<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(Check One)
X ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
- ---
EXCHANGE ACT OF 1934 [FEE REQUIRED]
For Fiscal Year Ended August 31, 1995
___ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the transition period from _____________________ to ______________________
Commission File Number: 0-8740
RULE INDUSTRIES, INC.
----------------------------
(Exact name of registrant as specified in its charter)
Massachusetts 04-2384630
- ------------------------------------------------ ------------------------
(State or Other Jurisdiction of Incorporation or (I.R.S. Employer
Organization) Identification No.)
70 Blanchard Road, Burlington, Massachusetts 01803
--------------------------------------------------- ----------------
(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number, including area code: (617) 272-7400
-----------------
Securities Registered Pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange on which registered
----------------------- --------------------------------------------
None None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock - $.01 Par Value
-------------------------------
(Title of Class)
Indicate by check mark whether registrant: (1) has filed all reports required to
be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months and (2) has been subject to such filing requirements for
the past 90 days.
YES X NO ___
- ---
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulations S-K is not contained herein, and will not be contained, to the
best of the registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [X]
The aggregate market value of the voting stock held by non-affiliates of the
registrant based on the closing price of the Common Stock of registrant as
quoted by the National Association of Securities Dealers Automated Quotation
System on October 31, 1995 was approximately $27,395,293 (for purposes of
calculating this amount only, directors, officers and beneficial owners of 10%
or more of the Common Stock of registrant may be deemed affiliates).
Number of shares of Common Stock, $.01 par value, outstanding at October 31,
1995: 3,585,970.
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PART 1
ITEM 1. BUSINESS
--------
A. General Development of Business
-------------------------------
Rule Industries, Inc. (The Company) was incorporated under Massachusetts law
in 1965 and presently develops and manufactures products for industrial and
consumer hardware markets and recreational marine markets which are sold
through both domestic and international distribution channels.
Effective January 2, 1991, the Company acquired certain assets of RemGrit
Corporation of Bridgeport, Connecticut. The RemGrit product line consists of
tungsten carbide abrasive cutting tool products for use in cutting difficult
materials such as composites, tile, masonry and cast iron. The RemGrit
product line has been integrated into the Company's South Deerfield facility
and is marketed by the Company's Hardware Division.
Effective April 15, 1993, the Company divested the assets and business of
Silver Metal Products, Inc. of Livermore, California. The Silver Metal
Products subsidiary manufactured an extensive line of metal connectors for
residential and commercial construction.
Effective August 1, 1993, the Company divested the assets and business of
Phillips Screw Company. The Phillips Screw subsidiary licensed patents and
trademarks related to threaded fastener products.
On May 20, 1994, the Company completed its acquisition of certain assets of
The Disston Company (Disston) of Danville, Virginia. The Disston product line
consists of a broad range of consumer hardware products, primarily power tool
accessories, hand tools, and lawn and garden products. During fiscal 1994,
the Disston manufacturing operations were integrated into the Company's South
Deerfield facility and Disston's results of operations have been included in
the Company's Hardware segment since March 1, 1994 (See Note 2 to
Consolidated Financial Statements).
Proposed Merger with Greenfield Industries, Inc. (Greenfield)
-------------------------------------------------------------
On August 11, 1995, the Company entered into an Agreement and Plan of Merger
(the Merger Agreement) with Greenfield and Rule Acquisition Corporation (a
wholly owned subsidiary of Greenfield), whereby the Company will become a
wholly owned subsidiary of Greenfield. In connection with the Merger
Agreement, Greenfield was granted an option to purchase 630,000 shares of the
Company's common stock for a purchase price of $8 per share. Under the terms
of the Merger Agreement, each share of Rule common stock outstanding will be
entitled to receive $15.30 in cash and a beneficial interest in a Liquidating
Trust (other than shares owned by Greenfield, Excluded Shares and Dissenting
Shares as defined in the Merger Agreement). Prior to the effective time of
the Merger, a Liquidating Trust will be established to receive the net
proceeds, if any, relating to arbitration proceedings between Disston and a
former owner of Disston. Management currently estimates the value of the
Liquidating Trust to be $.15 per share; however, a recovery, if any, is
dependent on the favorable resolution of many complex factual and legal
issues.
On September 15, 1995, Greenfield exercised its option to purchase 630,000
shares of Rule common stock. The proceeds of $5,040,000 from the exercise
were used to reduce the Company's outstanding senior indebtedness.
The Merger Agreement is subject to approval by the holders of at least two-
thirds of the outstanding shares of Rule common stock. The Merger Agreement
may be canceled by the mutual agreement of Greenfield and the Company, and by
the Company or Greenfield if certain conditions are not met, as
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discussed in the Merger Agreement. If the Merger Agreement is terminated
under certain circumstances, the Company has agreed to reimburse Greenfield
for up to $450,000 of expenses incurred by Greenfield in connection with the
Merger Agreement (see Note 14 of the Consolidated Financial Statements).
B. Financial Information by Industry Segments
------------------------------------------
Reference is made to Industry Segment and Geographic Area Information
presented in the Financial Statements in Item 8.
C. Description of Business
-----------------------
1. Hardware
a. Operations
The Company manufactures and markets an extensive line of hardware
products, primarily stationary and portable power tool accessories,
handsaws and hand tools, and lawn and garden products to industrial and
consumer markets.
Power tool accessories consist of a broad line of bandsaw, holesaw,
circular saw and reciprocating blades used in power tool applications,
including products which have tungsten-carbide grit cutting edges. These
produces are marketed under the tradestyles Capewell(R), Aggressor(R),
Widder(R), Blu-Mol(R), RemGrit(R), Grit-Edge(R) and Disston(R). Power
tool accessories also include wood-boring bits-marketed under the
trademarks Planetor(R), and Turbo-Bit(R), and a broad range of drills,
counterbores, wire brushes, doweling, grinding wheels and stones, sanding
and polishing discs, and rotary shaping tools sold under the Disston(R)
tradename. Handsaws consist of a variety of products for cutting primarily
wood, including traditional handsaws, coping saws, hacksaws, keyhole saws
and specialty saws. Hand tools include masonry products and files. The
Company's lawn and garden products include cordless grass shears, rakes,
pruning saws, sump and utility pumps, and chain saw accessories. Handsaws,
hand tools and lawn and garden products are marketed under the Disston(R)
tradestyle.
Products marketed under the Disston tradestyle are sold primarily to
consumers and tradesmen through home centers, retail chains and buying
cooperatives. Products marketed under other tradestyles are marketed
primarily to industrial users, tradesmen and private label customers. All
products are sold throughout the world through independent manufacturer's
representatives and direct sales personnel.
b. Competition
(1) The Company competes with numerous companies that sell power tool
accessories, several of which are larger and have a greater market
share. Management believes it competes effectively through the quality
and breadth of its product lines, its primary manufacturing
capabilities and competitive pricing.
(2) Handsaws and hand tools, which are used by tradesmen and consumers and
are marketed under the Disston(R) tradename, compete with product
lines of several companies who are larger than the Company. The Company
competed effectively with these products because of its recognized
manufacturing experience in these products, its reputation for quality,
and the breadth of these products lines.
(3) The Company, under the Disston tradename and private label brands,
competes with numerous companies that market lawn and garden
products, many of whom sell broader lines in these product areas.
However, the Company believes it maintains a strong market position
due to innovative marketing and packaging of these products to
customers who also purchase other product lines from the Company.
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(4) The RemGrit(R)/Grit-Edge(R) product line is sold to industrial,
consumer and tradesmen markets. The Company believes its tungsten
carbide abrasive product line has a leading market position due to the
breadth of the line, manufacturing technology, and its quality
reputation.
c. Patents and Trademarks
The Company holds several U.S. patents (expiring at various dates through
the year 2010) on its hardware products, but management does not believe
its patents materially affect its ability to compete in the various
hardware markets.
The Company holds numerous trademarks, both domestic and foreign, which
management believes to be significant in the marketing of its hardware
product lines.
2. Marine
a. Operations
The Company's marine products include submersible pumps (automatic and
non-automatic), activating switches and related accessory items (e.g.,
hose and fittings) for recreational and small commercial boats. The pumps
range in capacity from 360 to 8,000 gallons per hour and are sold under
the Rule(R) trademark. Pumps, switches and related accessories represented
approximately 72%, 71% and 70% of total marine revenues for the years
ended August 31, 1995, 1994, and 1993, respectively.
The Company also manufactures extensive lines of marine paints, coatings,
sealants and protective products. The paints and coatings are for both
topside and antifouling applications and are marketed primarily under the
trademarks Gloucester(R) and KL-990(R). The sealants and protective
products (e.g., waxes, cleaners and repair products) are sold under the
Rule (R) trademark. Sudbury(R) specialty chemical products are also a part
of Rule's marine chemical product line.
The Company also manufactures, under the Rule(R) trademark, a line of DC-
powered winches and accessories primarily for use on boat trailers.
Lightweight marine anchors are sold under the Danforth(R) and Hooker(R)
tradenames. Magnetic compasses are marketed under the Danforth(R),
Freedom(R) and Aqua Meter(R) tradenames. In addition, the Company markets
various electronic instruments and gauges under the Aqua Meter(R)
tradename.
Marine products are sold to both boat manufacturers and distributors
throughout the United States and the world by independent manufacturers'
representatives and direct sales personnel.
b. Competition
Management believes that on a worldwide basis, Rule has a leading market
position in marine submersible bilge pumps and switches, and in magnetic
compasses. The Company believes that it is one of the largest suppliers of
lightweight marine anchors in the United States and Canada. In most types
of lightweight anchors, Rule competes with domestic and foreign companies,
both large and small. Some of these companies supply several lines of
products, while others supply limited product lines. In the paint and
coatings lines, the Company is aware of only two companies which have a
greater position in the domestic recreational marine paint market. In
marine sealants and protective products, there are many companies, both
larger and smaller than Rule, that compete in this market. However, in
contrast with Rule's broad chemical line, these companies manufacture
either a single product or a limited product line. The Company competes
primarily with one company in the powered marine winch business on the
basis of quality and performance.
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c. Patents and Trademarks
The Company holds many U.S. patents relating to its marine products and
management believes that certain patents enhance the Company's ability to
compete in the marine market. The patents currently issued to the Company
on its marine products expire at various times through the year 2014.
The Company holds numerous trademarks, both domestic and foreign, which
management believes to be significant in the marketing of its marine
product lines.
3. Other Revenues
a. Other
(1) Operations
The Company produces a line of winches for the utility, farm and
off-road vehicle markets sold under the Rule(R) tradename. The line
consists of various models, both DC and gasoline-powered, with
operating capacities from 900 to 8,400 pounds. In addition, the
Company manufactures a line of sump pumps and utility pumps for
various applications.
In the United States and throughout the world, these products are
sold primarily to jobbers, distributors and original equipment
manufacturers via a direct sales force.
(2) Competition
Rule is aware of several winch and sump/utility pump manufacturers,
a number of whom are substantially larger and more established in
these markets than Rule. However, management believes a combination
of factors, including unique products, certain exclusive design
features, and product quality, enable its products to effectively
compete in these markets.
D. Seasonality
-----------
The Company's various businesses are subject to certain seasonal
fluctuations.
E. Raw Material Availability
-------------------------
Many of the raw materials and parts used in the manufacture of the Company's
products are presently available from more than one vendor. However, the
Company frequently elects to purchase from a single source.
F. Backlog
-------
Products are manufactured to maintain inventory levels necessary to meet
reasonable customer demand. Consequently, backlogs are normally less than one
month's sales.
G. Engineering and Development
---------------------------
The Company's expenditures for engineering and development during fiscal 1995
amounted to $1,294,000 compared to $1,186,000 and $1,125,000 in 1994 and
1993, respectively, and are expensed when incurred. The portion which relates
to research and development is included in selling, general and
administrative expenses and the portion relating to manufacturing engineering
is included in cost of sales.
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H. Compliance with Environmental Regulations
-----------------------------------------
Compliance with federal, state and local environmental regulations has not
had, and is not anticipated to have, a material effect upon capital
expenditures, earnings or competitive position.
I. Employees
---------
As of August 31, 1995, the Company had approximately 637 employees, all
of which are non-unionized.
J. Financial Information About Foreign and Domestic Operations
-----------------------------------------------------------
Reference is made to Industry Segment and Geographic Area Information
presented in the Financial Statements in Item 8.
K. Governmental Contracts
----------------------
In fiscal 1995, the Company did not generate any revenues from government
contracts.
ITEM 2. PROPERTIES
----------
The Company's general and executive offices are located in Burlington,
Massachusetts. The offices consist of approximately 18,000 square feet and are
leased until 1999.
The Company leases a facility in Gloucester, Massachusetts from an affiliated
party (see Item 13, CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS), under a
lease agreement which has been extended to expire on May 25, 1996. The facility
consists of 87,500 square feet and is the primary manufacturing facility for
marine and other products.
The Company leases a facility in South Deerfield, Massachusetts from an
affiliated party (see Item 13, CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS),
under a lease agreement entered into on June 15, 1995 which expires in the year
2010. The building contains 275,000 square feet of space which the Company uses
for manufacturing hardware products.
The Company also leases office space in Greensboro, North Carolina and warehouse
space in Anaheim, California and Mississauga, Ontario under short-term leases.
These facilities are utilized by the Company's hardware segment.
The Company owns a 20,250 square foot vacant building on approximately two acres
in Gloucester, Massachusetts which is currently for sale.
ITEM 3. LEGAL PROCEEDINGS
-----------------
In November 1986, a suit was instituted against the Company alleging illegal
pricing and marketing practices in connection with the Company's marine anchor
products. In November 1993, the U.S. Court of Appeals for the Eleventh Circuit
reversed the previous jury verdict against the Company, and entered judgement in
favor of the Company on all federal antitrust issues. During the quarter ended
November 30, 1993, the Company reversed its previously recorded liability for
this matter and increased pre-tax income by $2,463,000. Certain issues of
Georgia state law, which were originally decided in favor of the Company and
were reversed during the appeal process, are being pursued by the plaintiff and
are under consideration by the United States District Court for the Northern
District of Georgia. In addition, the court has lifted the stay on the Company's
previously filed antitrust action against the plaintiff.
There was no other significant litigation outstanding against the Company at
August 31, 1995.
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ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
---------------------------------------------------
There were no matters submitted to security holders, either by proxy or
otherwise, during the quarter ended August 31, 1995.
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED
----------------------------------------------------
STOCKHOLDER MATTERS
-------------------
The Common Stock of the Registrant is traded in the Over-the-Counter market. The
table below reflects high and low closing prices as reported in the National
Association of Securities Dealers' Automated Quotation approximately 492 record
holders of the Common Stock of the Registrant.
<TABLE>
<CAPTION>
Price Range of Common Stock
---------------------------
Fiscal 1995 Fiscal 1994
----------- -----------
Quarter High Low High Low
------- ---- --- ---- ---
<S> <C> <C> <C> <C>
First 16-3/4 11-3/4 9-1/4 6-3/4
Second 14 10-1/4 11-1/4 8-1/4
Third 11-5/8 7 11 8-1/4
Fourth 15-1/4 6-1/4 14 8-1/2
</TABLE>
The Registrant has never paid cash dividends on its Common Stock. In addition,
the Company's borrowing arrangement with its senior institutional lender
restricts the payment of dividends.
ITEM 6. SELECTED FINANCIAL DATA (000's Omitted Except for Per Share
-----------------------------------------------------------
Data)
-----
<TABLE>
<CAPTION>
Year Ended August 31: 1995 1994 1993 1992 1991
- --------------------- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Net Revenues $68,458 $63,919 $48,334 $46,286 $39,325
Income (Loss) from
Continuing Operations 84 3,180 (119) (140) (3,964)
Preferred Stock
Dividends (24) (289) (275) (166) ---
Net Income (Loss) from
Continuing Operations
Applicable to Common
Stockholders 60 2,891 (394) (306) (3,964)
Net Income (Loss) from
Continuing Operations
Per Common Share
Primary .03 1.27 (.18) (.14) (1.80)
Fully diluted .03 1.18 (.18) (.14) (1.80)
As of August 31:
- ----------------
Total Assets $63,885 $66,643 $45,293 $52,428 $54,348
Long-Term Debt 32,550 27,188 21,185 26,019 29,212
Redeemable Convertible
Preferred Stock --- 3,610 3,610 3,110 ---
</TABLE>
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No cash dividends on common stock were declared or paid during these periods.
Income (loss) from continuing operations includes an accrual for U.S. Anchor
litigation of $4,347,000 in fiscal 1991 and the reversal of $2,463,000 in fiscal
1994. See Note 10 to the financial statements for the discussion of legal
proceedings.
The selected financial information should be read in conjunction with
"Management's Discussion and Analysis of Financial Conditions and Results of
Operations" and the consolidated financial statements and the notes thereto
included elsewhere in this Report, which have also been restated to reflect
discontinued operations.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
-----------------------------------------------------------
AND RESULTS OF OPERATIONS
-------------------------
RESULTS OF OPERATIONS
Fiscal Year 1995 Compared with Fiscal Year 1994
- -----------------------------------------------
In the first complete year after the Disston consolidation, fiscal 1995 net
consolidated revenues increased 7% to $68,458,000. Hardware product revenues,
which now account for 66% of consolidated revenues, were responsible for most of
this increase with a 35% gain in consumer hardware market shipments and
continued growth in international hardware markets. Marine product revenues rose
a nominal 2% to $20,772,000, but international revenues from all market segments
increased 14% to $17,828,000, which represented 26% of consolidated revenues.
Plagued with Disston consolidation inefficiencies and capacity constraints at
the Deerfield plant, hardware customer service levels declined. Anticipated
orders were cancelled and consolidated gross profits shrank $1,000,000 to
$19,303,000 which represented a 28% gross margin, down 3.5% from the prior
fiscal year. Despite an additional six months of Disston related operating
expenses, consolidated selling, general and administrative expenses rose less
than 5% to $15,874,000 and remained relatively unchanged as a percentage of
revenues. Ignoring the effect of reversal of the U.S. Anchor litigation reserve
in 1994, consolidated operating income declined 33% to $3,429,000, only a 5%
return on net revenues. Behind this sharp margin decline, the marine products
segment increased its operating profit by 19% to $4,721,000 while the hardware
segment incurred an operating loss of $547,000. Other expenses rose less than 5%
to $3,661,000, largely because the $864,000 non-recurring gain from the sale of
Datamarine International common stock offset most of the 25% increase in
interest expense, dictated by higher average borrowings related to the Disston
consolidation and expansion of the Deerfield plant capacities. During its fourth
quarter, Rule executed a definitive agreement to merge the Company with
Greenfield Industries, Inc. and the other expense category includes $454,000 of
non-recurring, fourth quarter professional fees relating to the transaction. In
September 1994, when the Company restructured its senior institutional
indebtedness, it incurred an extraordinary $613,000 expense, net of $316,000 in
tax benefits, relating to the write off of certain deferred finance charges and
the payment of an early termination fee. The significant decline in preferred
stock dividends reflected the Company's redemption of preferred stock in
exchange for the issuance of 401,129 shares of common stock during the first
quarter of fiscal 1995.
Fiscal Year 1994 Compared with Fiscal Year 1993
- -----------------------------------------------
Fiscal 1994 operations reflect the initial impact of consolidating the
operations of Disston into the Company's existing manufacturing and
administrative operations, a process which began in January 1994 and was
completed during the Company's fiscal fourth quarter. The Company began shipping
Disston products from its Deerfield, Massachusetts manufacturing facility on
March 1, 1994 and accordingly, the financial statements reflect the operating
results of Disston for six months.
Consolidated revenues of $63,919,000 for 1994 increased by $15,585,000, 32% over
the prior fiscal year primarily as a result of the addition of Disston's
consumer hardware revenues. Hardware revenues grew 55% over fiscal 1993, led by
the addition of Disston's consumer hardware products and a 5% growth in
industrial hardware products. Marine revenues of $20,448,000 reflected a 6%
increase over the prior fiscal year and continued a positive momentum in both
domestic and international recreational marine markets. As a result of the
significant addition of domestic consumer hardware revenues, export revenues
declined 5% to 25% of
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consolidated revenues from the prior year. Reflecting the initial benefits of
the consolidation of Disston's manufacturing operations and higher marine
revenues, consolidated gross margins increased almost 2% to 32%. Selling,
general and administrative expenses in fiscal 1994 increased from the previous
year due to the Disston operations, but remained constant at 24% of consolidated
revenues. Operating income, which included a $2,463,000 pre-tax reversal of the
U.S. Anchor litigation accrual, increased to 12% of revenues for fiscal 1994, as
compared to 6% for the prior fiscal year. Without the benefit of this reversal,
fiscal 1994 operating income increased 73% to 8% of revenues.
In spite of significantly lower institutional borrowings in the first half of
fiscal 1994, the funding of the Disston consolidation that began in January
1994, coupled with higher variable interest rates, caused interest expenses to
increase 4% to $3,290,000. The $208,000 net other expense includes a $225,000
write-down of the Company's investment in Datamarine International, Inc.
(Datamarine), which was sold in September 1994. The sale of the Datamarine
securities will generate a pre-tax profit of $864,000 in the first quarter of
fiscal 1995. The 1994 effective tax rate of 22% contains the impact of the
reversal of litigation reserves, a portion of which was not taxable. Net income
of $3,180,000 reflects the end of the legal problems confronting the Company
since fiscal 1991 and improving operating margins. Preferred stock dividends
increased $14,000 to $289,000 as a result of 5,000 additional preferred shares
sold in the second quarter of fiscal 1993.
LIQUIDITY AND CAPITAL RESOURCES
Ignoring the non-cash effect of the 1994 litigation reserve reversal, 1995
operating cash flow declined $1,883,000 from the prior fiscal year, reflecting
this past year's disappointing operating results. The 1995 first quarter
restructuring of senior institutional indebtedness and sale of the Datamarine
International investment for $1,397,000 materially enhanced working capital
funds and provided $2,500,000 of borrowing availability to fund on-going
expansion of manufacturing capacities at the outset of the year. However, the
below budget first half operating results required the Company to request an
increase in its working capital revolving credit limit to $17,500,000 in March
in order to accomodate seasonal operating requirements. In conjunction with this
increase, the Company accelerated its efforts to raise at least $10,000,000 of
additional equity before the end of June to reduce indebtedness, related to the
acquisition and consolidation of the Disston Company's operations. During June
and early July, the Company received several proposals for additional equity and
an unsolicited proposal from Greenfield Industries, Inc. to acquire the stock of
the Company in a cash transaction. On July 20, 1995, the Company agreed to be
merged into Greenfield. In conjunction with the merger and the Company's
continuing need for additional equity, in September, 1995 Greenfield purchased
630,000 shares of common stock for $5,040,000 and certain warrant and option
holders exercised their rights to purchase stock for $2,434,000, the proceeds of
which were used to reduce senior indebtedness and provide needed working
capital. With this equity infusion and the continuing support of its
institutional senior lender, the Company is adequately positioned to finance its
operations during fiscal 1996. If the merger with Greenfield is not consummated,
the Company believes there are various financing alternatives to address future
capital funding requirements.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
-------------------------------------------
See Item 14 (Page 15).
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
------------------------------------------------------------
AND FINANCIAL DISCLOSURE
------------------------
In June 1995, the Company terminated Deloitte & Touche LLP (D&T) as its
principal accountants and engaged KPMG Peat Marwick LLP (KPMG). In September
1995, in connection with the merger with Greenfield, the Company terminated KPMG
as its principal accountants and engaged Price Waterhouse LLP. There were no
disagreements with either D&T or KPMG.
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PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
--------------------------------------------------
Each of the persons named in the following table has furnished the respective
information shown:
<TABLE>
<CAPTION>
No. of Shares
Beneficially
Year First Owned as of Percent-
Name, Address & Principal Became October 31, age
Occupation or Employment (1) Age Director 1995 of Class
- ---------------------------- --- -------- ---- --------
<S> <C> <C> <C> <C>
William N. Anastos 61 1969 669,100 (3) 18.4%
28 Longmeadow Road
Belmont, MA 02178
President of the Company (2)
John A. Geishecker, Jr. 57 1981 163,932 (5) 4.6%
c/o Rule Industries, Inc.
70 Blanchard Road
Burlington, MA 01803
Vice President, Treasurer &
Clerk of the Company (4)
Gary M. Sable 46 1984 59,115 (6) 1.6%
c/o Rule Industries, Inc.
70 Blanchard Road
Burlington, MA 01803
Vice President of the Company
Owen B. Lynch 61 1988 4,515 .1%
Senior Partner
Lynch, Brewer, Hoffman & Sands
101 Federal Street
Boston, MA 02110 (7)
Henry G. Libby 55 --- 202,000 (9) 5.6%
c/o Rule Industries, Inc.
70 Blanchard Road
Burlington, MA 01803
Vice President of the Company (8)
Directors and Officers, as a Group 1,098,662 30.2%
</TABLE>
Under federal securities laws, the Company's directors and executive officers
and any other persons holding more than ten percent (10%) of the Company's
Common Stock are required to report their initial ownership of the Company's
Common Stock and any subsequent changes in their ownership to the Securities and
Exchange Commission. During the fiscal year ended August 31, 1995, all of these
filing requirements were satisfied. In making these disclosures, the Company has
relied solely on written representations of its directors, executive officers,
and ten percent stockholders, and copies of reports that they filed with the
Securities and Exchange Commission.
(1) Unless otherwise specified, each individual has had the same principal
employment during the past five years as indicated above. Directors hold
office until the third annual meeting of stockholders, or special meeting
held in lieu thereof, following the meeting at which they were elected,
and thereafter until their successors are chosen and qualified. Officers
hold office until the next annual meeting of
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directors following the meeting at which they were elected, and
thereafter until their successors are chosen and qualified.
(2) During its last fiscal year, the Company paid consulting fees to
Industrials, Inc., a corporation in which a revocable trust established by
Mr. Anastos for the benefit of his family is the sole stockholder. See Item
11 (1), EXECUTIVE COMPENSATION, Notes (1), (2) and (3).
During its last fiscal year, the Company paid approximately $137,500 for
telemarketing and management services to Telemarketing Services Company, a
company in which Mr. Anastos' daughter is the sole shareholder. In
connection with an agreement with Mr. Anastos, the Company has retained the
telemarketing management services of Mr. Anastos' daughter until December,
1997 for a maximum aggregate fee of $240,000.
(3) Includes 426,100 shares (11.7%) held by Mr. Anastos as co-trustee of a
revocable trust for the benefit of Mr. Anastos' family, 150,500 shares
(4.1%) held by Industrials and 2,500 shares (.1%) held by members of his
family. Beneficial ownership of such shares is disclaimed by Mr. Anastos.
Also includes 58,000 shares (1.6%) with respect to which Mr. Anastos has
the right to acquire beneficial ownership within 60 days through the
exercise of a stock option.
Mr. Anastos has been on fully paid leave of absence as president of the
Company since July 21, 1995. On November 20, 1995, the Company, Greenfield,
Messrs. Geishecker, Sable, Libby and Anastos reached a definitive agreement
to resolve all issues raised by Mr. Anastos in connection with, among other
things, the Greenfield merger (Merger). Under that agreement, (i) Mr.
Anastos will continue to receive his current compensation and benefits
until the effective date of the Merger; (ii) the Company will transfer to
Mr. Anastos at no cost two automobiles he currently uses; (iii) the Company
will sell to Mr. Anastos an airplane for approximately $657,800; (iv) the
Company has accelerated the vesting of all outstanding unvested Rule Stock
Options (87,000) held by Mr. Anastos; and (v) the Company has retained the
telemarketing management services of Mr. Anastos' daughter until December,
1997 for a maximum aggregate fee of $240,000. As part of this agreement,
Mr. Anastos has, among other things, (i) granted Greenfield a proxy with
respect to 611,100 shares and; (ii) agreed to a continued leave of absence
from the Company until the date of the Merger, at which time he will tender
his written resignation as president and director of the Company.
(4) Mr. Geishecker is currently a director of Gelman Sciences, Inc. During its
last fiscal year, the Company paid consulting fees to The Krew Team, Inc.
(Krew), a corporation in which Mr. Geishecker is a principal stockholder.
See Item 11 (1), EXECUTIVE COMPENSATION, Note (6) .
(5) Includes (a) 33,445 shares (.9%) held by Krew, beneficial ownership of such
shares is disclaimed by Mr. Geishecker and (b) 39,000 shares (1.1%)
exercised in September, 1995 under a non-qualified stock option; the
vesting of 23,000 of these shares was accelerated by the Board of Directors
in connection with the Greenfield merger.
(6) Includes 15,000 shares (.4%) exercised in September, 1995 under a non-
qualified option; the vesting of 9,000 of these shares was accelerated by
the Board of Directors in connection with the Greenfield merger. Also
included in Mr. Sable's total are 500 shares held by his wife, as custodian
for their son.
(7) During the past fiscal year, the Company paid legal fees of $222,800 to
Lynch, Brewer, Hoffman & Sands, a law firm in which Mr. Lynch is the senior
partner.
(8) Since 1982, Mr. Libby has been president and sole owner of The Disston
Company. Effective May 20, 1994, the Company acquired certain assets of
Disston and, in connection with the acquisition, the Company issued a
$2,000,000 6 1/2% subordinated debenture payable to Disston over a period
of five years. Furthermore, Mr. Libby became a Vice President of the
Company and entered into a ten-year non-competition agreement in
consideration for $2,100,000, consisting of $500,000 paid in cash and the
issuance of a $1,600,000 6 1/2% subordinated debenture payable to Mr. Libby
over a period of five years beginning May, 1995. The May, 1995 principal
payments of $720,000 were
-11-
<PAGE>
rescheduled to September 15, 1996 and the interest rate on both notes was
increased to 8.125% per annum. During fiscal 1995, the Company made total
payments to Disston of $3,426,556 under the terms of the May 20, 1994
acquisition arrangements. In connection with the acquisition, Mr. Libby
also received (a) a warrant to purchase up to 100,000 shares of the
Company's Common Stock at $10.00 per share and (b) a non-qualified stock
option to acquire up to 100,000 shares of the Company's Common Stock at
$5.00 per share.
(9) Includes the September, 1995 exercise of (a) a warrant for 100,000 shares
and (b) a non-qualified stock option for 100,000 shares. The vesting of
64,000 shares under the option was accelerated by the Board of Directors in
connection with the Greenfield merger.
No family relationships exist between any directors.
ITEM 11. EXECUTIVE COMPENSATION AND OTHER INFORMATION
--------------------------------------------
1. Executive Compensation
The following table shows, for the fiscal years ending August 31, 1995, 1994
and 1993, the cash compensation paid by the Company and its subsidiaries, as
well as certain other compensation paid accured for those years, to each of
the executive officers of the Company in all capacities in which they served:
<TABLE>
<CAPTION>
All Other
Name and Principal Position Year Salary Compensation
--------------------------- ---- -------- ------------
<S> <C> <C> <C>
William N. Anastos 1995 $147,066 $ 59,100 (1)
President 1994 129,280 54,300 (2)
1993 132,640 49,360 (3)
Gary M. Sable 1995 122,612 $ 79,950 (4)
Vice President 1994 127,320 1,500 (5)
1993 121,160 1,400 (5)
John A. Geishecker, Jr. 1995 $ 33,000 62,880 (6)
Vice President 1994 33,000 92,880 (6)
1993 33,000 122,880 (6)
Henry G. Libby (7) 1995 $237,500 $1,350 (5)
Vice President
</TABLE>
(1) Includes (a) $900 accrued under the Company's Profit Sharing and
Savings Plan (the Plan), and (b) consulting fees of $58,200 which were
paid to Industrials, Inc. (Industrials), a corporation in which a
revocable trust established by Mr. Anastos for the benefit of his
family is the sole stockholder. See Item 10, DIRECTORS AND EXECUTIVE
OFFICERS, Note (2).
(2) Includes (a) $1,500 accrued under the Plan, and (b) consulting fees of
$52,800 which were paid to Industrials. See Item 10, DIRECTORS AND
EXECUTIVE OFFICERS, Note (2).
(3) Includes (a) $1,400 accrued under the Plan, and (b) consulting fees of
$47,960 which were paid to Industrials. See Item 10, DIRECTORS AND
EXECUTIVE OFFICERS, Note (2).
(4) Includes (a) $800 accrued under the Plan, and (b) $178,750 in net
value from the exercise of stock options for 20,000 shares during
fiscal 1995.
-12-
<PAGE>
(5) Amounts accrued under the Plan
(6) Consulting fees which were paid to The Krew Team, Inc., a corporation
in which Mr. Geishecker is a principal stockholder. See Item 10,
DIRECTORS AND EXECUTIVE OFFICERS, Note (4).
(7) Mr. Libby joined the Company as Vice-President on May 20, 1994, in
conjunction with the Company's acquisition of the business of Disston.
Prior to that date, Mr. Libby was the President and principal
shareholder of Disston.
The Plan is a qualified, defined contribution plan under the Internal Revenue
Code and all full-time, non- union Employees of the Company are eligible to
participate in the Plan. The Company contributes a percentage of its net
profits to the Plan as determined by the Board of Directors, and each
participating Employee may voluntarily contribute up to a maximum specified
dollar amount to the Plan to be held in separate account for his/her benefit.
Two-thirds of each Company contribution is allocated to the accounts of
participating Employees based on relative compensation and one-third of such
contribution is allocated to such accounts based on relative voluntary
Employee contributions.
2. Stock Options and Warrants
The following table sets forth information with respect to the named
executives concerning unexercised options held and such fiscal year: their
net values as of the fiscal year ended August 31, 1995 and options exercised
during
<TABLE>
<CAPTION>
Shares Number of unexercised Value of unexercised
acquired on Value options and warrants at fiscal in-the-money options and warrants
exercise realized year end at fiscal year end (2)
----------- -------- ------------------------------- ---------------------------------
Name Exercisable Unexercisable Exercisable Unexercisable
---- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
William N. Anastos (1) 58,000 87,000 $152,250 $228,375
Gary M. Sable (1) 20,000 $178,750 6,000 9,000 15,750 23,625
John A. Geishecker (1) 16,000 24,000 42,000 63,000
Henry G. Libby (3) 136,000 64,000 741,000 584,000
</TABLE>
(1) On December 21, 1987, the Board of Directors adopted the 1987 Non-
Statutory Stock Option Plan (the "Non-Statutory Plan") covering up to
200,000 shares of Common Stock of the Company. The purpose of the Non-
Statutory Plan is to provide a long-term incentive to certain key
employees to remain in the employ of the Company. No option granted
under the Non-Statutory Plan shall be vested during the initial five
years of its term. Thereafter, provided the optionee remains in the
continuous employment of the Company, the option shall become vested
over the subsequent five years at an annual rate of 20% of the aggregate
shares issued under the option. The Board of Directors may accelerate
vesting of any option upon the occurrence of certain events, including
acquisition of the assets of the Company by an unrelated person or
entity, the acquisistion of 20% or more of the then outstanding voting
securities of the Company by an unrelated person or entity, or changes
in a majority of directors of the Company. Options are to be granted at
not less than the fair market value of such shares at the time of grant.
Both treasury shares and authorized but unissued shares may be issued
upon exercise of options granted under the Non-Statutory Plan. Shares
subject to options which expire or are terminated shall be available for
re-optioning under the Non-Statutory Plan. On December 21, 1987, options
for 200,000 shares were granted to Messrs. Anastos, Geishecker and Sable
under the 1987 Non-Statutory Plan at an exercise price of $11.50 per
share. The reported bid price for shares of the Company's Common Stock
at the date of grant was $6.75 per share.
(2) The closing price on August 31, 1995 of the Company's Common Stock on
the NASDAQ National Market System was $14.125 per share.
(3) In connection with the Disston acquisition, the Company granted Henry G.
Libby, a vice president of the Company, a non-qualified stock option to
purchase up to 100,000 shares of the Company's Common Stock at the
exercise price of $5.00 per share. The purpose of this option was to
provide
-13-
<PAGE>
a long-term incentive to Mr. Libby to remain in the employ of the
Company. The option provides for annual vesting over five years and
expires after eight years, subject to continuous employment with the
Company. In addition, the Company entered into a non-competition
agreement with Mr.
Libby which provided for the issuance of an immediately exercisable
warrant to purchase up to 100,000 shares of the Company's common stock
at an exercise price of $10 per share. No options were exercised by Mr.
Libby during fiscal 1995.
Subsequent to August 31, 1995 in connection with the proposed merger with
Greenfield, the Board of Directors accelerated the vesting of all non-vested
shares under the above plans.
3. Compensation Committee, Interlocks and Insider Participation in Compensation
Decisions
Inasmuch as a majority of the Company's executive officers are represented
and constitute a majority of the Board of Directors, the Board has not
established a separate compensation committee. Mr. Geishecker is a member of
the Board compensation committee of Gelman Sciences, Inc.
4. Termination of Employment and Change of Control Arrangements
Under certain circumstances, the exercisability of certain options granted to
named executives is accelerated in the event of certain changes in corporate
control, including changes in the composition of the Board of Directors. See
Note 2, Stock Options and Warrants.
In May, 1994, the Company entered into an employment agreement with Mr. Libby
which became effective on July 21, 1995 as a result of certain changes in the
Company's management, and will continue until May, 1999 or such later date on
which the Company's subordinated debentures held by Mr. Libby and The Disston
Company are paid in full. Under the employment agreement, Mr. Libby will
continue to receive an annual base salary at the rate in effect on the
effective date of such agreement and participate in such employee plans as
the Company maintains.
5. Director Compensation
Directors, who are not officers or employees of the Company, are paid fees of
$10,000 per annum.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
--------------------------------------------------------------
As of October 31, 1995, the only stockholders known to the Company to be the
beneficial owners of more than 5% of the Company's outstanding shares of Common
Stock were William N. Anastos, Henry G. Libby and Greenfield Industries, Inc.
The number of shares owned beneficially by Messrs. Anastos and Libby and the
Company's other directors and executive officers, and the percentage of the
outstanding Common Stock represented by such shares is set forth in tabular form
in Item 10. DIRECTORS AND EXECUTIVE OFFICERS. Greenfield Industries, Inc., a
Delaware corporation whose principal office is located at 470 Old Evans Road,
Evans, Georgia 30803, was the beneficial owner of 630,000 shares (17.6%) of the
Company's common stock as of such date. In addition, Mr. Anastos granted
Greenfield Industries, Inc. a proxy for 611,000 shares (16.8%) on November 20,
1995.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
----------------------------------------------
A. Gloucester Premises
The Company leases all of the space in a building in Gloucester,
Massachusetts from RAGS III, a Massachusetts general partnership comprised
of Messrs. Anastos, Geishecker and Sable. Such building contains 87,500
square feet of space which is utilized by the Company for manufacturing
operations. Under the terms of the lease, which originally expired on
November 25, 1995 and has been extended to May 25, 1996, the Company is
responsible for real estate taxes, building maintenance and all operating
expenses with respect to the premises. The Company has a right of first
refusal and a fair market value option to purchase the premises at any time
during the lease term,
-14-
<PAGE>
including the extension period. Pursuant to an agreement between RAGS III
and the Company, and subject to the completion of the merger with
Greenfield, the Company will purchase the Gloucester premises from RAGS III
for an aggregate purchase price of $2.4 million, which represents fair
market value as determined by an independent appraiser.
During fiscal 1995, the Company made lease payments to RAGS III of $519,427.
B. South Deerfield Premises
The Company leases all of the space in a building located in South
Deerfield, Massachusetts from RAGS II, a Massachusetts general partnership
comprised of Messrs. Anastos, Geishecker and Sable. Such building contains
275,000 square feet of space which is utilized by the Company for its
hardware operations. On June 15, 1995, the Company entered into a new lease
which expires in 2010. Under the terms of the lease, the Company is
responsible for real estate taxes, building maintenance and all operating
expenses with respect to the premises. The Company has a right of first
refusal to purchase the premises during the lease term.
During fiscal 1995, the Company made lease payments to RAGS II of $365,000.
C. Other Transactions
For information with respect to certain other transactions with management,
see Item 10, DIRECTORS AND EXECUTIVE OFFICERS.
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
----------------------------------------------------------------
A. The following documents are filed as a part of this report on Form 10-K:
1.Financial Statements
Independent Auditors' Reports
Consolidated Statement of Operations - Years Ended August 31, 1995, 1994
and 1993
Consolidated Balance Sheet - August 31, 1995 and 1994
Consolidated Statement of Common Stockholders' Equity - Years Ended August
31, 1995, 1994 and 1993
Consolidated Statement of Cash Flows - Years Ended August 31, 1995, 1994
and 1993
Notes to Consolidated Financial Statements
2.Financial Statement Schedules
Report of Independent Accountants on Financial Statement Schedule
Schedule VIII - Valuation and Qualifying Accounts
Financial statement schedules not included in this Form 10-K have been
omitted because the required information either is not applicable or is
presented in the consolidated financial statements or notes thereto.
-15-
<PAGE>
3. Exhibits
3.1 Restated Articles of Organization, as amended - filed as an
exhibit to the Company's Registration on Form S-3, SEC
Registration No. 33-82458 (the "1994 Form S-3") and incorporated
herein by this reference.
3.2 By-laws, as amended - filed as an exhibit to the 1994 Form S-3
and incorporated herein by this reference.
4.1 Form of Stock Certificate for the Company's Common Stock, par
value $.01 per share - filed as an exhibit to the Company's
Registration Statement on Form S-14, SEC Registration No. 2-60857
(the "Form S-14') and incorporated herein by this reference.
4.2 Indenture dated as of June 1, 1987 with Manufacturers Hanover
Trust Company, as Trustee (including form of 12 1/2% Senior
Subordinated Note due June 1, 1987) - filed as an exhibit to the
Company's Registration Statement on Form S-2, SEC Registration
No. 33-13587 (The "1987 Form S-2") and incorporated herein by
this reference.
4.3 Form of Stock Certificate for the Company's Preferred Stock, par
value $100 per share-filed as an exhibit to the Company's
Quarterly Report on Form 10-Q for the quarter ended November 30,
1991 and incorporated herein by this reference.
4.4 Warrant Agreement dated as of May 31, 1994 and form of Common
Stock Purchase Warrant Certificate - filed as exhibits to the
Company's Quarterly Report on Form 10-Q for the quarter ended May
31, 1994 (the "May, 1994 Form 10-Q") and incorpoated herein by
this reference.
10.1 Lease dated November 25, 1985 with RAGS III - filed as an exhibit
to the Company's Current Report on Form 8-K dated December 11,
1985 (the "December, 1985 Form 8-K") and incorporated herein by
this reference.
10.2 First Amended and Restated Lease dated as of May 1, 1990 with
RAGS II - filed as an exhibit to the Company's Annual Report on
Form 10-K for the year ended August 31, 1990 and incorporated
herein by this reference.
10.3 Assignment and Assumption Agreement dated December 31, 1984 with
RAGS II - filed as an exhibit to the Company's Current Report on
Form 8-K dated January 4, 1985 (the "January, 1985 Form 8-K") and
incorporated herein by this reference.
10.4 Assignment and Assumption Agreement dated December 31, 1984 with
RAGS II - filed as an exhibit to the January, 1985 Form 8-K and
incorporated herein by this reference.
10.5 Assignment and Assumption Agreement dated October 31, 1985 with
RAGS III - filed as an exhibit to the December, 1985 Form 8-K and
incorporated herein by this reference.
10.6 License Agreement dated April 24, 1985 with Sudbury Laboratories,
Inc.-filed as an exhibit to the 1987 Form S-2 and incorporated
herein by this reference.
10.7 1987 Incentive Stock Option Plan - filed as an exhibit to the
Company's Registration Statement on Form S-8 dated August 2, 1994
(the "Form S-8") and incorporated herein by this reference.
10.8 Form of Incentive Stock Option Agreement - filed as an exhibit to
the Form S-8 and incorporated herein by this reference.
10.9 1987 Non-Statutory Stock Option Plan - filed as an exhibit to the
Form S-8 and incorporated herein by this reference.
-16-
<PAGE>
10.10 Form of Non-Statutory Stock Option Agreement - filed as an
exhibit to the Form S-8 and incorporated herein by this
reference.
10.11 License Agreement dated January 2, 1991 with RemGrit
Corporation - filed as an exhibit to the Company's Current Report
on Form 8-K dated January 16, 1991 (the "January, 1991 Form 8-K")
and incorporated herein by this reference.
10.12 Security Agreement dated January 2, 1991 with RemGrit
Corporation - filed as an exhibit to the January, 1991 Form 8-K
and incorporated herein by this reference.
10.13 Senior Subordinated Promissory Note dated March 1, 1992 to
RemGrit Corporation - filed as an exhibit to the Company's
Quarterly Report on Form 10-Q for the quarter ended February 29,
1992 and incorporated herein by this reference.
10.14 Agreement dated December 4, 1992 with Paul Morigi & Company, Inc.
and incorporated herein by this reference.
10.15 Agreement dated February 17, 1993 between Phillips Screw Company
and WKM Investments - filed as an exhibit to the Company's
Quarterly Report on Form 10-Q for the quarter ended February 28,
1993 and incorporated herein by this reference.
10.16 Asset Purchase Agreement dated March 16, 1993 between Silver
Metal Products, Inc. and SMP Acquisition Corporation, including
exhibits - filed as an exhibit to the Company's Current Report on
Form 8-K dated May 17, 1993 (the "May, 1993 Form 8-K") and
incorporated herein by this reference.
10.16.1 Agreement for the Modification and Amendment of Asset Purchase
Agreement dated as of April 15, 1993 between Silver Metal
Products, Inc. and SMP Acquisition Corporation - filed as an
exhibit to the May, 1993 Form 8-K and incorporated herein by this
reference.
10.17 Asset Purchase Agreement dated as of July 8, 1993 between
Phillips Screw Company and Phillips One Acquisition Corporation
including Guaranty and Indemnity Agreement from the Company -
filed as an exhibit to the Company's Current Report on Form 8-K
dated September 2, 1993 and incorporated herein by this
reference.
10.18 Asset Purchase Agreement dated as of November 22, 1993 between
Rule Manufacturing, Inc. and The Disston Company, including
exhibits - filed as an exhibit to the Company's Current Report on
Form 8-K dated January 20, 1994 (the "January, 1994 Form 8-K")
and incorporated herein by this reference.
10.19 Non-Competition Agreement dated May 20, 1994 with Henry G.
Libby - filed as an exhibit to the Company's Current Report on
Form 8-K dated June 3, 1994 (the "June, 1994 Form 8-K") and
incorporated herein by this reference.
10.20 $2,000,000 Subordinated Debenture dated May 20, 1994 payable to
The Disston Company - filed as an exhibit to the June 20, 1994
Form 8-K and incorporated herein by this reference.
10.20.1 Guaranty of the Company dated May 20, 1994 to The Disston
Company - filed with the exhibits in the January, 1994 Form 8-K
and incorporated herein by this reference.
10.21 $1,600,000 Subordinated Debenture dated May 20, 1994 payable to
Henry G. Libby - filed as an exhibit to the June, 1994 Form 8-K
and incorporated herein by this reference.
10.21.1 Guaranty of the Company dated May 20, 1994 to Henry G. Libby -
filed with the exhibits in the January, 1994 Form 8-K and
incorporated herein by this reference.
10.22 Common Stock Purchase Warrant dated May 20, 1994 with Henry G.
Libby - filed as an exhibit to the June, 1994 Form 8-K and
incorporated herein by this reference.
-17-
<PAGE>
10.23 Non-Qualified Stock Option Agreement dated April 1, 1994 with
Henry G. Libby - filed as an exhibit to the June, 1994 Form 8-K
and incorporated herein by this reference.
10.24 Employment Agreement dated May 20, 1994 with Henry G. Libby -
filed with the exhibits in the January, 1994 Form 8-K and
incorporated herein by this reference.
10.25 Agreement for Assumption of Liabilities dated May 20, 1994 with
The Disston Company - filed as an exhibit to the June, 1994 Form
8-K and incorporated herein by this reference.
10.26 Assignment of Lease dated August 5, 1994 with The Disston Company
and incorporated herein by this reference.
10.27 Securities Purchase Agreement for Notes and Warrants dated as of
May 31, 1994 - filed as an exhibit to the May, 1994 Form 10-Q and
incorporated herein by this reference.
10.28 Warrant dated as of June 30, 1994 with The CIT Group/Credit
Finance Inc. - filed as an exhibit to the 1994 Form S-3 and
incorporated herein by this reference.
10.29 Credit Agreement dated as of September 21, 1994 with BayBank -
filed as an exhibit to the Company's Current Report on Form 8-K
dated September 26, 1994 (the "September, 1994 Form 8-K") and
incorporated herein by this reference.
10.30 Revolving Note dated as of September 21, 1994 with BayBank -
filed as an exhibit to the September, 1994 Form 8-K and
incorporated herein by this reference.
10.31 Term Note dated as of September 21, 1994 with BayBank - filed as
an exhibit to the September, 1994 Form 8-K and incorporated
herein by this reference.
10.32 Equipment Note dated as of September 21, 1994 with BayBank -
filed as an exhibit to the September, 1994 Form 8-K and
incorporated herein by this reference.
10.33 Security Agreement dated as of September 21, 1994 with BayBank -
filed as an exhibit to the September, 1994 Form 8-K and
incorporated herein by this reference.
10.34 Security Agreement - Intellectual Property dated as of September
21, 1994 with BayBank - filed as an exhibit to the September,
1994 Form 8-K and incorporated herein by this reference.
10.35 Pledge and Security Agreement dated as of September 21, 1994 with
BayBank - filed as an exhibit to the September, 1994 Form 8-K and
incorporated herein by this reference.
10.36 Specimen form of Subsidiary Guaranty dated as of September 21,
1994 with BayBank - filed as an exhibit to the September, 1994
Form 8-K and incorporated herein by this reference.
10.37 Specimen form of Subsidiary Security Agreement dated as of
September 21, 1994 with BayBank - filed as an exhibit to the
September, 1994 Form 8-K and incorporated herein by this
reference.
10.38 Specimen form of Subsidiary Security Agreement - Intellectual
Property dated as of September 21, 1994 with BayBank - filed as
an exhibit to the September, 1994 Form 8-K and incorporated
herein by this reference.
10.39 First Amendment to Credit Agreement and Amended and Restated Note
with BayBank dated March 31, 1995 - filed as an exhibit to the
February 28, 1995 Form 10-Q and is incorporated herein by this
reference.
-18-
<PAGE>
10.40 Agreement and Plan of Merger with Greenfield Industries, Inc. and
Rule Acquisition Corporation dated August 11, 1995 - filed as an
exhibit to the August, 1995 Form 8-K and incorporated herein by
this reference.
10.41 Lease dated June 15, 1995 with RAGS II (filed herewith).
10.42 First Lease Amendment dated October 18, 1995 with RAGS III (filed
herewith).
10.43 Purchase and Sale Agreement dated October 18, 1995 between RAGS
III and Rule Industries, Inc. (filed herewith).
10.44 Settlement Agreement dated November 20, 1995 between the Company,
Greenfield, Messrs. Geishecker, Sable, Libby and Anastos (filed
herewith).
10.45 Amendment No. 1 dated November 21, 1995 to the Agreement and Plan
of Merger with Greenfield Industries, Inc. (filed herewith).
<TABLE>
<CAPTION>
21.1 Subsidiaries State of Incorporation
------------ ----------------------
<S> <C>
Rule Cutting Tools, Inc. Massachusetts
Rule Manufacturing, Inc. Massachusetts
RemGrit Abrasive Tools, Inc. Massachusetts
Disston-Canada, Inc. Ontario, Canada
Rule International, Inc. (FSC) U.S. Virgin Islands
Rule Paint & Chemical, Inc. Massachusetts
Rule Corporation Delaware
</TABLE>
All of the subsidiaries listed above are included in the
Company's consolidated financial statements.
23.1 Consent of Deloitte & Touche LLP regarding Form S-8 and Form S-3
Registration Statements incorporated herein by this reference.
23.2 Consent of Price Waterhouse LLP regarding Form S-8 and Form S-3
Registration Statements (filed herewith).
27 Financial Data Schedule (EX-27)
B. Reports on Form 8-K
1. The Company filed a Report on Form 8-K dated August 11, 1995 which
reported under Item 5 that the Company had entered into an Agreement and
Plan of Merger with Greenfield Industries, Inc.
2. The Company filed a Report on Form 8-K/A (Amendment No. 1) dated September
1, 1995 which reports that the Company had terminated KPMG Peat Marwick
LLP and engaged Price Waterhouse LLP as auditors.
-19-
<PAGE>
SIGNATURES
----------
Pursuant to the requirements of Section 13 and 15(d) of the Securities Exchange
Act of 1934, the Registrant had duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
Date: December 4, 1995 RULE INDUSTRIES, INC.
------------------------
By: /s/ Gary M. Sable
--------------------------------------
Gary M. Sable
Vice President
Chief Operating Officer
By: /s/ John A. Geishecker, Jr.
--------------------------------------
John A. Geishecker, Jr.
Vice President
Chief Financial Officer
By: /s/ Albert J. Sabbag
--------------------------------------
Albert J. Sabbag
Corporate Controller
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the Registrant and
in the capacities and on the dates indicated.
/s/ Gary M. Sable Date: December 4. 1995
- -------------------------------------- ---------------------------------
Gary M. Sable, Director
/s/ John A. Geishecker, Jr. Date: December 4, 1995
- -------------------------------------- ---------------------------------
John A. Geishecker, Jr., Director
/s/ Owen B. Lynch Date: December 4, 1995
- -------------------------------------- ---------------------------------
Owen B. Lynch, Director
-20-
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and
Shareholders of Rule Industries, Inc.
In our opinion, the accompanying consolidated balance sheet and the related
consolidated statements of operations, of common stockholders' equity and
of cash flows present fairly, in all material respect, the financial
position of Rule Industries, Inc. and its subsidiaries at August 31, 1995,
and the result of their operations and their cash flows for the year then
ended in conformity with generally accepted accounting principles. These
financial statements are the responsibility of the Company's management;
our responsibility is to express an opinion on these financial statements
based on our audits. We conducted our audit of these statements in
accordance with generally accepted auditing standards which require that we
plan and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures
in the financial statements, assessing the accounting principles used and
significant estimates made by managements, and evaluating the overall
financial statement presentation. We believe that our audits provides a
reasonable basis for the opinion expressed above. The consolidated
financial statements of Rule Industries, Inc. as of August 31, 1994 and for
each of the two years in the period ended August 31, 1994 were audited by
other independent accountants whose report dated December 12, 1994
expressed an unqualified opinion on those statements.
As explained in Note 14, on August 11, 1995, Rule Industries, Inc. entered
into an Agreement and Plan of Merger with Greenfield Industries, Inc.
whereby Rule Industries, Inc. will become a wholly owned subsidiary of
Greenfield Industries, Inc., subject to approval by Rule Industries, Inc.
common shareholders.
PRICE WATERHOUSE LLP
St. Louis, Missouri
October 27, 1995, except for Note 5 which is as November 30, 1995
F-1
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Stockholders and Directors of Rule Industries, Inc.:
We have audited the accompanying consolidated balance sheet of Rule
Industries, Inc. and its subsidiaries as of August 31, 1994, and the
related consolidated statements of operations, common stockholders' equity,
and cash flows for each of the two years in the period ended August 31,
1994. Our audits also included the financial statement schedules listed in
the Index at Item 14. These financial statements and financial statement
schedules are the responsibility of the Company's management. Our
responsibility is to express an opinion on the financial statements and
financial statement schedules based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used
and significant estimates made by management, as well as evaluating the
overall financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in
all material respects, the financial position of Rule Industries, Inc. and
its subsidiaries at August 31, 1994, and the results of their operations
and their cash flows for each of the two years in the period ended August
31, 1994 in conformity with generally accepted accounting principles. Also,
in our opinion, such financial statement schedules, when considered in
relation to the basic consolidated financial statements taken as a whole,
present fairly in all material respects the information set forth therein.
As discussed in Note 1 to the consolidated financial statements, the
Company changed its method of accounting for income taxes in 1994.
DELOITTE & TOUCHE LLP
Boston, Massachusetts
December 12, 1994
F-2
<PAGE>
RULE INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF OPERATIONS
YEARS ENDED AUGUST 31, 1995, 1994 AND 1993
<TABLE>
<CAPTION>
1995 1994 1993
---------- ---------- ---------
(in thousands, except share and per share amounts)
<S> <C> <C> <C>
Net Revenues $ 68,458 $ 63,919 $ 48,334
---------- ---------- ----------
Cost and Expenses
Cost of revenues (includes rent to related parties (Note 11)) 49,155 43,648 33,894
Selling, general and administrative expenses 15,874 15,160 11,486
U.S. Anchor litigation (Note 10) (2,463)
---------- ---------- ----------
65,029 56,345 45,380
---------- ---------- ----------
Operating Income 3,429 7,574 2,954
---------- ---------- ----------
Other (Income) Expenses
Interest expense (includes interest to related parties (Note 5c)) 4,106 3,290 3,153
Gain on sale of investment (Note 1c) (864)
Merger related costs (Note 14) 454
Other, net (35) 208 233
---------- ---------- ----------
3,661 3,498 3,386
---------- ---------- ----------
Income (Loss) from Continuing Operations Before Income Taxes (232) 4,076 (432)
Income Tax Benefit (Provision) (Notes 1 and 7) 316 (896) 313
---------- ---------- ----------
Income (Loss) from Continuing Operations 84 3,180 (119)
Loss from Discontinued Operations (Note 13) (74)
---------- ---------- ----------
Income (Loss) Before Extraordinary Item 84 3,180 (193)
Extraordinary Item:
Costs related to early extinguishment of debt (net of
income tax benefit of $316,000) (Notes 1 and 5(a)) (613)
---------- ---------- ----------
Net Income (Loss) (529) 3,180 (193)
Dividends on Preferred Stock (24) (289) (275)
---------- ---------- ----------
Net Income (Loss) Applicable to Common Stockholders $ (553) $ 2,891 $ (468)
========== ========== ==========
Weighted Average Number of Common Shares Outstanding
Primary 2,690,683 2,277,743 2,206,177
========== ========== ==========
Fully Diluted 2,776,711 2,685,544 2,619,819
========== ========== ==========
Earnings (Loss) Per Common Share:
Primary:
From Continuing Operations $ .03 $ 1.27 $ ( .18)
From Discontinued Operations ( .03)
---------- ---------- ----------
Income (Loss) Before Extraordinary Item .03 1.27 ( .21)
Extraordinary Item ( .23)
---------- ---------- ----------
Net Income (Loss) Per Common Share (Note 1) $ ( .20) $ 1.27 $ ( .21)
========== ========== ==========
Fully Diluted:
From Continuing Operations $ .03 $ 1.18 $ ( .18)
From Discontinued Operations ( .03)
---------- ---------- ----------
Income (Loss) Before Extraordinary Item .03 1.18 ( .21)
Extraordinary Item ( .23)
---------- ---------- ----------
Net Income (Loss) Per Common Share (Note 1) $ ( .20) $ 1.18 $ ( .21)
========== ========== ==========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-3
<PAGE>
RULE INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
AUGUST 31, 1995 AND 1994
<TABLE>
<CAPTION>
ASSETS
1995 1994
------- -------
(in thousands)
<S> <C> <C>
Current Assets
Cash $ 37 $ 56
Accounts receivable (less allowance for doubtful
accounts of $368,000 and $422,000) 9,057 11,866
Inventories (Notes 1 and 3) 19,947 19,176
Prepaid expenses and other current assets (Note 1) 663 1,180
-------- --------
Total Current Assets 29,704 32,278
-------- --------
Property and equipment (Notes 1 and 4) 28,911 26,533
Less accumulated depreciation (15,814) (14,003)
-------- --------
13,097 12,530
-------- --------
Other Assets
Deferred finance charges, net (Notes 1 and 5) 290 758
Goodwill, patents, licenses, formulas, trademarks and
other intangibles, net (Note 1) 19,935 20,190
Other non-current assets (Note 1) 859 887
-------- --------
21,084 21,835
-------- --------
Total Assets $ 63,885 $ 66,643
======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements
F-4
<PAGE>
RULE INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
AUGUST 31, 1995 AND 1994
<TABLE>
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY
1995 1994
-------- -------
(in thousands)
<S> <C> <C>
Current Liabilities
Current portion of long term debt (including related party
debt of $720,000 and $650,000 in 1995
and 1994, respectively (Note 5)) $ 4,125 $ 7,551
Demand notes payable (Note 5) 2,000
Accounts payable 6,642 9,293
Accrued expenses
Payroll and related expenses 815 1,000
Interest (Note 5) 517 474
Income taxes payable (Note 7) 675 610
Other (Notes 1 and 8) 2,134 3,288
Amounts due to Disston and its shareholder (Note 2) 1,080 2,520
------- -------
Total Current Liabilities 17,988 24,736
------- -------
Long-Term Debt (Note 5) (including related party debt of $2,880,000
and $2,646,000 in 1995 and 1994, respectively) 32,550 27,188
------- -------
Deferred Income Taxes (Notes 1 and 7) 605 1,389
------- -------
Commitments and Contingencies (Notes 10 and 11)
Redeemable Convertible Preferred Stock,
8% cumulative, $100 par value, authorized, 100,000
shares, issued and outstanding, 36,100 shares
at August 31, 1994 (Note 6) 3,610
-------
Common Stockholders' Equity (Note 9)
Common stock, $.01 par value, authorized 5,000,000
shares, issued 3,316,173 and 2,895,044 shares at August 31, 1995
and 1994 respectively; outstanding 2,644,407 and 2,222,260 in 1995
and 1994, respectively 33 29
Additional paid-in capital 4,926 1,335
Retained earnings (Notes 5 and 6) 10,879 11,432
Treasury stock, at cost, 671,766 and 672,784 shares
at August 31, 1995 and 1994, respectively (3,096) (3,076)
------- -------
Total Common Stockholders' Equity 12,742 9,720
------- -------
Total Liabilities and Stockholders' Equity $63,885 $66,643
======= =======
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements
F-5
<PAGE>
RULE INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF COMMON STOCKHOLDERS' EQUITY
YEARS ENDED AUGUST 31, 1995, 1994 AND 1993
<TABLE>
<CAPTION>
Additional Investment
Common Stock Paid-in Retained Treasury Valuation
------------
Shares Amount Capital Earnings Stock Allowance Total
------ ------ ------- -------- ----- --------- -----
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, August 31, 1992 2,879,144 $29 $1,203 $ 9,009 $(3,076) $(268) $ 6,897
Net loss (193) (193)
Unrealized loss on noncurrent marketable
equity securities (86) (86)
Recognized loss on noncurrent marketable
equity securities 112 112
Dividends on redeemable convertible preferred
stock (275) (275)
--------- --- ------- ------- ------- ------ -------
Balance, August 31, 1993 2,879,144 29 1,203 8,541 (3,076) (242) 6,455
Net income 3,180 3,180
Issuance of 183 treasury shares in exchange for
Phillips Screw Company shares
Issuance of stock option as purchase
consideration 25 25
Issuance of warrants 41 41
Issuance of 15,900 shares for options exercised 15,900 66 66
Unrealized loss on noncurrent marketable
equity securities 242 242
Dividends on redeemable convertible preferred
stock (289) (289)
--------- --- ------- ------- ------- ------ -------
Balance, August 31, 1994 2,895,044 29 1,335 11,432 (3,076) -- 9,720
Net loss (529) (529)
Issuance of 28 treasury shares in exchange for
Phillips Screw Company shares
Issuance of 401,129 shares for conversion of
preferred stock 401,129 4 3,484 3,488
Issuance of 3,875 treasury shares for warrants
exercised 21 18 39
Issuance of 20,000 shares for options exercised 20,000 86 86
Purchase of 2,885 shares for treasury (38) (38)
Dividends on redeemable convertible preferred
stock (24) (24)
--------- --- ------- ------- ------- ------ -------
Balance, August 31, 1995 3,316,173 $33 $4,926 $10,879 $(3,096) -- $12,742
========= === ====== ======= ======= ====== =======
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-6
<PAGE>
RULE INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
YEARS ENDED AUGUST 31, 1995, 1994 AND 1993
<TABLE>
<CAPTION>
1995 1994 1993
--------- --------- ---------
(in thousands)
<S> <C> <C> <C>
Cash Flows from Operating Activities
Net income (loss) $ (529) $ 3,180 $ (193)
Adjustments to reconcile net income (loss) to net
cash provided by operating activities
Depreciation 1,811 1,569 1,429
Amortization of other assets 1,998 1,727 1,067
Amortization of discount on senior subordinated notes 165 87 53
Loss from discontinued operations 74
Write-off of deferred financing costs 459
Write-off of discount on debt 222
Recognized (gain) loss on marketable equity securities (864) 225 112
Deferred income taxes (784) 125 (420)
Changes in current assets and liabilities, excluding the
effects of acquisitions and dispositions:
Accounts receivable 2,809 (5,360) (155)
Inventories (771) 3,163 (31)
Refundable income taxes 71
Prepaid expenses and other current assets (16) (628) 98
Accrual for estimated litigation costs (2,663) (422)
Accounts payable (2,651) 3,528 (727)
Accrued expenses (1,231) 421 706
Amounts due from The Disston Company (932) (687)
Other 722 122
-------- -------- --------
Net Cash Provided by Operating Activities 618 5,164 1,097
-------- -------- --------
Cash Flows from Investing Activities
Acquisition of property and equipment (2,378) (2,278) (1,531)
Proceeds from sale of investment in marketable securities 1,397
Patents, trademark and other intangibles (248) (74)
Disston acquisition - net assets acquired for cash (Note 2) (14,400)
Collection of purchased receivables 7,470
Payments of amounts due to The Disston Company (3,033) (1,741)
-------- -------- --------
Net Cash Used in Investing Activities (4,014) (11,197) (1,605)
-------- -------- --------
Cash Flows from Financing Activities
Proceeds from short-term borrowings 21,752 71,306 13,660
Repayments of short-term borrowings (16,367) (65,709) (14,480)
Proceeds from long-term debt 7,020 3,721 49,016
Repayments of long-term debt (8,856) (3,063) (54,585)
Deferred finance charges (234) (381)
Proceeds from issuance of redeemable preferred stock 500
Proceeds from issuance of stock options, net 86 66
Preferred dividends paid (24) (289) (269)
-------- -------- --------
Net Cash Provided by (Used in) Financing Activities 3,377 6,032 (6,539)
-------- -------- --------
Net Cash Used in Continuing Operations (19) (1) (7,047)
Net Cash Provided by Discontinued Operations 7,104
-------- -------- --------
Net Increase (Decrease) in Cash (19) (1) 57
Cash, Beginning of Year 56 57
-------- -------- --------
Cash, End of Year $ 37 $ 56 $ 57
======== ======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-7
<PAGE>
RULE INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED AUGUST 31, 1995, 1994 AND 1993
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
a. Principles of Consolidation
---------------------------
The consolidated financial statements include the accounts of Rule
Industries, Inc. and its subsidiaries (the Company), all of which are
wholly owned. Significant intercompany transactions and balances have
been eliminated in consolidation.
b. Inventories
-----------
Inventories are stated at the lower of cost or market, based on the
first-in, first-out (FIFO) method. Inventory cost includes the cost of
materials, direct labor and manufacturing overhead.
c. Other Current Assets
--------------------
Other current assets in 1994 include the Company's investment of 171,983
shares of common stock of Datamarine International Inc., (Datamarine), a
publicly owned company. The cost of the Company's investment in
Datamarine was $1,143,000. The carrying value of this investment was
$533,000 and $758,000 at August 31, 1994 and 1993, respectively, and
represented the Company's underlying equity in the net assets of
Datamarine. In September 1994, the Company sold its investment in
Datamarine for $1,397,000, resulting in a pre-tax gain of $864,000 which
was recognized in the first quarter of fiscal 1995.
d. Property and Equipment
----------------------
Property and equipment are carried at cost. Depreciation is computed
using the straight-line method over the estimated useful lives of the
assets. When assets are retired or otherwise disposed of, the cost and
related accumulated depreciation are removed from the accounts and any
resulting gain or loss is reflected in income for the period. The cost
of maintenance and repairs is charged to income as incurred. Significant
renewals and betterments are capitalized.
e. Financing Costs
---------------
Deferred finance charges consist of costs incurred in obtaining debt
financing and issuing redeemable preferred stock. Such amounts are
carried at cost, less accumulated amortization of $826,000 and
$1,212,000 at August 31, 1995 and 1994, respectively. Deferred finance
charges are amortized over the terms of the related agreements (Notes 5
and 6). As discussed in Note 5, the Company refinanced its term loan and
revolver debt on September 23, 1994. As of August 31, 1994, the
unamortized deferred finance charges related to the refinanced debt
totaled $459,000, which amount was charged as an extraordinary expense,
along with an early termination fee of $470,000, in the first quarter of
fiscal 1995 (Note 5).
f. Goodwill, Patents, Licenses, Formulas, Trademarks and Other Intangibles
-----------------------------------------------------------------------
Goodwill, patents, licenses, formulas, trademarks and other intangibles
consisted of the following at August 31:
<TABLE>
<CAPTION>
1995 1994
(in thousands)
-----------------
<S> <C> <C>
Goodwill (Note 2) $ 9,422 $ 7,840
Patents and trademarks (Note 2) 12,269 12,257
Non-compete agreements (Note 2) 4,465 4,465
Other intangibles 1,568 1,568
------- -------
27,724 26,130
Less accumulated amortization (7,789) (5,940)
------- -------
$19,935 $20,190
======= =======
</TABLE>
F-8
<PAGE>
RULE INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED AUGUST 31, 1995, 1994 AND 1993
Such costs are amortized using the straight-line method over their legal
or estimated useful lives, generally 5 to 17 years. The Company
periodically evaluates the recoverability of the above intangible assets
based upon the anticipated cash flows of the related product lines.
Management believes that there has been no impairment in value as of
August 31, 1995.
g. Other Non-Current Assets
------------------------
Other non-current assets include real property held for sale at August
31, 1995 with a net book value of $525,000. Management believes that,
based upon recent studies, the estimated realizable value is in excess
of net book value.
h. Income Taxes
------------
Through August 31, 1993, income taxes have been determined for financial
reporting purposes using the provisions of Accounting Principles Board
Opinion No. 11, "Accounting for Income Taxes".
The Company adopted Statement of Financial Accounting Standards No. 109,
"Accounting for Income Taxes", effective September 1, 1993. This
statement required the Company to adopt an asset and liability approach
to accounting for income taxes, whereby deferred tax assets or
liabilities are based on the future expected values of the related
assets and liabilities. The adoption of FASB No. 109, which was applied
prospectively, did not have a material effect on the Company's financial
statements.
i. Engineering and Development Expenses
------------------------------------
Engineering and development expenses are expensed when incurred. The
portion which relates to research and development is included in
selling, general and administrative expenses, and the portion relating
to manufacturing engineering is included in cost of revenues. The
following summarizes the amount of engineering and development expenses
reflected in the financial statements:
<TABLE>
<CAPTION>
1995 1994 1993
(in thousands)
----------------------
<S> <C> <C> <C>
Selling, general and administrative $ 595 $ 546 $ 517
Cost of revenues 699 640 608
------ ------ ------
Total engineering and development expenses $1,294 $1,186 $1,125
====== ====== ======
</TABLE>
j. Net Income (Loss) Per Common Share
----------------------------------
Primary earnings (loss) per share are computed using the weighted
average number of common and common equivalent shares (dilutive options
and warrants) outstanding. In addition to the inclusion of common and
common equivalent shares, the calculation of fully diluted earnings
(loss) per share includes the 401,129 shares issuable through the date
of conversion of the preferred stock. Fully diluted earnings (loss) per
share assumes that the preferred stock was converted into common stock
as of the beginning of the fiscal year and reflects the elimination of
dividends.
k. Cash Flow Information
---------------------
See Note 6 for information regarding the exchange of redeemable
convertible preferred stock for common stock.
Cash payments for interest and income taxes were as follows:
<TABLE>
<CAPTION>
1995 1994 1993
(in thousands)
-----------------------
<S> <C> <C> <C>
Interest $4,063 $3,321 $3,225
Income taxes 88 452 ---
</TABLE>
F-9
<PAGE>
RULE INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED AUGUST 31, 1995, 1994, AND 1993
l. Concentrations of Credit Risk
-----------------------------
Financial instruments that potentially subject the Company to credit
risk consist principally of trade accounts receivable for which
collateral is generally not required. The Company's customers are
primarily in the hardware and marine industries, with no significant
concentrations of credit risk due to the large number of customers in
each industry. Management maintains reserves for potential credit losses
and historically such losses have been within management's expectations.
In addition, the Company maintains credit insurance on accounts
receivable from most international customers.
m. Revenue Recognition
-------------------
Revenue is recognized when products are shipped.
n. Foreign Currency Translation
----------------------------
Assets and liabilities of the Company's Canadian subsidiary are
translated into U.S. dollars at year-end rates; revenues and expenses
are translated at average rates of exchange prevailing during the year.
Foreign currency transaction gains and losses are recognized in income
currently. For the years ended August 31, 1995 and 1994, transaction
gains and losses were not material to the consolidated financial
statements. The Company has had no foreign currency transactions in
prior years.
o. Fair Value of Financial Instruments
-----------------------------------
For purposes of financial reporting, the Company has determined that the
fair value of financial instruments approximates book values at August
31, 1995, based on terms currently available to the Company in financial
markets.
p. Reclassifications
-----------------
Certain prior year amounts have been reclassified to conform to the
current year presentation.
2. ACQUISITION
In November 1993, the Company's subsidiary, Rule Manufacturing, Inc.,
entered into an agreement to acquire certain assets of The Disston Company
(Disston). This agreement was subject to the completion of financing
arrangements which occurred on January 6, 1994. Under the terms of the
agreement, the assets were acquired at various dates during the period
January 6 to May 20, 1994, at which time the acquisition was completed. On
March 1, 1994, the Company began selling Disston products and, accordingly,
the results of operations of Disston are included from that date.
The acquisition has been accounted for as a purchase with an aggregate
purchase price of $36,750,000. The purchase price consisted of the
following:
<TABLE>
<CAPTION>
(in thousands)
<S> <C>
Cash $14,400
Surrendering of amounts due from Disston 8,696
Accounts payable assumed and accrued liabilities 4,113
Issuance of debentures and stock options (Notes 5 and 9a) 3,528
Amounts payable to Disston 5,513
Amounts payable to Disston's principal shareholder 500
-------
$36,750
=======
</TABLE>
At August 31, 1995, other current liabilities include amounts payable to
Disston and the principal shareholder of Disston totaling $930,000 and
$150,000, respectively, excluding the Subordinated Debentures (Note 5c).
Subsequent to May 20, 1994, the principal shareholder of Disston became an
officer of the Company and is deemed to be a related party. In addition,
the Company entered into a non-competition agreement with the principal
shareholder of Disston which provided for the issuance of a warrant to
purchase up to 100,000 shares of the Company's common stock at an exercise
price of $10 per share (Note 9b).
F-10
<PAGE>
RULE INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED AUGUST 31, 1995, 1994 AND 1993
The principal shareholder of Disston also received a non-qualified stock
option to purchase up to 100,000 shares of the Company's common stock over
an eight year period at an exercise price of $5 per share, subject to
continuous employment with the Company (Note 9a).
The purchase price included approximately $3,056,000 of estimated future
costs related to arbitration proceedings between Disston and a former owner
of Disston. The Company is not a party to the arbitration proceedings nor
the action that gave rise to these proceedings. In connection with the
pending merger with Greenfield, a Liquidating Trust will be established
which may receive certain proceeds in the event of a favorable outcome of
the arbitration proceedings (Note 14).
The cost of the acquisition has been allocated based upon the estimated
fair values of the assets acquired and the liabilities assumed. After
allocating $6,420,000 to tradenames, the excess of cost over net assets
acquired amounted to $8,350,000, which has been recorded as goodwill and is
being amortized over 15 years.
The following unaudited pro forma information has been prepared as if the
operations of Disston had been included at the beginning of the periods
presented. These amounts are not necessarily indicative of the actual
results of operations had Disston been combined with Rule for the periods
presented.
<TABLE>
<CAPTION>
1994 1993
(in thousands, except per share amounts)
--------------------------------------
(unaudited)
<S> <C> <C>
Revenues $77,942 $78,378
======= =======
Income from Continuing Operations $ 3,508 $ 566
======= =======
Net Income $ 3,508 $ 492
======= =======
Net Income Applicable to Common Stockholders $ 3,219 $ 217
======= =======
Primary Earnings Per Common Share
From Continuing Operations $ 1.41 $ .13
======= =======
Net Income $ 1.41 $ .10
======= =======
Fully Diluted Earnings Per Common Share
From Continuing Operations $ 1.31 $ .13
======= =======
Net Income $ 1.31 $ .10
======= =======
</TABLE>
3. INVENTORIES
Inventories consisted of the following at August 31:
<TABLE>
<CAPTION>
1995 1994
(in thousands)
----------------------
<S> <C> <C>
Raw material $ 9,188 $ 8,788
Work-in-progress 1,269 1,356
Finished goods 9,490 9,032
-------- ---------
$ 19,947 $ 19,176
======== =========
</TABLE>
F-11
<PAGE>
RULE INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED AUGUST 31, 1995, 1994 AND 1993
4. PROPERTY AND EQUIPMENT
Property and equipment, at cost, and their estimated economic useful lives
were as follows at August 31:
<TABLE>
<CAPTION>
Estimated
1995 1994 Useful Lives
(in thousands
---------------- ------------
<S> <C> <C> <C>
Building and improvements $ 761 $ 717 5 - 20
Machinery and equipment 20,208 18,178 5 - 16
Molds and dies 6,655 6,378 5 - 10
Transportation equipment 1,287 1,260 5 - 10
------- -------
$28,911 $26,533
======= =======
</TABLE>
5. LONG TERM DEBT AND DEMAND NOTES PAYABLE
Long term debt and demand notes payable at August 31:
<TABLE>
<CAPTION>
1995 1994
(in thousands)
-------------------------
<S> <C> <C>
Term loans (a) (e) $ 6,642 $ 3,075
Revolver debt (a) 17,200 11,813
12 1/2% Senior subordinated notes (b) 9,233 11,039
6 1/2% Subordinated debentures (c) 3,600 3,296
10% Notes (d) 2,117
RemGrit notes (f) 2,000 3,399
------- -------
38,675 34,739
Less amount currently payable 6,125 7,551
------- -------
$ 32,550 $ 27,188
======== ========
</TABLE>
(a) On December 24, 1992, the Company entered into a long-term senior
credit agreement with an initial maturity in December 1994. On January
6, 1994, the Company entered into a revised credit agreement with the
same senior lender which increased the revolving debt by approximately
$6,000,000, the proceeds of which were used to acquire certain tangible
assets of Disston. In addition, the maturity of the credit agreement
was extended to December 1995. The agreement provided for total
borrowings which were based upon eligible assets that included
inventories, trade accounts receivable, and machinery and equipment
(borrowing base) and, at August 31, 1994, borrowings under the
agreement approximated the borrowing base. Borrowings under the
agreement bore interest at prime plus 2% and were collateralized by
substantially all of the assets of the Company not pledged under other
debt agreements. The Company paid an annual facility fee of $150,000
plus 1/2 of 1% of the average outstanding daily balance.
F-12
<PAGE>
RULE INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED AUGUST 31, 1995, 1994 AND 1993
On September 23, 1994, the Company entered into a long-term credit
agreement with a new senior lender, the proceeds of which were used to
repay the existing revolving debt, certain term loans, and retire the
balance remaining on the 10% Notes issued in June 1994 (Note 5 (d)).
The Company paid an early termination fee of $470,000 to its previous
senior lender as a result of refinancing this debt prior to its
maturity. This amount, in addition to the unamortized deferred finance
costs on the refinanced debt, was charged as an extraordinary expense
in the first quarter of fiscal 1995. The new agreement provides for
total borrowings of up to $26,000,000 based upon eligible assets
including inventories, trade accounts receivable, and machinery and
equipment. The credit facility is collateralized by substantially all
assets of the Company and consists of a $17,500,000 three-year
revolving loan, a $6,000,000 term loan, and a $2,500,000 term loan
available for new equipment financing. At August 31, 1995, borrowings
under the revolving and term credit agreements approximated the
borrowing base, and availability under the equipment financing facility
was approximately $1,480,000. Term borrowings under the agreement are
to be repaid quarterly over five years and bear interest at prime plus
3/4%. Revolver borrowings bear interest at prime plus 1/2% or LIBOR
plus 2 1/2%. The revolving credit facility expires September 15, 1996
and the term loan with the same senior lender expires on December 31,
1999. Under the terms of the credit agreement, the Company, among other
things, is restricted from paying dividends and is required to meet
certain financial covenants. As of August 31, 1995, the Company was not
in compliance with certain financial covenants under the new credit
agreement, and such non-compliance was waived by the Company's senior
lender.
(b) In June, 1987 the Company publicly issued $15,000,000 of senior
subordinated notes. The notes are redeemable at the option of the
Company, in whole or in part, at face value plus interest accrued to
the redemption date. The Company is required to redeem $1,875,000 of
the principal amount of the notes on June 1 of each year with the
balance due on June 1, 1997. The balance outstanding under the notes
was $9,375,000 and $11,250,000 at August 31, 1995 and 1994,
respectively. The notes bear interest at 12 1/2% per annum payable
semi-annually, and are subordinated to all present and future senior
indebtedness, as defined.
(c) Consideration for the Disston acquisition (Note 2) included the
issuance of a $2,000,000 subordinated debenture to Disston and a
$1,600,000 subordinated debenture to the principal shareholder of
Disston in connection with a non-competition agreement. Both debentures
bear interest at 6 1/2% per annum and are to be repaid in five equal
annual installments. Prior to the scheduled May, 1995 principal
payments, the parties agreed to defer such principal payments and make
the notes payable on demand. In addition, the interest rate increased
to 8.125% per annum. In November, 1995 the terms of the notes were
further amended whereby the May 20, 1995 principal payments of $720,000
were rescheduled to September 15, 1996 and the interest rate on both
notes remained at 8.125% per annum. All other terms of the original
subordinated debentures, including other scheduled principal payments,
remain unchanged. The Company recorded related party interest expense
of $341,000 and $92,000 for the years ended August 31, 1995 and 1994,
respectively.
(d) In June, 1994 the Company's wholly-owned subsidiary, Rule Cutting
Tools, Inc., issued $2,180,000 of 10% Notes due May 31, 1995 with
immediately exercisable warrants for the purchase of 54,500 shares of
Rule common stock. The warrants are exercisable until May 31, 1997 at a
price of $10 per share. In September, 1994 the Company repaid the Notes
in their entirety from the proceeds of the sale of Datamarine common
stock (Note 1c) and the refinancing of senior indebtedness. The Notes
were guaranteed by Rule Industries, Inc. and were collateralized by
171,983 shares of Datamarine common stock.
F-13
<PAGE>
RULE INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED AUGUST 31, 1995, 1994 AND 1993
(e) In December, 1991 the Company entered into an installment note
agreeement with a bank collateralized by certain equipment. The note
bears interest, payable monthly, at the bank's base floating rate plus
1 1/2% and is payable in monthly principal installments of $9,173 with
a final installment of $220,143 due on September 4, 1998. The principal
balance outstanding as of August 31, 1995 was $550,000.
Annual maturities of debt long term debt during the next five years are as
follows:
<TABLE>
<CAPTION>
Year Ending August 31 (in thousands)
--------------------- ------------
<S> <C>
1996 $ 4,125
1997 27,528
1998 2,251
1999 2,361
2000 410
</TABLE>
(f) In conjunction with the 1991 acquisition of RemGrit, the Company's
RemGrit Abrasive Tools, Inc. subsidiary issued notes to the seller
totaling $6,400,000, of which $2,000,000 and $3,399,000 were
outstanding at August 31, 1995 and 1994 respectively. These notes have
been renegotiated periodically and were scheduled to mature in December
1994. In November 1994, the Company made a $1,149,000 payment to the
holder and issued a new note for the balance outstanding of $2,000,000.
This note, which originally matured on February 1, 1996, was
subsequently replaced with a new note payable on demand which bears
interest payable quarterly at the annual rate of prime plus 1 1/2%, and
is included in demand notes payable on the August 31, 1995 Consolidated
Balance Sheet.
In September 1995, senior indebtedness was reduced by approximately
$5,040,000 with funds received from the exercise of a stock option granted
to Greenfield Industries, Inc. (Greenfield) in connection with the merger
(Note 14). In addition, the Company received approximately $2,434,000 in
September, 1995 from the exercise of stock options and warrants, which was
used for working capital purposes (Note 14). These capital infusions have
improved the Company's short-term cash position and have alleviated the
need to further finance additional working capital requirements. If the
merger with Greenfield is not consummated, the Company believes various,
reasonable alternatives are available to address its future capital funding
requirements.
Under the terms of the Company's borrowing arrangements, the Company is
subject to various restrictive financial covenants. Additionally, the
Company is precluded from paying dividends on common stock, selling certain
assets, acquiring treasury stock or incurring certain additional
indebtedness, without the permission of its lenders.
6. REDEEMABLE CONVERTIBLE PREFERRED STOCK
In December 1991, the shareholders of the Company approved the creation of
a new class of preferred stock, and the Company privately placed 31,100
shares of Series A, 8% cumulative, convertible redeemable preferred stock,
$100 par value, for an aggregate price of $3,110,000. On December 24, 1992,
the Company privately placed an additional 5,000 shares of Series B, 8%
cumulative, convertible redeemable preferred stock of $100 par value for an
aggregate price of $500,000. In November 1994, the Company exercised its
conversion option and redeemed all preferred shares outstanding in exchange
for the issuance of 401,129 shares of the Company's common stock, thereby
increasing common stock and additional paid-in capital by $3,488,000 (the
carrying value of the preferred shares, immediately prior to conversion,
less the related unamortized deferred financing fees).
F-14
<PAGE>
RULE INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED AUGUST 31, 1995, 1994 AND 1993
7. INCOME TAXES
The provision (benefit) for income taxes under SFAS 109 in fiscal 1995 and
1994 and under Accounting Principles Board Opinion No. 11 (APB 11) in
fiscal 1993 consisted of the following:
<TABLE>
<CAPTION>
1995 1994 1993
<S> <C> <C> <C>
Current: (in thousands)
--------------------------
Federal $ 79 $600 $ 73
State 74 171 34
----- ---- -----
Total Current 153 771 107
----- ---- -----
Deferred:
Federal (606) 45 (357)
State (179) 80 (63)
----- ---- -----
Total Deferred (785) 125 (420)
----- ---- -----
Total provision (benefit) for income taxes $(632) $896 $(313)
===== ==== =====
</TABLE>
Significant components of the Company's deferred tax asset and liabilities
consisted of the following as of August 31:
<TABLE>
<CAPTION>
1995 1994
<S> <C> <C>
Deferred tax assets: (in thousands
------------------
Allowance for doubtful accounts $ 136 $ 86
Accrued liabilities 251 198
Inventory reserves and uniform
capitalization, net 65 74
Charitable contributions carryforward 349 258
Net operating loss carryforwards 1,665 534
Tax credit carryforwards 755 634
Other 75 409
------ ------
3,296 2,193
Valuation allowance (1,207) (1,207)
------ ------
2,089 986
Deferred tax liabilities:
Depreciation 2,694 2,375
------ ------
Net deferred tax liabilities $ 605 $1,389
====== ======
</TABLE>
A reconciliation between the statutory and effective income tax rates is as
follows:
<TABLE>
<CAPTION>
1995 1994 1993
------- ------ -------
<S> <C> <C> <C>
Statutory tax rate (34.0) 34.0 (34.0)
State income taxes, net of federal benefit (5.3) 4.4 (11.9)
Non-taxable earnings of
Foreign Sales Corporation subsidiary (12.4) (4.1) (33.6)
U.S. Anchor litigation (13.5)
Other (2.7) 1.2 7.0
------ ------
Effective income tax rate (54.4%) 22.0% (72.5%)
====== ====== ======
</TABLE>
F-15
<PAGE>
RULE INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED AUGUST 31, 1995, 1994 AND 1993
At August 31, 1995, the Company had a net operating loss carryforward
available for federal and state income tax purposes of approximately
$6,126,000, expiring through 2010. If certain substantial changes in the
Company's ownership should occur, there would be an annual limitation to
the amount of its carryforwards which can be utilized. In addition, the
Company has alternative minimum tax credit carryforwards of approximately
$755,000 which may be used to offset future federal income taxes, if any.
In accordance with SFAS 109, a valuation allowance had been provided to
reduce certain deferred tax assets to an amount that management believes is
likely to be realized. For the year ended August 31, 1995, the valuation
allowance was unchanged.
8. PROFIT SHARING PLAN
Substantially all full-time employees of the Company are eligible to
participate in a qualified profit sharing plan. Company contributions are
at the discretion of the Board of Directors. The Company's contributions
for the years ended August 31, 1995, 1994 and 1993 were $93,000, $81,000
and $42,000, respectively.
9. COMMON STOCKHOLDERS' EQUITY
a. Options
The Company has an Incentive Stock Option Plan (the "Plan") authorizing the
issuance of up to 250,000 shares of common stock of the Company for the
granting of options to key employees. No options may be granted under the
Plan after December 18, 1997. As of August 31, 1995, 197,000 shares remain
available for future grant under the Plan.
The following summarizes the transactions relating to the Company's
qualified stock option plans for the years ended August 31, 1995, 1994 and
1993, including options outstanding under previously expired plans:
<TABLE>
<CAPTION>
Option Shares
Shares Price per Share Total Exercisable
-------- --------------- --------- ------------
<S> <C> <C> <C> <C>
Options outstanding at
August 31, 1992 112,500 $2.50 - 9.00 $ 631,500 37,300
======
Granted 10,000 $7.00 70,000
Expired/Canceled (10,000) $9.00 (90,000)
-------
Options outstanding at
August 31, 1993 112,500 $2.50 - 9.00 611,500 49,900
======
Expired/Canceled (29,600) $2.50 - 9.00 (201,550)
Exercised (15,900) $3.75 - 5.50 (66,000)
------- -------
Options outstanding at
August 31, 1994 67,000 $3.75 - 8.00 343,950 34,700
======
Exercised (20,000) $3.75 - 4.88 (86,300)
------- ------
Options outstanding at
August 31, 1995 47,000 $3.75 - 8.00 $ 257,650 20,900
======= ========= ======
</TABLE>
In December 1987, the Company adopted the 1987 Non-Statutory Stock Option
Plan and granted options to key personnel for the purchase of up to 200,000
shares of common stock at an exercise price of $11.50 per share. The
options are exercisable over a ten-year period and may be accelerated by
the Board of Directors upon the occurrence of certain events, including the
merger of the Company with and into another entity . No expiration date for
the options has been established and, at August 31, 1995, 80,000 shares
were exercisable under this plan.
F-16
<PAGE>
RULE INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED AUGUST 31, 1995, 1994 AND 1993
In connection with the Disston acquisition (Note 2), the Company granted
the president of Disston a non-qualified stock option to purchase up to
100,000 shares of the Company's common stock at the exercise price of $5
per share. The purpose of this option is to provide a long-term incentive
to remain in the employ of the Company. The option provides for annual
vesting and shall become 100% vested over five years, subject to continuous
employment with the Company. The Company has calculated the compensatory
amount relating to the option as the difference between the fair market
value and the option exercise price on the measurement date, of which
$25,000 representing those shares immediately vested was recorded as part
of the Disston purchase price. Unrecognized compensation expense at August
31, 1995 was $80,000. As of August 31, 1995, 36,000 shares were
exercisable under this option.
Subsequent to August 31, 1995, in connection with the proposed merger with
Greenfield (Note 14), the Board of Directors voted to accelerate the
vesting of 210,100 shares under the above plans. In September, 1995,
optionees exercised options for 201,000 shares.
b. Warrants
In connection with the acquisition of Disston (Note 2), the Company issued
a warrant to the president of Disston for the purchase of up to 100,000
shares of the Company's common stock at $10 per share. Such warrant was
immediately exercisable for 100,000 shares and was exercised in September,
1995.
Upon completion of the Disston financing, the Company issued a warrant to
its senior lender to purchase 10,000 shares of common stock at $10 per
share. Such warrant is immediately exercisable and expires in June 1997. In
conjunction with the issuance of $2,180,000 of Senior Notes in June 1994
(Note 5d), the Company issued immediately exercisable warrants to purchase
54,500 shares of common stock at $10 per share. These warrants expire in
May 1997.
All of the above warrants have been appraised and recorded at an estimated
market value of $.25 each.
10. COMMITMENTS AND CONTINGENCIES
In November 1986, a suit was instituted against the Company alleging
illegal pricing and marketing practices in connection with the Company's
marine anchor products. In March 1991, the Company was found liable in
proceedings in the United States District Court for the Northern District
of Georgia. In November 1993, the U.S. Court of Appeals for the Eleventh
Circuit reversed the previous jury verdict against the Company, and entered
judgement in favor of the Company on all federal antitrust issues. During
the quarter ended November 30, 1993, the Company reversed its previously
recorded liability for this matter and increased pre-tax income by
$2,463,000. Certain issues of Georgia state law, which were originally
decided in favor of the Company and were reversed during the appeal
process, are being pursued by the plaintiff and are under consideration by
the United States District Court for the Northern District of Georgia. In
addition, the court has lifted the stay on the Company's previously filed
antitrust action against the plaintiff.
F-17
<PAGE>
RULE INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED AUGUST 31, 1995, 1994 AND 1993
11. LEASES
The Company leases its manufacturing facilities, warehouses and offices
under operating leases which expire at various dates through the year 2010.
Two of the leases are with partnerships consisting of three
officers/directors/stockholders (related parties) of the Company.
Approximate aggregate minimum future rental commitments required under non-
cancelable operating leases are as follows:
<TABLE>
<CAPTION>
Related
Year Ending August 31: Parties Other Total
----------------------
( in thousands)
-------- ------ -------
<S> <C> <C> <C>
1996 $ 1,221 $ 579 $ 1,800
1997 830 506 1,336
1998 830 465 1,295
1999 830 352 1,182
2000 830 27 857
Thereafter 8,130 8,130
-------- -------
Total $ 12,671 $ 1,929 $14,600
======== ======= =======
</TABLE>
Rent expense during the years ended August 31, 1993, 1994, and 1995 was as
follows:
<TABLE>
<CAPTION>
Related Discontinued Total Rent
Parties Other Operations Expense
(in thousands)
------- ----- ------- -------
<S> <C> <C> <C> <C>
1993 $ 1,005 $ 269 $ 287 $ 1,561
1994 1,010 503 1,513
1995 1,084 601 1,685
</TABLE>
Rent paid to related parties is included in cost of revenues in the
Consolidated Statement of Operations.
12. INDUSTRY SEGMENT AND GEOGRAPHIC AREA INFORMATION
The operations of the Company are categorized into the following industry
segments:
Hardware Products - consists of an extensive line of power tool
-----------------
accessories, handsaws and hand tools, and lawn and garden products sold to
industrial, tradesmen and consumer markets. Also included are winch and
pump products sold to this market.
Marine Products - consists of pumps and switches, lightweight anchors,
---------------
winches, magnetic compasses and other instruments, and chemical and paint
products for recreational and commercial marine markets.
Other Revenues - primarily consists of a broad line of electric and
--------------
gasoline powered winches for the off-road, utility and vehicle markets, and
sump/utility pumps.
F-18
<PAGE>
RULE INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED AUGUST 31, 1995, 1994 AND 1993
Information pertaining to each industry segment and geographic area information
for the years ended August 31, 1995, 1994 and 1993 are summarized as follows:
<TABLE>
<CAPTION>
Operations 1995 1994 1993
- ----------
<S> <C> <C> <C>
(in thousands)
Net Revenues: ------- -------- -------
Hardware $45,194 $41,284 $26,701
Marine 20,772 20,448 19,245
Other 2,492 2,187 2,388
------- ------- -------
$68,458 $63,919 $48,334
======= ======= =======
Operating Income:
Hardware $ (547) $ 2,574 $ 812
Marine 4,721 3,959 3,258
Other 578 324 417
------- ------- -------
Segment Profit 4,752 6,857 4,487
General Corporate Expenses (1,323) (1,746) (1,533)
U.S. Anchor Litigation 2,463
------- ------- -------
Operating Income $ 3,429 $ 7,574 $ 2,954
======= ======= =======
</TABLE>
Segment profit consists of total net revenues less related operating costs and
expenses. General corporate expenses include general and administrative costs
which cannot be specifically allocated to the Company's industry segments.
Intersegment sales area ccounted for at prices which are comparable to prices
charged to unaffiliated customers.
<TABLE>
<CAPTION>
Other Financial Information 1995 1994 1993
- ---------------------------
<S> <C> <C> <C>
Identifiable Assets: (in thousands)
------ ------- -------
Hardware $53,073 $53,796 $29,198
Marine 8,362 9,724 10,904
Other 1,280 1,143 1,486
------- ------- -------
62,715 64,663 41,588
Corporate Assets 1,170 1,980 3,705
------- ------- -------
$63,885 $66,643 $45,293
======= ======= =======
Depreciation and Amortization:
Hardware $ 2,780 $ 1,908 $ 1,179
Marine 735 1,038 1,013
Other 49 48 48
Corporate 245 302 256
Discontinued Operations 526
------- ------- -------
$ 3,809 $ 3,296 $ 3,022
======= ======= =======
Property Additions:
Hardware $ 2,107 $ 1,991 $ 976
Marine 136 188 113
Other 2 7 63
Corporate 133 92 379
Disston Acquisition 1,597
Discontinued Operations 58
------- ------- -------
$ 2,378 $ 3,875 $ 1,589
======= ======= =======
</TABLE>
F-19
<PAGE>
RULE INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED AUGUST 31, 1995, 1994 AND 1993
Corporate assets consist of cash and certain other assets which cannot be
identified by industry segment.
Geographic Area Information
---------------------------
The Company has no facilities outside the United States, except for a
warehouse in Canada. Export revenues by major geographic concentrations are
summarized below:
<TABLE>
<CAPTION>
1995 1994 1993
<S> <C> <C> <C>
(in thousands)
------- ------ -------
Europe/Africa/Middle East $ 8,359 $ 6,557 $ 5,878
Latin and South America/Far East 5,726 5,376 5,674
Canada 3,743 3,770 3,115
------- ------- -------
$17,828 $15,703 $14,667
======= ======= =======
</TABLE>
13. DISCONTINUED OPERATIONS
In 1993, the Company sold substantially all of the assets of two
subsidiaries, Silver Metal Products, Inc. and Phillips Screw Company, for
a total price of $11,072,000. The loss from discontinued operations of
$74,000 includes a net loss from discontinued operations of $187,000 and
a net gain on the asset sales of $113,000. The transactions were recorded
as disposals of segments of the business and accordingly, their operating
results were classified as discontinued operations in 1993. In fiscal
1993, net revenues of the discontinued operations prior to disposition
were $6,667,000.
14. PROPOSED MERGER WITH GREENFIELD INDUSTRIES, INC.
On August 11, 1995, the Company entered into an Agreement and Plan of
Merger (the Merger Agreement) with Greenfield and Rule Acquisition
Corporation (a wholly owned subsidiary of Greenfield), whereby the
Company will become a wholly owned subsidiary of Greenfield. In
connection with the Merger Agreement, Greenfield was granted an option to
purchase 630,000 shares of the Company's common stock for a purchase
price of $8 per share. Under the terms of the Merger Agreement, each
share of Rule common stock outstanding will be entitled to receive $15.30
in cash and a beneficial interest in a Liquidating Trust (except for
shares owned by Greenfield, Excluded Shares and Dissenting Shares as
defined in the Merger Agreement). Prior to the effective time of the
Merger, a Liquidating Trust will be established to receive the net
proceeds, if any, relating to arbitration proceedings between Disston and
a former owner of Disston. Management currently estimates the value of
the Liquidating Trust to be $.15 per share; however, a recovery, if any,
is dependent on the favorable resolution of many complex factual and
legal issues.
On September 15, 1995, Greenfield exercised its option to purchase
630,000 shares of Rule common stock. The proceeds of $5,040,000 from the
exercise were used to reduce the Company's outstanding senior
indebtedness. Furthermore, outstanding options and warrants for 311,500
shares of common stock were exercised in September, 1995, including
301,000 shares exercised by Company management. The proceeds of
$2,434,000 from the exercise of these options and warrants were used for
working capital purposes.
The Merger Agreement is subject to approval by the holders of at least
two-thirds of the outstanding shares of Rule common stock. The Merger
Agreement may be canceled by the mutual agreement of Greenfield and the
Company, and by the Company or Greenfield if certain conditions are not
met, as discussed in the Merger Agreement. If the Merger Agreement is
terminated under certain circumstances, the Company has agreed to
reimburse Greenfield for up to $450,000 of expenses incurred by
Greenfield in connection with the Merger Agreement.
The Consolidated Statement of Operations for the year ended August 31,
1995 reflects $454,000 of merger related costs incurred by the Company.
F-20
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS ON
FINANCIAL STATEMENT SCHEDULES
To the Board of Directors and
Shareholders of Rule Industries, Inc.
Our audit of the consolidated financial statements of Rule Industries,
Inc., and its subsidiaries, referred to in our report dated October 27,
1995, except for Note 5 which is as of November 30, 1995 (the Report),
appearing on page F-11 of this Annual Report on Form 10-K also included an
audit of the Financial Statement Schedule listed as item 14(2) of this Form
10-K. In our opinion, the Financial Statement Schedule presents fairly, in
all material respects, the information set forth therein when read in
conjunction with the related consolidated financial statements.
As explained in the Report, the consolidated financial statements of Rule
Industries, Inc. as of August 31, 1994 and for each of the two years in the
period ended August 31, 1994 were audited by other independent accountants
whose report dated December 12, 1994 expressed an unqualified opinion on
those statements.
PRICE WATERHOUSE LLP
St. Louis, Missouri
October 27, 1995
F-21
<PAGE>
RULE INDUSTRIES, INC. AND SUBSIDIARIES
SCHEDULE VIII
VALUATION AND QUALIFYING ACCOUNTS
YEARS ENDED AUGUST 31, 1995, 1994 AND 1993
<TABLE>
<CAPTION>
Balance Additions Balance
Beginning of Charged to End of
Period Expense Deductions Other Period
------- --------- ------------ ----- -------
<S> <C> <C> <C> <C> <C>
VALUATION ALLOWANCE
FOR TRADE RECEIVABLES
Year ended August 31, 1995 $422,000 159,000 218,000(1) 5,000 $368,000
Year ended August 31, 1994 242,000 257,000 300,000(1) 223,000(2) 422,000
Year ended August 31, 1993 416,000 86,000 260,000(1) --- 242,000
INVENTORY VALUATION
ALLOWANCE
Year ended August 31, 1995 $650,000 $650,000
Year ended August 31, 1994 25,000 25,000 600,000(2) 650,000
Year ended August 31, 1993 25,000 25,000
</TABLE>
(1) Amounts represent uncollectible accounts written off, net of recoveries.
(2) Represents balances acquired in connection with the Disston acquisition.
F-22
<PAGE>
LEASE
BETWEEN
RAGS II
AND
RULE INDUSTRIES, INC.
JUNE 15, 1995
<PAGE>
LEASE
BETWEEN
RAGS II
AND
RULE INDUSTRIES, INC.
JUNE 15, 1995
INDEX
-----
<TABLE>
<CAPTION>
Page
----
<S> <C>
ARTICLE 1 - Definitions......................................... 1
1.01. General Provisions........................................ 1
1.02. Terms Defined............................................. 2
ARTICLE 2 - Premises............................................ 6
2.01. Premises.................................................. 6
2.02. Parking................................................... 6
ARTICLE 3 - Term................................................ 7
3.01. Term Commencement......................................... 7
3.02. Termination............................................... 7
ARTICLE 4 - Rent................................................ 7
4.01. Basic Rent................................................ 7
4.02. Security Deposit.......................................... 7
ARTICLE 5 - Use of Premises..................................... 7
5.01. Use....................................................... 7
ARTICLE 6 - Taxes and Operating Expenses........................ 7
6.01. Taxes; Operating Expenses................................. 7
6.02. Installment Payment....................................... 8
6.03. Compliance................................................ 8
6.04. Taxation.................................................. 8
6.05. Contests.................................................. 8
6.06. Refunds and Rebates ...................................... 9
6.07. Other Taxes............................................... 9
6.08. Tax Escrow................................................ 9
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Page
----
<S> <C>
ARTICLE 7 - Tenant's Improvements and Maintenance.............. 9
7.01. Alterations and Improvements............................ 9
7.02. Maintenance............................................. 10
7.03. Redelivery.............................................. 10
ARTICLE 8 - Hazardous Substances............................... 11
8.01. Indemnity............................................... 11
8.02. Definition.............................................. 12
8.03. Inspections............................................. 12
ARTICLE 9 - Tenant's Particular Covenants...................... 12
9.01. Pay Rent................................................ 12
9.02. Occupancy of the Premises............................... 12
9.03. Safety.................................................. 13
9.04. Pay Taxes............................................... 13
ARTICLE 10 - Requirements of Governmental Authority............ 13
10.01. Legal Requirements...................................... 13
ARTICLE 11 - Covenants Against Liens........................... 13
11.01. Mechanics Liens......................................... 13
11.02. Indemnity Against Liens................................. 13
11.03. Right to Discharge...................................... 14
ARTICLE 12 - Access to Premises................................ 14
12.01. Access.................................................. 14
ARTICLE 13 - Assignment and Subletting Occupancy Arrangements.. 14
13.01. Subletting and Assignment............................... 14
ARTICLE 14 - Indemnity......................................... 15
14.01. Tenant's Indemnity...................................... 15
14.02. Landlord's Liability.................................... 15
</TABLE>
-ii-
<PAGE>
<TABLE>
<CAPTION>
Page
----
<S> <C>
ARTICLE 15 - Insurance.......................................... 16
15.01. Insurance................................................ 16
15.02. Insurance Escrow......................................... 18
ARTICLE 16 - Waiver of Subrogation.............................. 19
16.01. Waiver of Subrogation.................................... 19
16.02. Waiver of Rights......................................... 19
ARTICLE 17 - Damage or Destruction.............................. 19
17.01. Substantial Damage....................................... 19
17.02. Restoration.............................................. 19
ARTICLE 18 - Eminent Domain..................................... 20
18.01. Total Taking............................................. 20
18.02. Partial Taking........................................... 20
18.03. Awards and Proceeds...................................... 20
ARTICLE 19 - Quiet Enjoyment.................................... 21
19.01. Landlord's Covenant...................................... 21
19.02. Notice to Mortgagee...................................... 21
19.03. Other Provisions Regarding Mortgagees.................... 21
ARTICLE 20 - Defaults; Events of Default........................ 22
20.01. Defaults................................................. 22
20.02. Tenant's Best Efforts.................................... 22
20.03. Elimination of Default................................... 23
ARTICLE 21 - Insolvency......................................... 23
21.01. Insolvency............................................... 23
ARTICLE 22 - Landlord's Remedies; Damages
on Default................................................... 23
22.01. Landlord's Remedies...................................... 23
22.02. Subordination, Attornment and Non-Disturbance
Agreement.............................................. 23
22.03. Surrender................................................ 24
22.04. Right to Relet........................................... 24
22.05. Survival of Covenant..................................... 24
22.06. Right to Equitable Relief................................ 25
</TABLE>
-iii-
<PAGE>
<TABLE>
<CAPTION>
Page
----
<S> <C>
22.07. Right to Self Help; Interest on Overdue Rent............. 25
22.08. Further Remedies......................................... 26
ARTICLE 23 - Waivers............................................ 26
23.01. No Waivers............................................... 26
ARTICLE 24 - Sale of Premises or Building....................... 26
24.01. Right of First Offer..................................... 26
ARTICLE 25 - General Provisions................................. 26
25.01. Force Majeure............................................ 27
25.02. Notices and Communications .............................. 27
25.03. Certificates, Estoppel Letter ........................... 27
25.04. Holding Over............................................. 28
25.05. Governing Law............................................ 28
25.06. Partial Invalidity....................................... 28
25.07. Notice of Lease.......................................... 28
25.08. Interpretation........................................... 28
25.09. Consents................................................. 29
25.10. Entire Agreement......................................... 29
25.11. Parties.................................................. 29
</TABLE>
-iv-
<PAGE>
LEASE
-----
This lease ("Lease") made at Boston, Massachusetts dated as of the
_____ day of ______________________________, 1995 by and between RAGS II, a
Massachusetts general partnership, having a principal place of business at 2 Fox
Place, Newton Centre, Massachusetts 02159, as landlord ("Landlord"), and RULE
INDUSTRIES, INC., a Massachusetts corporation, with a principal place of
business at 70 Blanchard Road, Burlington, MA 01803, as tenant ("Tenant" which
term shall hereafter include any successors or assigns).
NOW, THEREFORE, in consideration of the premises and the mutual
agreements herein contained and for other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, Landlord and Tenant
hereby agree as follows:
W I T N E S S E T H :
- - - - - - - - - -
ARTICLE 1
Definitions
-----------
1.01. General Provisions. For all purposes of this Lease unless
------------------
otherwise expressed and provided herein or therein or unless the context
otherwise requires:
(a) The words herein, hereof, hereunder and other words of similar
------ ------ ---------
import refer to this Lease as a whole and not to any particular article, section
or other subdivision of this Lease.
(b) A pronoun in one gender includes and applies to the other genders
as well.
(c) Each definition stated in Section 1.02 of this Lease applies
equally to the singular and the plural forms of the term or expression defined.
(d) Any reference to a document defined in Section 1.02 of this Lease
is to such document as originally executed, or, if modified, amended or
supplemented in accordance with the provisions of this Lease, to such document
as so modified, amended or supplemented and in effect at the relevant time of
reference thereto.
(e) All accounting terms not otherwise defined herein have the
meanings assigned to them in accordance with generally accepted accounting
principles.
<PAGE>
1.02. Terms Defined. Each term or expression set forth in this Section
-------------
1.02 has the meaning stated immediately after it.
Additional Rent. All sums and other charges (other than Basic Rent)
---------------
payable by Tenant to or on behalf of Landlord or incurred by Landlord as the
result of a Default.
Affiliate. With respect to any specified person, any other person
---------
directly or indirectly controlling or controlled by or under direct or indirect
common control with such specified person. For the purposes of this definition,
the term control when used with respect to any specified person means the power
-------
to direct the management policies of such person, directly or indirectly,
whether through the ownership of voting securities, by contract or otherwise,
and the terms controlling and controlled by have meanings correlative to the
----------- -------------
foregoing.
Authorizations. All franchises, licenses, permits and other
--------------
governmental consents issued by Governmental Authorities pursuant to Legal
Requirements which are or may be required for the use and occupancy of the
Premises and the conduct or continuation of a Permitted Use therein.
Basic Rent. Eight Hundred Thirty Thousand Two Hundred Fifty and 00/100
----------
Dollars ($830,250.00) subject to adjustment by Section 24.02 of this Lease.
Building. The building and improvements on the Land (defined below).
--------
Business Day. A day which is not a Saturday, Sunday or other day on
------------
which banks in Massachusetts, are authorized or required by law or executive
order to remain closed.
Calendar Year. The First Calendar Year, the Last Calendar Year and any
-------------
full calendar year (January 1 through December 31) occurring during the Lease
Term.
Control. As defined in the definition of Affiliate.
-------
Corporation. A corporation, company, association, business trust or
-----------
similar organization wherever formed.
Default. Any event or condition specified in Article 20 hereof so long
-------
as any applicable requirement for the giving of notice or lapse of time or both
have not been fulfilled.
Event of Default. Any event or condition specified in (a) Article 20
----------------
hereof (if all applicable periods for the giving
-2-
<PAGE>
of notice or lapse of time or both have been fulfilled) or in (b)
Article 21 hereof.
First Calendar Year. The partial Calendar Year commencing on the Term
-------------------
Commencement Date and ending on the next succeeding December 31.
Force Majeure. Acts of God, strikes, lock outs, labor troubles,
-------------
inability to procure materials, failure of power, restrictive Legal
Requirements, riots and insurrection, acts of the public enemy, wars,
earthquakes, hurricanes and other natural disasters, fires, explosions, any act,
failure to act or default of the other party to this Lease or any other reason
beyond the control of any party to this Lease; provided, however, lack of money
shall not be deemed such a cause.
Governmental Authority. United States of America, The Commonwealth of
----------------------
Massachusetts, the Town of South Deerfield, Franklin County, and any political
subdivision thereof and any agency, department, commission, board, bureau or
instrumentality of any of them.
Insolvency. The occurrence with respect to any Person of one or more
----------
of the following events: the dissolution, termination of existence (other than
by merger or consolidation), insolvency, appointment of a receiver for all or
substantially all of the property of such person, the making of a fraudulent
conveyance or the execution of an assignment or trust mortgage for the benefit
of creditors by such Person or the filing of a petition of bankruptcy or the
commencement of any proceedings by or against such Person under a bankruptcy,
insolvency or other law relating to the relief of the adjustment of
indebtedness, rehabilitation or reorganization of debtors; provided that if such
petition or commencement is involuntarily made against such a Person and is
dismissed within sixty (60) days of the date of such filing or commencement,
such events shall not constitute an insolvency hereunder; and provided, however,
that the foregoing shall not be applicable to the death of any partner of
Landlord.
Insurance Requirements. All terms of any policy of insurance
----------------------
maintained by Landlord or Tenant, on its own behalf or on behalf of (a) the
other party to this Lease or (b) Mortgagee and all requirements of the issuer of
any such policy and all orders, rules, regulations and other requirements of the
National Board of Fire Underwriters (or any other body exercising similar
functions) applicable to or affecting any condition, operation, use or occupancy
of the Premises.
Land. The parcel of land described in Exhibit A hereto.
----
Landlord. As defined in the preamble hereof.
--------
-3-
<PAGE>
Last Calendar Year. The partial Calendar Year commencing on January 1
------------------
of the Calendar Year in which the Lease Termination Date occurs and ending on
the Lease Termination Date.
Lease Term. The period commencing on the Term Commencement Date and
----------
ending on the Lease Termination Date.
Lease Termination Date. the earlier to occur of (1) the Stated
----------------------
Expiration Date, (2) the termination of this Lease by Landlord as the result of
an Event of Default, (3) the termination of this Lease pursuant to Article 17
hereof (Damage or Destruction) or Article 18 hereof (Eminent Domain).
Lease Year. A period commencing on the Term Commencement Date (or an
----------
anniversary thereof) and ending on the day before the next succeeding
anniversary thereof.
Legal Requirements. All statutes, codes, ordinances (and all rules and
------------------
regulations thereunder), all executive orders and other administrative orders,
judgments, decrees, injunctions and other judicial orders of or by any
Governmental Authority which may at any time be applicable to the Premises or
Building or to any Permitted Uses and the provisions of all Authorizations.
Mortgage. Any mortgage now or hereafter of record encumbering the fee
--------
interest in the Premises.
Mortgagee. Any person or entity holding a Mortgage on the Premises.
---------
Note. Any note secured by a Mortgage.
----
Occupancy Arrangement. With respect to the Premises or any portion
---------------------
thereof or the Lease, and whether (a) written or unwritten or (b) for all or any
portion of the Lease Term, an assignment, a sublease, a tenancy at will, a
tenancy at sufferance or any other arrangement (including but not limited to a
license or concession) pursuant to which a Person occupies the Premises for any
purpose.
Operating Expenses. All expenses, costs, and disbursements of every
------------------
kind and nature which Landlord or Tenant shall pay or become obligated to pay,
or which Tenant is obligated to pay to or on behalf of Landlord, in connection
with the ownership, operation and maintenance of the Premises, including
insurance, taxes, maintenance and any additional costs to Landlord resulting
from Tenant's Default.
Partial Taking. Any Taking which is not a Total Taking.
--------------
-4-
<PAGE>
Permitted Exceptions. Any liens or encumbrances on the Premises of the
--------------------
following character:
(a) Liens for taxes, assessments and other governmental charges
assessed but not yet due and payable.
(b) Mortgage.
(c) Title Conditions.
Permitted Uses. The current use of the Building is a mix of
--------------
industrial, warehouse and office use. Industrial, warehouse and office uses may
continue and the Premises may be used for any lawful use consistent therewith
and ancillary thereto.
Person. An individual, a corporation, a company, a voluntary
------
association, a partnership, a trust, an unincorporated organization or a
government or any agency, instrumentality or political subdivision thereof.
Premises. The Land and Building.
--------
Proceeds. With respect to any Taking or occurrence described in
--------
Articles 17 or 18 hereof, with respect to which any Person is obligated to pay
any amount to or for the account of Landlord, the aggregate of (i) all sums
payable or receivable under or in respect of any insurance policy, and (ii) all
sums or awards payable in respect to a Taking.
Rent. Basic Rent and all Additional Rent.
----
Security Deposit. An amount equal to One Hundred Thirty Thousand and
----------------
00/100 Dollars ($130,000).
Stated Expiration Date. The fifteenth (15th) anniversary of the date
----------------------
hereof.
Taking. The taking or condemnation of title to all or any part of the
------
Land or the possession or use of the Building or the Premises by a competent
person for any public use or purpose or any proceeding or negotiation which
results in such taking or any sale or lease in lieu of or in anticipation of
such a taking.
Taxes. All taxes, special or general assessments, water rents, rates
-----
and charges, sewer rents and other impositions and charges imposed by
Governmental Authorities of every kind and nature whatsoever, extraordinary as
well as ordinary and each and every installment thereof which shall or may
during the term of this Lease be charged, levied, laid, assessed, opposed,
become due and payable or become liens upon or for or with respect to the Land
or any part thereof and the Building or the Premiss,
-5-
<PAGE>
appurtenances or equipment owned by Landlord thereon or therein or any part
thereof or on this Lease, together with all interest and penalties thereon under
or by virtue of all present or future Legal Requirements and any sales tax,
gross receipt tax or tax of a similar nature based on a percentage fraction or
capitalized value of the Rent (whether in lieu of or in addition to the taxes
hereinbefore described) and any income or profits tax or tax of any other nature
intended to be in lieu of taxes hereinbefore described.
Tenant. As defined in the preamble hereof.
------
Term Commencement Date. The date hereof.
----------------------
Title Conditions. All covenants, agreements, restrictions, easements,
----------------
rights of way and declarations of record encumbering or affecting the Premises
on the date of this Lease so far as the same may be from time to time in force
and applicable.
Total Taking. (i) a Taking of: (a) the fee interest in all or
------------
substantially all of the Building or (b) such title to or easement in, over,
under or such rights to occupy and use any part or parts of the Building to the
exclusion of Landlord as shall have the effect, in the good faith judgment of
the Landlord, of rendering the portion of the Building remaining after such
Taking (even if restoration were made) unsuitable for the continued use and
occupancy of the Building for the Permitted Uses or (ii) a Taking of all or
substantially all of the Premises or such title to or easement in, on or over
the Premises to the exclusion of Tenant which in the good faith and reasonable
judgment of Tenant effectively prohibits access to the Premises or the exercise
by Tenant of any rights in connection with Tenant's right of Permitted Uses
under this Lease.
ARTICLE 2
Premises
--------
2.01. Premises. Landlord hereby leases and lets to Tenant, and Tenant
--------
hereby takes and hires from Landlord, upon and subject to the terms, conditions,
covenants and provisions hereof, the Premises subject to the Permitted
Exceptions.
2.02. Parking. Subject to the terms and conditions hereof, Tenant may
-------
use paved parking areas on the Land for parking by its employees, agents,
servants and invitees.
-6-
<PAGE>
ARTICLE 3
Term
----
3.01. Term Commencement. The Lease Term shall commence on the Term
-----------------
Commencement Date.
3.02. Termination. The Lease Term shall end on the Lease Termination
-----------
Date.
ARTICLE 4
Rent
----
4.01. Basic Rent. Tenant shall pay Landlord for the Premises, without
----------
deduction, abatement or offset of any kind, so that this Lease shall yield to
the Landlord the Basic Rent absolutely net to Landlord during the term of this
Lease, and Tenant shall pay all costs, expenses, disbursements and obligations
of every kind and nature whatsoever relating to the Premises, except as
expressly provided in this Lease. Basic Rent shall be payable by Tenant in equal
monthly installments in advance on the last day of each calendar month during
the Lease Term. Basic Rent for partial months at the beginning or end of the
Lease Term shall be pro-rated.
---------
4.02. Security Deposit. Landlord acknowledges it is presently in
----------------
possession of the Security Deposit which shall be held by Landlord as security
for Tenant's performance as herein provided and refunded to Tenant on the later
of the Stated Expiration Date or the end of any extended term subject to
Tenant's satisfactory compliance with the conditions of this Lease.
ARTICLE 5
Use of Premises
---------------
5.01. Use. The Premises may be used solely for the Permitted Uses.
---
ARTICLE 6
Taxes and Operating Expenses
----------------------------
6.01. Taxes; Operating Expenses. Tenant shall, during the Lease Term,
-------------------------
pay and discharge punctually, as and when the same shall become due and payable,
all Taxes and Operating Expenses charged, assessed or apportioned directly to
Tenant or
-7-
<PAGE>
Landlord in respect to the Land and Building commencing on the Term Commencement
Date.
6.02. Installment Payment. To the extent that the same may be
-------------------
permitted by law, Tenant or its designees shall have the right to apply for the
conversion of any assessment for local improvements assessed during the Lease
Year in order to cause the same to be payable in annual installments, and upon
such conversion, Tenant shall pay and discharge punctually said installments as
they shall become due and payable during the Lease Term. Landlord agrees to
permit the application for the foregoing conversion to be filed in Landlord's
name, if necessary, and Landlord shall cooperate fully with Tenant and shall
execute any and all documents requested by Tenant to accomplish the foregoing
result. Tenant shall indemnify and hold harmless Landlord from any cost, loss,
damage or liability in connection therewith and shall pay all assessments in
full by the Lease Termination Date.
6.03. Compliance. Tenant shall be deemed to have complied with the
----------
covenants of Section 6.01 hereof if payment of Taxes shall have been made either
within any period allowed by law or by the Governmental Authority imposing the
same during which payment is permitted without penalty or interest or before the
same shall become a lien upon the Land, and Tenant shall deliver to Landlord a
receipted tax bill within thirty days of the last date on which Taxes may be
paid without penalty or interest as satisfactory evidence of such payment.
6.04. Taxation. All Taxes, including assessments which have been
--------
converted into installments as set forth in the preceding section 6.02, which
shall become payable during each of the calendar or fiscal tax years, as the
case may be, in which the term of this Lease commences or terminates shall be
apportioned pro rata between Landlord and Tenant in accordance with the
respective portions of such year during which such term shall be in effect.
6.05. Contests. Tenant or its designees shall have the right to
--------
contest or review all Taxes by legal proceedings, or in such other manner as it
may deem suitable (which, if instituted, Tenant or its designees shall conduct
promptly at its own cost and expense, and free of any expense to Landlord, and,
if necessary, in the name of Landlord, and Landlord shall cooperate fully with
Tenant and shall execute all documents necessary to accomplish the foregoing).
Tenant shall indemnify and hold harmless Landlord from any cost, loss, damage or
liability in connection therewith and, at Landlord's request, if not otherwise
required by law, shall deposit with Landlord (or Mortgagee) or the taxing
authority (or post bonds) an amount equal to the amount of the contested taxes
if reasonably necessary to protect Landlord's interests or is otherwise
-8-
<PAGE>
required pursuant to any Mortgage. Notwithstanding the foregoing, Tenant shall
promptly pay all Taxes if at any time (i) the Land or any part thereof shall be
subject to forfeiture, or (ii) if the Landlord shall be subject to any criminal
liability arising out of the nonpayment thereof.
The legal proceedings referred to in the preceding paragraph shall
include appropriate certiorari proceedings and appeals from orders therein and
appeals from any judgments, decrees or orders. In the event of any reduction,
cancellation or discharge, Tenant shall pay the amount finally levied or
assessed against the Land or adjudicated to be due and payable or any such
contested Taxes.
6.06. Refunds and Rebates. If there shall be any refunds or rebates on
-------------------
account of the Taxes paid by Tenant under the provisions of this Lease, such
refund or rebate shall belong to Tenant except to the extent such Taxes may have
been paid by Landlord. Any refunds received by Landlord shall be deemed trust
funds and as such are to be received by Landlord in trust and paid to Tenant
forthwith. Landlord will, upon the request of Tenant, sign any receipts which
may be necessary to secure the payment of any such refund or rebate, and will
pay over to Tenant such refund or rebate as received by Landlord.
6.07. Other Taxes. Nothing herein or in this Lease otherwise contained
-----------
shall require or be construed to require Tenant to pay any inheritance, estate,
excise, succession, transfer, gift, franchise, income, gross receipt, or profit
taxes that are, or may be, imposed upon Landlord, its successors or assigns,
except to the extent such are in lieu of or in substitution for Taxes as now
imposed on the Premises or this Lease.
6.08. Tax Escrow. If reserves or escrows are required by the terms of
----------
any Mortgage, Tenant shall pay in advance into an escrow account or other
reserve pursuant to such Mortgage, at the time of each rent payment, an
additional amount equal to the pro-rata portion of the amount determined by
Mortgagee to be sufficient to pay all Taxes and, otherwise, upon the terms
required by the Mortgagee. Such amounts shall be held as set forth in Mortgage,
and Tenant shall not be entitled to, nor shall Landlord or Mortgagee have any
obligation to pay, interest thereon to Tenant.
ARTICLE 7
Tenant's Improvements and Maintenance
-------------------------------------
7.01. Alterations and Improvements. A. Tenant may request of Landlord
----------------------------
such alterations or improvements to the
-9-
<PAGE>
Premises that are consistent with the Permitted Uses as Tenant may deem
necessary or desirable, provided (a) such alterations or improvements do not
materially diminish the value of, or materially change the character of the
Premises, (b) Tenant accepts an increase in the Base Rent for the balance of the
Lease Term in order to reimburse Landlord for all expenses, without exception
incurred in the related, direct and indirect, costs and financing of all of the
alterations and improvements, (c) there is no default in any provision, covenant
or term of Mortgage resulting from such alterations or improvements and (d)
Tenant executes any and all documents, including, without limitation, estoppel
certificates, subordination and attornment agreements requested by Mortgagee.
B. In the event Landlord rejects a request from Tenant for such
alterations or improvements to the Premises, Tenant, at its own cost and
expense, may make such alteration or improvements to the Premises consistent
with the Permitted Uses as Tenant may deem necessary or desirable, provided that
Tenant obtains the prior written consent of the Landlord, which consent will not
be unreasonably withheld. Notwithstanding the foregoing, it shall not be
unreasonable for Landlord to withhold its consent to any alteration or
improvement, nor shall Tenant make any alteration or improvement, if consent to
such alteration or improvement is required from any Mortgagee pursuant to its
Mortgage but such consent is not given after request therefor by Landlord.
C. Notwithstanding the provisions of Section 7.01(A) and 7.01(B), no
obligation is hereby created on Mortgagee or any other person who may acquire
title by foreclosure or deed in lieu of foreclosure or otherwise through
Mortgagee's interest.
7.02. Maintenance. Tenant shall, at all times during the term of this
-----------
Lease, and at its own cost and expense, (i) keep and maintain (or cause to be
kept and maintained) the interior of the Premises and the Land including all its
appurtenances (but excluding any part of the Land that is used or occupied by
anyone other than Landlord or Tenant or any subtenants of Tenant) in good repair
and condition (ordinary wear and tear and damage by fire or casualty only
excepted), (ii) keep and maintain the exterior of the Building and all the
structural elements thereof (including but not limited to, foundation, walls,
roof, and the like in good order, repair and condition, ordinary wear and tear,
damage by fire or casualty only excepted), and (iii) use all reasonable
precaution to prevent waste, damage or injury thereto.
7.03. Redelivery. On the Lease Termination Date, Tenant shall quit and
----------
surrender the Premises free and clear of all tenants, occupants, liens, and
encumbrances whatsoever except (i) Permitted Exceptions and (ii) encumbrances,
restrictions or reservations caused by or consented to by Landlord. Tenant
-10-
<PAGE>
shall, subject to the provisions of Articles 17 and 18 hereof, surrender the
Premises to Landlord broom clean and in good condition and repair (ordinary wear
and tear, damage by fire or casualty only excepted) with all damages occasioned
by Tenant's removal of Tenant's fixtures or equipment repaired at Tenant's
expense to Landlord's satisfaction. Tenant shall, at Tenant's cost and expense,
also remove said alterations and improvements made by Tenant as Landlord may
request, unless said alterations and improvements were required or previously
approved in writing by Landlord.
ARTICLE 8
Hazardous Substances
--------------------
8.01. Indemnity. Tenant shall not cause or permit any Hazardous
---------
Substance (as defined below) to be stored, generated, or disposed of on or in
the Premises. The foregoing sentence shall not apply to Hazardous Substances
which are present but in such manner that whether by reason of permits or
otherwise their presence does not violate or establish liability under any
applicable Legal Requirements. If Hazardous Substances are used, stored,
generated or disposed of on or in the Premises, except as permitted above, or if
the Premises become contaminated in any manner for which Tenant is legally
liable, Tenant shall indemnify and hold harmless Landlord from any and all
claims, damages, fines, judgments, penalties, costs, liabilities, or losses
(including, without limitation, a decrease in value of the Premises, damages
caused by loss or restriction of rentable or useable space in the Building or on
the Land, or any damages caused by adverse impact on marketing of the space in
the Building or on the Land' and any and all sums paid for settlement of claims,
reasonable attorneys' fees, consultant, and expert fees) arising during or after
the Lease Term and arising as a result of that contamination or use, storage,
generation or disposal. This indemnification includes, without limitation, any
and all costs incurred because of any investigation of the site or any cleanup,
removal, or restoration mandated by a federal, state, or local agency or
political subdivision. Without limitation to the foregoing, if Tenant causes or
permits the presence of any Hazardous Substance on or in the Premises that
results in contamination, Tenant shall promptly, at its sole expense, take any
and all necessary actions to return the Premises to the condition existing prior
to the presence of any such Hazardous Substance on the Premises and to comply
with applicable Legal Requirements. Except in the case of an emergency, Tenant
shall first obtain Landlord's consent for any such remedial action, which
consent shall not be unreasonably withheld or delayed.
-11-
<PAGE>
8.02. Definition. As used herein, "Hazardous Substance" means oil or
----------
petroleum products or any material, substance or waste that is toxic, ignitable,
reactive, or corrosive and that is regulated by any local government, The
Commonwealth of Massachusetts, or the United States Government. "Hazardous
Substance" includes, but is not restricted to, asbestos, polychlorobiphenyls
("PCBs"), petroleum or any "hazardous substances" as defined in the
Comprehensive Environmental Response, Compensation and Liability Act ("CERCLA"),
42 USC (S)9601 et seq. or as hazardous waste as defined in the Resource
Conservation and Recovery Act ("RCRA"), 42 USC (S)6901 et seq., or as defined in
the Superfund Amendment and Reauthorization Act of 1987; the Massachusetts Oil
and Hazardous Material Release Prevention and Response Act, Chapter 21E of the
Massachusetts General Laws; Chapter 21C of the Massachusetts General Laws, and
the respective regulations promulgated thereto.
8.03. Inspections. At any time during the Lease Term, Landlord may,
-----------
for reasonable cause, require Tenant to provide to Landlord, at the expense of
Tenant, an inspection or audit of the Premises, prepared by a qualified
consultant approved by Landlord, certifying as to the presence or absence of
Hazardous Substances, or to permit Landlord to so inspect or audit the Premises
at Tenant's expense. Upon reasonable notice to Tenant, except in the case of an
emergency, and for reasonable cause, Tenant hereby grants Landlord, its
employees, agents and independent contractors, the right, whether or not at the
expense of Tenant, to enter upon the Premises for the purpose of conducting
tests, soil borings, installation of monitoring wells and any other tests which
Landlord deems necessary or desirable. In addition to the rights granted to
Landlord pursuant to Section 22.06 of this Lease, Landlord may, but has no
obligation to, enter upon the Premises, upon reasonable notice to Tenant, for
purposes of taking any and all necessary actions to return the Premises to the
condition prior to the presence of Hazardous Substance on the Premises.
ARTICLE 9
Tenant's Particular Covenants
-----------------------------
9.01. Pay Rent. Tenant shall pay when due all Rent, including, without
--------
limitation, all charges for taxes, insurance, utilities and maintenance.
9.02. Occupancy of the Premises. Tenant shall occupy the Premises from
-------------------------
the Term Commencement Date for the Permitted Uses only. Tenant shall not (i)
injure or deface the Premises or the Building, nor (ii) permit any use thereof
which is improper, offensive, contrary to any Legal Requirement or Insurance
-12-
<PAGE>
Requirement or liable to render necessary any alteration or addition to the
Building.
9.03. Safety. Tenant shall keep the Premises equipped with all safety
------
appliances required by Legal Requirements or Insurance Requirements because of
any use of the Premises made by Tenant. Tenant shall procure all Authorizations
so required because of such use and, shall do any work so required because of
such use, it being understood that the foregoing provisions shall not be
construed to broaden in any way the Permitted Uses.
9.04. Pay Taxes. Tenant shall pay promptly when due all Taxes upon
---------
personal property (including, without limitation, fixtures and equipment) in the
Premises to whomsoever assessed or into an escrow account if requested by
Mortgagee.
ARTICLE 10
Requirements of Governmental Authority
--------------------------------------
10.01. Legal Requirements. During the term of this Lease, Tenant
------------------
shall, at its own cost and expense, promptly observe and comply with all Legal
Requirements. Tenant shall pay all costs, expenses, liabilities, losses,
damages, fines, penalties, claims and demands, that may in any manner arise out
of or be imposed because of the failure of Tenant to comply with the covenants
of this Article 10.
ARTICLE 11
Covenants Against Liens
-----------------------
11.01. Mechanics Liens. Landlord's right, title and interest in the
---------------
Premises or the Land or the Building shall not be subject to or liable for liens
of mechanics or materialmen for work done on behalf of Tenant in connection with
alterations or improvements to the Premises. Notwithstanding such restrictions,
if because of any act or omission of Tenant, any mechanic's lien or other lien,
charge or order for payment of money shall be filed against any portion of the
Premises or the Land or the Building, Tenant shall, at its own cost and expense,
cause the same to be discharged of record or bonded within fifteen (15) days
after the filing thereof.
11.02. Indemnity Against Liens. Tenant shall indemnify and save
-----------------------
harmless Landlord from and against any and all liability, damage, penalties,
judgments, claims, costs and expenses (including attorney's fees) that arise
from and in connection with liens of mechanics or materialmen for work done
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<PAGE>
by or on behalf of Tenant in connection with alterations or improvements to the
Premises.
11.03. Right to Discharge. Without otherwise limiting any other remedy
------------------
of Landlord for default hereunder, if Tenant shall fail to cause such liens to
be discharged of record or bonded within the aforesaid fifteen (15) day period
or to satisfy such liens within fifteen (15) days after any judgment in favor of
such lienholders from which no further appeal might be taken then Landlord shall
have the right to cause the same to be discharged. All amounts paid by the
Landlord to cause such liens to be discharged shall constitute Additional Rent.
ARTICLE 12
Access to Premises
------------------
12.01. Access. Landlord or Landlord's agents, representatives,
------
consultants or employees and designees shall have the right, but not the
obligation, to enter upon the Premises at all reasonable times during ordinary
business hours, upon three (3) business days' notice, to examine the Premises or
to exhibit the Premises to prospective purchasers and tenants, or both, but in
the latter case only during the last six (6) months of the term of this Lease,
as extended, except, however, any Mortgagee or Mortgagee's agents, consultants
or employees may enter upon the Premises upon reasonable notice to Tenant, so
long as no Event of Default exists, or in the event foreclosure proceedings have
commenced any Mortgagee or Mortgagee's agents, consultants or employees may
enter upon the Premises at all reasonable times.
ARTICLE 13
Assignment and Subletting Occupancy Arrangements
------------------------------------------------
13.01. Subletting and Assignment. Tenant shall not enter into any
-------------------------
Occupancy Arrangement, either voluntarily or by operation of law (other than
with a Person who is an Affiliate of Tenant for a period ending when and if such
Person ceases to be an Affiliate of Tenant), without prior written consent of
Landlord. If Tenant intends to enter into an Occupancy Arrangement, Tenant shall
so request the consent of Landlord in writing, stating the name of (and
financial information with respect to) the person with whom Tenant intends to
enter into such Arrangement, the terms of the Arrangement and a description of
the portion of the Premises intended to be subject thereto. The term of any such
Occupancy Arrangement shall not extend beyond the Stated Expiration Date, as
extended, unless the
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<PAGE>
required Stated Expiration Date extension is consented to in writing by
Landlord.
Tenant shall (i) deliver to Landlord an executed original counterpart
of any Occupancy Arrangement and (ii) remain permanently liable for the payment
and performance of the terms and covenants of this Lease.
ARTICLE 14
Indemnity
---------
14.01. Tenant's Indemnity. To the fullest extent permitted by law,
------------------
Tenant shall indemnify and save harmless Landlord from and against any and all
liability, damages, penalties or judgments and from and against any claims,
actions, proceedings and expenses and costs in connection therewith, including,
without limitation, reasonable counsel fees arising from injury to person or
property sustained by anyone in and about the Premises resulting from any act or
omission of Tenant, or Tenant's officers, agents, servants, employees,
contractors, sublessees, invitees of any nature, or trespassers in the Premises
and, in general, any act or omission of any Person other than Landlord. Tenant
shall, at its own cost and expense, defend any and all suits or actions (just or
unjust) in which Landlord may be impleaded with others upon any such above-
mentioned matter, claim or claims, except as may result from the acts as set
forth in Section 14.02. All merchandise, furniture, fixtures and property of
every kind, nature and description of Tenant or Tenant's employees, agents,
contractors, invitees, visitors or guests which may be in or upon the Premises
during the term hereof shall be at the sole risk and hazard of Tenant, and if
the whole or any part thereof shall be damaged, destroyed, stolen or removed by
reason of any cause or reason whatsoever, other than the negligence or willful
default of Landlord, no part of said damage or loss shall be charged to or borne
by Landlord.
14.02. Landlord's Liability. Except for its intentional acts or
--------------------
negligence or the intentional acts or negligence of its partners, agents,
servants, employees or contractors, Landlord shall not be responsible or liable
for any damage or injury to any property, fixtures, buildings or improvements,
or to any person or persons, at any time in the Premises, including any damage
or injury to Tenant or to any of Tenant's officers, agents, servants, employees,
contractors, invitees, customers or sublessees.
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<PAGE>
ARTICLE 15
Insurance
---------
15.01. Insurance. Tenant shall, at Tenant's expense, maintain, in
---------
force and effect on the Premises at all times during the Lease Term, the
following insurance:
(a) "All-risk" coverage insurance against loss or damage to the
Premises from all-risk perils. The amount of such insurance shall not be less
than one hundred percent (100%) of the full replacement cost of the Building,
furniture, furnishings, fixtures, equipment and other items (whether personalty
or fixtures) included in the Building and owned by Landlord or Tenant from time
to time, without reduction for depreciation. The determination of the
replacement cost amount shall be adjusted annually to comply with the
requirements of the insurer issuing such coverage or, at Landlord's election, by
reference to such indexes, appraisals or information as Landlord determines in
its reasonable discretion. Full replacement cost, as used herein, means, with
respect to the Building, the cost of replacing the Building without regard to
deduction for depreciation, exclusive of the cost of excavations, foundations
and footings below the lowest basement floor, and means, with respect to such
furniture, furnishings, fixtures, equipment and other items, the cost of
replacing the same. Each policy or policies shall contain a replacement cost
endorsement and either an agreed amount endorsement (to avoid the operation of
any co-insurance provisions) or a waiver of any co-insurance provisions, all
subject to Landlord's approval.
(b) Commercial general liability insurance for personal injury, bodily
injury, death and property damage liability in amounts not less than $2,000,000
per occurrence, $3,000,000 aggregate (inclusive of umbrella coverage) or such
lesser amount as Landlord in Landlord's sole discretion may accept, for bodily
injury, personal injury and property damage. This policy must contain, but not
be limited to, coverage for premises and operations liability, products and
completed operations liability, contractual liability, hired and non-owned
automobile liability, personal injury liability and property damage liability.
During any construction on the Land, Landlord's general contractor for such
construction shall also provide the insurance required in this subparagraph (b).
Landlord hereby retains the right to periodically review the amount of said
liability insurance being maintained by Tenant and to require an increase in the
amount of said liability insurance should Landlord deem an increase to be
reasonably prudent under then existing circumstances.
(c) Insurance covering the major components of the central heating,
air conditioning and ventilating systems,
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<PAGE>
boilers, other pressure vessels, high pressure piping and machinery, elevators
and escalators, if any, and other similar equipment installed in the Building,
in an amount equal to one hundred percent (100%) of the full replacement cost of
the Building which policies shall insure against physical damage to and loss of
occupancy and use of the Building arising out of an accident or breakdown
covered thereunder.
(d) If the Building or any part thereof is identified by the Secretary
of Housing and Urban Development as being situated in an area now or
subsequently designated as having special flood hazards (including, without
limitation, those areas designated as Zone A or Zone V), flood insurance in an
amount equal to one hundred percent (100%) of the replacement cost of the
Building or the maximum amount of flood insurance available, whichever is the
lesser.
(e) During the period of any construction on the Real Estate or
renovation or alteration of the Improvements, a so-called "Builder's All-Risk
Completed Value" or "Course of Construction" insurance policy in non-reporting
form for any improvements under construction, renovation or alteration in an
amount approved by Landlord and, if required by Mortgagee, and Worker's
Compensation Insurance covering all persons engaged in such construction,
renovation or alteration.
(f) Rental value or rental income insurance in amounts sufficient to
compensate Landlord for all Rents and Profits during a period of not less than
one year in which the Property may be damaged or destroyed.
(g) Such other insurance on the Property or on any replacements or
substitutions thereof or additions thereto as may from time to time be required
by Landlord or Landlord's Mortgagee against other insurable hazards or
casualties which at the time are commonly insured against in the case of
property similarly situated, due regard being given to the height and type of
buildings, their construction, location, use and occupancy.
All such insurance shall (i) be with insurers authorized to do business in
the state within which the Real Estate is located and who have and maintain a
rating of at least the third (3rd) highest rating category by Moody's, Duff &
Phelps, Fitch Investors or Standard & Poor [or a Best rating of A-V or better,
at Mortgagee's election], (ii) contain the complete address of the Premises (or
a complete legal description), (iii) be for term of at least one year, (iv)
contain deductibles no greater than $10,000, and (v) be subject to the
reasonable approval of Landlord as to insurance companies, amounts, content,
form of policies, method by which premiums are paid and expiration dates.
-17-
<PAGE>
Tenant shall as of the date hereof deliver to Landlord evidence that said
insurance policies have been paid current as of the date hereof and certified
copies of such insurance policies and original certificates of insurance signed
by an authorized agent evidencing such insurance satisfactory to Landlord.
Tenant shall renew all such insurance and deliver to Landlord certificates
evidencing such renewals at least thirty (30) days before any such insurance
shall expire. Without limiting the required endorsements to insurance policies,
Tenant further agrees that all such policies shall provide that proceeds
thereunder shall be payable to Landlord and Mortgagee, its successors and
assigns, pursuant and subject to a mortgagee clause (without contribution) of
standard form attached to, or otherwise made a part of, the applicable policy
and that Mortgagee, it successors and assigns, shall be named as an additional
insured under all liability insurance policies. Tenant further agrees that all
such insurance policies: (i) shall provide for at least thirty (30) days' prior
written notice to Mortgagee prior to any cancellation or termination thereof and
prior to any modification thereof which affects the interest of Mortgagee; (ii)
shall contain an endorsement or agreement by the insurer that any loss shall be
payable to Mortgagee in accordance with the terms of such policy notwithstanding
any act or negligence of Landlord which might otherwise result in forfeiture of
such insurance; and (iii) shall either name Mortgagee as an additional insured
or waive all rights of subrogation against Mortgagee. The delivery to Landlord
of the insurance policies or the certificates of insurance as provided above
shall constitute an assignment of all proceeds payable under such insurance
policies by Tenant to Landlord as further security for the indebtedness secured
hereby. In the event of termination of this Lease, all right, title and interest
of Tenant in and to all proceeds payable under such policies then in force
concerning the Property shall thereupon vest in the Landlord. In the event the
Tenant fails to provide, maintain, keep in force or deliver and furnish to
Landlord the policies of insurance required by this Lease or evidence of their
renewal as required herein, Landlord may, but shall not be obligated to, procure
such insurance and Tenant shall pay all amounts advanced by Landlord, together
with interest thereon at the Default Interest Rate from and after the date
advanced by Landlord until actually repaid by Tenant, promptly upon demand by
Landlord. Any amounts so advanced by Landlord, together with interest thereon,
shall be Additional Rent. Landlord shall not be responsible for nor incur any
liability for the insolvency of the insurer or other failure of the insurer to
perform, even though Landlord has caused the insurance to be placed with the
insurer after failure of Tenant to furnish such insurance.
15.02. Insurance Escrow. If required by Landlord pursuant to the terms
of this Lease, Tenant shall pay, in advance, into an escrow account, at the time
of each rent
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<PAGE>
payment, an additional amount equal to the amount determined by Landlord to be
sufficient to pay all insurance premiums required by Section 15.01. Such amounts
shall be held by Landlord or its designee without liability to pay interest
thereon, and on or before the dates on which they would become delinquent shall
be applied to the payment of such insurance premiums.
ARTICLE 16
Waiver of Subrogation
---------------------
16.01. Waiver of Subrogation. All insurance policies carried by either
---------------------
party covering the Premises, including but not limited to contents, fire and
casualty insurance, shall expressly waive any right on the part of the insurer
to make any claim against the other party. The parties hereto agree that their
policies will include such waiver of subrogation clause or endorsement.
16.02. Waiver of Rights. Landlord and Tenant each hereby waive all
----------------
claims, causes of action and rights or recovery against the other and their
respective partners, agents, officers and employees, for any damage to or
destruction of persons, property or business which shall occur on or about the
Premises and shall result from any of the perils insured under any and all
policies of insurance maintained by Landlord and Tenant, regardless of cause,
including the negligence and intentional wrongdoing of either party and their
respective agents, officers and employees but only to the extent of recovery, if
any, under such policy or policies of insurance; provided, however, that this
waiver shall be null and void to the extent that any such insurance shall be
invalidated by reason of this waiver.
ARTICLE 17
Damage or Destruction
---------------------
17.01. Substantial Damage. If the Building or any part thereof shall
------------------
be damaged by fire or other casualty, Tenant shall give prompt written notice
thereof to Landlord. If as a result, the Building is so damaged that substantial
alteration or reconstruction of the Building shall be required or if any
Mortgagee requires that Proceeds payable be used to retire the mortgage debt,
Landlord may, at its option, terminate this Lease by notifying Tenant in writing
of such termination within sixty (60) days after the date of such damage.
17.02. Restoration. If Landlord does not terminate this Lease pursuant
-----------
to Section 17.01, Landlord shall, within seventy-five (75) days after receipt by
Landlord of the Proceeds
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<PAGE>
payable in respect of such fire or other casualty, proceed with reasonable
diligence to restore the Building (subject to Force Majeure) to substantially
the same condition in which it was immediately prior to the occurrence of the
casualty. Landlord shall not be required to rebuild, repair, or replace any part
of the Tenant's furniture, furnishings, fixtures or equipment. Landlord shall
not be required to spend for such work an amount in excess of the Proceeds
actually received by Landlord and allocable thereto. Landlord shall not be
liable for any inconvenience or annoyance to Tenant or injury to the business of
Tenant resulting in any way from such damage or the repair thereof, except that,
subject to the provisions of the next sentence, Landlord shall allow Tenant a
fair diminution of Basic Rent during the time and to the extent the Premises are
unfit for occupancy, so long as rental proceeds from whatever source are
sufficient to pay Rent. If the Premises or any other portion of the Building be
damaged by fire or other casualty resulting from the fault or negligence of
Tenant or any of Tenant's agents, employees, or invitees, the Rent hereunder
shall not be diminished during the repair of such damage.
ARTICLE 18
Eminent Domain
--------------
18.01. Total Taking. If the Premises or the Building should be the
------------
subject of a Total Taking, then this Lease shall terminate as of the date when
physical possession of the Building or the Premises is taken by the condemning
authority.
18.02. Partial Taking. If there occurs a Partial Taking and the
--------------
Premises are affected thereby, Landlord may terminate this Lease by giving
written notice thereof to Tenant within sixty (60) days after the right of
election accrues, in which event this Lease shall terminate as of the date when
physical possession of such portion of the Building or Premises is taken by the
condemning authority. If upon any such Partial Taking this Lease is not
terminated, Basic Rent shall be abated by an amount representing that part of
the Basic Rent properly allocable to the portion of the Premises so taken and
Landlord shall, at Landlord's sole expense, restore and reconstruct the Building
and the Premises to substantially their former condition to the extent that the
same, in Landlord's judgment, may be feasible, but Landlord shall not be
required to spend for such work an amount in excess of the Proceeds received by
Landlord.
18.03. Awards and Proceeds. All Proceeds payable in respect of a
-------------------
Taking shall be the property of Landlord. Tenant hereby assigns to Landlord all
rights of Tenant in or to such Proceeds, provided that Tenant shall be entitled
to separately
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<PAGE>
petition the condemning authority for a separate award for its moving expenses
and trade fixtures.
ARTICLE 19
Quiet Enjoyment
---------------
19.01. Landlord's Covenant. Tenant, upon paying the Rent and observing
-------------------
and keeping all covenants, warranties, agreements and conditions of this Lease
on its part to be kept shall, subject to the Permitted Exceptions, quietly have
and enjoy the Premises during the term of this Lease, without hindrance or
molestation from any Person lawfully claiming by, through or under Landlord.
19.02. Notice to Mortgagee. No act or failure to act on the part of
-------------------
Landlord which would entitle Tenant under the terms of this Lease, or by law, to
be relieved of Tenant's obligations hereunder or to terminate this Lease, shall
result in a release or termination of such obligations or a termination of this
Lease unless (i) Tenant shall have first given written notice of Landlord's act
or failure to act to Mortgagee, if any, specifying the act or failure to act on
the part of Landlord which is the basis of Tenant's rights; and (ii) Mortgagee,
after receipt of such notice, fails or refuses to correct or cure (or to
commence and pursue to cure) the condition complained of within a reasonable
time thereafter; but nothing contained in this Section 19.03 shall be deemed to
impose any obligation on Mortgagee to correct or cure any such condition.
"Reasonable time" as used above shall mean a period of not less than thirty (30)
Business Days and shall include (but not be limited to) a reasonable time to
obtain possession of the Building if the Mortgagee elects to do so and a
reasonable time to correct or cure the condition if such condition is determined
to exist.
19.03. Other Provisions Regarding Mortgagees. If this Lease or the
-------------------------------------
Rent due hereunder is assigned to Mortgagee as collateral security for a loan,
no Mortgagee shall be deemed to have assumed any of Landlord's obligations
hereunder solely as a result of said assignment. A Mortgagee to whom this Lease
has been so assigned shall be deemed to have assumed such obligations only if
(i) by the terms of the instrument of assignment Mortgagee specifically elects
to assume such obligations or (ii) Mortgagee has (a) foreclosed its Mortgage and
acquired title, (b) accepted a deed in lieu thereof, or (c) taken possession of
the Premises by entry or otherwise. Even if Mortgagee so assumes the obligations
of Landlord hereunder, Mortgagee will be liable for breaches of any of
Landlord's obligations hereunder only to the extent such breaches occur during
the period of ownership by Mortgagee after foreclosure (or
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any conveyance by a deed in lieu thereof), all as set forth in
Section 25.09 hereof.
ARTICLE 20
Defaults; Events of Default
---------------------------
20.01. Defaults. The following shall, if any requirement for notice or
--------
lapse of time or both has not been met, constitute Defaults, and, if all such
applicable periods for the giving of notice or lapse of time, or both have been
- ------------------------------------------------------------
met, constitute Events of Default hereunder:
(1) The occurrence of any event set forth in
Article 21 hereof;
(2) The failure of Tenant to pay Rent (including, but not
limited to, Tenant's obligation to deposit tax
payments, in advance, into an escrow account if
requested by Landlord as required by Section 6.08,
Section 9.04 or Section 15.02) when the same shall
be due and payable and the continuance of such
failure for a period of ten (10) days after receipt
by Tenant of notice in writing from Landlord
specifying such failure.
(3) The failure or refusal of Tenant to keep, observe or
perform any of the other covenants, conditions and
agreements herein contained on Tenant's part to be
kept, observed or performed and the continuance of
such failure or refusal without the curing of same
for a period of fifteen (15) days after receipt by
Tenant of notice in writing from Landlord specifying
in reasonable detail the nature of such failure.
20.02. Tenant's Best Efforts. In the event that the Default of which
---------------------
Landlord gives notice pursuant to Section 20.01(3) is of such a nature that it
cannot be cured within such fifteen (15) day period, then such fifteen (15) day
period shall be extended so long as Tenant, after receiving such notice,
proceeds diligently to cure the Default as soon as reasonably possible and
continues to take all steps necessary to complete the same within a period of
time which, under all prevailing circumstances, shall be reasonable. No Default
(except Insolvency) shall occur if and so long as (a) Tenant does not refuse to
cure the Default, and (b) Tenant shall be so proceeding to cure the same in good
faith or be delayed in or prevented from curing the same by reason of force
majeure.
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<PAGE>
20.03. Elimination of Default. Notwithstanding anything to the
----------------------
contrary contained in this Article 20, in the event that any Default(s) of
Tenant shall be cured within the applicable grace period hereinabove provided,
such Default(s) shall be deemed never to have occurred and Tenant's rights
hereunder shall continue unaffected by such Default(s).
ARTICLE 21
Insolvency
----------
21.01. Insolvency. If (i) there occurs with respect to Tenant or any
----------
occupant of all or substantially all of the Premises an Insolvency or (ii) any
execution of attachment is issued against any of the aforesaid or any of their
property and as a result thereof the Premises are taken or occupied by some
Person other than the Tenant, except as may herein be expressly permitted, then
an Event of Default hereunder shall be deemed to have occurred so that the
provisions of Article 22 hereof shall become effective and Landlord shall have
the rights and remedies provided for therein.
ARTICLE 22
Landlord's Remedies; Damages on Default
---------------------------------------
22.01. Landlord's Remedies. If an Event of Default shall occur and be
-------------------
continuing, Landlord may, at its option, give to Tenant a notice terminating
this Lease upon a date specified in such notice, which date shall be not less
than ten (10) Business Days after the date of receipt by Tenant of such notice
from Landlord, and upon the date specified in said notice, the term and estate
hereby vested in Tenant shall cease and any and all other right, title and
interest of Tenant hereunder shall likewise cease without further notice or
lapse of time, as fully and with like effect as if the entire term of this Lease
had elapsed, but Tenant shall continue to be liable to Landlord as hereinafter
provided.
22.02. Subordination, Attornment and Non-Disturbance Agreement. This
-------------------------------------------------------
Lease and all rights of Tenant shall be subject and subordinate to Mortgage and
all replacements, substitutions, renewals or extensions thereof and advances
thereunder, and, in addition, Tenant consents to an assignment of this Lease by
Landlord to Mortgagee as further security for the Note, provided however, that
in each instance Mortgagee shall execute and deliver to Tenant for execution an
attornment and non-disturbance agreement in form and content substantially
similar to that attached hereto as Exhibit B. Each such Mortgagee shall be
obligated to perform Landlord's covenants hereunder only after
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the earlier of taking possession of or title to the Premises and only as to
obligations which arise thereafter.
22.03. Surrender. Upon any expiration or termination of this Lease as
---------
the result of an Event of Default, Tenant shall quit and peacefully surrender
the Premises to Landlord, and Landlord, upon or at any time after such
expiration or termination, may without further notice, enter the Premises and
possess itself thereof, by summary proceedings, ejectment or otherwise, and may
dispossess Tenant and remove Tenant and all other Persons and property from the
Premises and may have, hold and enjoy the Premises and the right to receive all
rental income of and from the same.
22.04. Right to Relet. At any time or from time to time after any such
--------------
expiration or termination, Landlord may relet the Premises or any part thereof,
in the name of Landlord or otherwise, for such term or terms (which may be
greater or less than the period which would otherwise have constituted the
balance of the term of this Lease) and on such conditions (which may include
concessions or free rent) as Landlord, in its reasonable discretion, may
determine and may collect and receive the rents therefor. Landlord shall in no
way be responsible or liable for any failure to relet the Premises or any part
thereof, or for any failure to collect any rent due upon such reletting.
22.05. Survival of Covenant. No expiration or termination of this
--------------------
Lease shall relieve Tenant of its liability and obligations under this Lease,
including but not limited to the Indemnity required of Tenant by Article 8,
Section 8.01, and such liability and obligations shall survive any expiration or
termination of this Lease. In the event of any such expiration or termination,
whether or not the Premises or any part thereof shall have been relet, Tenant
shall pay to Landlord the Rent up to the time of such expiration or termination
of this Lease, and thereafter Tenant, until the Stated Expiration Date, shall be
liable to Landlord for, and shall pay to Landlord, as and for liquidated and
agreed current damages for Tenant's default, the difference between
(1) the equivalent of the amount of Rent which would be
payable under this Lease by Tenant if this Lease were
still in effect, less
(2) the net proceeds of any reletting effected pursuant to the
provisions of Section 22.02 hereof, after deducting all
Landlord's expenses in connection with such reletting, including,
without limitation, all repossession costs, brokerage
commissions, legal expenses, reasonable attorneys' fees,
alteration costs, and expenses of preparation for such reletting.
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<PAGE>
Tenant shall pay such difference to Landlord monthly on the days on which the
Basic Rent would have been payable under this Lease if this Lease were still in
effect, and Landlord shall be entitled to recover from Tenant each monthly
difference as the same shall arise. At any time after any such expiration or
termination, whether or not Landlord shall have collected any monthly difference
as aforesaid, Landlord shall be entitled to recover from Tenant, and Tenant
shall pay to Landlord, on demand, as and for liquidated and agreed final damages
for Tenant's default, an amount equal to the difference between the present
value of the Rent reserved hereunder for the unexpired portion of the term of
this Lease and the then present value of the fair and reasonable rental value of
the Premises for the same period. If the Premises or any part thereof be relet
by the Landlord for the unexpired portion of the Lease Term, or any part
thereof, before presentation of proof of such liquidated damages to any court,
commission or tribunal, the amount of rent reserved upon such reletting shall be
prima facie to be the fair and reasonable rental value for the part or the whole
of the Premises to relet during the term of the reletting. Nothing herein
contained shall limit or prejudice the right of the Landlord to prove and obtain
as liquidated damages by reason of such termination, an amount equal to the
maximum allowed by any statute or rule of law in effect at the time when, and
governing the proceedings in which, such damages are to be proved, whether or
not such amount be greater, equal to, or less than the amount of the difference
referred to above.
22.06. Right to Equitable Relief. In the event there shall occur an
-------------------------
Event of Default or threatened Default, Landlord shall be entitled to enjoin
such breach or threatened breach and shall have the right to invoke any right
and remedy allowed at law or equity or by statute or otherwise as though re-
entry, summary proceedings, and other remedies were not provided for in this
Lease.
22.07. Right to Self Help; Interest on Overdue Rent. If an Event of
--------------------------------------------
Default shall occur and be continuing, Landlord shall have the right, but shall
not be obligated, to enter upon the Premises and to perform such obligation
notwithstanding the fact that no specific provisions for such substituted
performance by Landlord is provided in this Lease with respect to such default.
In performing such obligation, Landlord may make any payment of money or perform
any other act. The aggregate of (i) all sums so paid by Landlord with interest
(at the rate of 1-1/2% per month or the highest rate permitted by law, whichever
is less) on such sum plus all Rent not paid when due and (iii) all necessary
----
incidental costs and expenses in connection with the performance of any such act
by Landlord, shall be deemed to be Rent under this Lease and shall be payable to
Landlord immediately upon demand. Landlord may exercise the foregoing
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<PAGE>
rights without waiving any other of its rights or releasing Tenant from any of
its obligation under this Lease.
22.08. Further Remedies. Upon any termination of this Lease pursuant
----------------
to Section 22.01, or at any time thereafter, Landlord may, in addition to and
without prejudice to any other rights and remedies Landlord shall have at law or
in equity, re-enter the Premises, and recover possession thereof and may
dispossess any or all occupants of the Premises in the manner prescribed by the
statute relating to summary proceedings, or similar statutes; but Tenant in such
case shall remain liable to Landlord as herein provided.
ARTICLE 23
Waivers
-------
23.01. No Waivers. Failure of Landlord to complain of any act or
----------
omission on the part of Tenant no matter how long the same may continue, shall
not be deemed to be a waiver by said Landlord of any of its rights hereunder. No
waiver by Landlord at any time, expressed or implied, of any breach of any
provision of this Lease shall be deemed a waiver of a breach of any other
provision of this Lease or a consent to any subsequent breach of the same or any
other provision. No acceptance by Landlord of any partial payment shall
constitute an accord or satisfaction but shall only be deemed a partial payment
on account.
ARTICLE 24
Sale of Premises or Building
----------------------------
24.01. Right of First Offer. Provided that an Event of Default has not
--------------------
occurred and is not continuing, Landlord will not (during the Lease Term)
execute a purchase and sale agreement, option to purchase, deed or similar
agreement conveying or otherwise, except financing and refinancing, affecting
Landlord's interest in the Land or the Building whether or not any rights
granted by any such agreement are exercisable during or after the Lease Term,
unless Landlord has first offered in writing to sell the Land and Building to
Tenant. If Landlord and Tenant do not agree on a purchase price within thirty
(30) days of receipt by Tenant of Landlord's offer, Landlord may sell the Land
or the Building to a Person who is not an Affiliate of Landlord at a price not
less than Tenant's highest offer; provided, however, that the foregoing shall
not be applicable to the purchase or sale of a partnership interest or to the
purchase or sale of the Premises at a foreclosure sale, or by deed in lieu
thereof, by Mortgagee or its designee, or any sale of the Premises by Mortgagee
or its designee.
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<PAGE>
ARTICLE 25
General Provisions
------------------
25.01. Force Majeure. In the event that Landlord or Tenant shall be
-------------
delayed, hindered in or prevented from the performance of any act required
hereunder (other than payment of Rent) by reason of Force Majeure, then
performance of such act shall be excused for the period of the delay and the
period for the performance of any such act shall be attended for a period
equivalent to the period of such delay.
25.02. Notices and Communications. All notices, demands, requests and
--------------------------
other communications provided for or permitted under this Lease shall be in
writing, either delivered by hand or sent prepaid by overnight delivery, to the
following addresses:
(a) if to Landlord at the address stated in the
preamble hereof, or at such other address as the
Landlord shall have designated in writing to the
Tenant, with a copy to Masterman, Culbert & Tully,
One Lewis Wharf, Boston, MA 02110 Attention:
Paul J. McNamara, Esq., and to such Persons as
Landlord shall have designated in writing to Tenant,
or
(b) if to Tenant at the address stated in the preamble
hereof, or at such other address as the Tenant shall
have designated in writing to the Landlord, with a
copy to Lynch, Brewer, Hoffman & Sands, 101 Federal
Street, Boston, Massachusetts 02110 Attention: Owen
B. Lynch, Esq.
Any notice provided for herein shall become effective
only upon and at the time of receipt by the Person to whom it is
given, unless such notice is sent by prepaid overnight delivery in
which case it shall be deemed to be received on (i) the next
Business Day following the sending thereof.
25.03. Certificates, Estoppel Letter. Either party shall, without
-----------------------------
charge, at any time and from time to time hereafter, within ten (10) days after
written request of the other, certify by written instrument duly executed and
acknowledged to Mortgagee or purchaser, or proposed Mortgagee or proposed
purchaser, or any other person specified in such request: (a) as to whether this
Lease has been supplemented or amended, and if so, the substance and manner of
such supplement or amendment, (b) as to the validity and force and effect of
this Lease, in accordance with its tenor as then constituted, (c) as to the
existence of any Default or Event of Default, (d) as to
-27-
<PAGE>
the existence of any offsets, counterclaims or defenses thereto on the part of
such other party, (e) as to any other matters as may reasonably be so requested.
Any such certificate may be relied upon by the party requesting it and any other
Person to whom the same may be exhibited or delivered, and the contents of such
certificate shall be binding on the party executing same.
25.04. Holding Over. If Tenant occupies the Premises after the Lease
------------
Termination Date without Landlord's consent or without having entered into a new
lease of the Premises with Landlord, Tenant shall be a tenant-at-sufferance only
subject to all of the terms and provisions of this Lease at twice the then
effective Base Rent. Such a holding over, even if with the consent of Landlord,
shall not constitute an extension or renewal of this Lease.
25.05. Governing Law. This Lease and the performance thereof shall be
-------------
governed, interpreted, construed and regulated by the laws of The Commonwealth
of Massachusetts.
25.06. Partial Invalidity. If any term, covenant, condition or
------------------
provision of this Lease or the application thereof to any person or circumstance
shall, at any time or to any extent, be invalid or unenforceable, the remainder
of this Lease, or the application of such term or provision to persons or
circumstances other than those as to which it is held invalid or unenforceable,
shall not be affected thereby, and each term, covenant, condition and provision
of this Lease shall be valid and be enforced to the fullest extent permitted by
law.
25.07. Notice of Lease. The parties will at any time, at the request
---------------
of either one, promptly execute duplicate originals of an instrument, in
recordable form, which will constitute a Notice of Lease, setting forth a
description of the Premises, the Lease Term and any other portions thereof,
excepting the rental provisions, as either party may request.
25.08. Interpretation. The section headings used therein are for
--------------
reference and convenience only, and shall not enter into the interpretation
hereof. This Lease may be executed in several counterparts, each of which shall
be an original, but all of which shall constitute one and the same instrument.
The term "Landlord" whenever used herein, shall mean only the owner at the time
of Landlord's interest herein, and upon any sale or assignment (other than as
collateral security for a loan) of the interest of Landlord herein, its
respective successors in interest and/or assigns shall, during the term of
ownership of its respective estates herein, be deemed to be Landlord and the
liability of Landlord, if any, hereunder shall in any event be limited to the
Landlord's interest in the Building.
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<PAGE>
25.09. Consents. Consents or approvals required or requested of either
--------
Landlord or Tenant shall not be unreasonably withheld or delayed.
25.10. Entire Agreement. No oral statement or prior written matter
----------------
shall have any force or effect. This Agreement shall not be modified or
cancelled except by writing subscribed to by all parties.
25.11. Parties. Except as herein otherwise expressly provided the
-------
covenants, conditions agreements contained in this Lease shall be binding upon
the heirs, successors and assigns of the parties hereto.
Executed as a sealed instrument as of the ___ day of _______________,
199__.
LANDLORD:
RAGS II
By /s/ John A. Geishecker, Jr.
----------------------------------
John A. Geishecker, Jr.
General Partner
TENANT:
RULE INDUSTRIES, INC.
By /s/ Gary M. Sable
----------------------------------
Gary M. Sable
Vice President
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<PAGE>
EXHIBIT A
---------
The land in Deerfield, Franklin County, Massachusetts, on the southerly
side of Route 116 (February 26, 1963 Massachusetts State Highway Relocation),
more specifically bounded and described as follows:
Beginning at a concrete bound in the southerly sideline of said Route #116,
said bound being opposite station 131 + 98.03 of the base line of location
of the February 26, 1963 relocation and layout of Route #116; thence
southeasterly along the top of the bank to a concrete bound, said bound
being S 55(degrees) 47' 21" E a distance of 214.31 feet from the last
mentioned bound being S 33(degrees) 55' 23" E a distance of 51.55 feet to a
concrete bound; thence S 57(degrees) 00' 04" E a distance of 260.42 feet to
a concrete bound; thence S 55(degrees) 34' 39" E a distance of 127.57 feet
to a concrete bound; thence S 32(degrees) 53' 30" E a distance of 245.30
feet to a concrete bound; the last eight courses being along and now or
formerly of Chester of Mary Wotjkielwicz; thence S 81(degrees) 35' 34" W
along the line between Deerfield, Massachusetts and Whately, Massachusetts
a distance of 1,593.95 feet to a concrete bound; thence N 6(degrees) 09'
26" W a distance of 672.92 feet to a concrete bound; thence northerly on a
curve to the right of radius 730.00 feet an arc length of 248.58 feet to a
concrete bound; thence northeasterly on a curve to the right of radius
25-00 feet an arc length of 39.27 feet to a concrete bound; the last four
courses being along land now or formerly of Deerfield Economic Development
and Industrial Economic Corporation; then S 76(degrees) 38' 49" E along the
southerly side of said Route #116 a distance of 708.03 feet to the point of
beginning.
The parcel described above contains 29.947 acres and is the land conveyed
to Mortgagor by deed of Rule Industries, Inc., dated December 31, 1994 and
recorded at the Franklin County Registry of Deeds in Book 1834, Page 107.
<PAGE>
FIRST LEASE AMENDMENT
---------------------
Reference is made to a Lease (the "Original Lease") dated November 25, 1985
as extended by and between RAGS III, a Massachusetts general partnership, having
a principal place of business at 2 Fox Place, Newton Centre, MA 02159
("Landlord"), and RULE INDUSTRIES, INC., a Massachusetts corporation, with a
principal place of business at 70 Blanchard Road, Burlington, MA 01803
("Tenant").
WHEREAS, Landlord and Tenant have agreed to extend the Term of the Original
Lease pursuant to the terms and conditions hereinafter set forth; and
WHEREAS, the Original Lease as amended herein is hereinafter referred to as
the "First Lease Amendment".
NOW, THEREFORE, in consideration of the premises and mutual agreements
herein contained and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, Landlord and Tenant hereby agree
to extend the Term of the Original Lease by amending the Original Lease as
follows:
W I T N E S S E T H:
- - - - - - - - - -
Definitions
-----------
1.01 Stated Expiration Date. The tenth year, sixth month anniversary of the
----------------------
date of the Original Lease, May 25, 1996.
Landlord and Tenant agree that in all other respects the terms and
conditions of the Original Lease as initially extended are confirmed.
Executed as a sealed instrument this 18th day of October, 1995.
LANDLORD:
--------
RAGS III
By: /s/ Gary M. Sable
----------------------------
Gary M. Sable,
General Partner
hereunto duly authorized
-1-
<PAGE>
BUYER:
-----
RULE INDUSTRIES, INC.
By: /s/ John A. Geishecker, Jr.
----------------------------
John A. Geishecker, Jr.,
Vice President
COMMONWEALTH OF MASSACHUSETTS
COUNTY OF MIDDLESEX Oct. 18, 1995
Then personally appeared Gary M. Sable, Partner of RAGS III, to me known
to be the person described in and who executed the First Lease Amendment and
acknowledged that he executed the same as his free act and deed on behalf of the
partners of RAGS III, with the full and free consent thereof, before me.
/s/ Rosemary Kosek-Fritz
----------------------------
Notary Public
My commission expires: June 8, 2001
COMMONWEALTH OF MASSACHUSETTS
COUNTY OF MIDDLESEX Oct. 18, 1995
Then personally appeared the above-named John A. Geishecker, Jr., to me
personally known, who, being by me duly sworn, did say that he is the Vice
President of Rule Industries, Inc. and that the seal affixed to said First Lease
Amendment is the corporate seal of Rule Industries, Inc. and that said First
Lease Amendment was signed and sealed in behalf of Rule Industries, Inc. by
authority of its Board of Directors and John A. Geishecker, Jr. acknowledged
said First Lease Amendment to be the free act and deed of Rule Industries, Inc.,
before me.
/s/ Rosemary Kosek-Fritz
----------------------------
Notary Public
My commission expires:
ROSEMARY KOSEK-FRITZ
NOTARY PUBLIC
My Commission Expires June 8, 2001
-2-
<PAGE>
EXECUTION COPY
PURCHASE AND SALE AGREEMENT
---------------------------
BY AND BETWEEN
RAGS III (SELLER)
AND
RULE INDUSTRIES, INC. (BUYER)
1 KONDELIN ROAD, GLOUCESTER, MASSACHUSETTS 01930
<PAGE>
EXECUTION COPY
TABLE OF CONTENTS
-----------------
<TABLE>
<S> <C>
ARTICLE 1
---------
DEFINITIONS/PURCHASE AND SALE................... -1-
-----------------------------
1.1 Definitions.......................................................... -1-
-----------
1.2 Purchase and Sale of Assets.......................................... -1-
---------------------------
1.2.1 Real Property....................................... -1-
-------------
1.2.2 Improvements........................................ -1-
------------
1.2.3 Personal Property................................... -1-
-----------------
1.2.4 Contracts........................................... -1-
---------
ARTICLE 2
---------
PURCHASE PRICE........................... -2-
--------------
2.1 Purchase Price....................................................... -2-
--------------
2.2 Terms of Payment..................................................... -2-
----------------
2.2.1 Deposit............................................. -2-
-------
2.2.2 Balance of Purchase Price........................... -2-
-------------------------
2.3 Allocation of Purchase Price......................................... -2-
----------------------------
2.4 Instructions......................................................... -2-
------------
ARTICLE 3
---------
BUYER'S DUE DILIGENCE....................... -3-
---------------------
3.1 Inspection Period.................................................... -3-
-----------------
3.1.1 Title Commitment.................................... -3-
----------------
3.1.2 Survey.............................................. -3-
------
3.1.3 Buyer's Title Objections............................ -3-
------------------------
3.1.4 Future Encumbrances................................. -3-
-------------------
3.2 Buyer's Discretionary Termination.................................... -4-
---------------------------------
ARTICLE 4
---------
CONDITION OF THE ASSETS...................... -4-
-----------------------
4.1 Condition of the Assets; No Warranty; Buyer's Assumption of Risk..... -4-
----------------------------------------------------------------
4.1.1 Physical Condition of the Assets.................... -4-
--------------------------------
4.1.2 Development Potential of the Assets................. -5-
-----------------------------------
4.1.3 Legal Compliance of Assets.......................... -5-
--------------------------
4.1.4 Insurance........................................... -5-
---------
4.1.5 Condition of Title.................................. -5-
------------------
4.2 No Warranty or Representation........................................ -5-
-----------------------------
4.3 Buyer's Assumption of Risk - Release................................. -6-
------------------------------------
4.4 Survival............................................................. -6-
--------
ARTICLE 5.............................. -6-
---------
SELLER'S REPRESENTATIONS AND WARRANTIES.............. -6-
---------------------------------------
5.1 Seller's Representations and Warranties.............................. -6-
---------------------------------------
</TABLE>
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<PAGE>
EXECUTION COPY
<TABLE>
<S> <C>
5.1.1 Good Standing....................................... -6-
-------------
5.1.2 Due Authority....................................... -6-
-------------
5.1.3 Consents............................................ -6-
--------
5.1.4 No Default.......................................... -6-
----------
ARTICLE 6.............................. -7-
---------
BUYER'S REPRESENTATIONS AND WARRANTIES............... -7-
--------------------------------------
6.1 Buyer's Representations and Warranties............................... -7-
--------------------------------------
6.1.1 Good Standing....................................... -7-
-------------
6.1.2 Due Authority....................................... -7-
-------------
6.1.3 Consents............................................ -7-
--------
6.1.4 No Default.......................................... -7-
----------
ARTICLE 7
---------
OBLIGATIONS OF THE PARTIES UNTIL CLOSING.............. -7-
----------------------------------------
7.1 Obligations of the Parties Until the Closing......................... -7-
--------------------------------------------
7.1.1 Leases.............................................. -7-
------
7.1.2 Insurance Coverage.................................. -7-
------------------
ARTICLE 8
---------
CASUALTY LOSS/CONDEMNATION..................... -8-
--------------------------
8.1 Risk of Loss.......................................... -8-
------------
8.2 Casualty Loss......................................... -8-
-------------
8.3 Non-Substantial Casualty.............................. -8-
------------------------
8.4 Substantial Casualty.................................. -8-
--------------------
8.5 Condemnation.......................................... -8-
-------
8.6 Non-Substantial Condemnation.......................... -8-
----------------------------
8.7 Substantial Condemnation.............................. -8-
------------------------
ARTICLE 9
---------
CLOSING.............................. -9-
-------
9.1 Closing............................................... -9-
-------
9.2 Seller's Closing Documents............................ -9-
--------------------------
9.2.1 Deed............................... -9-
----
9.2.2 Bill of Sale....................... -9-
------------
9.2.3 Assumption of Leases............... -9-
--------------------
9.2.4 Non-Foreign Affidavit.............. -9-
---------------------
9.2.5 Keys............................... -9-
----
9.2.6 Seller's Authorization............. -9-
----------------------
9.2.7 Additional Documents............... -9-
--------------------
9.2.8 Closing Instructions to Title
-----------------------------
Company.......................... -9-
-------
9.3 Buyer's Closing Documents............................. -9-
-------------------------
9.3.1 Purchase Price..................... -9-
--------------
9.3.2 Buyer's Authorization.............. -10-
---------------------
9.3.3 Notice to Tenants.................. -10-
-----------------
9.3.4 Buyer's Closing Certificate........ -10-
---------------------------
</TABLE>
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<PAGE>
EXECUTION COPY
<TABLE>
<S> <C>
9.3.5 Additional Documents............... -10-
--------------------
9.4 Buyer's Closing Costs................................. -10-
---------------------
9.4.1 Recording Fees..................... -10-
--------------
9.4.2 Premium - Owner Policy............. -10-
----------------------
9.4.3 Buyer's Pro Rata Share............. -10-
----------------------
9.4.4 Buyer's Miscellaneous Costs........ -10-
---------------------------
9.5 Seller's Closing Costs................................ -10-
----------------------
9.5.1 Seller's Attorney's Fees .......... -10-
------------------------
9.5.2 Recording Fees .................... -10-
--------------
9.5.3 Seller's Pro Rata Share ........... -10-
-----------------------
9.5.4 Seller's Miscellaneous Closing
------------------------------
Costs ............................ -10-
-----
ARTICLE 10
----------
PRORATIONS/ADJUSTMENTS ...................... -11-
----------------------
10.1 Costs and Prorations .............................................. -11-
--------------------
10.1.1 Transfer Costs .................................... -11-
--------------
10.1.2 Property Tax and Betterment Proration ............ -11-
--------------------------------------
10.1.3 Leases/Rent ...................................... -11-
-----------
10.1.4 Utilities ......................................... -11-
---------
10.1.5 Insurance ......................................... -11-
---------
10.1.6 Permits ........................................... -11-
-------
10.1.7 Deposits Held by Others ........................... -12-
-----------------------
10.1.8 Other Expenses .................................... -12-
--------------
ARTICLE 11
----------
BROKERS' COMMISSION ....................... -12-
-------------------
11.1 Commission .......................................... -12-
----------
11.2 Superseding Agreement .............................. -12-
----------------------
ARTICLE 12
----------
NOTICES .............................. -12-
-------
12.1 Notices ............................................................ -12-
-------
ARTICLE 13
----------
INDEMNIFICATION ......................... -13-
---------------
13.1 Indemnification by a Party .......................... -14-
--------------------------
13.2 Seller's Indemnity .................................. -14-
------------------
13.2.1 Contracts ........................ -14-
---------
13.2.2 Property Taxes ................... -14-
--------------
13.2.3 Personal Injury .................. -14-
---------------
13.3 No Third Party Beneficiary - Limited Liability of
-------------------------------------------------
Seller ............................................. -14-
------
13.4 Buyer's Indemnity ................................... -14-
-----------------
13.4.1 Property Taxes ................... -15-
--------------
13.4.2 Personal Injury .................. -15-
</TABLE>
-iii-
<PAGE>
EXECUTION COPY
<TABLE>
<S> <C>
13.4.3 Hazardous Materials ............. -15-
-------------------
ARTICLE 14
----------
DEFAULT/REMEDIES ......................... -15-
----------------
14.1 Buyer's Default .................................................... -15-
---------------
14.2 Seller's Default ................................................... -15-
----------------
14.3 Attorney's Fees .................................................... -15-
---------------
14.4 No Waiver .......................................................... -15-
---------
ARTICLE 15
----------
MISCELLANEOUS .......................... -16-
-------------
15.1 Buyer's Purchase ................................................... -16-
----------------
15.2 Entire Agreement ................................................... -16-
----------------
15.3 Time is of the Essence ............................................. -16-
----------------------
15.4 Saturday, Sunday, and Legal Holidays; Times ........................ -16-
-------------------------------------------
15.5 Presumption Concerning Interpretation and Construction ............. -16-
------------------------------------------------------
15.6 Articles/Section Headings .......................................... -16-
-------------------------
15.7 Non-recordation .................................................... -16-
---------------
15.8 Waivers; Modifications ............................................. -16-
----------------------
15.9 Governing Law; Venue ............................................... -16-
--------------------
15.10 Materiality ....................................................... -17-
-----------
15.11 Relationship of Parties ........................................... -17-
-----------------------
15.12 Number of Gender of Words ......................................... -17-
-------------------------
15.13 Counterparts ...................................................... -17-
------------
ARTICLE 16
----------
DEFINITIONS ............................ -17-
-----------
</TABLE>
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<PAGE>
EXECUTION COPY
PURCHASE AND SALE AGREEMENT
---------------------------
THIS PURCHASE AND SALE AGREEMENT (the "Agreement") made as of the
latest date of execution hereof (the "Effective Date") by and between RAGS III,
a general partnership, with a principal office at 2 Fox Place, Newton Centre, MA
02159 ("Seller"), and RULE INDUSTRIES, INC., a Massachusetts corporation, with a
principal place of business at 70 Blanchard Road, Burlington, MA 01803
("Buyer"). Seller and Buyer are sometimes collectively referred to as the
"Parties" or individually as a "Party".
ARTICLE 1
---------
DEFINITIONS/PURCHASE AND SALE
-----------------------------
1.1 Definitions. The capitalized terms in this Agreement shall have
-----------
the meanings set forth in Article 16, unless the context otherwise requires.
1.2 Purchase and Sale of Assets. Pursuant to the provisions of this
---------------------------
Agreement, at Closing, Seller shall sell, transfer, grant, assign, deliver and
convey to Buyer, and Buyer shall purchase, acquire, accept and assume from
Seller, all right, title and interest of Seller in and to the following:
1.2.1 Real Property. The real property situated in Gloucester,
-------------
Massachusetts, more particularly described on Exhibit 1.2.1, together with all
--------------
right, title and interest of Seller in and to any and all strips or gores,
roads, easements, streets, and ways bordering upon such real property, and
rights of ingress and egress thereto (collectively the "Real Property");
1.2.2 Improvements. All improvements situated upon the Real
------------
Property including, without limitation, those certain buildings, structures,
fixtures, assigns and other improvements of every kind and nature presently
situated on, in, under or hereafter erected, installed or used in or about the
Real Property located at 1 Kondelin Road, Gloucester, Massachusetts 01930
(collectively the "Improvements");
1.2.3 Personal Property. All tangible personal property owned by
-----------------
Seller on the Closing Date and attached to or used in connection with the
ownership, maintenance or operation of the Real Property or the Improvements
(collectively the "Personal Property");
1.2.4 Contracts. To the extent, on the Closing Date, the same are
---------
existing, effective, assignable, and relate to the Assets (i) all contracts
and/or agreements, including, without limitation, maintenance, service, supply,
employment, leasing, and utility service contracts, but expressly excluding
contracts of insurance, and (ii) all warranties, indemnities and guaranties
thereunder; and
The Real Property, Improvements, Personal Property, Prepaid Accounts, Leases,
Rents, and Deposits, Contracts and Permits which are actually transferred to
Buyer at the Closing are hereinafter referred to collectively as the
"Assets".
-1-
<PAGE>
EXECUTION COPY
ARTICLE 2
---------
PURCHASE PRICE
--------------
2.1 Purchase Price. Seller agrees to sell and Buyer agrees to purchase
--------------
the Assets for Two Million Four Hundred Thousand Dollars ($2,400,000.00) (the
"Purchase Price"), subject to the terms, conditions and adjustments set forth in
this Agreement. The Purchase Price was determined by appraisal pursuant to
Article 24, Section 24.1 of the Extended Lease as herein defined, and the Seller
and Buyer agree that the Purchase Price represents fair market value for the
Property as required by the Extended Lease.
2.2 Terms of Payment. The Purchase Price shall be paid as follows:
----------------
2.2.1 Deposit. Upon execution and delivery by the Parties of this
-------
Agreement, Seller shall and Buyer concurs, credit from the Buyer's security
deposit held under the terms of the Amended Lease Agreement between Seller as
landlord and Buyer as tenant dated November 25, 1985 as extended (the "Extended
Lease"), One Hundred Twenty Thousand Dollars ($120,000.00) which sums shall be
held by Seller as an earnest money deposit (the "Deposit").
2.2.2 Balance of Purchase Price. At Closing (i) the Deposit shall
-------------------------
be paid to Seller and shall be credited against the balance of the Purchase
Price, and (ii) Buyer shall deliver to Seller, as the balance of the Purchase
Price, the sum of Two Million Two Hundred Eighty Dollars ($2,280,000.00) by wire
transfer of immediately available federal funds in Boston, Massachusetts,
actually received and unconditionally available for distribution by the Title
Company prior to Noon on the Closing Date, as adjusted by all adjustments,
offsets and prorations provided for in this Agreement.
2.3 Allocation of Purchase Price. The Parties shall allocate the
----------------------------
Purchase Price among the various items comprising the Assets using the
allocation method required by (S)1060 of the Code. The Parties agree to report
the federal, state and local income and other tax consequences of the
transactions contemplated by this Agreement, and in particular, to report the
information required by (S)1060(b) of the Code, in a manner consistent with such
agreed upon allocation, and the Parties shall not take any position inconsistent
with such agreed upon allocation of the Purchase Price upon the examination of
any tax return, refund, claim and any litigation, investigation or otherwise.
2.4 Instructions. Seller shall hold the Deposit subject to the terms
------------
of this Agreement. If the Closing does not occur for any reason other than
default of Buyer of its obligations hereunder, the Deposit shall forthwith be
refunded to Buyer.
-2-
<PAGE>
EXECUTION COPY
ARTICLE 3
---------
BUYER'S DUE DILIGENCE
---------------------
3.1 Inspection Period. From the Effective Date until 5:00 p.m. on
-----------------
November 2, 1995, (the "Inspection Period"), with reasonable prior notice to
Seller, Buyer and Buyer's designated agents, employees and independent
contractors shall have the right, at Buyer's sole risk, cost, and expense,
during normal business hours and with as little disruption as possible to the
operation of the Tenants, to enter upon the Real Property and the Improvements;
to conduct engineering, environmental, operational, market, economic
feasibility, and other inspections, studies, and tests of the Assets; to review
and analyze the Assets, the Condition of the Assets, and otherwise to evaluate
and assess the Assets. Buyer hereby agrees to indemnify Seller against all
liability attributable to such entry, inspections, studies and tests, including,
without limitation, liability resulting from the Condition of the Assets or any
negligence of Seller. Seller shall make available to Buyer all Leases, Contracts
and Permits relating to the Assets. In addition, as part of Buyer's due
diligence review of the Assets, Buyer shall:
3.1.1 Title Commitment. Cause Lawyers Title Insurance
----------------
Corporation (the "Title Company") to prepare and furnish to Buyer a commitment
(the "Title Commitment") for an owner's policy of title insurance (the "Owner's
Policy") covering the Real Property and Improvements and setting forth the
matters which the Title Company believes affect the Real Property and
Improvements. Buyer acknowledges that title to the Real Property and
Improvements shall be subject to the Permitted Encumbrances;
3.1.2 Survey. Secure a survey (the "Survey") of the Real Property
------
showing the boundaries of the Real Property and the location on the Real
Property of all Improvements and all recorded easements and building setback
lines, accompanied by a metes and bounds description of the Real Property;
3.1.3 Buyer's Title Objections. Prior to 5:00 p.m. on November 2,
------------------------
1995 (i.e. the expiration of the Inspection Period) examine the Title Commitment
-----
and the Survey (collectively the "Real Property Documents"), and notify Seller
of any matters referred to in or discoverable from any of the Real Property
Documents to which Buyer objects ("Title Objections"). Seller has no duty or
obligation whatsoever to, but Seller may, cure or attempt to cure any of such
Title Objections. Buyer shall conclusively be deemed to have reviewed, accepted,
and approved all matters which are referred to in or discoverable from any of
the Real Property Documents which Buyer does not timely notify Seller that such
matters constitute Title Objections. After the expiration of the Inspection
Period, if Buyer refuses to purchase the Assets because of any matters which are
referred to in or discoverable from any of the Real Property Documents, such
refusal shall constitute a default by Buyer hereunder unless (i) prior to the
expiration of the Inspection Period, Buyer timely notified Seller of Buyer's
Title Objections, if any, and (ii) such Title Objections are not cured (or
waived by Buyer). If, for any reason whatsoever, Seller does not cure, or elects
not to cure, any Title Objections, Seller shall so notify Buyer, whereupon,
prior to 5:00 p.m. on the earlier of (x) the third (3rd) day after Buyer's
receipt of such notice from Seller, or (y) five (5) days before the Closing
Date, but not thereafter, Buyer shall elect to either (1) terminate this
Agreement, or (2) waive all uncured Title Objections, purchase the Assets, and
accept the Owner Policy and the Deed subject to all uncured Title Objections (in
addition to all matters to which Buyer did not timely object), without any
reduction in the Purchase Price; and
3.1.4 Future Encumbrances. If, on or before the Closing Date, it
-------------------
comes to Buyer's attention that additional matters adversely affecting title to
the Real Property and Improvements become recorded in the public records that
are not Permitted Encumbrances, and such matters arise by, through or under
Seller, then, within five (5) days following receipt of notice thereof by Buyer,
Seller will notify Buyer, in writing, whether it elects, in its sole discretion,
to cure such title matters. In the event Seller elects not to cure such matters
prior to
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Closing, Buyer shall have the right, for five (5) days only, after receipt of
Seller's notice to notify Seller in writing of Buyer's election to (i)
immediately terminate this Agreement, in which event Buyer shall receive a full
refund of the Deposit, and no Party shall have any further rights or claims
hereunder or arising out of this Agreement, or (ii) waive such title matters,
without any reduction in the Purchase Price with the Closing to occur ten (10)
days after the date of Buyer's Notice or the original Closing Date, whereupon
such waived title matters shall be deemed Permitted Encumbrances. In the event
Buyer fails to notify Seller within such five (5) day period, Buyer shall be
deemed to have waived such title matters as provided in this Section 3.1.4(ii).
In the event Seller elects to cure such title matters, Seller may
extend the Closing for a period not to exceed sixty (60) days, and if Seller is
unable to effectuate the cure within such extended period, Seller may terminate
this Agreement, in which event Buyer shall receive a full refund of the Deposit,
and no Party shall have any further rights or claims hereunder or arising out of
this Agreement.
3.2 Buyer's Discretionary Termination. If Buyer decides, for any
---------------------------------
reason, in Buyer's sole discretion, not to purchase the Assets, Buyer shall so
notify Seller in writing (a) prior to 5:00 p.m., November 2, 1995 (ie. the
--
expiration of the Inspection Period), or (b) if the acquisition of Buyer by
Greenfield Industries, Inc. ("Greenfield") or Greenfield's affiliate pursuant to
the Agreement executed between Buyer and Greenfield dated August 11, 1995 does
not occur prior to the Closing Date. In the event Buyer timely notifies Seller
as aforesaid, that Buyer has decided not to purchase the Assets, such
notification shall constitute a termination of this Agreement, in which event
Buyer shall receive a full refund of the Deposit, and no Party shall have any
further rights or claims hereunder or arising out of this Agreement. If Buyer
fails to notify Seller prior to the expiration of the Inspection Period of
Buyer's decision not to purchase the Assets, Buyer shall irrevocably be deemed
to have accepted, approved and consented to all matters, conditions,
circumstances and events concerning the Assets and the Condition of the Assets,
and if Buyer thereafter refuses to pay the Purchase Price and to purchase the
Assets, or otherwise terminates this Agreement (except as allowed hereunder),
any such refusal or termination shall constitute a default by Buyer hereunder.
ARTICLE 4
---------
CONDITION OF THE ASSETS
-----------------------
4.1 Condition of the Assets; No Warranty; Buyer's Assumption of Risk.
----------------------------------------------------------------
The term "Condition of the Assets" means and includes all current and former
facts and circumstances about the Assets, including, without limitation:
4.1.1 Physical Condition of the Assets. The quality, nature and
--------------------------------
adequacy of the physical condition of the Assets, including, without limitation,
the quality of the design, labor and materials used to construct the
Improvements; the condition of structural elements, foundations, roofs, glass,
mechanical, plumbing, electrical, HVAC, sewage, and utility components and
systems; the capacity or availability of sewer, water, or other utilities; the
geology, flora, fauna, soils, subsurface conditions, groundwater, landscaping,
and irrigation of or with respect to the Real Property; the location of the
Assets in or near any special taxing district, flood hazard zone, wetlands area,
protected habitat, geological fault or subsidence zone, hazardous waste disposal
or clean-up site, or other special area, the existence, location, or condition
of ingress, egress, access, and parking; the condition of the Personal Property
and any fixtures; and the presence of any asbestos or other Hazardous Materials,
dangerous, or toxic substance, material or waste in, on, under or about the Real
Property and Improvements;
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4.1.2 Development Potential of the Assets. The development
-----------------------------------
potential, economic feasibility, cash flow and expenses of the Assets; the
habitability, merchantability, fitness, suitability and adequacy of the Assets
for any particular use or purpose;
4.1.3 Legal Compliance of Assets. The compliance or non-
--------------------------
compliance of Seller or any other person or entity or the operation of the
Assets or any part thereof in accordance with, and the contents of (i) all
codes, laws, ordinances, regulations, agreements, licenses, permits, approvals
and applications of or with any governmental authorities asserting jurisdiction
over the Assets, including, without limitation, those relating to zoning,
building, public works, parking, fire and police access, handicap access, life
safety, subdivision and subdivision sales, and Hazardous Materials, dangerous,
and toxic substances, materials, conditions or waste, including, without
limitation, the presence of Hazardous Materials in, on, under or about the
Assets that would cause state or federal agencies to order a clean up of the
Assets under any Environmental Laws, and (ii) all agreements, covenants,
conditions, restrictions (public or private), development agreements, site
plans, building permits, building rules, and other instruments and documents
governing the use, management, and operation of the Assets. "Environmental Laws"
shall mean and include the Comprehensive Environmental Response, Compensation
and Liability Act, 42 U.S.C. 9601, et seq., Resource Conservation and Recovery
Act, 42 U.S.C. 6901, et seq. and all other and similar existing and future
federal, state and municipal statutes, rules, regulations, ordinances governing
the environment or the generation, disposal or storage of any Hazardous
Materials, all as amended from time to time, and all rules and regulations
promulgated thereunder. The term "Hazardous Materials" shall mean and include,
without limitation, asbestos, polychlorinated biphenyls, petroleum products and
any other hazardous or toxic materials, wastes, and substances that are defined
as such in any Environmental Laws;
4.1.4 Insurance. The availability, cost, terms and coverage of
---------
liability, hazard, comprehensive and any other insurance of or with respect to
the Assets; and
4.1.5 Condition of Title. The condition of title to the Assets,
------------------
including, without limitation, vesting, legal description, matters affecting
title, title defects, liens, encumbrances, boundaries, encroachments, mineral
rights, options, easements, and access; violations of restrictive covenants,
zoning ordinances, setback lines, or development agreements; the availability,
cost, and coverage of title insurance; leases, rental agreements, occupancy
agreements, rights of parties in possession of, using, or occupying any of the
Assets; and standby fees, taxes, bonds and assessments.
4.2 No Warranty or Representation. Buyer acknowledges that Seller
-----------------------------
makes no representations or warranties whatsoever, express, implied, or arising
by operation of law, with respect to the Assets or the Condition of the Assets.
Buyer hereby represents and warrants to Seller that Buyer has not entered into
this Agreement based upon any representation, warranty, agreement, statement, or
expression of opinion by Seller, or any other person or entity acting, or
allegedly acting, for or on behalf of Seller with respect to Seller, the Assets,
or the Condition of the Assets. Buyer agrees that the Assets will be sold and
conveyed to (and accepted by) Buyer at the Closing in the then condition of the
Assets, AS IS, WHERE IS, WITH ALL FAULTS, AND WITHOUT ANY WRITTEN OR ORAL
REPRESENTATIONS OR WARRANTIES WHATSOEVER, EXPRESS, IMPLIED, OR ARISING BY
OPERATION OF LAW, other than the limited special warranty of title in the
quitclaim covenants of the Deed. Without limiting the generality of the
foregoing, except for the limited special warranty of title in the Deed, the
transaction contemplated by this Agreement is without any statutory, express, or
implied warranty, representation, agreement, statement, or expression of opinion
of or with respect to (i) the Condition of the Assets or any aspect thereof,
including, without limitation, any and all statutory, express, or implied
representations or warranties related to suitability for habitation,
merchantability, or fitness for a particular use or purpose, (ii) the nature or
quality of construction, structural design, or engineering of the
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improvements, (iii) the quality of the labor or materials included in the
Improvements, (iv) the soil conditions, drainage, topographical features, flora,
fauna, or other conditions of or which affect the Assets, (v) any conditions at
or which affect the Assets with respect to any particular use, purpose,
development potential, or otherwise, (vi) area, size, shape, configuration,
location, access, capacity, quantity, quality, cash flow, expenses, value,
condition, make, model, composition, accuracy, completeness, applicability,
assignability, enforceability, exclusivity, usefulness, authenticity, or amount,
(vii) any statutory, express, or implied representations or warranties created
by any affirmation of fact or promise, by any description of the Assets, or by
operation of law, (viii) any environmental, botanical, zoological, hydrological,
geological, meteorological, structural, or other condition or hazard or the
absence thereof heretofore, now, or hereafter affecting in any manner any of the
Assets, and (ix) all other statutory, express, or implied representations and
warranties by Seller whatsoever. Further, Buyer represents and warrants to
Seller that Buyer has knowledge and expertise in financial and business matters
that enable Buyer to evaluate the merits and risks of the transaction
contemplated by this Agreement.
4.3 Buyer's Assumption of Risk - Release. Buyer hereby releases and
------------------------------------
discharges Seller from all liability and waives all claims against Seller for,
and Buyer hereby assumes the risk with respect to, the Condition of the Assets,
including, without limitation, all patent and latent defects, hazards, and
dangerous conditions on or about the Assets, whether or not discoverable prior
to the Closing Date. Buyer acknowledges that Buyer is assuming the risk of such
unknown and unanticipated claims and damages and agrees that the releases
applicable pursuant to the provisions of this Section 4.3 shall survive the
Closing and shall be contained in the Deed.
4.4 Survival. The provisions of Article 4 shall survive the Closing
--------
and delivery of the Deed.
ARTICLE 5
---------
SELLER'S REPRESENTATIONS AND WARRANTIES
---------------------------------------
5.1 Seller's Representations and Warranties. Seller hereby covenants,
---------------------------------------
represents and warrants to Buyer as of the Effective Date and as of the Closing
Date as follows:
5.1.1 Good Standing. Seller is a general partnership duly
-------------
organized, validly existing and in good standing under the laws of the
Commonwealth of Massachusetts, licensed to do business in the Commonwealth of
Massachusetts.
5.1.2 Due Authority. This Agreement has been duly authorized,
-------------
executed and delivered by Seller. All documents that are to be executed by
Seller and delivered to Buyer on the Closing have been, or on the Closing Date
will be, duly executed, authorized and delivered by Seller. This Agreement and
all such documents are and, on the Closing Date, will be legal, valid and
binding obligations of Seller, enforceable in accordance with their terms
(subject to customary bankruptcy exceptions) and do not, and at the time of
Closing will not, violate any provisions of any agreement or judicial or
administrative order to which Seller is a party or to which Seller or the Assets
is subject.
5.1.3 Consents. No consent, approval, order or authorization of
--------
any Person not a party to this Agreement, and no consent, approval, declaration
or filing with any governmental authority on the part of Seller is required in
connection with the execution and delivery of this Agreement or the performance
of the transactions contemplated herein (collectively the "Consents").
5.1.4 No Default. Assuming Consents are obtained, neither the
----------
execution and delivery of this Agreement by Seller, nor the consummation by
Seller of the transactions contemplated hereby (i) has constituted
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or resulted in, or with the passage of time, will constitute or result in a
breach of, or constitute a default under any contract, agreement or
understanding (including any Contracts) whether written or oral by and between
Seller and any other party, (ii) has violated, or with the passage of time, will
violate any court order, judgment, law, ordinance, regulation, or restriction to
which Seller is a party or by which Seller, or any of Seller's assets, may be
bound, the result of which could have a material adverse effect on the Assets.
ARTICLE 6
---------
BUYER'S REPRESENTATIONS AND WARRANTEES
--------------------------------------
6.1 Buyer's Representations and Warranties. Buyer hereby covenants,
--------------------------------------
represents and warrants to Seller as of the Effective Date and as of the Closing
Date as follows:
6.1.1 Good Standing. Buyer is a corporation duly organized and in
-------------
good standing under the laws of the State of Massachusetts.
6.1.2 Due Authority. This Agreement has been duly authorized,
-------------
executed and delivered by Buyer and in conformance with Buyer's organizational
charter and by-laws and pursuant to a validly existing vote of Buyer's Board of
Directors, duly constituted. All documents that are to be executed by Buyer and
delivered to Seller on the Closing have been or, on the Closing Date, will be
duly executed, authorized and delivered by Buyer. This Agreement and all such
documents are and, on the Closing Date, will be legal, valid and binding
obligations of Buyer, enforceable in accordance with their terms (subject to
customary bankruptcy exceptions) and do not and, at the time of Closing, will
not violate any provisions of any agreement or judicial or administrative order
to which Buyer is a party or to which Buyer is subject.
6.1.3 Consents. In connection with the execution and delivery of
--------
this Agreement or the performance of the transactions contemplated herein, Buyer
is unaware of any Consents.
6.1.4 No Default. Neither the execution and delivery of this
----------
Agreement by Buyer nor the consummation by Buyer of the transactions
contemplated hereby (i) has constituted or resulted in or will, with the passage
of time, constitute or result in a breach of or constitute a default under any
contract, agreement or understanding whether written or oral by and between
Buyer and any other party, or (ii) has violated or will, with the passage of
time, violate any court order, judgment, law, ordinance, regulation, or
restriction to which Buyer is a party, or by which it or any of its assets may
be bound.
ARTICLE 7
---------
OBLIGATIONS OF THE PARTIES UNTIL CLOSING
----------------------------------------
7.1 Obligations of the Parties Until the Closing. The Parties
--------------------------------------------
respectively covenant, represent and warrant to each other as follows:
7.1.1 Leases. Following the Effective Date, Seller shall not
------
enter into any Leases for any portion of the Assets without the prior written
consent of Buyer.
7.1.2 Insurance Coverage. From the date hereof until the
------------------
Closing Date, Seller shall, at Seller's own expense, keep and maintain in full
force and effect the Insurance as currently insured.
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ARTICLE 8
---------
CASUALTY LOSS/CONDEMNATION
--------------------------
8.1 Risk of Loss. Seller shall bear the risk of loss or damage to the
------------
Improvements and the Personal Property until the Closing, and thereafter, Buyer
shall bear the risk of loss.
8.2 Casualty Loss. Any loss, damage, or destruction to the
-------------
Improvements or the Personal Property after the Effective Date and prior to the
Closing Date shall be a "Casualty". A Casualty shall be deemed "substantial"
--------
if the cost of restoring, replacing, and/or repairing such Improvements and/or
Personal Property exceeds ten percent (10%) of the Purchase Price.
8.3 Non-Substantial Casualty. In the event of a Casualty which is not
------------------------
"substantial", at Seller's sole option and without notice to Buyer except as set
forth in this Section 8.3. with respect to postponing the Closing Date, Seller
may without repairing the Casualty, without recourse or warranty on Seller,
quitclaim to Buyer at the Closing all of Seller's right, title, and interest, if
any, in and to all hazard insurance proceeds payable with respect to the
Casualty, whereupon the Closing shall take place as if no Casualty had occurred
and without any reduction in the Purchase Price.
8.4 Substantial Casualty. In the event of a Casualty which is
--------------------
"substantial", Seller shall use Seller's best efforts to notify Buyer of such
Casualty within five (5) days after Seller determines that such Casualty is
"substantial". Within ten (10) days after receipt of such notice from Seller,
but not thereafter, Buyer shall elect to either (i) terminate this Agreement,
whereupon the Deposit, together with all interest thereon, shall be forthwith
returned to Buyer and this Agreement shall be deemed null and void and without
recourse to either Party hereto, or (ii) purchase the Assets on the Closing Date
in its then current condition, without any reduction in the Purchase Price, and
accept a quitclaim, without recourse or warranty on Seller, of all of Seller's
right, title, and interest, if any, in and to all hazard insurance proceeds
payable with respect to such Casualty, up to, but not exceeding, the amount of
the Purchase Price.
8.5 Condemnation. After the Effective Date and prior to the Closing,
------------
the institution of any proceeding seeking the taking of all or any portion of or
interest in the Assets shall constitute a "Taking". A Taking shall be deemed
------
"substantial" if the value of the Assets which is the subject of the Taking
exceeds ten percent (10%) of the Purchase Price. Seller agrees to use Seller's
best efforts to furnish Buyer notice of a Taking within ten (10) days after
Seller's knowledge thereof.
8.6 Non-Substantial Condemnation. In the event of a Taking which is
----------------------------
not "substantial", Buyer shall have no right to terminate this Agreement or to
receive any reduction in the Purchase Price, and the Closing shall occur as if
no Taking had occurred except, at the Closing, Seller shall quitclaim to Buyer,
without recourse or warranty on Seller, all of Seller's right, title, and
interest, if any, in and to all awards, damages, and compensation payable to
Seller on account of such Taking.
8.7 Substantial Condemnation. In the event of a Taking which is
------------------------
"substantial", within ten (10) days after receipt of notice from Seller of such
Taking, but not thereafter, Buyer shall elect to (i) terminate this Agreement,
whereupon the Deposit, together with all interest thereon, shall be forthwith
returned to Buyer and this Agreement shall be deemed null and void and without
recourse to either Party hereto, or (ii) purchase the Assets on the Closing Date
subject to the Taking in its then current condition, without any reduction in
the Purchase Price, and accept a quitclaim, without recourse or warranty on
Seller, of all of Seller's right, title, and interest, if any, in and to all
awards, damages, and compensation payable to Seller on account of such Taking.
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ARTICLE 9
---------
CLOSING
-------
9.1 Closing. The consummation of the transaction contemplated in this
-------
Agreement (the "Closing") shall occur at 10:00 a.m., on January 25, 1996 (the
"Closing Date"), in the offices of the Title Company.
9.2 Seller's Closing Documents. At Closing, Seller shall deliver or
--------------------------
cause to be delivered to the Title Company the following:
9.2.1 Deed. A quitclaim deed (the "Deed") covering the Real
----
Property and the Improvements, executed and acknowledged by Seller;
9.2.2 Bill of Sale. A bill of sale (the "Bill of Sale")
------------
covering the Personal Property, executed and acknowledged by Seller, in the form
set forth on Exhibit 9.2.2 attached hereto and made a part hereof for all
purposes;
9.2.3 Assumption of Leases. An Assignment and Assumption of
--------------------
Leases covering the Leases, the Rents and the Deposits, executed and
acknowledged by Seller and to be executed and acknowledged by Buyer, in the form
set forth on Exhibit 9.2.3 attached hereto and made a part hereof for all
purposes;
9.2.4 Non-Foreign Affidavit. A duly executed Non-Foreign
---------------------
Certification in the form prescribed by (S)1445 of the Code;
9.2.5 Keys. To the extent, to Seller's actual, current
----
knowledge, the same are in Seller's possession, keys to all locks in the
Improvements;
9.2.6 Seller's Authorization. Documentation establishing that
----------------------
the person(s) executing this Agreement, the Conveyance Documents, and any other
documents with respect to the transaction contemplated by this Agreement on
behalf of Seller has full authority to do so; and
9.2.7 Additional Documents. Any and all other documents
--------------------
reasonably required by Buyer or the Title Company to consummate the Closing,
duly executed, sworn to, and/or acknowledged (when the form of the document so
provides), by Seller.
9.2.8 Closing Instructions to Title Company. Closing
-------------------------------------
instructions, addressed to the Title Company, which authorize the Title Company
to simultaneously record the Deed and deliver the Bill of Sale and Assignment
and Assumption of Leases and Assignment and Assumption of Contracts
(collectively the "Conveyance Documents") to Buyer and deliver to Seller the
Purchase Price (less Seller's closing costs).
9.3 Buyer's Closing Documents. At Closing, Buyer shall execute, swear
-------------------------
to, acknowledge (when the form of the document so provides), and/or deliver to
Title Company the Conveyance Documents and the following:
9.3.1 Purchase Price. Cash in the amount of the balance of the
--------------
Purchase Price, after all adjustments and prorations provided for herein;
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9.3.2 Buyer's Authorization. Evidence satisfactory to Seller
---------------------
and the Title Company that the person(s) executing this Agreement, the
Conveyance Documents, and any other documents with respect to the transaction
contemplated by this Agreement as or on behalf of Buyer has full right, power,
and authority to do so;
9.3.3 Notice to Tenants. Written notices addressed to the
-----------------
Tenants notifying the Tenants that Buyer is the new landlord under the Leases
and that from and after the date of the purchase of the Assets by Buyer, Buyer
has assumed and agreed to perform all duties and obligations of landlord under
the Leases and is solely responsible for all Rents and the Deposits;
9.3.4 Buyer's Closing Certificate. Buyer's Closing Certificate
---------------------------
in the form set forth on Exhibit 9.3.4 attached hereto and made a part hereof
-------------
for all purposes; and
9.3.5 Additional Documents. Any and all other documents
--------------------
reasonably required by Seller or the Title Company to consummate the Closing,
duly executed, sworn to and/or acknowledged (when the form of document so
provides), by Buyer.
9.4 Buyer's Closing Costs. Buyer shall pay in Cash at the Closing each
---------------------
and all of the following Closing costs:
9.4.1 Recording Fees. Filing and recording fees for the Deed,
--------------
and all other documents (other than documents, if any, curing Title Objections)
required by law or the Title Company or requested by Buyer to be filed or
recorded;
9.4.2 Premium - Owner Policy. The premium for the Owner's
----------------------
Policy;
9.4.3 Buyer's Pro Rata Share. Buyer's proportionate share of
----------------------
the items prorated pursuant to Article 10 hereof; and
9.4.4 Buyer's Miscellaneous Costs. Unless otherwise expressly
---------------------------
provided herein, all other fees, costs, and expenses customarily paid by a
purchaser of improved real property in the county where the Closing occurs.
9.5 Seller's Closing Costs. Seller shall pay each and all of the
----------------------
following Closing costs:
9.5.1 Seller's Attorney's Fees. Seller's attorney's fees
------------------------
incurred in drafting and negotiating this Agreement and in Closing the
transaction contemplated in this Agreement;
9.5.2 Recording Fees. Filing and recording fees for documents,
--------------
if any, curing Title Objections;
9.5.3 Seller's Pro Rata Share. Seller's proportionate share
-----------------------
of the items prorated pursuant to Article 10 hereof; and
9.5.4 Seller's Miscellaneous Closing Costs. Unless otherwise
------------------------------------
expressly provided herein, all other fees, costs, and expenses customarily paid
by a seller of improved real property in the county where the Closing occurs.
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ARTICLE 10
----------
PRORATIONS/ADJUSTMENTS
----------------------
10.1 Costs and Prorations. The Parties shall prorate all customarily
prorated items including:
10.1.1 Transfer Costs. Buyer shall assume and promptly pay, on
--------------
or before the Closing Date, all transfer taxes or fees, sales and use taxes,
deed stamps, documentary stamps, recording costs, assessments, assignment fees
and charges and all other sums imposed by any governmental authority, with
respect to the sale and purchase of the Assets and the consummation of the terms
and conditions of the Agreement;
10.1.2 Property Tax and Betterment Proration. As of the
-------------------------------------
Closing Date, the Parties shall prorate and apportion the Property Taxes for the
current fiscal year on the basis of actual calendar days and a 365-day year.
Property Taxes for the period up to and including the Closing Date shall be
allocated to Seller, and Property Taxes for the period following the Closing
Date shall be allocated to and shall be paid by Buyer, and the net amount
thereof shall be added to or deducted from, as the case may be, the Purchase
Price. If, at the Closing, the amount of the Property Taxes is not known, they
shall be apportioned on the basis of the Property Taxes assessed for the
preceding year, with reapportionment as soon as the new tax rate and valuation
can be ascertained; and if the Property Taxes which are to be apportioned shall
thereafter be reduced by abatement, the amount of such abatement, less the
reasonable cost of obtaining the same, shall be apportioned between the Parties,
provided that neither Party shall be obligated to institute or prosecute
proceedings for an abatement. Any abatements hereafter obtained by Seller with
respect to any period of Seller's ownership prior to the Closing Date shall be
the sole property of Seller. The obligations of the Parties with respect to any
recalculation or reapportionment of Property Taxes shall survive the Closing.
If, on the Closing Date, the Real Property, or any part thereof, shall be or
shall have been affected by a betterment or special assessments, which are or
may become payable in installments, then, for the purpose of this Agreement, all
the unpaid installments of any such assessments which are to become due and
payable after the Closing Date, shall be paid by Seller as of the Closing Date;
10.1.3 Leases/Rent. All fixed rents, escalation charges,
-----------
percentage rents and additional rents under any Lease(s) shall be prorated as of
the Closing Date;
10.1.4 Utilities. Utility charges, including water, sewer,
---------
oil, gas, steam and electric, shall be prorated as of 5:00 p.m. on the day prior
to the Closing Date, Seller agreeing to have all meters read within five (5)
days of the Closing Date, and Seller shall be responsible for utility charges up
to the Closing Date and Buyer shall be responsible for the period on and
following the Closing Date. Seller shall use reasonable efforts to transfer all
utilities to Buyer's name as of the Closing Date and to receive a direct bill
from the provider of utilities. Any unfixed water meter charges and any unfixed
sewer rents based thereon shall be apportioned on the basis of the rate of
consumption indicated by the most recent meter reading applied to the
intervening period since such reading, with a reapportionment as soon as the
actual bills become available. The obligations of the Parties with respect to
any such reapportionment shall survive the Closing;
10.1.5 Insurance. Buyer shall obtain its own insurance and no
---------
adjustment shall be made for any premiums which may have been paid by Seller for
any period following the Closing Date. Any refunds for prepaid premiums made to
Seller shall belong to Seller;
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10.1.6 Permits. All charges and fees paid by Seller for
-------
Permits for any period following the Closing Date shall be apportioned, and
Seller shall receive a credit for any amounts paid for any period following the
Closing Date;
10.1.7 Deposits Held by Others. The amount of any deposits
-----------------------
held by utilities, financial institutions and other persons or entities made by
Seller, if any, shall remain Seller's sole property and Buyer shall make such
deposits from Buyer's funds as Buyer deems necessary; and
10.1.8 Other Expenses. All other unbilled expenses as of the
--------------
Closing Date, or expenses pre-paid by Seller for a period beyond the Closing
Date, which arise out of the existence, use, ownership, occupancy, operation
and/or maintenance of the Assets shall be pro-rated between the Parties as of
the Closing Date.
ARTICLE 11
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BROKERS' COMMISSION
-------------------
11.1 Commission. Each Party represents and warrants to the other that,
----------
no real estate broker or agent has been used, consulted, or retained by such
Party in connection with this Agreement or the Assets. Each Party agrees to
indemnify the other Party against all liability for compensation, commissions,
finder's, or other fees (including reasonable attorney's fees and costs of court
but specifically excluding original or renewal commissions with respect to any
Leases) attributable to this Agreement or the Assets which are alleged to be due
by the authorization or on account of the actions of the indemnifying Party.
11.2 Superseding Agreement. When this Agreement has been signed by the
---------------------
Parties and by Brokers, the provisions of this Article 11 shall supersede the
provisions of all other agreements, written or oral, including, without
limitation, listing, management, sales, leasing commission, and marketing
agreements, between Brokers and either Party relating to the Assets. Brokers
acknowledge and agree that all such other agreements are null and void and of no
further force and effect, and Brokers hereby release and discharge the Parties
to such other agreements from all liability thereunder.
ARTICLE 12
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NOTICES
-------
12.1 Notices. All notices, consents, approvals and other
-------
communications provided for herein or given in connection herewith shall be
validly given, made, delivered or served if in writing and delivered personally
against receipt, or sent by registered, certified mail, receipted overnight
service, postage prepaid or by telefax delivery to:
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SELLER AT: RAGS III
2 Fox Place
Newton Centre, MA 02159
Attention: Gary Sable
Telephone: (617) 332-6105
Telecopier: (617) 332-6105
WITH A COPY TO: Paul J. McNamara, Esquire
Masterman, Culbert & Tully
One Lewis Wharf
Boston, MA 02110
Telephone: (617) 227-8010
Telecopier: (617) 227-2630
BUYER AT: Rule Industries, Inc.
70 Blanchard Road
Burlington, MA 01803
Attn: John A. Geishecker, Jr.,
Vice President
Telephone: (617) 272-7400
Telecopier: (617) 272-0920
WITH A COPY TO: Robert L. Birnbaum, Esquire
Foley, Hoag & Eliot
One Post Office Square
Boston, MA 02109
Telephone: (617) 482-1390
Telecopier: (617) 482-7347
TITLE COMPANY AT: Lawyers Title Insurance Corporation
225 Franklin Street, Suite 3010
Boston, MA 02110
Attention: James T. Sabaitis, Esquire
Telephone: (617) 451-2500
Telecopier: (617) 451-9258
or to such other addresses as either Party hereto may from time to time
designate in writing and deliver to the other Party in a like manner. Notices,
consents, approvals and communications given by mail, delivery service or
telefax delivery shall be deemed delivered as of the date of postmark, deposit
with an overnight delivery service or delivery by telefax.
ARTICLE 13
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INDEMNIFICATION
---------------
13.1 Indemnification by a Party. When one Party agrees to indemnify
--------------------------
the other Party pursuant to this Agreement, the indemnifying Party, at its sole
cost and expense, agrees to indemnify, keep indemnified, defend, and hold the
indemnified Party harmless (including, without implied limitation, its officers,
directors,
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agents, contractors, employees, representatives, attorneys, successors and
assigns) from and against any and all obligations, undertakings, contractual
responsibilities, income or other tax obligations due pursuant to the Code or
applicable state tax laws/regulations, claims, demands, actions, causes of
action, legal proceedings, audits, investigations, damages, losses, liabilities,
fees (including reasonable and necessary attorney's fees), costs (including
costs of court), penalties, interest and expenses (each an "Obligation") in any
way or manner whatsoever attributable to any action, conduct, omission, or
failure to act by the indemnifying Party, or any employee, agent, attorney,
officer, director, independent contractor, licensee, invitee, or any other
Person or entity whatsoever acting or allegedly acting for or on behalf of the
indemnifying Party, with respect to the matter(s) being indemnified against,
including, without limitation, those due to personal injury or death.
13.2 Seller's Indemnity. Seller hereby covenants and agrees to
------------------
indemnify Buyer against (i) liability with respect to the breach of any warranty
or representation of Seller herein, and (ii) any Obligation alleged or claimed
by any Person (not a Party) arising out of the existence, use, ownership,
occupancy, operation and/or maintenance of the Assets, occurring or relating
prior to the Closing Date for which Seller would have been liable to such
Person, absent the provisions of this Agreement, including, without limitation
and subject to the foregoing:
13.2.1 Contracts. Any Obligation arising prior to the Closing
---------
Date with respect to any Contract and under all other obligations, undertakings,
contracts, agreements and writings entered into, by or on behalf of Seller in
respect to the existence, use, ownership, occupancy, operation and/or
maintenance of the Assets or any portion thereof; and
13.2.2 Property Taxes. Any Obligation for payment of Property
--------------
Taxes due, assessed and payable arising for any period of time prior to the
Closing Date; and
13.2.3 Personal Injury. Any Obligation arising out of an
---------------
accident, injury, death or damage whatsoever caused to any person or entity, or
loss of property occurring prior to the Closing Date in or about the Real
Property or Improvements or any part thereof, or on any other property connected
with or adjacent thereto; and
Seller further agree, upon notice from Buyer, to contest any demand, claim,
suit, or action against which Seller have hereinabove agreed to indemnify and
hold Buyer harmless with counsel satisfactory to Buyer and to bear all costs and
expenses of such contest and defense. Seller's indemnity obligations under this
Section 13.2 shall survive the Closing.
13.3 No Third Party Beneficiary - Limited Liability of Seller. Except
--------------------------------------------------------
for the Parties and their respective heirs, successors, legal representatives,
and assigns, no person or entity has any rights or benefits under this
Agreement, and no person or entity is a third party beneficiary of this
Agreement. The maximum liability of Seller in any way or manner whatsoever
attributable to this Agreement, the Assets, the Condition of the Assets, or
Seller's relationship with Buyer shall be limited to Seller's interest in the
Assets, if any, at the time any such liability is established, and Buyer hereby
waives, releases, discharges, and abandons all other rights, interests, claims,
demands, actions, causes of action, and liabilities whatsoever.
13.4 Buyer's Indemnity. Buyer hereby covenants and agrees to indemnify
-----------------
Seller against (i) liability with respect to the breach of any warranty or
representation of Buyer herein, and (ii) any Obligation alleged or claimed by
any Person (not a Party) arising out of the existence, use, ownership,
occupancy, operation and/or maintenance of the Assets following the Closing Date
for which Buyer would have been liable to such Person, absent the provisions of
this Agreement, including, without limitation and subject to the foregoing:
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13.4.1 Property Taxes. Any Obligation for payment of Property
--------------
Taxes arising from any period of time following the Closing Date;
13.4.2 Personal Injury. Any Obligation arising out of an
---------------
accident, injury, death or damage whatsoever caused to any person or entity, or
loss of property occurring following the Closing Date in or about the Real
Property or Improvements or any portion thereof, or on any other property
connected with or adjacent thereto; and
13.4.3 Hazardous Materials. Any Obligation arising out of the
-------------------
presence of any Hazardous Materials in, on or about the Assets (not in
compliance with applicable laws, rules or regulations).
Buyer further agrees, upon notice from Seller, to contest any demand, claim,
suit, or action against which Buyer has hereinabove agreed to indemnify and hold
Seller harmless with counsel satisfactory to Seller, and to bear all costs and
expenses of such contest and defense. Buyer's obligations under this Section
13.4 shall survive the Closing.
ARTICLE 14
----------
DEFAULT/REMEDIES
----------------
14.1 Buyer's Default. The Parties hereby acknowledge and agree that
---------------
Seller's damages in the event of a breach of this Agreement by Buyer's refusal
to consummate this Agreement would be difficult or impossible to determine. The
Parties therefore agree that Seller's right to retain Seventy-five Thousand and
00/100 Dollars ($75,000.00) of the Deposit as liquidated damages (together with
attorney's fees, if any, as provided pursuant to Section 14.3) shall be Seller's
sole remedy at law or in equity in the event the Closing does not occur by
reason of a breach of this Agreement by Buyer. The balance of the Deposit,
Forty-five Thousand and 00/100 Dollars ($45,000.00) shall be retained as an
additional security deposit under the Extended Lease.
14.2 Seller's Default. The Parties hereby acknowledge and agree that
----------------
if, for any reason, Seller is unable or unwilling to perform its obligations
under this Agreement at the time and in the manner required herein, or if Seller
shall be in default of any obligation under this Agreement, Buyer may, at
Buyer's option, by written notice to Seller, terminate this Agreement, whereupon
Buyer shall be entitled to an immediate refund of the Deposit, which is to be
retained by Seller as an additional security deposit under the Extended Lease,
whereupon this Agreement shall be deemed null and void and without further
recourse to either Party hereto.
14.3 Attorney's Fees. In the event either Party hereto finds it
---------------
necessary to bring an action at law or other proceeding against the other Party
to enforce or interpret any of the terms, covenants or conditions hereof or any
instrument executed pursuant to this Agreement or by reason of any breach or
default hereunder or thereunder, the Party prevailing in any such action or
proceeding shall be paid all costs, including reasonable attorney's fees.
14.4 No Waiver. No delay in exercising any right or remedy shall
---------
constitute a waiver thereof, and no waiver by Seller or Buyer of the breach of
any covenant of this Agreement shall be construed as a waiver of any preceding
or succeeding breach of the same or any other covenant or condition of this
Agreement. No extension of time for performance of any obligation or act shall
be deemed an extension of the time for performance of any other obligation or
act.
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ARTICLE 15
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MISCELLANEOUS
-------------
15.1 Buyer's Purchase. This Agreement is intended to satisfy any and
----------------
all requirements of Article 24, Section 24.01 of the Extended Lease.
15.2 Entire Agreement. This Agreement contains the entire agreement
----------------
between the Parties concerning the Assets. This Agreement supersedes all prior
and contemporaneous oral and written representations, warranties, covenants and
agreements by or between the Parties with respect to the Assets.
15.3 Time is of the Essence. Time is of the essence in the performance
----------------------
of each Party's respective obligations hereunder.
15.4 Saturday, Sunday, and Legal Holidays; Times. If any date for the
-------------------------------------------
performance of any matter under this Agreement (including the date for the
giving of Notice and the date on which any Notice is deemed to have been
received, pursuant to Article 11 hereof) falls on a Saturday, Sunday, or legal
holiday observed by national banks in Boston, Massachusetts, then such date
shall be extended to the next calendar day that is not a Saturday, Sunday, or
such legal holiday. All references herein to a particular time on a particular
date refer to the local time (daylight or standard) in the city where the
Closing is to occur.
15.5 Presumption Concerning Interpretation and Construction. Although
-------------------------------------------------------
the first draft of this Agreement was prepared by counsel for Seller, the
Parties and their respective counsel have reviewed and participated in the
drafting of the final form of this Agreement. Accordingly, in the event of any
conflict or ambiguity in the provisions of this Agreement, there shall be no
presumption in favor of either Party with respect to the interpretation or
construction hereof.
15.6 Articles/Section Headings. The headings of the various Sections
-------------------------
in this Agreement are for the convenience of the Parties and do not alter,
modify, or limit the provisions thereof and shall not be used in construing or
interpreting the provisions thereof.
15.7 Non-recordation. Buyer shall not file or record this Agreement or
---------------
any evidence or memorandum of this Agreement in any public records. A violation
of this provision shall constitute a default by Buyer hereunder.
15.8 Waivers; Modifications. No delay on the part of a Party in
----------------------
exercising any rights or remedies hereunder shall operate as a waiver thereof,
nor shall any specific waiver by a Party of any right or remedy hereunder
operate or be construed as a waiver of any other right or remedy hereunder nor
shall any single or partial exercise of any right or remedy hereunder preclude
any other or further exercise thereof, or the exercise of any other right or
remedy hereunder (unless the provisions of this Agreement which establish any
such right or remedy provide otherwise). No waiver of any right or remedy
hereunder shall be valid or enforceable unless in writing and signed by the
Party against whom such waiver is sought to be enforced. No modification of this
Agreement shall be effective unless in writing, signed by the Parties.
15.9 Governing Law; Venue. This Agreement has been negotiated,
--------------------
executed, and delivered in the Commonwealth of Massachusetts, is intended to be
performed wholly in the Commonwealth of Massachusetts, and the substantive laws
of the Commonwealth of Massachusetts (without reference to choice of law
principles) shall govern the interpretation and enforcement of this Agreement.
Any court action brought to interpret or
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enforce any provision(s) of this Agreement, or otherwise relating to or arising
from this Agreement, shall be commenced and maintained only in the District or
County Court (whichever court has amount-in-controversy jurisdiction) of Essex
County where the Real Property is located, and each of the Parties irrevocably
consents to exclusive jurisdiction and venue in such court for such purposes.
15.10 Materiality. Each of Buyer and Seller's representations,
-----------
warranties, covenants, agreements, waivers, and releases set forth herein are
material and have been relied on by Buyer and Seller, respectively, in entering
into this Agreement.
15.11 Relationship of Parties. Nothing contained in this Agreement
-----------------------
shall be deemed or construed by any Party, person, or entity as creating any
relationship of principal and agent, of partnership, of joint venture, or of any
association whatsoever between the Parties. No provision of this Agreement and
no act or failure to act of the Parties shall be deemed to create any
relationship between the Parties other than the relationship of a vendor and a
vendee.
15.12 Number of Gender of Words. Whenever any number singular or
-------------------------
plural) is used herein, the same includes and applies to any one or more
thereof, and to each thereof, jointly and severally, and words of any gender
include each other gender.
15.13 Counterparts. This Agreement is executed in multiple
------------
counterparts, each of which is an original, but all of which constitute but one
and the same document. The signatures of each of the Parties, the Title Company
and the Brokers may appear on multiple separate signature pages.
ARTICLE 16
----------
DEFINITIONS
-----------
Agreement. This Asset Purchase Agreement dated as of the Effective
---------
Date by and between Seller and Buyer.
Assets has the meaning given in Section 1.2.
------
Bill of Sale has the meaning given in Section 9.2.2.
------------
Buyer means Rule Industries, Inc., a Massachusetts corporation.
-----
Casualty has the meaning given in Section 8.2.
--------
Closing Date/Closing has the meaning given in Section 9.1.
--------------------
Code means the Internal Revenue Code of 1986, as the same may be
----
amended from time to time, and as interpreted in Treasury Regulations adopted or
promulgated thereunder.
Commission has the meaning given in Section 11.1.
----------
Condition of the Assets has the meaning given in Section 4.1.
-----------------------
Consent has the meaning given in Section 5.1.3.
-------
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Contracts has the meaning given in Section 1.2.5.
---------
Conveyance Documents has the meaning given in Section 9.2.8.
--------------------
Deed has the meaning given in Section 9.2.1.
----
Deposit has the meaning given in Section 2.2.1.
-------
Deposits has the meaning given in Section 1.2.5.
--------
Effective Date means the latest date of execution of this Agreement by
--------------
the Parties as set forth opposite each Party's signature.
Environmental Laws has the meaning given in Section 4.1.3.
------------------
Hazardous Materials has the meaning given in Section 4.1.3.
-------------------
Improvements has the meaning given in Section 1.2.2.
------------
Inspection Period has the meaning given in Section 3.1.
-----------------
Leases has the meaning given in Section 1.2.4.
------
Obligation has the meaning given in Section 13.1.
----------
Owner's Policy has the meaning given in Section 3.1.1.
--------------
Party means, individually Seller or Buyer or collectively, as the
-----
Parties.
Permits has the meaning given in Section 10.1.6.
-------
Permitted Encumbrances. Collectively, the following matters affecting
----------------------
or otherwise encumbering the Assets:
(a) Provisions of existing building and zoning laws.
(b) Such Property Taxes as are not due and payable on the Closing
Date; and
(c) Easements, restrictions and agreements of record which (i) do not
interfere with the existing use and operation of the Real Property and
Improvements as an industrial and manufacturing facility, (ii) are not violated
by any of the Improvements, and (iii) do not grant to third parties any right to
acquire all or any part of the Assets or require the removal, alteration or
relocation of any of the Improvements; and
(e) Leases.
Person means a natural person, partnership, limited partnership,
------
corporation, trust, estate, association, unincorporated association or other
entity, other than a Party.
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Personal Property means, collectively, all tangible personal property
-----------------
of every kind and nature owned by Seller, located in or upon the Assets, and
used in connection with the existence, use, ownership, occupancy, operation
and/or maintenance of the Assets (excluding cash, checks, charge slips and other
negotiable instruments), including, without limitation:
(a) all office equipment, furniture, fixtures and furnishings
including, without limitation, all carpeting, movable partitions and lighting
fixtures, and objects; and
(b) all operating machinery and equipment, whether or not affixed to
the Real Property, including, without limitation, all electrical vaults and
conduits, heating and air conditioning facilities and equipment (including heat
pumps, oil burners, incinerators, furnaces and other fuel-burning devices), air
intake and exhaust systems, electrical generators, lighting and alarm systems,
elevators and compressor systems, laundry and dry-cleaning facilities, all
plumbing and sanitary disposal systems (including septic or leaching systems, if
any), all inventories of replacement and/or spare parts, all maintenance,
equipment, tools and machinery, and all manuals and instructional materials
associated therewith.
Property Taxes means, collectively, all taxes, assessments, charges
--------------
and liens by any federal, state, local or municipal authority, municipality,
board or agency with the power to tax, assess, lien or charge against the Real
Property or any portion thereof, or against Seller, the default in payment of
which may result in a lien against the Real Property or any portion thereof or
against the owner of the Assets, including, without limitation, water and sewer
taxes and municipal assessments and betterments, taxed, assessed or levied
against all or any portion of the Real Property.
Purchase Price has the meaning given in Section 2.1.
--------------
Real Property has the meaning given in Section 1.2.1.
-------------
Real Property Documents has the meaning given in Section 3.1.3.
-----------------------
Rents has the meaning given in Section 1.2.4.
-----
Seller means RAGS III, a general partnership.
------
Survey has the meaning given in Section 3.1.2.
------
Taking has the meaning given in Section 8.5.
------
Tenants has the meaning given in Section 1.2.4.
-------
Title Commitment has the meaning given in Section 3.1.1.
----------------
Title Company means Lawyers Title Insurance Corporation, Boston,
-------------
Massachusetts.
Title Objections has the meaning given in Section 3.1.3.
----------------
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EXECUTED in multiple original counterparts on the date written below
the respective signatures of the Parties.
SELLER:
------
RAGS III
October 18, 1995 By: /s/ Gary M. Sable
- ------------------ --------------------------------
Effective Date Gary M. Sable, General Partner,
hereunto duly authorized
BUYER:
-----
RULE INDUSTRIES, INC.
October 18, 1995 By: /s/ John A. Geishecker, Jr.
- ------------------ --------------------------------
Effective Date John A. Geishecker, Jr.,
Vice President,
hereunto duly authorized
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Exhibit 1.2.1
-------------
Gloucester Property Description
-------------------------------
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Exhibit 1.2.4
-------------
Lease dated 11/25/85
--------------------
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Exhibit 9.2.2
-------------
Bill of Sale
------------
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Exhibit 9.2.3
-------------
Assignment and Assumption of Leases
-----------------------------------
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Exhibit 9.3.4
-------------
Buyer's Closing Certificate
---------------------------
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SETTLEMENT AGREEMENT
This Settlement Agreement is made this day of November, 1995, by
and among William Anastos ("Anastos"), John A. Geishecker, Jr. ("Geishecker"),
Gary Sable ("Sable"), Henry G. Libby ("Libby"), Rule Industries, Inc., a
Massachusetts corporation ("Rule"), and Greenfield Industries, Inc., a Delaware
corporation ("Greenfield").
RECITALS:
A. Rule has entered into an Agreement and Plan of Merger (the "Merger
Agreement"), dated as of August 11, 1995, with Greenfield and Rule Acquisition
Corp., a wholly-owned subsidiary of Greenfield ("RAC"), pursuant to which RAC
will be merged (the "Merger") with and into Rule and Greenfield will become the
sole stockholder of the surviving corporation.
B. The parties desire to address certain unresolved issues.
NOW, THEREFORE, in consideration of the mutual covenants and
agreements contained herein and for good and valid consideration and intending
to be legally bound hereby, the parties to this Agreement hereby agree as
follows:
1. On the effective date of the Merger (the "Effective Date"),
Anastos and Greenfield will enter into the Disclosure Agreement attached hereto
as Exhibit A.
2. On the date of execution of this Agreement, Rule's Board of
Directors will accelerate all of the currently unvested nonqualified stock
options held by Anastos. Anastos agrees to surrender to Rule for cancellation
all unexercised stock options prior to the Effective Date and will be deemed to
have exercised such options immediately prior to the Effective Date. As a
result, on the Effective Date Anastos will become entitled to a payment for each
option share equal to the difference between $15.30 per share and the exercise
price set forth in the relevant option and will be eligible to participate in
the liquidating trust that will be established on or prior to the Effective Date
on the basis of his ownership of the shares deemed issued upon exercise of such
options as well as all other shares of Rule owned by Anastos.
3. Anastos agrees to purchase, and Rule agrees to cause Rule
International, Inc. to sell to Anastos, immediately following the Effective
Date, the airplane owned by Rule International, Inc. for aggregate consideration
in cash or by certified check or $135,000 plus the outstanding amount owed as of
November 17, 1995 under the loan secured by a mortgage on such plane to United
Jersey Bank ($522,839 in principal as of November 17, 1995).
4. On the date of execution of this Agreement, Rule will transfer to
Anastos for no additional consideration all of its right, title and interest in
and to the two automobiles, being a Jaguar and a Corvette, currently used by
Anastos, free and clear of any encumbrances, obligations and liens.
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5. On the date of execution of this Agreement, Rule will enter into
the agreement with Telemarketing Services Center, Inc. ("TSC") attached hereto
as Exhibit B. In connection with the transition in telemarketing services
contemplated by such agreement, Anastos will, upon the request of Rule following
the Merger, act as coordinator to resolve any issues or disputes that may arise
during such transition.
6. On the date of execution of this Agreement, Geishecker, Sable and
Anastos Will enter into an amendment of the partnership agreement of RAGS III, a
Massachusetts general partnership ("RAGS III"), in the form attached hereto as
Exhibit C, in order to extend the term of the agreement to June 30,1996. In
addition, Anastos, Geishecker, Sable and Greenfield agree that they will take
all action necessary to permit the sale of all right, title and interest in and
to the real property held by RAGS III to Rule as soon after the Effective Date
as practicable at a price of $2,400,000 pursuant to a purchase and sale
agreement dated October 18, 1995. Anastos, Geishecker and Sable agree that
promptly following the consummation of the sale of such property, they will take
all action necessary to dissolve and liquidate RAGS III and will use their best
efforts to distribute the net assets of RAGS III to the partners within thirty
days after such sale.
7. Anastos will remain on fully paid leave of absence as the
president of Rule until the Effective Date, at which time Anastos will tender
his written resignation as the president and a director of Rule.
8. Anastos hereby represents that all the shares of Rule stock in
which he has any legal or beneficial interest are identified on Schedule I
attached hereto (the "Shares"). On the date of execution of this Agreement,
Anastos shall execute and deliver to Rule, as Greenfield's representative, the
proxy attached hereto as Exhibit l) (the "Proxy") and shall cause every other
person or entity who has legal title to any of the Shares to execute and deliver
on such date a proxy with respect to such Shares in substantially the same form
as the Proxy. Anastos will neither take nor permit any action that shall prevent
him or any other record holder of any of the Shares from holding good legal
title to such Shares, free and clear of all encumbrances, at all times from the
date of this Agreement until the Effective Date. In the event that the Merger
Agreement is terminated and/or this Agreement is terminated pursuant to
paragraph 20 hereof, Rule shall promptly return all proxies delivered pursuant
to this Paragraph to the persons or entities who executed them.
9. Rule, Greenfield, Geishecker, Sable and Libby for themselves and
their respective parent corporations, divisions, subsidiaries, affiliates,
predecessors, heirs, successors, administrators, executors, assigns, officers,
directors, shareholders, employees, attorneys, agents and representatives,
hereby, release and forever discharge Anastos and his heirs, successors.
assigns, administrators, executors, attorneys, agents and representatives from
any and all causes of action, demands, covenants, contracts, agreements, sums of
money, damages, debts, accounts, liabilities, attorneys' fees, and claims of
every name and nature, known and unknown, arising or which may have existed from
the beginning of the world to this date, but excluding any claims arising
directly out of Anastos's obligations under this Agreement and the use of funds
and assets of RAGS II, a Massachusetts partnership ("RAGS II") and RAGS III
unless
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directly related to the good faith operation, management and administration of
RAGS II and RAGS III.
10. Anastos for himself individually and for his heirs, successors,
administrators, executors, assigns, attorneys, agents and representatives,
hereby releases and forever discharges Rule, Greenfield, Geishecker, Sable and
Libby and their respective parent corporations, divisions, subsidiaries,
affiliates, predecessors, heirs, successors, assigns, administrators, executors,
past, present and future officers, directors, shareholders, employees,
attorneys, agents and representatives from any and all causes of action,
demands, covenants, contracts, agreements, sums of money, damages, debts,
accounts, liabilities, attorneys' fees, and claims of every name and nature,
known and unknown, arising or which may have existed from the beginning of the
world to this date, but excluding any claims arising directly out of the
obligations of Rule, Greenfield, Geishecker and Sable under this Agreement, the
obligation of RAGS III under the S400,000 promissory note to Rule assigned by
Rule to Anastos and the use of funds and assets of RAGS II and RAGS III unless
directly related to the good faith operation, management and administration of
RAGS II and RAGS III.
11. This Agreement shall be effective as a full and final accord and
satisfaction of all matters released by paragraphs 9 and 10 hereof. Rule,
Greenfield, Geishecker, Sable, Anastos and Libby acknowledge that they may
hereafter discover facts in addition to or different from those that they now
know or believe to be true with respect to the subject matter of this
Agreement, that it is their intention hereby fully, finally and forever to
settle and release all released matters and that, in furtherance of such
intention, the releases given herein shall be and remain in effect
notwithstanding the discovery or existence of any such additional or different
facts.
12. Should any provision of this Agreement be declared or determined
by any court to be illegal or invalid, the validity of the remaining parts,
terms or provisions shall not be affected thereby and said illegal or invalid
part, term or provision shall be deemed not to be a part of this Agreement.
13. This Agreement shall be binding upon, and inure to the benefit
of, the parties hereto and their respective successors and assigns and
paragraphs 9 and 10 hereof shall inure to the benefit of the persons and
entities referred to therein.
14. Neither this Agreement nor any provision or part hereof shall
constitute, or be construed as, an admission of liability by any party hereof.
15. This Agreement supersedes all prior agreements and
understandings, oral or written, between the parties hereto and constitutes the
entire agreement between them as to the subject matter hereof.
16. This Agreement shall be governed by, and construed and enforced
in accordance with, the laws of The Commonwealth of Massachusetts without
regard to its principles of conflicts of laws.
-3-
<PAGE>
17. This Agreement may not be modified or amended orally.
18. This Agreement may be executed in one or more counterparts, each
of which when so executed shall be deemed to be an original, and all such
counterparts shall constitute one and the same instrument.
19. The Liquidating Trust Agreement, the Indemnification Agreement and
the Disston Arbitration Agreement in the forms attached hereto as Exhibit E with
such changes as shall be made in good faith in response to written comments from
the Securities and Exchange Commission shall be executed by all parties thereto
immediately prior to the effective time of the Merger.
20. This Agreement shall be null and void if the Merger does not occur
on or before March 31, 1996.
-4-
<PAGE>
NOW, THEREFORE, the parties hereto have executed this Agreement under
seal effective as of the date first above written.
RULE INDUSTRIES, INC.
Witness: [Signature appears here]
----------------------------
By: [Signature appears here]
-----------------------------
Date: 11/20/95 Title:
-------------------------------
GREENFIELD INDUSTRIES, INC.
Witness: [Signature appears here] By: /s/ Paul W. Jones
---------------------------- -----------------------------
Date: 11/20/95 Title: PRESIDENT & CEO
-------------------------------
Witness: [Signature appears here] /s/ William N. Anastos
---------------------------- -------------------------------
Date: 11/20/95 William N. Anastos
-------------------------------
Witness: [Signature appears here] /s/ John A. Geishecker, Jr.
---------------------------- -------------------------------
Date: 11/20/95 John A. Geishecker, Jr.
-------------------------------
Witness: [Signature appears here] /s/ Gary Sable
---------------------------- -------------------------------
Date: 11/20/95 Gary Sable
-------------------------------
Witness: [Signature appears here] /s/ Henry G. Libby
---------------------------- -------------------------------
Date: 11/20/95 Henry G. Libby
-------------------------------
-5-
<PAGE>
This Amendment No. 1, dated as of November 21, 1995, is made and
entered into by and among Greenfield Industries, Inc., a Delaware corporation
("Parent"), Rule Acquisition Corporation, a Massachusetts corporation and a
wholly owned subsidiary of Parent ("Sub"), and Rule Industries, Inc., a
Massachusetts corporation ("Rule"), and amends the Merger Agreement referred to
below.
WHEREAS, Parent, Sub and Rule previously have entered into a Merger
Agreement dated as of August 11, 1995 (the "Merger Agreement");
WHEREAS, Section 12.5 of the Merger Agreement provides that the Merger
Agreement shall not be altered or otherwise amended except pursuant to an
instrument in writing signed by each of Parent, Sub and Rule; and
WHEREAS, Parent, Sub and Rule now wish to amend the Merger Agreement
as provided herein;
NOW, THEREFORE, Parent, Sub and Rule hereby agree as follows:
SECTION 1. Definitions. Capitalized terms used and not defined in this
-----------
Amendment No. 1 shall have the respective meanings given to such terms in the
Merger Agreement.
SECTION 2. Amendments. Sections 11.1(b), (c) and (d) of the Merger
----------
Agreement are hereby amended and restated in their entirety as follows:
"(b) by Parent at any time after the date which is one hundred fifty (150)
days from the date of this Agreement if any of the conditions provided for
in Article VIII of this Agreement shall not have been met or waived prior
to such date;
"(c) by Rule at any time after the date which is one hundred fifty (150)
days from the date of this Agreement if any of the conditions provided
for in Article IX of this Agreement shall not have been met or waived
prior to such date;
"(d) at any time prior to the Effective Time by either Parent or Rule if
the Merger shall not have been consummated by January 31, 1996."
SECTION 3. Counterparts. This Amendment No. 1 may be executed in any
------------
number of counterparts, each of which will be deemed an original, but all of
which together will constitute one and the same instrument.
<PAGE>
SECTION 4. Governing Law. This Amendment No. 1 shall be governed by
-------------
and construed in accordance with the Laws of the Commonwealth of Massachusetts,
without giving effect to the conflicts of laws principles thereof.
SECTION 5. Merger Agreement Remains in Effect. Except as provided
----------------------------------
herein, all provisions, terms and conditions of the Merger Agreement shall
remain in full force and effect. As amended hereby, the Merger Agreement is
ratified and confirmed in all respects.
IN WITNESS WHEREOF, the parties hereto have caused this Amendment No.
1 to be executed and delivered by their duly authorized officers as of the day
and year first above written.
GREENFIELD INDUSTRIES, INC.
By:/s/ Paul W. Jones
------------------------
Name: Paul W. Jones
Title: President & CEO
RULE ACQUISITION CORPORATION
By:/s/ Gary L. Weller By:/s/ Paul W. Jones
-------------------------- --------------------------
Name: Gary L. Weller Name: Paul W. Jones
Title: Treasurer Title: President
(SEAL)
RULE INDUSTRIES, INC.
By: /s/ Gary M. Sable By: /s/ John A. Geishecker, Jr.
-------------------------- ----------------------------
Name: Gary M. Sable Name: John A. Geishecker, Jr.
Title: Vice-President Title: Vice-President
(SEAL)
2
<PAGE>
[LOGO APPEARS HERE]
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Registration
Statements on Form S-8 (No.33-82402) and Form S-3 (No. 33-82458) of Rule
Industries, Inc. of our report dated October 27, 1995, except for Note 5, which
is as of November 30, 1995 appearing on page F-1 of the Annual Report on Form
10-K of Rule Industries, Inc. for the fiscal year ended August 31, 1995. We also
consent to the incorporation by reference of our report on the Financial
Statement Schedule, which appears on page F-21 of this Form 10-K.
----
/s/ Price Waterhouse LLP
PRICE WATERHOUSE LLP
St. Louis, Missouri
October 27, 1995
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<FISCAL-YEAR-END> AUG-31-1995
<PERIOD-START> SEP-01-1994
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