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000 Xxxxx Xxxxxx Xxxxx
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Xxxxxxx, XX 00000
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Fax 000 000-0000
June 26, 2000
The Board of Directors
National-Standard Company
Members of the Board of Directors:
National-Standard Company, an Indiana corporation (the "Company") and Heico
Holdings, Inc., or its designated affiliate (the "Acquirer"), propose to enter
into an Agreement and Plan of Merger (the "Agreement") pursuant to which (i) a
wholly owned subsidiary of the Acquirer would commence a tender offer (the
"Offer") for all the issued and outstanding shares of common stock of the
Company (the "Shares") at a price of $1.00 per share net to the seller in cash
(the "Consideration"), and (ii) following the consummation of the Offer, the
subsidiary of the Acquirer would be merged with and into the Company (the
"Merger"), with each Share, other than treasury Shares or Shares held by the
Acquirer or any affiliate of the Acquirer or as to which dissenter's rights have
been perfected, being converted into the right to receive $1.00 in cash. The
Offer and the Merger are also referred to herein as the "Transaction."
You have asked us whether, in our opinion, the Consideration to be received by
the holders of the Shares pursuant to the Merger Agreement is fair from a
financial point of view to such holders.
U.S. Bancorp Xxxxx Xxxxxxx Inc. ("U.S. Bancorp Xxxxx Xxxxxxx"), as a customary
part of its investment banking business, is regularly engaged in the valuation
of businesses and their securities in connection with mergers and acquisitions,
underwritings and secondary distributions of securities, private placements, and
valuations for estate, corporate and other purposes. For our services in
rendering this opinion, the Company will pay us a fee that is not contingent
upon the consummation of the Transaction. In addition, the Company has agreed to
pay us an additional fee that is contingent upon the consummation of this, or
any other, Transaction. In the past, we have been engaged by the Company to
perform analyses of certain strategic alternatives and the potential impact of
these alternatives on shareholder value. The Company has also agreed to
indemnify us against certain liabilities in connection with this engagement.
In arriving at our opinion, we have undertaken such reviews, analyses and
inquiries as we deemed necessary and appropriate under the circumstances. Among
other things, we have:
(i) Reviewed a draft of the Merger Agreement dated June 24, 2000;
(ii) Reviewed the Annual Reports on Form 10-K for the Company for the
three fiscal years ended September 30, 1997, 1998 and 1999;
(iii) Reviewed the Quarterly Reports on Form 10-Q for the Company for
the quarters ended December 31, 1999, and March 31, 2000;
(iv) Reviewed unaudited financial results and certain other operating
data for the Company for the period ended May 31, 2000 and certain
financial forecasts for the Company;
(v) Been informed by the Company of the potential effects of insolvency
on the Company and the effect an insolvency could be expected to have
with respect to the value of the Shares;
(vi) Conducted discussions with members of senior management and
representatives of the Company concerning the financial condition,
liquidity, operating performance and balance sheet of the Company and
the prospects for the Company, generally, and the matters described
above in clauses (ii), (iii) and (iv), as well as the Company's
business and prospects before and after giving effect to the
Transaction, and conducted discussions with members of senior
management and representatives of the Company concerning the matters
described in clause (v) above;
(vii) Reviewed the historical prices and trading activity for the
Shares;
(viii) Reviewed the financial terms, to the extent publicly available,
of certain comparable merger and acquisition transactions which we
deemed relevant;
(ix) Compared certain financial data of the Company with certain
financial and securities data of companies we deemed similar to the
Company.
We have relied upon and assumed with your consent the accuracy, completeness and
fairness of the financial statements, liquidity analysis, and other information
provided by the Company or otherwise made available to us and have not assumed
responsibility for independently verifying such information. We have assumed
with your consent that the information provided pertaining to the Company has
been prepared on a reasonable basis in accordance with industry practice and,
with respect to financial planning data, reflects the best currently available
estimates and judgment of the Company's management as to the expected future
financial performance of the Company, and that the management of the Company is
not aware of any information or facts that would make the information provided
to us incomplete or misleading. We have also assumed with your consent that
there have been no material changes in the Company's assets, financial
condition, results of operations, business or prospects since the date of the
last financial statements or information made available to us.
We have assumed, with your consent, that (i) the Company will be unable to
secure alternative financing in sufficient time to provide working capital to
continue operations, (ii) the Company may soon be in default under agreements
with its vendors resulting in an unwillingness of vendors to continue
relationships with the Company, (iii) as a result, it is unlikely that the
Company will be able to continue as a going concern in the absence of
consummation of the Transaction and would likely seek protection from creditors
under the bankruptcy laws, and (iv) the likely result of a bankruptcy proceeding
would be no value to Company shareholders.
U.S. Bancorp Xxxxx Xxxxxxx has not been asked to, nor have we, solicited any
alternative financing transactions or business combinations and we have relied
on the Company's representations with respect the availability or absence of
such alternatives.
In arriving at our opinion, we have not performed any appraisals or valuations
of specific assets or liabilities of the Company, have not been furnished with
any such appraisals or valuations, have made no physical inspection of the
properties or assets of the Company and express no opinion regarding the
liquidation value of the Company.
We have also assumed with your consent that the final form of the Merger
Agreement, as and when executed, will be the same in all material respects as
the last draft thereof reviewed by us.
Without limiting the generality of the foregoing, we have undertaken no
independent analysis of any pending or threatened litigation, possible
unasserted claims or other contingent liabilities, to which either the Company
or its affiliates is a party or may be subject and at the Company's direction
and with its consent, our opinion makes no assumption concerning and therefore
does not consider, the possible assertion of claims, outcomes or damages arising
out of any such matter.
ANNEX-B-2
Our opinion is necessarily based upon the assumptions made and information
available to us, facts and circumstances and economic, material and other
conditions as they exist and are subject to evaluation on the date hereof;
events occurring after the date hereof could materially affect the assumptions
used in preparing this opinion. We are not expressing any opinion herein as to
the prices at which Shares have traded or at which such Shares may trade at any
future time.
It is understood that our opinion is intended solely for your benefit and use in
connection with your evaluation of the Transaction and does not address any
other aspect of the Merger or any other transaction related to the Transaction.
Our opinion does not address the merits of your underlying decision to proceed
with or effect the Transaction and does not constitute a recommendation to any
shareholder whether to tender their Shares in the Offer or how any shareholder
should vote or otherwise act with respect to the Merger or the Merger Agreement.
Our opinion is not to be quoted or referred to, in whole or in part, in any
registration statement, prospectus or proxy statement, or in any other document
used in connection with the offering or sale of securities, without our prior
written consent, except as provided in our engagement letter dated September 15,
1998 and amended May 26, 2000.
Based upon and subject to the foregoing, it is our opinion that, as of the date
hereof, the Consideration to be received by holders of Shares of the Company
pursuant to the Merger Agreement is fair, from a financial point of view, to
such holders.
Sincerely,
U.S. BANCORP XXXXX XXXXXXX INC.
