATED AS OF APRIL 1, 2003
AGREEMENT AND PLAN OF MERGER
TABLE OF CONTENTS
<Table>
<Caption>
PAGE
----
ARTICLE I. THE MERGER...................................................... A-1
SECTION 1.1. The Merger.................................................. A-1
SECTION 1.2. Effective Time; Closing..................................... A-2
SECTION 1.3. Effect of the Merger........................................ A-2
SECTION 1.4. Conversion of Company Common Stock.......................... A-2
SECTION 1.5. Changes in Shares........................................... A-2
SECTION 1.6. Dissenting Shares........................................... A-3
SECTION 1.7. Stock Options............................................... A-3
SECTION 1.8. Restricted Stock............................................ A-3
SECTION 1.9. Employee Stock Purchase Plan................................ A-3
SECTION Surrender of Shares of Company Common Stock; Stock Transfer
1.10....... Books....................................................... A-4
ARTICLE II. THE SURVIVING CORPORATION...................................... A-5
SECTION 2.1. Certificate of Incorporation................................ A-5
SECTION 2.2. Bylaws...................................................... A-5
SECTION 2.3. Directors and Officers...................................... A-5
ARTICLE III. REPRESENTATIONS AND WARRANTIES OF THE COMPANY................. A-5
SECTION 3.1. Organization and Standing................................... A-6
SECTION 3.2. Capitalization.............................................. A-6
SECTION 3.3. Authority for Agreement..................................... A-7
SECTION 3.4. No Conflict................................................. A-8
SECTION 3.5. Required Filings and Consents............................... A-8
SECTION 3.6. Permits; Compliance......................................... A-8
SECTION 3.7. SEC Filings, Financial Statements........................... A-8
SECTION 3.8. Absence of Certain Changes or Events........................ A-9
SECTION 3.9. Taxes....................................................... A-9
SECTION 3.10. Assets...................................................... A-11
SECTION 3.11. Change of Control Arrangements.............................. A-11
SECTION 3.12. Litigation.................................................. A-12
SECTION 3.13. Material Contracts.......................................... A-12
SECTION 3.14. Information Supplied........................................ A-12
SECTION 3.15. Employee Benefit Plans...................................... A-13
SECTION 3.16. Labor and Employment Matters................................ A-14
SECTION 3.17. Environmental Compliance and Disclosure..................... A-15
SECTION 3.18. Intellectual Property....................................... A-16
SECTION 3.19. Brokers..................................................... A-16
SECTION 3.20. Insurance Policies.......................................... A-16
ARTICLE IV. REPRESENTATIONS AND WARRANTIES OF BUYER........................ A-17
SECTION 4.1. Organization and Standing................................... A-17
SECTION 4.2. Authority for Agreement..................................... A-17
SECTION 4.3. No Conflict................................................. A-17
</Table>
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<Table>
<Caption>
PAGE
----
SECTION 4.4. Required Filings and Consents............................... A-17
SECTION 4.5. Information Supplied........................................ A-17
SECTION 4.6. Brokers..................................................... A-18
SECTION 4.7. No Prior Activities; Financing.............................. A-18
SECTION 4.8. Ownership of Company Common Stock........................... A-18
ARTICLE V. COVENANTS....................................................... A-18
SECTION 5.1. Conduct of the Business Pending the Merger.................. A-18
SECTION 5.2. Access to Information; Confidentiality...................... A-20
SECTION 5.3. Notification of Certain Matters............................. A-20
SECTION 5.4. Further Assurances.......................................... A-20
SECTION 5.5. No Solicitation of Transactions............................. A-21
SECTION 5.6. Stockholder Litigation...................................... A-22
SECTION 5.7. Indemnification, Exculpation and Insurance.................. A-22
SECTION 5.8. Public Announcements........................................ A-23
SECTION 5.9. Company Stockholders' Meeting............................... A-23
SECTION 5.10. Proxy Statement............................................. A-23
SECTION 5.11. Director Resignations....................................... A-24
SECTION 5.12. No Acquisition of Company Common Stock...................... A-24
SECTION 5.13. Employee Matters............................................ A-24
SECTION 5.14. Rights Agreement............................................ A-25
SECTION 5.15. Commitment Letters.......................................... A-25
ARTICLE VI. CONDITIONS..................................................... A-25
SECTION 6.1. Conditions to the Obligation of Each Party.................. A-25
SECTION 6.2. Conditions to Obligations of Buyer to Effect the Merger..... A-26
SECTION 6.3. Conditions to Obligations of the Company to Effect the
Merger...................................................... A-27
ARTICLE VII. TERMINATION, AMENDMENT AND WAIVER............................. A-27
SECTION 7.1. Termination................................................. A-27
SECTION 7.2. Effect of Termination....................................... A-28
SECTION 7.3 Interest and Costs; Other Remedies.......................... A-29
SECTION 7.4. Amendments.................................................. A-29
SECTION 7.5. Waiver...................................................... A-29
ARTICLE VIII. GENERAL PROVISIONS........................................... A-29
SECTION 8.1. No Third Party Beneficiaries................................ A-29
SECTION 8.2. Entire Agreement............................................ A-29
SECTION 8.3. Succession and Assignment................................... A-29
SECTION 8.4. Counterparts................................................ A-30
SECTION 8.5. Headings.................................................... A-30
SECTION 8.6. Governing Law............................................... A-30
SECTION 8.7. Severability................................................ A-30
SECTION 8.8. Specific Performance........................................ A-30
SECTION 8.9. Construction................................................ A-30
SECTION 8.10. Non-Survival of Representations and Warranties and
Agreements.................................................. A-30
</Table>
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<Table>
<Caption>
PAGE
----
SECTION 8.11. Certain Definitions......................................... A-30
SECTION 8.12. Fees and Expenses........................................... A-31
SECTION 8.13. Notices..................................................... A-31
SECTION 8.14. Consent to Jurisdiction; Waiver of Trial by Jury............ A-32
</Table>
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AGREEMENT AND PLAN OF MERGER
THIS AGREEMENT AND PLAN OF MERGER (this "Agreement"), dated as of April 1,
2003, by and between NS ACQUISITION CORP., a Delaware corporation ("Buyer"), and
NATIONAL SERVICE INDUSTRIES, INC., a Delaware corporation (the "Company").
WITNESSETH:
WHEREAS, the parties to this Agreement desire to effect the acquisition of
the Company by the stockholders of Buyer;
WHEREAS, in furtherance of the foregoing, upon the terms and subject to the
conditions of this Agreement and in accordance with the Delaware General
Corporation Law (the "DGCL"), Buyer will merge with and into the Company (the
"Merger") in accordance with the provisions of the DGCL, with the Company as the
surviving corporation;
WHEREAS, the Board of Directors of the Company has unanimously determined
that the Merger and this Agreement are fair to, and in the best interests of,
the Company and the holders of the common stock, par value $1.00 per share, of
the Company (the "Company Common Stock");
WHEREAS, the Board of Directors of Buyer has approved this Agreement and
the Merger, upon the terms and subject to the conditions set forth herein;
WHEREAS, the Board of Directors of the Company has unanimously approved
this Agreement and the Merger, and the transactions contemplated hereby, which
approval was based in part on the opinion of SunTrust Robinson Humphrey (the
"Financial Advisor"), financial advisor to the Board of Directors of the
Company, that, as of the date of such opinion and based on the assumptions,
qualifications and limitations contained therein, the consideration to be
received by the Company's stockholders for their shares of Company Common Stock
in the Merger is fair, from a financial point of view, to those stockholders;
WHEREAS, the Board of Directors of the Company has declared the Merger
advisable and, subject to the terms and conditions of this Agreement, has
unanimously resolved to recommend that the holders of the Company Common Stock
approve the Merger, this Agreement and the transactions contemplated hereby; and
WHEREAS, simultaneously with the execution of this Agreement and as a
condition and inducement to the willingness of Buyer to enter into this
Agreement, King & Spalding LLP has issued an opinion to the Company, as required
under the Tax Disaffiliation Agreement (as hereinafter defined), to the effect
that the Merger, this Agreement and the transactions contemplated hereby will
not cause Section 355(e) or 355(f) of the Internal Revenue Code of 1986, as
amended (the "Code"), to apply to the Company's spin-off of Acuity Brands, Inc.
NOW, THEREFORE, in consideration of the foregoing and the respective
representations, warranties, covenants and agreements contained in this
Agreement and intending to be legally bound hereby, the parties hereto agree as
follows:
ARTICLE I
THE MERGER
SECTION 1.1. The Merger. Upon the terms and subject to the conditions of
this Agreement, and in accordance with the DGCL, at the Effective Time (as
hereinafter defined), Buyer shall be merged with and into the Company. As a
result of the Merger, the separate corporate existence of Buyer shall cease and
the Company shall continue as the surviving corporation following the Merger
(the "Surviving Corporation"). The corporate existence of the Company, with all
its purposes, rights, privileges, franchises,
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powers and objects, shall continue unaffected and unimpaired by the Merger and,
as the Surviving Corporation, it shall be governed by the laws of the State of
Delaware.
SECTION 1.2. Effective Time; Closing. As promptly as practicable (and in
any event within five (5) business days) after the satisfaction or waiver of the
conditions set forth in Article VI hereof, the parties hereto shall cause the
Merger to be consummated by filing a certificate of merger (the "Certificate of
Merger") with the Secretary of State of the State of Delaware and by making all
other filings or recordings required under the DGCL in connection with the
Merger, in such form as is required by, and 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 other time as shall be specified in the
Certificate of Merger (the date and time the Merger becomes effective, the
"Effective Time"). On the date of such filing (the "Closing Date"), a closing
(the "Closing") shall be held at 10:00 a.m., Eastern Standard Time, at the
offices of King & Spalding LLP, 191 Peachtree Street, Atlanta, Georgia 30303, or
at such other time and location as the parties hereto shall otherwise agree.
SECTION 1.3. Effect of the Merger. At the Effective Time, the effect of
the Merger shall be as provided in the applicable provisions of the DGCL.
Without limiting the generality of the foregoing, and subject thereto, at the
Effective Time all the property, rights, privileges, powers and franchises of
the Company and Buyer shall vest in the Surviving Corporation, and all debts,
liabilities, obligations, restrictions, disabilities and duties of the Company
and Buyer shall become the debts, liabilities, obligations, restrictions,
disabilities and duties of the Surviving Corporation.
SECTION 1.4. Conversion of Company Common Stock. At the Effective Time,
by virtue of the Merger and without any action on the part of Buyer, the Company
or the holders of any capital stock of Buyer or the Company, the capital stock
of the Company and Buyer shall be converted as follows:
(a) Each share of Company Common Stock issued and outstanding immediately
prior to the Effective Time (other than shares cancelled pursuant to Section
1.4(b) and Dissenting Shares (as hereinafter defined), if any) (together with
the associated preferred stock purchase rights) shall be canceled and converted
into the right to receive an amount in cash equal to TEN DOLLARS ($10.00)
payable, without interest, to the holder of such share of Company Common Stock,
upon surrender of the certificate that formerly evidenced such share of Company
Common Stock in the manner provided in Section 1.10 (the "Merger
Consideration");
(b) Each share of Company Common Stock issued and outstanding immediately
prior to the Effective Time that is owned by Buyer and each share of Company
Common Stock that is owned by the Company as treasury stock shall be canceled
and retired and cease to exist and no payment or distribution shall be made with
respect thereto;
(c) All shares of the Company Common Stock converted pursuant to Section
1.4(a) shall no longer be outstanding and shall automatically be canceled and
retired and cease to exist, and each holder of a certificate ("Certificate")
representing any such shares of Company Common Stock shall cease to have any
rights with respect thereto, except the right to receive the Merger
Consideration in accordance with this Agreement; and
(d) Each share of common stock, par value $.0001 per share, of Buyer issued
and outstanding immediately prior to the Effective Time shall be converted into
and become one validly issued, fully paid and nonassessable share of common
stock, par value $.0001 per share, of the Surviving Corporation and shall
constitute the only outstanding shares of capital stock of the Surviving
Corporation.
SECTION 1.5. Changes in Shares. If, between the date of this Agreement
and the Effective Time, the outstanding shares of Company Common Stock shall
have been changed into a different number of shares or a different class, by
reason of any stock dividend, subdivision, reclassification, recapitalization,
split, combination, exchange of shares or similar transaction, the Merger
Consideration shall be
A-2
correspondingly adjusted to reflect such stock dividend, subdivision,
reclassification, recapitalization, split, combination, exchange of shares or
similar transaction.
SECTION 1.6. Dissenting Shares.
(a) Notwithstanding anything in this Agreement to the contrary, shares of
Company Common Stock that are issued and outstanding immediately prior to the
Effective Time and which are held by holders of Company Common Stock (the
"Company Stockholders") who have demanded and perfected their demands for
appraisal of such shares of Company Common Stock in the time and manner provided
in Section 262 of the DGCL and, as of the Effective Time, have neither
effectively withdrawn nor lost their rights to such appraisal and payment under
the DGCL (the "Dissenting Shares") shall not be converted as described in
Section 1.4(a), but shall, by virtue of the Merger, be entitled to only such
rights as are granted by Section 262 of the DGCL; provided, however, that if
such holder shall have failed to perfect or shall have effectively withdrawn or
lost his, her or its right to appraisal and payment under the DGCL, such
holder's shares of Company Common Stock shall thereupon be deemed to have been
converted, at the Effective Time, as described in Section 1.4(a), into the right
to receive the Merger Consideration set forth in such provisions, without any
interest thereon.
(b) The Company shall give Buyer prompt notice of any demands for appraisal
pursuant to Section 262 of the DGCL received by the Company or withdrawals of
such demands, and Buyer shall have the right to participate in and direct all
negotiations and proceedings with respect to such demands. The Company shall
not, except with the prior written consent of Buyer or as otherwise required by
applicable law, make any payment with respect to any such demands for appraisal
or offer to settle or settle any such demands.
SECTION 1.7. Stock Options. Prior to the Effective Time, the Company
shall use its commercially reasonable efforts to provide that each option
granted under any stock option or compensation plan or arrangement to acquire
Company Common Stock (each, a "Company Option") which is outstanding immediately
prior to the Effective Time, whether or not then exercisable, shall be
cancelled, effective as of the Effective Time, in exchange for a single lump sum
cash payment equal to the product of (i) the number of shares of Company Common
Stock subject to such Company Option immediately prior to the Effective Time and
(ii) the excess, if any, of the Merger Consideration over the exercise price per
share of such Company Option; provided, however, if the exercise price per share
of any such Company Option is equal to or greater than the Merger Consideration,
such Company Option shall be cancelled in exchange for such cash payment, if
any, as shall be reasonably agreed to by the parties hereto. From and after the
Effective Time, the Surviving Corporation shall take or cause to be taken any
and all actions reasonably necessary to give effect to the treatment of Company
Options pursuant to this Section 1.7. The holders of the Company Options shall
be entitled to enforce this Section 1.7 against the Surviving Corporation.
SECTION 1.8. Restricted Stock. Prior to the Effective Time, the Board of
Directors of the Company (or, if appropriate, any committee thereof) shall take
all actions necessary and appropriate to provide that, at the Effective Time,
each share of restricted Company Common Stock granted under any compensation
plan or arrangement which is outstanding immediately prior to the Effective Time
which was theretofore unvested shall become fully vested and shall be canceled
and converted into the right to receive the Merger Consideration pursuant to
Section 1.4(a). Each share of unissued restricted Company Common Stock
underlying a performance-based award granted under any stock option or
compensation plan or arrangement (each, a "Company Restricted Stock Award")
which is outstanding immediately prior to the Effective Time shall be issued in
amounts reflecting full satisfaction of any performance criteria and shall be
deemed fully vested, effective as of the Effective Time, and shall be canceled
and converted into the right to receive the Merger Consideration pursuant to
Section 1.4(a).
SECTION 1.9. Employee Stock Purchase Plan. Prior to the Effective Time,
the Company shall take all actions necessary and appropriate to provide that the
Company's Employee Stock Purchase Plan (the "ESPP") shall be terminated and
purchases under the ESPP shall be terminated effective on or prior to the
Effective Time.
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SECTION 1.10. Surrender of Shares of Company Common Stock; Stock Transfer
Books.
(a) Prior to the Effective Time, Buyer shall designate EquiServe, L.P. (or
if EquiServe, L.P. is otherwise unwilling or unable to serve on terms reasonably
acceptable to Buyer, another bank or trust company reasonably acceptable to the
Company) to act as agent (the "Paying Agent") for the holders of shares of
Company Common Stock to receive the funds necessary to make the payments to such
holders pursuant to Section 1.4 upon surrender of their Certificates. Buyer
will, as of the Effective Time, deposit with the Paying Agent the aggregate
Merger Consideration to be paid in respect of the shares of Company Common Stock
(the "Fund"). The Fund shall be invested by the Paying Agent as directed by
Buyer. Any net profit resulting from, or interest or income produced by, such
investments, shall be payable to the Surviving Corporation. Buyer shall replace
any monies lost through any investment made pursuant to this Section 1.10(a).
The Paying Agent shall make the payments provided in Section 1.4.
(b) Within ten (10) days after the Effective Time, the Surviving
Corporation shall cause to be mailed to each person who was, at the Effective
Time, a holder of record of shares of Company Common Stock entitled to receive
the Merger Consideration pursuant to Section 1.4 a form of letter of transmittal
(which shall specify that delivery shall be effected, and risk of loss and title
to the Certificates shall pass, only upon proper delivery of the Certificates to
the Paying Agent) and instructions for use (which letter of transmittal and
instructions shall be subject to the reasonable approval of the Company prior to
the Effective Time) in effecting the surrender of the Certificates pursuant to
such letter of transmittal. Upon surrender to the Paying Agent of a Certificate,
together with such letter of transmittal, duly completed and validly executed in
accordance with the instructions thereto, and such other documents as may be
required pursuant to such instructions, the holder of such Certificate shall be
entitled to receive in exchange therefor the Merger Consideration for each share
of Company Common Stock formerly evidenced by such Certificate, and such
Certificate shall then be canceled. Until so surrendered, each such Certificate
shall, at and after the Effective Time, represent for all purposes, only the
right to receive such Merger Consideration. No interest shall accrue or be paid
to any beneficial owner of shares of Company Common Stock or any holder of any
Certificate with respect to the Merger Consideration payable upon the surrender
of any Certificate. If payment of the Merger Consideration is to be made to a
person other than the person in whose name the surrendered Certificate is
registered on the stock transfer books of the Company, it shall be a condition
of payment that the Certificate so surrendered shall be endorsed in blank or to
the Paying Agent or otherwise be in proper form for transfer and that the person
requesting such payment shall have paid all transfer and other taxes required by
reason of the payment of the Merger Consideration to a person other than the
registered holder of the Certificate surrendered or shall have established to
the satisfaction of the Surviving Corporation that such taxes either have been
paid or are not applicable. If any Certificate shall have been lost, stolen or
destroyed, upon 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 Paying Agent will issue in
exchange for such lost, stolen or destroyed Certificate the applicable Merger
Consideration such holder is entitled to receive pursuant to Section 1.4.
(c) At any time following twelve (12) months after the Effective Time, the
Surviving Corporation shall be entitled to require the Paying Agent to deliver
to it any portion of the Fund which had been made available to the Paying Agent
and not disbursed to holders of shares of Company Common Stock (including,
without limitation, all interest and other income received by the Paying Agent
in respect of all amounts held in the Fund or other funds made available to it),
and thereafter each such holder shall be entitled to look only to the Surviving
Corporation (subject to abandoned property, escheat and other similar laws), and
only as general creditors thereof, with respect to any Merger Consideration that
may be payable upon due surrender of the Certificates held by such holder. If
any Certificates representing shares of Company Common Stock shall not have been
surrendered prior to two (2) years after the Effective Time (or immediately
prior to such earlier date on which the Merger Consideration in respect of such
Certificate would otherwise escheat to or become the property of any
Governmental Entity (as hereinafter defined)), any such cash, shares, dividends
or distributions payable in respect of such Certificate shall, to
A-4
the extent permitted by applicable law, become the property of the Surviving
Corporation, free and clear of all claims or interest of any person previously
entitled thereto. Notwithstanding the foregoing, neither the Surviving
Corporation nor the Paying Agent shall be liable to any holder of a share of
Company Common Stock for any Merger Consideration delivered in respect of such
share of Company Common Stock to a public official pursuant to any abandoned
property, escheat or other similar law.
(d) At the Effective Time, the stock transfer books of the Company shall be
closed and thereafter there shall be no further registration of transfers of
shares of Company Common Stock on the records of the Company. From and after the
Effective Time, the holders of shares of Company Common Stock outstanding
immediately prior to the Effective Time shall cease to have any rights with
respect to such shares of Company Common Stock except as otherwise provided
herein or by applicable law, and all cash paid pursuant to this Article I upon
the surrender or exchange of Certificates shall be deemed to have been paid in
full satisfaction of all rights pertaining to the shares of Company Common Stock
theretofore represented by such Certificate.
(e) The Surviving Corporation and the Paying Agent, as the case may be,
shall be entitled to deduct and withhold from the Merger Consideration otherwise
payable pursuant to this Agreement to any holder of shares of Company Common
Stock and Company Options such amounts that the Surviving Corporation or the
Paying Agent is required to deduct and withhold with respect to the making of
such payment under the Code, the rules and regulations promulgated thereunder or
any provision of state, local or foreign tax law. To the extent that amounts are
so withheld by the Surviving Corporation or the Paying Agent, such amounts shall
be treated for all purposes of this Agreement as having been paid to the holder
of the shares of Company Common Stock and Company Options in respect of which
such deduction and withholding was made by the Surviving Corporation or the
Paying Agent.
ARTICLE II
THE SURVIVING CORPORATION
SECTION 2.1. Certificate of Incorporation. The Certificate of
Incorporation of the Company as in effect immediately prior to the Effective
Time shall be amended to read in its entirety as set forth in Exhibit 2.1
attached hereto and as so amended shall be the Certificate of Incorporation of
the Surviving Corporation, until the same shall thereafter be altered, amended
or repealed in accordance with applicable law or such Certificate of
Incorporation.
SECTION 2.2. Bylaws. The Bylaws of the Company as in effect immediately
prior to the Effective Time shall be amended to read in its entirety as set
forth in Exhibit 2.2 attached hereto and as so amended shall be the Bylaws of
the Surviving Corporation, until the same shall thereafter be altered, amended
or repealed in accordance with applicable law, the Certificate of Incorporation
of the Surviving Corporation or such Bylaws.
SECTION 2.3. Directors and Officers. From and after the Effective Time,
until the earlier of their resignation or removal or until their respective
successors are duly elected or appointed and qualified in accordance with
applicable law, (i) the directors of Buyer at the Effective Time shall be the
directors of the Surviving Corporation, and (ii) the officers of Buyer at the
Effective Time shall be the officers of the Surviving Corporation.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
Except as set forth in the Company Disclosure Letter delivered by the
Company to the other parties hereto concurrently with the execution of this
Agreement (the "Company Disclosure Letter"), the
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Company represents and warrants to each of the other parties hereto, as of the
date hereof (or, if made as of a specified date, as of such date), as follows:
SECTION 3.1. Organization and Standing. Each of the Company and each
Subsidiary (as hereinafter defined) (i) is a corporation duly organized, validly
existing and in good standing under the laws of the jurisdiction of its
organization, (ii) has full corporate power and authority and all necessary
government approvals to own, lease and operate its properties and assets and to
conduct its business as presently conducted and (iii) is duly qualified or
licensed to do business as a foreign corporation and is in good standing in each
jurisdiction where the character of the properties owned, leased or operated by
it or the nature of its business makes such qualification or licensing
necessary, except where the failure to be so qualified or licensed would not
reasonably be expected to, individually or in the aggregate, have a Company
Material Adverse Effect (as hereinafter defined). The Company has furnished or
made available to Buyer true and complete copies of its certificate of
incorporation (including any certificates of designations attached thereto, the
"Company Certificate of Incorporation") and bylaws (the "Company Bylaws") and
the certificate of incorporation and bylaws (or equivalent organizational
documents) of each Subsidiary, each as amended to date. Such certificate of
incorporation, bylaws or equivalent organizational documents are in full force
and effect, and neither the Company nor any Subsidiary is in material violation
of any provision of its certificate of incorporation, bylaws or equivalent
organizational documents.
SECTION 3.2. Capitalization. The authorized capital stock of the Company
consists of 120,000,000 shares of Company Common Stock and 1,000,000 shares of
preferred stock, no par value per share (the "Preferred Stock"). As of March 31,
2003, (i) 11,195,973 shares of Company Common Stock are issued and outstanding
(including 678,299 shares of unvested restricted Company Common Stock), all of
which are validly issued, fully paid and nonassessable and free of preemptive
rights, (ii) 3,282,527 shares of Company Common Stock are held in the treasury
of the Company, (iii) 1,201,084 Company Options are outstanding pursuant to the
Company's incentive compensation plans, each such option entitling the holder
thereof to purchase one share of Company Common Stock, (iv) 46,414 shares of
Company Common Stock are issuable pursuant to outstanding Company Restricted
Stock Awards, (v) 854,398 shares of Company Common Stock are authorized and
reserved for future issuance pursuant to such incentive compensation plans, (vi)
approximately 4,425 shares are subject to outstanding purchase rights under the
ESPP (assuming the purchase of shares of Company Common Stock under the ESPP
based on the closing price per share of Company Common Stock on March 3, 2003),
and (vii) no shares of Preferred Stock are issued or outstanding. Section 3.2 of
the Company Disclosure Letter sets forth a correct and complete list, as of
March 31, 2003, of the outstanding Company Options with the exercise price and
of the outstanding Company Restricted Stock Awards. Except as set forth above or
in Section 3.2 of the Company Disclosure Letter, as of March 31, 2003, there are
no options, warrants, convertible securities, subscriptions, stock appreciation
rights, phantom stock plans or stock equivalents or other rights, agreements,
arrangements or commitments (contingent or otherwise) of any character issued or
authorized by the Company relating to the issued or unissued capital stock of
the Company or any Subsidiary or obligating the Company or any Subsidiary to
issue or sell any shares of capital stock of, or options, warrants, convertible
securities, subscriptions or other equity interests in, the Company or any
Subsidiary. All shares of Company Common Stock subject to issuance as aforesaid,
upon issuance on the terms and conditions specified in the instruments pursuant
to which they are issuable, will be duly authorized, validly issued, fully paid
and nonassessable and free of preemptive rights. Except as set forth in Section
3.2 of the Company Disclosure Letter, there are no outstanding contractual
obligations of the Company or any Subsidiary to repurchase, redeem or otherwise
acquire any shares of Company Stock or any capital stock of any Subsidiary or to
pay any dividend or make any other distribution in respect thereof or to provide
funds to, or make any investment (in the form of a loan, capital contribution or
otherwise) in, any person. Section 3.2 of the Company Disclosure Letter sets
forth a correct and complete list of each corporation, association, subsidiary,
partnership, limited liability company or other entity of which the Company
controls, directly or indirectly, 50% or more of the outstanding equity
interests (each a "Subsidiary" and collectively, the "Subsidiaries"). Except as
set forth in Section 3.2 of the Company Disclosure Letter, the Company owns
beneficially and of record all of the issued and outstanding capital stock of
each Subsidiary. Each outstanding share of capital stock of each Subsidiary that
is a corporation is duly
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authorized, validly issued, fully paid and nonassessable and free of preemptive
rights, and each such share owned by the Company or another Subsidiary is free
and clear of all security interests, liens, claims, pledges, options, rights of
first refusal, agreements, limitations on the Company's or such other
Subsidiary's voting rights, charges and other encumbrances of any nature
whatsoever.
SECTION 3.3. Authority for Agreement.
(a) The Company has all necessary power and authority to execute and
deliver this Agreement, to perform its obligations hereunder and, subject to
obtaining necessary stockholder approval, to consummate the Merger and the other
transactions contemplated by this Agreement. The execution, delivery and
performance by the Company of this Agreement, and the consummation by the
Company of the Merger and the other transactions contemplated by this Agreement,
have been duly authorized by all necessary corporate action and no other
corporate proceedings on the part of the Company are necessary to authorize this
Agreement or to consummate the Merger or the other transactions contemplated by
this Agreement, other than, with respect to the Merger, the approval and
adoption of this Agreement by the Company Stockholders and the filing and
recordation of appropriate merger documents as required by the DGCL. This
Agreement has been duly executed and delivered by the Company and, assuming the
due authorization, execution and delivery by Buyer, constitutes a legal, valid
and binding obligation of the Company enforceable against the Company in
accordance with its terms. Based, in part, on the representation of Buyer in
Section 4.8, the affirmative vote of holders of a majority of the outstanding
shares of Company Common Stock entitled to vote at a duly called and held
meeting of stockholders is the only vote of the Company's Stockholders necessary
to approve this Agreement, the Merger and the other transactions contemplated by
this Agreement.
(b) At a meeting duly called and held on April 1, 2003, the Board of
Directors of the Company unanimously (i) determined that this Agreement and the
other transactions contemplated hereby, including the Merger, are fair to and in
the best interests of the Company and the Company Stockholders, (ii) approved,
authorized and adopted this Agreement, the Merger and the other transactions
contemplated hereby, and (iii) declared this Agreement advisable and resolved to
recommend approval and adoption of this Agreement and the Merger by the Company
Stockholders. Based, in part, on the representation of Buyer in Section 4.8, the
actions taken by the Board of Directors of the Company constitute all necessary
approval of the Merger, this Agreement and the other transactions contemplated
hereby by the Board of Directors of the Company under the provisions of the
Rights Agreement (as hereinafter defined), Articles Twelfth and Thirteenth of
the Company Certificate of Incorporation, and Section 203 of the DGCL. Section
203 of the DGCL will not apply with respect to or as a result of this Agreement
and the transactions contemplated hereby, including the Merger, without any
further action on the part of the Company's Board of Directors or stockholders.
Other than Section 203 of the DGCL, no other state antitakeover or similar
statute is applicable to the Company in connection with the Merger, this
Agreement or any of the transactions contemplated hereby. For purposes of this
Agreement, the "Rights Agreement" shall mean that certain Amended and Restated
Rights Agreement, dated December 17, 1997, as amended, by and between the
Company and EquiServe, L.P. (as successor-in-interest to First Chicago Trust
Company of New York). Except for the Rights Agreement, neither the Company nor
any Subsidiary has any rights plan, "poison pill" or similar arrangement.
(c) The Rights Agreement has been amended so that: (i) Buyer is exempt from
the definition of "Acquiring Person" contained in the Rights Agreement, and no
"Stock Acquisition Date" or "Distribution Date" or "Triggering Event" (as such
terms are defined in the Rights Agreement) will occur as a result of the
execution of this Agreement or the consummation of the Merger and the other
transactions contemplated hereby; and (ii) the Rights Agreement will terminate
and the Rights (as defined in the Rights Agreement) will expire at the Effective
Time. The Rights Agreement, as so amended, has not been further amended or
modified. True and complete copies of the Rights Agreement and of all amendments
thereto through the date hereof have been previously provided to Buyer.
(d) The Financial Advisor has delivered to the Board of Directors of the
Company its written opinion, dated as of the date of this Agreement, that, as of
such date and based on the assumptions,
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qualifications and limitations contained therein, the Merger Consideration to be
received by the Company Stockholders in the Merger is fair to such holders from
a financial point of view. A copy of such opinion is attached to the Company
Disclosure Letter.
SECTION 3.4. No Conflict. The execution and delivery of this Agreement by
the Company do not, and the performance of this Agreement by the Company and the
consummation of the Merger and the other transactions contemplated by this
Agreement will not, (i) based, in part, on the representation of Buyer in
Section 4.8, conflict with or violate the Company Certificate of Incorporation
or Company Bylaws or equivalent organizational documents of any of the
Subsidiaries, (ii) subject to Section 3.5, conflict with or violate in any
material respect any United States federal, state or local or any foreign
statute, law, rule, regulation, ordinance, code, order, judgment, decree or any
other requirement or rule of law (a "Law") applicable to the Company or any of
the Subsidiaries or by which any property or asset of the Company or any of the
Subsidiaries is bound or affected, or (iii) except as set forth in Section 3.4
of the Company Disclosure Letter, result in a breach of or constitute a default
(or an event which with notice or lapse of time or both would become a default)
under, give to others any right of termination, amendment, acceleration or
cancellation of, result in triggering any payment or other obligations, or
result in the creation of a lien or other encumbrance on any property or asset
of the Company or any of the Subsidiaries pursuant to, any note, bond, mortgage,
indenture, contract, agreement, lease, license, permit, franchise or other
instrument or obligation to which the Company or any of the Subsidiaries is a
party or by which the Company or any of the Subsidiaries or any property or
asset of any of them is bound or affected, except, in the case of clause (iii)
above, for any such conflicts, violations, breaches, defaults or other
occurrences which would not reasonably be expected to, individually or in the
aggregate, have a Company Material Adverse Effect.
SECTION 3.5. Required Filings and Consents. The execution and delivery of
this Agreement by the Company does not, and the performance of this Agreement by
the Company will not, require any consent, approval, authorization or permit of,
or filing with or notification to, any United States federal, state or local or
any foreign government or any court, administrative or regulatory agency or
commission or other governmental authority or agency, domestic or foreign (a
"Governmental Entity"), except (i) for applicable requirements, if any, of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), (ii) filing
and recordation of appropriate merger documents as required by the DGCL, and
(iii) for those required by the Hart-Scott-Rodino Antitrust Improvements Act of
1976, as amended (the "HSR Act").
SECTION 3.6. Permits; Compliance. The Company and each Subsidiary is in
possession of all authorizations, licenses, permits, certificates, approvals and
clearances of any Governmental Entity necessary for the Company and each such
Subsidiary to own, lease and operate its properties or to carry on its
respective businesses substantially as it is being conducted as of the date
hereof, except where such non-possession would not reasonably be expected to,
individually or in the aggregate, have a Company Material Adverse Effect (the
"Company Permits"), and all such Company Permits are valid and in full force and
effect. Except as set forth in Section 3.6 of the Company Disclosure Letter,
with respect to the textile rental and envelope businesses, each of the Company
and the Subsidiaries (i) has been operated at all times since September 1, 2001
in material compliance with all Laws applicable to the Company or any of the
Subsidiaries or by which any property, business or asset of the Company or any
of the Subsidiaries is bound or affected and (ii) is not in default or violation
of any Material Contracts to which the Company or any of the Subsidiaries is a
party or by which the Company or any of the Subsidiaries or any property or
asset of the Company or any of the Subsidiaries is bound or affected, except in
the cases of clause (ii), for any defaults or violations which would not
reasonably be expected to, individually or in the aggregate, have a Company
Material Adverse Effect.
SECTION 3.7. SEC Filings, Financial Statements.
(a) The Company has filed all forms, reports, statements and documents
required to be filed with the United States Securities and Exchange Commission
(the "SEC") since September 1, 2001 (collectively, the "Company SEC Reports"),
under the Securities Act, the Exchange Act or the Sarbanes-Oxley Act of
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2002, as amended (the "Sarbanes-Oxley Act"). As of their respective dates, the
Company SEC Reports complied in all material respects with the requirements of
the Securities Act, the Exchange Act or the Sarbanes-Oxley Act, as the case may
be, and the rules and regulations of the SEC promulgated thereunder. None of the
Company SEC Reports contained when filed any untrue statement of a material fact
or omitted to state a material fact required to be stated or incorporated by
reference therein or necessary in order to make the statements therein, in the
light of the circumstances under which they were made, not misleading.
(b) All of the financial statements included in the Company SEC Reports, in
each case, including any related notes thereto, as filed with the SEC
(collectively, the "Company Financial Statements") have been prepared in
accordance with generally accepted accounting principles ("GAAP") applied on a
consistent basis throughout the periods involved (except as may be indicated in
the notes thereto or, in the case of the unaudited statements, as may be
permitted by Form 10-Q of the SEC and subject, in the case of the unaudited
statements, to normal, recurring audit adjustments which would not reasonably be
expected to, individually or in the aggregate, have a Company Material Adverse
Effect) and fairly present the consolidated financial position of the Company
and the Subsidiaries at the respective date thereof and the consolidated results
of its operations and changes in cash flows for the periods indicated.
(c) Except as set forth in Section 3.7(c) of the Company Disclosure Letter,
there are no liabilities of the Company or any of the Subsidiaries of any kind
whatsoever, whether or not accrued and whether or not contingent or absolute,
other than (i) liabilities disclosed or provided for in the consolidated balance
sheet of the Company and the Subsidiaries at February 28, 2003, including the
notes thereto, (ii) liabilities disclosed in the Company SEC Reports filed prior
to the date hereof, (iii) liabilities incurred on behalf of the Company in
connection with this Agreement and the contemplated Merger, and (iv) liabilities
incurred in the ordinary course of business consistent with past practice since
February 28, 2003, none of which would reasonably be expected to, individually
or in the aggregate, have a Company Material Adverse Effect.
SECTION 3.8. Absence of Certain Changes or Events. Except as contemplated
by this Agreement, as set forth in the Company SEC Reports filed prior to the
date hereof or in Section 3.8 of the Company Disclosure Letter, since August 31,
2002, the Company and the Subsidiaries have conducted their respective
businesses only in the ordinary course and consistent with prior practice and
there has not been (i) any event or occurrence of any condition that has had, or
would reasonably be expected to, individually or in the aggregate, have a
Company Material Adverse Effect, (ii) any declaration, setting aside or payment
of any dividend or any other distribution with respect to any of the capital
stock of the Company or any Subsidiary except for quarterly dividends consistent
with past practice, (iii) any material change in accounting methods, principles
or practices employed by the Company, or (iv) any action of the type described
in Sections 5.1(b) or 5.1(c) which, had such action been taken after the date of
this Agreement, would be in violation of any such Section.
SECTION 3.9. Taxes.
(a) The Company and each of the Subsidiaries have duly and timely filed
with the appropriate taxing authorities all Tax Returns (as hereinafter defined)
required to be filed by any of them through the date hereof. All such Tax
Returns are true, correct and complete in all material respects. All Taxes (as
hereinafter defined) of the Company and the Subsidiaries which are (i) shown as
due on such Tax Returns, (ii) otherwise due and payable or (iii) claimed or
asserted by any taxing authority to be due, have been paid, except for those
Taxes being contested in good faith and for which adequate reserves have been
established in the financial statements included in the Company SEC Reports
filed prior to the date hereof in accordance with GAAP. The unpaid Taxes of the
Company and its Subsidiaries for the current taxable period did not, as of the
most recent Company Financial Statements, exceed the reserve for Tax liability
set forth on the face of the balance sheet in the most recent Company Financial
Statements.
(b) Except as set forth in Section 3.9 of the Company Disclosure Letter and
except for matters which are the responsibility of Acuity Brands, Inc. pursuant
to the Tax Disaffiliation Agreement, there are no pending or, to the knowledge
of the Company, threatened audits, investigations, disputes or claims or
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other actions for or relating to any liability for Taxes with respect to the
Company or any of the Subsidiaries, and neither the Company nor any Subsidiary
knows of any proposed or threatened Tax claims or assessments which, if upheld,
would reasonably be expected to, individually or in the aggregate, have a
Company Material Adverse Effect. The Company has not waived any statute of
limitations in respect of Taxes or agreed to any extension of time with respect
to a Tax assessment or deficiency. Except pursuant to the Tax Disaffiliation
Agreement or as set forth in Section 3.9 of the Company Disclosure Letter, no
power of attorney granted by the Company with respect to any Taxes is currently
in force.
(c) There is no pending claim by an authority in a jurisdiction where any
of the Company and the Subsidiaries does not file Tax Returns and in which it is
required to file Tax Returns that it is subject to taxation by that
jurisdiction. Neither the Company nor any of the Subsidiaries has or has had a
"permanent establishment" in any foreign country, as defined in any applicable
Tax treaty or convention between the United States of America and such foreign
country. Section 3.9 of the Company Disclosure Letter sets forth each state in
which the Company and each Subsidiary is or may be subject to any Tax.
(d) The Company and each Subsidiary has withheld and paid all Taxes
required to have been withheld and paid in connection with amounts paid or owing
to any employee, independent contractor, creditor, stockholder, or other third
party.
(e) There are no material liens for any Taxes upon the assets of the
Company or any of the Subsidiaries, other than statutory liens for Taxes not yet
due and payable and liens for real estate Taxes contested in good faith.
(f) Neither the Company nor any Subsidiary has been a United States real
property holding corporation within the meaning of Section 897(c)(2) of the Code
during the applicable period specified in Section 897(c)(1)(A)(ii) of the Code.
Except for the Tax Disaffiliation Agreement, neither the Company nor any
Subsidiary is a party to any Tax allocation or sharing agreement. Neither the
Company nor any Subsidiary (i) has been a member of an Affiliated Group filing a
consolidated federal income Tax Return (other than a group the common parent of
which was the Company) or (ii) has any liability for the Taxes of any person
(other than any of the Company and its Subsidiaries) under Treasury Reg. Section
1.1502-6 (or any similar provision of state, local or foreign law), as a
transferee or successor, by contract, or otherwise.
(g) All elections with respect to Taxes which would reasonably be expected
to, individually or in the aggregate, have a Company Material Adverse Effect on
Taxes payable by the Company or any of the Subsidiaries (either directly to a
Governmental Entity or pursuant to the Tax Disaffiliation Agreement) with
respect to periods after the date hereof are set forth in Section 3.9 of the
Company Disclosure Letter. Except as set forth in Section 3.9 of the Company
Disclosure Letter, neither the Company nor any of the Subsidiaries has: (i)
consented at any time under Section 341(f)(1) of the Code to have the provisions
of Section 341(f)(2) of the Code apply to any disposition of any of its assets;
(ii) agreed, or is required by virtue of the transactions contemplated by this
Agreement or otherwise, to make any adjustment under Section 481(a) of the Code
by reason of a change in accounting method or otherwise which would reasonably
be expected to, individually or in the aggregate, have a Company Material
Adverse Effect on Taxes payable by the Company or any of the Subsidiaries
(either directly to a Governmental Entity or pursuant to the Tax Disaffiliation
Agreement); (iii) made an election, or is required, to treat any of its assets
as owned by another person pursuant to the provisions of former Section 168(f)
of the Code or as tax-exempt bond financed property or tax-exempt use property
within the meaning of Section 168 of the Code; (iv) acquired and does not own
any assets that directly or indirectly secure any debt the interest on which is
tax exempt under Section 103(a) of the Code; (v) made or will not make a consent
dividend election under Section 565 of the Code; or (vi) made any of the
foregoing elections or is required to apply any of the foregoing rules under any
comparable foreign, state or local Tax provision.
(h) Except as set forth in Section 3.9 of the Company Disclosure Letter,
neither the Company nor any of the Subsidiaries (i) is subject to any joint
venture, partnership, or other arrangement or contract which is treated as a
partnership for Tax purposes, or (ii) is a shareholder of a "controlled foreign
corporation" as defined in Section 957 of the Code (or any similar provision of
state, local or foreign law).
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(i) The Company has timely provided or caused to be provided, or has
received waivers of, all required notices to Acuity Brands, Inc. under that
certain Tax Disaffiliation Agreement dated as of November 30, 2001 (the "Tax
Disaffiliation Agreement") between the Company and Acuity Brands, Inc. The
Company has timely made all payments required to be made by the Company under
the Tax Disaffiliation Agreement.
(j) At no time during the period beginning on August 30, 1999 and ending on
November 30, 2002, was there any agreement, understanding or arrangement, nor
were there any Substantial Negotiations (as defined below), regarding the Merger
or any Similar Acquisition (as defined below). The Distributions (as such term
is defined in the Tax Disaffiliation Agreement) were motivated, in whole or
substantial part, by corporate business purposes other than a business purpose
to facilitate any person's acquisition of the stock of the Company. The
Distributions would have occurred at approximately the same time and in similar
form regardless of the Merger or any Similar Acquisition.
(k) For purposes of this Agreement, (i) "Tax" (and, with correlative
meaning, "Taxes") means any federal, state, local or foreign income, gross
receipts, property, sales, use, license, excise, franchise, employment, payroll,
premium, withholding, alternative or added minimum, ad valorem, transfer or
excise tax, or any other tax, custom, duty, governmental fee or other like
assessment or charge of any kind whatsoever, together with any interest or
penalty or addition thereto, whether disputed or not, imposed by any
Governmental Entity, (ii) "Tax Return" means any return, report or similar
statement required to be filed with respect to any Tax (including any attached
schedules), including, without limitation, any information return, claim for
refund, amended return or declaration of estimated Tax, (iii) "Substantial
Negotiations" means, with respect to a transaction involving the acquisition of
stock of the Company, discussions of significant economic terms (such as price)
by one or more officers, directors or Controlling Shareholders (as such term is
defined in Treasury Reg. Section 1.355-1(h)(3)) of the Company, or another
person or persons with the implicit or explicit permission of one or more
officers, directors or Controlling Shareholders of the Company, with the
acquirer of such stock of the Company or a person or persons with the implicit
or explicit permission of the acquirer, and (iv) "Similar Acquisition" means,
with reference to the Merger, a potential transaction that, if consummated,
would effect a direct or indirect combination of all or a significant portion of
the same business operations as the combination that would have been effected by
the Merger (even if the timing or the terms of the potential acquisition are
different); provided, however, that an acquisition is not considered similar to
the Merger if the ultimate owners of Buyer are substantially different from the
ultimate owners of the business operations with which the Company would have
been combined in such other potential acquisition.
SECTION 3.10. Assets. Except as set forth in the Company's Annual Report
on Form 10-K for the fiscal year ended August 31, 2002 (the "Company 10-K") or
in Section 3.10 of the Company Disclosure Letter, the Company and each of the
Subsidiaries have good and marketable title to, or a valid leasehold interest
in, all of their real and personal properties and assets reflected in the
Company 10-K or acquired after August 31, 2002 (other than assets disposed of
since August 31, 2002 in the ordinary course of business consistent with past
practice), in each case free and clear of all title defects, liens, encumbrances
and restrictions, except for (i) liens, encumbrances or restrictions which
secure indebtedness which are properly reflected in the Company 10-K; (ii) liens
for Taxes accrued but not yet payable; (iii) liens arising as a matter of law in
the ordinary course of business with respect to obligations incurred after
August 31, 2002, provided that the obligations secured by such liens are not
delinquent; and (iv) defects, liens, encumbrances and restrictions that are not
reasonably expected to, individually or in the aggregate, materially detract
from the value of the assets subject thereto or materially impact the operation
of the Company or any Subsidiary. Each of the Company and the Subsidiaries has
complied in all material respects with the terms of all real and personal
property leases to which it is a party, and all such leases are in full force
and effect.
SECTION 3.11. Change of Control Arrangements. Except as set forth in
Section 3.11 of the Company Disclosure Letter, neither the execution and
delivery of this Agreement nor the consummation of the Merger or the other
transactions contemplated by this Agreement, will (either alone or in
conjunction with any other event, including termination of employment at or
following the Effective Time)
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result in, cause the accelerated vesting or delivery of, or increase the amount
or value of, any severance, termination or other payment or benefit to any
director, officer, employee or consultant of the Company or any Subsidiary.
Prior to the Effective Time and as contemplated by Section 5.13(d), the Company
will have taken action with respect to the Company Benefit Plans and Benefit
Agreements to provide reasonable assurances that (i) no amount paid or payable
by the Company in connection with the Merger or the other transactions
contemplated by this Agreement will be an "excess parachute payment" within the
meaning of Section 280G of the Code, and (ii) no director, officer, employee or
consultant will be subject to the excise tax under Section 4999 of the Code.
SECTION 3.12. Litigation. Except for such matters set forth in the
Company SEC Reports filed prior to the date hereof or in Section 3.12 of the
Company Disclosure Letter, there are no claims, suits, actions, investigations,
indictments or information, or administrative, arbitration or other proceedings
("Litigation") pending or, to the knowledge of the Company, threatened against
the Company or any of the Subsidiaries which would be reasonably expected to
have, individually or in the aggregate, a Company Material Adverse Effect.
Neither the Company nor any of the Subsidiaries is subject to any outstanding
order, writ, injunction, decree or arbitration ruling, award or other finding
which has had or would reasonably be expected to have, individually or in the
aggregate, a Company Material Adverse Effect.
SECTION 3.13. Material Contracts. Except as set forth in Section 3.13 of
the Company Disclosure Letter or as filed prior to the date hereof as an exhibit
to the Company SEC Reports, neither the Company nor any Subsidiary is a party to
or bound by, and none of their respective properties or assets are bound by or
subject to, any written or oral contract, agreement or arrangement which (i) is
a "material contract" (as such term is defined in Item 601(b)(10) of Regulation
S-K of the SEC), (ii) involves annual expenditures by the Company in excess of
$2,000,000, (iii) contains any non-compete or exclusivity provisions with
respect to the business of or geographic area with respect to the Company or any
Subsidiary, or restricts the conduct of the business of the Company or any
Subsidiary, or the geographic area in which the Company or any Subsidiary may
conduct business, in each case in any material respect, (iv) is a contract,
agreement or arrangement with the Company or any Subsidiary on the one hand, and
any officer, director or other affiliate on the other hand, or (v) is a
contract, agreement or arrangement under which the Company or any Subsidiary has
(a) incurred any indebtedness that is currently owing or (b) given any guarantee
in respect of indebtedness, in each case having an aggregate principal amount in
excess of $2,000,000.
Contracts, agreements and arrangements described in clauses (i) through (v)
above, whether or not set forth in Section 3.13 of the Company Disclosure Letter
or filed as an exhibit to the Company SEC Reports, are referred to herein
individually as a "Material Contract" and collectively as the "Material
Contracts." Each Material Contract is valid and binding on the Company and each
Subsidiary party thereto and, to the Company's knowledge, each other party
thereto, and in full force and effect, and the Company and each Subsidiary has
in all material respects performed all obligations required to be performed by
it prior to the date hereof under each Material Contract and, to the Company's
knowledge, each other party to each Material Contract has in all material
respects performed all obligations required to be performed by it under such
Material Contract. Except as set forth in Section 3.13 of the Company Disclosure
Letter, neither the Company nor any Subsidiary has received notice of any
violation or default under (or any condition which with the passage of time or
the giving of notice would cause such a violation of or default under) any
Material Contract.
SECTION 3.14. Information Supplied. The proxy statement to be mailed to
the Company Stockholders in connection with the meeting (the "Stockholders'
Meeting") to be called to consider the Merger (the "Proxy Statement"), at the
date such document is first published, sent or delivered to Company
Stockholders, will not 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 made therein, in light of the circumstances under which
they were made, not misleading. The Proxy Statement will comply as to form and
substance in all material respects with the requirements of the Exchange Act and
the applicable rules and regulations of the SEC thereunder. Notwithstanding the
foregoing, no representation or warranty is made by the Company with respect to
statements made or incorporated by reference therein
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based on information supplied by Buyer for inclusion or incorporation by
reference in the foregoing document.
SECTION 3.15. Employee Benefit Plans.
(a) All bonus, pension, profit sharing, deferred compensation, incentive
compensation, stock ownership, stock purchase, stock option, phantom stock,
retirement, thrift, savings, stock bonus, restricted stock, cafeteria, paid time
off, perquisite, fringe benefit, vacation, severance, disability, death benefit,
hospitalization, medical, welfare benefit or other plan, arrangement or
understanding maintained, contributed to or required to be maintained or
contributed to by the Company or any of the Subsidiaries providing benefits to
any current or former employee, officer, consultant or director of the Company
or any of the Subsidiaries (such plans and arrangements, except for any
Multiemployer Pension Plan (as hereinafter defined), are hereinafter referred to
as the "Company Benefit Plans"), and all employment, consulting, deferred
compensation, indemnification, severance or termination agreements or similar
arrangements or understandings between the Company or any of the Subsidiaries
and any current or former employee, officer, consultant or director of the
Company or any of the Subsidiaries which are currently in effect (collectively,
the "Benefit Agreements") are listed in Section 3.15 of the Company Disclosure
Letter. Section 3.15 of the Company Disclosure Letter indicates which of the
Company Benefit Plans are "employee pension benefit plans" (as defined in
Section 3(2) of the Employee Retirement Income Security Act of 1974, as amended
("ERISA")) (sometimes referred to herein as "Pension Plans"), and "employee
welfare benefit plans" (as defined in Section 3(1) of ERISA) (together with the
Pension Plans, the "ERISA Plans"). The Company has provided to, or made
available for review by, Buyer true and complete copies of (i) each Company
Benefit Plan and Benefit Agreement (or, in the case of any unwritten Company
Benefit Plan or Benefit Agreement, a description thereof), (ii) the two most
recent annual reports on Form 5500 filed with the Internal Revenue Service with
respect to each Company Benefit Plan (if any such report was required), (iii)
the most recent summary plan description for each Company Benefit Plan for which
such summary plan description is required and (iv) each trust agreement and
insurance or group annuity contract relating to any Company Benefit Plan.
(b) Except as set forth in Section 3.15 of the Company Disclosure Letter,
the ERISA Plans have been maintained and administered in all material respects
in compliance with the requirements of ERISA, and the Code, and any ERISA Plan
intended to be qualified under Section 401(a) of the Code has received a
favorable determination letter and continues to satisfy the requirements for
such qualification. The Company has provided to Buyer a true and complete copy
of the most recent determination letter received with respect to each Pension
Plan, as well as a true and complete copy of each pending application for a
determination letter, if any. Section 3.15 of the Company Disclosure Letter
lists any ERISA Plan which is covered by Title IV of ERISA or Section 412 of the
Code. Neither any ERISA Plan, nor the Company nor any Subsidiary has incurred
any material liability or penalty under Section 4975 of the Code or Section
502(i) or Section 502(l) of ERISA or engaged in any transaction that is
reasonably likely to result in any such material liability or penalty. There is
no pending or anticipated Litigation against or otherwise involving any of the
Company Benefit Plans or Benefit Agreements, and no Litigation (excluding claims
for benefits incurred in the ordinary course of Company Benefit Plan activities)
has been brought against or with respect to any such Company Benefit Plan or
Benefit Agreement which would reasonably be expected to, individually or in the
aggregate, have a Company Material Adverse Effect.
(c) Section 3.15 of the Company Disclosure Letter lists each pension plan
which is a "multiemployer plan", within the meaning of Section 4001(a)(3) of
ERISA (a "Multiemployer Pension Plan"), and neither the Company nor any
Subsidiary has incurred any withdrawal liability under Title IV of ERISA to any
such Multiemployer Pension Plan. All contributions and premiums and benefit
payments required to be made under the terms of any Company Benefit Plan as of
the date hereof have been timely made.
(d) Except as set forth in Section 3.15 of the Company Disclosure Letter,
all material reports, returns and similar documents with respect to all Company
Benefit Plans required to be filed with any Governmental Entity or distributed
to any Company Benefit Plan participant have been duly and timely
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filed or distributed, and neither the Company nor any Subsidiary has received
notice of, and to the knowledge of the Company, there are no investigations by
any Governmental Entity with respect to any Company Benefit Plan.
(e) The Company and the Subsidiaries, with respect to each Company Benefit
Plan that is a "group health plan" (as such term is defined in Section
5000(b)(1) of the Code), comply in all material respects with the applicable
requirements of Section 4980B(f) of the Code. Neither the Company nor any
Subsidiary has any obligations for retiree health or life insurance benefits
under any Company Benefit Plan or Benefit Agreement, except as set forth in
Section 3.15 of the Company Disclosure Letter.
(f) With respect to each ERISA Plan required to be set forth in Section
3.15 of the Company Disclosure Letter that is subject to Title IV or Part 3 of
Title I of ERISA or Section 412 of the Code (other than a Multiemployer Pension
Plan), (i) no reportable event (within the meaning of Section 4043 of ERISA,
other than an event for which the reporting requirements have been waived by
regulations) has occurred, (ii) there was not an accumulated funding deficiency
(within the meaning of Section 302 of ERISA or Section 412 of the Code), whether
or not waived, as of the most recently ended plan year of such ERISA Plan, (iii)
the aggregate amount of actuarial accrued liabilities (within the meaning of
section 412 of the Code) under all such ERISA Plans on a combined basis as of
the most recent plan year end, determined based on the actuarial value of assets
and the actuarial accrued liabilities that are used in conjunction with
determining the funding requirements for such ERISA Plans as reported in such
ERISA Plans' actuarial reports for such plan year, does not exceed the aggregate
actuarial value of the assets of such ERISA Plans, (iv) neither the Company, any
Subsidiary nor any ERISA Affiliate is required to provide security under Section
401(a)(29) of the Code, (v) all premiums (and interest, charges and penalties
for late payment, if applicable) have been paid when due to the Pension Benefit
Guaranty Corporation ("PBGC"), and (vi) no filing has been made by the Company,
any Subsidiary or any ERISA Affiliate with the PBGC and no proceeding has been
commenced by the PBGC to terminate any ERISA Plan and, to the knowledge of the
Company, no condition exists which could constitute grounds for the termination
of any such ERISA Plan by the PBGC.
(g) Except for the Subsidiaries, there are no other entities which are
considered one employer with the Company or a Subsidiary under Section
4001(b)(1) of ERISA or Section 414(b), (c), (m) or (o) of the Code.
SECTION 3.16. Labor and Employment Matters. Except as set forth in
Section 3.16 of the Company Disclosure Letter, neither the Company nor any of
the Subsidiaries is a party to, or bound by, any collective bargaining agreement
or other contracts, arrangements, agreements or understandings with a labor
union or labor organization that was certified by the National Labor Relations
Board ("NLRB"). Except as would not reasonably be expected to, individually or
in the aggregate, have a Company Material Adverse Effect, there is no existing,
pending or, to the knowledge of the Company, threatened (i) unfair labor
practice charge or complaint, labor dispute, labor arbitration proceeding or any
other matter before the NLRB or any other comparable state agency against or
involving the Company or any of the Subsidiaries, (ii) activity or proceeding by
a labor union or representative thereof to organize any employees of the Company
or any of the Subsidiaries, (iii) certification or decertification question
relating to collective bargaining units at the premises of the Company or any of
the Subsidiaries or (iv) lockout, strike, organized slowdown, work stoppage or
work interruption with respect to such employees. To the knowledge of the
Company, none of the Company, any of the Subsidiaries or any of their respective
representatives or employees has committed an unfair labor practice in
connection with the operation of the respective businesses of the Company or any
of the Subsidiaries, which would reasonably be expected to, individually or in
the aggregate, have a Company Material Adverse Effect. The Company and its
Subsidiaries are in compliance with all applicable Laws respecting labor,
employment, fair employment practices, terms and conditions of employment,
workers' compensation, occupational safety, plant closings and wages and hours,
except where such failure would not reasonably be expected to, individually or
in the aggregate, have a Company Material Adverse Effect. Except as set forth in
Section 3.16 of the Company Disclosure Letter, there are no material
controversies pending or, to the knowledge of the Company, threatened between
the Company, its Subsidiaries and any of its current or former employees which
have
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or could reasonably be expected to result in an action, suit, proceeding, claim,
arbitration or investigation before any Governmental Entity. The Company and its
Subsidiaries have properly accrued on its books and records all unpaid but
accrued wages, salaries and other paid time-off.
SECTION 3.17. Environmental Compliance and Disclosure. Except as set
forth in the Company SEC Reports filed prior to the date hereof or in Section
3.17 of the Company Disclosure Letter:
(a) Except where the failure to so possess, notify or comply would not
reasonably be expected to, individually or in the aggregate, have a Company
Material Adverse Effect, each of the Company and the Subsidiaries, and their
respective operations and facilities, to the knowledge of the Company, (i) have,
and maintain in full force and effect, all permits, licenses and authorizations
required by applicable Environmental Laws; (ii) have filed all notices required
by applicable Environmental Laws; and (iii) are in compliance with the
requirements of all applicable Environmental Laws;
(b) Neither the Company nor any Subsidiary has received any request for
information or any notice of actual or threatened material liability under the
Federal Comprehensive Environmental Response, Compensation and Liability Act, 42
USC 9601 et seq. ("CERCLA") or any similar state, local or foreign statute or
ordinance, or any other Environmental Laws, from any Governmental Entity or any
other person and, to the knowledge of the Company, there are no facts or
circumstances which could form the basis for the assertion of any claim against
the Company or any Subsidiary under any Environmental Laws including, without
limitation, CERCLA or any similar local, state or foreign Law with respect to
any on-site or off-site location, except where such claim would not reasonably
be expected to, individually or in the aggregate, have a Company Material
Adverse Effect.
(c) Except as would not reasonably be expected to, individually or in the
aggregate, have a Company Material Adverse Effect, neither the Company nor any
Subsidiary (i) has entered into or agreed to any consent decree or order or is
subject to any judgment, decree or judicial order relating to compliance with
Environmental Laws or the investigation, sampling, monitoring, treatment,
remediation, removal or cleanup of Hazardous Materials, and no investigation,
Litigation or other proceeding is pending or, to the knowledge of the Company,
threatened with respect thereto, (ii) has a contractual indemnification
obligation or indemnification obligation under Law in connection with any claim
pending or, to the knowledge of the Company, threatened by any third-party
indemnitee for any liability under any Environmental Law or relating to any
Hazardous Materials, or (iii) has entered into any agreement with any person
pursuant to which the Company has assumed responsibility for, or otherwise
agreed to contribute to the investigation, assessment or remediation of
conditions resulting from a release of Hazardous Materials into the indoor or
outdoor environment related to the handling of Hazardous Materials.
(d) None of the real property currently nor, to the knowledge of the
Company, formerly owned or leased by the Company or any Subsidiary is listed or,
to the knowledge of the Company, proposed for listing on the "National
Priorities List" under CERCLA, or any similar state list of sites requiring
investigation or cleanup.
(e) Except as would not reasonably be expected to, individually or in the
aggregate, have a Company Material Adverse Effect, to the knowledge of the
Company, no Hazardous Material has been released (as defined by CERCLA or any
other Environmental Law) into the air, soil or groundwater as a result of the
textile rental and envelope operations of the Company or any Subsidiary, or at,
from, under or on any facility currently or formerly owned or operated by the
Company or any Subsidiary that has resulted, or that could reasonably be
expected to result, in any remediation obligation to either the Company or any
Subsidiary.
As used in this Section 3.17, the term "Environmental Laws" means any and
all past and present federal, state, local or foreign laws (including common
law), statutes, codes, ordinances, rules, regulations or other legal obligations
applicable to protection of human health and the environment, including without
limitation, CERCLA, the Clean Air Act (42 USC Sections 7401 et seq.), the
Resource Conservation and Recovery Act (42 USC Sections 6901 et seq.), the Clean
Water Act (33 USC Sections 1251 et seq.), the
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Occupational Safety and Health Act (29 U.S.C. Sections 651 et seq.), the Toxic
Substance Control Act (15 USC Sections 2601 et seq.), and the Safe Drinking
Water Act (42 USC Sections 300f et seq.).
As used in this Section 3.17, the term "Hazardous Materials" means any
waste, pollutant, hazardous substance, hazardous waste, special waste,
controlled waste, petroleum or petroleum-derived waste or breakdown products,
chlorinated solvent or chlorinated solvent-derived waste or breakdown products,
asbestos-containing materials or polychlorinated biphenyls, or any other
material, whether liquid, solid or gas, which is regulated under any
Environmental Law.
SECTION 3.18. Intellectual Property.
(a) The Company or a Subsidiary owns, or possesses valid rights to use, all
patents, patent applications, trademarks, service marks, trade names, domain
names, copyrights, mask works, trade secrets and other confidential business and
technical information (collectively, "Intellectual Property") material to the
conduct of the business of the Company and the Subsidiaries as presently
conducted, except where the failure to own or to have such rights to use such
Intellectual Property would not reasonably be expected to, individually or in
the aggregate, have a Company Material Adverse Effect. To the knowledge of the
Company, the Company has not interfered with, infringed upon or misappropriated
any Intellectual Property rights of any other person, and the Company has not
received any notice of any conflict with or violation or infringement of, any
asserted rights of any other person with respect to any such Intellectual
Property owned or licensed by the Company or any Subsidiary, except for
conflicts or violations which, if determined adversely to the Company, would not
reasonably be expected to, individually or in the aggregate, have a Company
Material Adverse Effect. To the knowledge of the Company, no other person has
interfered with, infringed upon or misappropriated any material Intellectual
Property rights of the Company.
(b) The Company and the Subsidiaries own, or possess valid rights to, all
computer software programs that are material to the conduct of the business of
the Company and the Subsidiaries as presently conducted, except where the
failure to own such computer software programs or have such rights would not
reasonably be expected to, individually or in the aggregate, have a Company
Material Adverse Effect.
(c) All of the Company's licenses to use Intellectual Property of third
parties are in full force and effect, and, to the knowledge of the Company, no
party is in breach or default thereunder, except as would not reasonably be
expected to, individually or in the aggregate, have a Company Material Adverse
Effect.
SECTION 3.19. Brokers. Except pursuant to the Financial Advisor's
engagement letter with the Company, no broker, finder or investment banker is
entitled to any brokerage, finder's or other fee or commission in connection
with this Agreement, the Merger or the other transactions contemplated by this
Agreement based upon arrangements made by or on behalf of the Company. The
Company has provided to Buyer true and complete copies of the engagement letters
of the Financial Advisor and any other financial advisors employed by the
Company in connection with the transactions contemplated by this Agreement. All
fees and expenses under such engagement letters will be paid by the Company. The
Company's good faith estimates of the fees and expenses of any accountant,
broker, financial advisor, consultant, counsel or other person retained by the
Company or any Subsidiary in connection with this Agreement or the transactions
contemplated hereby incurred or to be incurred by the Company or any Subsidiary
have been previously provided to Buyer in writing, identified by category of
advisor.
SECTION 3.20. Insurance Policies. The Company has delivered to Buyer
prior to the date hereof a complete and accurate list of all insurance policies
in force naming the Company, any of its Subsidiaries or employees thereof as an
insured or beneficiary or as a loss payable payee or for which the Company or
any Subsidiary has paid or is obligated to pay all or part of the premiums. All
such insurance policies are in full force and effect, all premiums due and
payable thereon have been paid, and neither the Company nor any Subsidiary has
received notice of any pending or threatened cancellation or premium increase
(retroactive or otherwise) with respect thereto, except as noted on such list.
Each of the Company and the Subsidiaries is in compliance with all conditions
contained in such insurance policies, except where the
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failure to so comply would not reasonably be expected to, individually or in the
aggregate, have a Company Material Adverse Effect.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF BUYER
Buyer represents and warrants to the Company as follows:
SECTION 4.1. Organization and Standing. Buyer is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Delaware, and has full corporate power and authority to own, lease and operate
its properties and assets and to conduct its business as presently conducted.
SECTION 4.2. Authority for Agreement. Buyer has all necessary corporate
power and authority to execute and deliver this Agreement, to perform its
obligations hereunder and to consummate the Merger and the other transactions
contemplated by this Agreement. The execution, delivery and performance by Buyer
of this Agreement, and the consummation by Buyer of the Merger and the other
transactions contemplated by this Agreement, have been duly authorized by all
necessary corporate action and no other corporate proceedings on the part of
Buyer are necessary to authorize this Agreement or to consummate the Merger or
the other transactions contemplated by this Agreement, other than, with respect
to the Merger, the filing and recordation of appropriate merger documents as
required by the DGCL. This Agreement has been duly executed and delivered by
Buyer and, assuming due authorization, execution and delivery by the Company,
constitutes a legal, valid and binding obligation of Buyer enforceable against
Buyer in accordance with its terms.
SECTION 4.3. No Conflict. The execution and delivery of this Agreement by
Buyer does not, and the performance of this Agreement by Buyer and the
consummation of the Merger and the other transactions contemplated by this
Agreement will not, (i) conflict with or violate the certificate of
incorporation or bylaws of Buyer, (ii) conflict with or violate in any material
respect any Law applicable to Buyer or by which any property or asset of Buyer
is bound or affected, or (iii) result in any breach of or constitute a default
(or an event which with notice or lapse of time or both would become a default)
under, give to others any right of termination, amendment, acceleration or
cancellation of, or result in the creation of a lien or other encumbrance on any
property or asset of Buyer pursuant to, any note, bond, mortgage, indenture,
contract, agreement, lease, license, permit, franchise or other instrument or
obligation to which Buyer is a party or by which Buyer or any property or asset
of Buyer is bound or affected, except in the case of clause (iii) for any such
conflicts, violations, breaches, defaults or other occurrences which would not
reasonably be expected to, individually or in the aggregate, prevent or
materially delay the performance by Buyer of its obligations under this
Agreement or the consummation of the Merger or the other transactions
contemplated by this Agreement.
SECTION 4.4. Required Filings and Consents. The execution and delivery of
this Agreement by Buyer does not, and the performance of this Agreement by Buyer
will not, require any consent, approval, authorization or permit of, or filing
with or notification to, any Governmental Entity, except (i) for applicable
requirements, if any, of the Exchange Act, (ii) for filing and recordation of
appropriate merger documents as required by the DGCL, and (iii) for those
required by the HSR Act.
SECTION 4.5. Information Supplied. None of the information supplied or to
be supplied by Buyer for inclusion or incorporation by reference in the Proxy
Statement will, at the date such document is first published, sent or delivered
to Company Stockholders, 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 made therein, in light of the circumstances under which
they were made, not misleading. Notwithstanding the foregoing, no representation
or warranty is made by Buyer with respect to statements made or incorporated by
reference therein based on information supplied by the Company for inclusion or
incorporation by reference in the foregoing document.
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SECTION 4.6. Brokers. No broker, finder or investment banker is entitled
to any brokerage, finder's or other fee or commission payable by Buyer in
connection with this Agreement, the Merger or the other transactions
contemplated by this Agreement based upon arrangements made by or on behalf of
Buyer.
SECTION 4.7. No Prior Activities; Financing.
(a) Buyer was formed solely for the purpose of engaging in the transactions
contemplated by this Agreement. Except for obligations or liabilities incurred
in connection with its organization and the transactions contemplated by this
Agreement, Buyer has no material obligations or liabilities and has not engaged
in any business activities of any type or kind whatsoever.
(b) Buyer has received commitment letters in the form attached hereto as
Schedule 4.7(b) (the "Debt Commitment Letters"), which have been executed by the
lenders specified therein and presented to Buyer for signature. Upon execution
by Buyer, each of the Debt Commitment Letters will be in full force and effect
subject to the terms and conditions set forth therein, all commitment fees
required to be paid thereunder will have been paid in full or will be duly paid
in full when due, and no event has occurred which (with or without notice, lapse
of time or both) would constitute a default thereunder on the part of Buyer. The
funds to be made available under the Debt Commitment Letters will be sufficient
(together with the funds described in Section 4.7(c)), to enable Buyer to pay
the aggregate Merger Consideration for the shares of the Company Common Stock
pursuant to the Merger and to pay all of its fees and expenses related to the
transactions contemplated by this Agreement.
(c) Buyer has delivered to the Company a commitment letter in the form
attached hereto as Schedule 4.7(c) (the "Equity Commitment Letter"), which has
been executed by Buyer and the other parties specified therein (the "Buyer
Affiliates"). Upon its execution by the Company, the Equity Commitment Letter
will be in full force and effect subject to the terms and conditions set forth
therein, enforceable against the parties thereto in accordance with its terms.
The Equity Commitment Letter provides for, subject to the terms and conditions
set forth therein and in this Agreement, (i) the contribution to Buyer of $20
million in cash, which amount consists of the proceeds of a loan to be secured
on a first priority basis by the assets (the "Buyer Assets") described in the
Equity Commitment Letter, and (ii) from and after the Effective Time, the pledge
for the benefit of the Surviving Corporation of the Buyer Affiliates' right,
title and interest in and to the Buyer Assets (subject to the rights of the
lender under the loan described in clause (i) above), when and as necessary, in
the Surviving Corporation's determination, to satisfy the obligations of the
Surviving Corporation.
SECTION 4.8. Ownership of Company Common Stock. Neither Buyer nor any of
its "affiliates" or "associates" "own" (as such terms are defined in Section 203
of the DGCL) any shares of Company Common Stock.
ARTICLE V
COVENANTS
SECTION 5.1. Conduct of the Business Pending the Merger.
(a) The Company covenants and agrees that between the date of this
Agreement and the Effective Time unless Buyer shall otherwise agree in writing,
(i) the business of the Company and the Subsidiaries shall be conducted only in,
and the Company and the Subsidiaries shall not take any action except in, the
ordinary course of business and in a manner consistent with prior practice, (ii)
the Company and the Subsidiaries shall use commercially reasonable efforts to
preserve intact their business organizations, to keep available the services of
their current officers and employees and to preserve the current relationships
of the Company and the Subsidiaries with customers, suppliers and other persons
with which the Company or the Subsidiaries have business relations, and (iii)
the Company and the Subsidiaries will comply in all material respects with all
applicable Laws and regulations wherever their business is conducted, including,
without limitation, the timely filing of all reports, forms or other documents
with the SEC required pursuant to the Securities Act, the Exchange Act or the
Sarbanes-Oxley Act.
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(b) The Company covenants and agrees that between the date of this
Agreement and the Effective Time, unless Buyer shall otherwise agree in writing,
the Company shall not, nor shall the Company permit any of the Subsidiaries to,
(i) declare or pay any dividends on or make other distributions (whether in
cash, stock or property) in respect of any of their capital stock, except for
quarterly dividends consistent with past practice and for dividends by a wholly
owned Subsidiary to the Company or another wholly owned Subsidiary; (ii) split,
combine or reclassify any of their capital stock or issue or authorize or
propose the issuance of any other securities in respect of, in lieu of or in
substitution for shares of their capital stock; (iii) repurchase or otherwise
acquire any shares of their capital stock; (iv) issue, deliver or sell, or
authorize or propose the issuance, delivery or sale of, any shares of their
capital stock or any securities convertible into any such shares of their
capital stock, or any rights, warrants or options to acquire any such shares or
convertible securities or any stock appreciation rights, phantom stock plans or
stock equivalents, other than the (A) issuance of shares of Company Common Stock
upon the exercise of Company Options outstanding as of the date of this
Agreement and the issuance of restricted shares of Company Common Stock pursuant
to outstanding Company Restricted Stock Awards and (B) issuance of shares of
Company Common Stock pursuant to purchase rights outstanding as of the date of
this Agreement under the ESPP and (C) acquisitions of Company Common Stock by
Company Benefit Plans that are 401(k) plans; or (v) take any action that would,
or could reasonably be expected to, result in any of the conditions set forth in
Article VI not being satisfied.
(c) The Company covenants and agrees that between the date of this
Agreement and the Effective Time, unless Buyer shall otherwise agree in writing
or as otherwise contemplated by this Agreement, the Company shall not, nor shall
the Company permit any of the Subsidiaries to, (i) amend its certificate of
incorporation (including any certificate of designations attached thereto) or
bylaws or other equivalent organizational documents; (ii) create, assume or
incur any indebtedness for borrowed money or guaranty any such indebtedness of
another person, other than trade payables incurred in the ordinary course of
business consistent with past practice; (iii) make any loans or advances to any
other person other than loans or advances between any Subsidiaries of the
Company or between the Company and any of the Subsidiaries; (iv) mortgage or
pledge any of its assets or properties (other than in the ordinary course of
business consistent with past practice); (v) merge or consolidate with any other
entity in any transaction or acquire any business or assets (other than assets
acquired in the ordinary course of business consistent with past practice); (vi)
sell any business or assets (other than inventory sold in the ordinary course of
business consistent with past practice) in a single transaction or series of
transactions in which the aggregate consideration is $500,000 or greater; (vii)
change its accounting policies except as required by GAAP; (viii) except as
contemplated by this Agreement with respect to any Benefit Agreement, make any
change in employment terms for any of its directors, officers, employees or
consultants which would create material additional Company liability; (ix)
except as contemplated by this Agreement with respect to any Benefit Agreement,
alter, amend or enter into any agreement which would create any material
obligations (including entering into any agreements with respect to any
aspiration achievement incentive awards) with respect to compensation,
severance, benefits, change of control payments or any other payments to
employees, officers, directors, affiliates or consultants of the Company or the
Subsidiaries; (x) except as required by Law or required for a merger of any
Company Benefit Plans or as contemplated by this Agreement, make any material
change to the Company Benefit Plans; (xi) amend or cancel or agree to the
amendment or cancellation of any Material Contract; (xii) pay, loan or advance
(other than the payment of compensation, directors' fees or reimbursement of
expenses in the ordinary course of business consistent with past practice) any
amount to, or sell, transfer or lease any properties or assets (real, personal
or mixed, tangible or intangible) to, or enter into any agreement with, any of
its officers or directors or any "affiliate" or "associate" of any of its
officers or directors; (xiii) form or commence the operations of any business or
any corporation, partnership, joint venture, business association or other
business organization or division thereof; (xiv) make any material tax election
or settle or compensate any tax liability involving amounts in excess of
$100,000 in the aggregate; (xv) make any capital expenditures which are in
excess of $250,000; (xvi) enter into any agreements providing for payments
(other than in the ordinary course of business consistent with past practice)
which are in excess of $250,000; (xvii) pay, discharge, settle or satisfy any
claims, liabilities or obligations (absolute, accrued, asserted or unasserted,
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contingent or otherwise), or litigation (whether or not commenced prior to the
date of this Agreement), or modify the terms of any existing settlement
agreement or arrangement (other than in amounts not exceeding, net of expected
insurance recovery, an aggregate of $500,000); (xviii) enter into, modify or
extend any collective bargaining agreement or other contract, arrangement,
agreement or understanding with a labor union or labor organization; (xix)
cancel any material indebtedness, or waive or assign any material claims or
material rights; (xx) except as contemplated by Section 3.3(c), amend the Rights
Agreement or take any action with respect to, or make any determination under,
the Rights Agreement, including a redemption of the Rights to facilitate an
Acquisition Proposal (as hereinafter defined); or (xxi) authorize, or commit,
resolve or agree to take, any of the foregoing actions.
SECTION 5.2. Access to Information; Confidentiality. From the date hereof
to the Effective Time, the Company shall, and shall cause the officers,
directors, employees, auditors, attorneys, financial advisors, lenders and other
agents (collectively, the "Representatives") of the Company to, afford the
Representatives of Buyer reasonable access at all reasonable times to the
officers, employees, agents, properties, offices and other facilities, books and
records of the Company and the Subsidiaries, and shall furnish Buyer with all
financial, operating and other data and information as Buyer, through its
Representatives, may reasonably request. Notwithstanding the foregoing, any
investigation shall be conducted in such a manner so as not unreasonably
interfere with the business and operations of the Company and the Subsidiaries.
The Company shall provide the Representatives of Buyer reasonably adequate
office space at the Company's facilities from which to conduct such
investigation. Buyer will remain subject to the terms of a confidentiality
agreement with the Company dated December 20, 2002, as amended (the
"Confidentiality Agreement").
SECTION 5.3. Notification of Certain Matters. The Company shall give
prompt notice to Buyer, and Buyer shall give prompt notice to the Company, of
(i) the occurrence, or nonoccurrence, of any event which would be likely to
cause any representation or warranty contained in this Agreement to be
materially untrue or materially inaccurate and (ii) any failure by such party to
materially comply with or materially satisfy any covenant, condition or
agreement to be complied with or satisfied by it hereunder; provided, however,
that the delivery of any notice pursuant to this Section 5.3 shall not limit or
otherwise affect the remedies available hereunder to the party receiving such
notice.
SECTION 5.4. Further Assurances.
(a) Upon the terms and subject to the conditions hereof, each of the
parties hereto shall use all commercially reasonable efforts to take, or cause
to be taken, all appropriate action, and to do, or cause to be done, all things
necessary, proper or advisable under Law to make effective the Merger and the
other transactions contemplated by this Agreement, including, without
limitation, using all commercially reasonable efforts to obtain all licenses,
permits, consents, approvals, authorizations, qualifications and orders of each
Governmental Entity and parties to contracts with the Company and the
Subsidiaries as are necessary for the consummation of the Merger and the other
transactions contemplated by this Agreement and to fulfill the conditions set
forth in Article VI. If at any time after the Effective Time any further action
is necessary or desirable to carry out the purposes of this Agreement, the
proper officers of each party to this Agreement and the Surviving Corporation
shall use all commercially reasonable efforts to take all such action.
(b) In connection with, and without limiting the foregoing, the Company
shall (i) take all actions necessary to ensure that no state antitakeover
statute or similar statute or regulation is or becomes operative with respect to
this Agreement, the Merger or any other transactions contemplated by this
Agreement and (ii) if any state antitakeover statute or similar statute or
regulation is or becomes operative with respect to this Agreement, the Merger or
any other transaction contemplated by this Agreement, take all actions necessary
to ensure that this Agreement, the Merger and any other transactions
contemplated by this Agreement may be consummated as promptly as practicable on
the terms contemplated by this Agreement and otherwise to minimize the effect of
such statute or regulation on the Merger and the other transactions contemplated
by this Agreement.
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SECTION 5.5. No Solicitation of Transactions.
(a) Subject to the provisions of Section 5.8 and this Section 5.5, neither
the Company nor any Subsidiary shall, directly or indirectly, take (and the
Company shall not authorize or permit its Representatives to take) any action to
(i) encourage (including by way of furnishing non-public information), solicit,
initiate or facilitate any Acquisition Proposal (as hereinafter defined), (ii)
unless this Agreement shall be terminated by the Company pursuant to Section
7.1(i) hereof, enter into any agreement, arrangement or understanding with
respect to any Acquisition Proposal or enter into any agreement, arrangement or
understanding requiring it to abandon, terminate or fail to consummate the
Merger or any other transaction contemplated by this Agreement or (iii)
participate in any way in discussions or negotiations with, or furnish any
information to, any person (other than Buyer and its Representatives) in
connection with, or take any other action to facilitate any inquiries or the
making of any proposal that constitutes, or would reasonably be expected to lead
to, any Acquisition Proposal; provided, however, that, at any time prior to
obtaining the Company Stockholders' approval of this Agreement and, so long as
neither the Company nor any Subsidiary nor any of their Representatives shall
have breached any of the provisions of this Section 5.5(a), the Company may, in
response to an Acquisition Proposal that the Company's Board, after consultation
with the Financial Advisor, determines could reasonably lead to a Superior
Proposal and subject to the Company's compliance with Section 5.5(b), (A)
furnish information with respect to the Company and the Subsidiaries to the
person making such Acquisition Proposal pursuant to a customary confidentiality
agreement the terms of which are no more favorable to the other party to such
confidentiality agreement than those in place with Buyer, (B) participate in
discussions or negotiations with respect to such Acquisition Proposal, and (C)
terminate this Agreement pursuant to Section 7.1(i) hereof and enter into an
agreement, arrangement or understanding with respect to such Acquisition
Proposal. For so long as this Agreement shall not have been terminated in
accordance with its terms, the Company's Board of Directors shall not redeem the
Rights or waive or amend any provision of the Rights Agreement, in any such case
to permit or facilitate the consummation of any Acquisition Proposal.
(b) The Company shall, as promptly as practicable (and in no event later
than 48 hours after receipt thereof), advise Buyer of any inquiry received by it
relating to any Acquisition Proposal and of the material terms of any proposal
or inquiry (other than the identity of the person making the same) that it may
receive in respect of any such Acquisition Proposal, or of any information
requested from it or of any negotiations or discussions being sought to be
initiated with it, shall furnish to Buyer a copy of any such proposal or
inquiry, if it is in writing, or an oral summary of any such proposal or
inquiry, if it is not in writing, and shall keep Buyer fully informed on a
prompt basis with respect to any developments with respect to the foregoing.
(c) Neither the Company's Board of Directors nor any committee thereof
shall (i) withdraw or modify, or propose publicly to withdraw or modify, in a
manner adverse to Buyer, the approval or recommendation by the Company's Board
or such committee of the approval of this Agreement, (ii) other than the Merger,
approve or recommend, or propose publicly to approve or recommend, any
Acquisition Proposal, or (iii) other than the Merger, cause the Company to enter
into any letter of intent, agreement in principle, acquisition agreement or
other similar agreement related to any Acquisition Proposal (other than a
confidentiality agreement described in Section 5.5(b)). Nothing contained in
this Section 5.5(c) shall prohibit the Company or the Company's Board of
Directors from (A) taking and disclosing to its stockholders a position
contemplated by Rule 14d-9 or Rule 14e-2 promulgated under the Exchange Act, (B)
making any disclosure required by Rule 14a-9 promulgated under the Exchange Act
or (C) notwithstanding anything to the contrary contained herein, in the event
that the Company's Board of Directors determines in good faith that such action
would be in the best interests of the Company Stockholders, withdrawing or
modifying its recommendation (a "Subsequent Determination") of this Agreement no
earlier than three (3) business days following the day of delivery of written
notice to Buyer of its intention to do so; provided that the Company continues
to comply with all other provisions of this Agreement; and provided, further,
that, during such three business day period, the Company, if requested by Buyer,
negotiates in good faith with Buyer to make such adjustments to the terms and
conditions of
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this Agreement, if any, as would enable the Company's Board of Directors to
recommend this Agreement on such adjusted terms.
(d) For purposes of this Agreement, "Acquisition Proposal" means any offer
or proposal concerning any (i) merger, consolidation, business combination or
similar transaction involving the Company or any Subsidiary, (ii) sale, lease or
other disposition directly or indirectly by merger, consolidation, business
combination, share exchange, joint venture or otherwise of assets of the Company
or any Subsidiary representing 50% or more of the consolidated assets of the
Company and the Subsidiaries, (iii) issuance, sale or other disposition of
(including by way of merger, consolidation, business combination, share
exchange, joint venture or any similar transaction) securities (or options,
rights or warrants to purchase, or securities convertible into or exchangeable
for such securities) representing 50% or more of the voting power of the
Company, (iv) transaction in which any person shall acquire beneficial
ownership, or the right to acquire beneficial ownership or any group shall have
been formed which beneficially owns or has the right to acquire beneficial
ownership of 50% or more of the outstanding voting capital stock of the Company
or (v) any combination of the foregoing (other than the Merger).
(e) For purposes of this Agreement, "Superior Proposal" means any bona fide
Acquisition Proposal made by a third party which, in the good faith judgment of
the Company's Board of Directors, taking into account the various legal,
financial and regulatory aspects of the proposal and the person making such
proposal (i) if accepted, is reasonably likely to be consummated, and (ii) if
consummated would, based upon advice of the Financial Advisor, result in a
transaction that is more favorable to the Company's stockholders, from a
financial point of view, than the transactions contemplated by this Agreement.
SECTION 5.6. Stockholder Litigation. The Company shall give Buyer the
reasonable opportunity to participate in the defense or settlement of any
stockholder Litigation against the Company and/or its directors relating to the
transactions contemplated by this Agreement or the Merger, and no such
settlement shall be agreed to by the Company without Buyer's prior written
consent, which consent shall not be unreasonably withheld or delayed.
SECTION 5.7. Indemnification, Exculpation and Insurance.
(a) Notwithstanding anything to the contrary herein, it is understood and
agreed that all rights (the "Indemnification Rights") to indemnification and
exculpation by the Company now existing in favor of each present and former
director and officer of the Company or the Subsidiaries (the "Indemnified
Parties") as provided in the Company Certificate of Incorporation or the Company
Bylaws, in each case as in effect on the date of this Agreement, or pursuant to
any other agreements in effect on the date hereof, shall survive the Merger, and
the Surviving Corporation shall (i) continue the Indemnification Rights in full
force and effect for a period of at least six (6) years from the Effective Time
and (ii) perform, in a timely manner, all of its obligations with respect to the
Indemnification Rights. Any claims for indemnification hereunder as to which the
Surviving Corporation has received written notice prior to the sixth anniversary
of the Effective Time shall survive, whether or not such claims shall have been
finally adjudicated or settled.
(b) Prior to the Effective Time, the Company shall purchase and pre-pay in
full "tail" directors' and officers' liability insurance providing for coverage
with respect to matters occurring prior to the Effective Time for six (6) years
from the Effective Time, which coverage is reasonably equivalent in scope and
amount to the Company directors' and officers' liability insurance policies in
place on the date of this Agreement; provided, however, that the Company shall
not, without Buyer's prior written consent, pay or agree to pay an aggregate
premium for such insurance in excess of $1,700,000.
(c) If 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 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 and assigns of the Surviving Corporation shall assume the obligations
set forth in this Section 5.7.
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SECTION 5.8. Public Announcements. Buyer and the Company shall consult
with each other before issuing any press release or otherwise making any public
statements with respect to this Agreement or the Merger and shall not issue any
such press release or make any such public statement prior to such consultation,
except as may be required by Law or any listing agreement with a national
securities exchange or trading system to which Buyer or the Company is a party.
Notwithstanding anything contained in this Agreement to the contrary, any press
release or other public statement issued by the Company shall be permitted to
state that the Board of Directors of the Company is permitted to receive and
consider Acquisition Proposals in accordance with and subject to the terms of
this Agreement. Such press release or statement shall not be deemed to be a
violation of the Company's or the Company's Board of Director's obligations
under this Agreement and any Acquisition Proposals received in response thereto
shall be considered "unsolicited" by the Company for all purposes under this
Agreement and may be reviewed and considered by the Board of Directors of the
Company in accordance with and subject to the terms of this Agreement.
SECTION 5.9. Company Stockholders' Meeting.
(a) The Company shall cause the date of the Stockholders' Meeting to be set
for a date as soon as practicable (in no event later than forty-five (45) days
from the date on which the Proxy Statement is cleared by the SEC) for the
purpose of voting on the approval and adoption of this Agreement and the Merger.
The Company shall take all action necessary in accordance with applicable Law
and the Company Certificate of Incorporation and Company Bylaws to duly call,
give notice of, and convene the Stockholders' Meeting. Unless the Board of
Directors shall have made a Subsequent Determination, the Company shall solicit
from holders of shares of Company Common Stock entitled to vote at the
Stockholders' Meeting proxies in favor of such approval and shall take all other
action necessary to secure the vote or consent of such holders required by the
DGCL or this Agreement to effect the Merger.
(b) Unless required by applicable Law or by a court of competent
jurisdiction, without the consent of Buyer, the Company shall not (i) postpone
or reschedule the date of the Stockholders' Meeting once it has been fixed by
the Board of Directors as set forth in the preceding paragraph or (ii) adjourn
the Stockholders' Meeting without taking a vote with respect to the Merger. In
the event that following the taking of a vote with respect to the Merger at the
Stockholders' Meeting, additional time is required to count the proxies and
ballots submitted at the Stockholders' Meeting, the Stockholders' Meeting may be
adjourned solely for the purpose of counting such proxies and ballots and
announcing the final results of the voting on the Merger. In the event that the
Company postpones, reschedules or adjourns the Stockholders' Meeting in a manner
permitted by the preceding sentences, the Company shall convene or reconvene, as
the case may be, the Stockholders' Meeting as soon as practicable thereafter.
(c) Notwithstanding anything contained in this Agreement to the contrary,
the Company may, if it receives an unsolicited Acquisition Proposal, delay the
holding of the Stockholders' Meeting or the mailing of the Proxy Statement, in
each case for such time as is necessary for the Board of Directors of the
Company to consider such Acquisition Proposal and to determine the effect, if
any, on its recommendation of the Merger and this Agreement; provided, that, any
such delay shall not extend beyond the earlier of (i) twenty (20) business days
or (ii) the latest date as would permit the Closing to occur by the Outside
Date.
SECTION 5.10. Proxy Statement. The Company will as promptly as
practicable following the execution of this Agreement (in no event later than
fourteen (14) days thereafter) prepare and file the Proxy Statement with the
SEC, in form and substance reasonably acceptable to Buyer, and will use all
commercially reasonable efforts to respond to the comments of the SEC and to
cause the Proxy Statement to be mailed to the Company Stockholders at the
earliest practical time. Buyer and the Company shall furnish all information
concerning it as the other may reasonably request in connection with such
actions. Each party to this Agreement will notify the other parties and the
Board of Directors of the Company promptly of the receipt of the comments of the
SEC, if any, and of any request by the SEC for amendments or supplements to the
Proxy Statement or for additional information with respect thereto, and will
supply the other parties with copies of all correspondence between such party or
its Representatives,
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on the one hand, and the SEC or members of its staff, on the other hand, with
respect to the Proxy Statement or the Merger. If (A) at any time prior to the
Stockholders' Meeting, any event should occur relating to the Company or any of
its Subsidiaries which should be set forth in an amendment of, or a supplement
to, the Proxy Statement, the Company will promptly inform Buyer and (B) if at
any time prior to the Stockholders' Meeting, any event should occur relating to
Buyer or any of its associates or affiliates, or relating to the plans of any
such persons for the Company after the Effective Time that should be set forth
in an amendment of, or a supplement to, the Proxy Statement, Buyer will promptly
inform the Company, and in the case of (A) or (B) the Company and Buyer, will,
upon learning of such event, promptly prepare, and the Company shall file and,
if required, mail such amendment or supplement to the Company Stockholders;
provided, prior to such filing or mailing, the Company and Buyer shall consult
with each other with respect to such amendment or supplement and shall
incorporate the other's comments thereon. The Proxy Statement shall (subject to
Section 5.5(c)) include the recommendation of the Company's Board of Directors
that the Company Stockholders vote to approve the Merger, this Agreement and the
transactions contemplated hereby and that the Company's Board has determined
that the Merger is advisable.
SECTION 5.11. Director Resignations. The Company shall cause to be
delivered to Buyer resignations of all the directors of the Subsidiaries to be
effective upon the consummation of the Merger or at such earlier time as may be
agreed by the parties hereto. The Company shall cause such directors, prior to
resignation, to appoint new directors nominated by Buyer to fill such vacancies.
SECTION 5.12. No Acquisition of Company Common Stock. Prior to the
Effective Time, neither Buyer nor any of its "affiliates" or "associates" shall
become the "owner" (as such terms are defined in Section 203 of the DGCL) of any
shares of Company Common Stock.
SECTION 5.13. Employee Matters.
(a) Subject to the terms of any applicable collective bargaining agreement,
for a period of not less than one (1) year following the Effective Time, the
Surviving Corporation shall provide all individuals who are employees of the
Company and the Subsidiaries (including employees who are not actively at work
on account of illness, disability or leave of absence) immediately prior to the
Effective Time (the "Affected Employees") with compensation and benefits which
are substantially comparable in the aggregate to the compensation and benefits
provided to such Affected Employees as of the date of this Agreement; provided
that neither Buyer nor the Surviving Corporation shall have any obligation to
issue, or adopt any plans or arrangements providing for the issuance of, shares
of capital stock, warrants, options or other rights in respect of any shares of
capital stock of any entity or any securities convertible or exchangeable into
such shares pursuant to any such plans or arrangements; provided, further, that
no plans or arrangements of the Company or any of the Subsidiaries providing for
such issuance shall be taken into account in determining whether employee
benefits are substantially comparable in the aggregate. With respect to each
employee benefit plan, program or policy of the Surviving Corporation or Buyer
or any of its affiliates, each Affected Employee shall be given credit under
such plan for all service with the Company or any Subsidiary prior to the
Effective Time for all purposes under such plan. Such prior service shall also
apply for purposes of satisfying any waiting periods, evidence of insurability
requirements or the application of any preexisting condition limitations.
Subject to the terms and conditions of this Agreement, with respect to any
severance protection agreement or arrangement, or employment letter or
agreement, providing for compensation or benefits to an employee of the Company
after termination of employment, the Surviving Corporation shall confirm in
writing that it shall pay and perform all of the obligations of the Company
pursuant to such agreements and arrangements.
(b) With respect to the ESPP, the Company shall take all actions necessary
to provide that (i) the ESPP shall be terminated on a date following the date of
this Agreement and no offerings shall be permitted after such date, and (ii)
each participant's accumulated payroll deductions may be returned to the
participant or may be used to purchase shares of Company Common Stock prior to
the Effective Time in accordance with the terms of the ESPP.
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(c) Nothing contained in this Section 5.13 or elsewhere in this Agreement
shall be construed to prevent the termination of employment of any individual
Affected Employee (subject to the Affected Employee's right to receive any
compensation or benefits to which he or she is entitled) or, subject to Section
5.13, any change in the employee benefits available to any individual Affected
Employee or the amendment or termination of any particular Company Benefit Plan
or Benefit Agreement to the extent permitted by its terms as in effect
immediately prior to the Effective Time.
(d) The Company shall enter into Employment Agreements, to be effective as
of the Effective Time, with Carol Morgan, Gene Laminack, J. Randolph Zook and
Richard LeBer in substantially the form attached hereto as Exhibit 5.13(d). The
Company shall enter into agreements with Brock A. Hattox and Chester J.
Popkowski, effective immediately after the Effective Time, in form and substance
as reasonably agreeable to the parties hereto.
(e) The Company shall use its commercially reasonable efforts to obtain the
surrender of each Company Option by the holders thereof on or prior to the
Effective Time for treatment or payment in accordance with Section 1.7.
(f) Prior to the Effective Time, the Company shall take all action
necessary and proper to merge the National Service Industries Pension Plan A for
Employees Covered by a Collective Bargaining Agreement and the Pension Plan
Covering Certain Hourly Employees of National Linen Service, and if the Company
deems it desirable, the National Service Industries Pension Plan B with and into
the Pension Plan of AECO Products Division of National Service Industries, Inc.
(the "AECO Pension Plan"), in accordance with the requirements of ERISA and the
Code, with the AECO Pension Plan being the surviving plan.
SECTION 5.14. Rights Agreement. The Company shall take all further
actions (in addition to that referred to in Section 3.3(c)), if any, necessary
in order to render the Rights Agreement inapplicable to the Merger and the other
transactions contemplated by this Agreement.
SECTION 5.15. Commitment Letters. Buyer shall execute the Debt Commitment
Letters immediately following the execution and delivery of this Agreement by
the Company. Buyer shall use commercially reasonable efforts to obtain the
financing as set forth in the Debt Commitment Letters and the Equity Commitment
Letter (collectively, the "Commitment Letters") and to satisfy the conditions
set forth in the Commitment Letters or the related financing agreements. Buyer
shall provide prompt written notice to the Company of any lender's or other
party's refusal or stated intent to refuse to provide the financing described in
the Commitment Letters and, in each case, the stated reasons therefor. In any
such event, Buyer shall use commercially reasonable efforts to find substitute
financing for such financing as promptly as possible; provided, that any such
substitute financing shall be on terms and conditions no less favorable to Buyer
than the terms and conditions of the financing so substituted.
ARTICLE VI
CONDITIONS
SECTION 6.1. Conditions to the Obligation of Each Party. The respective
obligations of Buyer and the Company to effect the Merger are subject to the
satisfaction of the following conditions, unless waived in writing by all
parties:
(a) This Agreement and the Merger shall have been approved and adopted by
the requisite vote of the Company Stockholders;
(b) No temporary restraining order, preliminary or permanent injunction or
other order issued by any court of competent jurisdiction or other legal
restraint or prohibition preventing the consummation of the Merger shall be in
effect;
(c) There shall not be overtly threatened, instituted or pending any
action, proceeding, application or counterclaim by any Governmental Entity
before any court or governmental regulatory or administrative
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agency, authority or tribunal which challenges or seeks to challenge, restrain
or prohibit the consummation of the Merger; and
(d) All actions by or in respect of or filings with any Governmental Entity
required to permit the consummation of the Merger shall have been obtained or
made (including the expiration or termination of any applicable waiting period
under the HSR Act).
SECTION 6.2. Conditions to Obligations of Buyer to Effect the Merger. The
obligations of Buyer to effect the Merger are further subject to satisfaction or
waiver at or prior to the Closing of the following conditions:
(a) The representations and warranties of the Company in this Agreement
that are qualified by materiality shall be true and correct in all respects as
of the date of this Agreement and as of the Closing Date, except to the extent
any such representation or warranty is expressly made as of a specific date, in
which case such representation or warranty shall have been true and correct in
all respects as of such date;
(b) The representations and warranties of the Company in this Agreement
that are not qualified by materiality shall be true and correct in all material
respects as of the date of this Agreement and as of the Closing Date, except to
the extent any such representation or warranty is expressly made as of a
specific date, in which case such representation or warranty shall have been
true and correct in all respects as of such date;
(c) The Company shall have performed in all material respects all
obligations required to be performed by it under this Agreement;
(d) The Company shall have delivered to Buyer a certificate to the effect
that each of the conditions specified in (a), (b) and (c) above is satisfied in
all respects;
(e) Since the date of this Agreement, there shall not have occurred any
Company Material Adverse Effect or any event or development that would
reasonably be expected to, individually or in the aggregate, have a Company
Material Adverse Effect;
(f) Buyer shall have received the proceeds of the financing pursuant to the
Commitment Letters;
(g) The total number of Dissenting Shares shall not exceed ten percent
(10%) of the outstanding shares of Company Common Stock at the Effective Time;
(h) The Company shall have received an opinion of King & Spalding LLP, in
form and substance reasonably satisfactory to Buyer, to the effect that the
opinions contained in the tax opinion rendered by King & Spalding LLP to the
Company on April 1, 2003 remain the opinions of King & Spalding LLP as of the
Effective Time;
(i) The Company shall have obtained the surrender of each Company Option by
the holders thereof for treatment or payment in accordance with Section 1.7;
(j) There shall not have been entered by the United States Court of Appeals
for the Second Circuit any judgment or order in the litigation matter referred
to in Section 6.2(j) of the Company Disclosure Letter that results in the
Company being required to pay amounts in excess of $1,000,000;
(k) There shall not have been entered by any court a final, nonappealable
judgment or order against the Company requiring payment by the Company of
amounts in excess of $1,000,000 that are not covered by insurance; provided that
Section 6.2(j) above shall govern any judgment or order entered in the
litigation matter referred to in Section 6.2(j) of the Company Disclosure
Letter;
(l) The Tax Disaffiliation Agreement shall have been amended by the parties
thereto to clarify the obligations of the Company under Section 2.03 of the Tax
Disaffiliation Agreement on such terms and conditions as shall be reasonably
acceptable to Buyer; and
(m) The Company and Brock A. Hattox and the Company and Chester J.
Popkowski shall have entered into the agreements referred to in Section 5.13(d).
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SECTION 6.3. Conditions to Obligations of the Company to Effect the
Merger. The obligations of the Company to effect the Merger are further subject
to satisfaction or waiver at or prior to the Closing of the following
conditions:
(a) The representations and warranties of Buyer in this Agreement that are
qualified by materiality shall be true and correct in all respects as of the
date of this Agreement and as of the Closing Date;
(b) The representations and warranties of Buyer in this Agreement that are
not qualified by materiality shall be true and correct in all material respects
as of the date of this Agreement and as of the Closing Date;
(c) Buyer shall have performed in all material respects all obligations
required to be performed by it under this Agreement;
(d) Buyer shall have delivered to the Company a certificate to the effect
that each of the conditions specified in (a), (b) and (c) above is satisfied in
all respects; and
(e) The Board of Directors of the Company shall have received a solvency
opinion from a nationally-recognized financial advisor, in form and substance
reasonably satisfactory to the Board, which opinion shall be as of the Effective
Time.
ARTICLE VII
TERMINATION, AMENDMENT AND WAIVER
SECTION 7.1. Termination. This Agreement may be terminated and the Merger
may be abandoned at any time prior to the Closing, whether before or after
approval of matters presented in connection with the Merger by the Company
Stockholders:
(a) By mutual written consent of duly authorized representatives of Buyer
and the Company;
(b) By Buyer or the Company if any court of competent jurisdiction or other
Governmental Entity shall have issued an order, decree, ruling or taken any
other action permanently restraining, enjoining or otherwise prohibiting the
Merger and such order, decree, ruling or other action shall have become final
and nonappealable;
(c) By Buyer or the Company if the Merger shall not have been consummated
on or before September 30, 2003 (the "Outside Date"); provided, however, that
the right to terminate this Agreement under this Section 7.1(c) shall not be
available to any party whose failure to fulfill any obligation under this
Agreement has been the primary cause of, or resulted in, the failure to
consummate the Merger on or before such date;
(d) By Buyer if the Board of Directors of the Company (i) shall have
withdrawn or shall have modified in a manner adverse to Buyer its approval or
recommendation of the Merger or this Agreement, (ii) causes the Company to enter
into an agreement with respect to an Acquisition Proposal, (iii) shall have
endorsed, approved or recommended any Acquisition Proposal, (iv) shall have
redeemed the Rights, or waived or amended any provision of the Rights Agreement,
in any such case to permit or facilitate the consummation of any Acquisition
Proposal, or (v) shall have resolved to do any of the foregoing;
(e) By Buyer if (i) a tender offer or exchange offer that, if successful,
would result in any person or group becoming a beneficial owner of 50% or more
of the outstanding shares of Company Common Stock is commenced (other than by
Buyer or an affiliate of Buyer) and the Company's Board fails within ten (10)
days of commencement of such tender offer to recommend that the Company
Stockholders not tender their shares in such tender or exchange offer or (ii)
for any reason the Company fails to call and hold the Stockholders' Meeting by
the Outside Date;
(f) By the Company or Buyer, if this Agreement and the Merger shall fail to
be approved and adopted by the Company Stockholders at the Stockholders' Meeting
by reason of the failure to obtain the required vote at such meeting;
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(g) By Buyer if (i) any of the conditions set forth in Section 6.2 shall
have become incapable of fulfillment and shall not have been waived by Buyer or
(ii) the Company shall breach in any material respect any of its
representations, warranties, covenants or other obligations hereunder and,
within ten (10) days after written notice of such breach to the Company from
Buyer, such breach shall not have been cured in all material respects or waived
by Buyer; provided that, (A) Section 7.1(e)(ii) shall govern any failure by the
Company to call and hold the Stockholders' Meeting by the Outside Date and (B)
Section 7.1(j) shall govern any willful and knowing (as described therein)
breach by the Company of its covenants or obligations under Article V;
(h) By the Company, if (i) any of the conditions set forth in Section 6.3
shall have become incapable of fulfillment and shall not have been waived by the
Company or (ii) Buyer shall breach in any material respect any of its
representations, warranties or obligations hereunder and, within ten (10) days
after written notice of such breach to Buyer from the Company, such breach shall
not have been cured in all material respects or waived by the Company;
(i) By the Company if the Board of Directors of the Company shall have
withdrawn or shall have modified in a manner adverse to Buyer its approval or
recommendation of the Merger or this Agreement upon the Company entering into an
agreement relating to a Superior Proposal; provided that the Company's right to
terminate this Agreement under this Section 7.1(i) shall not be available if the
Company is then in breach of Section 5.5; or
(j) By Buyer if the Company shall, with the prior knowledge of any of the
Knowledge Officers (as defined hereinafter), willfully and knowingly breach in
any material respect any of its covenants or obligations under Article V;
provided that, Section 7.1(e)(ii) shall govern any failure by the Company to
call and hold (whether or not willfully and knowingly) the Stockholders' Meeting
by the Outside Date.
SECTION 7.2. Effect of Termination.
(a) In the event of the termination of this Agreement pursuant to Section
7.1 hereof, this Agreement shall forthwith be terminated and have no further
effect except as specifically provided herein and, except as provided in this
Section 7.2 and in Section 8.12, there shall be no liability on the part of any
party hereto.
(b) If (i) Buyer exercises its right to terminate this Agreement under
Section 7.1(d) or (ii) the Company exercises its right to terminate this
Agreement under Section 7.1(i), then the Company shall pay to Buyer (within five
(5) business days of Buyer's demand thereof), in same-day funds, the sum of (A)
all reasonable documented fees and expenses (including, without limitation,
reasonable fees and expenses of counsel, accountants, investment bankers,
experts and consultants) incurred by Buyer in connection with or related to the
authorization, preparation, negotiation, financing, execution and performance of
this Agreement and the transactions contemplated hereby (the "Expenses") up to a
maximum amount of $3,000,000 and (B) $4,000,000 (the "Termination Fee").
(c) If Buyer exercises its right to terminate this Agreement under Section
7.1(e) or 7.1(j), then the Company shall pay to Buyer (within five (5) business
days of Buyer's demand thereof), in same-day funds, the Expenses, up to a
maximum amount of $3,000,000; provided that no such amount shall be payable if
the Expenses shall have become payable or have been paid in accordance with
Section 7.2(b) of this Agreement. If (i) Buyer exercises its right to terminate
this Agreement under Section 7.1(e) or 7.1(j), and (ii) within twelve (12)
months after termination of this Agreement, the Company shall enter into any
definitive agreement relating to, or consummate, an Acquisition Proposal which
was publicly announced prior to such termination, then, immediately prior to,
and as a condition of, consummation of such transaction, the Company shall pay
to Buyer, in same-day funds, the Termination Fee; provided that no such amount
shall be payable if the Termination Fee shall have become payable or have been
paid in accordance with Section 7.2(b) of this Agreement.
(d) If (i) (A) Buyer exercises its right to terminate this Agreement under
Section 7.1(f) or 7.1(g)(ii) or (B) the Company exercises its right to terminate
this Agreement under Section 7.1(f), and (ii) within twelve (12) months after
termination of this Agreement, the Company shall enter into any
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definitive agreement relating to, or consummate, an Acquisition Proposal which
was publicly announced prior to such termination, then, immediately prior to,
and as a condition of, consummation of such transaction, the Company shall pay
to Buyer, in same-day funds, the sum of (x) the Expenses up to a maximum amount
of $3,000,000 and (y) the Termination Fee; provided that no such amount shall be
payable if the Expenses or the Termination Fee shall have become payable or have
been paid in accordance with Section 7.2(b) or 7.2(c) of this Agreement.
SECTION 7.3. Interest and Costs; Other Remedies. The Company acknowledges
that the agreements contained in Section 7.2 are an integral part of the
transactions contemplated by this Agreement, and that, without these agreements,
Buyer would not enter into this Agreement; accordingly, if the Company fails to
pay in a timely manner any of the amounts due pursuant to Section 7.2, and, in
order to obtain such payment, Buyer makes a claim that results in a judgment
against the Company, the Company shall pay to Buyer its reasonable fees and
expenses (including reasonable attorneys' fees and expenses) in connection with
such suit, together with interest on the amounts set forth in Section 7.2 at the
prime rate of Citibank, N.A. in effect on the date such payment was required to
be made. The parties agree that the payment of the Expenses and the Termination
Fee pursuant to Section 7.2 shall be the exclusive monetary remedies of Buyer
upon any breach of this Agreement by the Company of any of its representations,
warranties, covenants and obligations under this Agreement.
SECTION 7.4. Amendments. This Agreement may not be amended except by an
instrument in writing signed on behalf of each of the parties hereto; provided,
however, that after approval of the Merger by the Company Stockholders, no
amendment shall be made that requires further approval by the Company
Stockholders without such approval having been obtained.
SECTION 7.5. Waiver. At any time prior to the Effective Time, whether
before or after the Stockholders' Meeting, any party hereto may (i) extend the
time for the performance of any of the covenants, obligations or other acts of
any other party hereto or (ii) waive any inaccuracy of any representations or
warranties or compliance with any of the agreements, covenants or conditions of
any other party or with any conditions to its own obligations. Any agreement on
the part of a party hereto to any such extension or waiver shall be valid only
if set forth in an instrument in writing signed on behalf of such party by its
duly authorized officer. 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. The waiver of any such right with respect to particular
facts and other circumstances shall not be deemed a waiver with respect to any
other facts and circumstances and each such right shall be deemed an ongoing
right that may be asserted at any time and from time to time.
ARTICLE VIII
GENERAL PROVISIONS
SECTION 8.1. No Third Party Beneficiaries. Other than the provisions of
Article I and Sections 5.7 and 5.13 hereof, nothing in this Agreement shall
confer any rights or remedies upon any person other than the parties hereto.
SECTION 8.2. Entire Agreement. This Agreement constitutes the entire
Agreement among the parties with respect to the subject matter hereof and
supersedes any prior understandings, agreements, or representations by or among
the parties, written or oral, with respect to the subject matter hereof. The
parties hereby agree that for purposes of this Agreement (including, but not
limited to, conditions to Closing) neither party has made to the other any
representations, warranties or covenants or other disclosures other than those
contained in this Agreement or the Company Disclosure Letter. No amendment,
modification or alteration of the terms or provisions of this Agreement or the
Company Disclosure Letter shall be binding unless the same shall be in writing
and duly executed by the parties hereto.
SECTION 8.3. Succession and Assignment. This Agreement shall be binding
upon and inure to the benefit of the parties named herein and their respective
successors. No party may assign either this
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Agreement or any of its rights, interests, or obligations hereunder without the
prior written approval of the other parties.
SECTION 8.4. Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original but all of which
together shall constitute one and the same instrument.
SECTION 8.5. Headings. The section headings contained in this Agreement
are inserted for convenience only and shall not affect in any way the meaning or
interpretation of this Agreement.
SECTION 8.6. Governing Law. This Agreement shall be governed by and
construed in accordance with the laws of the State of Delaware, without regard
to principles of conflicts of law thereof.
SECTION 8.7. Severability. Any term or provision of this Agreement that
is invalid or unenforceable in any situation in any jurisdiction shall not
affect the validity or enforceability of the remaining terms and provisions
hereof or the validity or enforceability of the offending term or provision in
any other situation or in any other jurisdiction. If the final judgment of a
court of competent jurisdiction declares that any term or provision hereof is
invalid or unenforceable, the parties agree that the court making the
determination of invalidity or unenforceability shall have the power to reduce
the scope, duration, or area of the term or provision, to delete specific words
or phrases, or to replace any invalid or unenforceable term or provision with a
term or provision that is valid and enforceable and that comes closest to
expressing the intention of the invalid or unenforceable term or provision, and
this Agreement shall be enforceable as so modified after the expiration of the
time within which the judgment may be appealed.
SECTION 8.8. Specific Performance. Each of the parties acknowledges and
agrees that the other party would be damaged irreparably in the event any of the
provisions of this Agreement are not performed in accordance with their specific
terms or otherwise are breached. Accordingly, subject to Section 7.3, each of
the parties agrees that the other party shall be entitled to seek an injunction
or injunctions to prevent breaches of the provisions of this Agreement and to
enforce specifically this Agreement and the terms and provisions hereof in any
action instituted in any court of the United States or any state thereof having
jurisdiction over the parties and the matter, in addition to any other remedy to
which it may be entitled, at law or in equity.
SECTION 8.9. Construction. The language used in this Agreement shall be
deemed to be the language chosen by the parties hereto to express their mutual
intent, and no rule of strict construction shall be applied against any party.
Whenever the words "include," "includes" or "including" are used in this
Agreement, they shall be deemed to be followed by the words "without
limitation."
SECTION 8.10. Non-Survival of Representations and Warranties and
Agreements. The representations, warranties and agreements in this Agreement
shall terminate at the Effective Time or upon the termination of this Agreement
pursuant to Section 7.1, as the case may be, except that (i) the agreements set
forth in Article I and this Article VIII and Sections 5.4, 5.7, and 5.13 shall
survive the Effective Time indefinitely and (ii) the agreements set forth in
Sections 5.2 and 7.2 and in this Article VIII shall survive the termination of
this Agreement indefinitely.
SECTION 8.11. Certain Definitions.
(a) For purposes of this Agreement, unless otherwise set forth herein, the
terms "associate" and "affiliate" shall have the same meaning as set forth in
Rule l2b-2 promulgated under the Exchange Act, and the term "person" shall mean
any individual, corporation, partnership (general or limited), limited liability
company, limited liability partnership, trust, joint venture, joint-stock
company, syndicate, association, entity, unincorporated organization or
government or any political subdivision, agency or instrumentality thereof.
(b) For purposes of this Agreement, the phrase "Company Material Adverse
Effect" shall mean, with respect to the Company, any change, event or effect
that (i) is materially adverse to the business, operations, properties,
condition (financial or otherwise), assets or liabilities of the Company and the
Subsidiaries taken as a whole or (ii) prevents or materially delays the
performance by the Company of any of its obligations under this Agreement or the
consummation of the Merger or the other transactions
A-30
contemplated by this Agreement; provided, however, that, in either case, none of
the following shall be deemed in and of themselves, either or alone or in
combination, to constitute a Company Material Adverse Effect: (A) any change in
the market price or trading volume of the Company Common Stock (it being
understood that any changes, events or effects giving rise or contributing to
such change may otherwise constitute a Company Material Adverse Effect); (B) any
failure by the Company to meet internal projections or forecasts or published
revenue or earnings projections (it being understood that any changes, events or
effects giving rise or contributing to such failure may otherwise constitute a
Company Material Adverse Effect); (C) any change, event or effect in the United
States economy or securities markets as a whole; (D) any change, event or effect
generally affecting the textile rental or envelopes industries that does not
have a materially disproportionate effect on the Company relative to most other
industry participants; (E) any change, event or effect relating to or resulting
from the announcement or pendency of the Merger or compliance by the Company
with the terms and conditions of this Agreement; (F) any change, event or effect
relating to or resulting from changes in generally accepted accounting
requirements or principles; and (G) any change, event or effect relating to or
resulting from changes in applicable Laws, rules, or regulations or
interpretations thereof.
(c) For purposes of this Agreement, the phrases "to the knowledge of the
Company," "known to the Company," "with the knowledge of any of the Knowledge
Officers" and similar formulations shall mean the actual knowledge of the
officers of the Company listed in Section 8.11(c) of the Company Disclosure
Letter (the "Knowledge Officers").
SECTION 8.12. Fees and Expenses. Except as provided in Section 7.2, all
costs and expenses incurred by the parties hereto in connection with this
Agreement and the transactions contemplated hereby shall be paid by the party
incurring such expenses; provided that, Buyer and the Company shall each pay
one-half of the filing fees required under the HSR Act.
SECTION 8.13. Notices. All notices, requests, claims, demands and other
communications hereunder shall be in writing and shall be given (and shall be
deemed to have been duly given upon receipt) by delivery in person, by
nationally-recognized overnight courier service, or by registered or certified
mail (postage prepaid, return receipt requested) to the respective parties at
the following addresses, or at such other address for a party as shall be
specified in a notice given in accordance with this Section 8.13:
If to Buyer:
NS Acquisition Corp.
c/o California Investment Fund, LLC
550 West C Street, Suite 1000
San Diego, California 92101
Attention: Michael R. Kelly
with a copy to:
Latham & Watkins LLP
12636 High Bluff Drive
Suite 300
San Diego, California 92130
Attention: Scott N. Wolfe, Esq.
If to the Company:
National Service Industries, Inc.
1420 Peachtree Street
Atlanta, Georgia 30309
Attention: Carol Ellis Morgan, Esq.
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with a copy to:
King & Spalding LLP
191 Peachtree Street
Atlanta, Georgia 30303
Attention: Russell B. Richards, Esq.
SECTION 8.14. Consent to Jurisdiction; Waiver of Trial by Jury.
(a) Each of the parties hereto hereby irrevocably and unconditionally
submits, for itself and its property, to the exclusive jurisdiction of any
Delaware State court, or Federal court of the United States of America, sitting
in Delaware, and any appellate court from any thereof, in any action or
proceeding arising out of or relating to this Agreement or the transactions
contemplated hereby or for recognition or enforcement of any judgment relating
thereto, and each of the parties hereby irrevocably and unconditionally (i)
agrees not to commence any such action or proceeding except in such courts, (ii)
agrees that any claim in respect of any such action or proceeding may be heard
and determined in such Delaware State court or, to the extent permitted by law,
in such Federal court, (iii) waives, to the fullest extent it may legally and
effectively do so, any objection which it may now or hereafter have to the
laying of venue of any such action or proceeding in any such Delaware State or
Federal court, and (iv) waives, to the fullest extent permitted by law, the
defense of an inconvenient forum to the maintenance of such action or proceeding
in any such Delaware State or Federal court. Each of the parties hereto agrees
that a final judgment in any such action or proceeding shall be conclusive and
may be enforced in other jurisdictions by suit on the judgment or in any other
manner provided by law. Each party to this Agreement irrevocably consents to
service of process in the manner provided for notices in Section 8.13. Nothing
in this Agreement will affect the right of any party to this Agreement to serve
process in any other manner permitted by law.
(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 IT HEREBY IRREVOCABLY AND UNCONDITIONALLY WAIVES ANY RIGHT IT 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 HEREBY.
EACH PARTY CERTIFIES AND ACKNOWLEDGES THAT (I) NO REPRESENTATIVE, AGENT OR
ATTORNEY OF ANY OTHER PARTY HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT SUCH
OTHER PARTY WOULD NOT, IN THE EVENT OF LITIGATION, SEEK TO ENFORCE EITHER OF
SUCH WAIVERS, (II) IT UNDERSTANDS AND HAS CONSIDERED THE IMPLICATIONS OF SUCH
WAIVERS, (III) IT MAKES SUCH WAIVERS VOLUNTARILY, AND (IV) IT HAS BEEN INDUCED
TO ENTER INTO THIS AGREEMENT BY, AMONG OTHER THINGS, THE MUTUAL WAIVERS AND
CERTIFICATIONS IN THIS SECTION 8.14(B).
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IN WITNESS WHEREOF, the Company and Buyer have caused this Agreement to be
executed as of the date first written above by their respective officers
thereunto duly authorized.
NATIONAL SERVICE INDUSTRIES, INC.
By: /s/ BROCK A. HATTOX
------------------------------------
Name: Brock A. Hattox
Title: Chairman, Chief Executive
Officer and President
NS ACQUISITION CORP.
By: /s/ MICHAEL R. KELLY
------------------------------------
Name: Michael R. Kelly
Title: President and CEO
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ANNEX B
[SUNTRUST ROBINSON HUMPHREY LETTERHEAD]
APRIL 1, 2003
Board of Directors
National Service Industries, Inc.
1420 Peachtree Street, N.E.
Atlanta, GA 30309
Ladies and Gentlemen:
We understand that National Service Industries, Inc. (the "Company") and NS
Acquisition Corporation, an affiliate of California Investment Fund, LLC,
propose to enter into an Agreement and Plan of Merger (the "Agreement") whereby
NS Acquisition Corporation will merge with and into the Company. We understand
that pursuant to the merger each share of Company common stock outstanding
immediately prior to the merger shall be canceled and converted into the right
to receive $10 per share in cash (the "Proposed Transaction"). The terms and
conditions of the Proposed Transaction are set forth in more detail in the
Agreement by and between NS Acquisition Corporation and the Company.
We have been requested by the Company to render our opinion to the Board of
Directors of the Company with respect to the fairness, from a financial point of
view, to the Company's stockholders of the consideration to be offered in the
Proposed Transaction.
In arriving at our opinion, we reviewed and analyzed: (1) a draft of the
Agreement dated April 1, 2003; (2) publicly available information concerning the
Company which we believe to be relevant to our inquiry; (3) financial and
operating information with respect to the business, operations and prospects of
the Company furnished to us by the Company; (4) a trading history of the
Company's common stock from December 1, 2001 to the present and a comparison of
that trading history with those of other publicly traded companies which we
deemed relevant; (5) a comparison of the historical financial results and
present financial condition of the Company with those of publicly traded
companies which we deemed relevant; (6) a comparison of the financial terms of
the Proposed Transaction with the publicly available financial terms of certain
other recent transactions which we deemed relevant; (7) historical data relating
to percentage premiums paid in acquisitions of publicly traded companies; and
(8) a comparison of certain publicly available information for companies with
asbestos litigation and liabilities with the Company's internal asbestos
litigation and liability data. In addition, we have had discussions with the
management of the Company concerning its business, operations, assets, present
condition and future prospects and undertook such other studies, analyses and
investigations as we deemed appropriate.
We have assumed and relied upon, without independent verification, the
accuracy and completeness of the financial and other information discussed with
or reviewed by us in arriving at our opinion. With respect to the financial
forecasts of the Company provided to or discussed with us, we have assumed, at
the direction of the management of the Company and without independent
verification or investigation, that such forecasts have been reasonably prepared
on bases reflecting the best currently available information, estimates and
judgments of the management of the Company as to the future financial
performance of the Company. In arriving at our opinion, we have not conducted a
physical inspection of the properties and facilities of the Company and have not
made nor obtained any evaluations or appraisals of the assets or liabilities
(including, without limitation, any potential environmental liabilities),
contingent or otherwise, of the Company. We have also assumed that the Proposed
Transaction will be consummated in accordance with the terms of the Agreement.
We have also assumed that all material governmental, regulatory or other
consents and approvals necessary for the consummation of the Proposed
Transaction will be obtained without any adverse effect on the Company or on the
expected benefits of the Proposed Transaction. In addition, you have not
authorized us to solicit, and we have not solicited, any indications of interest
from any third party with respect to the purchase of all or a part of the
Company's business. Our opinion is necessarily based upon market, economic and
other conditions as they exist on, and can be
B-1
evaluated as of, the date of this letter. We express no opinion as to the
underlying valuation, future performance or long-term viability of the Company.
It should be understood that, although subsequent developments may affect this
opinion, we do not have any obligation to update or revise the opinion.
We have acted as financial advisor to the Company in connection with the
Proposed Transaction and will receive a fee for our services, a portion of which
is contingent upon the consummation of the Proposed Transaction. In addition,
the Company has agreed to indemnify us for certain liabilities arising out of
the rendering of this opinion. We have also performed various investment banking
services for the Company in the past and have received customary fees for such
services. In the ordinary course of our business, we and our affiliates actively
trade in the debt and equity securities of the Company for our own account and
for the accounts of our customers and, accordingly, may at any time hold a long
or short position in such securities. In addition, we and our affiliates
(including SunTrust Banks, Inc.) may have other financing and business
relationships with the Company in the ordinary course of business.
Based upon and subject to the foregoing, and such other factors as we
deemed relevant, we are of the opinion as of the date hereof that, from a
financial point of view, the consideration to be offered in the Proposed
Transaction is fair to the stockholders of the Company. This opinion is being
rendered at the behest of the Board of Directors and is for the benefit of the
Board in its evaluation of the Proposed Transaction, and does not constitute a
recommendation as to how any stockholder should act or vote with respect to any
matters relating to the Proposed Transaction.
/s/ SunTrust Robinson Humphrey
SUNTRUST ROBINSON HUMPHREY
SUNTRUST CAPITAL MARKETS, INC.
B-2
ANNEX C
DELAWARE GENERAL CORPORATION LAW
SEC. 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.
C-1
(3) In the event all of the stock of a subsidiary Delaware corporation
party to a merger effected under sec. 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) 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, then either a constituent corporation before the
effective date of the merger or consolidation or the surviving or resulting
corporation within 10 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. 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,
C-2
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.
(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
C-3
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 uncertificated 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.
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P R O X Y
NATIONAL SERVICE INDUSTRIES, INC.
SPECIAL STOCKHOLDERS MEETING HELD ON , 2003
PROXY SOLICITED BY THE BOARD OF DIRECTORS
The undersigned does hereby appoint BROCK A. HATTOX and CAROL ELLIS MORGAN, and
each of them, proxies of the undersigned with full power of substitution in each
of them to vote at the special meeting of stockholders of National Service
Industries, Inc. (the "Corporation") to be held on [DATE], 2003 at [TIME] and at
any and all postponements or adjournments thereof, with respect to all shares
which the undersigned would be entitled to vote, and with all powers which the
undersigned would possess if personally present, as follows on the reverse, and
in their discretion upon all other matters brought before the meeting.
Please provide a change of address or comments below:
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
IF VOTING BY MAIL, PLEASE VOTE, DATE AND SIGN ON REVERSE AND RETURN
PROMPTLY IN THE ENCLOSED ENVELOPE.
YOUR VOTE IS IMPORTANT. PLEASE ACT PROMPTLY
S FOLD AND DETACH HERE S
(NATIONAL SERVICE INDUSTRIES LOGO)
SPECIAL MEETING DIRECTIONS AND PARKING INFORMATION
[TIME], [DATE], 2003
Parking for stockholders attending the Special Meeting will be available at .
DIRECTIONS TO KING & SPALDING LLP:
[TO COME]
X
PLEASE MARK
VOTES AS IN THIS
EXAMPLE
UNLESS OTHERWISE SPECIFIED, THIS PROXY WILL BE
VOTED "FOR" THE ITEMS SET FORTH BELOW.
THE BOARD OF DIRECTORS OF THE CORPORATION RECOMMENDS VOTES "FOR" EACH OF THE
FOLLOWING ITEMS:
<Table>
To adopt and approve FOR AGAINST ABSTAIN
the Agreement and [ ] [ ] [ ]
Plan of Merger,
dated as of April 1,
2003, by and between
NS Acquisition Corp.
and National Service
Industries, Inc.
</Table>
SIGNATURE(S)
------------------------------------- DATE
--------------------------------------------------
If voting by mail, please date this
proxy and sign exactly as your name,
or names, appear hereon. Where there
is more than one owner, each must
sign. When signing in fiduciary or
representative capacity, please give
full title as such.
S FOLD AND DETACH HERE S
(NATIONAL SERVICE INDUSTRIES LOGO)
Dear Stockholder:
National Service Industries, Inc. encourages you to take advantage of convenient
ways by which you can vote your shares. You can vote your shares electronically
through the internet or the telephone. This eliminates the need to return the
proxy card.
To vote your shares electronically you must use the control number printed in
the box above, just below the perforation. The series of numbers that appear in
the box and the last four digits of your Social Security number are required to
access the system.
1. To vote over the internet:
- Log on to the internet and go to the web site
HTTP://WWW.EPROXYVOTE.COM/NSI
2. To vote over the telephone:
- On a touch-tone telephone call 1-877-PRX-VOTE (1-877-779-8683)
Each method is available 24 hours a day, 7 days a week.
Your electronic vote authorizes the named proxies in the same manner as if you
marked, signed, dated and returned the proxy card.
If you choose to vote your shares electronically, please do not mail back your
proxy card.